Biofrontera Inc. (NASDAQ:BFRI) Q2 2023 Earnings Conference Call August 11, 2023 8:30 AM ET
Company Participants
Tirth Patel – Investor Relations
Hermann Luebbert – Executive Chairman and Founder
Fred Leffler – Chief Financial Officer
Conference Call Participants
Jonathan Aschoff – ROTH MKM
Bruce Jackson – The Benchmark Company
Operator
Good morning everyone and welcome to the Biofrontera Inc. Second Quarter 2023 Financial Results and Business Update Conference Call. [Operator Instructions] Please also note today’s event is being recorded. And at this time, I would like to turn the floor over to Tirth Patel with LHA Investor Relations. Please go ahead.
Tirth Patel
Good morning and welcome to Biofrontera Inc.’s second 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, August 11, 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.
With that, I would now like to turn the call over to Hermann Luebbert, CEO, Chairman and Founder of Biofrontera. Hermann?
Hermann Luebbert
Yes, thank you, Tirth. And my thanks to everyone joining us this morning. On today’s call I’ll provide an overview of our growth strategy and our accomplishments during the second quarter that helps lay the groundwork for many value-driving initiatives. Fred Leffler, our CFO, will follow with a discussion on financial results, and then both of us will be available to answer questions.
Starting with the business update, we have made tremendous progress across three critical areas, including expanding our sales force, optimizing our cost structure, and advancing R&D and clinical initiatives. Regarding sales, I would like to commend the team as we announced net revenue of $5.8 million, a 31% increase for the quarter year-over-year. While Ameluz makes up the vast majority of the revenue, we are proud to also share that 55 BF-RhodoLED lamps placed at physician offices during the quarter, more than twice the number a year ago.
The growing number of lamps in the field reflects both first-term installations and adding lamps among dermatologists already familiar with Ameluz-PDT. More specifically, of the 55 installations, approximately 20 sites already had one lamp in place and bought a second lamp to provide more Ameluz-PDT to their patients. The remaining about 35 offices are now set up to start Ameluz BF-RhodoLED-PDT. Clearly, lamp placements are a proxy for future growth, and we are delighted with the increasing recognition of Ameluz-PDT as an effective and patient-friendly treatment for actinic keratosis.
During last quarter’s call, we introduced our strategy for growing the sales team. We had achieved our goal of reaching 40 members. Subsequent to growing the sales force, we have also grown the medical and, with a new focus, reimbursement support. On today’s call, I’ll share some of the strategic shifts in our approach and how we intend to best utilize and support our sales force. To compensate for new strategic hirings, we have reduced the workforce in other parts of the business.
Certain metropolitan regions have consistently shown high sales results and great potential. To maintain a leaner and more strategic path of optimizing for growth, we are adopting a more surgical approach to our sales strategy. We will be channeling more resources, both in terms of human capital and medical affairs and reimbursement support initiatives, into metropolitan sales territories that have demonstrated high revenue potential. This includes enhanced training for our existing sales teams in these areas, expanded marketing campaigns, and a potential increase in the number of sales representatives down the road.
On the flip side, for regions that have been generating comparatively lower revenues and a lower return on invested assets, we have decided not to expand our sales teams or build out new territories, and in certain cases, we have redeployed those resources to areas with greater opportunity. This shift is being driven by data and optimizes our marketing stand. By being smarter and more intentional with our sales efforts, we are able to recalibrate our strategy if needed and ensure that we stay agile and responsive to market demands. By homing in on high-value metals, we can achieve better growth towards profitability.
During Q2, we made the difficult decision to implement a small reduction in force. The reduction was centered primarily around holds less crucial to our current phase of growth. This decision was driven by the necessity to streamline our operations and to reduce costs. However, while we took a step back in certain areas, we simultaneously took two steps forward in others, such as bolstering higher revenue-generating positions. By dialing in these adjustments, we have positioned Biofrontera to be leaner and more agile with a heightened focus on driving revenues.
Let me turn now to the innovation and R&D taking place at Biofrontera. A key value driver is our portfolio of active label expansion studies for Ameluz. Just yesterday, we announced that enrollment of all 186 patients is now complete in the phase 3 clinical study evaluating Ameluz-PDT 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 effective, less invasive, and cost-efficient therapies that treat BCC as well as underlying pre-malignancies without ionizing radiation. We look forward to sharing results from this phase 3 study in mid-2024. Adding SBCC to the label of Ameluz will allow doctors, in addition to treating individual SBCC lesions, to include these lesions into the treatment of larger sun-damaged fields with Ameluz BF-RhodoLED-PDT as it is currently approved for actinic keratosis. It is the next logical step in our goal to offer one field-directed treatment for all sun-induced neoplastic damage in larger skin areas.
Regarding expanding the Ameluz label within actinic keratosis, there is a large and growing demand for a highly effective therapy to treat AK beyond the face and scalp. We have an on-going phase 3 study evaluating the use of Ameluz PDT in the extremities, neck, and trunk, currently enrolling, and have dosed 58 patients across 10 centers. We aim to enroll a total of 156 subjects stratified by body region.
Lastly, after the final patient completed the clinical phase of the study, we are currently analyzing results from our open-label multi-center phase 1 safety and tolerability study, investigating three tubes of Ameluz per treatment. This safety study has the potential to be the final study required for FDA approval for the three-tube treatment.
Results will be available very soon, as we remain on track for an FDA submission before year-end. As most of you are aware, our PDT lamps, BF-RhodoLED and RhodoLED XL, are remarkable solutions in dermatology and the only red lights approved by the FDA for use in photodynamic therapy. However, the current infrastructure for PDT is mostly fixed and limited to dermatology clinics or specialized facilities.
Recognizing the constraints posed by the stationary nature of current PDT lamps and the growing demand for flexibility in treatment locations, in June, we have announced the acquiry of two granted U.S. patents and the engagement of a contract manufacturer to develop a new low-cost portable PDT lamp. The prototype is now under development and aims to deliver the quality of the RhodoLED lamps in a new and more accessible form, designed with both the physician and the patient in mind.
The lamp is designed to be compact and lightweight, enabling easy storage and allowing clinicians to bring the lamp to the patient. Its portability allows it to be an option at physician’s offices with space constraints for mobile dermatology clinics and for reaching remote or underserved areas. A portable lamp will furthermore expand our reach to more dermatologists and more offices.
From a sales perspective, it allows our sales team to give live demonstrations at physician offices. Being portable, a lamp can be transported in the back of a car or be presented easily at conferences. Our portable PDT lamp embodies Biofrontera’s commitment to innovative solutions that prioritize care and expand access.
I look forward to keeping you updated during the development process. As final example of our commitment to patient care and innovation, during the second quarter, we were granted a new patent related to a PDT protocol that is expected to be less painful but equally as effective. With an incubation between applications of the gel with exposure to light, with a wavelength spectrum similar to sunlight, followed by 10 minutes of red light illumination, this novel protocol is far more patient friendly.
This is the fourth patent protecting Ameluz granted by the U.S. Patent Office in the last 18 months, and it expires in April 2039. Friendlier protocols will help to increase the price for Ameluz by 5% on April 1st, causing dermatologists to accelerate some of their purchases into Q1. We have not raised the price of Ameluz in 2023, and thus revenues in Q2 2023 were not impacted by any such actions, and we are still ahead of our 2022 revenues, indicating strong growth and a solid second half of the year.
Total operating expenses were $14.5 million for the second quarter of 2023, compared with $10.7 million for the second quarter of 2022, and $28.7 million year-to-date, compared with $23.5 million for the first six months of last year. The cost increase of $5.2 million was driven by approximately $3 million due to our Salesforce expansion and increased investment in medical fares and reimbursement, along with some severance costs as we pivoted resources to more revenue-generating roles, as Herman mentioned.
And approximately $1.7 million of the increase was due to one-time legal fees from a settlement of litigation in the first half of 2023. Cost of revenue for the quarter was $2.9 million, which was about 13% higher than the second quarter of last year, and reflects higher sales of analysts.
Cost of revenue for the first six months was $7.5 million, compared with $7.7 million last year. Selling, general and administrative expenses were $11.5 million for the quarter, up approximately 15%. For the first six months of this year, SG&A expenses were $21.4 million, compared with $17.7 million in the first six months of 2022.
As I mentioned, the increase was primarily driven by realigning SG&A costs into revenue-generating functions, the expansion of our Salesforce, and also includes the non-recurring legal expenses. The net loss for the second quarter of 2023 was $9.8 million, or $7.23 per share. And this compares with a net loss of $850,000, or $0.90 per share, for the prior year quarter. I will note that these figures are on a post-split basis.
Net loss for the first six months of 2023 was $17.3 million, compared with a net income of $4.7 million for the first six months of 2022, which was primarily a result of the change in the fair value of outstanding warrants.
As net income or loss comprises multiple non-cash items, we refer to adjusted EBITDA for a better representation of the business’s status. Adjusted EBITDA was negative $7.9 million for the quarter, compared with negative $7.1 million last year. The decrease was driven by higher SG&A costs, partially offset by increased revenues. Adjusted EBITDA for the first six months of the year was negative $11.8 million, compared to $9.5 million during the same period in 2022. I refer you to the table in the news release we issued earlier this morning for reconciliation of GAAP to non-GAAP financial measures.
Turning to our balance sheet, as of June 30th, we had cash and cash equivalents of $4.5 million, compared with $17.2 million as of December 31st of 2022. Aside from operations, we have spent more on inventory in 2023 than I would like. Due to some lingering supply chain concerns into early 2022, we increased inventory orders in 2023. We are not anticipating making any inventory purchases for the first half of 2024 as a result, and we will 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 an optimized sales force able to produce higher returns, along with label expansion opportunities advancing on track, we are affirming our 2023 financial guidance. With the strongest months for PDP ahead of us, and based on multiple positive indicators for the year so far, we expect at least 25% growth in revenue compared with 2022, and expect to be cash flow positive within approximately one and a half years.
With that overview of our business and recent financial performance, Herman and I are now ready to take questions from our covering analysts. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] Our first question today comes from Jonathan Aschoff from ROTH MKM. Please go ahead with your question.
Jonathan Aschoff
Thank you, guys, and good morning. Sorry if you’ve mentioned this in the call. I’m juggling three calls myself. Did you update acne and trunk extremity enrollment? Or if you did not, can you repeat it?
Hermann Luebbert
We updated enrollment of the trunk and extremities. And that study has enrolled by now 58 patients. We did not update the acne enrollment. I would have to look at that for a few minutes. Maybe if you go on with the questions, I’ll…
Jonathan Aschoff
Yes, Herman, I can buy you that time by asking a financial question. The SG&A how is that going to look to the best that you can — that you’re comfortable giving? That was a decent top second quarter. So, how much of that is one-time stuff?
Hermann Luebbert
So, one-time, I don’t have that number off of the top of my head, i.e., the severance. But the run rate savings that’s excluding the increase in sales force is expected to be about $1.8 million after the — severance is cleared out and we hire one more physician that we were in the reimbursement area.
Jonathan Aschoff
Okay. So, it could be a little more than, say, $10 million a quarter. Something like that, maybe.
Hermann Luebbert
Maybe a little less than $10 million a quarter.
Jonathan Aschoff
Okay. All right. Even better. So, do you think the third quarter sequentially goes up, given that there was no 1Q price hike? Do you think that is something that will facilitate a bit more smooth revenue than you’ve had in prior years?
Hermann Luebbert
Yes. We are expecting the third and fourth quarter to be higher.
Jonathan Aschoff
Okay. Hopefully, the fourth quarter is substantially higher.
Hermann Luebbert
Yes.
Jonathan Aschoff
Because that should be a very strong bit of growth. Herman, if you still want some more time, I can ask…
Hermann Luebbert
I can give you the number.
Jonathan Aschoff
All right. Okay. For acne, what is it?
Hermann Luebbert
It’s 56 out of 126.
Jonathan Aschoff
Thank you very much. And the 58 patients of trunk extremities, out of how many wanted?
Hermann Luebbert
165.
Jonathan Aschoff
165. Great. So, my last question is, did you guys lose any of the people you hired when you hired that bolus of sales and marketing people?
Hermann Luebbert
We always have — like every company, we have a certain turnover of people, but not higher than other companies. We are pretty much on the average of companies of all kinds. We did not specifically lose people when we realigned the sales regions, no.
Jonathan Aschoff
Okay. That’s all I have. Thank you very much.
Operator
Our next question comes from Bruce Jackson from The Benchmark Company. Please go ahead with your question.
Bruce Jackson
Good morning and thank you for taking my questions. I wanted to get back to the seasonality in sales, just so I understand this correctly. Now with the price increase, you were talking about, is it this year or next year? You’re not taking the price increase.
Hermann Luebbert
Hi, Bruce. So, we have not taken a price increase since April 1st of 2022, and we are evaluating when we should do that and what that should be.
Bruce Jackson
Okay. And then — and so, when we’re looking at the back half of this year, will it follow that standard pattern where the fourth quarter is the biggest quarter of the year? Because in the past, sometimes, we had the forward buying in anticipation of the price increase in the following year. So, I’m just trying to kind of get my arms around this.
Hermann Luebbert
Understood. So, if there is some sort of price increase, we would expect to see significant buy-in, as we mentioned, that happened in the March — late February, early March of 2022. But typically, business goes up in the third and fourth quarter, naturally, as well. So, like I said, we’re evaluating different scenarios as far as the price increase goes. And – but regardless, we expect the third quarter and fourth quarter to have significant growth.
Bruce Jackson
Okay, good. That’s helpful. Then, I wanted to just congratulate you on getting the BCC trial enrolled. That’s been a major ordeal for you. Nice to have that complete. Can you help me understand how the pieces are going to come together with this approval? You said that the next step is field treatment. With the BCC lesions included, do you — do you have to get a separate label for that? Or with the data that you have now from this trial, can you immediately go to doing the field therapy with the different lesion types?
Hermann Luebbert
We have field therapy with Ameluz in the label already for actinic keratosis. And what it basically means is that we can — if we have a piece of skin, an area of skin with several actinic keratosis lesions, then we can treat that entire area, but not only the diseased spots. So, we can basically treat healthy skin, assuming that maybe under that healthy skin, there is — there are other things hiding that are not yet visible. So, that’s what we have in the label. And getting BCC approval, what that means is that if one of these areas, which is heavily sun damaged, has multiple AKs and other sun damage, cosmetic sun damage maybe, if that also has superficial BCCs, then they can be treated along with the field treatment that we provide to the patient. So, we do not need field treatment specifically for BCC.
Bruce Jackson
Okay. And then, when we get the three-tube data submitted, then theoretically then sometime — if that’s end of the year then, it’s pretty much all systems are go for the field treatment then in 2024 and getting that out to the physicians?
Hermann Luebbert
Yes. So, the three-tube is important, has been holding us back since a number of years, the fact that we can only do one tube. And so, this is the final study. If we get that into the label towards the middle of next year, this should be a big jump in end sales actually.
Bruce Jackson
Okay. Great. All right. That’s it for me. Thank you.
Operator
And ladies and gentlemen, with that, we’ll be concluding today’s question and answer session. I’d like to turn the floor back over to Herman for any closing remarks.
Hermann Luebbert
Yes. Thank you all for those questions. And thank you to all the listeners. To summarize, I’m very encouraged by the strong sales growth we have delivered this past quarter and the increase in the number of BF-RhodoLED lamp installations. As mentioned, we remain on track to grow revenues by 25% this year driven primarily by Ameluz sales and the maturing sales force. We look forward to speaking with you again when we report our third quarter 2023 results. Thank you and have a nice day.
Operator
Ladies and gentlemen with that we’ll conclude today’s conference call and presentation. We thank you for joining. You may now disconnect your lines.
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