Biofrontera - Q3 2023

Transcript

Operator (participant)

Welcome to the Biofrontera Inc. third quarter 2023 financial results and business update conference call. All participants will be 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 presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Tirth Patel with LHA Investor Relations. Please go ahead.

Tirth Patel (VP of Investor Relations)

Good morning, and welcome to Biofrontera Inc.'s third 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. Also, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, today, November 10th, 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 they 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 yesterday afternoon's press release. 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, amortization, and certain other non-recurring or non-cash items. With that said, I would now like to turn the call over to Hermann Luebbert, Chairman, CEO, and Founder of Biofrontera. Hermann?

Hermann Luebbert (Chairman, CEO, and Founder)

Yeah. Thank you, sir, and many thanks to everyone joining us this morning. On today's call, I'll provide an update on Biofrontera's growth strategy and detail how improvements to our organization have positively impacted the top and bottom line. Fred Leffler, our CFO, will follow with a discussion of our Q3 financial results, and we'll conclude with questions and answers. During the third quarter of 2023, we continued to execute on our strategy to optimize our organization. This initiative has been transformative for the company. We have shifted resources and cost from administration to sales, sales training, marketing, medical, and reimbursement support. Specifically, we increased the size of our sales force by nearly 30%, and this not only expanded our coverage to four territories, but also brought over 140 years of healthcare and dermatology experience into our ranks.

Furthermore, we grew our medical liaison team to seven, working alongside sales on medical education. Lastly, we initiated building an in-house field reimbursement team, helping doctors' offices on-site to solve issues they may face with reimbursement, and we increased our staff for sales training. The investment in our commercial organization is a cornerstone of our growth strategy and our path towards becoming a cash flow, cash flow positive. It is an ongoing effort in any commercial organization to find the optimal balance between sales and sales support for the respective state of the organization, and we have made significant adaptations this year, which we believe drove our revenue growth. This expansion has been crucial for continued education of dermatologists and patients about actinic keratosis and the many benefits of treatment with AMELUZ's PDT. With the expansion, we significantly improved our reach in strategic accounts across the United States.

The key elements of our strategy include the following. First, expanding our U.S. sales of AMELUZ in combination with the RhodoLED lamps for the treatment of actinic keratosis on the face and scalp, and positioning AMELUZ to be the standard of care by growing our dedicated commercial and medical infrastructure. Second, leveraging the potential of future FDA approvals and label extensions of our portfolio products. And third, opportunistically adding complementary product to our portfolio to leverage our established commercial infrastructure and strong customer relationships. Under our sales strategy, we have focused on certain metropolitan regions that have consistently shown greater potential, and we have been successful in generating higher sales from those territories. We have boosted both human capital and medical affairs support in those territories. Our commercial infrastructure was recently fortified by the addition of Samantha Widdicombe as Senior Director, Strategic Accounts and Communications.

We made this hire in response to the growing demand and opportunity for specialized sales and marketing approaches for the ongoing consolidation of medical practices into larger, integrated organizations. These large organizations have very specific needs and expectations, and we have been successful in securing large and durable contracts that contributed to Biofrontera selling approximately 28,000 tubes of AMELUZ in the third quarter, up from about 13,000 units in the third quarter of 2022. This growth drove our third quarter revenue to $8.9 million, which represents a 106% increase from the third quarter last year. Our sharp year-over-year revenue increase is also driven in part by this year's AMELUZ price increase.

As with many other industries, we are facing higher costs in many areas of our company, yet the Q3 price increase was our first in 18 months. Our October 1, 5% price increase caused some dermatologists to accelerate their purchases of AMELUZ into the third quarter. As we look to the future, Biofrontera stands at an inflection point. Our expanded commercial organization is well positioned to accelerate growth and continue our market share gains. As an example of our growing market share for AMELUZ PDT and PDT in general, compared to cryo, we onboarded significantly more physician offices throughout the country with the capabilities for field therapy to treat AK. Field therapy is an important medical need for treating AK, and AMELUZ is the only PDT drug approved for that by the FDA.

Year to date, we shipped a record 101 BF-RhodoLED lamps as of September 30th, reflecting a 180% increase over the prior year period, including to many offices where we installed a BF-RhodoLED for the first time. These outcomes underscore the effectiveness of our enhanced sales strategy, and we are confident that our strategic investments will yield long-term benefits for our stakeholders. Innovation is at Biofrontera's core, and I'm proud of our work in advancing key label expansion, clinical trials for AMELUZ, and also of the formulation of AMELUZ in itself.

Following a four-year research project together with our partner, Biofrontera Bioscience, approval was recently received from the FDA for a new formulation that eliminates potential risks of propylene glycol, an ingredient found in multiple semisolid formulations, that we have replaced due to exhibiting allergic potential and chemically reacting with other components, causing certain contaminants to accumulate over time. This new formulation improves the safety profile and stability of AMELUZ, and we are planning to implement this change in all U.S. AMELUZ production in 2024. This updated formulation also positively impacts our patent protection. A patent application was filed to protect the new formulation, and if it's granted, protection for AMELUZ could be extended until at least 2043. Let me now turn to more innovation and R&D taking place at Biofrontera together with our partners.

A key value driver is the potential to capture additional growth from the portfolio of the active label extension studies for AMELUZ, conducted together with Biofrontera Bioscience. In August, we announced positive top-line results from the non-randomized, open label, multicenter Phase I study, evaluating the safety and tolerability of three tubes of AMELUZ, demonstrating the treatment was generally well tolerated, and treatment-emergent adverse events were consistent with the U.S. prescribing information for one tube. There are benefits of treatment with three tubes for both physicians and patients, because of the ability to treat a larger surface area while potentially requiring fewer office visits. With no additional safety or tolerability issues, the findings of this safety study and an earlier pharmacokinetic study will be submitted to the FDA in the course of this month.

These safety studies have the potential to be the final studies required by FDA for approval of the three-tube treatment, and we expect to hear back from the FDA by June 2024, which is approximately six months after submission. We also announced that enrollment of all 186 patients is now complete in the Phase III clinical study, evaluating AMELUZ in combination with BF-RhodoLED for the treatment of superficial basal cell carcinoma or sBCC. Approximately 2/3 of non-melanoma skin cancer cases in the U.S. are BCC, leading to a significant unmet medical need for more efficacious, cost-effective, and less invasive therapies to treat BCC, together with underlying pre-malignancies without ionizing radiation. We look forward to sharing results from this Phase III study in mid-2024. In addition to treating individual sBCC lesions-...

Adding this indication to the label of AMELUZ will allow physicians to include sBCC lesions into the treatment of larger sun-damaged fields with AMELUZ PDT, as it is currently approved for actinic keratosis. This is the next logical step in our goal to offer one field-selected treatment for all sun-induced neoplastic skin damage over larger surface areas. Regarding expanding the AMELUZ label within actinic keratosis, there is a large and growing demand for a highly effective therapy to treat actinic keratosis beyond the face and scalp. Together with Biofrontera Bioscience, we have an ongoing Phase III study evaluating the use of AMELUZ PDT in the extremities, neck, and trunk that's currently enrolling. To date, 72 patients have been dosed, with the aim to enroll 165 subjects stratified by body region.

Lastly, a Phase II study is actively recruiting for the treatment of moderate to severe acne with AMELUZ. Here, 65 of 126 patients have been dosed to date. Treatment of moderate to severe acne without the side effects of current treatment options is a significant unmet medical need in a major indication that dermatologists see, and an approval in this indication will substantially raise the market potential for AMELUZ. As a final topic, I would like to update you on where we stand with our second FDA-approved prescription drug, XEPI. This is a topical cream that inhibits bacterial growth. Currently, no antibiotic resistance against XEPI is known, and it has been approved by the FDA for the treatment of impetigo, which is a common skin infection due to Staphylococcus aureus and Streptococcus pyogenes.

There has been very limited revenue from XEPI to Biofrontera for some time, as problematic developments with the third-party manufacturer that was providing our supply have resulted in delays to our commercialization of the product. Our licensor, Ferrer, has been developing a new manufacturer, which now allows us to actively explore the options with this product, including a potential relaunch of the drug in early 2024. With that, I'll turn the call over to Fred to review the financial details of the quarter. Fred?

Fred Leffler (CFO)

Thank you, Hermann, and good morning, everyone. It's good to be chatting here and, you know, looking at a strong third quarter, beating our estimates. Starting with the top line, net revenue for the three months ended September 30th, 2023 was $8.9 million, an increase of $4.3 million, or about 106% over the prior year. For the first nine months of 2023, net revenue was $23.5 million, up from $18.5 million last year. This growth was driven by the commercial expansion that Hermann described, increased adoption by dermatologists, and buy-in ahead of a price increase for AMELUZ on October 1st.

Operating expenses were $13.5 million for the third quarter of 2023, compared with $8 million for the third quarter of 2022. The $5.2 million increase included approximately $3 million due to our commercial expansion, increased investment in medical affairs and reimbursement, along with some severance as we pivoted resources to more revenue-generating roles. And of course, the addition and the increase of cost of revenue, which I'll touch on in a moment. Year-to-date operating expenses were $42.3 million, and this compares with $31.5 million for the first nine months of last year.

About $2.2 million of this increase was due to legal fees, primarily from settlement of litigation in the first half of 2023, along with severance expenses in the commercial expansion that's mentioned earlier, and the increased cost of revenue. So moving to cost of revenue. For the third quarter, it was $4.6 million, compared to $2.2 million last year, which reflects the higher sales of AMELUZ. Cost of revenue for the first nine months was $12.1 million, compared to $9.9 million last year. SG&A expenses were $8.7 million for the third quarter of 2023, compared with $7.9 million for the third quarter of 2022, with the increase primarily driven by higher personnel costs due to the commercial expansion, severance, and some legal expense.

The net loss for the third quarter was, sorry, the net loss for the third quarter of 2023 was $6.3 million, or $4.64 per share, and this compares with a net loss of $2.6 million, or $2.26 per share, for the prior year quarter. I will note that these figures are on a split-adjusted basis. Net loss for the first nine months of 2023 was $23.7 million, compared with net income of $2.1 million for the first nine months of 2022. As net income or loss comprises multiple non-cash items, I'll refer you to, or we refer to, the adjusted EBITDA as a clearer reflection of the business's status.

Adjusted EBITDA was -$3.9 million for the quarter, compared with -$5 million last year. The decrease was primarily driven by increased revenues, partially offset by higher SG&A expense. Adjusted EBITDA for the first nine months of the year was -$15.8 million, compared with -$4.1 million during the same period in 2022. I refer you to the table in the press release that was issued yesterday afternoon for a reconciliation of GAAP to non-GAAP financial measures. Turning to our balance sheet, as of September 30th, 2023, we had cash and cash equivalents of $3.4 million, compared with $17.2 million as of December 31st, 2022. In addition, we had a $3.3 million investment in shares of Biofrontera AG as of September 30th.

Subsequent to the close of the quarter, we raised $4.5 million in a registered direct offering priced at the market. As we'll end the year with a significant stock of inventory, we are not anticipating making any inventory purchases for at least the first half of 2024 and 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 the seasonally strongest quarter ahead of us, which is fourth quarter. And based on multiple positive indicators, such as lamp placements that Hermann mentioned, we expect revenue for the full year of 2023 to be at least 25% compared with 2022. And we expect to be cash flow positive within approximately one and one and a half years.

With that overview of our business and the recent financial performance, Hermann and I are now ready to take questions from our covering analysts. Operator?

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jonathan Aschoff with Roth. Please go ahead.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Close enough. Thanks. Hi, guys. Good morning. I have a bunch of lamp questions. Just kind of wondering the extent to which the lamp is, you know, the thing other than AMELUZ that might be more, hindering of, you know, any growth that could otherwise be if there were more lamps, out there. So are there any residual supply chain constraints that hinder the XL lamp production? You know, is the smaller lamp production hindered also by any similar issues, you know, if any such issues still exist?

Hermann Luebbert (Chairman, CEO, and Founder)

Well, we are not aware of any supply chain issues with the small lamp, so that has always been delivered according to our orders. With the large lamps, the supply chain issues should all be solved and there are still two, three minor questions out there, but we are confident that we'll be able to launch that lamp in Q2 next year.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay, and when you say in the first nine months of 2023, you increased, you know, the smaller lamp, the BF-RhodoLED, by 101, up sharply from 55 in the preceding quarter. That preceding quarter is, you know, at the end of the year, last year, it was 55, to which you added 101, and now you have 156 lamps out there commercially as of the end of September. Is that correct?

Hermann Luebbert (Chairman, CEO, and Founder)

No, we had lamps out there before, so the total, the total number of lamps we have out there is actually much higher.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay.

Fred Leffler (CFO)

Yeah, as of the end of the quarter, Jonathan, we had approximately 650 lamps out in the field.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay, because that statement then is quite confusing. It makes it sound like there's far fewer lamps out there than there actually are.

Fred Leffler (CFO)

Well, we placed... Sorry. We placed 101 additional new lamps year to date in 2023 as of September 30th. So the-

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay.

Fred Leffler (CFO)

My takeaway is that we're really pushing that as a catalyst for adding new customers, growing those customers and the field therapy. So we want to get our footprint and our RhodoLEDs and XLs out in the field as much as possible.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay, so is there, you know, with that in mind, is there immediate market demand for every single LED and every single LED XL lamp you make? I mean, are they just hoovered up by the derms, or do any of them sit around after manufacture?

Hermann Luebbert (Chairman, CEO, and Founder)

Well, it's by us. Go ahead. Go ahead, Fred.

Fred Leffler (CFO)

Oh, I was going to say, we've, we've been placing them pretty quickly and, last year. Well, we have definitely had a push this year on, on lamps, and I will say, we are moving them very quickly, and we are expecting to sort of ramp down on the, on the RhodoLEDs as we're planning, you know, the, the launch of the XLs. I would not characterize it as sitting - they're, they're sitting around. We're expecting to deploy everything we have in stock and at least, you know, this is just hearing from the field, we, we haven't taken any orders, obviously, but there is, you know, decent excitement and, and we believe that we're going to be able to move the XLs quickly next year as, as well. They're not going to be sitting.

Sitting around in a warehouse, if that's the question.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay, so as far as, like, manufacturing ratio of small to XLs, it's still overwhelmingly small because of the little bit of supply chain residual on the XLs, or what's kind of that manufacturing ratio?

Hermann Luebbert (Chairman, CEO, and Founder)

You mean on the XLs or the small lamps? So for the-

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Well, what's the ratio of smalls to XLs that you're getting into the field over any period of time?

Hermann Luebbert (Chairman, CEO, and Founder)

We expect that, next year, the majority of the lamps that we will get into the field are actually the XLs, because-

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay.

Hermann Luebbert (Chairman, CEO, and Founder)

Many doctors are waiting, waiting for that. I would like to add one more statement to your further question. So there has never been an out-of-stock situation for the small lamp.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay, that's helpful. And the portable lamps, did you say earlier in the call when they were to be available, or is it still kind of hard to tell when they'll first be available?

Hermann Luebbert (Chairman, CEO, and Founder)

Well, that's still hard to tell. It's also a question of the amount of money that we can invest into this project. We could certainly speed it up if we had the funds available for that. So that is still, that is still, at least one or two years out.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay. You would expect the portable to eclipse the two current, currently available lamps, right? Or is the surface area not as big as the XL?

Hermann Luebbert (Chairman, CEO, and Founder)

It's not quite as big, but it's also much bigger than with the current small lamp. So it's somewhere 2/3 in between towards the XL.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay. Thanks. It sounds like, that's moving along nicely. Thank you.

Operator (participant)

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

Bruce Jackson (Equity Research Analyst)

Hi, good morning, and thank you for taking my questions. I wanted to start off with XEPI. So is the new contract manufacturer qualified yet?

Hermann Luebbert (Chairman, CEO, and Founder)

The new manufacturer is qualified, so the pilot batches have been done. And the manufacturer has been... The pilot batches have been submitted to the FDA and approved. And so what comes next is the qualification batches. And they will be produced this month. And with three months stability on these batches, we can actually start selling them.

Bruce Jackson (Equity Research Analyst)

Okay, and that was going to be my next question about XEPI. So you said you were contemplating a relaunch. Do you have any more specificity on, are you going to relaunch the product, and, and when, during 2024, would you be doing that, if you do it?

Hermann Luebbert (Chairman, CEO, and Founder)

That hasn't been fully determined yet, how to make best use of the product in our portfolio. And there are many options that we are currently looking at, or several options that we are looking at, so this will be decided relatively shortly in preparation for the ability to launch.

Bruce Jackson (Equity Research Analyst)

Okay, great. And then, a quick question about the three tube data. Has that been submitted to the FDA yet?

Hermann Luebbert (Chairman, CEO, and Founder)

Not yet. Will be submitted in the course of this month.

Bruce Jackson (Equity Research Analyst)

Okay, great. And then, last question about the price increase and then the 25% or better guidance for the year. So, how much of the revenue got pulled forward due to the price increase, do you think, in the third quarter?

Hermann Luebbert (Chairman, CEO, and Founder)

Yeah, that's... It's always difficult to say how much was pulled forward. When we look at our historical experience with price increases and buy-in into that, then it's always a couple thousand tubes. However, given the fact that Q4 is our strongest quarter, we don't expect that Q4 now will be a bad quarter because everybody bought everything in Q3. I assume that this is where your question is heading at. So we still-

Bruce Jackson (Equity Research Analyst)

Mm-hmm.

Hermann Luebbert (Chairman, CEO, and Founder)

We still expect a significant increase in the fourth quarter, but not anything like the 100% we saw in Q3.

Bruce Jackson (Equity Research Analyst)

Okay. Okay, got it. So still, still up, year-over-year and sequentially over the third quarter?

Hermann Luebbert (Chairman, CEO, and Founder)

Yes.

Bruce Jackson (Equity Research Analyst)

Okay, great. All right. Thank you very much.

Hermann Luebbert (Chairman, CEO, and Founder)

Thank you, Bruce.

Operator (participant)

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

Hermann Luebbert (Chairman, CEO, and Founder)

Yeah, thank you all for the questions to analysts, and thanks to everybody again for listening in. To summarize, I'm very encouraged by the strong sales growth we delivered this past quarter and by the increase in the number of AMELUZ tube orders and our lamps lamp installations. As I've mentioned, we remain on track to grow the revenues at least 25% this year, driven primarily by AMELUZ sales and the maturing commercial organization. So we look forward to speaking with you again when we report our fourth quarter and full year 2024 results. Thank you, and have a nice day.

Operator (participant)

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