Biofrontera Inc. (NASDAQ:BFRI) Q3 2023 Earnings Conference Call November 10, 2023 10:00 AM ET
Company Participants
Tirth Patel – IR
Hermann Luebbert – Chairman, CEO and Founder
Fred Leffler – CFO
Conference Call Participants
Jonathan Aschoff – ROTH
Bruce Jackson – The Benchmark Company
Operator
Good day, and welcome to the Biofrontera Inc. Third 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.
Tirth Patel
Good morning, and welcome to Biofrontera Inc’s third 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 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 determined in accordance with GAAP. 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 nonrecurring or noncash items.
With that said, I would now like to turn the call over to Hermann Luebbert, Chairman and CEO and Founder of Biofrontera. Hermann?
Hermann Luebbert
Thank you, Tirth, 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 Leffler, our CFO, will follow with a discussion of our Q3 financial results, and we will conclude with questions and answers.
During the third quarter 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 costs 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 bought over 140 years of health care and dermatology experience into our hands. Furthermore, we grew our medical liaison team to 7, working alongside sales on medical education.
Lastly, we initiated building an in-house field reimbursement team, helping doctors’ offices on site to solve issues they may face with reimbursement, and we increased our staff for sales training.
The investment in our commercial organization is a cornerstone of our growth strategy and our path towards becoming 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 in strategic accounts across the United States. The key elements of our strategy include the following: First, expanding our U.S. sales of Ameluz in combination with the RhodoLED lamps for the treatment of actinic keratosis on the face and skull, and positioning Ameluz to be the standard of care by growing our dedicated commercial and medical infrastructure. Second, leveraging the potential of future FDA approvals and label extensions of our portfolio products. And third, opportunistically adding complementary products to our portfolio to leverage our established commercial infrastructure and strong customer relationships.
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 Widdicombe as Senior Director, Strategic Accounts and Communications. 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 securing large and durable contracts that contributed to Biofrontera selling approximately 28,000 tubes of Ameluz in the third quarter, up from about 13,000 units in the third quarter of 2022.
This tube growth drove our third quarter revenue to $8.9 million, which represents a 106% increase from the third quarter last year. Our sharp year-over-year revenue increase is also driven in part by this year’s Ameluz price increase. As with many other industries, we are facing higher costs in many areas of our company, yet the Q3 price increase was our first in 18 months.
On October 1, 5% price increase caused some dermatologists channelize the purchases of Ameluz into the third quarter. As we look to the future, Biofrontera stands at an inflection point. Our expanded commercial organization is well positioned to generate growth and continue our market share gains.
As an example of our growing market share for Ameluz-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 BF-RhodoLED lamps as of September 30, reflecting a 180% increase over the prior year period, including to many offices where we installed BF-RhodoLED for the first time. These outcomes underscore the effectiveness of our enhanced sales strategy, and we are confident that our strategic investments will heed long-term benefits for our stakeholders. Innovation is at Biofrontera’s score, and I’m proud of our work in advancing key label expansion, clinical trials for Ameluz and also of the formulation of Ameluz itself.
Following a 4-year research project together with our partner, Biofrontera Bioscience, approval was recently received from the FDA for a new formulation that eliminates potential risks of propylene glycol, an ingredient found in multiple semi-solid formulations that we have replaced due to exhibiting allergic potential and chemically reacting with other components, causing certain contaminants to accumulate over time.
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 patent 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 2043.
Let me now turn to more innovation and R&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 multi-center Phase 1 study, evaluating the safety and tolerability of three tubes of Ameluz, demonstrating the treatment was generally well tolerated and treatment emergent adverse events were consistent with the U.S. prescribing information for one tube. There are benefits of treatment with three 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 pharmacokinetic 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 3-tube treatment, and we expect to hear back from the FDA by June 2024, which is approximately six months after submission.
We also announced that enrollment of all 186 patients is now complete in the Phase 3 clinical study evaluating Ameluz in combination with BF-RhodoLED for the treatment of superficial basal cell carcinoma or SBCC. Approximately two-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 pre-malignancies without ionizing radiation.
We look forward to sharing results from this Phase 3 study in mid-2024. In addition to treating individual SBCC lesions, adding this indication to the label of Ameluz will allow physicians to include SBCC lesions into the treatment of larger sun damaged fields with Ameluz-PDT as it is currently approved for clinical keratosis.
This is the next logical step in our goal to offer one field-directed treatment for all sun-induced neoplastic skin damage over larger surface areas. Regarding expanding the Ameluz label within actinic keratosis, there is a large and growing demand for a highly effective therapy to treat actinic keratosis beyond the face and scull.
Together with Biofrontera Bioscience, we have an ongoing Phase 3 study, evaluating the use of Ameluz-PDT on the extremities, neck and tongue that’s currently enrolling. To date, 72 patients have been dosed, with the aim to enroll an own 165 subjects stratified by body region.
Lastly, 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. Treatment of moderate to severe acne without the side effects of current treatment options is a significant unmet medical need in a 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 second FDA-approved prescription drug, XEPI. This is a topical cream that inhibits bacterial growth. Currently, no antibiotic resistance against XEPI is known and it has been approved by the FDA for the treatment of impetigo, which is a common skin infection due to staphylococcus aureus and staphylococcus pyogenes.
There has been very limited revenue XEPI to Biofrontera for some time, as problematic developments with a third-party manufacturer that was providing our supply have resulted in delays to our commercialization of the product. Our licensor, Ferrer, has been developing a new manufacturer, which now allows us to actively explore the options with this product, including a potential relaunch of the in early 2024.
With that, I’ll turn the call over to Fred to review the financial details of the quarter. Fred?
Fred Leffler
Thank you, Hermann, and good morning, everyone.
So it’s good to be chatting here and looking at a strong third quarter, beating our estimates. So starting with the top line. Net revenue for the three months ended September 30, 2023, was $8.9 million, an increase of $4.3 million or about 106% over the prior year. For the first nine months of 2023, net revenue was $23.5 million, up from $18.5 million last year. This growth was driven by the commercial expansion that Hermann described, increased adoption by dermatologists and buy-in ahead of a price increase for Ameluz on October 1.
Operating expenses were 13.5% for the third quarter of 2023 compared with $8 million for the third quarter of 2022. The $5.2 million increase included approximately $3 million due to our commercial expansion, increased investment in medical affairs and reimbursement, along with some severance as we pivoted resources to more revenue-generating roles 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 $42.3 million and this compares with $31.5 million for the first nine months of last year. About $2.2 million of this increase was due to legal fees, primarily from settlement of litigation in the first half of 2023, along with severance expenses in the commercial expansion that’s mentioned earlier and the increased cost of revenue.
So moving to cost of revenue. For the third quarter, it was $4.6 million compared to $2.2 million this year, which reflects the higher sales of Ameluz. Cost of revenue for the first nine months was $12.1 million compared to $9.9 million last year.
SG&A expenses were $8.7 million for the third quarter of 2023 compared with $7.9 million for the third quarter 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 third quarter was – sorry, the net loss for the third quarter of 2023 was $6.3 million or $4.64 per share, and this compares with a net loss of $2.6 million or $2.26 per share for the prior year quarter. I will note that these figures are in a split adjusted basis.
Net loss for the first nine months of 2023 was $23.7 million compared with net income of $2.1 million for the first nine months of 2022. As net income or loss comprises of multiple noncash items, I’ll refer you to – or we refer to the adjusted EBITDA as a clear reflection of the business’ status.
Adjusted EBITDA was negative $3.9 million for the quarter compared with negative $5 million last year. The decrease was primarily driven by increased revenues, partially offset by higher SG&A expense. Adjusted EBITDA for the first nine months of the year was negative $15.8 million compared with negative $4.1 million 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 $3.4 million compared with $17.2 million as of December 31, 2022. In addition, we had a $3.3 million investment in shares of Biofrontera AG as of September 30.
Subsequent to the close of the quarter, we raised $4.5 million 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 2024, 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 of us, which is fourth quarter. And based on multiple positive indicators, such as lamp placements that Hermann 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 one to 1.5 years.
So with that overview of our business, and the recent financial performance, Hermann and I are now ready to take questions from our covering analysts. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] The first question today comes from Jonathan Aschoff with ROTH. Please go ahead.
Jonathan Aschoff
Close enough. Thanks. Hi, guys. Good morning. I have a bunch of lamp questions. 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 that hinder the XL lamp production? Is the smaller lamp production hindered also by any similar issues, if any such issues still exist?
Hermann Luebbert
No, 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 lamps, the supply chain issues should all be solved and there are still two, three minor corrections out there. But we are confident that we’ll be able to launch that lamp in Q2 next year.
Jonathan Aschoff
Okay. And when you say in the first nine months of 2023, you increased the smaller lamp, BF-RhodoLED by 101, up sharply from 55 in the preceding quarter. That preceding quarter is at the end of the year last year, it 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?
Hermann Luebbert
No, we have lamps out there before. So the total number of lamps we have out there is actually much higher.
Jonathan Aschoff
Okay. But what –
Fred Leffler
Yes, Jonathan, as of the end of the quarter, we had approximately 650 lamps out in the field.
Hermann Luebbert
Okay. Because that statement then is quite confusing. It makes it sound there’s far fewer lamps out there than there actually are.
Fred Leffler
Well, we play – sorry, we placed 101 additional new lamps year-to-date in 2023 as of September 30. So the – my takeaway is that we’re really pushing that as a catalyst for adding new customers, growing those customers and the field therapy. So we want to get our footprint and our RhodoLEDs and XLs out in the field as much as possible.
Jonathan Aschoff
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 just hoovered up by the derms? Or do any of them sit around after manufacture?
Hermann Luebbert
Well, it’s – go ahead, Fred.
Fred Leffler
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 RhodoLEDs as we’re planning the launch of the XLs. I would not characterize it as they’re sitting around.
We’re trying 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 as well. They’re not going to be sitting around in a warehouse, if that’s the question.
Jonathan Aschoff
So as far as like manufacturing ratio of small to XLs, it’s still overwhelmingly small because of a little bit of supply chain residual on the XLs? Or what’s kind of that manufacturing ratio?
Hermann Luebbert
You mean on the XLs or the small lamps? So for the…
Jonathan Aschoff
What’s the ratio of small to XLs that you’re getting to the field over any period of time?
Hermann Luebbert
Would you expect that next year, the majority of the lamps that we will get into the field are actually the XLs because many doctors are waiting for that. 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.
Jonathan Aschoff
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?
Hermann Luebbert
Well, that’s still hard to tell. It’s also a question of 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 one or two years out.
Jonathan Aschoff
And you would expect the portable to eclipse the two currently available lamps, right? Or is the surface area not as big as the XL?
Hermann Luebbert
It’s not quite as big, but it’s also much bigger than with the current with the small lamp, so it’s somewhere two-thirds in between towards the XL.
Jonathan Aschoff
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.
Bruce Jackson
Hi. Good morning, and thank you for taking my questions. I wanted to start off with XEPI. So is the new contract manufacturer qualified yet?
Hermann Luebbert
The new manufacturer is qualified, so the pilot batches have been done, and the manufacturer has been – 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 three months stability on these batches, we can actually start selling them.
Bruce Jackson
And that was going to be my next question about XEPI, so we 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?
Hermann Luebbert
That hasn’t been fully determined yet, how to like best use of the product in our portfolio. And 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.
Bruce Jackson
Okay. Great. And then a quick question about the 3-tube data. Has that been submitted to the FDA yet?
Hermann Luebbert
Not yet. It will be submitted in the course of this month.
Bruce Jackson
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 is due to the price increase do you think in the third quarter?
Hermann Luebbert
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-in into that, then it’s almost a couple of thousand 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 fourth quarter, but not anything like the 100% we saw in Q3.
Bruce Jackson
Got it. So still up year-over-year and sequentially over the third quarter.
Hermann Luebbert
Yes.
Bruce Jackson
Okay, great. All right. Thank you very much.
Hermann Luebbert
Thank you, Bruce.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Hermann Luebbert for any closing remarks.
Hermann Luebbert
Thank you all for the questions, to analysts, and thanks to everybody again for listening in. To summarize, I’m very encouraged for the strong sales growth we delivered this past quarter and by the increase in the number of Ameluz tube orders and RhodoLED lamp installations. As I mentioned, we remain on track to grow the revenues at least 25% this year, driven primarily by Ameluz sales and a maturing commercial organization.
So we look forward to speaking with you again when we report our fourth quarter and full year 2024 results. Thank you, and have a nice day.
Fred Leffler
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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