NovaBay Pharmaceuticals Q4 2023 Earnings Call Transcript

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March 26, 2024

There are 5 speakers on the call.

Operator

Hello, and welcome to the NovaBay Pharmaceuticals 4th Quarter and Full Year 2023 Financial Results Conference Call. All participants will be in listen only mode. As a reminder, this conference is being recorded. I would now like to hand the call to Jody Cain. Please go ahead.

Speaker 1

This is Jody Cain with LHA. Thank you for participating in today's call. Joining me from NovaBay are Justin Hall, Chief Executive Officer and General Counsel and Tommy Law, Interim Chief Financial Officer. I'd like to remind listeners that comments made during this call by management will include forward looking statements within the meaning of federal securities laws. These forward looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results.

Speaker 1

In particular, there's uncertainty about circumstances beyond the company's control that impact the broader economy. This means that results could change at any time and the contemplated impact of such circumstances on NOFA based operations, financial results and outlook is the best estimate based upon information available for today's discussion. For a list and description of risks and uncertainties, please review NovaBay's filings with the Securities and Exchange Commission, which are available at sec.gov. Furthermore, the content of this conference call contains information that is accurate only as of the date of the live broadcast, March 26, 2024. NovaBay undertakes no obligation to revise or update statements to reflect events or circumstances, except as required by law.

Speaker 1

And now, I'd like to turn the call over to Justin Hall. Justin?

Speaker 2

Thank you, Jody. Good afternoon, everyone, and thank you for joining us. We took a major step in streamlining our business and better positioning NovaBay to pursue higher growth opportunities with the recent sale of our skincare business. The divestiture of DERMAdoctor reduces our operating expenses, which aligns with our priority of extending our cash runway in this continued challenging capital market environment. NovaBay acquired Dermadocr in November 2021 to expand our direct to consumer product lineup during the height of the COVID-nineteen pandemic.

Speaker 2

Our expectation was that e commerce sales would continue to grow post pandemic. Unfortunately, like many other companies that pursued a similar strategy during the pandemic, our projections were not realized. The financial results that we're reporting today show a year over year decline in sales from our skin care segment, which was a major factor in our decision to divest DERMAdoctor. Our focus is now on opportunities in our core eye care business. Avenova Spray is established as the number one doctor recommended antimicrobial lid and lash solution providing us a platform of loyal customers from which to grow.

Speaker 2

This customer loyalty is evidenced by the 64% year over year increase in online subscription based unit sales and the 38% increase in the number of subscription based sales on Amazon and avenova.com, our 2 most productive OTC sales channels. A substantial 24% of all online sales were from prescribers in 2023. That's up from approximately 14% in 2022. Notably, we accomplished this while reducing sales and marketing spend for the year by 17% through our digital marketing expertise. Our physician dispense channel also contributed to the growth of our eye care business in 20 23 as we work to deepen relationships with eye care professionals.

Speaker 2

Beyond just revenue, this channel creates a halo effect around our direct to consumer sales by establishing Avenova as a doctor recommended brand. Last year, we launched 2 promotional programs aimed at further rewarding our network of physicians who help their patients manage the symptoms of chronic dry eye with Avenova branded products. Last year, we also launched our new Avenova allograft through the physician dispense channel. This prescription only allograft provides a protective environment or covering for the repair of the cornea and conjunctiva helping the ocular surface return to a healthier state. It's the only optic allograft manufactured using the patented 6 step bioretain process that preserves the natural integrity of the placental tissue.

Speaker 2

To further support the use of optic allografts, we sponsored a free CME webinar featuring key opinion leaders discussing optimal ocular surface conditions for the use of allografts in candidate selection. More recently, we executed on our growth strategy through a new co marketing agreement with Eyenovia. Eyenovia recently announced FDA approval of prescription only clobetasol, a unique and differentiated steroid prescribed by cataract surgeons. Clobetasol provides ophthalmologists and ocular surgery patients with a compelling, rapid, sustained and more convenient solution for post operative inflammation and pain. In fact, FDA approval was based on stellar clinical results showing nearly 9 out of 10 patients achieved complete absence of post surgical pain and 6 out of 10 patients achieved total absence of inflammation within 15 days ocular surgery.

Speaker 2

This is the 1st new ophthalmic steroid to enter the U. S. Market in more than 15 years. Under our co marketing agreement, we will leverage our established relationships with thousands of eye care professionals to market the newly approved clobetasol product. Our channel provides a ready made opportunity to accelerate this product's commercialization, which is complementary to our Avenova line of products.

Speaker 2

In addition, Eyenovia will market our prescription Avenova spray through its nationwide sales representatives who are targeting ophthalmic surgeons. This is a considerable opportunity to generate additional professional awareness and grow sales of Avenova. We're excited to partner with Eyenovia, which shares our commitment to scientifically developed cutting edge and high quality ophthalmic products. Our co marketing agreement is yet another example of how our physician dispense channel has become increasingly important in building our Avenova business. The clobetasol product is expected to receive a trade name as soon as this summer with co marketing initiatives expected to begin in the coming months.

Speaker 2

Now I'd like to turn the call over to Tommy Law to review our financial results. Tommy?

Speaker 3

Thank you, Justin, and good afternoon, everybody. I'll start with Q4 and then review our 2023 full year results and cash position. Total sales net for the Q4 of 2023 were $3,700,000 which included $2,800,000 from the Eye Care and Wound Care segment and $900,000 from the Skin Care segment. Total sales for the 2023 quarter increased by 2% for $3,600,000 for the prior year period, with the increase due to higher eye care and wound care products sales. Gross margin on net product revenue was 49%, up slightly from 48% for the Q4 of 2022.

Speaker 3

Sales and marketing expenses were $1,400,000 for the quarter, a 27% decrease from $1,900,000 for the prior year, reflecting lower digital advertising costs and lower expenses for outside professional services. G and A expenses were $1,200,000 a 51% decrease from $2,400,000 for the prior year, with the decrease due primarily to decrease in headcount and the use of outside professional services. R and D expenses for the Q4 of 2023 were reduced to $4,000 from $66,000 for the prior year period. Among non cash items, we recorded goodwill intangible and other asset impairment charges related to the impairment of the Derma Doctor business for the 4th quarters 20232022 of $2,600,000 $6,700,000 respectively. The 4th quarters of 2023 2022 also included non cash gain on changes in fair value of warrant liabilities of $56,000 $976,000 respectively.

Speaker 3

The Q4 of 2022 included a noncash gain on changes in fair value of contingent liability of $342,000 which was related to the Dermadocr business. Other expenses net for the Q4 of 2023 was $766,000 primarily due to the amortization amortization of discount and issuance costs related to the convertible notes issued in May 2023. This compares with other expenses net for the Q4 of 2022 of $98,000 Net loss attributable to common stockholders for the Q4 of 2023 was $9,200,000 or $1.33 per share, which included a non cash adjustment of $5,100,000 related to preferred stock conversion prices. This compares with a net loss attributable to common stockholders for the Q4 of 2022 of 8 $200,000 or $4.33 per share. Turning now to our full year financial results.

Speaker 3

Total sales net for 2023 were $14,700,000 an increase of 2% versus 2022 and included $11,200,000 from the Eye Care and Wound Care segment and $3,600,000 from the Skin Care segment. Year over year sales of our eye care and wound care segment grew 9% and were driven by higher Avenova sales through our physician dispensed and OTC channels as well as a contribution from our branded wound care products. Gross margin on net product revenue remained relatively unchanged for 20232022 at 54%. For 2023, sales and marketing expenses decreased by 17% and G and A expenses decreased by 15%, both compared with 2022. R and D expense for 2023 were $68,000 versus $174,000 for the prior year.

Speaker 3

We recorded non cash goodwill intangible and other asset impairment charges related to the Derma Doctor business for 2023 and 2022 of $2,600,000 $6,700,000 respectively. Goodwill, indefinite lived intangible assets and log live assets related to the DermaDoctor business were fully impaired in the 2023 year. For 2023 2022, we recorded a non cash loss on a modification of common stock warrants of $300,000 $1,900,000 respectively. For 2023 2022, non cash gain on changes in fair value of warrant liability was $300,000 $5,400,000 respectively. For 2022, non cash gain on changes in fair value of contingent liability was $600,000 Other expense net for 2023 was $2,100,000 versus other expense net of $300,000 for 2022, with the increase primarily due to an amortization of discount and issuing costs related to the convertible notes issued in May 2023.

Speaker 3

Net loss attributable to common stockholders for 2023 was 16 point $7,000,000 or $3.96 per share, which included a noncash adjustment to preferred stock conversion prices of $7,100,000 This compared with a net loss attributable to common stockholders for 2022 of $16,300,000 or $10.10 per share, which included a non cash adjustment to preferred stock conversion prices of $5,700,000 We reported cash and cash equivalents of $3,100,000 as of December 31, 2023. We received $1,100,000 upon the closing of the DermaDoctor divestiture. And lastly, with the sale of Dermadocr, we will go back to managing our business as a single segment, a more profitable Eye and Wound Care segment. And now I'll turn the call back to Justin.

Speaker 2

Thanks, Tomi. With the sale of DERMAdoctor now closed, we look forward to focusing once again on our eye care business segment. Avenova is a well established brand that still has tremendous growth potential. For example, we're having success with various programs in the physician dispense channel and are capitalizing on additional opportunities to further build on this channel. As I mentioned, this channel supports direct to consumer sales and provides a doctor recommended halo effect around our over the counter product.

Speaker 2

This channel also is instrumental in developing marketing relationships prescription product sales such as our recent agreement with Eyenovia. On the direct to consumer side, we continue to benefit from the digital marketing expertise that we've developed over the past several years, which is allowing us to effectively promote our products while prudently managing our sales and marketing expenses. With that overview, I thank you for your attention. Operator, we're now ready to take questions.

Operator

Thank you very much. We will now begin the question and answer session. Today's first question comes from Jeffrey F. Cohen with Ladenburg Thalmann and Company. Please go ahead.

Speaker 4

Hello, Justin and Simon. How are you?

Speaker 2

Hey, Jeff. Hey, Jeff.

Speaker 4

So just a couple of questions from my own. I guess, firstly, maybe could you talk a little bit about Sonoma and some of the EU territories over the past few months or maybe some anticipatory comments regarding 24?

Speaker 2

Sure. Yes, absolutely. So we are working with Sonoma on expanding into the EU, announcing that agreement earlier this year. The first step is to approach various distributors over in the EU. So we have been working with Sonoma on those partnerships to get those people interested.

Speaker 2

The product will be their Sonoma product, their hypochlorous acid, but branded as an Avenova product. And so we are reaching out to distributors over there and gauging interest.

Speaker 4

Okay, got it. So, and would that be broken out to try to break out any of your revenues other than eye and skin at the moment?

Speaker 2

Yes. So probably not. So we typically in the past have not broken out by distribution channel or by sales channel. So I don't think that we're going to break that out in the future, but happy to provide some commentary around that as sales

Speaker 4

potential new launches and

Speaker 3

new products

Speaker 4

and maybe talk about the potential new launches and new products and maybe talk about the demographics of some of the subscription customers as well?

Speaker 2

Sure. Well, I think the most exciting thing that we have going on right now is our partnership with Eyenovia. So in all of 2023, we operated with just an inside sales force. We had no field sales representatives. And with Eyenovia, we are going to gain 10 field sales representatives that are going to be in all of the top metropolitan areas.

Speaker 2

And so this is sort of a return to having a much broader reach and I think a little bit more of a personal touch. Jeff, you may remember in years past, we had up 50 sales representatives out in the field talking to physicians about Avenova. We scaled that back tremendously especially during the pandemic when it just didn't make sense to have field sales reps driving around in company cars, visiting doctors' offices. So we did switch over to an inside rep model, which is very cost effective, but is also somewhat limiting. There are certain accounts in doctors' offices that you really can only get into and sell your product if you have a rep who's going physically into the offices.

Speaker 2

So we're partnering with Eyenovia. So we're going to get that field sales rep. They also on their side, they're getting an inside sales team that's really experienced and has a full CRM of existing customers that they can reach out to and sell to. So I think the major push that we're going to have in 2024 is to really leverage that physician dispense channel and get the Avenova brand out in front of more patients. So we're going to be having hopefully a lot more prescription Avenova that will turn into direct to consumer sales.

Speaker 2

And that's really what we're pushing in 2024 as our strategy.

Speaker 4

Okay. And then I think lastly for us as far as the digital marketing strategy, is that changing at all from 2024 compared to 2023?

Speaker 2

Yes. Great question, Jeff. And thank you for asking that because our strategy really has changed quite a bit. In 2022, our focus was really in the direct to consumer sales channel. And so we made a sort of monumental shift because we saw some real promise in that market.

Speaker 2

And so we thought selling over the counter products, consumer products directly to the end consumer over the Internet was going to be sort of our future. And we as I said on the call, our projections just weren't realized. And I think in order to survive in this world, you really have to be quite nimble. And so we did change our strategy really towards the end of 20 sales platform where eyeballs need to be bought, online ad spend is quite high and building a consumer brand. So shifting away from that and then focusing really on the flywheel of having a doctor recommended product, doctor recommended products that consumers are then able to re purchase once they have been told about it and instructed by their physician to use it.

Speaker 2

So it is a different sales and marketing strategy and one that we shifted to sort of in the tail end of 2023, but we're all in on it now in 2024.

Speaker 4

Okay, got it. That does it for us. Thanks for taking the questions.

Speaker 2

Thanks, Jeff.

Operator

Thank you. The next question is from Edward Wu with Ascendiant Capital. Please go ahead.

Speaker 3

Yes, thanks for taking my question. My question is, should we expect a lot less new products from you guys, as you guys just focused on Avenova?

Speaker 2

Yes. So that's a really great question, Ed. And it sort of follows on Jeff's question as well. So we are not developing in R and D and spending our money on new product development. But what you will see is innovation through partners.

Speaker 2

And so that's what you saw with the Avenova Allograft in our partnership with BioStem. So we entered into that agreement and started selling the Avenova allograft in Q4, which is incredible innovation, a good lucrative agreement that allows both of us to profit, and then more recently with the Eyenovia agreement. So that's also bringing a lot of innovation, a very unique differentiated product and bringing that into our portfolio and rolling it out to our customers. So you will see some product development and some new product rollouts, but it's going to be all through partnerships and not through our own R and D.

Speaker 3

Great. Thank you and good luck.

Speaker 2

Thanks, Ed.

Operator

Thank you. This concludes our question and answer session. I would now like to turn the call back over to Justin Hall for closing remarks.

Speaker 2

Thank you for joining us today and your interest in NovaBay. We're excited about our refined strategic vision and the opportunities we face with our established eye care business. We look forward to providing an update during our next quarterly call in May. Thanks again and have a nice day.

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Earnings Conference Call
NovaBay Pharmaceuticals Q4 2023
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