Biofrontera Inc.

Q1 2024 Earnings Conference Call


spk01: Welcome to the BioFrontera, Inc. first quarter 2024 financial results and business update conference call. At this time, all participants are in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's prepared remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Andrew Barwicki with Barwicki Investor Relations. Please go ahead.
spk00: Good morning and welcome to BioFrontera Incorporated's first quarter 2024 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 BioFrontier'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 BioFront Terra's press release and certain SEC filings. Also, this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, May 16, 2024. BioFront Terra undertakes no obligations 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 the press release announcing Q1 fiscal year 2024 results. 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, and amortization, and certain non-recurring or non-cash items. With that said, I would like to turn the call over to Herman Lubert, CEO, Chairman, and Founder of BioFrontera. Herman?
spk05: Thank you, Andrew, and many thanks to everyone joining us this morning. On today's call, I'll provide an overview of our operations during the first quarter, some events that occurred since the end of the first quarter, and discuss our business strategy for the remainder of the year. Fred Leffler, our CFO, will follow with a discussion on financial results, and then both of us will be happy to answer questions. I would like to start with the most positive event of the first quarter. We successfully renegotiated our license and supply agreement for Amalus with BioFrontera AG, reducing our costs significantly. We will now be paying 25% for Amalus during 2024 and 2025, compared to approximately 40-50% of our sales price under the prior agreement. This LSA will gradually step up to 35% by 2032. Any indication associated with ACNE will remain at 25% indefinitely. This represents the transformational event for BioFrontera Inc., significantly increasing our potential to become profitable in the near term. As part of this amendment, we will take over all US clinical trials effective June 1 which will allow for more effective cost management and direct oversight of the trial efficacy. The reduced costs of goods will allow us to finance R&D activities while continuing our commercial growth trajectory. With Amelus making up most of our revenue, we believe this is a unique opportunity moving forward. Furthermore, I'm pleased to announce that in February we raised $8 million minus financing expenses to support the growth and expansion of the company, including clinical trials. Later, the cost of the clinical trials will be covered in entirety by the savings from the reduced transfer price. Our February financing deal entailed warrants exercisable upon achievement of certain milestones by April 30th at the earliest. As we confirmed earlier this month, we have already met those milestones and as a result received another $8 million through the exercise of the warrants in early May. Contrary to these positive developments, our quarterly revenues were negatively impacted when in February a cyber attack against Change Healthcare, the largest billing and payment system in the US, affected thousands of medical practices. According to the AMA, the American Medical Association, 80% of physicians reported lost revenues from unpaid claims. The AMA, which is the nation's largest medical society, said the attack threatened the viability of physician practices across the country, with more than half of survey respondents having to use personal funds to cover practice expenses. Healthcare reimbursement, is a never-ending challenge with many changes occurring on a constant basis, purposeful or not. Having said that, I'm extremely proud of our team and the efforts with medical facilities, doctors' offices, and insurance companies to tackle working capital issues created by the Q1 Change Health Casaba attacks and to ensure full reimbursement is received wherever possible. We are working hand-in-hand with our customers, whether they are a small single provider office or a large medical facility, to ensure they have our products available and are appropriately reimbursed for their service to the patients. In spite of everybody's efforts, all this culminated in some customers either reducing their orders in Q1 or shifting their orders into Q2. which drove 9% lower Q1 revenue as compared to the first quarter in 2023. However, as we announced earlier, we have begun to see recovery, and as of year-to-date April 30th, 2024, compared to the same period last year, we have reported already more than 5% growth in revenues. Our BF Rotolab lamps, The devices that are used in combination with Amalus continue to be placed at physician offices throughout the country. A positive indicator for future growth is that in the first quarter 2024, we have placed 28 lambs, an increase of 115% compared to the first quarter of the prior year. The growing number of lamps in the field reflects both first-time installations and additional lamps among dermatology practices already familiar with Amalus PDT, facilitating growth through new and existing customers. We expect to begin selling the Rodolat XL, our larger five-panel lamp, towards the end of the second quarter this year. As part of the agreement with BioFrontera AG, we are in the midst of preparations for the takeover of the clinical trial departments for BioFrontera Bioscience. As of June 1st, 2024, members of the clinical trial groups will join our wholly owned German subsidiary, BioFrontera Discovery, GmbH, which subsequently will be responsible for the management of all clinical trials with Amelus and Bay of Odalette in the United States. At BioFrontera Discovery, We will not only be responsible for future clinical studies, but also for all ongoing trials. Currently, two clinical studies are enrolling patients, one for actinic keratosis on the neck and trunk and the arms and hands, the other for moderate to severe acne. These have recruited 57% and 74% of subjects, respectively. The third ongoing study for the treatment of superficial breast cell carcinoma is nearing completion of the one-year follow-up phase required for FDA submission. We expect the last patient to complete this follow-up phase before the end of the year. As I mentioned in the past, the Food and Drug Administration approved a new formulation of amylose without propylene glycol for the treatment of actinic keratosis. The production of this formulation will begin shortly and we expect delivery at our wholesaler in August. This will help improve tolerability for some of our patients while also reducing the generation of impurities over time, which may result in an extended shelf life once sufficient stability data is collected. With that, I'll turn the call over to Fred to walk through the financial details of the first quarter.
spk02: Thank you, Herman. And it is a pleasure to provide a financial update today on our first quarter results. Total revenues for the first quarter of 2024 were $7.9 million compared with $8.7 million for the first quarter of 2023. The decrease is due to healthcare reimbursement issues caused by the change healthcare data breach that created cash challenges for the entire healthcare industry throughout the quarter. As Herman mentioned, We have seen recovery, and I do not expect this to be a long-term issue and will continue to monitor for any further developments. Total operating expenses were $13.4 million for the first quarter of 2024, compared with $14.2 million for the first quarter of 2023. Cost of revenue was $4.1 million for the first quarter of 2024, compared with $4.6 million for the prior year quarter. with the decline in cost of revenue driven by the lower AMALU sales. I've mentioned in earlier calls that we are burning through inventory that we have on hand for most of 2024. Later this year, once we purchase new inventory, we expect to see the positive impact of the LSA amendment on our cost of revenues. Selling general and administrative expenses were 9.3 million for the first quarter of 2024, compared with $9.8 million for the first quarter of 2023. The decrease was primarily driven by a $1.1 million decrease in non-recurring legal costs and a $3,000 decrease in sales and marketing expenses. The decrease was primarily offset by a $700,000 increase in fees and issuance costs associated with our most recent private placement transaction, as well as a small increase in personnel expenses. The net loss for the first quarter of 2024 was $10.4 million, or a loss of $2.88 per share, compared with a net loss of $7.5 million, or a loss of $5.60 per share for the prior year quarter. I will note that the accounting for the B3 convertible preferred warrants had a large impact on this. We do not expect to have such an adjustment in the future. Adjusted EBITDA for the first quarter of 2024 was negative 4.6 million compared with negative 4.1 million for the first quarter of 2023. This reflects the lower revenues we saw in the first quarter of 2024. We look at adjusted EBITDA, non-GAAP financial measure, as a better indication of ongoing operations, and this measurement is defined as net income or loss excluding interest income and expenses, income taxes, depreciation and amortization, and certain other non-recurring or non-cash items. I'll refer you to the table in the earnings press release and the 10Q we issued yesterday for reconciliation of GAAP to non-GAAP financial measures. Turning to our balance sheet as of March 31st, 2024, we had cash and cash equivalents of $3.8 million. Keep in mind, we received $8 million from the exercise of B3 convertible preferred warrants on Tuesday, so we are in a much stronger position today. Our inventory balance as of March 31st, 2024 was $6.9 million. As I mentioned, we are burning through our inventory and we constantly monitor our inventory levels to ensure deliveries are made in accordance with our forecasts and we get to and maintain an industry standard of safety stock. Related to inventory, our assets include $5.2 million for replacement inventory. This is due to Biofrontera AG deciding on a voluntary recall of three batches of amylose. We were notified of the issue in February of 2024. The batches will be replaced at no cost to us, and we expect to receive these batches in the third quarter. This will not impact our ability to fulfill orders in the meantime. Finally, we had an outstanding balance of $2.4 million in short-term debt that we expect to pay down by early July 2024. With that overview of our business and financial performance, Herman and I are now ready to take questions from our covering analysts. Operator?
spk01: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster? The first question comes from Jonathan Ashoff with Roth. Please go ahead.
spk03: Thank you. Good morning, guys. My first question is, does that greater than 5%, you know, Jan through April sales result, is that a big underestimation of the actual growth that, you know, simply fits the definition of one of the two milestones you had to hit to trigger the second $8 million investment, or is it actually really close to 5%?
spk02: Hi, Jonathan. Fred Loeffler here. I can take that. That was based on the milestone, like you said, that we had to hit. We didn't issue the specific number, but can give an update on Q2, or we'll give the update on Q2 in August.
spk03: Okay. Are you guys still comfortable with cash flow break even around the year-end 25 or has that changed a bit?
spk02: That is still the expectation. As Herman said, we are taking on the clinical costs and we will start seeing the savings of the LSA amendments later this year through 2025 to help fund that. And as long as we operate and hit our budget numbers, don't foresee that as being an issue.
spk03: Okay. Did the last basal cell carcinoma patient have their final assessment last quarter, and therefore you're still expecting to give us data in the third quarter of this year?
spk05: That's correct. So the data we would provide, we expect to provide, are for the clinical phase. And the FDA wants us to submit the one-year follow-up. So the last patient out there would be in November or December. So the follow-up data would be available early in Q2 and then prepared for FDA submission.
spk03: Okay. And I remember hearing, you know, from the prior management that to dermatologists, if they had to cover a greater area and only allowed to use one tube, they would use the amylose, you know, a little thinner than indicated so they could cover a greater area. Wouldn't that kind of, I don't know, imply that if they can use more than one tube that they would definitely do that so they could get a higher reimbursement per procedure?
spk05: Well, doctors, of course, if they can, tend to to use the products according to label and the payers are more and more looking after that and so our currently ongoing submission fda submission for for three tubes is very very relevant in that respect and the timeline there hasn't changed so we expect um preliminary review results in early August, and then the PDUFA date is in November.
spk03: Okay. Could you just help us with the enrollment for acne and peripheral AK?
spk05: Yes. So the enrollment for acne and peripheral AK, I had the the numbers in the presentation. So for a second. So for peripheral AK, current enrollment is 57% of the patients. And for acne, it's 74% of the patients. of the subjects.
spk03: Thank you very much, guys. That was all.
spk05: Thank you.
spk01: The next question comes from Bruce Jackson with the Benchmark Company. Please go ahead.
spk04: Hi, good morning, and thanks for taking my questions. I'm trying to kind of search through the impact from change healthcare. So we're up 5% year-to-date. How do you think the rest of the year unfolds? So second quarter is generally seasonally weakened, and the back half year can have other anomalies to it. But how do you see the sales unfolding for the rest of the year?
spk05: Well, as Fred said, we don't expect this to have a long-term impact. It wasn't. an impact mostly in February and March when this actually happened and doctors were not paid for services. That's when all the services at doctors' offices actually came down, including, of course, PDT with Amelus. But then in April, we did already see the upswing and could not only make up for those 90% loss, As we said, it's more than 5% above last year. So we expect, we don't expect a long-term effect of this and still expect the same kind of growth that we did at the beginning of the year.
spk04: Okay. Okay. And then my second question is about the XL lamp launch. I think I heard you're going to be receiving I'm sorry, when is the XL lamp going to launch? That's my question.
spk05: It's going to launch by the end of Q2.
spk04: End of Q2. Okay, super. That's it for me. Thank you. Great. Thank you both. Thanks, Bruce.
spk01: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
spk05: Yeah, well, Thank you for everybody's time, participation, the questions, and we look forward to our next call where hopefully we can again present positive news. Thank you and have a nice day.
spk01: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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