Biofrontera - Q2 2023

Transcript

Operator (participant)

Good morning, everyone, and welcome to the Biofrontera Inc. second quarter 2023 financial results and business update conference call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's prepared remarks, there will be an opportunity to ask questions. To ask your question, you may press star and then one on your telephone keypad. To withdraw your questions, you may press star and two. Please also note today's event is being recorded, and at this time, I'd like to turn the floor over to Tirth Patel with LHA Investor Relations. Please go ahead.

Tirth Patel (Alliance Advisors Investor Relations)

Good morning, and welcome to Biofrontera Inc.'s second quarter 2023 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. This conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, August 11, 2023.

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 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 morning's press release. More specifically, management will be referring to 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, I would now like to turn the call over to Hermann Luebbert, CEO, Chairman, and Founder of Biofrontera. Hermann?

Hermann Luebbert (CEO, Chairman, and Founder)

Yeah, thank you, Tirth, and my thanks to everyone joining us this morning. On today's call, I'll provide an overview of our growth strategy and our accomplishments during the second quarter that helps lay the groundwork for many value-driving initiatives. Fred Leffler, our CFO, will follow with a discussion on financial results, and then both of us will be available to answer questions. Starting with the business update, we have made tremendous progress across three critical areas, including expanding our sales force, optimizing our cost structure, and advancing R&D and clinical initiatives. Regarding sales, I would like to commend the team as we announce net revenue of $5.8 million, a 31% increase for the quarter year-over-year.

While Ameluz makes up the vast majority of the revenue, we are proud to also share that 55 BF-RhodoLED lamps were placed at physician offices during the quarter, more than twice the number a year ago. The growing number of lamps in the field reflects both first-time installations and adding lamps among dermatologists already familiar with Ameluz PDT. More specifically, of the 55 installations, approximately 20 sites already had one lamp in place and bought a second lamp to provide more Ameluz PDT to the patients. The remaining, about 35 offices, are now set up to start Ameluz via RhodoLED PDT. Clearly, lamp placements are a proxy for future growth, and we are delighted with the increasing recognition of Ameluz PDT as an effective and patient-friendly treatment for actinic keratosis. During last quarter's call, we introduced our strategy for growing the sales team.

We had achieved our goal of reaching 40 members. Subsequent to growing the sales force, we have also grown the medical and, with a new focus, reimbursement support. On today's call, I'll share some of the strategic shifts in our approach and how we intend to best utilize and support our sales force. To compensate for new strategic hirings, we have reduced the workforce in other parts of the business. Certain metropolitan regions have consistently shown high sales results and great potential. To maintain a leaner and more strategic path of optimizing for growth, we are adopting a more surgical approach to our sales strategy. We will be channeling more resources, both in terms of human capital and medical affairs and reimbursement support initiatives, into metropolitan sales territories that have demonstrated higher revenue potential.

This includes enhanced training for our existing sales teams in these, in these areas, expanded marketing campaigns, and a potential increase in the number of sales representatives down the road. On the flip side, for regions that have been generating comparatively lower revenues and a lower return on invested assets, we have decided not to extend our sales teams or build out new territories, and in certain cases, we have redeployed those resources to areas with greater opportunity. This shift is being driven by data and optimizes our marketing spend. By being smarter and more intentional with our sales efforts, we are able to recalibrate our strategy if needed, and ensure that we stay agile and responsive to market demands. By homing in on high, high-value methods, we can achieve better growth towards profitability. During Q2, we made the difficult decision to implement a small reduction in force.

The reduction was centered primarily around roles less crucial to our current phase of growth. This decision was driven by the necessity to streamline our operations and to reduce costs. However, while we took a step back in certain areas, we simultaneously took two steps forward in others, such as bolstering higher revenue-generating positions. By dialing in these adjustments, we have positioned Biofrontera to be leaner and more agile, with a rising focus on driving revenues. Let me turn now to the innovation and R&D taking place at Biofrontera. A key value driver is our portfolio of active label expansion studies for Ameluz. Just yesterday, we announced that enrollment of all 186 patients is now complete, and the phase III clinical study evaluating Ameluz PDT in combination with BF-RhodoLED for the treatment of superficial basal cell carcinoma or sBCC.

Approximately two-thirds of non-melanoma skin cancer cases in the U.S. are BCC, leading to a significant unmet medical need for more effective, less invasive, and cost-efficient therapies that treat BCC as well as underlying pre-malignancies without ionizing radiation. We look forward to sharing results from this phase III study in mid-2024. Adding sBCC to the label of Ameluz will allow doctors, in addition to treating individual sBCC lesions, to include these lesions in the treatment of larger sun-damaged fields with Ameluz BF-RhodoLED PDT, as it is currently approved for actinic keratosis. It is the next logical step in our goal to offer one field-selected treatment for all sun-induced neoplastic damage in larger skin areas. Regarding expanding the Ameluz label within actinic keratosis, there is a large and growing demand for a highly effective therapy to treat AK beyond the face and scalp.

We have an ongoing phase III study evaluating the use of Ameluz PDT in the extremities, neck, and trunk, currently enrolling, and have dosed 58 patients across 10 centers. We aim to enroll a total of 156 subjects, stratified by body region. Lastly, after the final patient completed the clinical phase of the study, we are currently analyzing results from our open-label, multicenter, phase I safety and tolerability study, investigating three tubes of Ameluz per treatment. This safety study has the potential to be the final study required for FDA approval for the three-tube treatment. Results will be available very soon, as we remain on track for an FDA submission before year-end.

As most of you are aware, our PDT lamps, BF-RhodoLED and RhodoLED XL, are remarkable solutions in dermatology, and the only red lights approved by the FDA for use in photodynamic therapy. However, the current infrastructure for PDT is mostly fixed and limited to dermatology clinics or specialized facilities. Recognizing the constraints posed by the stationary nature of current PDT lamps and the growing demand for flexibility in treatment locations, in June, we announced the acquisition of two granted U.S. patents and the engagement of a contract manufacturer to develop a new, low-cost, portable PDT lamp. The prototype is now under development and aims to deliver the quality of the RhodoLED lamps in a new and more accessible form, designed with both the physician and the patient in mind.

The lamp is designed to be compact and lightweight, enabling easy storage and allowing clinicians to bring the lamp to the patient. Its portability allows it to be an option at physicians' offices with space constraints, for mobile dermatology clinics, and for reaching remote or underserved areas. The portable lamp will furthermore extend our reach to more dermatologists and more offices. From a sales perspective, it allows our sales team to give live demonstrations at physicians' offices. Being portable, a lamp can be transported in the back of a car or be presented easily at conferences. Our portable PDT lamp embodies Biofrontera's commitment to innovative solutions that prioritize care and expand access. I look forward to keeping you updated during the development process.

As final example of our commitment to patient care and innovation, during the second quarter, we were granted a new patent related to a PDT protocol that is expected to be less painful, but equally as effective. With an incubation between application of the gel with exposure to light, with a wavelength spectrum similar to sunlight, followed by a 10-minute, by 10 minutes of red light illumination, this novel protocol is far more patient-friendly. This is the fourth patent protecting Ameluz, granted by the U.S. Patent Office in the last 18 months, and it expires in April 2039. Friendlier protocols will help to enable high-efficacy PDT for more patients, and R&D will boost access to PDT. We look forward to providing updates on all these programs and more later this year. With that, I turn the call over to Fred to walk through the financial details of the quarter. Fred?

Fred Leffler (CFO)

Thank you, Hermann. Net revenue was $5.8 million for the three months ended June 30th, 2023, an increase of $1.4 million, or 31%, over the prior year. For the first six months, net revenue was $14.6 million, compared to $14.2 million last year. This growth was driven by higher Ameluz volumes, due largely to our sales force expansion and higher adoption of Ameluz by dermatologists, even with an absence of any buy-in impact due to a price increase. As a reminder, in 2022, we increased the price for Ameluz by 5% on April 1st, causing dermatologists to accelerate some of their purchases into Q1.

We have not raised the price of Ameluz in 2023; thus, revenues in Q2 2023 were not impacted by any such actions, we are still ahead of our 2022 revenues, indicating strong growth and, you know, a solid second half of the year. Total operating expenses were $14.5 million for the second quarter of 2023, compared with $10.7 million for the second quarter of 2022, $28.7 million year to date, compared with $23.5 million for the first six months of last year. The cost increase of $5.2 million was driven by approximately $3 million due to our sales force expansion and increased investment in medical affairs and reimbursement, along with some severance costs as we pivoted resources to more revenue-generating roles, as Hermann mentioned.

Approximately $1.7 million of the increase was due to one-time legal fees from a settlement of litigation in the first half of 2023. Cost of revenue for the quarter was $2.9 million, which was about 13% higher than the second quarter last year, and reflects higher sales of Ameluz. Cost of revenue for the first six months was $7.5 million, compared with $7.7 million last year. Selling, general, and administrative expenses were $11.5 million for the quarter, up approximately 15%. For the first six months of this year, SG&A expenses were $21.4 million, compared with $17.7 million in the first six months of 2022.

As I mentioned, the increase was primarily driven by realigning SG&A costs into revenue-generating functions, the expansion of our sales force, and also includes the non-recurring legal expenses. The net loss for the 2Q of 2023 was $9.8 million, or $7.23 per share, and this compares with a net loss of $850,000, or $0.90 per share, for the prior year quarter. I will note that these figures are on a post-split basis. Net loss for the first 6 months of 2023 was $17.3 million, compared with a net income of $4.7 million for the first 6 months of 2022, which was primarily a result of the change in the fair value of outstanding warrants.

As net income or loss comprises multiple non-cash items, we refer to Adjusted EBITDA for a better representation of the business's status. Adjusted EBITDA was -$7.9 million for the quarter, compared with -$7.1 million last year. The decrease was driven by higher SG&A costs, partially offset by increased revenues. Adjusted EBITDA for the first six months of the year was -$11.8 million, compared to $9.5 million during the same period in 2022. I refer you to the table in the news release we issued earlier this morning for reconciliation of GAAP to non-GAAP financial measures. Turning to our balance sheet, as of June thirtieth, we had cash and cash equivalents of $4.5 million, compared with $17.2 million as of December thirty-first of 2022.

Aside from operations, we have spent more on inventory in 2023 than I would like. Due to some lingering supply chain concerns into early 2022, we increased inventory orders in 2023. We are not anticipating making any inventory purchases for the first half of 2024 as a result, and we will continue to manage our working capital very closely. Based on the quarter's strong results, we are on track to hit our previously announced goals. With an optimized sales force able to produce higher returns, along with label expansion opportunities advancing on track, we are affirming our 2023 financial guidance.

With the strongest months for PDT ahead of us, and based on multiple positive indicators for the year so far, we expect at least 25% growth in revenue compared with 2022, and expect to be cash flow positive within approximately one and a half years. With that overview of our business and recent financial performance, Hermann and I are now ready to take questions from our covering analysts. Operator?

Operator (participant)

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and one. To withdraw your questions, you may press star and two. Our first question today comes from Jonathan Aschoff from Roth MKM. Please go ahead with your question.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Thank you, guys, and good morning. Sorry if you've mentioned this in the call. I'm juggling three calls myself. Did you update acne and trunk extremity enrollment? Or if you did not, can you or repeat it?

Hermann Luebbert (CEO, Chairman, and Founder)

We, we updated enrollment of the trunk and, and extremities, and that, that, study has enrolled by now, 58 patients. We did not update the acne enrollment, and I would have to look at that for a few minutes. Maybe if you go on with the questions, I'll-

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Yes, Hermann, I can buy you that time by asking a financial question. The SG&A, how is, how is that going to look to the best that you can, you know, that you're comfortable giving? you know, that was a decent top, second quarter. How much of that is one-time stuff?

Fred Leffler (CFO)

One time, I, I don't have that number off of, off of the top of my head, the, i.e., the severance. The run rate savings, that's excluding the increase in sales force, is expected to be about $1.8 million, you know, after the, the, you know, severance is cleared out and we hire one more position that we were in the reimbursement area.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay. It could be a little, a little more than, say, $10 million a quarter. Something like that, maybe.

Fred Leffler (CFO)

Maybe a little less than $10 million a quarter.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay. All right. Even better. Do you think the third quarter sequentially goes up, given that there was no 1Q price hike? Do you think that is something that will facilitate a bit more smooth revenue-?

Fred Leffler (CFO)

Yeah.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

than you've had in prior years?

Fred Leffler (CFO)

Yes, we are expecting the third and fourth quarter to be, to be higher.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Hopefully the fourth quarter is substantially higher.

Fred Leffler (CFO)

Yes.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

That should be a very strong bit of growth. Hermann, if you still want some more time, I can ask.

Hermann Luebbert (CEO, Chairman, and Founder)

I will.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Did you, did you lose any-?

Hermann Luebbert (CEO, Chairman, and Founder)

I can give you the number.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay. For acne, what is it?

Hermann Luebbert (CEO, Chairman, and Founder)

It's 56 out of 126.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Thank you very much. The 58 patients of trunk extremities out of how many wanted?

Hermann Luebbert (CEO, Chairman, and Founder)

165.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

165. Great. My last question is, did you guys lose any of the people you hired when you hired that bolus of sales and marketing people?

Hermann Luebbert (CEO, Chairman, and Founder)

We, we always have, like every company, we have a certain turnover, turnover of people, but not higher than other companies. We are pretty much on the average of companies of our kind, and we did not specifically lose people when we realigned the sales regions. No.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay. That's all I have. Thank you very much.

Hermann Luebbert (CEO, Chairman, and Founder)

Thanks.

Operator (participant)

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

Bruce Jackson (Senior Analyst)

Good morning, thank you for taking my questions. I wanted to get back to the seasonality in sales, just so I understand this correctly. Now, with the price increase you were talking about, is it this year or next year that you're not taking the price increase?

Fred Leffler (CFO)

Hi, Bruce. We have not taken a price increase since April 1st of, 2022. We are evaluating, you know, when we should do that and what that should be.

Bruce Jackson (Senior Analyst)

Okay. When we're looking at the back half of this year, will it follow that, that standard pattern where the fourth quarter is the, the biggest quarter of the year? Because.

Fred Leffler (CFO)

Yeah

Bruce Jackson (Senior Analyst)

... in the past, sometimes you had the forward buying in anticipation of the price increase in the following year.

Fred Leffler (CFO)

Yeah.

Bruce Jackson (Senior Analyst)

I'm just trying to kind of get my arms around this.

Fred Leffler (CFO)

Understood. If there is some sort of a price increase, we would expect to see significant, significant buy-in of, as we mentioned, that happened in the March, late February, early March of 2022. Typically business goes up in the third and fourth quarter naturally as well. Like I said, we're evaluating different scenarios as far as the price increase goes. Regardless, we expect the third quarter and fourth quarter to have significant growth.

Bruce Jackson (Senior Analyst)

Okay, good. That's, that's helpful. I, I wanted to just congratulate you on getting the BCC trial enrolled. That's been a major, major ordeal for you. Nice to have that complete. Can you help, help me understand how the pieces are gonna come together with this approval? You said that the next step is, is field treatment with the BCC lesions included. Do you have to get a separate label for that? Or with the data that you have now from this trial, can you immediately go to doing the field therapy with the different lesion types?

Hermann Luebbert (CEO, Chairman, and Founder)

We have field therapy with Ameluz in the label already for the actinic keratosis . What it basically means is that we can, if we have a piece of skin, an area of skin with several actinic keratosis lesions, then we can treat that entire area, but not, not only the diseased spots. We can basically treat healthy skin, assuming that maybe under that healthy skin, there are other things hiding that are not yet visible. That's, that's what we have in the label. Getting BCC approval, what that means is that if one of these areas, which is heavily sun-damaged, has multiple AKs and other sun damage, cosmetic sun-damage, maybe, if that also has superficial BCCs, then they can be treated along with the field treatment that we provide to the patient. We do not need field treatment specifically for BCC.

Bruce Jackson (Senior Analyst)

Okay. Then, when we get the three tube data submitted, then, theoretically then, sometime, if that's end of the year, then, it's pretty much all systems are go for the, the field treatment in 2024 and getting that out to the physicians.

Hermann Luebbert (CEO, Chairman, and Founder)

Yes. The 3 tube is important, has been, has been holding us back since a number of years, the fact that we can only do 1 tube. With this as the final study, if we get that into the label towards the middle of next year, this should be a big jump in, in, in sales, actually.

Bruce Jackson (Senior Analyst)

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

Operator (participant)

Ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Hermann for any closing remarks.

Hermann Luebbert (CEO, Chairman, and Founder)

Yeah, thank you all for those questions. Thank you to all the listeners. To summarize, I am very encouraged by the so- strong sales growth we have delivered this past quarter and the increase in the number of BF-RhodoLED lamp installations. As mentioned, we remain on track to grow revenues by 25% this year, driven primarily by Ameluz sales and the maturing sales force. We look forward to speaking with you again when we report our third quarter 2023 results. Thank you, and have a nice day.

Operator (participant)

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.