Biofrontera Inc. (NASDAQ:BFRI) Q4 2021 Earnings Conference Call April 8, 2022 11:00 AM ET
Company Participants
Tirth Patel – LHA IR
Hermann Lubbert – Executive Chairman
Erica Monaco – CEO
Conference Call Participants
Jonathan Aschoff – ROTH Capital Partners
Bruce Jackson – The Benchmark Company
Operator
Welcome to the Biofrontera Inc. Fourth Quarter and Full Year 2021 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Tirth Patel with LHA Investor Relations. Please go ahead.
Tirth Patel
Good morning, and welcome to Biofrontera Inc.’s fourth quarter and full year 2021 financial results conference call.
Please note that certain information discussed during today’s call is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that Biofrontera’s management will be making forward-looking statements and actual results may differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company’s business. All risks and uncertainties are detailed in and are qualified by the cautionary statements contained in Biofrontera’s press releases and SEC filings. This conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, today, April 8, 2022. Biofrontera 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 also be references to certain non-GAAP financial measures. Biofrontera 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.
With that, I would like to turn the call over to Hermann Lubbert, Executive Chairman of Biofrontera Inc.
Hermann Lubbert
Thank you, Tirth.
Welcome, everyone to Biofrontera Inc.’s 2021 fourth quarter and full year financial results conference call. Joining me today is Erica Monaco, Chief Executive Officer of Biofrontera Inc. In a moment, Erica will review the business, our strategy and our recent financial results. But first, I would like to provide a brief recap of our achievements during 2021.
The global dermatology market, and specifically the photodynamic therapy market experienced encouraging growth following a year of the depressed numbers of patients visits to dermatologists during the height of the COVID-19 pandemic.
In the United States, which is the world’s largest dermatology market, we have likewise experienced a consistently growing rebound from those pandemic loads. Due to the management’s commercial initiatives, the lifting of some government restrictions and the reopening of our customers businesses, our revenue recovered quickly beginning in about March of 2021.
I’m proud of the work of Biofrontera’s management, sales teams and support staff in making 2021 a strong first year for Biofrontera following our successful IPO last fall.
Sales for 2021 exceeded $24 million. We’re up about 28% versus 2020 and are approaching pre-pandemic levels. Earlier this week, we also announced very strong over 100% year-over-year of sales growth for the first quarter of 2022, which further demonstrates that our business is back on track. With that, I’ll turn the call over to Erica.
Erica Monaco
Thank you, Hermann. Good morning, everyone.
I’m pleased to be speaking with you today after closing the books on a landmark year for Biofrontera Inc. as an independent publicly traded company, and I’m truly excited about our future.
Biofrontera commercializes pharmaceutical products and medical devices across the United States for the treatment of dermatological conditions. Our flagship product is Ameluz for the treatment of actinic keratosis or AKs, which are skin lesions caused by excessive exposure to sunlight that can lead to skin cancer. We also market Xepi, a topical antibiotic for the treatment of impetigo, which is a bacterial skin infection.
Before providing a business overview, I’ll review our fourth quarter and full year 2021 financial results with you.
So starting with the fourth quarter, total revenues were $9.2 million for the three months ended December 31, 2021, an increase of $0.6 million or 7% from a year ago. The increase was primarily due to higher sales of Ameluz, reflecting volume increases and to a lesser extent a higher average selling price. Total operating expenses were $11 million and $8.8 million for the three months ended December 31, 2021 and 2020, respectively. Cost of revenue increased by 8%, primarily due to higher sales of Ameluz.
Selling, general and administrative expenses for Q4 of 2021 increased $5.1 million versus the prior year, primarily due to a $0.6 million increase in marketing expenses as we launched various marketing campaigns for our licensed products.
Headcount costs also increased $1 million, primarily as a result of resumed hiring in 2021. In addition, issuance costs related to the private placement of our stock accounted for $1.4 million.
Adjusted EBIDTA was negative $3.2 million for the three months ended December 31, 2021 versus negative $3,000 during the same period in 2020. Adjusted EBIDTA, a non-GAAP financial measure is defined as net income or loss, excluding interest, income and expense, income taxes, depreciation and amortization, legal settlement expenses and certain other non-recurring or non-cash items. 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.
Net loss for the 2021 fourth quarter was $14.5 million compared with a net loss for the 2020 fourth quarter of $0.2 million.
Moving on to our full year financial results. Total revenues were $24.1 million and $18.8 million for 2021 and 2020, respectively, an increase of $5.3 million or 28%. The increase included $4.1 million from a higher volume of Ameluz sold, and $1.3 million from an increase in the average selling price of Ameluz.
Total operating expenses were $49.3 million and $28.5 million for 2021 and 2020, respectively. Cost of revenues was $12.7 million and $9.1 million for 2020 and 2021 respectively, an increase of $3.7 million or 41%. $2.8 million of the increase was driven by higher Ameluz product revenue. In addition, we received cost reimbursement from the Ameluz licensor in 2020, which resulted in a $1.1 million reduction to cost of revenue for that period.
Selling, general and administrative expenses increased by $19.1 million compared with 2020. The increase was primarily driven by a legal settlement expense of $11.3 million and legal expenses associated with the settlement of $0.4 million. The increase was further driven by a $1.8 million increase in marketing expenses, as we launched various campaigns for our licensed products.
Headcount also increased $2.7 million as a result of resumed hiring in 2021 and higher commissions expense related to improved sales performance. In addition, issuance costs related to the private placement of our staff accounted for $1.4 million. Adjusted EBIDTA was negative $12.7 million in 2021, and was a negative $9.2 million in 2020.
Our net loss was $37.7 million in 2021 and was $11 million in 2020. Cash and cash equivalents as of December 31, 2021, were $24.5 million. During 2021, we raised net proceeds of $41.8 million, including $14.9 million from the sale of common stock in our IPO and $13.6 million from a subsequent private placement. $13.2 million came from the exercise of warrants, which also reduced Biofrontera AG’s ownership of Biofrontera Inc. to less than 50%. As a result, Biofrontera Inc. is no longer considered a subsidiary of Biofrontera AG. And this represents a major milestone in the development of Biofrontera Inc. as a standalone entity that is independent of its former parent company. Not affected by this will be our license and supply agreement with Biofrontera AG.
As a growth stage company, we intend to be opportunistic regarding potential financing activities. But we believe that the funds available today provide sufficient capital to support planned operating activities through at least the next 12 months.
To summarize, despite the challenges resulting from COVID-19 pandemic, we returned to top line growth in 2021, and sales have now recovered to near pre-pandemic levels, including a seasonally strong fourth quarter. In 2021, we increased our market share within the PDT drug segment to approximately 26%, up from approximately 24% in the previous year. We expect that the momentum established in 2021 will continue to drive revenue growth from our top customer accounts as the opportunity to gain share from cryotherapy remains a key focus of our commercial efforts. Our goal is to continue to improve the market positioning of Ameluz to become leading PDT drug for the treatment of actinic keratosis in the United States.
As Hermann mentioned, earlier this week we announced preliminary unaudited product revenue for the first quarter of 2022. We expect Q1 revenue will be in the range of approximately $9.5 million to $10 million, which represents an increase of approximately 102% to 113% compared with the first quarter of 2021. Final revenue Results may vary from these preliminary revenue estimates, as we expect to report Q1 financials in May.
March 2022 was our strongest sales month on record, and Q1 2022 was our second highest quarter on record. A price increase went into effect on April 1, 2022 for Ameluz, which contributed some to the advanced buy in from physicians’ offices, yet we did not see a significant of an impact as in previous years when price increases typically took effect on January 1, and the impact were seen in the Q4’s of the previous years. Therefore, we do not anticipate this most recent increase to have much impact on sales development for the rest of the year.
Given the strong business momentum along with the renewed visibility into our markets, today, we are introducing 2022 financial guidance. We expect total revenues to increase by at least 30% compared with 2021, including the strong first quarter growth we just announced.
Because traditional PDT treatments using a lamp are performed more frequently during the winter months, our revenue is subject to some seasonality and has historically been higher during the first and fourth quarters than during the second and third quarters. Our commercial focus throughout 2022 will be on achieving deeper sales penetration among current customers, with additions to the Biofrontera sales force expected to begin in 2023.
The key elements of our commercial strategies include the following: first, expanding sales of our principal product Ameluz in combination with the BF-RhodoLED lamp for the treatment of AK on the face and scalp; second, positioning Ameluz as the leading PDT product by optimizing our sales and marketing infrastructure and strengthening our medical affairs outreach; and third, leveraging the potential for future approvals and label expansion of our pipeline products through our existing license agreements.
Our goal is to establish Ameluz as the leading PDT drug for the treatment of AKs in the United States. In addition, we see opportunity to expand the PDT market as a first option treatment of actinic keratosis versus cryotherapy, especially in patients with more than 15 lesions. We believe dermatologists have favored cryotherapy to date because of reimbursement. However, we also believe there’s treatment guideline pressure towards field directed therapy as opposed to single lesion therapy, which may also help support our sales of photodynamic therapy treatments.
In late October 2021, RhodoLED XL was approved in combination with Ameluz for the treatment of mild and moderate actinic keratosis on the face and scalp, which corresponds to the current approval of Ameluz. This new PDT lamp enables the elimination of larger areas, enabling the simultaneous treatment of several AK lesions that are distant from one another. Despite widespread supply chain issues across the globe, we are on track to launch the XL by the end of this year.
Our market expansion seeks optimizations for deeper penetration in our sales territories and our high value accounts, strengthening medical affairs and becoming a trusted partner in medical communities through scientific data publication, key opinion leader interaction and industry support.
Expanding the Ameluz label allows us to consistently deliver innovative solutions for patients and serve as a key mechanism to unlock the drugs potential. In 2021, there were four U.S. publications investigating Ameluz and PDT, three of which were investigator initiated trials. Furthermore, continued investment in clinical research by our license partner aimed at least at label expansion, is thus an integral part of our growth. According to our license agreement for Ameluz, the licensor is obliged to conduct and finance the clinical studies required for defined label expansions.
In December of 2021, our licensor Biofrontera AG, received the two notices of allowance from the U.S. Patent and Trademark Office that helped further protect the marketing position of Ameluz. The first patent covers an innovative pain reducing elimination protocol for photodynamic therapy. As implementation of the patented invention to our medical devices merely requires the installation of software, it can potentially be rolled out to both the BF-RhodoLED and the RhodoLED XL.
The second patent protects the number of innovations in the RhodoLED XL lamp and describe specific features of the LED arrays of the five panels constituting the lamp patent. In addition, we recently announced our BF-RhodoLED XL illumination device is now listed in the U.S. FDA publication, commonly known as the orange book. This listing provides Ameluz PDT with the protection against generic competition through October of 2040 and further strengthened our competitive positioning.
Throughout 2021, we focused on enhancing our medical affairs capabilities, and building awareness of our suite of products. Two weeks ago, we attended the American Academy of Dermatology Annual Conference and had a strong presence and a booth showcasing our products. Interacting with dermatologists, practitioners and dermatology-focused service providers is critical to growing our trusted brands. The annual meeting is the world’s largest scientific meeting for dermatologists with an average attendance of approximately 18,000, including approximately 10,000 medical personnel. It was wonderful to see so many customers, KOLs and prospective customers in person. And we are quite pleased with the outcomes from this conference.
Our Ameluz and BF-RhodoLED brands have experienced heightened recognition as we’ve marketed and presented our products at a number of academy and industry conferences in addition to the AAD. We exhibited at the Winter Clinical Dermatology Conference, Maui Dermatology Conference, which was our first in-person conference since the pandemic started, and also at ODAC, which is a dermatology aesthetic and surgery conference, all of this in Q1 of this year.
As part of our market expansion efforts, we are focused on ways to deepen our relationships with existing customers and also expand access for our therapies to more dermatology clinics and patients. A data-driven commercial approach will allow us to focus our promotional efforts and expansion in an advanced way. To that end, we recently created a dedicated key accounts team. Expanding our sales efforts with this function addresses the changing landscape of the dermatology industry. With more and more dermatology clinics being bought out and joining large corporate organizations, building relationships at the corporate and regional levels to understand the drivers of their clinical decisions is a focus for us moving into 2022.
Rolling out a key accounts team expands our market access support as a dedicated partner with these strategic ownership groups. This approach will allow us to build customized support resources that expand the access for innovative solutions to treat disease and meet patient needs. Additionally, in 2022, our commercial expansion will include a new model of inside sales support. This allows our existing salesforce to deepen customer relationships while our inside sales support can expand the reach and frequency to some of our newer and smaller accounts.
As we move into 2023, additional outside sales regions will round out our commercial footprint. Our 2022 commercial strategy is further supported by a strategic education initiative about our product differentiation, scientific information and patient selection. We believe there is significant potential to gain market share from cryotherapy, where a patient has more than 15 AK lesions.
Educating the industry on the importance of field therapy and the high efficacy of our product will support our efforts to expand utilization of our PDT therapy.
We have pledged support in the coming year to many significant dermatology societies and foundations. We will take advantage of opportunities to present our company and products to these societies and we’ll host demonstrations, roundtables and other educational sessions in the coming months as we strive to provide a deeper scientific understanding of our products to the market. These efforts align deeply with our company values of commitment, quality and customer focus. Our vision is to be a trusted partner that brings best-in-class therapies and service to dermatology patients and health care providers. We are confident this holistic vision will also lead to maximizing value to our shareholders.
Moving on to an update on our clinical studies. Clinical development programs undertaken by our licensor are designed to complement our commercial strategy by expanding the market position for Ameluz PDT by providing more value to patients, broadening the addressable market and offering more favorable treatment options. The studies are performed by Biofrontera AG and are indirectly financed by us to the license and supply agreement for Ameluz.
In December, we announced enrollment of the first patient in the acne study, a multicenter randomized double-blind Phase 2 study that will enroll 126 adults with moderate to severe acne who will be treated with Ameluz PDT or placebo. The efficacy of Ameluz PDT is being tested with incubation durations of one and three hours. The primary endpoint is the change in number of inflammatory lesions and improvement in symptoms as assessed by the physician conducting the study.
The second study is a Phase 1 study evaluating the safety and tolerability of Ameluz for the treatment of AKs located on the face and scalp together with our new RhodoLED XL lamp, which as I mentioned, covers a larger surface area.
In December, we also enrolled the first patient into this open label study that will enroll a total of 100 subjects with mild to severe AKs on the face and scalp across eight trial sites. Each patient receives a field directed treatment with the content of three tubes of Ameluz, better enabling treatment of larger surface areas. In addition, we have a Phase 3 study underway in the United States evaluating Ameluz PDT in combination with the BF-RhodoLED lamp for the treatment of superficial basal cell carcinoma. This study is approximately 70% enrolled and aims to enroll a total of 186 patients. We look forward to providing you an update on this and the other studies as we hit our milestones.
So in conclusion, 2021 was an exciting and transformational year for us at Biofrontera. We advanced our clinical development and commercial growth. We generated net product revenues of $24.1 million, returning to near pre-pandemic levels. We became a NASDAQ listed company and raised $14.9 million for the IPO $13.6 million through a subsequent private placement and $13.2 million through warrant execution. We migrated away from our controlled subsidiary position, moving our former parent with approximately 47% shareholding position and amended our license and supply agreement to strengthen our commercial revenue opportunity and future pipeline for label expansion of Ameluz.
Overall, we made tremendous progress in 2021 in establishing our financial footing, advancing our pipeline and positioning Biofrontera for sustained growth.
As we have just exited Q1 2022 with strong business momentum, I look forward to a busy 2022 that will further advance our strong position within the dermatology market.
So with that overview, I would like to conclude the business update. We will be opening the line today for questions, and I will be having Erica Gates, our Principal Accounting Officer join both Hermann and myself to answer any questions you may have. Thank you again for taking the time to participate in this conference call today. And operator, we are now ready to take questions. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from Jonathan Aschoff with the ROTH. Please go ahead.
Jonathan Aschoff
Thank you. Good morning, guys and congrats on the progress. The first question is, what’s the reason for the sales force additions in 2023 rather than the originally proposed by year end 2022?
Erica Monaco
Sure. Thanks, Jonathan. I think the approach of sales development and expansion is beyond just a typical sales territory. And so, the expansion of the sales organization includes the key account department that we’ve recently put together, as well as the inside sales force. And the reason we’re taking that approach instead of feet out in the field, as we think this will have a greater impact on specifically our key accounts that we want to focus on and allowing the existing sales force to deeper penetrate and build the relationships with our existing accounts. So it’s all still part of the original growth model. It’s just not a typical sales rep that you’re looking at.
Jonathan Aschoff
Okay. And are you comfortable giving any data, timing guidance for the three ongoing trials or no?
Erica Monaco
Hermann, I would defer to you on that.
Hermann Lubbert
Yes, we believe that we will be able to complete recruitment in the BCC trial by the end of the year. The patients are in the trial for a maximum of six months. So the study could then be completed in the middle of next year. The database closed a month or two later.
For the safety trial, that one, we expect to be completed in the course of the year. The acne trial, again, recruitment should be completed towards the end of the year. And also here, the study results should be available in the middle of next year.
Jonathan Aschoff
Okay. Thank you very much, Hermann. Can you give us a little help with the SG&A for 2022? Should we sort of bring that down sequentially, because maybe the fourth quarter has some residual non-recurring expenses. Is that accurate?
Erica Monaco
The SG&A that you’re looking at for the performance in 2021?
Jonathan Aschoff
No, the SG&A over 2022, shouldn’t that maybe drop a bit further for the first quarter of 2022 because maybe the fourth quarter of ’21 still has some residual non-recurring expenses like third quarter was really heavy with the non-recurring expenses?
Erica Monaco
I’m not sure there’s any non-recurring in the Q4 numbers. Just to clarify, some of the major non-recurring items were specific to Q3. So I don’t identify much in Q4 that will be coming down.
Jonathan Aschoff
Okay. So that looks like a run rate then, thank you. And by the way, lastly, the Ameluz price hike was that to $330 from $315 on the first of this month?
Erica Monaco
Yes, $331.
Jonathan Aschoff
Thank you very much.
Operator
[Operator Instructions] The next question comes from Bruce Jackson with the Benchmark Company. Please go ahead.
Bruce Jackson
Good morning and thank you for taking my questions. So just generally with dermatology, it was one of the specialties that was more affected by COVID-19 inpatient visits. What are you seeing right now out in the marketplace in terms of how the dermatology patient visits are recovering?
Erica Monaco
So I think the headwind from COVID-19, those are still there, although it’s not quite the same as it was during COVID. The biggest impact in the marketplace right now is staffing and retraining. I think the derm offices that did have to close or reduce staff are trying to get patients back in, but it’s a matter of getting the adequate training of their staff up and running. So that’s really what we’re seeing in terms of getting patients back into treatment.
Bruce Jackson
Okay. And then a question just about the 2022 revenue guidance, at least 30%. You’re coming off of a very strong first quarter, you’ve got a price increase that’s gone into effect. Would you characterize your guidance as being conservative? Because coming off of the strong fourth quarter and first quarter, it sort of feels conservative.
Erica Monaco
So I would say that I think the — framing it as at least 30% is intended to read as conservative, as I just mentioned with the headwinds of COVID. We had a great Q1, but we are still balancing the expectations of how COVID will impact the industry. So hopefully, at least 30% is conservative. That’s a good answer.
Bruce Jackson
Okay. Okay. And then, one last follow-up question on the clinical trials with the safety trial for the three tubes. When do you plan to complete enrollment? And then when do you plan to submit the data to the FDA?
Hermann Lubbert
We plan to complete enrollment for this trial sometime in the middle of the year. We hope to be able to submit this to the FDA before the end of the year.
Bruce Jackson
All right. Perfect. Thank you very much.
Hermann Lubbert
My pleasure. Thanks for the questions.
Operator
This concludes the question-and-answer session. I would like to turn the conference back over to the management for any closing remarks.
Erica Monaco
Thank you and thank you again for joining us all today. I’ve trust that we’ve shared our enthusiasm for the future of our product portfolio and Biofrontera’s position within the dermatology community. We look forward to speaking with you again when we report our first quarter 2022 results in May. In the meantime, thank you all and have a nice day.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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