Biofrontera - Q4 2023
March 18, 2024
Transcript
Operator (participant)
Welcome to the Biofrontera Incorporated Fourth Quarter 2023 Financial Results and Business Update Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal the 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 a question, please press star then one on your telephone keypad. 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 Andrew Barwicki with Barwicki Investor Relations. Please go ahead.
Andrew Barwicki (Head of Investor Relations)
Thank you. Good morning, and welcome to Biofrontera Inc.'s fourth quarter and fiscal year 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 Inc.'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 Inc.'s press release and SEC filings. Also, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, March eighteen, two thousand and twenty-four.
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 reference 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 reviewed as a substitute for operating rules determined in accordance with GAAP. A reconciliation of non-GAAP to GAAP results is included in this Friday's press release. More specifically, management will be referencing Adjusted EBITDA and non-GAAP financial measures, 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 would like now to turn the call over to Hermann Luebbert, CEO, Chairman, and Founder of Biofrontera. Hermann?
Hermann Luebbert (CEO)
Yeah, thank you, Andrew, and my thanks to everyone joining us this morning. On today's call, I'll provide an overview of our accomplishments and pivot in strategy that occurred during the second part of 2023, and how these changes help lay the groundwork for many value-driving initiatives, initiatives in 2024 and beyond. Additionally, we have had some significant successes already in the first quarter of 2024 that I will touch upon. Fred Leffler, our CFO, will follow with a discussion on financial results, and then both of us will be available to answer questions after our prepared remarks. Starting with the business update, we have made tremendous progress across three critical areas, including, first, optimizing our customer-facing teams to provide the right support and services to our customers. Second, controlling our cost structure and improving our balance sheet.
And third, advancing R&D and assuming all clinical initiatives on Ameluz starting June 2024. This tremendous progress has been realized by investors. Following the renegotiation of our license and supply agreement for Ameluz, with dramatic reductions in the transfer price we paid to Biofrontera Group in Germany, we very recently secured financing of $8 million and expect another tranche of $8 million in Q2. These proceeds will be used to finance our ongoing commercial organization and support the clinical activities for further Ameluzdevelopment, which, as mentioned, we will take over from the German Biofrontera Group in June 2024. I would like to commend all our employees as we announce net revenue of $34.1 million, a record for Biofrontera and a 19% increase for the year.
While Ameluz makes up for most of our revenue, we are also proud to share that 123 BF-RhodoLED lamps were placed at physician offices during the year, compared to 66 placed in 2022, an increase of 86% and the highest number we have ever installed in a single year. The growing number of lamps in the field reflects both first-time installations and additional lamps among dermatology practices already familiar with Ameluz's PDT, facilitating growth through existing and new customers. More specifically, of the 123 installations, 61 sites already had at least one of our lamps in place and bought a further lamp to provide more Ameluz's PDT to their patients. The remaining 62 offices are now set up to start Ameluz's BF-RhodoLED PDT.
Lamp placements are a leading indicator for future growth, and we are delighted with the increasing recognition of Ameluz's PDT as an effective and patient-friendly treatment for actinic keratosis and, in the future, also other diseases. During 2023, we have reduced our cost structure and invested a proportion of the cost savings in our commercial and support teams. We are continuing to optimize our customer-facing strategy by shifting resources from a sales force-focused organization to invest in marketing, strategic accounts, medical and reimbursement support. Increasing efforts in sales force training will further help our territory managers to be more efficient. By doing so, we are continuing to develop a team that supports, supports all stakeholders within our customer organizations. We believe this approach will be better suited to supporting our growth in the buy and bill PDT market and bringing new customers into PDT.
To explain, Buy and Bill relates to Ameluz purchases by the doctor's offices, which then need unproblematic patient treatment and reimbursement to make this process financially viable to the office. In December, we settled arbitration regarding a dispute around our acquisition of the Xepi asset. This allowed us to remove significant liabilities from our balance sheet, which Fred will discuss in a moment. Now, turning to new developments, research and development, and patents. We expect two significant commercial developments for 2024 that will favorably impact our business. We are planning to launch the BF-RhodoLED XL lamp for the treatment of extended photodamaged skin areas with AK in Q2 of this year. While this allows illumination of a larger skin area, a three-tube safety study was completed, and the data was submitted to and accepted by the FDA for review.
We expect to include the use of up to 3 tubes per treatment into the Ameluz label during Q4 of 2024. 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. 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. We expect that production of this formulation will begin in 2024 and help improve tolerability for some of our patients, while also reducing the generation of impurities over time, which may result in an extended shelf life. The U.S. Patent and Trademark Office, the USPTO, granted a new patent related to a photodynamic therapy, or PDT protocol, that is expected to be less painful but similarly effective to conventional PDT.
Between all our patents currently granted by the U.S. Patent and Trademark Office, PDT with Ameluz and BF-RhodoLED is currently protected until 2040. Further patents are still pending and may extend the protection of our products until 2043 or even further. In 2024, we purchased... No, in 2023, sorry, we purchased two additional patents for low-cost portable photodynamic therapy lamps for use with Ameluz, and we started development of these lamps. The planning process for building a prototype is nearing completion, and we expect to begin looking at next steps in the near future. We are also pleased to announce that the first patient has been dosed in a phase three randomized, double-blind, vehicle-controlled, multicenter clinical study to evaluate the safety and efficacy of Ameluz and BF-RhodoLED XL in the field-directed treatment of actinic keratosis on the extremities, the neck, and the trunk.
This is significant opportunity for our company, as many patients suffer from AK, not only on their face and scalp, but also on various exposed areas of the body. The last two months have seen transformational developments for our company with the successful renegotiation of our LSA, our license and supply agreement, for Ameluz and BF-RhodoLED lamps with Biofrontera Group in Germany, and the subsequent securing of up to $16 million in financing. According to the amended LSA, we have reduced our Ameluz transfer price. It is the price we pay to our licensor from 50% of our revenues, up to $30 million and 40%, from $30 million to $50 million, to a flat 25% for 2024 and 2025. This amount will then step up to 30% in 2026 and stepwise up to 35% in subsequent years.
This structure, however, applies only to Actinic Keratosis and Non-Melanoma Skin Cancer, while we have secured a flat 25% indefinitely for any acne-related indications. As part of this amendment, Biofrontera Inc. is taking over all clinical trials as of June 1st, 2024. The additional cost is expected to be only a portion of the savings from the reduced transfer price. This arrangement allows us to more effectively run these trials and control their costs. Finally, we have secured sufficient funding for the company through two separate deals. In November 2023, we closed on additional financing of $4.5 million, and in February of this year, we closed on a private placement of up to $16 million that is expected to be paid in two tranches....
We have received $8 million and expect to meet the requirements to secure the additional $8 million tranche in either May or June 2024. We look forward to providing updates on all these programs and more on our first quarter 2024 call. With that, I'll turn the call over to Fred to walk through the financial details of the fourth quarter and full year. Fred?
Fred Leffler (CFO)
Thank you, Hermann. It is great to be talking, excuse me, talking with everyone again. I will start with our fourth quarter 2023 results. Total revenue for the fourth quarter of 2023 were $10.6 million, an increase of $0.5 million, or about 4%, compared with $10.1 million for the fourth quarter of 2022. This reflects the continued adoption of Ameluz, but was impacted more than anticipated by a buy-in prior to the price increase at the beginning of the quarter. Total operating expenses were $14.5 million for the fourth quarter of 2023, compared with $15.8 million for the fourth quarter of 2022.
Cost of revenues were $5.4 million for the fourth quarter of 2023, compared with $5.3 million for the prior year quarter, driven by higher Ameluz product revenue. Selling general and administrative expenses were $9.1 million for the fourth quarter of 2023, compared with $10.2 million for the fourth quarter of 2022, with a decrease primarily driven by lower personnel costs. Net income for the fourth quarter of 2023 was $3.5 million, or $1.65 per share, compared with a net loss of $2.8 million, or a loss of $2.16 per share for the prior year quarter, with all per share figures on a split-adjusted basis.
Adjusted EBITDA for the fourth quarter of 2023 was -$3.2 million, compared with -$4.4 million for the fourth quarter of 2022, reflecting higher revenues, partially offset by increased SG&A costs. Adjusted EBITDA, a non-GAAP financial measure, is 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. I'll refer you to the table in the news release we issued on Friday, March 15, for a reconciliation of GAAP to this non-GAAP financial measure. Now turning to our full year 2023 results. Total revenues for 2023 were $34.4 million, compared to $28.7 million for 2022, a growth of approximately 19%.
The increase was primarily driven by higher volume of the Ameluz sales due to a restructured discount program, higher adoption of the Ameluz by dermatologists, and a higher average Ameluz selling price. Total operating expenses were $56.7 million for 2023, compared with $47.3 million for 2022. Cost of revenues increased from the prior year to $17.4 million for 2023, from $15.2 million in 2022, primarily driven by the increased Ameluz volume. Selling, general, and administrative expenses for 2023 were $39.1 million, compared with $35.9 million for 2022, an increase of about 9%, compared with the prior year, driven by personnel-related expenses and higher legal expenses.
The net loss for 2023 was $20.1 million, or $13.02 per share, compared with a net loss of $0.6 million, or $0.61 per share for the fiscal year 2022. Adjusted EBITDA was negative $19.5 million for 2023, compared with negative $18.1 million for 2022. The decrease was primarily driven by the commercial team expansion that took place in the second quarter of 2023. Again, please refer to the table in the news release on Friday, March 15th, for a reconciliation of GAAP to non-GAAP financial measures. Now, turning to our balance sheet as of December 31st, 2023, we had cash and cash equivalents of $1.3 million, compared with $17.2 million as of December 31st, 2022.
Our investment in related parties is $0.1 million, compared with $10.5 million as of December 31, 2022. This is due to the increase or the decrease in share price of the investment and the fact that we used a large portion of the shares to settle an arbitration dispute. As a result, we eliminated liabilities of approximately $9.8 million and recorded a gain of approximately $7.4 million. I have talked about our increasing inventory in 2023 quite a bit, and as of today, we have received and paid for all orders. Our inventory balance as of December 31, 2023, is $10.9 million, compared to $7.2 million on hand as of December 31, 2022. I would like to clarify this amount a bit.
We also have an asset for replacement inventory of $5.2 million as well. This is due to a voluntary recall of 3 batches of Ameluz from our supplier, of which we were notified of the issue in February 2024. The batches will be replaced at no cost to us, and we expect to receive those batches over the summer months. This will not impact our ability to fulfill orders in the meantime. So we are now in a position to sell off our inventory over 2024 and achieve a reasonable safety stock, which improves our working capital position. We are not, we are still not anticipating on making any inventory purchases for until at least the second half of 2024, and as a result, we will continue to manage our working capital very closely.
Finally, we entered into a bridge loan for $4 million at the end of December of 2023 in order to finance the company through the most recent capital raise that Hermann mentioned earlier. We will pay down this loan through early July of 2024 and do not expect to need such a facility in the near future. Based on multiple positive indicators for the year, we expect two-digit growth in revenue compared to 2023, and expect to be cash flow positive within approximately 12 months-18 months, depending on our spend associated with our additional spend associated with the U.S. clinical studies. So 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)
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question is from Jonathan Aschoff with Roth. Please go ahead.
Jonathan Aschoff (Managing Director and Senior Research Analyst)
Thank you, guys. Good morning, and I want to ask about just your trials. Acne, what is the patient enrollment number and the timing to data?
Hermann Luebbert (CEO)
Yeah. Hi, Jonathan. In the acne phase 2 trial, about half of the patients are currently enrolled. A little more than between 50% and 60% are currently enrolled. And we expect to complete enrollment until the end of the year, and then have data available in the middle of next year.
Jonathan Aschoff (Managing Director and Senior Research Analyst)
Okay, and then how about the same two questions for peripheral AK?
Hermann Luebbert (CEO)
The peripheral AK study has similar enrollment actually. The data will probably come slightly after the acne trial data because the patients are longer in the trial. But,
Jonathan Aschoff (Managing Director and Senior Research Analyst)
Okay, so 2H 2025 maybe?
Hermann Luebbert (CEO)
Similar. Hmm?
Jonathan Aschoff (Managing Director and Senior Research Analyst)
Okay. Like 2H 2025 for data, you would think?
Hermann Luebbert (CEO)
Yes.
Jonathan Aschoff (Managing Director and Senior Research Analyst)
Second half of 2025. And then, how about enrollment for BCC data? Is that still tracking for mid-2024 or like a few months from now, something like that?
Hermann Luebbert (CEO)
Enrollment was completed already.
Jonathan Aschoff (Managing Director and Senior Research Analyst)
No, no.
Hermann Luebbert (CEO)
And-
Jonathan Aschoff (Managing Director and Senior Research Analyst)
With the data tracking, the data timing, is that still the middle of this year?
Hermann Luebbert (CEO)
Data of the clinical part of the study should be after the middle of this year, and follow up then in the first half of next year.
Jonathan Aschoff (Managing Director and Senior Research Analyst)
Okay.
Hermann Luebbert (CEO)
One update.
Jonathan Aschoff (Managing Director and Senior Research Analyst)
Thank you, Hermann. If I may go to the portable lamp, can you make any estimates as to when derms might have access to the portable lamp?
Hermann Luebbert (CEO)
The portable lamp will still need some time, of course, before it hits the market. But it's not something that we see on the market in the next two years. Just to be clear. However, we believe that this will be a significantly easier entry into PDT for offices that so far haven't been able to do PDT because they don't have sufficient space. And it will also help our reps to actually take a lamp around and do, yeah, live demonstrations in doctors' offices on label. And furthermore, the doctors will have the chance to take the lamp and do offer PDTs in retirement homes.
Jonathan Aschoff (Managing Director and Senior Research Analyst)
Okay.
Hermann Luebbert (CEO)
So it will provide much more flexibility to the way in which PDT can actually be done.
Jonathan Aschoff (Managing Director and Senior Research Analyst)
Okay. And I think I missed what you had said. The XL lamp, was that gonna come onto, you know, come onto the market in force, by the end of the year? Is that what you said?
Hermann Luebbert (CEO)
No, Q2.
Jonathan Aschoff (Managing Director and Senior Research Analyst)
Q2 of this year?
Hermann Luebbert (CEO)
Of this year, yes.
Jonathan Aschoff (Managing Director and Senior Research Analyst)
Oh, excellent. So guys, can you definitely sell all of the annual minimum purchases of Ameluz that you must make with the new transaction terms? Like, is that a lay-up to sell the minimum that you have to buy?
Fred Leffler (CFO)
Jonathan, yeah, this is Fred. Yeah, we believe that is, as you put it, a lay-up. And yeah, the minimums associated with the LSA restructuring should be easily achieved, you know, going forward.
Jonathan Aschoff (Managing Director and Senior Research Analyst)
Okay. Lastly, you know, you've moved to using the term two-digit growth.
Hermann Luebbert (CEO)
Mm-hmm.
Jonathan Aschoff (Managing Director and Senior Research Analyst)
I mean, that starts with 10. I would hope that your growth this year over last year would be, you know, double that, and that that would not be a stretch. Is that a fair way to look at it, that 20% would not be a stretch?
Fred Leffler (CFO)
... Yeah, well, it ends with 99, Jonathan, but no, you're right. I think that we expect, you know, similar to growth that we've seen over the past couple of years. And if we maintain that trajectory going forward, and as I mentioned, depending on, you know, how we deploy the spend associated with the clinical trials that we're taking over in June, we should be breakeven in approximately 12 months-18 months.
Jonathan Aschoff (Managing Director and Senior Research Analyst)
Okay. Thank you very much, guys.
Fred Leffler (CFO)
Thank you, Jonathan.
Operator (participant)
Again-
Fred Leffler (CFO)
Enjoy the rest.
Operator (participant)
Again, if you have a question, please press star, then one. The next question is from Bruce Jackson with The Benchmark Company. Please go ahead.
Bruce Jackson (Senior Equity Research Analyst)
Hi, good morning. A question about the sales and marketing efforts. So, have there been any changes to the sales force in terms of numbers? And, is the turnover stable?
Hermann Luebbert (CEO)
Yeah, we did, in fact, decide to reduce the sales force slightly in favor of growing the other, the other service functions that that are required to actually make help the sales force to be, to be successful. So currently, we have 32 reps out there, and seven managers of these 32 reps. What was the second part of the question?
Bruce Jackson (Senior Equity Research Analyst)
The second. Yeah, so the question, it was any change in the turnover? So, with the reps that you've got right now, is it, are they, is it stable?
Hermann Luebbert (CEO)
Yeah, the turnover is, of course, something that is a problem to every company. When we compare our turnover in the sales force with other companies, so with the industry average, then we are still below that, which is good. On the other hand, we still try to do everything we can to reduce the turnover even further.
Bruce Jackson (Senior Equity Research Analyst)
Okay, great. And then, getting back to Fred's comments on the sales growth for the coming year, the double digit. You've done-
Hermann Luebbert (CEO)
Mm-hmm
Bruce Jackson (Senior Equity Research Analyst)
... roughly 19% year-over-year for the past couple of years. If we, like, honed in on that number, would that be a, a reasonable target to begin with?
Fred Leffler (CFO)
I, I think that's a reasonable target. Our CAGR since 2020 has been 22%. So yeah, I think those are the two numbers that you could take a look at, and I think around there would be a reasonable estimate.
Bruce Jackson (Senior Equity Research Analyst)
Okay. And then, last question for me. Sometimes the timing of the price increases can have an impact on the calendarization of the quarters. So, what would we be looking for this year? Would it be similar to 2023, or might there be any differences?
Fred Leffler (CFO)
Well, we're still evaluating, you know, our pricing strategy and things like that, and we haven't made a concrete decision on any price increases yet for 2024.
Bruce Jackson (Senior Equity Research Analyst)
So in terms of, like, the seasonality of the revenue by quarter, then, can we assume it looks similar to 2023?
Fred Leffler (CFO)
Yes, I think that's a good working assumption, and if any changes come to that, we will certainly update everyone.
Bruce Jackson (Senior Equity Research Analyst)
Okay. Great. Thank you very much.
Hermann Luebbert (CEO)
Thank you, Bruce.
Fred Leffler (CFO)
Thank you.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
Hermann Luebbert (CEO)
Yeah, so we believe that we had a very successful year in 2023, that we had some transformational changes to the company that makes the status of the company and the future of the company look much brighter than what we were looking at a year ago. And with that, I would like to thank all our employees again to taking the company to where we are now. And thank you for taking the time to listen in. Thank you.
Operator (participant)
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.