Biofrontera Inc. (BFRI) Q2 2022 Earnings Report, Transcript and Summary

Welcome to the Biofrontera Inc. Second Quarter 2022 Financial Results and Business Update Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] After today’s prepared remarks, there’ll be an opportunity to ask questions. [Operator Instructions] 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.

Good morning. And welcome to Biofrontera Inc.’s second quarter 2022 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, August 12, 2022. Biofrontera undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as required by law. During today’s call there will be references to certain non-GAAP financial measures. Biofrontera believes these measures provide useful information for investors, yet should not be considered as a substitute for GAAP, nor should they be viewed as a substitute for operating results determined in accordance with GAAP. A reconciliation of non-GAAP to GAAP results is included in this morning’s press release. More specifically management will be referencing EBITDA, a non-GAAP financial measure defined as net income or loss excluding interest income and expense, income taxes, depreciation and amortization and certain other non-recurring or non-cash items. With that, I would like to turn the call over to Hermann Lubbert, Executive Chairman of Biofrontera Inc.

Thank you, Tirth. And welcome everyone to Biofrontera Inc.’s second quarter conference call. Joining me today is Erica Monaco, our Chief Executive Officer. In a moment, Erica, will review the business, our strategy and our recent financial results, but first, I would like to say a few words. I’m proud of the entire Biofrontera team and the hard work to generate such strong first half financial results following a foundational year that included our successful IPO. In view of these results, as validation I -- I view this results as validation of the data driven approach we initiated about a year ago that equips our sales force with valuable information to enhance the success. Of note, Biofrontera was recently named by CIOCoverage Magazine as one of the 10 fastest growing life sciences companies to watch in 2022 and we believe the results of our execution yesterday certainly support that recognition. Adoption of photodynamic therapy is growing, as are the clinical successes among Biofrontera sponsored and investigator initiated clinical studies using our products. These studies boost our efforts as we established Biofrontera as a market leading brand in dermatology. For our licensor, we have several ongoing clinical studies with Ameluz and I’m certain that we will be able to provide positive news on ongoing and new clinical trials and the underlying patent protection in the coming months. With that, I’ll turn the call over to Erica.

Thank you, Hermann, and good morning, everyone. I’m pleased to be speaking with you today to discuss our strong performance and review our plans for the rest of the year. As most of you know, Biofrontera serves the U.S. dermatology market with pharmaceutical products and medical devices to treat certain skin conditions. Our flagship product is Ameluz for the treatment of actinic keratosis or AK, which are skin lesions caused by excessive exposure to sunlight that can lead to skin cancer. We also market Xepi, a topical antibiotic for the treatment of impetigo, which is a bacterial skin infection. Before providing an update on our business, I’ll first review our year-to-date financial results. Total revenues for the first half of 2022 were $14.2 million versus $10.6 million last year, representing an increase of $3.6 million or 34%. The increase was primarily driven by a $3.5 million increase in Ameluz revenue, along with a $0.1 million increase due to the Ameluz price increase. Cost of revenues increased by 36% compared with the prior year, primarily due to higher sales of Ameluz. Total operating expenses were $23.5 million for the first half of 2022, compared with $17.8 million for the first half of 2021. Selling, general and administrative expenses increased by $7.1 million or 66%, reflecting higher legal expenses, business insurance, headcount and issuance costs related to the private placement. Net income for the first half of 2022 was $4.7 million or $0.26 per diluted share, compared with a net loss of $7.2 million or a loss of $0.90 per share for the first half of 2021. Adjusted EBITDA was negative $11.3 million for the first half of 2022, compared with a negative $5.7 million for the first half of 2021. I refer you to the table in the news release we issued earlier this morning for a reconciliation of GAAP to non-GAAP financial measures. As of June 30, 2022, Biofrontera Inc. had cash and cash equivalents of $31.9 million. We believe our cash position is sufficient to fund operations for at least the next 12 months. But as a growing company, we intend to be opportunistic regarding potential financing activities. This concludes routinely positioning ourselves to strengthen our strategic position, scale our business more quickly, mitigate business risks and pursue new growth opportunities. Following a very strong first quarter of 2022, total revenues in the second quarter of 2022 were $4.5 million versus $5.9 million a year ago, representing a decrease of $1.4 million or 24%. We anticipated this decrease, which reflects some advanced purchasing of Ameluz in the first quarter prior to the April 1, 2022 price increase. Cost of revenues declined by 18%, primarily due to the lower Ameluz sales. Total operating expenses were $10.7 million for the quarter, up from $9.5 million in the second quarter of 2021. Selling, general and administrative expenses increased by $4.3 million or 74%, primarily due to higher legal expenses, business insurance, headcount and issuance costs related to the private placement we completed in May. The net loss for the second quarter of 2022 was $0.9 million, compared with a net loss of $3.7 million in the second quarter of 2021. Adjusted EBITDA was negative $8 million for the second quarter of 2022, compared with negative $2.9 million for the same period last year. To provide some further metrics on these results, with revenues up 34% year-to-date, Biofrontera had the highest first half revenues ever, up more than 102% compared to 2020 and up more than 22% versus the pre-COVID year 2019. Despite Q2 revenues being lower due to buy-ins ahead of the price increase, I’d like to point out that improved sales momentum, tactical execution and strengthened brand recognition all contributed to higher year-to-date revenue. We’ve increased headcount by approximately 20% since Q2 of 2021, which resulted in higher first half operating expenses, but also positioned us for greater market penetration and organizational productivity, as we begin the second half of the year. With sales momentum quite strong through the first half of this year, we remain on track to meet our full year growth expectations. More specifically, today, we are reaffirming our financial guidance for 2022. We expect total revenues for 2022 to increase by at least 30% compared with 2021, inclusive of the typical seasonal strengths we saw in the first quarter and expect to see again in the fourth quarter. Our commercial focus throughout 2022 remains on achieving deeper sales penetration among current customer accounts, with addition to the Biofrontera salesforce expected to begin in 2023. Underlying this growth is our 2022 commercial strategy, which is supported by strengthening medical affairs and establishing ourselves as a trusted partner. Educating the industry on the importance of field therapy and raising awareness of our products high efficacy supports our efforts to expand utilization of PDT, especially among patients with more than 15 AK lesions when reimbursement for cryotherapy is capped. We believe dermatologists have favorite cryotherapy therapy to-date because of reimbursement. But recent shifts in cryotherapy therapy reimbursement and treatment guideline pressure towards field directed therapy, as opposed to single lesion therapy should both support sales of PDT treatments. Throughout the second quarter, we continued our commitment to educating healthcare providers through web-based and live continuing medical education programs, with our medical education partners and key opinion leaders. We’ve also initiated the support a patient advocacy and awareness events to get ahead of solar damage and non-melanoma skin cancer, thereby helping to spotlight Biofrontera’s patient focused mission. I’m proud not only of the hard work all the teams within Biofrontera put in this year, but also the impact and recognition they’ve garnered along the way. For example, Biofrontera’s new Ameluz marketing campaign, with a creative call to action, emphasizing the threat of AK titled Danger Lurks Below the Surface and featuring images of sharks earned a Gold 2022 Award of Excellence from The Communicator Awards. This is a leading international industry agnostic awards program that recognizes excellence in communication and champions’ effective and meaningful work. With campaign positions Ameluz PDT is the only photodynamic therapy with an approval for field treatment that enabled healthcare professionals to protect patients against the risks posed by fields of premalignant AK. Research underway by our independent investigators further supports this brand building. Through the support of independent research, we continue our commitment to innovation to improve patient outcomes, address medical and scientific questions to advance our therapy and further strengthened Biofrontera’s profile as an industry leader. Our sponsored and independent research programs will generate new data to be shared by KOLs at domestic and international conferences in the second half of this year. Clinical development complements our commercial strategy by expanding the market positioning for Ameluz, providing more confidence to patients, broadening the total addressable market and offering more favorable treatment options. Investigator initiated studies that align with our areas of interest and real world use of PDT to treat skin conditions are a critical component of our medical education initiative. Our relationship with our Ameluz licensor Biofrontera AG is supportive and helps provide a roadmap for the potential Ameluz has and expanding its scope of applicability and across other geographies. A license agreement for Ameluz obligates the licensor to conduct and finance the clinical studies required for defined label expansions. Protecting our brand through strengthening intellectual property is also a priority. Two patents protecting PDT, Ameluz and our medical device RhodoLED were granted by the U.S. Patent Office earlier this year. Inclusion in FDA’s Orange Book associated with the removal of Ameluz from the list of generic drugs demonstrated the value of these patents. Most recently, the Australian Patent Office granted a Notice of Allowance to Biofrontera Bioscience GmbH for a patent covering treatment protocols that are expected to combine the lower pane of broadband light PDT with the higher cure rates and lower reoccurrence rates of conventional therapy. The patent also claims the elimination approach is linked to the performance of PDT with a drug containing a photosensitizer or its precursor and thus elimination combinations protected by this patent also protects our drug Ameluz and strengthen the differentiated profiles of Ameluz PDT. Combining the high efficacy of conventional therapy with lower pain intensity and reduce patient time in the doctor’s office will provide a strong competitive advantage to Biofrontera’s products and to PDT in general. The news in Australia also provides a potential roadmap for similar patent extensions and further protection of Ameluz PDT in other geographies, including the United States. Establishing our position as the leader in PDT and innovating by expanding the Ameluz label are the key mechanisms to unlock the drugs commercial potential. We expect more progress to be made in the second half of 2022 and look forward to providing updates as they become available. We expect more positive news on both our clinical program and our patent protection in the remaining month of 2022 and we will provide updates on those as soon as they become available. We also recently announced that the U.S. FDA approved Biofrontera Pharma’s cGMP laboratory in Leverkusen, Germany, as a contact laboratory for batch control and stability testing of Ameluz, enabling part of the necessary testing of production batches to be performed in-house. This approval enables significant improvement in product manufacturing efficiency, quality control and reliability of supply. It reduces dependence on third-party suppliers and lowers the risk of production downtime and product delays. Under our agreement with Biofrontera AG we have exclusive rights to market and sell Ameluz and the PVT lamps BF-RhodoLED and RhodoLED XL in the U.S. As our U.S. commercial sales momentum builds, we appreciate the importance of optimizing for scale and ensuring commercial supply without compromising quality. Biofrontera has attended multiple academic and industry conferences so far this year as part of our medical education initiatives and the response from the community has been encouraging. We’ve held educational roundtable events with HCPs and residents throughout the U.S. focusing on disease awareness, clinical data and patient selection. In fact, we’ve engaged more than 200 KOLs and attendees at 15 national and regional conferences in the first half of this year already. Targeted medical conferences allow us opportunities not only to share our research with the academic community, but also to explore potential partnering or business development opportunities, and other advances in the industry. Interacting directly with dermatology industry leaders strengthens our brand recognition and medical conferences also provide ideal venues to lay the groundwork for Biofrontera’s commercial success. During the second quarter, we debut the newest illumination lamp in our franchise, the RhodoLED XL with a live demonstration at the Music City Symposium for Cosmetic Advances & Laser Education. Approved in combination with Ameluz for the treatment of mild to severe AK on the face and scalp, the XL lamp allows for the illumination of a larger skin area, thereby enabling simultaneous treatment of AK lesions and affected fields that are different from one another. We received positive feedback from the dermatologists and others who are recognizing the benefits of treating multi-lesion AK using PDT. Biofrontera’s expanding lamp franchise provides prescribers with more treatment options for their patients, strengthens the case for treating AK with PDT instead of cryotherapy and establishes the Ameluz PDT combination as the fastest growing PDT alternative. Additionally, its patent was also recently incorporated into the U.S. FDA publication commonly known as the Orange Book, providing Ameluz PDT with the protection against generic competition through October of 2014. Having built strong brand awareness these past two quarters, we along with much of the dermatology community are looking forward to the commercial launch of RhodoLED XL by the end of this year. As part of our commitment to advancing treatment options and patient care, we have pledged support to many significant relevant societies and foundations. We recognize May a skin cancer awareness month through our support of education focused initiatives. We also attended The Skin Cancer Foundation’s Champions for Change Gala 2022 in New York, with proceeds from the fundraiser supporting life saving educational campaigns, community programs and research initiatives. We see growing therapeutic value as a key metric of our medical affairs initiatives and we will continue to take advantage of opportunities like these to present our company and products and hosts demonstrations, roundtables and other educational sessions. Our commercial strategy includes a new model for inside sales support that we implemented at the beginning of this year, optimizing our sales productivity by allowing our existing sales force to deepen customer relationship, while inside support expand reach and frequency to some of our newer and smaller accounts. We’ve also made progress building our key account management team, which supports the evolution of our industry to larger corporate practices and buying groups. The team has developed a robust database and analytical tools to effectively evaluate the key account opportunities and potential. This data supports two new key account initiatives to expand Ameluz PDT adoption. The first initiative positioned our territory managers to support the expansion of PDT adoption and optimization of PDT implementation within key account clinics. The second program is the flagship initiative to identify a model PDT clinic within targeted key accounts. This flagship clinic will then serve as a model for PDT implementation and will be replicated within other key account clinics. Our key account team will help build value and relationships across this division of our industry and strengthen the share of voice Ameluz PDT has across the market. As we look to the second half of 2022, we are rolling out an enhanced sales training program to increase salesforce effectiveness and execution, and allow for an ongoing performance evaluation and development process. So in conclusion, the recognition we have received this year is gratifying and demonstrates the positive impact of strengthening medical affairs and establishing Biofrontera as a trusted partner to dermatologists. Gaining PDT market share results from growing therapeutic value, a key metric of our medical affairs initiative and our brands are being increasingly preferred by dermatologist, patient advocacy groups and others as a therapeutic option that continues to innovate and improve patient outcomes. We look forward to a productive second half of 2022 and beyond, advancing our therapies within dermatology and working toward the commercial launch of RhodoLED XL. With that, overview, I’d like to conclude our business update. Thank you for again for taking the time to participate on this conference call. Operator, we’re now ready to open the line for questions.

[Operator Instructions] Our first question will come from Jonathan Aschoff with ROTH. You may now go ahead.

Thank you. Hi, guys. Can you help us with the likely magnitude of pre-price hike buy-in in the first quarter?

I’m sorry, Jonathan, what did you say, can I help you with understanding the magnitude of pre-price hike buy-in?

Yes. How much of it compromise what would have come in second quarter because it was bought in the first quarter?

I don’t know that we have released guidance on a quarterly basis. I’m not sure that there’s a specific amount there. But there was a -- there’s certainly some dip in Q2 that we would have expected that happened in Q1 that is resulting in us maintaining a 30% growth for the end of the year. So not a significant amount but enough that we dipped below performance for prior year.

Okay. Also is the current quarterly SG&A rate, a good go forward rate for the quarters and the second half?

I would say there are some expenses in the SG&A that relate to the financing transaction, the issuance costs and some legal expenses that are in there that are not part of a normal run rate.

Okay. That’s helpful. And lastly, may we have a trial by trial update of BFRs [ph] ongoing trials and any changes to the timing of the expectation of data release?

Yeah. Hermann, would you like to answer that one?

Yeah. Yeah. I’m happy to take that one. Hi, Jonathan. So, first of all, I’d like to remind everybody that the clinical trials are run by our licensor, the German Biofrontera group. Our license agreement for Ameluz obligates this licensor to conduct and finance the clinical studies required for certain defined label expansions. So the first study that we started about this was a Phase 3 study evaluating Ameluz PDT for the treatment of superficial basal cell carcinoma and that study is now approximately 80% and hold, and we are slowly but surely approaching completion of this study, which has so much -- which was so much hampered to the TDS protocol that was requested by the FDA. Then by the end of last year, we started patient enrollment in a Phase 2 double blind randomized study evaluating Ameluz PDT for moderate to severe acne. This study was temporarily interrupted early in the year and the protocol was improved by optimizing the parameters of an automatic imaging system that determines acne severity. The use of this system does actually provide inter center reliability and comparability in acne stability assessment. And as such, it is an important component in our efforts to standardize clinical parameters, learn as much as possible for the next stage of clinical development, which is, of course, the pivotal Phase 2 trials. In the ongoing study, we plan to enroll the total of 126 patients. Patient enrollment has in the meantime resumed after the interruption and we are now at approximately 15%, including patients waiting under observation. In December 2021, we further enroll the first patient in the Phase 1 safety study, evaluating safety and tolerability of Ameluz for the treatment of AK located on the face and scalp, together with our new RhodoLED XL lamb when three tubes are used simultaneously. And in this study 60 of the 100 subjects that we plan to enroll have been recruited into the study and received treatment. We expect all the ongoing Phase 3 trials interface run trial to readout in 2023. On top of that, more Phase 3 trials with Ameluz are currently being put out, with the goal to start them later in the year and early next year. These studies will aim at improving our label for the treatment of AK to include first of all out of body regions and just face and scalp, and to add a proprietary treatment protocol that simplifies the PDT procedure for both patients and doctors and reduces pain during elimination. This protocol is related to the patents that Erica mentioned that was actually approved in the in Australia, and obviously, we expect approval in the United States later. I would also like to emphasize again that providing more scientific data and broadening our label will greatly contribute to improve the market position of our products and we do everything we can to support our licensor aim to conduct of the studies in the most time efficient way.

Thank you, Hermann. Thank you very much.

Our next question will come from Bruce Jackson with The Benchmark Company. You may now go ahead.

Hi. Good morning and congratulations on all of the progress. I’d like to begin with Xepi, you mentioned it in your prepared remarks. Have you been generating any revenue from Xepi?

So just to jump in, hi, Bruce. How are you? We have not…

Good.

… had a trem -- we’ve not been tremendously focused on Xepi in the past few quarters. I think there was some issues going on with their manufacturer, which I believe was, publicly, disclosed a while back, where they actually closed their facility, they went bankrupt. And so in the effort of building a new facility, we’re short of mitigating any risks that could come from that by managing the inventory and so we are supporting sales and pushing it forward, but not being as aggressive as we intend to be once the second manufacturing site is up and running.

Okay. So when we’re looking at the revenue numbers for the first half of the year, that’s pretty much Ameluz.

Yeah. That’s a good way to look at it.

Okay. Okay. Next question is around the sales and marketing, I mean, you mentioned that there’s some one-time items in the current quarter. Looking forward, we’ve got -- you’ve been very active on the sales and marketing front. So looking at the forward forecast for sales and marketing, are you still thinking about hiring more reps, conducting additional marketing activities, can give us kind of just a general idea of where sales and marketing expense might go in the next few quarters?

Sure. I would say that, you’re not going to see massive financial expansion of the sales and marketing line. But you will see development there. As I mentioned on the call, with the new sales training, the new inside sales support and the advancement of the key account group, the expenses are already in motion, but the effect of that has not yet really come full circle. And we’ve also recently kicked off some research studies as well on the marketing side that are that are going to come in the next couple of quarters. So expenses are probably on a reasonable runway, what you’re looking at, but the benefit of all those expenses should pick up in Q3 and Q4. In terms of…

Okay. Great.

… expansion of the actual salesforce, I think, I mentioned on the call, we will plan to do that in the beginning of fiscal year 2023.

Okay. Okay. And then last question about the novel illumination protocol. So you announced the patent in Australia, Hermann mentioned that, its part of the simplified pain reducing protocol. Do you have a U.S. patent in the works or what’s the IP position in the United States, number one. Then how does that impact the reimbursement for the procedure in the United States, if you do get it approved? And then, third, is this something where you could go back to the FDA, like you did with the RhodoLED XL and get into the Orange Book?

Hermann, do you want to start…

Yeah.

… with patent question and then I -- yeah.

Yes. I can talk about the patent and the FDA. Part of its -- this is a patent that is filed worldwide, almost worldwide. So it’s also filed in the United States. But it’s quite usual that the Australian Patent Office grants patents first and then other countries follow. So we expect the FDA, not the FDA, the U.S. Patent Office to grant that patent. Now sometimes it’s always difficult to predict about the patent office, but we are very confident that this is going to happen. And once we get it into our label to the -- to FDA approval, which will require first three trial, do we think that kind of illumination, then this patent will further protect Ameluz for pretty much another 20 years. So this is a very, very important aspect of our long-term strategy to further protect our product, and at the same time, make it easier to use for the doctors and illuminate the pain or at least greatly reduce the potential pain that patients feel under PDT by doing it in the way described in the patent. On reimbursement, that shouldn’t have any effect. But, Erica, do you want to elaborate on that one?

Yeah. Yeah. I was going to say, basically the same thing. The reimbursement is really driven by prices and cost, and as well as what’s in the label. And so when we look at reimbursement opportunities with the FDA, it’s really about when we see label expansion or new indications or advancement in the pipeline, that’s when we’ll be able to evaluate our reimbursement strategy.

Okay. Great. Thank you very much.

Thank you.

Okay. That’s all…

So, thank you -- yeah, thank you both for those questions. So I understand that we had some questions come in through email to the Investor Relations team. So, Tirth, I’ll ask if you could read those out for us, please.

Thank you, Erica, and Hermann. And thank you to all the shareholders who submitted questions. We’ve compiled the most commonly asked themes into the following two questions. The first being, is Biofrontera considering M&A as an additional lever for growth?

Thank you, Tirth. As I mentioned earlier in the call, we do intend to be opportunistic when it comes to positioning ourselves to strengthen our strategic position. This includes evaluating a variety of ways to expand our business, including new products or companies, including even our former parent company and current licensor Biofrontera AG if the situation were to present itself. Regardless of the approach, we do not intend to be a one product company, essentially opportunities to scale our business more quickly, mitigate business risk and pursue new growth opportunities that bring shareholder value are all levers for growth to be considered.

Thank you. And we have one more question, our final question. Why do you believe that the revenue growth is going to accelerate compared to earlier years?

Sure. Thank you. So I guess that you could kind of break into two sections, to accelerate immediately in the coming year versus a longer term acceleration. And as we’ve stated on this call and on previous calls, we are heavily investing into a rapidly -- and rapidly expanding our commercial infrastructure, with the strategy that I’ve laid out today with the inside salesforce, the key account management and enhanced training platform, new market research. We fully believe that we have put all the tools in place to see rapid expansion just based on the infrastructure we have today. Further, we’re going to expand the salesforce as we look to 2023 and as they develop as sales professionals in conjunction with all of these tools that we’ve built this year, we expect to accelerate even greater as a result of that. But on a broader level that, there are several crucial factors in the treatment of actinic keratosis that have recently changed to our advantage. First, the latest change in CPT codes for PDT, which are the codes that determine the value of payment for practitioners. They have made PDTP reimbursement more adequate compared to previous years when doctors were more frequently were receiving a larger amount for treatment of cryotherapy. And secondly, in recent years, the medical community has been learning about the need for field therapy, as opposed to lesion-specific therapy, particularly for fields affected by multiple actinic keratosis, cryotherapy cannot be applied on fields. Ameluz is the only PDT treatment approved for field therapy and is ideally suited for those patients. And our investment into clinical development of PDT is unparalleled and really should propel Ameluz PDT into much broader use. And I would say, finally, on the broader scale of acceleration, when you look at our organization and our products, no other treatment option for AK has ever been shown to reach anywhere near Ameluz’s affected total patient efficacy of 91% in Phase 3 trials. So we are bringing an extremely strong productive product strategy to market and it -- we really believe that all of the pieces are in place to see an aggressive acceleration of this product over the next few years.

Thank you. That was all of the submitted questions.

Thank you, Tirth. And so thank you for those additional questions to everybody that sent them in. In closing, I’d like to reiterate that we are looking forward to continued strength in commercial execution during the second half of this year and we are affirming our guidance for full year sales growth of at least 30%. We look forward to speaking with you again when we report our third quarter results. In the meantime, have a nice day and a good weekend everybody. Thank you.

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