Q4 2023 NovaBay Pharmaceuticals Inc Earnings Call

Hello, and welcome to the Nova note that they pharmaceuticals fourth quarter and full year 'twenty 'twenty financial results Conference call.

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I would now like to hand, the call to Jody Cain. Please go ahead.

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 and Mike.

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. These forward looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated pre salt and.

In particular, there's uncertainty about circumstances beyond the company's control that impact the broader economy. This means that results could change at any time and the contemplated impact of such circumstances I don't know if the base operations financial results and outlook is the best estimate based upon information.

Nation available for todays discussion.

For a list and description of risks and uncertainties. Please review have no buffets filings with the Securities and Exchange Commission, which are available at SEC Gov.

Or the content of this conference call contains information that is accurate only as of the date is the live broadcast March 'twenty six 'twenty 'twenty four.

<unk> undertakes no obligation to revise or update statements to reflect events or circumstances, except as required by law.

And now I'd like to turn the call over to Justin Hauke Justin.

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

We took a major step in streamlining our business and better positioning novabay to pursue higher growth opportunities with the recent sale of our skincare business.

The divestiture of Derma Doctor reduces our operating expenses, which aligns with our priority of extending our cash runway and this continued challenging capital market environment.

Nevertheless acquired Derma Doctor in November 2021 to expand our direct to consumer product lineup. During the height of the COVID-19 pandemic. Our expectation was that E. Commerce sales would continue to grow post pandemic. Unfortunately like many other companies that pursued a similar strategy during the pandemic our projections.

Were not realized.

The financial results that we're reporting today show a year over year decline in sales from our skin care segment, which was a major factor in our decision to divest derma Doctor.

Our focus is now on opportunities in our core Ikea business.

Avenova spray is established as the number one doctor recommended anti microbial lid and loss solution, providing us a platform of loyal customers from which to grow.

This customer loyalty as evidenced by the 64% year over year increase in online subscription based unit sales in the 38% increase in the number of subscription based sales on Amazon in Avenova Dotcom, our two most productive O T C sales channels.

A substantial 24% of all online sales were from prescribers in 2023.

That's up from approximately 14% in 2022.

Notably we accomplished this while reducing our sales and marketing spend for the year by 17% through our digital marketing expertise.

Our physician defense General also contributed to the growth of our eye care business in 2023, as we work to deepen relationships with eyecare professionals.

Beyond just revenue.

This channel creates a halo effect around our direct to consumer sales by establishing Avenova as a doctor recommended brand.

Last year, we launched two promotional programs aimed at further rewarding our network of physicians, who help their patients manage the symptoms of chronic dry eye with avenova branded products.

Last year, we also launched our new Avenova allograft through the physician dispensed channel. This prescription only allograft provides a protective environment recovering for the repair of the cornea and conjunctiva, helping the ocular surface returned to a healthier state.

It's the only optic allograft manufactured using the patented six step by a routine process that preserves the natural integrity of the placental tissue.

To further support the use of optic allografts, we sponsored a free CME webinar featuring key opinion leaders discussing optimal ocular surface conditions for the use of Allographs and candidate selection.

More recently, we executed on our growth strategy through a coat new co marketing agreement with Nokia.

<unk> recently announced FDA approval of prescription only coalbed us all a unique and differentiated steroid prescribed by cataract surgeons.

That is all provides ophthalmologists and ocular surgery patients with a compelling rapid sustained and more convenient solution for post operative inflammation and pain.

In fact, FDA approval was based on stellar clinical results showing nearly nine out of 10 patients achieved complete absence of post surgical pain and six out of 10 patients achieved total absence absence of inflammation within 15 days of ocular surgery.

This is the first new ophthalmic steroid to enter the U S market and more than 15 years.

Under our co marketing agreement, we will leverage our established relationships with thousands of eyecare professionals to market. The newly approved Clobetasol product or channel provides a ready made opportunity to accelerate this product's commercialization, which is complementary to our avenova line of products.

In addition, I Nokia will market, our prescription avenova spray through its nationwide sales representatives, who are targeting ophthalmic surgeons.

This is a considerable opportunity to generate additional professional awareness and gross sales of avenova.

We're excited to partner with I know via which shares our commitment to scientifically developed cutting edge and high quality ophthalmic products. Our co marketing agreement is yet. Another example of how our physician dispensing channel has become increasingly important in building our avenova business.

The Clobetasol product is expected to receive a trade name as soon as this summer with co marketing initiatives expected to begin in the coming months.

Now I'd like to turn the call over to Tommy Law to review our financial results Tommy.

Thank you Justin and good afternoon, everybody I'll start with Q4, and then review our 2023 full year results and cash position.

Total sales for the fourth quarter of 2023 were $3 7 million, which included $2 $8 million from the eye care and wound care segment and zero point $9 million from the skin care segment.

Total sales for the 2023 quarter increased by 2% for $3 $6 million for the prior year period.

With the increase due to higher eye care and wound care product sales.

Gross margin on net product revenue was 49% up slightly from 48% for the fourth quarter of 2022.

Okay.

Sales and marketing expenses were $1 $4 million for the quarter, a 27% decrease from $1 9 million for the prior year, reflecting lower digital advertising costs and lower expenses for outside professional services.

G&A expenses were $1 $2 million, a 51% decrease from $2 4 million for the prior year with the decrease due primarily to a decrease in head count and the use of outside professional services.

R&D expenses for the fourth quarter of 2023.

Where we reduced to $4000 from $66000 for the prior year period.

Among non cash items, we recorded goodwill intangibles and other asset impairment charges related to the impairment of the German doctor business for the fourth quarters of 2023, and 2022 of $2 $6 million and $6 $7 million respectively.

The fourth quarters of 2023 and 2022 also included a noncash gain on changes in fair value of warrant liabilities.

$56000 and $976000 respectively.

The fourth quarter of 2022 included a noncash gain on changes in fair value of contingent liability.

$342000, which was related to the German Dr business.

Other expenses net for the fourth quarter of 2023 was $766000 primarily due to <unk>.

A discount and issuance cost related to the convertible notes issued in May 2023.

This compares with other expenses net.

For the fourth quarter of 2020 to $98000.

Net loss attributable to common stockholders for the fourth quarter of 2023 was $92 million or $1 33 per share.

Which included a non cash adjustment of $5 $1 million related to preferred stock conversion prices.

This compares with a net loss attributable to common stockholders for the fourth quarter of 2022.

$8 $2 million or $4.33 per share.

Yeah.

Turning now to our full year financial results.

Total sales net for 2023 for $14 $7 million.

An increase of 2% versus 2022 and included an $11 $2 million from the eye care and wound care segment.

And $3 $6 million from the skin care segment.

Year over yourselves of our eye care and wound care segment grew 9% and were driven by higher avenova sales through our position dispense and OTC channels as well as the contribution from.

From our branded wound care products.

Gross margin on net product revenue remained relatively unchanged for 2023 and 2022 at 54%.

For 2023 sales and marketing expenses decreased by 17% and G&A expenses decreased by 15% both compared with 2022.

R&D expense for 2023 were $68000 versus $174000 for the prior year.

We recorded a noncash goodwill intangible and other asset impairment charges related to the German Dr business for 2023, and 2022 of $2 $6 million.

And $6 $7 million respectively.

Goodwill and indefinite lived intangible asset and long life assets related to the German Doctor business were fully impaired and the 2023 year.

For 2023, and 2022.

We recorded a noncash loss on the modification of common stock warrants.

Zero point $3 million and $1 $9 million, respectively for 2023, and 2022 noncash gain on changes in fair value of warrant liability was there a point $3 million and $5 $4 million respectively.

For 2022 noncash gain on changes in fair value of contingent liability with zero point $6 million.

Other expense net for 2023 was $2 $1 million versus other expense net.

Yoplait $3 million for 2022 with the increase primarily due to the amine taxation of discount and issuance costs related to the convertible notes issued in May 2023.

Net loss attributable to common stockholders for 2023 was $16 $7 million or $3 96 per share which included a noncash adjustment.

The preferred stock conversion prices.

Of $7 $1 million.

This compared with a net loss attributable to common stockholders for 2020 to $16 $3 million or $10.10 per share, which included a noncash adjustment to preferred stock conversion prices of.

$5 $7 million.

Yeah.

We reported cash and cash equivalents of $3 $1 million as of December 31, 2023, we received $1 $1 million upon the closing of the Derma Doctor divestiture.

And lastly, with the sale of Derma Doctor will go back to managing our business as a signal signal singles segment are more profitable I wound care segment.

And now I'll turn the call back to Justin Thanks, Tommy with the sale of Derma Doctor now closed we look forward to focusing once again on our eye care business segment Avenova is a well established brand that still has tremendous growth potential.

For example, we're having success with various programs and the physician dispensed channel and are capitalizing on additional opportunities to further build on this channel.

As I mentioned this channel supports direct to consumer sales and provides a doctor recommended halo effect around our over the counter product.

This channel also is instrumental in developing marketing relationships for prescription product sales such as our recent agreement with <unk>.

On the direct to consumer side, we continue to benefit from the digital marketing expertise that we've developed over the past several years, which is allowing us to effectively promote our products, while prudently managing our sales and marketing expenses.

With that overview I. Thank you for your attention operator, we're now ready to take questions.

Thank you very much we will now begin the question and answer session.

I ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.

So a J. Your question. Please press Star then two.

We will pause momentarily to assemble our roster.

Today's first question comes from Jeffrey Cohen with Ladenburg Thalmann and company. Please go ahead.

Although jocelyn and Tommy how are you.

Hey, Jeff Hey, Jeff.

So just a couple of questions from Aaron I guess, firstly, maybe could you talk a little bit about <unk>.

And some of the EU territories over the past few months there may be some.

But your comments regarding 24.

Sure Yeah.

Absolutely. So we are working with Sonoma on expanding into the EU announcing that agreement earlier. This year is the first step is to approach various distributors over in the EU. So we have been working with Sonoma on those partner.

Ships to get those people interested.

The product will be.

They're sonoma product there hypochlorous acid.

But branded as an avenova product and so we are reaching out to distributors over there and gauging interest.

Okay got it so.

Would that be broken out once you turn a break out any of your revenues.

Revenues other than the Oi and skiing.

<unk>.

Yeah, so probably not.

So we typically in the past have not broken out by distribution channel or by sales channel.

So I don't think that.

We're going to break that out.

But happy to provide some commentary around that as sales grow.

Okay and then.

Could you talk about how you are targeting some of the initial accounts for a potential new launches of new products and maybe talk about the demographics and some of the subscription customers.

Sure.

Well I think the most exciting thing that we have going on right now is our partnership with <unk>. So.

And all of 'twenty to 'twenty three we operated with just an inside sales force, we had no field sales representatives.

And with <unk>, we are going to gain 10 field sales representatives that are going to be in all of the top.

Metropolitan areas and so this is sort of a return to.

To her.

Having a much broader reach and I think a little bit more of a personal touch.

Jeff you may remember in years past we had.

Up to 50 sales representatives out in the field talking to physicians about avenova, we scaled that back.

<unk>, especially during the pandemic when it just didn't make sense to have.

You know field sales reps driving around and company cars are visiting doctors' offices. So.

So we did switch over to <unk>.

Inside Rep model, which is very cost effective, but it's also somewhat limiting.

There are certain accounts and doctors' offices that you really can only get into and.

Sell your product if you have a rep who's going physically into the offices.

We're partnering with a I know via so we're going to get that field sales rep. They also on their side that they are getting are in inside sales team. That's really experienced and has a full CRM of existing customers that they can reach out to us and sell to so.

I think the the major push that we're going to have in 2024 is.

To really leverage that a physician dispensed channel.

The Avenova brand out in front of more patients. So we're going to be having a hopefully a lot more prescription avenova that will turn into a direct to consumer sales and that's really.

That's really what we're pushing in 2024 is our strategy.

Okay, and then I guess.

And then lastly for us as far as.

Your marketing strategies.

Is that changing at all from 2004 compared to 23.

Yeah, a great question, Jeff and thank you for asking that because our strategy really has changed quite a bit.

In 2022.

Our focus was really in the direct to consumer sales channel.

And so we we made a sort of monumental shift because we saw.

Some real promise in that market and so we thought.

Selling over the counter products a.

Consumer products directly to the end consumer over the Internet.

<unk> was going to be sort of are our future.

And we as I said on the call you know.

Our projections just weren't realized and I think you know in order to survive in this world you really have to be quite nimble and so we did change our strategy.

Really towards the end of 2023 and coming to fruition now and pivoting away from depend.

Depending solely on a direct to consumer sales platform, where eyeballs needed to be bought.

Online AD spend is quite high and building a consumer brand so shifting away from that.

Then focusing really on the flywheel of having a doctor recommended product Doctor recommended.

Products that consumers are then able to repurchase once they have been told about it and instructed by their physician.

To use it so it's it.

It is a different sales and marketing strategy and one that we shifted to sort of in the tail end of 2023, but we're all in on it now in 2024.

Okay got it doesn't for us thanks for taking the questions. Thanks, Jeff.

Thank you. The next question is from Edward Woo with <unk> capital. Please go ahead.

Thanks for taking my question. My question is should we expect a lot less new product from you guys I guess just focusing on avenova.

Yeah.

Yeah. So that's a really great question and it sort of follows on Jeff's question as well so we are not.

Developing in R&D and spending our money on new product development, but what you will see is innovation through partners.

And so that's what you saw with the Avenova allograft and our partnership with bio stem. So we entered into that agreement and started selling the avenova allograft in Q4.

Which is incredible innovation.

Good lucrative agreement that allows both of us to profit.

And then more recently with the <unk> agreement. So that's also bringing a lot of innovation, a very unique differentiated product and bringing that into our portfolio and rolling it out to our customers.

So you will see some product development and some new product rollouts, but it's going to be all through partnerships and not through our own R&D.

Speaker Change: Great. Thank you and good luck.

Thanks, Ed.

Thank you. This concludes our question and answer your question I would now like to turn the call back over to Justin Hall for closing remarks.

Thank you for joining us today and your interest in Novabay, we're excited about our refined strategic vision and the opportunities we face with our established eyecare business. We look forward to providing an update during our next quarterly call. It may thanks, again and have a nice day.

The conference has now concluded. Thank you for your participation you may now disconnect your lines.

Okay.

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