Biofrontera Inc. (BFRI) Q1 2023 Earnings Report, Transcript and Summary

Welcome to the Biofrontera Inc. First Quarter 2023 Financial Results and Business Update Conference Call. [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 first quarter 2023 financial results and business update conference call. Please note that certain information discussed during today’s call by management is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that Biofrontera’s management will be making forward-looking statements and that actual results may differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company’s business. All risks and uncertainties are detailed in and are qualified by the cautionary statements contained in Biofrontera’s press releases and SEC filings. Also, this conference call contains time-sensitive information that’s accurate only as of the date of the live broadcast, May 12, 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 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 referring to adjusted 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. I would like to turn the call over to Hermann Luebbert, Executive Chairman and Founder of Biofrontera. Hermann?

Yes. Thank you, Tirth and thanks to everyone joining us today. I am here together with our CFO, Fred Leffler. We appreciate your interest in Biofrontera. And before we move on to more details on our sales performance, I would like to inform you that Erica Monaco has resigned from the company as CEO. Erica has been part of Biofrontera’s team for 7 years, starting as Director of Finance and Operations and growing to then a company – the company’s IPO as Chief Financial Officer. Following the IPO, I stepped back from the role of CEO, which I had to go held to become Executive Chairman and Erica led Biofrontera as CEO since. We thank Erica for her great contribution to building this company and wish her all the best in future endeavors. As Executive Chairman, I am taking over the responsibilities of the CEO to ensure we maintain uninterrupted focus on our core business priorities and signal confidence to the stock market. With that, I look forward to reviewing our strong start to the year and our plans going forward. I’m proud of all our teams for supporting sales execution. There are a number of factors that will drive our goals both near and long term. Today, I’ll discuss our progress across several of these areas, including expanding Ameluz use, the growth and maturation of our sales force and Ameluz label expansion studies. Let me begin with first quarter revenues. Total revenues for Q1 2023 were $8.7 million. Our prior year results were boosted by customer buy-in ahead of the publicized April 1, 2022, price increase. We didn’t have such a price increase this year, so we did not experience a similar buy-in effect. As a result, the year-over-year comparison is not a very useful indicator of actual business strength. In fact, Q1 of 2023 was historically strong in a very significant way. Looking at the first quarter, it was the highest volume first quarter in the company’s history, excluding last year’s first quarter, which – with the buy and boost. It was, in fact, 30% higher than the best Q1 we had before that did not profit from a price increase. Driving demand for Ameluz-PDT requires continued education of the market on the treatment of actinic keratosis with our products. To that end, we attended several industry conferences in the first quarter, including Maui Derm, the Winter Clinical, Miami and the AOCD spring meeting in West Palm Beach. We also have a significant presence at the American Academy of Dermatology Annual Meeting, the year’s largest and most prestigious dermatology conference. Improving brand awareness is critical to sustaining medical education initiatives. So while attending these conferences, we met with many current and potential customers and partners and held live demonstrations at our booth. As a lean organization, we carefully evaluate where our time is best spent to prioritize high visibility events where we are most impactful and can maximize sales leads. Another key driver of success is the size and maturation of our sales force. Maturation is especially important as customer education and relationship building takes time, while gold enables broader and deeper reach among customers. It was encouraging to see our sales force continue to improve in the quarter as they nurture customer relationships and gain experience and deliver across the board. We have made a significant investment in growing our sales force. As part of our expansion strategy, we added a new sales region and increased the number of reps by nearly 30% with coverage now encompassing 40 territories. This larger sales force enables us to cultivate the meaningful relationships with dermatologists that result in heightened brand awareness, broader adoption and consequently, higher sales. Following a productive and accelerating national sales meeting this past quarter, I see our collective force equipped to deliver on our goals as the more tenured reps continue to execute and the newer ones begin to ramp. While the current label of Ameluz and market opportunities sufficiently supports our growth expectations for the near-term, several clinical studies evaluating Ameluz are on the track to maximize our path to potential label expansions and new indications. Every label extension makes another part of the large AK market accessible for us. Earlier this year, the first patient in a Phase 3 study evaluating the use of Ameluz PDT in the extremities, neck and trunk was enrolled. Meanwhile, 10 clinical centers have been initiated in the trial, which has now dosed 23 patients at 10 centers are screening patients very speedily and aim to enroll a total of 165 patients stratified by body region. With AK affecting an estimated 58 million Americans and driving approximately 13 million treatments annually, there is a large and growing demand for a highly effective therapy to treat actinic keratosis beyond the face and scalp. In addition, the last patient has recently been treated in an open-label multicenter Phase 1 safety and tolerability study, investigating three tubes of Ameluz per treatment. Actinic keratosis treatments using three tubes benefits both patients and providers by enabling physicians to treat a wider effective surface area potentially requiring fewer office visits for the patient. This safety study has the potential to be the final study required for FDA approval for three-tube treatment and FDA submission of the study report is planned in Q4. Following the successful outcomes of these and other studies, potential label expansions can significantly improve our competitive position and create opportunities to drive significantly more revenue. We look forward to providing updates later this year. We also continue to evaluate opportunities for portfolio expansion, prioritizing areas of interest along the continuum of diagnosis, treatment and post therapy for non-melanoma skin cancer as well as additional conditions that our dermatologists treat. While we are currently focused on scaling our current assets, we expect a diversified type of a portfolio to be important to our future growth plans. Before Fred gets into our financial details and results in detail, I would like to address a couple of additional company matters. We will be holding a special meeting of stockholders on May 22. The purpose of this meeting is to vote on the proposal to effect a reverse stock split. Given the price of our – of Biofrontera’s common stock earlier this year, we received a non-compliance letter from the NASDAQ. The attend of this proposal to reverse stock split is to increase the per share price of our stock in order to regain compliance with the minimum bid requirement for continued listing. We also believe the reverse stock split will make our common stock more attractive to a broader range of investors. We encourage all shareholders to vote for the reverse stock split and believe it is in the best interest of the company and all shareholders. We are also taking steps to strengthen our capital position. We now have a line of credit to help address seasonal inventory purchasing requirements. This will help reduce cash drawdowns during the fourth and first quarters when we tend to have the most customer demand. So to summarize, I am very encouraged by our start of the year, while revenues were down year-over-year due to the tough comparison, the volume trends are positive and showed historic strength this past quarter. We remain on track to grow revenues by 25% or more this year driven primarily by Ameluz revenue and a maturing sales force. We expect to have the financial flexibility to execute and make the necessary investments to accelerate growth. And given our sales expectations and financial discipline, we remain confident that we will reach cash flow breakeven within the next 2 years. With that, I’ll turn the call over to Fred to walk through the financial details of the quarter.

Thank you, Hermann. Total revenues for the first quarter of 2023 were $8.7 million, and this compares with $9.8 million for the first quarter of 2022. As Hermann mentioned, because we did not increase the price of Ameluz on April 1 of this year, we did not benefit from the buy-in effects we experienced last year in 2022. Yes. This 11% year-over-year revenue decline includes record sales volumes for the month of January and February. We routinely analyze various trends in order to provide – in order to get a better understanding of the strength of the underlying business. The key metric we examined is monthly tube volumes. In fact, March of 2023 this year, was the 5 highest volume month ever exceeded only by months that preceded buy-ins ahead of price increases. Our first quarter volume was clearly strong and provides good evidence that we are executing well. We are comfortable with the very positive underlying trends in the business. Total operating expenses were $14.2 million for the first quarter of 2023 compared with $12.9 million for the first quarter of 2022. Cost of revenue was $4.6 million, which was about 11% lower than the prior year due to lower Ameluz revenue driven by the buy- in 2022 ahead of the price increase that’s been previously mentioned. Total selling, general and administrative expenses were $9.8 million in the quarter, up 27% versus first quarter of last year. This increase was primarily driven by increased legal expenses resulting primarily from a legal settlement in the first quarter. Net loss for the first quarter of 2023 was $7.5 million or $0.28 per share compared with a net income of $5.6 million or $0.32 per diluted share for the prior year quarter. Adjusted EBITDA was negative $4.0 million for the quarter compared with negative $2.4 million last quarter. This change primarily reflects revenue this past quarter compared to last year. I will refer you to the table in the news release we issued earlier this morning for a reconciliation of GAAP to non-GAAP financial measures. Turning our attention to the balance sheet, as of March 31, 2023, Biofrontera had cash and cash equivalents of $13.5 million and equity investments of $7.6 million. Our leading therapy in commercial infrastructure positions us well for the future, yet we require additional capital to build momentum, scale the business and reach critical mass and ultimately, profitability. We have undertaken a few initiatives to fortify our capital position. We have recently entered into a secured line of credit to support our working capital needs from which we can borrow up to $6.5 million. This is readily available and efficient inventory funding to help meet our seasonal customer demand and manage our working capital in an efficient way. Looking ahead, there are several indicators that give us confidence we will be cash flow positive within the next 2 years. The Ameluz-PDT market opportunity is sufficiently large to reach those revenue levels, and we expect our market share to continue to grow. Our strengthened sales force and medical teams will accelerate growth as new hires ramp up their productivity. We expect expense leverage as revenues grow. Additionally, our COGS will continue to decline as a percentage of revenues per our licensing agreement and operating leverage should improve given the relatively stable G&A costs. And our financing initiatives include the line of credit I previously mentioned, and we are looking into resources to optimize execution and make necessary investments to drive incremental growth and reach critical mass. As a result, we are reaffirming our 2023 financial guidance for the year. We expect growth in revenue to be at least 25% compared to full year of 2022, and we also expect to be cash flow positive within approximately 2 years, as I have just outlined. So, with that overview of our business and recent financial performance, Hermann and I are now ready to take questions from our coverage analysts. Operator?

[Operator Instructions] Your first question is coming from Bruce Jackson of Benchmark Company. Bruce, your line is live.

Good morning and thank you for taking my questions. I wanted to talk about the sales cadence. The timing of the price increases has often been kind of a moving target in terms of modeling the revenue and I understand you had some impact this quarter with the timing of last year’s price increase. In terms of future price increases, are you going to like try to time those in like for the same quarter every year, or is this something where it’s going to continue to be a moving target?

Good morning Bruce. We have not yet decided on the next price increase. Obviously, other price increases are going to come. But at this point in time, we cannot answer your question.

Okay. Fair enough. And then in terms of the sales force, you have been expanding the – have plans to expand the sales force. I am just wondering what is your current thinking on the staffing levels with the field sales force? And do you – and are you planning to do any further expansion?

What we have now, as we reported, expanded the sales force to 40 territories in five regions. And every sales force expansion is also, I mean strengthens the sales force, but it’s also a disruption because sales regions have to be realigned, so our new customer relationship has to be built. So, this is not something that you do on a regular basis and frequently. So, for the time being, we have to stabilize all the new customer relationships. And then we can see at what point it makes sense to grow the sales force further, but certainly not in the course of the next year.

Okay. So, no changes to the sales force, and that’s going to be stable. Last question for me, I am sorry if I missed this in the opening comments. With the trial for acting, what’s the current status on the enrollment?

With the – the acne trial is now actually recruiting quite speedily. As you know, it started out a bit slow, which was related to the relationship between clinical diagnosis and the diagnosis that was set with an automated computerized imaging system, which we used to make the diagnosis more objective. And in the beginning, we had quite some discrepancies between the clinical picture and what the computer said, which led to dropouts of patients. Now, this has been fixed, which was a major endeavor and a major step. And since then, the recruitment is actually speeding up greatly so that we are now at a – looking forward to finalize the study at this patient recruitment early next year.

Alright. That’s it for me. Thank you very much.

Thank you, Bruce.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Yes. Thank you for those questions, and thanks again to our listeners. With strong momentum from the first quarter sales volumes, we are focused on commercial and operational execution to hit our full year goals and maintain our path towards being cash flow positive. We look forward to speaking with you again when we report our second quarter 2023 results. Thank you and have a nice day.

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