Biofrontera Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 15, 2024

There are 6 speakers on the call.

Operator

Good day, and welcome to the Biofrontera Inc. 2nd Quarter 20 24 Financial Results and Business Update Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Operator

I would now like to turn the conference over to Andrew Barwicki. Please go ahead.

Speaker 1

Thank you. Good morning, and welcome to Biofrontera's Q2 fiscal year 2024 financial results and business update conference call. Please note that certain information discussed during today's call by management is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that Biofrontera's management will be making forward looking statements and that actual results may differ materially from those stated or implied by these forward looking statements due to risks and uncertainties associated with the company's business. All risks and uncertainties are detailed in and are qualified by the cautionary statements contained in Biofrontera's press releases and SEC filings.

Speaker 1

Also, this conference call contains time sensitive information that is accurate only as of the date of this live broadcast, August 15, 2024. Biofrontera undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances after the date of this conference call, except as required by law. During today's call, there will be references to certain non GAAP financial measures. Biofrontera believes that these measures provide useful information for investors, yet should not be considered as a substitute for GAAP, nor should they be viewed as a substitute for operating results determined in accordance with GAAP. A reconciliation of non GAAP to GAAP results is included in this week's press release.

Speaker 1

More specifically, management will be referencing adjusted EBITDA, a non GAAP financial measure defined as net income or loss, excluding interest income and expense, income taxes, depreciation and amortization and certain other non recurring or non cash items. With that said, I'm pleased now to turn the call over to Herman Louvert, CEO, Chairman and Founder of Biofrontera. Herman?

Speaker 2

Yes. Thank you, Andrew, and my thanks to everyone joining us this morning. On today's call, I'll provide an overview of our accomplishments during the Q2 and first half of twenty twenty four. Fred Leffler, our CFO, will follow with a discussion on financial results and then both of us will be happy to answer questions after our prepared remarks. Starting with the business update, we have made tremendous progress across 3 critical areas including 1, 1st and foremost, our sales approach.

Speaker 2

Increasing sales during the Q2 and first half of the year has been accomplished. We grew our sales by 34% for the quarter. In Q2, we managed to compensate the negative influence of the reimbursement challenges stemming from the change healthcare cybersecurity event and the consecutive sales decline in Q1, achieving a little over 8% growth compared to 2023 for the half year. 2, managing our total operating expenses. For example, during the Q2 of 2024, total operating expenses were $12,900,000 compared to $14,500,000 in the Q2 of last year.

Speaker 2

Another example relates to our SG and A expenses where in Q2 this year, the SG and A was $7,900,000 dollars compared to $11,600,000 last year 3, strengthening our balance sheet by paying down all outstanding debt in the 2nd quarter. I believe these three simple yet significant accomplishments on the commercial side of the company have enhanced our day to day operations and put us in a position for long term growth. Together with the rise of gross $8,000,000 in May from exercised warrants, the company is in a stable financial condition. The second quarter was also a very anticipated time for us as we began to sell the FDA approved ROADOLED XL lamp. Keep in mind, sales only began on June 10th, which is the end of the quarter, but we feel very optimistic about the potential as we continue rolling it out and making it available to all our customers.

Speaker 2

It is important to understand the benefits for doctors and patients as we look to increase sales. The BF Rodolat XL Lamp is designed to facilitate the treatment of extended photodamaged skin areas with actinic keratosis, which may require several illuminations with the original small BF ROADOLAD lamp. While Ameluz makes up most of our revenue, we are also proud to announce that in addition to the initial ROADOLAD XL lamp sales, 57 of the original BF ROAD lamps were placed at physician offices during the first half of the year compared to 52 in the same period last year. The growing number of lamps in the field reflects both first time installations and additional lamps among dermatology practices already familiar with Ameluz PDT, facilitating growth through new and existing customers. Although we are very pleased with some reductions in costs such as SG and A and total operating expenses, we continue to invest in our commercial and support teams by increasing a sales force focused organization to invest in marketing, strategic accounts, medical and reimbursement support.

Speaker 2

We believe this approach will increase Ameluz purchases by the doctors' offices, which then need unproblematic patient treatment and reimbursement to make this process financially viable for them. Although the Rodolad XL lamp began selling at the end of the quarter, which means sales were minimal, it is important to understand the benefits for patients as we look to increase cells. The Odelel XL is for the treatment of extended photodamaged skin areas with actinic keratosis. To eliminate restrictions on reimbursement for the use of more than one tube of Ameluz in a single treatment, a 3 tube Phase 1 safety study was completed and the data was submitted to the FDA and accepted for review. We expect to get FDA approval for including the use of up to 3 tubes per treatment into the Ameluz label during Q4 of 'twenty four.

Speaker 2

In combination with the launch of the XL LAMP, this will allow PDT of larger skin areas, constituting a crucial requirement for our further growth. As previously announced, the U. S. Food and Drug Administration, the FDA, has approved a new formulation of Ameluz lacking propylene glycol for the treatment of actinic keratosis. First batches with this formulation have now reached the market.

Speaker 2

The formulation will improve tolerability for some of our patients, while also reducing the generation of impurities over time, which may result in an extended shelf life. Between all our patents currently granted by the U. S. Patent Office, PDT with Ameluz and vivoradolat is currently protected until 2,040. A patent application for the new formulation is still pending and may extend the protection of our products until 2,043 or even further.

Speaker 2

A transforming event for our company was the successful renegotiation of our license and supply agreement for Ameluz and Randelez lamps in February. According to the agreement, we purchased Ameluz and the lamps from the German Biofrontera Pharma and upon arrival in the United States, we pay a percentage of our anticipated net sales price for Ameluz and the actual cost of manufacturing plus 10% for the lamps. The cost of Ameluz has in the new LSA been reduced to almost half of what we have paid thus far. This will become effective when we order new batches, which we did not have to do in the first half of this year due to an overstacking situation by the end of 2023. However, we will need to purchase more Ameluz in the second half of the year.

Speaker 2

Only then will the beneficial effects of the new LSA become effective, lowering our cost of Ameluz from about 50% to 25% of our net sales price for all orders in 2024 2025. On June 1, we transferred all clinical research with Ameluz from Biofrontera Bioscience to our wholly owned German subsidiary Biofrontera Discovery. While all our clinical trials are performed at centers in the U. S, the trials will nevertheless be organized and managed out of Biofrontera discovery. We are planning to complete all ongoing trials and in parallel decide on new trials based on maximum commercial benefit for Biofrontera Inc.

Speaker 2

3 ongoing trials are close to completion. The last patient and the 1 year follow-up period for a Phase 3 trial for superficial basal cell carcinoma will be complete in November or December. This time point provides the data required for FDA approval for this new indication for Ameluz. Enrollment in a Phase 3 study for actinic keratosis on the extremities, neck and trunk and a Phase 2 trial for moderate to severe acne is expected around the turn of the year. Currently, the extremity study is 69% enrolled, the ARCHANA trial is 78%.

Speaker 2

As the cost savings due to the renegotiated LSA have not started, but we consume the cost of the clinical trials since June, we will for a few months have an increased burn rate until the reduced cost of goods balances dissolved towards the end of the year. With that, I'll turn the call over to Fred to walk through the financial details of the second quarter and first half.

Speaker 3

Thank you, Herman, and it's great to be talking to everyone again. I'll start with our strong Q2 2024 results. Total revenues for the Q2 of 2024 were $7,800,000 compared with $5,800,000 for the Q2 of 2023, which is a 30 4% increase year over year. The increase is due in part to a catch up from lower sales in the Q1 driven by reimbursement challenges stemming from the Change Healthcare Cybersecurity event, but also due to our effort to increase productivity of the sales force. Total operating expenses were $12,900,000 for the Q2 of 2024 compared with $14,500,000 for the Q2 of 2023.

Speaker 3

Cost of revenues was $4,300,000 for the Q2 of 2024 compared with $2,900,000 for the prior year quarter. The increase was driven by increased sales and the volume associated with that. Selling, general and administrative expenses were $7,900,000 for the Q2 of 2024 compared with $11,500,000 for the Q2 of 2023. The decrease was due to our continued efforts to control costs and lower legal expenses compared to the same period in 2023. The net loss for the Q2 of 2024 was $257,000 compared with a net loss of $9,800,000 for the prior year quarter.

Speaker 3

The decrease in the net loss is attributed to lower selling, general and administrative costs as well as changes in non cash P and L items including fair value of warrants and investments in related parties. Adjusted EBITDA for the Q2 of 2024 was negative $4,700,000 compared with negative $7,900,000 for the Q2 of 2023 reflecting our lower selling, general and administrative costs. As Andrew mentioned, we look at adjusted EBITDA, a non GAAP financial measure, as a better indication of ongoing operations and this measurement is defined as net income or loss, excluding interest income, expense, income taxes, depreciation and amortization and certain other non recurring or non cash items. I'll refer you to the table in the news release or 10 Q we issued yesterday for a reconciliation of GAAP to non GAAP financial measures. Now I'll summarize our first half twenty twenty four results.

Speaker 3

Total revenues were $15,800,000 for the first half of twenty twenty four compared with $14,600,000 for the first half of twenty twenty three. This 8% increase was primarily driven by continued penetration and adoption of PBT within the AK markets. Total operating expenses were $26,300,000 for the first half of twenty twenty four compared with $28,800,000 for the first half of twenty twenty three. Cost of revenues increased from the prior year to $8,500,000 for the 1st 6 months of 2024 compared to $7,500,000 for the first half of twenty twenty three, again due to our increased volume. Selling, general and administrative expenses decreased to $17,200,000 from $21,400,000 in the prior year, again primarily as we see benefits of continued cost control efforts and lower legal expenses compared to the first half of twenty twenty three.

Speaker 3

The net loss for the first half of twenty twenty four was $10,700,000 compared with a net loss of $17,300,000 for the first half of twenty twenty three. Adjusted EBITDA was negative $9,300,000 for the first half of twenty twenty four compared with negative $11,900,000 for the first half of twenty twenty three. Again, please refer to the table in our 10 Q for a reconciliation of between GAAP and non GAAP financial measures. Okay. Now turning to our balance sheet as of June 30, 2024, we had cash and cash equivalents of $4,400,000 compared with $1,300,000 as of December 31, 2023.

Speaker 3

We have been focusing on account receivable collections and improving our collection process. Along with the expected summer seasonality of our business, we have reduced our AR from $5,200,000 as of December 31, 2023 to $3,500,000 as of June 30, 2024. As of July 10, we have extinguished our short term debt obligation as well. We are continuing to burn through our inventory that Herman mentioned a moment ago and we expect to have sold through this excess inventory in the next few months. As I mentioned before, we will hold safety stock, but at a lower amount, which is within typical industry standards.

Speaker 3

Following an Ameluz recall in the Q1, which was outside of our responsibility, we have received the 3 batches of replacement inventory in July from our supplier at no cost to us. In May, our stockholders approved to increase our authorized common shares to 35,000,000. Upon the stockholder approval, the redemption rights and preferred liquidation rights were eliminated for the Series B preferred and any remaining B1 preferred stock and any remaining B1 preferred stock automatically converted to Series B2 preferred stock. As a result of these changes to the rights and preferences, all Series B convertible preferred stock was reclassified from mezzanine to permanent equity. On May 13, 14, 2024, 7,998 preferred warrants were exercised to purchase shares of the company's B3 convertible preferred stock from which net proceeds were $7,400,000 As a result of the Series B convertible preferred stock reclass to permanent equity along with the warrant exercise, our shareholders' equity increased to $10,900,000 as of June 30, 2024.

Speaker 3

Finally, I would like to comment on our capital structure and walk you through what management considers to be the fully diluted common share total. As of August 12, we had 5,500,000 common shares outstanding. The B1 and B3 convertible preferred shares could convert to 17,700,000 common shares. Our warrants, if exercised, would equate to 2,300,000 common shares. I will note that of these warrants, 77,000 warrant shares are significantly out of the money with a strike price of $100 The more recent warrants all have a strike price of $3.55 and equate to 2,200,000 common shares if exercised.

Speaker 3

Finally, common shares converted by awards under our omnibus plan total 1,800,000 common shares if all awards are realized and exercised. As such, management believes our fully diluted common is approximately 27,300,000 shares. So with that overview of our business and recent financial performance, Herman and I are now ready to take questions from our covering analysts. Operator?

Operator

We will now begin the question and answer session. The first question comes from Jonathan Astra with Roth. Please go ahead.

Speaker 4

Thank you. Good morning, guys. I was curious if I could just drill down on a quarter for sales of each type of lamp, the Q2 and so far in this quarter. Can you give me four numbers each type of lamp, how many you placed 2nd quarter and so far in the third quarter?

Speaker 2

In the Q2, we placed 67 of the original lamps and we placed in the last weeks of June, we shipped 4 of the XL lamps. We haven't published anything on the Q3.

Speaker 4

That's no problem. Thank you. What will be the price hike percentage on October 1?

Speaker 3

Price increase for amylose will be 5%.

Speaker 4

5%. Thank you. And by the way, for the acne and the AK extremity trials, do you still expect to publicly release data when you originally said in mid-twenty five and second half twenty twenty five respectively for acne and AK? Is that still holding?

Speaker 2

Yes, it will be second half of twenty twenty five for both of them.

Speaker 4

Okay. That's very helpful. So when will the royalty savings from the renegotiated LSA become higher than the costs of the trials? When does that whole LSA redo turn positive for you, do you think?

Speaker 3

Yes. So that's obviously attached to our ordering of inventory, which we will start to do in the Q4 of 2024. And then depending on when the shipments come in and everything either late Q1 or early Q2, we'll sort of lift and have more savings than we've spent on the clinical trials.

Speaker 4

Okay. And lastly, is there any update on the timing of that low cost portable lamp development? Or even what has just happened irrespective of timing?

Speaker 2

Well, we are nearing a first prototype And after that, we have to go into a more formal development according to design control rules of the FDA.

Speaker 4

All right. That's all that I had. Thank you very much.

Speaker 2

Thanks, Jonathan.

Operator

The next question comes from Bruce Jackson with The Benchmark Company. Please go ahead.

Speaker 5

Hi, good morning and thank you for taking my questions. I wanted to look at the sales numbers for the quarter in a little bit more detail. Generally, the second quarter is seasonally a little bit weaker than the rest of them. And I'm kind of curious to know, with the ordering patterns, how much of the results in the quarter were a rebound because of the Change Health incident? And how much of that is organic growth?

Speaker 5

And then the second part of that question would be looking forward, how do you expect the rest of the year to play out in terms of seasonality?

Speaker 2

I think most of the rebound we had in April. So, we can consider that the May June already have more or less a normal month. And in all three months, we had significant growth compared to last year. So, I would if I had to guess, I would think this is really a guess. We can't give you any real numbers on this.

Speaker 2

But at most half is a rebound effect.

Speaker 5

Okay. And then in terms of the R and D spend going forward, is that going to what's the run rate on the R and D expense going to be, do you think, for the next couple of quarters?

Speaker 3

Yes, Herman, I can take that. So we're expecting to spend a couple of so we took over clinical trials on June 1, as Herman mentioned. And as far as the run rate here, we were expecting 2 point spending about $2,400,000 or so this year in R and D spend.

Speaker 5

So that's for the entire year?

Speaker 3

That is correct.

Speaker 5

From June 1. So then we'd be looking at okay, I got it.

Speaker 3

And then lastly, we have, I would say, maybe $1,000,000 each quarter. I think as of right now, we believe it's going to be smooth, but but that does depend on the recruiting and if there's a pop there, etcetera. So, but we do think that it's over the next 6 months, it'll be somewhere in that ballpark. Okay.

Speaker 5

And then you mentioned the data from the AKCE and the ACME trials sorry, the extremity in the ACME trials in the second half. With the basal cell carcinoma, are you going to be releasing data on that as well?

Speaker 2

Yes. We will release we expect to be able to release data from the clinical trial clinical part of the BCC trial still this year and then the follow-up part in the first half of next year.

Speaker 5

Okay. All right, great. That's it for me. Thank you.

Speaker 2

Thank you, Wuss.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Herman Lueber for any closing remarks.

Speaker 2

Yes. Thank you, operator. The second quarter and first half of the year has been a thriving and very encouraging time for us with a significant growth in our revenues. I would like all of you to participate in this call and I would also take the opportunity to thank all our employees for the tremendous effort that went into this progress. We look forward to speaking with you again when we report our Q3 2024 results.

Speaker 2

Thank you and have a nice day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Biofrontera reported Q2 revenue of $7.8 million, up 34% year-over-year, and first-half revenue of $15.8 million, an 8% increase versus 2023, driven by stronger sales force execution and recovery from reimbursement disruptions.
  • Total operating expenses in Q2 declined to $12.9 million from $14.5 million a year ago, with SG&A down to $7.9 million from $11.6 million, reflecting disciplined cost management and lower legal fees.
  • The company extinguished all outstanding debt in Q2 and enhanced its balance sheet with approximately $8 million in net proceeds from warrants, closing June 30 with $4.4 million in cash and reduced accounts receivable.
  • In June, Biofrontera launched the FDA-approved BF ROADOLAD XL lamp and expects a Q4 2024 label expansion to permit up to three tubes of Ameluz per treatment, enabling efficient therapy of larger photodamaged skin areas.
  • A renegotiated license and supply agreement will cut Ameluz cost of goods from ~50% to ~25% of net sales on new H2 2024 orders, poised to materially boost gross margins once inventory replenishment occurs.
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Earnings Conference Call
Biofrontera Q2 2024
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