Q3 2022 Biofrontera Inc Earnings Call
Good day and welcome to the bio Frontier incorporated third quarter earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
I ask a question you May press Star then one on your telephone keypad and 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 <unk> Patel of Investor Relations. Please go ahead.
Thank you good morning, and welcome to borrow from Terra Inc's third quarter 2022 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 bio friend terrorist 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 Companys business all risks and uncertainties are detailed in and qualified by the cautionary statements contained in buyer from terrorists press releases and SEC filings.
Also this conference call contains time sensitive information that is accurate only as of the date of the live broadcast today November 14th 2022 boyfriend Taro 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 via from Terra 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 referencing adjusted EBITDA, a non-GAAP financial measure defined as net income or loss, excluding interest income and expense income taxes, depreciation amortization and certain other nonrecurring or non cash items with that I would like to turn the call over to Eric and Monaco, Chief Executive Officer of Bio for <unk>, Inc.
Erica.
Thank you Karen and welcome everyone to our third quarter Conference call. Joining me today is Fred Lafleur, our newly appointed Chief Financial Officer, and her mom and Fred will review, our recent financial results and then I'll discuss the business and strategy, but first I'd like to say a few words I'm proud of our growing and hardworking buyer from Cherokee our third quarter results reflect.
The investments we've made over the past couple of quarters and strengthening medical affairs advocacy developing our sales team and sales infrastructure and securing our financial outlook on a path toward profitability the feelings of momentum in key market by infant care are possible during the third quarter and recently, we strengthened our medical affairs initiatives for sponsorship participation.
The presentation of our innovative dermatology solutions do peer to peer interactions and other activities dermatologists are increasingly choosing our brands for their patients the variety of our activities and our visibility in the dermatology sector are sharpening our corporate profile as an innovative dermatology company and emphasizing our strong commitment to improving patient care.
In collaboration with Dermatologists.
Our success in strengthening patent protection for our products justify continued investment in marketing and further clinical development with that I'll turn the call over to Fred to discuss our Q3 and year to date financial results Fred.
Thank you Erica and good morning, everyone I'm thrilled to be part of the bio frontier team and I'm pleased to be speaking with everyone. Today before I review, our financial performance I'd like to share a little bit about my background.
Spent the first half of my career in finance and accounting roles in the second half of my career and management consulting, whereas my job to evaluate business strategy and execution and make recommendations to optimize shareholder value when presented with the opportunity at Biomarin Tara I applied that same analytical approach and I very much like what I saw in the business and team.
Biomarin tourist business opportunity is tremendous.
And with the basic building blocks in place now is the ideal time to apply my expertise and help guide the company future direction and secure success.
I look forward to interacting with our shareholders and analysts while working to build.
Further awareness of support within the investment community as we focus on evaluating all our potential options and build upon our current successes.
So in terms of our recent performance I'll start with a review of our third quarter financial results.
Following the achievement of record high first half revenues, our third quarter 2022 revenues were $4 3 million, which was in line with the third quarter of 2021.
Cost of revenues decreased by 3%, primarily due to slightly lower <unk> shales during the during that quarter.
Total operating expenses were $8 million for the third quarter of 2022, compared with $20 4 million for the third quarter of 2021. This decline was driven by lower.
Selling general and administrative expenses, which decreased by $9 3 million or 54% compared to the prior year.
The primary driver of the decrease in SG&A was last year's onetime legal settlement expense, which was partially offset by higher business insurance and head count costs because of resumed hiring in 2022 the.
The net loss for the third quarter of 2022 was $2 6 million or <unk> 11 per share and this compares with a net loss of $16 million or $2 per share for the third quarter of 2021, adjusted EBITDA was negative $5 million for the third quarter of 2022, compared with negative $3 8 million for the third quarter of 2021.
Now turning to our year to date financial results total revenues for the first nine months of 2022 were $18 5 million versus $14 9 million last year, representing an increase of $3 6 million or 24%.
This year to date growth rate provides a better view of our performance versus the quarterly results as there is some seasonality in our business and the timing of price increases can shift immaterial amount of revenues between quarters.
The nine months nine months the increase in revenues was primarily driven by higher by a higher volume of animal whose orders.
Which resulted in an increase of <unk> revenue by $3 2 million and by an <unk> price increase which increased am Emma lose revenue five.
About $2 million.
Cost of revenues increased by 25% with a prior year period with the prior year period, primarily due to higher sales of analyst total operating expenses were $31 5 million for the first nine months of 2022 compared with $38 3 million for the same period in 2021 SG&A expenses decreased.
<unk> by $2 3 million or 8% again, reflecting a one time legal settlement expense incurred in 2021, partially offset by higher business insurance and head count costs as a result of resumed hiring in 2022.
Yeah.
Net income for the first nine months of 2022 was $2 1 million or 11 cents per diluted share and this compares with a net loss of $23 2 million or $2 90 per share for the first nine months of 2021.
Adjusted EBITDA was negative $14 1 million for the first nine months of 2022 compared with negative $9 5 million for the same period in 2021.
I refer you to the table in the news release, we issued earlier this morning for a reconciliation of GAAP to non-GAAP financial measures.
2022, adjusted EBITDA of negative $14 $1 million does include public company costs of increased insurance audit Sox and Investor relations, which totaled $2 1 million.
As of September 32022 mile Frontier had cash and cash equivalents of $27 5 million and we believe our cash position is sufficient to fund operations for at least the next 12 months, but.
As a growth company, we intend to be opportunistic regarding potential financing activities and this includes routinely positioning ourselves to strengthen our strategic position scale, our business more quickly mitigate business risk and pursue new growth opportunities.
With that I'll turn it back over to Erica. Thank you Brad and welcome again, we're thrilled to have you on the biotech team.
So with that I will provide some additional color on those results.
Q3 revenues being flat year over year I'd like to point out the improved sales momentum tactical execution and strengthened brand recognition all contributed to higher year to date revenue is.
Fred mentioned record nine month revenues are up 24% over 2021 and are up more than 80% compared to 2020.
And up more than 26% versus the pre Covid year 2019. These results put us on track to achieve full year 2022 growth in total revenues of between of between 24% and 31% inclusive of the typical seasonal strength in the first and fourth quarter.
We revised our guidance because the predictability of our yearly results equated quite heavily on the last few weeks of the year, where even a handful of orders or weather related shipping delays can impact revenue recognition.
That said our commercial focus throughout 2022 has been on achieving deeper sales penetration among current customer count and increasing market share. We've been successful with both with current customer growth and market share both increasing compared to 2021 underlying this growth is our commercial strategy, which is supported by strengthening medical affairs and establishing biofilm.
As a trusted partner to our customers.
Educating dermatologists unimportance of field therapy, and raising awareness of our products high efficacy supports our efforts to expand utilization of PDT, especially among patients with more than 15 AK lesions when we when reimbursement for cryotherapy is capped.
We believe dermatologists have favorite cryotherapy to date because of reimbursement, but recent shifts in cryotherapy reimbursement and treatment guideline pressure towards field directed therapy should support sales of PDT treatments.
This commercial strategy, we launched earlier this year includes a new model for inside sales, but enhances productivity by allowing our field sales force to deepen customer relationships, while inside support expand reach and frequency to some of our newer and smaller accounts. We've made good progress in building our key account management team reacting to the evolution of our industry.
Three to large corporate practices and buying groups. The team has developed a robust database and analytic tools to effectively evaluate the key account opportunities and potential.
He's got to support two new key account initiatives to expand and lose PDP adoption. The first initiative physicians our territory managers to support the expansion of PDT adoption and the optimization of PDT implementation within key account clinics.
<unk> program is the flagship initiative to identify a model PDP clinic within targeted accounts. The flagship clinic will then serve as the model for PDP implementation and will be replicated with other key account clinics are.
Our key account team deployed their strategy in the field during Q4 of this year and we are beginning to measure the impact of their initiatives as we move into 2023.
The enhanced sales training program, we rolled out last quarter has increased sales force effectiveness and enables more impactful performance evaluation and development process.
I view these results as validation of the data driven approach, we initiated about a year ago that equips, our salesforce with valuable information to enhance our success. We expect the ROI on this training program to have immediate impact on growth beginning next year.
As with many companies post Covid, we have faced staff turnover and the need for retraining almost two thirds of our Salesforce joined our organization within the last 18 months in our sales model. It can take at least six months to fully develop the sales rep. While we are still attracting top talent and creating rewarding and incentivizing compensation programs. We are working to further strengthen.
And stabilize our foundation, we will be looking for increased ROI from our existing sales force. In addition to any future expansion plans, we rollout in 2023.
Throughout the third quarter, we furthered our commitment to educating health care providers to various initiatives, including seminars medical conferences prescriber networking events and engagement with key opinion leaders.
As an example, oftentimes served as a corporate sponsor for the fall clinical Dermatology conference in Las Vegas, and we hosted a booth showcasing our current and upcoming product and engaged and dermatologists focus marketing activities. We also presented for posters on the label expansion clinical work being performed on our products as well as investigator initiated studies, which lent further.
Credence to the interest and support we're getting from the community invest.
The investigator initiated studies that align with our areas of clinical interest in real world use of PDT to treat skin conditions are a critical component of our medical education initiatives.
Through the support of independent research like the posters that were presented we reinforced our commitment to innovation to improve patient outcomes addressed medical and scientific questions to advance our therapy and further strengthen <unk> brand and profile within the industry.
We initiated patient advocacy and awareness events to get ahead of solar damage and non melanoma skin cancer, thereby helping to spotlight bias from terrorist patient focused mission.
At the fall clinical we sponsored an advisory board meeting that consisted of two sessions, providing advanced education on the advantages and current landscape of photodynamic therapy and sharing of railroad PDP utilization experiences among leading dermatologists.
At the conference we also showcase the <unk> as well as bioterrorist, new larger PDT lamp.
<unk> wrote a letter XL both are approved for use in combination with analysts for the treatment of mild and moderate 8-K on the face and scalp.
<unk> allows for the elimination of a larger surface area, thereby enabling simultaneous treatment of AK lesions that are different from one another.
This lamp was previously set to launch by the beginning of next year.
Due to some supply chain disruptions as well as inflationary pricing, we've pushed back that lunch delaying the launch was not a decision. We made lightly we know we have a great product, but we need to get the timing on the pricing correct right from the outset manufacturing costs were increased by suppliers and we don't feel that it is right to push those costs on to customers and potentially affect initial.
Sales and update.
To help managers with this launch as well as our plans to strengthen our sales force and execution on our commercial plan during the third quarter of this year, we appointed Gerard you're wrong amount is our national sales director.
<unk> joined Us in September and brings to life and carrier more than 25 years of experience in building pharmaceutical sales and commercial teams with a particular expertise in dermatology.
In a recent prior role at America Pharmaceuticals, he built their U S sales infrastructure in preparation for the commercial launch of a successful dermatology drug device combination product.
Tactical approach aligns with our mission by involving in collaborating with medical Affairs marketing key opinion leaders and National Influencers.
Targeted medical conferences, such as the fall clinical allow us opportunities not only to share our research with the academic community, but also to explore potential partnering and business development opportunities we.
We're laying the groundwork for commercial success by interacting directly with dermatology leaders strengthening our brand and supporting both company sponsored and investigator initiated clinical research that advances product potential.
Clinical development complement our commercial strategy by expanding the market positioning for Amazon is providing more confidence to patients and offering more favorable treatment options expanding the analysts label to include new indications will help open new market opportunities and accelerate sales growth.
Provide an update on our ongoing study I'll share with you that the enrollment in the superficial BCC phase III trial now stands at 83%.
As one study for 8-K that focuses on increasing single treatments to <unk> is now approximately 74% enrolled. Additionally, a new site has been added to this study, which should accelerate the pace of the trial moving forward.
The phase two acne trial has been recruiting slowly this year, we've learned a lot. During this time on patient selection in the determination of acne severity and have been in discussions with our investigators and the FDA throughout as we fine tune. The protocol. We believe we now have an optimal protocol that will be ready in Q1 of 2023 moving forward with this knowledge and improvement will.
Help to accelerate the enrollment in 2023.
We expect even more positive news on these three ongoing studies that offer tremendous potential to our future commercial strategy and on our patent protection in the first half of 2023, and we will provide those updates as soon as they become available.
I am proud not only of the hard work all of the teams within by our Fintech I have put in this year, but also the impact on recognition. They are continuing to receive for example, the new <unk> marketing campaign earned a re launch relaunch revitalization of the year Award and professional website online initiative of the year award as well as our associates are at.
Of marketing Lesley Hopkins was named the 2022 brand champion for dermatology.
These recognitions came from P. M 360, a publication from marketing decision makers in the pharmaceutical biotech diagnostics and medical device industries.
As a final topic. In addition to the business operations of just discussed I'd like to point out some recent strategic transactions we participated in.
In Q4, we acquired a 745% equity ownership position in <unk> AG with a current market value of about $6 $9 million, mostly through tendering shares of bio Frontier, Inc. Partly also with cash we.
We have an exclusive long term perpetual license on all technology relating to PDT with <unk> and that.
That is developed at Biomarin care AG furthest agreement AG gets between 30% and 50% of our revenues in order to support improvements of our label and the quality of our products optimizing the market opportunity in the U S.
AG is at the forefront of further development of PDP by improving drug formulations, and illumination technology, adding indications in improving clinical protocols.
By holding a significant ownership stake in EG, we will be in a position to influence further development and investment in AG to render them most beneficial for the U S market.
A significant stake in EG will facilitate aligning our goals and future collaborations that are beneficial for both companies.
So in conclusion, we are continuing to roll out our corporate development initiatives planning for future development opportunities and exploring multiple avenues to accelerate our path to profitability.
Year to date sales growth certainly demonstrates the positive impact of strengthening medical affairs, and establishing <unk> as a trusted partner to dermatologists.
We look forward to closing out 2022 strong advancing our therapies through label expansion and setting up our financial footing put <unk> in an even stronger position in 2023.
That concludes our business update for Q3. Thank you again for taking the time to participate in this conference call operator, we're now ready to take questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
Okay.
And the first question will come from Jonathan Aschoff with Roth Capital Partners. Please go ahead.
Thank you. Good morning, guys. I was curious is the push to report you can from existing customers with existing salespeople and I guess some other customers in that region. That's overwhelmingly a function of the capital markets at present, right, which do not exactly facilitate raising capital to expand the salesforce would that be accurate.
So I think I missed the first few where do you think the current reached the current focus is on existing accounts due to the capital Thats right.
Right.
Thank you.
Yes, and no I think our goal going into this year was always to strengthen our existing base and push forward on that side and we've seen demonstrated success there.
The placements that we put in this year in terms of inside sales key account and enhanced training, we're all intentional strategic steps to this.
Lengthen the position before we expand as we look into next year and we evaluate them we need to continually analyze the market to determine our best overall strategy and yes financing does have a play in how and when we extend but it is not the only driver Jonathan So hopefully that answers. Your question. Thank you.
Yes.
The next and last one is just so the biggest factor and you lowered 2022 guidance is just the inability to guarantee which is reasonable but the last couple of weeks of our revenue and there is nothing else than that it's just that.
Inability to guarantee timing so late in the year.
I think we're still I mean, the previous guidance was at least 30% growth and I think with a range of 24% to 31%. We are hovering right around what we did say that is a key factor is determining how the end of the year will play out but I also did want to highlight the fact that two thirds of the sales force.
We're relatively new to the organization and making sure they're they're developed and ready to go for next year. It may play a factor into those results as well.
Okay. Thank you very much Eric.
Thank you the next.
The next question will come from Bruce Jackson with the Benchmark Company. Please go ahead.
Hi, Good morning, and thank you for taking my questions and congratulations on all of the new hires and building out the team.
So my first question is on the operating expense profile, you've got a fixed number.
Bruce.
On the payroll.
What's the operating expense profile looks like going forward for the next two quarters.
Going forward for the next few quarters, I think youre looking at a pretty stable run rate for us we have positioned the business almost two scale. Besides any commercial expansion that would take place in 2023.
So what you're seeing in terms of a run rate is.
Consistent what we saw in Q2 Q3 isn't all that different from what you'll see moving forward.
Okay, Okay great.
And then in terms of the <unk> definitely got the range that 24 to 30 that kind of puts us in a roughly 20% top line.
Right.
Okay.
That's also what you did last year should we be assuming going forward, but that's kind of where the long term growth rate is headed.
No.
I would I would say no we should not be assuming that I think given the fact that we're developing two thirds of our sales force this year and we've implemented some new strategies, we haven't seen a true ROI from all of those efforts yet and what you can expect in 2023 and on is is at least that type of performance plus enhancements will further develop and strengthen our our growth.
Opportunity.
So we're looking for acceleration next year.
Yes.
Yes, okay.
And then just generally a couple of questions about the market.
There've been some staffing shortages in dermatology offices.
Are you finding physician office access to be and are there any changes in just the general market conditions for dermatology.
Sure I think that's I mean, that's a good question Bruce Lee asked the teams that all the time to get a pulse on what's going on out there and the staffing seems to have recovered as frequently in the derm space, but now theyre dealing with that same concept of retraining and certainly with PDT important to a advocacy within the organization of the dermatologist.
Until regaining those sort of pioneers that want to take that take the charge and lead it internally is a bit of a rebuild but in terms of access you know logistically there.
Schedule yourself now instead of showing up or you do some things virtually and we've been very good about our medical team doing quite a bit virtually which has actually increased our efficiency enables us to reach a broader audience more regularly.
So in terms of access I'd say, it's back end, if maybe just different than how it used to be.
Okay and then last question for me, we're talking about the focus on your established base.
You've also been leaving.
The idea that its degree in <unk> patients.
Where they get into these offices with the accounts that are using our colleagues for a while are there.
They still focused on that 15, plus vision patient, whereas they had started to extend the use of animals to like the less than 15 infusion patient market.
The reps did you say have the reps in doing that.
Of the dollar.
Extending their use of less.
Less than 15 illusion patient population.
I think so I would like to roll forward into 'twenty 'twenty three with some more updated percentages there to be able to gain some precise numbers, it's very difficult to measure from shifts in cryo performance because it is.
At least 86% of this $4 billion market. So we have a hard time when numbers move slightly in our favor really.
Quantifying it in a percentage of cryo, but we will certainly try to roll out some metrics that we can develop kpis for as we look into 2023 with that number.
Alright, that's it for me. Thank you for taking my questions.
Yeah. Thank you Ruth.
As there are no further audio questions I would like to turn the call over to Mr. Patel for any questions online. Please go ahead Sir.
Thank you we have received some additional questions that were E mailed to our Investor relations team.
Thank you to all shareholders, who submitted them we've compiled the most commonly asked teams into three questions. Our first question is.
Is your investment in bio Frontier AG, the first step in a broader strategy.
Thank you chair.
As I mentioned on the call earlier, our investment in <unk> <unk> AG is a strategic step a strategic steps to strengthen the position of amyloid and Red light PDT in the United States.
<unk> is at the forefront of further developing PDP by improving drug formulations, and illumination technology, and adding further indications and improving the protocols. So by holding a significant ownership stake in voluntary AG. We believe we will be in a position to further influence the development and investment of AG.
In ways that'll help render them most beneficial for the U S market.
Thank you our second question.
Can you provide more color on the strategies involved increasing sales per rep.
Yeah, sure and I think I might have touched on this on the call and even in some of the previous questions, but in 2022 Ah we enhanced our sales training Department. We added a key account management Department and we added inside sales to support our sales functions. These.
These value added functions will offer additional tools to our existing sales reps Phil give at it provide added bandwidth for lower volume harder to access accounts and they'll provide a specialized resource to our evolving industry.
We expect these tools to provide deeper insight and strategic planning and allowing our reps to be even more efficient and more intentional and more impactful in their sales efforts.
Thank you and our final question is how many reps you plan to hire in 2023, and what's the pace of that hiring with those hires will your field sales force be fully staffed or is more to come in 2024.
Good good question. Thank you Terry.
So with planning for expansion like this every step of the way we need to continually analyze the market and best determine our overall strategy. This includes the size of the sales force.
We've seen strong growth in our market share of PDP already this year largely by strengthening our existing customer base, we need to still determine the optimal size and placement of our sales force before we commit to a specific number.
Our working on our expansion plans, which we expect to see materialize in 2023 and as soon as we have more details with numbers in a location because of course, you know we will roll those out as we enter the new year.
And actually let me spend a little bit on that I think I'm, sorry, I was just thinking I think.
If we were to expand there's numbers that are floated around publicly before of like getting into the forties range and then getting into the $50 range is probably the most optimal sidetrack, although I don't want to commit to a long term finite number I do think somewhere in the 50 ish is where we will land in over a couple of years. It will probably one to two years to do this in a strategic way.
Thank you that concludes our submitted questions.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Thank you for those additional questions everybody. So in closing I just wanted to let's say that we are laser focused on our business, our commercial and our financial goals Permian fraud, and I all look forward to meeting with our investors and analysts during the Jpmorgan conference in San Francisco in early January we will be on site, there and available for one on one meetings from January .
911, please contact our Investor Relations agency <unk> to arrange a meeting if you'd like beyond JP Morgan and we look forward to speaking with you again, when we report our 2022 fourth quarter and full year financial results in early April in the meantime, Thank you again for joining us today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
Okay.