Q3 2020 NovaBay Pharmaceuticals Inc Earnings Call
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They Pharmaceuticals conference call at this time, all participants are in a listen only.
No.
Following management's prepared remarks, we will hold acuity session asked the question at that time. Please press the star key followed by the number one on your Touchtone phone. If anyone has difficulty hearing the conference. Please press star zero for operator systems.
As a reminder, this conference is being recorded today November 12 2020.
I would now like turn the conference over to Jody Cain. Please go ahead.
This is Jody Cain with elite Jay Thank you for participating in todays call. Joining me from Novabay Pharmaceuticals are Justin Hall, President and Chief Executive Officer, and Andy Johnson, The company's 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 that real securities laws.
Forward looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results in particular, there is significant uncertainty.
D. about the duration and potential impact of the COVID-19 pandemic. This means that results could change at any time and the contemplated impact of Cove at 19, I know for base operations and financial results.
And its outlook is.
Is the best based estimate based on the information.
Available for today's call for a list and description of risks and uncertainties. Please review noble based filings with the Securities and Exchange Commission at SCC Dot Gov.
Furthermore, the content of this conference call contains information that is accurate only as of the date of the live broadcast.
November 12, 2020, Novabay undertakes no obligation to revise or update any statements to reflect events or circumstances, except as required by law now I'd like to turn the call over to Justin Hall Justin.
Thank you Jody and thank you everybody for joining us today.
This is an exceptionally exciting time at Novabay, we're reporting record quarterly earnings or I'm, sorry record quarterly unit sales and are finalizing the launch preparations for our groundbreaking products Stellarex clinical reset.
With this launch we will be creating a new opportunity for the company to expand by.
Turning to beauty market.
Im pleased to begin this call by discussing the successful execution on our strategy to expand our product portfolio to support growth under economic terms that make sense to novabay.
Following an extensive evaluation of product and market opportunities that capitalize on our hype of course.
And technology, we developed Stellarex clinical reset.
Clinical research is a differentiated product in the beauty category and like the Nova It is formulated with our patented pure hypochlorous acid, which unlike many of our competitors is manufactured here in the United States.
It's exciting to entered.
So it is a novel consumer use for our unique hydrochloric acid.
Clinical research is a gentle calming and soothing facial spray that disrupts the layer of bacteria that settles and grows on the face.
It keeps the skins not.
Because when this barrier is out of balance acne rosacea.
Internet infection can set it.
As the brand name suggests clinical reset gets the skin back to a healthy baseline to heal itself and to better absorb skin care products.
The use of clinical reset can replace or augment a morning cleanse for dry sensitive skin reduce bacteria after exercise.
Sizing comps again, following micro German abrasion and other aesthetic facial procedures and combat environmental aggressors.
During the pandemic, we have all learned the importance of personal health care and skin care is a part of that routine.
Using clinical research it is highly complementary to a data.
Daily beauty regimen and can be used on skin to on unclean skin or over makeup. This.
This product provides consumers with access to a product developed from an entirely new level of clinical research and rigor that is often missing from the traditional beauty industry.
As you May recall, we previously marketed stellarex.
Medical professionals for use by their patients to gently clean and ease discomfort following aesthetic dermatology and cosmetic procedures.
Clinical reset is based on a new approach in which we target a much larger market and sell directly to the end consumer.
We recognize the beauty industry is crowded with profit.
Alex However by leveraging our pharmaceutical pedigree, we anticipate clinical reset can cut through some of the clutter and potentially gain quick consumer acceptance.
To kick start the launch of the success, we have partnered with a tightened in the beauty industry, Sarah Redsun, who's very well known for building brands and has a long career.
It's tough calling trends before they take off.
She is passionate about clinical reset calling it a rare opportunity to create an entirely new category in the beauty industry that could set a new standard.
Sarah is also intimately familiar with clinical reset having used it personally to treat a facial loan after it failed to heal with antibody.
Biotics and other antiseptic sprays lecture skin irritated.
Just this morning, we launched clinical reset through an Investor press release, and we'll continue marketing it with robust social media and print advertising campaigns targeted directly to the consumer market.
We are anticipating preorders for the first.
Currently branded products through our newly designed website stellarex.
We'll start now.
Turning over to Avenue.
Revenue for the quarter reached its highest level since we introduced the direct to consumer channel last year, our ability to gain traction through online sales confirms our decision to migrate.
I've inova to the direct to consumer channel.
This channel is critical during the pandemic and allowing consumers to order of inova without leaving their homes and without a prescription.
We attribute our strong unit sales to the success of our more robust digital marketing programs featuring lifestyle messaging and increased consumer outreach.
Each.
We continue to expect online sales of Avenue of it to be the fastest growing sales channel.
We received recently upgraded our avenue over product listing with the subscribe and save feature on Amazon in Avenue of a dot com.
This feature provides a discount to customers who automate their recurring orders and has the positive effect to Nova.
They have increasing our recurring revenue and improving visibility on future sales.
We are already seeing great popularity with the subscription feature indicating a loyal customer following for Avenova.
The subscribe and save program is also available for our Avenue of a companion product noble wipes.
Oversight I health supplement on Amazon Dot com.
Also in the third quarter, we saw a sequential quarter surge in avenue of a sales through our buy and sell channels as physician offices began to reopen and operate under extended hours.
In another recent highlight novabay regain.
Another compliance with the New York Stock Exchange American listing standards we.
Accomplish this by raising funds during the second quarter through an ATM facility and during the third quarter through the renegotiation of warrants. We finished the third quarter with $13.4 million in cash and cash equivalents.
This.
Gains our strongest cash position since before the commercial launch of Avenue in 2015.
We now believe we have sufficient funds to support current operations, including our enhanced online advertising programs for Avenue of and the launch of clinical reset.
Many of you have asked about our application.
His pending with the FDA for emergency use authorization or either way to sell the floor care rapid COVID-19 antibody test.
Review by the FDA is still underway.
This has been a highly dynamic process in which the FDA has requested additional information and we have diligently responded.
And that the review time is lot lasting much longer than expected due to increasingly rigorous and often changing product review pathway used by the FDA for many of the products submitted for Udi.
Last week, we received notification from the FDA that they believe that our sales and marketing of Avenue.
As it relates to cope in 19 was outside of our current label claim.
We have removed all cobot related language in our promotion and we have yet to see any impact on avenue of sales.
We anticipate a minimal impact if any moving forward our loyal customers purchase our product based on our core messaging of quality eyecare.
We continue to promote an avenue of as an anti microbial spray for bacterial dry eye with a pre pandemic messaging that made avenue of as the number one selling hypochlorous lid and lash spray.
Over the past year, we have grown our core customer base in the eye care industry, because doctors and customers understand.
And the need for a safe anti microbial spray.
Chronic dry eye disease, afflicts, approximately 30 million Americans with ocular bacteria accounting for about 85%.
Evan Nova is the only commercial hypochlorous acid lid, and launched product clinically proven to reduce bacterial load on ocular surface.
Surfaces, thus effectively addressing the underlying cause of bacterial dry eye.
It is the purest hypochlorous acid based IC product on the market and unlike others. Many other similar products of Inova provides the consumer with the added comfort of knowing that is manufactured in the USA.
Lastly, we continue working with the environmental Protection agency for inclusion of Avenue of Unapproved Disinfectants that kill COVID-19 virus. The COVID-19 buyers on hard surface, so hard surfaces. The.
The process has also been dynamic with ongoing communication between Novabay and the EPA.
The process is taking a little longer than expected because the brand name that we used in the initial application was not available for use.
We're now working with the EPA on a new disinfectant brand name to complete our application.
Now I'll turn the call over to Andy to review, our financial performance in more detail. Thank you Justin and good afternoon.
Noon everyone.
I'll begin my financial review with Q3 top line results.
Net product revenue for the third quarter of 2020 increased by 34% to $2.2 million, that's up from $1.6 million for the prior year quarter.
Avenues of revenue for the quarter increased 14.
Percent to $1.8 million from $1.6 million a year ago.
The increase reflects a record number of Abbott Nova quarterly units sold and demonstrates continued acceptance of Evan Avenue that even outside of medical professional recommendation.
This record is the result of an increase.
And the number of advent of direct online and buy and sell units sold when comparing the quarters.
The increase was partially offset by a decrease in the number of units sold through our retail and partner pharmacy channels and an expected lower average net selling price associated with non prescription Avenue a direct units.
Net product revenue for the third quarter of 2020 also included approximately $225000 from the sale of phase one with no comparable revenue in the prior year period.
Phase one is a private label prescription skin and wound care products that contains our proprietary hypochlorous acid and is distributed.
Under a private label agreement by Phase one health LLC.
Gross profit on net sales for both the third quarter of 2020, and 2019 was 75%.
Overall operating expenses for the third quarter of 2028 were $3.7 million compared with $2.9 million a year.
Our ago.
Sales and marketing expenses were $1.7 million compared with $1.5 million for Q3 2019.
The increase was primarily the result of higher spending on Avenue, a direct digital advertising and costs associated with our launch of Celebrex clinical reset.
This increase was partially offset by lower head count related costs, and lower travel and related expenses due to restrictions associated with the pandemic.
Gionee expenses for Q3, 2020 or $1.9 million due to higher legal related costs compared with $1.3 million for the prior year.
Year period.
R&D expenses for Q3, 2020, or $125000, which compares with $49000 for the third quarter of 2019.
Operating loss for the third quarter of 2020 was $2.1 million, which compares with a $1.7 million or operating loss for the third quarter of 2009.
19.
During the third quarter of 2020, we also recorded a noncash loss on the change in fair value of warrant liabilities of $1.6 million.
This compares with a noncash gain of $1.5 million for Q3 2019.
As Justin mentioned the primary warrants associated.
And with this liability were exercised during the quarter and as a result, there will be no PL impact patch from them in future quarters.
We also recorded a gain from adjustments to the fair value of derivative liability during the third quarter of 2020 and 2019 the.
The gain was $1000 in the 2020 period and 660.
$18000 in the 2019 period.
The gain in both periods as associated with a $2.2 million secured convertible promissory note that was issued in March 2019.
I'm pleased to report that this note, which required a monthly payment of $200000 was fully settled during the third quarter of 2020.
As a result, there will also no longer be a PNM impact from adjustments to the fair value of this derivative in future quarters.
We recorded net other income for the third quarter of 2020 of $429000, which was primarily related to qualified expenses covered under the pay check for protection program of the federal government.
Non scares Act this.
This compares with net other expense of $719000 recorded during the third quarter of 2019, which was primarily due to interest expense recognized on the convertible note, which was settled in the third quarter of this year.
The net loss for the third quarter of 2020 was $3.2 million or.
From an eight cents per share. This compares with a net loss for the 2019 third quarter of $282000 or one cents per share basic and two cents per share diluted.
And now our nine month results in brief.
Net product revenue for the first nine months of 2020 increased 66% to $8 million.
Gross profit was 61% compared with 77% for the first nine months of 2019 opt.
Operating expenses for the first nine months of 2020 or $9.6 million and included sales and marketing expenses of $4.7 million DNA expenses of $4.6 million and.
In R&D expenses of $249000, our operating loss for the first nine months of 2020 narrowed by 35% to $4.7 million compared to the 2019 period.
Net loss for the nine months ended September Thirtyth was $9.3 million or 28 cents per share compared.
With a net loss for the first nine months of 2019 of $7 million or 36 cents per share.
As of September Thirtyth, 2020, we had cash and cash equivalents of $13.4 million, which compares with $6.9 million as of December 30, Onest 2019.
During.
Third quarter, we raised net proceeds of $6.4 million through the exercise of the warrants previously mentioned.
We believe our current cash position is sufficient to fund operations through at least the end of 2021 with some reserves left.
To close my remarks, I would like to reiterate the initiatives that we have recently.
During the excessively completed to strengthen and simplify our balance sheet.
In addition to the ATM fund raising warrant renegotiations and exercises and settlement of the $2.2 million promissory note. We also recently fulfilled the last of our obligations under a $1 million related party note payable that was issued in.
February of last year.
All of these initiatives contribute to our ability to maintain compliance with the NYSE American listing standards and support our strengthened cash position.
We are pleased to be able to turn our complete focus to business development opportunities and growth initiatives like the launch of seller Rex clinical research.
And the continued promotion of avenues that.
And with that I'll turn the call back to Justin.
Thanks, Andy and thank you for sharing our tremendous financial progress.
Before we open the call to questions, Let me summarize our near term plans.
We have launched a clinical reset on seller ex dotcom.
As of today, our new Celebrex website is operational and I encourage you to visit the site to see our new product packaging and consumer messaging.
We plan to broaden the distribution channel of clinical research through more channels future.
We also intend to seek additional products in the skin care and beauty markets that we can promote under the stellarex.
Thanks, Brad.
We continue to focus on Avenue of online sales as this general holds the greatest growth opportunity or.
Our digital advertising campaign is successfully attracting new users and our online presence enables consumers to buy OMNOVA without a prescription and without leaving home.
And importantly.
We have narrowed our operating loss year over year and significantly strengthened our balance sheet and we believe that we have capital to sufficiently fund all of our current operations.
From a business development perspective, we are continuing to target of comic and skin care products and line extensions that will allow us to leverage.
Our salvage sales channels under economic terms that make sense for novabay.
We are regularly evaluating new products to support profitable growth.
With that overview I. Thank you for your attention operator, we're now ready to take questions.
As a reminder, if you wish to register.
Question for todays joining session.
Star then the number one on your telephone if your question has been answered any wish switch all you're pulling request you may do so by pressing the pound key if you are using a speakerphone. Please pick up your handset before entering your request one moment. Please for the first question.
Okay.
While we're waiting for the first question I want to mention that we will be participating in the AGP virtual health care Conference. This is a one on one meeting or conference being held virtually next Thursday, and we look forward to keeping everybody posted on our launch activities related to Celebrex.
Clinical reset okay, operator were ready for the first question.
Our first question comes from Jeffrey Cohen of Ladenburg Thalmann. Your line is now open.
Hi, Justin and Andy This is destiny on for Jeff. Thank you for taking the questions.
I guess I'd like to first just kind of follow on your last comments there.
Starting your marketing can you talk a little bit about your current markets marketing strategies for of Inova now that you've kind of taken from the Kobe claims out have you reverted back to some of your previous strategies and messaging.
Is it different now and then how will you leverage your existing marketing strategies to promote stellarex reset.
Will there be any cross selling efforts.
Granted these there.
Yes, so absolutely.
Very interesting question, which I think sort of parallels.
What's going on in the world at large so.
I think that we were really excited to share the information and the third party.
For two depended result.
That we obtained and those are those are still very much.
Great.
And.
Reliable test results, but when the FDA said to take out the messaging about co bid we did so in didnt really see any effects surprisingly.
In our sales.
And so we just went back to the messaging that we had pre pandemic right. So sort of our Q1 I know it seems like a long time ago now, but our our Q1 messaging, which is still resonating very much with the consumer market.
I do think.
Say that there is some messaging and some cross selling thats available with sellers Rex.
I think the number one example that pops into my mind right now is masking any because our solution of pure hypochlorous acid has a very strong anti microbial in cleanses skin.
It will cleanse the skin around your eyes and is very safe for that delicate scan around your eyes, but is also very safe for all the skin on your face and so as you cleanse.
The skin around your eyes to care for.
Your eyes and treat some of those.
I care issues that we've always been.
Been targeting like blepharitis and dry eye.
Using seller acts.
On your broader faces so you can use.
Both avenues.
Avenue and seller acts.
For mass me and your entire face and so that that's just one example, but I do think that there are lots of.
Lots of opportunities for cross promotion.
Okay. Thank you for that clarity definitely thank you have a growing in committed customer base. So I appreciate that.
And then also I just wanted to ask about bulk orders I know you had mentioned a couple in Q2. So I'm wondering if there were any that you'd like to comment on.
In Q3, and if you are anticipating any in Q4.
So the base orders I think our.
Harder to chase down and so we did have.
Some bulk orders in Q2.
And then also in.
In Q3, we had.
Yes, the bulk orders of phase, one, which I think were nice to get the product out there we continue to sort of chase down some I wouldn't necessarily call them bulk orders, but.
Expanded marketing opportunities through additional sales channels, so not to.
I don't want to spill the beans on on anything, but we we are definitely opening the door to some retailers that are going to carry both avenue, Nova and seller acts in brick and mortar stores and so even though I don't I wouldn't necessarily classify those as as bulk orders.
They will be.
Peos placed for our products. So we can get them.
Into new distribution channels and those are all coming in.
In Q4 in Q1.
Okay got it maybe just one more for me I'm wondering what trends you're seeing in reopening of optometrists offices and.
Is there any geographies that are maybe demonstrating some strength or weakness that you'd like to comment on.
Well you know this is always very very dynamic.
I think that.
Our sales.
I have followed the broader trends that we see in the news.
So we saw.
A big drop off in our major markets, which are the major metropolitan markets. So.
New York, San Francisco, Los Angeles, we saw.
Sales in those areas really drop off very sharply in Q2, because those were the areas that closed down first.
Those.
Really picks back up in Q3 and those markets.
Opened back up and we saw sales really surge in those markets, but now there is questions about.
Those markets staying open and other.
Other markets smaller markets in the Midwest shutting down so.
So.
I would say our sales very closely follow what everybody has been seeing in the news there's sort of nothing unusual about that.
Okay. Thank you.
Thank you to think bank.
Thank you and our next question comes from Ed Woo of Ascendiant Capital. Your line is now open.
Congratulations on the quarter. My question is on Stellarex as you guys are.
Given the launch of it well you guys have to make any significant marketing investments to launch it.
Well I think it depends on what you say is significant.
This is a really great way for us.
To have a second product on the market in a totally different industry. So I think we are opening the door to.
Beauty industry with the launch of this product and we're able to do that with a product that is our own we didnt have to go out and license it or at.
Hybrid or purchase that this is something that we created leveraging our own technology, which I think is.
I really cost efficient way to create a second revenue stream.
So really really excited about that but this is a direct to consumer product in a very.
Quite crowded marketplace, so we acknowledge that and.
Planned to combat that with a very aggressive marketing campaign, but with that said, it's not going to be so significant that we won't be able to afford it with our current resources.
Great are there plans to launch it on other E com side, particularly Amazon.
No.
Not right now because this is in the beauty market and we see this as a very high end product.
We don't want to put it on Amazon quite yet.
And so.
It's going to be available in the beginning just on Stellarex dotcom, but we are working with partners and possibly one very high end exclusive partner to sort of launched the brand. So it will always be available on Celebrex Dot com and then it will be available online.
So in through I think some exclusive partners, but probably not Amazon.
Great well, thank you and I wish you guys. Good luck on launch thank you. Thanks.
Thank you and ladies and gentlemen, this does conclude our question and answer session I would now like to turn the call back over to Justin Hall for any closing remarks.
Yeah.
Thank you once again for joining us and your interest in Novabay. We are excited about the launch of Celebrex clinical reset and creating a new category in the large consumer skin care market. We look forward to updating you during our next call in March when we'll discuss our fourth quarter and full year 2020 financial results and progress.
Address in the meantime have a great day. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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