Biofrontera Q3 2023 Earnings Call Transcript

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November 10, 2023

There are 6 speakers on the call.

Operator

And welcome to the Biofrontera Inc. Third Quarter 2023 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 Please note this event is being recorded. I would now like to turn the conference over to Turf Patel with LHA Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning, and welcome to Biofrontera Inc. Q3 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.

Speaker 1

Also, this conference call contains time sensitive information That is accurate only as of the date of the live broadcast today, November 10, 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 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.

Speaker 1

With that said, I would now like to turn the call over to Herman Loubert, Chairman, CEO and Founder of Biofrontera. Herman?

Speaker 2

Yes. 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 Lefler, our CFO, will follow with a discussion of our We'll review the financial results and we'll conclude with questions and answers.

Speaker 2

During the Q3 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 40 territories, But also brought over 140 years of healthcare and dermatology experience into our ranks. Furthermore, We initiated building an in house field reimbursement team helping doctors' offices on such to solve issues they may face with reimbursement And we increased our staff for sales training.

Speaker 2

The investment in our commercial organization It's a cornerstone of our growth strategy and our path towards becoming a 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 PDT. With the expansion, we significantly improved our reach and strategic accounts The key elements of our strategy include the following: First, expanding our U. S.

Speaker 2

Sales of Ameluz in combination with the Autolad Labs for the treatment of on the face and skull and positioning Ameluz to be the standard of care by growing our dedicated Commercial and Medical Infrastructure. 2nd, leveraging the potential of future FDA approvals and label extensions of our portfolio products and third, opportunistically adding complementary 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 Widicombe, a Senior Director, 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 large and durable contracts that contributed to Biofrontera selling approximately 28,000 tubes of Ameluz in the 3rd quarter, Up from about 13,000 units in the Q3 of 2022. This growth drove our 3rd quarter revenue to $8,900,000 which represents 106% increase from the Q3 last year.

Speaker 2

Our sharp year over year revenue increase is also driven in part by this year's Ameluz price increase. As with many other industry, 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 generalize the purchases of Ameluz Into the Q3. 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.

Speaker 2

As an example of our growing market share for Amluz 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 BFO to lead lamps as of September 30, Reflecting 180% increase over the prior year period, including to many offices where we installed and we have overlapped for the first time. These outcomes underscore the effectiveness of our enhanced sales strategy and we are confident that our strategic 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 it Following a 4 year research project together with our partner Biofrontera Bioscience, approval was recently that we have replaced due to exhibiting allergic potential and chemically reacting with other components Causing certain contaminants to accumulate over time.

Speaker 2

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 current 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 2,043.

Speaker 2

Let me now turn to more innovation and R and 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 nonrandomized Open label, multicenter Phase 1 study evaluating the safety and tolerability of 3 tubes of Ameluz, Demonstrating the treatment was generally well tolerated and treatment emergent adverse events were consistent With the U. S. Prescribing information for 1 tube.

Speaker 2

There are benefits of treatment with 3 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 the safety study and an earlier pharmacokinetics 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 free tube treatment and we expect to hear back from the FDA by June 2024, which is approximately 6 months after submission. We also announced that enrollment of all 186 is now complete in the Phase 3 clinical study evaluating Ameluz in combination with vivrodelad For the treatment of superficial basal cell carcinoma or SBCC, approximately 2 thirds 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 malignancies without ionizing radiation.

Speaker 2

We look forward to sharing results from this Phase 3 study in mid-twenty 24. In addition to treating individual SBCC lesions, adding this indication to the label of Ameluz will allow to include SPCC lesions into the treatment of larger sun damaged fields with Ameluz PTG As it is currently approved for arctinika keratosis, this is the next logical step in our goal to offer Regarding expanding the Ameluz label within actinic keratosis, there is a large and growing demand for a highly effective therapy to Together with Biofrontera Bioscience, we have an ongoing Phase 3 study Evaluating the use of Ameluz PDT in the extremities, neck and tongue that's currently unrolling. To date, 72 patients have been dosed with the aim to enroll in all 165 subjects stratified by body region. Lastly, a Phase 2 study is actively recruiting for the treatment of moderate to severe acne with Ameluz. Here, 65 of 126 patients have been dosed to date.

Speaker 2

Treatment of moderate to severe acne without the side effect Of current treatment options is a significant unmet medical need in the 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 2nd FDA approved prescription drug, Xepi. It has been approved by the FDA for the treatment of impetigo, which is a common skin infection due to staphylococcus aureus and staphylococcus There has been very limited revenue from Xepi to Biofrontera for some time As problematic developments with the 3rd party manufacturer that was providing our supply have resulted in delays to our commercialization of Our licenser Ferrer has been developing a new manufacturer, which now allows us to actively With that, I'll turn the call over to Fred to review the financial details of the quarter. Fred?

Speaker 3

Thank you, Herman, and good morning, everyone. So it's good to be chatting here and Looking at a strong Q3, beating our estimates. So starting with the top line. Net revenue for the 3 months ended September 30, 2023 was $8,900,000 an increase of $4,300,000 or about 106 percent over the prior year. For the 1st 9 months of 2023, net revenue was $23,500,000 up from $18,500,000 last year.

Speaker 3

This growth was driven by the commercial expansion that Herman described, Increased adoption by dermatologists and buy in ahead of a price increase for Ameluz on October 1. Operating expenses were $13,500,000 for the Q3 of 2023 compared with $8,000,000 for the Q3 of 2022. The $5,200,000 increase included approximately $3,000,000 due to our commercial expansion, 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 $42,300,000 and this compares with $31,500,000 for the 1st 9 months of last year. About $2,200,000 of this increase was due to Legal fees, primarily from settlement of litigation in the first half of twenty twenty three, along with severance Expenses in the commercial expansion that's mentioned earlier and the increased cost of revenue.

Speaker 3

So moving to cost of revenue. For the Q3, it was $4,600,000 compared to $2,200,000 last year, which reflects the higher sales of Ambulose. Cost of revenue for the 1st 9 months was $12,100,000 compared to $9,900,000 last year. SG and A expenses were $8,700,000 for the Q3 of 2023 compared with $7,900,000 for the Q3 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 Q3 was $6,300,000 or $4.64 per share and this compares with a net loss of $2,600,000 or 2.26 and $0.06 per share for the prior year quarter.

Speaker 3

I will note that these figures are on a split adjusted basis. Net loss for the 1st 9 months of 2023 was $23,700,000 compared with net income of $2,100,000 for the 1st 9 months of 2022. As net income or loss comprises of multiple non cash items, I'll refer you to or we refer to the adjusted EBITDA as a clear of the business' status. Adjusted EBITDA was negative $3,900,000 for the quarter compared with negative $5,000,000 last year. The decrease was primarily driven by increased revenues, partially offset by higher SG and A expense.

Speaker 3

Adjusted EBITDA for the 1st 9 months The year was negative $15,800,000 compared with negative $4,100,000 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 30, 2023, we had cash and cash equivalents of $3,400,000 compared with $17,200,000 as of December 31, 2022. In addition, we had a $3,300,000 investment in shares of Biofrontera AG as of September 30.

Speaker 3

Subsequent to the close of the quarter, we raised $4,500,000 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 24 and we'll 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

Speaker 1

of us, which is 4th quarter,

Speaker 3

and based on multiple positive indicators, such as LAMP placements that Herman 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 1 to 1.5 years. So with that overview of our business and the 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. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jonathan Kros with Roth, please go ahead.

Speaker 4

Close enough. Thanks. Hi, guys. Good morning. I have a bunch of LAMP Questions.

Speaker 4

Just kind of wondering the extent to which the LAMP is the thing other than Ameluz that might be more Hindering of any growth that could otherwise be if there were more lamps out there. So are there any residual supply chain constraints

Speaker 2

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 lands, The supply chain issues should all be solved. There are still 2, 3 minor questions out there, But we are confident that we'll be able to launch that lamp in Q2 next year.

Speaker 4

Okay. And when you say in the 1st 9 months of 2023, you increased the smaller lamp, the BF ROADO LED by 101, Up sharply from 55 in the preceding quarter. That preceding quarter is at the end of the year last year 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?

Speaker 2

No, we have LAMs out there before. So, the total number of LAMs we have

Speaker 3

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

Speaker 4

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

Speaker 3

Well, we placed sorry, we placed 101 additional new lamps year to date In 2023 as of September 30. So my takeaway is that we're really pushing that as a catalyst Or adding new customers, growing those customers and the field therapy. So we want to get our footprint and our roto LEDs and XLs out in the field as much as possible.

Speaker 4

Okay. So is there 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 Hoover up by the derms or do any of them sit around after manufacture?

Speaker 2

Well, it's the KRYOS. Go ahead, Fad.

Speaker 3

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

Speaker 4

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 Sales or what's kind of that manufacturing ratio?

Speaker 2

You mean on the XLs or the smalls? So

Speaker 4

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

Speaker 2

Would you expect that next The majority of the labs that we will get into the field are actually the accidents 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.

Speaker 4

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?

Speaker 2

Well, that's still hard to tell. It's also a question The amount of money that we can invest into this project, we could certainly speed it up if we have the funds available for that. So that is still at least 1 or 2 years out.

Speaker 4

Okay. And you would expect the portable to eclipse the 2 currently available lamps, right? Or is the surface area not as big as the XL?

Speaker 2

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

Speaker 4

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

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 start off with ZEPI. So is the new contract Manufacturer qualified yet?

Speaker 2

The new manufacturer It's qualified. So the pilot batches have been done and the manufacturer 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 3 months Stability on these batches, we can actually start selling them.

Speaker 5

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

Speaker 2

That hasn't been fully determined yet, how to make best use of the product In our portfolio, 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.

Speaker 5

Okay, great. And then a quick question about the 3 tube data. Has that been submitted to the FDA yet?

Speaker 2

Not yet. It will be submitted in the course of this month.

Speaker 5

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 gap pulled forward due to the price increase do you think in the 3rd quarter?

Speaker 2

Yes, 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 into that, then it's almost a couple of 1,000 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 expect a significant increase In the Q4, but not anything like the 100% we saw in Q3.

Speaker 5

Okay. Okay, got it. So still up year over year and sequentially over the Q3?

Speaker 2

Yes.

Speaker 1

Okay, great.

Speaker 5

All right. Thank you very much.

Speaker 2

Thank you, Wunds.

Operator

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

Speaker 2

Yes. 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 Tube orders and order led lamp installations. As Fred mentioned, we remain on track to grow revenue is 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 Q4 and full year 2024 pre 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

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