Biofrontera Inc.
Q3 2021 Earnings Call Transcript

Published: 30 Nov 2021

[Operator:]

Welcome to the Biofrontera Inc. Third Quarter Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Pamela Keck, Head of IR. Please go ahead.

[Pamela Keck:]

Thank you, Matt. Good afternoon. And welcome to Biofrontera Inc. third quarter 2021 conference call. Please note that certain information discussed on the call today 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 actual results could 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. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, November 30, 2021. Biofrontera undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. During today’s call there will also be reference to certain non-GAAP financial measures. Biofrontera release these measures provide you all 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. And with that I would like to turn the call over to Hermann Lübbert, Executive Chairman of Biofrontera Inc. Hermann, please go ahead.

[Hermann Lübbert:]

Yes, thank you, Pamela. And good afternoon, everyone. Welcome to Biofrontera Inc.’s first quarterly conference call. I would like to start the call with a brief background on Biofrontera Inc. which became a publicly traded company just about one month ago. Biofrontera Inc. was founded in 2015 as the U.S. commercial arm of the Germany-based, parent company, Biofrontera AG to provide Biofrontera Inc. with the financial resources necessary to expand its marketing and sales activities the parent company decided to allow an independent listing on Nasdaq. Our business rests on long-lasting, exclusive licenses to market and sell two prescription drugs in the United States. Both drugs serve multi-billion-dollar accessible markets and the listing allows raising the resources required to build marketing and sales within Biofrontera Inc. such that we can address these huge markets effectively. In addition, the listing on Nasdaq offers us the opportunity to flexibly exploit market opportunities or cover short term financial needs such as in the case of the recent $15 million private placement we announced yesterday. The future of the entire Biofrontera Group clearly lies in the U.S. market as this is where our products face the greatest commercial potential. Significantly increasing marketing and sales efforts here is therefore the cornerstone for successful corporate growth. As some of you may know, I am the Founder of Biofrontera AG, the German parent company, and have been as CEO since inception. After originally agreeing to extend my term of office on the Management Board of Biofrontera AG until December 31, 2022, I have decided to remain at the disposal of the Group for a further three years. However, I would like to devote these three years to where I see the greatest benefit for the entire group, the growth engine, Biofrontera Inc. In view of the separation of the two Biofrontera companies, I feel I cannot effectively serve on both boards. Therefore, earlier this month I submitted my request for early retirement as CEO and member of the management board of the Supervisory Board of Biofrontera AG. Once the Supervisory Board of Biofrontera AG has released me from my duties on the Board of Biofrontera AG, I will fully devote myself to my duties as Executive Chairman of Biofrontera Inc. Joining me today is Erica Monaco, Chief Executive Officer of Biofrontera Inc. Erica will provide a more detailed overview of the business, our strategy and our third quarter financial results. Erica has shown outstanding leadership and has been a key contributor to our success in the United States from the earlier stages, from the development of the business structure processes and partnerships required to operate in growth to the launch of our license products and our commercial success in the markets. With that, I'll turn the call over to Erica.

[Erica Monaco:]

Thank you, Hermann. And good afternoon, everyone. By way of introduction, I am Erica Monaco Biofrontera's Chief Executive Officer. Prior to the IPO I was our Chief Financial and Chief Operating Officer. I've been with the company since our U.S. product launch in 2016. I'm pleased to be here speaking with you today. And I'm excited for the future of Biofrontera. Biofrontera, Inc. commercializes pharmaceutical products and medical devices for the treatment of dermatological skin conditions. Our flagship product focuses on the treatment of actinic keratosis or AKs as we call them, which are skin lesions that can sometimes lead to skin cancer. Actin keratosis are caused by excessive exposure to sunlight. We also market topical antibiotics for treatment of impetigo, which is a bacterial skin infection. Before telling you more about our company strategy and our products, let me introduce you to the financial results of Q3 and the first nine months of the year. In our third quarter financial update, our total product revenues were $4.3 million for the three months ended September 30, 2021. This is an increase of $1.1 million or 34% from our $3.2 million revenue one year ago. The increase was primarily due to higher sales of Ameluz, reflecting volume increases and to a lesser extent higher average selling price. Total operating expenses were $20.4 million and $5.6 million for the three months ended September 30, 2021 and 2020. Cost of revenue increased primarily due to higher sales of Ameluz. Selling, general and administrative expenses increased $12.9 million primarily due to an $11.25 million legal settlement expense. And to a lesser extent selling, general and administrative increased due to marketing campaign expense and increased headcount. Adjusted EBIDA was negative $3.8 million for the three months ended September 30, 2021 versus a negative $3.1 million during the same period last year. Adjusted EBIDA margin improved from negative 96.2% to negative 88.5%. Net loss for the 2021 third quarter, was $16 million, compared with a net loss for the 2020 third quarter of $3 million. Cash and cash equivalents as of September 30, 2021 were $1.7 million. As mentioned, following the quarter close, we raised gross proceeds of $18 million from the IPO. Furthermore, the private investment into our company, that we published yesterday, has provided gross proceeds of another $15 million to the company. We have also settled through today, outstanding warrants, which will provide another $5.8 million in funds to the company. As a growth stage company, we intend to be opportunistic in regards to potential financing activities. But we believe that the funds available today provide sufficient capital to support operating, investing, and financing activities through at least the next 12 months. Now moving on to our year-to-date financial results, our total product revenues were $14.9 million for the nine months ended September 30, 2021 and $10.2 million for the same time in 2020. It’s an increase of $4.7 million or 46%. The increase was primarily due to higher sales of Ameluz and even partially offset by lower sales of Xepi. Our revenue was directly affected by global COVID-19 pandemic starting in mid-March of 2020. From that point on rising in section rates and the resulting official recommendation by the American Academy of Dermatology to care for patients through remote diagnosis and treatment led to significant decline in numbers and widespread albeit temporary fact disclosures. After negligible product sales in April of 2020, we observed a slow recovery of our business in the summer of 2020. And later the first signs of stabilization in line with the usual seasonality of the remaining quarter. Doctors' offices reopened during the second half of 2020; at lease in parts. In-patients showed increasing willingness to undergo in-office treatments for AK. In the fourth quarter of 2020, we saw a seasonally strong increase in sales. The 46% increase in product sales year-to-date indicates that our revenue is recovering from this pandemic. Total operating expenses were $38.2 million for the nine months ended September 30, 2021 and $19.7 million in the same months of 2020. In 2020, we had reduced operating expenses to mitigate the risks to Biofrontera from COVID-19, and for served cash by multiple measures, including headcount reductions, mandatory furloughs, freezing of hiring and spend voluntary salary reductions from the Senior Leadership. During the pandemic, we focused our U.S. sales strategy on Ameluz and delayed the targeted relaunch of Xepi to improve product positioning. During 2021, we have resumed hiring, launched various marketing campaigns for our licensed products. And in addition, as mentioned earlier, we have incurred in $11.25 million legal settlement expense during the third quarter of 2021. Adjusted EBITDA was a negative $9.5 million and a negative $9.1 million for the nine months ended September 30, 2021 and 2020 respectively. Our adjusted EBIDA margin improved from a negative 89% to a negative 63.9% during the same periods. Net loss was $23.2 million and $10.8 million for the nine months ended September 30, 2021 and 2020 respectively. I refer you to the table in the news release we issued earlier today for a reconciliation of GAAP to non-GAAP financial measures. The long-term financial objectives include consistent revenue growth and operating margin expansion. Accordingly, we are focused on rapid market expansion, balanced with improved operating efficiencies, including effective resource utilization, information technology, leverage, and overhead cost management because traditional PDT treatments using a lamp are performed more frequently during the winter. Our revenue is subject to some seasonality and has historically been higher during the first and fourth quarters than during the second and third quarters. Given that we are pleased to see strong revenue growth in the third quarter. And we expect maintain that momentum as we strengthen our sales efforts and continue transitioning out of the COVID-19 pandemic. We're also pleased that our expenses have normalized for a growth focused company. Overall marketing and development goals align to form a commercial strategy that has uniquely positioned Biofrontera the leadership in the treatment of dermatological conditions. And with that, I'll briefly illustrate our commercial strategy. As Hermann mentioned on November 2nd, we completed an initial public offering. with gross proceeds of $18 million. The IPO proceeds along with the $15 million private placement that we announced yesterday and the $5.8 million in cash proceeds from outstanding warrants exercise through today will Biofrontera the flexibility and strength our advance our position as a leading commercial dermatology company. Our principal objective is to grow sales of our licensed products in the United States. Three key elements to our strategy include the following

[Operator:]

While we assemble our roster, please let me pass the call to Erica Monaco for some remarks.

[Erica Monaco:]

Thanks, Matt. Yeah, while we're waiting for the first question, I would just like to mention that as we establish our authority in the medical dermatology community. We look forward to our clinical trial results being published and expanding our market presence through supporting medical conferences and meeting with physicians and invest alike. This coming January Biofrontera will be participating at both the Winter Clinical Dermatology Conference and the Maui Derm Dermatologist Conference both in person meetings in Hawaii. We look forward to announcing more news about our participation there as we get closer to these conferences. Thank you. Okay, so thanks Matt. We can – I'm ready for the questions now.

[Operator:]

Thank you. Our first question will come from Bruce Jackson with The Benchmark Company. Please go ahead.

[Bruce Jackson:]

Hi, good afternoon. Thanks for taking my questions. If you could just start-off with maybe a housekeeping question on the share account. So, after the IPO we started 11.6. Can you tell us what the base number of shares are right now? And then how many warrants are still outstanding?

[Erica Monaco:]

So settled as of – we're still in the mix of settling, but it should be summer around 12.245 I believe. There's still a bit of activity swirling today that we're not sure if it has settled.

[Bruce Jackson:]

Okay. And then do you have a rough number for the outstanding number of warrants?

[Erica Monaco:]

I don't have that readily available, as I said, there have been a handful coming in live so we can certainly get back to you.

[Bruce Jackson:]

Okay. And so, you mentioned in the press release that the share of Biofrontera AG is going to be around 52%, 53%, something like that in the press release?

[Hermann Lübbert:]

We think that with some of the warrants now exercised, this is a moving target and right now we; question is of course, does it go below 50%? And we don't know that yet.

[Bruce Jackson:]

Okay. Fair enough. And then just to wrap up with the litigation expenses; is that all of litigation expense that's going to be in the Biofrontera income statement or is there anything left to recognized in the future?

[Erica Monaco:]

That is everything.

[Bruce Jackson:]

Okay. Perfect. All right. I'll hop back in queue.

[Operator:]

Our next question will come from Jonathan Aschoff with ROTH Capital Partners. Please go ahead.

[Jonathan Aschoff:]

Thank you. Hello and congrats guys on this has been a severe balance sheet fortification. Can you tell us some specifics as you're willing to get about what you plan to do and spend to increase the sales effort from now to maybe year-round 2022?

[Hermann Lübbert:]

Jonathan, we cannot hear you? We heard you well when you started and then you sort of disappeared?

[Jonathan Aschoff:]

Okay. Can you hear me now?

[Hermann Lübbert:]

Yes.

[Jonathan Aschoff:]

Okay. So, can you tell me some specifics to whatever extent you can, about what you plan to do and how much you plan to spend to increase the sales effort in the U.S. from here let's say to the end of next year?

[Erica Monaco:]

Sure. I don't know how specific I can be, because it is sort of a moving target based on the timing of the funds coming in. So, we are at – we're definitely looking to expand the sales force. We're at 32 heads right now and over time we want to get that above 50. I don't know if we will expand as rapidly – perhaps mid-year, next year we will see a good chunk of that eaten away at. The idea is to demonstrate rapid growth and expansion, but the timing should be structured such that it doesn't impact our ongoing operations.

[Jonathan Aschoff:]

Okay. And can you say much about the BCC trial timing or is the trial design just very, very difficult to make predictions with?

[Hermann Lübbert:]

The trial design is certainly a very difficult trial design because the FDA has requested the entire region of the skin where the BCC was to be dissected and then – and then sliced up and looked at by histology. So that leaves the patient with the scar. And so, it's difficult to find patients who want to go through the process and then they have a scar anyway. This is why recruitment has been slow. We started patient recruitment, the first patient, I think, in the end of 2018. So, we are already three years into the study. But we do think that we will be completing patient recruitment next year.

[Jonathan Aschoff:]

Okay. That's helpful. So, guys, as per my model, I have your pro forma cash that I have about $36.7 million, that's the warrants, the private, as well as the IPO and the little bit you had at the end of the quarter. I mean, I've got that going much longer than 2022. So, what am I missing is at least the next 12 months, just a lawyer statement or does it actually have any bearing to how long that cash might last?

[Erica Monaco:]

Say that again just the what's the specific question about the lawyer statement?

[Jonathan Aschoff:]

I'm just saying to say it lasts at least the next 12 months, is that just some boilerplate legal statement, or do you clearly have cash that's going to last substantially more than the next 12 months?

[Erica Monaco:]

Yes. With the pipe investment that’s settled, that we announced yesterday and the warrants that have been exercised, we have enough funds to last the next 12 months. That's not a boilerplate.

[Jonathan Aschoff:]

Okay. So, you would anticipate on spending that the cash on hand at roughly 36, some odd million dollars over the next 12 months?

[Erica Monaco:]

So, I don't know that we – as I said, this is a moving target. Our ultimate goal is to grow the business as rapidly as possible, but with the balancing act to make sure that our operating funds are sufficient. So, the growth strategy needs to be able to be supported by the funds. So, the timing of that, I don't want to commit to any specifics.

[Jonathan Aschoff:]

Okay. And well, that is it. Thank you very much.

[Operator:]

Our next question is a follow-up from Bruce Jackson with the Benchmark Company. Please go ahead.

[Bruce Jackson:]

Hi, thanks for the follow-up. I wanted to talk about the salesforce just a little bit more. So, once you get the new people on hired, how long does it take for them to become seasoned and fully productive?

[Erica Monaco:]

Yes, so that's a good question, actually. Minimum it takes extensive training over a couple of months. We like to have somebody fully functioning by the six-month mark. But to become a fully saturated rep in the marketplace, I think, we're still learning that. As we grow the business, we really don't know the answer of what the true potential is of a fully seasoned rep. So, we hope to grow not only our new reps to a certain level, but our existing reps as well.

[Bruce Jackson:]

Okay. And then, so as we're looking ahead to 2022 in terms of putting together the way that sales might ramp, should we be assuming that things start out kind of the current growth trajectory and then as the new sales people get added in, then we could see some acceleration at some point after that?

[Erica Monaco:]

I think that's a fair question. I would say yes. We have a really nice strategy to focus on our existing customer base plus expansion into the cryotherapy space as we discussed. So, in terms of growth, it's not as critical that our people are trained, it's more critical that our strategy is aligned and how we target them with our existing salesforce versus our new should be similar. So, I would think the growth will be a little bit more linear than you are thinking.

[Bruce Jackson:]

Okay. Okay, great. Thank you very much.

[Operator:]

Our next question will come from Thomas Flaten with Lake Street Capital Markets. Please go ahead.

[Thomas Flaten:]

Hey guys. Thanks for taking the question. Just I was curious, given that Biofrontera AG is charged with the clinical development, what obligations do you have under your – or what obligations do they have under your license agreement for Ameluz to continue to fulfill those obligations, or do they have the power to pull the plug on any of those development projects at their discretion or is there some joint operating committee that runs those?

[Erica Monaco:]

So, I'll let Hermann comment as well since he is here with and can speak for both, but they are obligated to fulfil under the license and supply agreement because there is a beneficial need for our future success here. And if they are to not produce under our expectations for this, we do have rights within the agreement to come in and take control of either relationships or processes as needed to ensure that these continue on.

[Hermann Lübbert:]

Yes. So, if they don't – if they discontinue the clinical trials or don't start them, then Biofrontera Inc. can actually take over through the clinical trials and then simply subtract all the cost that Biofrontera Inc. has because of those trials from the transfer trails for Ameluz.

[Thomas Flaten:]

Great. And then just a mechanical question. So, the legal settlement announcement came out this week but you posted the charge for September 30. Can you just explain the timing of the settlement and the accounting around that?

[Erica Monaco:]

Sure, yes. So, the settlement took place yesterday morning. But because we had not yet filed our Q3 earnings and this was a not known probable, estimatable, number, we needed to book it as a contingency at September 30. So that was just an accounting rule and requirement. But this settlement did take place yesterday.

[Thomas Flaten:]

Great, appreciate it. Thank you, guys.

[Operator:]

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

[Erica Monaco:]

Thank you, Matt. And thank you again, everyone for joining us this afternoon for our first quarterly conference call as a publicly traded U.S. company. I trust that we've shared our enthusiasm for the future of our product portfolio and Biofrontera’s position within the dermatology community. We look forward to speaking with you all again, when we report our annual results in March. In the meantime, thank you and have a nice evening.

[Hermann Lübbert:]

Thank you.

[Operator:]

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