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spk02: Welcome to the Nova Bay Pharmaceuticals first quarter 2023 financial results conference call. At this time, all participants are in listen-only mode. Following management's prepared remarks, we will hold a question and answer session. To ask a question at that time, please press the star key followed by the number one on your touch-tone phone. If anyone has difficulty hearing the conference, please press star zero for operator assistance. As a reminder, this conference is being recorded. I would now like to turn the conference over to Jody Kane. Please go ahead.
spk04: This is Jody Kane with LHA. Thank you for participating in today's call. Joining me from Nova Bay are Justin Hall, Chief Executive Officer in 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. In particular, there's uncertainty about circumstances beyond the company's control that impact the broader economy, such as rising interest rates and the conflict between Russia and Ukraine. This means that results could change at any time, and the contemplated impact of circumstances that impact the broader economy on NOVA-based operations, its financial results, and its outlook is the best estimate based on the information available for today's discussion. For a list and description of risks and uncertainties, please review NOVA-based filings with the Securities and Exchange Commission at sec.gov. Furthermore, the content of this conference call contains information that is accurate only as of the date of the live broadcast. May 11, 2023. NOVA Bay undertakes no obligation to revise or update any circumstances to reflect events or circumstances except as required by law. Now I'd like to turn the call over to Justin Hall. Justin.
spk03: Thank you, Jody. Good afternoon to everyone, and thank you for joining us. Today we're reporting good news with increased revenue from our core eye care vertical, driven by higher sales of Avanova spray through our physician dispense channel and by increased sales of our Avanova companion products, such as our warm compress, dry wipes, and oral supplements. More good news on the expense side of things with lower marketing spend due to our ability to optimize digital advertising programs. We also took steps to support future growth with product innovation and the introduction of new, effective, evidence-based products that meet consumer needs. So far this year, we've launched three new products and introduced our first co-promoted product. Now I'd like to share updates on each of our three verticals, eye care, skin care, and wound care, beginning with Avanova and our eye care franchise. I'm pleased to report that our efforts to deepen relationships with eye care specialists has paid off, with an uptick in sales in our physician dispense channel during the quarter. This channel represents a win-win for NovaBay and our eye care professionals who make our high-quality products available directly to their patients through their practices. As mentioned on our March investor call, we are proactively reaching out to optometrists and ophthalmologists by partnering with educational organizations with CE-accredited programs discussing dry eye disease. These programs help our customers meet continuing education requirements and provide us a platform for discussing the attributes of our eye care products. I'm also pleased with the performance of our high-quality Avanova companion products. As dry eye is a multifaceted and complex condition that may require more than one approach to gain and sustain relief, over the past several years, we've commercialized a portfolio of best-in-class products that address each step of the standard dry eye treatment regimen. These products build upon our brand recognition and our loyal customer base, making NovaBay a one-stop destination for those seeking relief from symptoms of dry eye and other ophthalmic-related eye conditions. Recent industry reports state that up to 49 million Americans suffer from dry eye symptoms, and the global market for treatments is expected to reach nearly $9 billion by 2030. Among the factors driving this market growth are the increased demand for effective treatments, the rising prevalence of dry eye disease, and growing awareness about the condition. Needless to say, we have plenty of growth opportunity for our full line of Avanoba-branded products. Moving now to Dermadoctor and our collection of skin care products. Last month, we launched our Comfort & Joy Psoriasis Therapeutic Moisturizing Cream exclusively on the QVC network through a special introductory offer. This is the first derma doctor product specifically formulated for the treatment in relief of the symptoms of psoriasis. This skin condition causes the body to make new skin cells in days rather than weeks. Psoriasis is a common skin condition afflicting about 125 million people worldwide and nearly 8 million in the U.S., with more than half of those people claiming it represents a significant problem in their everyday life. Psoriasis can show up anywhere on the body, including eyelids, ears, mouth, hands, and feet. Our Comfort & Joy Cream is appropriate for use head to toe and even on the most sensitive skin. It is steroid-free, fragrance-free, and includes salicylic acid to help relieve and prevent the reoccurrence of itching, scaling, redness, flaking, and irritation, while helping to restore the skin's essential moisture. Beginning in August, this product will also be available on dermadoctor.com and on Amazon. Earlier this week, our chief product officer, Dr. Audrey Cunin, returned to QVC as an on-air guest featuring our calm, cool, and corrected eczema balm, just in time for when spring allergies are triggering eczema flare-ups. This soothing balm provides temporary relief from eczema's redness, dryness, and itchiness. Like our psoriasis cream, This balm is suitable for use by the whole family anywhere on the body. We invite those suffering from eczema to view the derma doctor website to see the dramatic real life before and after pictures from actual product users. We proudly feature the National Eczema Association seal of acceptance on our eczema balm product label. Now turning to wound care. Our skin and wound cleanser products are marketed under the NutraPhase brand in China and under the Phase I brand in the United States and are used for cleansing and irrigating post-surgical wounds, minor burns, and superficial abrasions. Like our Avanoba spray, our wound care products are formulated with NovaBay's FDA-clared proprietary and antimicrobial form of hypochlorous acid. Among the advantages of hypochlorous acid is its ability to penetrate and kill biofilms. which represents a significant barrier to wound healing. Importantly, Nutraphase and Phase I are differentiated in the marketplace because they do not contain the toxic chemicals found in many other wound care products. Our formulation exhibits broad-spectrum activity against a range of gram-positive and gram-negative bacteria, making it highly effective, yet it is gentle, non-irritating, and non-sensitizing to skin and new tissue. We manufacture our wound care products here in the United States in large batch quantities through a proprietary process, and they're bottled in an amber glass for stability to ensure the safest, purest, and most powerful hypochlorous acid wound care cleanser on the market. With NutriPhase, we're pleased to announce a recent $1 million order from our partner, China Pioneer Pharma Holdings, a leading Chinese importer and marketer of branded pharmaceuticals and medical devices. We have shipped this order and expect to recognize the revenue from the sale in the second quarter of 2023. On the other side of the world, we commend our exclusive distributor, Phase One Health, for its donation of Phase One to hospitals in the Ukraine through a partnership with the nonprofit Helping Ukraine Foundation. It's a privilege to have Phase One available to Ukrainians during their ongoing conflict with Russia. Phase 1 is ideal for use in Ukrainian medical facilities due to its stable, potent, broad-spectrum formulation, and it can be used on wounds as frequently as needed. Lastly, we closed a $3 million convertible note last month. We appreciate the investors who participated in this financing and who continue to believe in our mission. The proceeds from this financing will strengthen our balance sheet and allow us to take another step towards profitability. Now I'd like to turn over our conference call to our Interim Chief Financial Officer, Tommy Law, to review our first quarter financials. Tommy?
spk06: Thank you, Justin, and good afternoon, everybody. Net product revenue for the first quarter of 2023 was $3.1 million and included $2.2 million of Avanova branded product sales, $0.8 million of Derma Doctor product sales, and $0.1 million of our Phase I branded wound care product. Gross margin on net product revenue for the first quarter of 2023 was 62 percent. This compares with 55 percent for the first quarter of 2022 with the increase primarily due to channel and product mix that favored sales of higher margin products and the impact of unanticipated product returns on first quarter 2022 results from expired Avanova spray sold prior to the launch of our over-the-counter Avanova spray product in 2019. Total operating expenses for the first quarter of 2023 decreased 13 percent over the prior year. This included a 17 percent decline in sales and marketing expenses to $1.7 million, which reflects lower Avanova digital advertising costs. G&A expenses decreased 9 percent to $2 million, primarily due to lower variable compensation costs. The net loss for the first quarter of 2023 was $1.7 million, or $0.85 per share. This compares with the net loss for the first quarter of 2022 of $0.1 million, or $0.08 per share, which included a noncash gain on changes in fair value of warrant liability of $2.1 million and noncash gain on changes in fair value of contingent liability of $0.2 million. There were no comparable items for the first quarter of 2023. We reported cash and cash equivalents of $3.7 million as of March 31st, 2023, compared with $5.4 million as of December 31st, 2022. As Justin mentioned, we completed a $3 million private placement of convertible notes and warrants subsequent to the close of the quarter. And now I'll turn the call back to Justin.
spk03: Thanks, Tommy. We're proud of our portfolio of innovative, evidence-based, and clinically proven products and are passionate about bringing these best-in-class products to a growing number of customers. With Avanova, Dermadoctor, Phase I, and Nutraphase, we have a solid foundation of established brands in the large and growing eye care, skin care, and wound care markets. We're taking steps to broaden our customer base with marketing campaigns aimed at expanding targeted demographics. Importantly, we're advancing all of these growth initiatives while prudently managing expenses. With that, I thank you for your attention. Operator, we're now ready to take questions.
spk02: Thank you. As a reminder, if you wish to register to ask a question in today's question and answer session, you will need to press star, then the number one on your telephone. If your question has been answered and you wish to withdraw your polling request, you may do so by pressing the pound key. If you're using a speakerphone, please pick up your handset before entering your request. One more moment, please, for the first question.
spk03: While we're waiting for our first question, I want to mention that Audrey will be returning to QVC as an on-air guest to promote several of our derma doctor products that address common but often overlooked skin conditions. We intend to announce the dates and times for her appearances in the coming weeks, as well as special pricing on the products she'll be discussing. Okay, operator, we are ready for the first question.
spk02: Our first question comes from Rafay Khalid from Ascendant Capital Markets. Please go ahead.
spk05: Hi, it's Rafay for Edward Wu, Ascendant Capital Markets. Congratulations on the quarter. Can you talk a little bit more about your products on QVC and how you plan to roll that out this year?
spk03: Yeah, so the two main products that we have up on QVC and that Audrey has been promoting are the two products that I talked about during the call. So it's the recently launched Comfort & Joy psoriasis cream, and then also the Calm, Cool, and Corrected eczema balm. So those are the two that Audrey promotes on air on QVC.
spk05: Great, thank you. And for the China sales, are those one-time and are they recourse or non-recourse sales?
spk03: Yeah, so Pioneer has been a really great partner of ours for very many years. So they have been distributing Nutraphase for many years. They have done a really great job in expanding the market over there and increasing demand. So While this particular purchase order is not anything new and it's not a new product, it certainly is the largest purchase order that they've ever placed with us.
spk05: Great. Thank you.
spk02: Our next question comes from Anderson Shock from Lattenburg-Solomon. Please go ahead.
spk01: Hi, Justin and Tommy. This is Anderson on for Jeff. Congrats on the QVC showing this week. We just had a couple of questions. First, could you discuss a bit about your various channels and any macro trends worth calling out there?
spk03: Yeah, so we're, I think, very lucky in the sense that we have multiple sales channels that are all very diversified and are not sort of, I would say, interdependent on one another. So both Dermadoctor and OTC Avanova rely heavily on the online sales channel. So that is sales directly to the consumer online from our website and then also the Derma Doctor website. I don't think that there's any sort of macro trend to call out there. I think that, you know, that particular sales channel is performing about as anticipated. But we also have international sales. Dermadocter sells in the Middle East. As I just mentioned, we sell our wound care products in China. And we also have the wholesale sales channel where we sell our wound care products wholesale to distributors and wound care professionals here in the United States. And we also do that with Avanova, as I mentioned, in our physician dispense channel. That sales channel is doing fairly well and about as anticipated. So we do have, I think, a varied sales channel revenue source that we can rely on. And there isn't, I think, any one particular trend to call out for any particular sales channel.
spk01: Okay, great. And then you mentioned you had a few products released this year so far. Do you have any other new product introductions planned for 2023?
spk03: No, so we're actually going to slow down a little bit on the product innovation and the launching of new products and focus more on selling through a lot of the inventory that we had. So those product launches were planned sort of mid-year last year. and then just came to fruition earlier this year. And, you know, we're glad to have them. They're really terrific and innovative products. But for the rest of the year, we're going to be focusing on optimizing ad spend and selling through our existing inventory.
spk02: Okay, great. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Justin Hall for any closing remarks.
spk03: Yeah, I'd like to thank everybody for joining us today and for their interest in NovaBay. We're excited about our recent progress and the promising future we envision for our company. We look forward to updating everybody on our second quarter investor conference call in August. Thanks again and have a nice day.
spk02: Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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