Q3 2023 NovaBay Pharmaceuticals Inc Earnings Call
Welcome to the Novabay Pharmaceuticals third quarter 2023 financial results Conference call.
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As a reminder, this conference is being recorded I would now like to turn the conference over to MS. Jody Cain. Please go ahead ma'am.
This is Jody Cain with L. E. K. Thank you for participating in today's call. Joining me from Novabay are Justin Hall, Chief Executive Officer, and General Counsel and Tommy Law interim 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 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 uncertainty about circumstances beyond the companys control that impact the broader economy. This means that results could change at any time and the contemplated the impact of circumstances that impact the broader economy, I know food base operations its financial results and its outlook is it.
Best estimate based upon information available for today's discussion.
For a list and description of risks and uncertainties. Please review Novo based filings with the Securities and Exchange Commission, which are available at SEC Gov.
Furthermore, the content of this conference call contains information that is accurate only as of the date of the live broadcast November nine 2023.
If a bay 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 good afternoon, everyone and thank you for joining us.
I'm pleased to begin by reporting that novabay efforts to deepen relationships with eye care professionals is proving successful with third quarter product sales from our physician dispensed channel growing 36% over the prior year period and increasing in each consecutive quarter. So far in 2020 Threep not.
Not only is this channel important as a standalone revenue source. It also creates a halo effect around our direct to consumer sales channel by establishing Avenova as a doctor recommended brand in fact, many of our customers on Amazon sharing their reviews that they bought their products solely upon their doctor's recommendation.
On the expense side, we continue to benefit from our expertise in digital marketing reporting a 7% reduction in sales and marketing spend for the third quarter and a 12% decrease for the first nine months of the year.
Our ability to manage expenses has led to a 16% reduction in operating loss year to date versus the prior year.
We've made it a priority to focus on expense management and cash preservation this year with an eye towards extending our cash runway in this challenging market environment.
Now I'd like to provide some updates on each of our three verticals I care skin care and wound care, beginning with Avenova in our eye care franchise.
As you're likely aware, we're in the midst of launching the Avenova allograft, which is the newest product in our eye care portfolio. This prescription only product was developed by biased I'm technologies to provide a protective environment recovering for the repair of the cornea and conjunctiva, helping ocular surfaces returned to a healthier state.
It is often used by doctors to treat patients with extreme dry eye, making it a perfect companion product for our Avenova spray.
Amniotic allografts had been used for more than a century and dehydrated amniotic membrane continues to be a widely used product as in Oklahoma covering.
Avenova allograft is an ultra thin ultra light structural tissue that has a distinct advantage as being the only optical allografts manufactured using bio step technologies patented six step bio retain process that preserves the natural integrity of the placental tissue.
Nova Allograft is easy to use has no harsh chemicals or cry ROE preservatives like all of the products in our Avenova portfolio. It is science based high quality and differentiated.
Avenova allografts represents a large market opportunity for Novabay the global market for this product is estimated at more than $400 million and is expected to grow at nearly 10% annually through 2030. Additionally, if a procedure using our allograft is deemed medically necessary Medicare will cover that.
Cost of the product importantly, avenova allograft allows us to leverage our established relationships with eyecare professionals as well as to continue to build out that network.
We are actively marketing this product through a campaign targeting the universe of U S. Ophthalmologists and optometrists, who are previously used allografts in their practice. In addition to email and other outreach activities. We're hosting CME accredited educational seminars for doctors, who would like to learn about this particular dry eye tree.
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We regularly hear from eyecare professionals that dry eye is a major concern for many of their patients. So we asked our ophthalmologist and optometrist advisory boards on how we can best help them serve those patients. These discussions led to the creation of two new promotional programs aimed at further rewarding members of our.
Physician dispensed channel, who help their patients manage the symptoms of chronic dry eye with avenova branded products.
Through our new Avenova loyalty program and Avenova affiliate program thousands of eye care professionals, who recommend prescribed and sell our avenova spray now have access to special promotions that are specifically designed to increase awareness of the full suite of Avenova dry eye products, such as our warm icon.
For us I check lubricating eyedrops and oral supplement our physician network helped make avenova. The number one doctor recommended lid and lash cleanser on the market and we are delighted to offer them. These additional partnership opportunities.
As in the past we took advantage of Amazon's recent prime days held on October 10th and 11th to offer special pricing on select Avenova in Derma Doctor products I'm pleased to report that we had another very strong sales of it Amazon continues to be our most important sales channel and we appreciate the opportunity to.
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As a final note about our eye care franchise. Some of you have asked about recent FDA warnings regarding the use of eye drops from certain foreign manufacturers and some products being recalled and removed from store shelves I'd like to assure you that avenova spray and Avenova lubricating eyedrops are made in the United States and are unaffected by the FDA.
Warnings and recalls are products continued to be sold per usual and are completely safe for use.
Now moving onto Derma Doctor in our skincare products.
On our last quarterly conference call I spoke about our new strategy to increase sales of our most popular derma doctor products in our most efficient sales channels. This strategy relies on significant digital marketing expertise that we've developed and transitioning to consumer sales for Avenova products a strategy that has reduced our.
Sales and marketing costs and aligns with our priority of managing expenses and conserving our cash resources.
Each of our main for collections of differentiated science based formulations, specifically developed to treat common but offer looked skin conditions are or keep your duty line that targets skin, that's drive rough bumpy or prone to care test is probably Lewis.
Also our cockatoo Sealine, that's formulated with clinical strength vitamin C for anti aging and complexion brightening.
Our calm cool and corrected collection helps soothe and comfort irritable skin and total nonsense is our ultra sensitive brightening anti per spread.
Looking forward, we anticipate a strong finish to the year for our German Dr products, we're dedicating specific marketing resources to the Chinese double 11 sales event, which is just days away.
The November 11th sales event has become the worlds largest 24 hour online sales event with sales greater than Black Friday, and cyber Monday combined we also anticipate a sales uptick with the upcoming holiday season, and we will once again be offering special holiday gift sets, where their key P duty.
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Turning now to wound care and hopefully as you know we sell branded wound care products formulated with our peer proprietary hypochlorous acid through distributors after having fulfilled large orders in Q2, we are anticipating additional orders from both our U S and Chinese distributors in the fourth quarter.
Now I'd like to turn the conference call over to our interim Chief Financial Officer, Tommy Law to review our financial results Tommy.
Thank you Justin and good afternoon, everybody I'll start with Q3, and then review our year to date results.
Total sales for the third quarter of 2023 was $3 $3 million compared with 3.8.
8 million.
Third quarter of 2022.
The 2023 quarter included $2 $4 million of Avenova of branded product sales.
$8 million of chairman, Dr product sells and zero point $1 million and sales of our branded wound care products.
Gross margin on net product revenue for the third quarter was 56% versus 62% for the third quarter of 2022 with the decrease primarily due to product and channel mix.
Total operating expenses for the third quarter of 2023 with $3 million up slightly from $2 8 million from the prior year.
Sales and marketing expenses for the third quarter were $1 7, million% to 7% decrease from the prior year.
Which reflects lower digital advertising costs and lower expenses for outside professional services.
G&A expenses for the third quarter of 2023 were $1 $3 million compared with $1 million for the third quarter of 2022.
The increase was due primarily to lower variable compensation expenses in the prior year quarter.
Total expense total operating loss for the third quarter of 2023 was $1 1 million compared with an operating loss of zero point $5 million for the prior year with the increase due primarily to lower margins and higher G&A expenses, partially offset by lower sales and marketing expenses.
Other expense for the third quarter of 2023 was $641000, which compares with other expenses.
$171000 for the third quarter of 2022 with the increase primarily due to costs related to the convertible notes issued in May 2023.
In the third quarter of 2022, we recorded several noncash.
Items related to the 2020 to Mark repricing transaction.
Included.
A $1 $9 million loss on the modification of common stock warrants at $2 $4 million gain on changes in fair value of warrant liability.
$5 7 million.
Accumulated deficit increase due to an adjustment to the series B preferred stock.
Version price.
We did not report comparable items for the third quarter of 2023.
The net loss for the third quarter of 2023.
$7 million or <unk> 37 per share.
This compares with a net loss for the third quarter of 2022 five.
$5 8 million or $3 61 per share, which included the noncash items I just mentioned.
Now turning to our year to date financial results.
Total sales net for the first nine months of 2023 increased slightly over the prior year to $11 million.
Gross margin on net product sales for the first nine months of 2023 with 55% versus 56% for.
For the first nine months of 2022.
Total operating expenses for the first nine months of 2023 decreased 7% to $10 $3 million.
Compared with the prior year.
For the nine months ended September 32023 sales and marketing expenses decreased 13% and G&A expenses increased modestly both compared with the nine months ended September 30th.
2022.
Operating loss for the first nine months of 2023 was $4 2 million a.
A 60% improvement.
From the prior year period.
Other expense for the first nine months of 2023 was $1 $3 million versus other expense of.
170.
For the first nine months of 2022.
The increased due to costs related to the convertible notes we issued in May 2023 that I mentioned.
We reported a number of noncash items.
For the first nine months of 2023 and 2022.
The noncash items for the first nine months of.
This year included a gain on changes in fair value of warrant liability.
Zero point $2 million.
And last one modification common stock warrants zero point $3 million, an increase to it can be a deficit due to adjustments to the series B preferred stock of one $8 million and a noncash increase to accumulated deficit.
Adjustments to the series C preferred stock of <unk> $2 million.
The noncash items for the first nine months of 2022 included a gain on change in fair value warrant liability.
$4 $5 million.
A gain on change in fair value of contingent liability $0 2 million.
And loss on modification of common stock warrants of $1 8 million and an increase to accumulated deficit due to the series B preferred stock conversion price of $5 7 million.
The net loss for the first nine months of 2023 was $7 5 million or two.
$2 27 per share.
Which compares with a net loss for the first nine months of 2020 to $8 1 million or $5 32 per share.
We reported cash and cash equivalents of.
A $3 5 million as of September 32023.
And now I'll turn the call back to Justin Thanks.
Thanks Tommy.
Proud of our portfolio of innovative evidenced based and clinically proven eyecare skin care and wound care products and are passionate about bringing these best in class products to a growing number of customers.
We're having success with the various programs and our physician dispense channel and with the Avenova Allograft. We recently introduced a compelling new product that Leverages. These established relationships and provides an opportunity for us to further build on this channel.
We're pursuing a strategy with derma doctor aimed at driving sales growth for our best selling collections. We continued to benefit from the digital marketing expertise. We have developed over the past several years, which is allowing us to effectively promote our products, while prudently managing expenses and importantly, where on a strategy to conserve cash and extend.
Our cash runway, which is especially important under the current challenging market conditions with that overview 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. The Star then the number one on your telephone.
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One moment for the first question.
And the first question will come from Jeff Cohen with Ladenburg Thalmann. Please go ahead.
Hi, This is actually destiny on for Jeff. Thank you for taking our question.
I think I would maybe like to start with the Derma Doctor.
Segment, and I'm curious about the new product strategy can you just remind me.
Whether or not you'll be expanding product lines or adding product lines and then I'm also curious during the quarter revenue was a little mute. It is there anything specific you can call out there that may have impacted the growth technically beauty decrease.
Sure Yeah happy to provide some color. So the strategy that I mentioned on the call is a shift in strategy, especially this year versus last year. So last year, our strategy was really around expanding with new products and into new sales channels and new geographies.
This year, we're focusing on selling more of our top selling products and our most efficient sales channels. So we don't have any product development planned because new product development is uncertain and it's also expensive. So what we're doing is focusing on our most popular products in the most efficient sales channels.
Some of the well.
We will call it.
<unk> quarter over quarter with the sales.
Just really has to do with either seasonality or orders from our international distributors.
Usually order, maybe twice or three times a year.
And we just didn't see many of those orders in Q3.
Okay got it and then kind of sticking with Derma Doctor for just one more second I'm curious about your commentary around additional holiday promotions and I know based on our models, we've seen a bit of.
Seasonality like you mentioned and with heavier revenue of greater revenue in the fourth quarter do you think between these special promotions I think youre doing across all segments that we should anticipate.
Significant growth next quarter and not asking for guidance just some general color.
Yeah sure.
Well the the one.
It's sort of bright spot that I think will deliver with some certainty is the double 11 event.
In China. So we have been planning for that sales of add pretty much.
All year or maybe for the last eight months, making sure that.
The right inventory is there that we have the right influencers that we have the right budget there that we're promoting the right.
The right products at the right time so.
The uptick I think will come from.
Direct to consumer sales channel on Amazon and then also on Tmall in China.
And that's the revenue growth that we expect in Q4.
Okay perfect. Thank you a couple more if I may tell me this might be more for you. When you talked about the margin in your commentary you mentioned channel mix is that largely largely related to the physician defense channel and then Additionally are you able to give us the revenue contribution.
Pacifically from this channel maybe as a percentage of sale.
Yes, a little bit of that and then also on the derma doctor side as well.
For the physician channel, it's about 50% for the contribution margin.
So yes.
Yes, and also in addition to that.
It is.
Some of our wound care products, especially neutral phase sold over in China.
That comes with a lower margin. So we don't have any sales and marketing expenses associated with it. So that's the good news, but we do sell it at a wholesale costs to the distributor. So the margin is just slightly smaller there.
Understood, Okay, and then I'm not sure if you've ever shared this before but do you have a general sense of the lifetime value of a customer I'm thinking more specifically on the avenova side, given the various products through the Amazon channel.
Yeah.
Absolutely we love this we look at it all the time and we track it fairly closely because the avenova spray is our highest volume and most popular product.
Across the entire company and it's a consumable so.
In dry eye is a chronic problem. So once somebody uses it and they like it and it works for them.
They will just keep on buying at the same way that they buy other.
Self care products so.
We'd like to make the analogy with toothpaste rate once people say like I need to brush my teeth for toothpaste.
Just keep on buying toothpaste.
And so the long term value of an avenova customer.
Is a focus of.
Ours, because we really want to reach out and touch those customers that.
By the product once maybe it's recommended by their doctor they buy it once but.
They need to be reminded to buy it again and buy it on a regular basis, so about 20% of our Amazon sales come from subscribe and save and those are people, who have signed up to receive.
At least one product each month automatically.
Okay got you answered my next question that was very helpful. Thank you and then lastly, because I'm definitely hogging the line here.
Okay.
Hi, Justin.
Collaboration I'm wondering if you can just touch a little bit more on the commercial strategy. So I can better understand that and then have you gotten any initial feedback have you had any any physicians use it yet.
And then what exactly is the money flow per this partnership.
Yes. So this is a prescription only product.
We obviously as I mentioned sell through the physician dispensed channels. So we.
Originally started just reaching out to all of the doctors that we have really good relationships with.
Through Avenova, saying, Oh, we have a new product.
On the product price is $300 per allograft, so it's $300.
For one tissue.
And the Doctor most often times.
Can apply for insurance coverage, either private insurance coverage or.
Medicare reimbursement, but the Medicare reimbursement is done for the procedure. So the doctor has to buy the tissue from us for cash and then do the procedure with the patient and then apply separately.
For Medicare reimbursement for the entire procedure.
Depending on the coverage and the procedure and the patient.
Medicare coverage can range from $1000 to 300.
Oh Wow, Okay excellent I think that does it for me. Thank you so much for taking the question.
Sure, Yes of course as always thank you.
The next question will come from Raffi <unk> lead with Cindy and capital markets. Please go ahead.
It seems that Mr. <unk> has left the question queue.
I will turn the call back over to Mr. Justin Hall for any closing remarks.
Okay.
Thank you for joining us we're excited about our progress in the promising future that we envisioned for our company, we will be holding meetings with investment professionals. During the 2020 for J P. Morgan Healthcare conference being held January eight through 11 in San Francisco, if you're interested in setting up a meeting with US please contact.
<unk> Investor Relations, Thanks, again and have a nice day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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