NovaBay Pharmaceuticals Inc. Q1 2023 Earnings Call

Welcome to the Novabay Pharmaceuticals first quarter 2023 financial results conference call.

At this time all participants are in listen only mode. Following management's prepared remarks, we will hold a question and answer session.

To ask a question at that time. Please press the star key followed by the number one on your Touchtone phone.

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I'd now like to turn the conference over to Jody Cain. Please go ahead.

This is Jody Cain with that rate case. Thank you for participating in today's call. Joining me from Novabay are Justin Hall, Chief Executive.

Executive Officer, and General Counsel and Tony in MA.

From 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 of federal Securities Law. These forward looking.

These statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated we saw.

In particular, there's uncertainty about circumstances beyond the company's control that impact the broader economy, such as rising interest rates and the conflict between Russia and Ukraine. This means that results could change at any time and the contemplated impact of circumstances that impact the broader economy I know her face off.

Operations its financial result, and its outlook is our best estimate based on the information available for today's discussion.

A list of description of risks and uncertainties. Please review the baseball is with the Securities and Exchange Commission SEC Dot Gov.

Furthermore, the content of this conference call contains information that is accurate only as of the date of the live broadcast may 11th 2023, Novabay undertakes undertakes no obligation to revise or update any.

Answers to reflect events or circumstances, except as required by law.

Now I'd like to turn the call over to Jeff Jeff.

Uh huh.

Thank you Jody good afternoon to everyone and thank you for joining us.

Today, we're reporting good news with increased revenue from our core eye care vertical driven by higher sales of Avenova spray through our physician dispensed channel and by increased sales of our Avenova companion products, such as our warm compress dry wipes and oral supplement.

More good news on the expense side of things with lower marketing spend due to our ability to optimize digital advertising programs.

Also took steps to support future growth with product innovation and the introduction of new effective evidence based products that meet consumer needs.

So far this year, we've launched three new products and introduced our first co promoted product.

Now I'd like to share updates on each of our three verticals I care skin care and wound care, beginning with Avenova and our eye care franchise.

I am pleased to report that our efforts to deepen relationships with eyecare specialists has paid off with an uptick in sales and are positioned to Smiths channel. During the quarter. This channel represents a win win for Novabay and our eye care professionals, who make our high quality products available directly to their patients through their practices.

As mentioned on our March Investor call, we are proactively reaching out to optometrists and ophthalmologists by partnering with educational organizations with CE accredited programs discussing dry eye disease. These programs help our customers meet continuing education requirements and provide us a platform for discussing the attributes of our eye care products.

I'm also pleased with the performance of our high quality Avenova companion products as dry eye is a multifaceted and complex condition that may require more than one approach to gain and sustained relief over the past several years, we've commercialized a portfolio of best in class products that address each step of the standard dry.

I treatment regimen.

These products build upon our brand recognition and our loyal customer base, making novabay, a one stop destination for those seeking relief from symptoms of dry eye and other ophthalmic related eye conditions.

Recent industry reports state that up to 49 million Americans suffer from dry eye symptoms and the global market for treatment is expected to reach nearly $9 billion by 2030, among the factors driving this market growth or the increased demand for effective treatments. The rising prevalence of dry eye disease and growing awareness about the condition.

Needless to say, we have plenty of growth opportunity for our full line of Avenova branded products.

Moving now to a German doctor and are a collection of skincare products last month, we launched our comfort enjoy psoriasis therapeutic moisturizing cream exclusively on the QVC network through a special introductory offer.

This is the first German doctor products, specifically formulated for the treatment and relief of the symptoms of psoriasis. This skin condition that causes the body to make new skin cells in days rather than weeks psoriasis is a common skin condition afflicting about 125 million people worldwide and nearly $8 million in the U S.

With more than half of those people, claiming it represents a significant problem in their everyday life.

Psoriasis can show up anywhere on the body, including islands ears mouth hands and feet.

Our covered enjoy cream is appropriate for us head to toe and even on the most sensitive skin.

It is steroid free fragrance free and includes salicylic acid to help relieve and prevent the reoccurrence of itching scaling redness flaking and irritation, while helping to restore the skins or central moisture.

Beginning in August this product will also be available on derma Doctor Dot com and on Amazon.

Earlier this week, our chief product Officer Doctor Audrey Kunin returned to QVC as an honored guest featuring our calm cool and corrected eczema Baum just in time for when spring allergies are triggering eczema flare ups.

This soothing balm provides temporary relief from eczema. This rashes redness dryness itchiness like our psoriasis cream. This bomb is suitable suitable for use by the whole family anywhere on the body.

We invite those suffering we invite those suffering those suffering from X amount of use the derma Doctor website to see the dramatic real life before and after pictures from actual product users. We proudly feature of the National Eczema Association seal of acceptance on or eczema bond product label.

Now turning to wound care, our skin and wound cleanser products are marketed under the neutral phase brand in China and under the Phase one brand in the United States and are used for cleansing and irrigated post surgical wounds minor burns and superficial abrasions.

Our avenova spray our wound care products are formulated with Nova base, FDA cleared proprietary and anti microbial form of hypochlorous acid.

Among the advantages of hypochlorous acid is its ability to penetrate and kill biofilm, which represents a significant barrier to wound healing.

Importantly, neutral phase in phase one are differentiated in the marketplace because they do not contain the toxic chemicals found in many other wound care products.

Our formulation exhibits broad spectrum activity against a range of Gram positive and Gram negative bacteria, making it highly effective yet it is gentle non irritating and non sensitizing to skin and new tissue, we manufacture our wound care products here in the United States and large batch quantities through a proprietary process.

And they're bottled in an amber glass for stability to ensure the safest purists and most powerful hypochlorous acid wound care claims are on the market.

With neutral phase, we're pleased to announce a recent 1 million dollar order from our partner, China Pioneer Pharma holdings, a leading Chinese importer and marketer of branded pharmaceuticals and medical devices.

We have shipped this order and expect to recognize the revenue from the sale in the second quarter of 2023.

On the other side of the World, we commend our exclusive distributor phase one health for its donation of phase one to hospitals in the Ukraine through a partnership with the nonprofit helping Ukraine Foundation, it's a privilege to have phase one available to Ukrainians during their ongoing conflict with Russia.

One is ideal for use in Ukrainian medical facilities due to its stable potent broad spectrum of formulation and it can be used on wounds as frequently as needed.

Lastly, we closed a $3 million convertible note last month, we appreciate the investors who participated in this financing and who continue to believe in our mission. The proceeds from this financing will strengthen our balance sheet and allow us to take another step towards profitability.

Now I'd like to turn over a conference call to our interim Chief Financial Officer, Tommy Law to review, our first quarter financials Tommy.

Thank you Justin and good afternoon everybody.

Net product revenue for the first quarter of 2023 was $3 $1 million and included $2 $2 million of Avenova branded product sells zero point $8 million of Derma Doctor product sells and zero point $1 million of our phase one Brandon wound care product.

Gross margin on net product revenue for the first quarter of 2023 was 62% disc.

This compares with 55% for the first quarter of 2022 with the increase primarily due to channel and product mix, a favorable sales of higher margin products and the impact of anticipated product returns on our first quarter 2022 results from expired Avenova spray so prior to the launch of our overhead.

The counters avenova spray product in 2019.

Total operating expenses for the first quarter of 2023 decreased 13% over the prior year.

This included a 17% decline in sales and marketing expenses to $1 $7 million.

Which reflects lower avenova digital advertising costs.

G&A expenses decreased 9% to $2 million, primarily due to lower variable compensation costs.

The net loss for the first quarter of 2023 was $1.7 million or <unk> 85 per share.

This compares with the net loss for the first quarter of 2022.

$1 million or eight cents per share.

It included a noncash gain on changes in fair value of warrant liability of $2 $1 million and noncash gain on changes in fair value of contingent liability.

$2 million.

There were no comparable items for the first quarter of 2023.

We reported cash and cash equivalents of $3 $7 million as of March 31st 2023, compared with $5 $4 million as of December 31st 2022.

As Justin mentioned, we completed a $3 million private placement of convertible notes and warrants subsequent to the close of the quarter.

And now I'll turn the call back to Justin.

Thanks Tommy.

We're proud of our portfolio of innovative evidenced based and clinically proven products and are passionate about bringing these best in class products to a growing number of customers with Avenova Derma Doctor Phase, one and neutral phase we have a solid foundation of established brands in the large and growing eyecare skincare, everyone kept market where te.

[laughter] steps to broaden our customer base with marketing campaigns aimed at expanding targeted demographics importantly, we're advancing all of these growth initiatives, while prudently managing expenses.

With that I. Thank you for your attention operator, we're now ready to take questions. Thank you as a reminder, if you wish to register to ask a question in today's question and answer session. You will need to press Star then the number one on your telephone.

If your question has been answered and you wish to withdraw your poling requests you may do so by pressing the pound key.

If youre using a speakerphone please pick up your handset before entering your request one moment. Please for the first question.

Yeah.

While we're waiting for our first question I want to mention the Audrey will be returning to QVC as an on air guests to promote several of our derma doctor products that address common, but often overlooked skin conditions, we intend to announce the dates and times for her appearances in the coming weeks as well as special pricing other products you'll be discussing.

Okay. Operator, we are ready for the first question.

Our first question comes from RFA colleague from Ascendant capital markets. Please go ahead.

Hi, its replay for Edward Woo <unk> capital markets.

The lessons on the quarter can you talk a little bit more about your products on QVC and how you plan to roll that out this year.

Yeah.

Hi, Yeah. So are the two main products that we have up on QVC and that Audrey has been promoting are the two products that I talked about during the call. So its the recently launched comfort enjoy psoriasis cream.

And then also the calm cool and corrected eczema ball. So those are the two that Audrey promotes on air on QVC.

Great. Thank you.

Could that China's sales were those.

There was one time and.

And are they recourse nonrecourse sales.

Yeah. So pioneer has been a really great partner of ours for very many years. So they have been distributing neutral phase.

For many years.

They have done a really great job in expanding the market over there and increasing demand. So while this particular purchase order is not anything new and it's not a new product. It certainly is the largest purchase order that they've ever placed with us.

Great. Thank you.

Our next question comes from Anderson Cha from Ladenburg Thalmann. Please go ahead.

Hi, Justin Tommy This is Anderson on for Geoff Congrats on the QVC showing this week, we just had a couple of questions.

Bruce could you discuss a bit about your various channels at any macro trends worth calling out there.

Yes, so we're I think very lucky in the sense that we have a multiple sales channels that are all very diversified and are not sort of I would say interdependent on one another so.

Both derma Doctor and OTC Avenova rely heavily on the online sales channels. So that is our sales are directly.

Directly to the consumer online from our website and then also the Derma Doctor website, I don't think that there's any sort of macro trend to call out there I think that.

That particular sales channel.

Is performing about as anticipated, but you know we also have a you know international sales drove a doctor yourselves in the middle East as I just mentioned, we saw our wound care products in China.

And we also have the wholesale sales channel, where we sell our wound care products wholesale to distributors and a wound care professionals here in the United States and we also do that with Avenova as I mentioned in our physician dispensing channel.

That sales channel is is doing fairly well and about as anticipated. So we do have I think a a varied sales channel.

Revenue source that we can that we can rely on and.

There isn't a I think any one particular trend to call out for any particular sales channel.

Okay, Great and then you mentioned you had a few products released this year. So far do you have any other new product introductions planned for 2023.

No. So we're actually going to slow down a little bit on the product innovation and the launching of new products and focus more on selling through a lot of the inventory that we had so those product launches were planned.

Mid year last year and that just came to fruition earlier this year and you know where we're glad to have them, they're really terrific and innovative products, but for the rest of the year, we're gonna be focusing on optimizing ad spending and selling through our existing inventory.

Okay, great. Thank you.

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

Yeah, I'd like to thank everybody for joining us today and for their interest in Novabay. We're excited about our recent progress and the promising future. We envisioned for our company. We look forward to updating everybody on our second quarter Investor Conference call in August Thanks, again and have a nice day.

Conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

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