Earnings call: Biofrontera reports Q1 2024 financials amid recovery

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Earnings call: Biofrontera reports Q1 2024 financials amid recovery
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Biofrontera Inc. (ticker: BFRI), a pharmaceutical company specializing in dermatological treatments, has disclosed its financial results for the first quarter of 2024. The company has renegotiated its supply agreement for its flagship product Ameluz, significantly reducing costs and paving the way for R&D investments and commercial growth.

Despite a cyberattack impacting revenues, Biofrontera has experienced a rebound in sales and is preparing for new product launches and clinical trial advancements.

Key Takeaways

  • Ameluz license and supply agreement renegotiated, reducing costs from 40-50% to 25% for 2024 and 2025.
  • $8 million raised to support growth, including clinical trials.
  • 9% decrease in quarterly revenues year-over-year due to a cyberattack, with a recovery of over 5% in revenues year-to-date April 2024.
  • 28 BF-RhodoLED lamps placed in Q1 2024, a 115% increase from the previous year.
  • New RhodoLED XL lamp and a propylene glycol-free Ameluz formulation to be launched.
  • Total Q1 2024 revenues of $7.9 million, down from $8.7 million in Q1 2023.
  • Net loss of $10.4 million with total operating expenses of $13.4 million.
  • Cash flow breakeven projected by the end of 2025.

Company Outlook

  • Anticipated cash flow breakeven by year-end 2025.
  • Expecting to begin selling RhodoLED XL lamps in Q2 2024.
  • New Ameluz formulation production to start soon, with delivery expected in August 2024.
  • Clinical trial data for basal cell carcinoma to be provided in Q3 2024, with FDA submission following.

Bearish Highlights

  • Quarterly revenues impacted by a cyberattack against Change Healthcare (NASDAQ: CHNG ), leading to a 9% year-over-year decrease.
  • A net loss of $10.4 million reported for Q1 2024.
  • Voluntary recall of Ameluz batches by Biofrontera AG, with $5.2 million allocated for replacement inventory.

Bullish Highlights

  • Significant cost reductions achieved through renegotiation of the Ameluz agreement.
  • Successful $8 million financing to bolster growth and expansion.
  • Over 5% growth in revenues year-to-date April 2024 compared to the same period last year.
  • Increase in BF-RhodoLED lamp placements indicates strong product demand.

Misses

  • Total Q1 2024 revenues fell short of the previous year's figures, totaling $7.9 million compared to $8.7 million in Q1 2023.

Q&A Highlights

  • The FDA requires a one-year follow-up for the clinical phase of basal cell carcinoma treatment, with data available in early Q2 2024.
  • FDA application for three tubes of Ameluz is underway, with preliminary review results expected in early August and a PDUFA date in November.
  • Enrollment for acne and peripheral AK clinical trials is progressing, with 74% and 57% completed, respectively.
  • The cyberattack's impact on sales is seen as temporary, with an upswing in sales already noted in April 2024.

Biofrontera's strategic moves to renegotiate costs and secure additional financing demonstrate the company's commitment to maintaining a trajectory of growth and innovation. Despite the setbacks from cyberattacks and recall-related expenses, the company's management remains optimistic about achieving breakeven and continuing to expand its product offerings. Investors and stakeholders can look forward to the anticipated launches and clinical trial milestones set for the upcoming quarters.

InvestingPro Insights

Biofrontera Inc. (BFRI) has shown resilience in the face of challenges, as highlighted by their recent strategic moves and financial results. To further understand the company's financial health and stock performance, InvestingPro provides some real-time metrics and tips that may be of interest to investors.

InvestingPro Data reveals a market capitalization of $6.16 million, reflecting the current valuation of the company in the market. Despite a challenging quarter, the company has managed to maintain a revenue growth of 18.82% over the last twelve months as of Q4 2023. This growth is a testament to the underlying demand for Biofrontera's products and their market potential. The gross profit margin stands at a robust 48.8%, indicating the company's ability to retain a significant portion of its revenue after accounting for the cost of goods sold.

Among the InvestingPro Tips, it is noted that Biofrontera operates with a significant debt burden and is quickly burning through cash, which are important considerations for investors. Additionally, the stock has experienced high price volatility and has taken a considerable hit over the last week. This volatility should be factored into the investment decision-making process.

For investors seeking more comprehensive analysis and additional tips to guide their investment strategies, InvestingPro offers a total of 13 InvestingPro Tips for BFRI, available at https://www.investing.com/pro/BFRI. These tips can provide deeper insights into the company's performance and future prospects.

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Full transcript - Biofrontera (BFRI) Q1 2024:

Operator: Welcome to the Biofrontera Inc. First Quarter 2024 Financial Results and Business Update Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] After today's prepared remarks, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Andrew Barwicki with Barwicki Investor Relations. Please go ahead.

Andrew Barwicki: Good morning and welcome to Biofrontera Incorporated's First Quarter 2024 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 Biofrontera's 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 company's business. All risks and uncertainties are detailed in and are qualified by the cautionary statements contained in Biofrontera's press release and certain SEC filings. Also, this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, May 16th, 2024. Biofrontera undertakes no obligations 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. 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 the press release announcing Q1 fiscal year 2024 results. 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 and amortization and certain nonrecurring or noncash items. With that said, I would like to turn the call over to Hermann Luebbert, CEO, Chairman and Founder of Biofrontera. Hermann?

Hermann Luebbert: Thank you, Andrew, and many thanks to everyone joining us this morning. On today's call, I'll provide an overview of our operations during the first quarter, some events that occurred since the end of the first quarter and discuss our business strategy for the remainder of the year. Fred Leffler, our CFO, will follow with a discussion on financial results and then both of us will be happy to answer questions. I would like to start with the most positive event of the first quarter. We successfully renegotiated our license and supply agreement for Ameluz with Biofrontera AG, reducing our costs significantly. We will now be paying 25% for Ameluz during 2024 and 2025 compared to approximately 40% to 50% of our sales price under the prior agreement. This LSA will gradually step up to 35% by 2032. Any indication associated with acne will remain at 25% indefinitely. This represents a transformational event for Biofrontera Inc., significantly increasing our potential to become profitable in the near term. As part of this amendment, we will take over all US clinical trials effective June 1, which will allow for more effective cost management and direct oversight of the trial efficacy. The reduced cost of goods will allow us to finance R&D activities while continuing our commercial growth trajectory. With Ameluz making up most of our revenue, we believe this is a unique opportunity moving forward. Furthermore, I'm pleased to announce that in February, we raised $8 million minus financing expenses to support the growth and expansion of the company, including clinical trials. Later, the cost of the clinical trials will be covered in entirety by the savings from the reduced transfer price. Our February financing deal entailed warrants exercisable upon achievement of certain milestones by April 30 at the earliest. As we confirmed earlier this month, we have already met those milestones and as a result received another $8 million through the exercise of the warrants in early May. Contrary to these positive developments, our quarterly revenues were negatively impacted when in February, a cyberattack against Change Healthcare, the largest billing and payment system in the US, affected thousands of medical practices. According to the AMA, the American Medical Association, 80% of physicians reported lost revenues from unpaid claims. The AMA, which is the nation's largest medical society, said the attack threatened the viability of physician practices across the country, with more than half of survey respondents having to use personal funds to cover practice expenses. Health care reimbursement is a never-ending challenge with many changes occurring on a constant basis, purposeful or not. Having said that, I'm extremely proud of our team in their efforts with medical facilities, doctors' offices and insurance companies to tackle the working capital issues created by the Q1 Change Healthcare cyberattacks and to ensure full reimbursement is received wherever possible. We are working hand-in-hand with our customers, whether they are a small single provider office or a large medical facility, to ensure they have our products available and are appropriately reimbursed for their service to the patients. In spite of everybody's efforts, all this culminated in some customers either reducing their orders in Q1 or shifting their orders into Q2, which drove 9% lower Q1 revenue as compared to the first quarter in 2023. However, as we announced earlier, we have begun to see this recovery. And as of year-to-date April 30th, 2024, compared to the same period last year, we have reported already more than 5% growth in revenues. Our BF-RhodoLED lamps, the devices that are used in combination with Ameluz, continue to be placed at physician offices throughout the country. A positive indicator for future growth is that in the first quarter 2024, we have placed 28 lamps, an increase of 115% compared to the first quarter of the prior year. The growing number of lamps in the field reflects both first-time installations and additional lamps among dermatology practices already familiar with Ameluz PDT, facilitating growth for new and existing customers. We expect to begin selling the RhodoLED XL, our larger five-panel lamp, towards the end of the second quarter this year. As part of the agreement with Biofrontera AG, we are in the midst of preparations for the takeover of the clinical trial departments for Biofrontera Bioscience. As of June 1st, 2024, members of the clinical trial groups will join our wholly-owned German subsidiary, Biofrontera Discovery (NASDAQ: WBD ) GmbH, which subsequently will be responsible for the management of all clinical trials with Ameluz and BF-RhodoLED in the United States. At Biofrontera Discovery, we will not only be responsible for future clinical studies, but also for all ongoing trials. Currently, two clinical studies are enrolling patients, one for actinic keratosis on the neck and tongue and the arms and hands. The other for moderate to severe acne. This has recorded 57% and 74% of subjects respectively. The third ongoing study for the treatment of superficial basal cell carcinoma is nearing completion of the one-year follow-up phase required for FDA submission. We expect the last patient to complete this follow-up phase before the end of the year. As I mentioned in the past, the Food and Drug Administration approved the new formulation of Ameluz without propylene glycol for the treatment of actinic keratosis. The production of this formulation will begin shortly and we expect delivery at our wholesaler in August. This will help improve tolerability for some of our patients while also reducing the generation of impurities over time, which may result in an extended shelf life once sufficient stability data is collected. With that I'll turn the call over to Fred to walk through the financial details of the first quarter. Fred?

Fred Leffler: Thank you, Hermann and it is a pleasure to provide a financial update today on our first quarter results. Total revenues for the first quarter of 2024 were $7.9 million compared with $8.7 million for the first quarter of 2023. The decrease is due to health care reimbursement issues caused by the Change Healthcare data breach that created cash challenges for the entire health care industry throughout the quarter. As Hermann mentioned, we have seen recovery, and I do not expect this to be a long-term issue, and we'll continue to monitor for any further developments. Total operating expenses were $13.4 million for the first quarter of 2024 compared with $14.2 million for the first quarter of 2023. Cost of revenue was $4.1 million for the first quarter of 2024 compared with $4.6 million for the prior year quarter, with the decline in cost of revenue driven by the lower Ameluz sales. I've mentioned in earlier calls that we are burning through inventory that we have on hand for most of 2024. Later this year, once we purchase new inventory, we expect to see the positive impact of the LSA amendments on our cost of revenues. Selling, general and administrative expenses were $9.3 million for the first quarter of 2024 compared with $9.8 million for the first quarter of 2023. The decrease was primarily driven by a $1.1 million decrease in nonrecurring legal costs and a $3,000 decrease in sales and marketing expenses. The decrease was primarily offset by a $700,000 increase in fees and issuance costs associated with our most recent private placement transaction as well as a small increase in personnel expenses. The net loss for the first quarter of 2024 was $10.4 million or a loss of $2.88 per share compared with a net loss of $7.5 million or a loss of $5.60 per share for the prior year quarter. I will note that the accounting for the B-3 convertible preferred warrants had a large impact on this. We do not expect to have such an adjustment in the future. Adjusted EBITDA for the first quarter of 2024 was negative $4.6 million compared with negative $4.1 million for the first quarter of 2023. This reflects the lower revenues we saw in the first quarter of 2024. We look at adjusted EBITDA, a non-GAAP financial measure, as a better indication of ongoing operations and this measurement is defined as net income or loss excluding interest income, and expenses, income taxes, depreciation and amortization and certain other nonrecurring or noncash items. I'll refer you to the table in the earnings press release and the 10-Q we issued yesterday for a reconciliation of GAAP to non-GAAP financial measures. Turning to our balance sheet. As of March 31st, 2024, we had cash and cash equivalents of $3.8 million. Keep in mind, we received $8 million from the exercise of B-3 convertible preferred warrants on Tuesday, so we are in a much stronger position today. Our inventory balance as of March 31st, 2024 was $6.9 million. As I mentioned, we are burning through our inventory and we constantly monitor our inventory levels to ensure deliveries are made in accordance with our forecast and we get to and maintain an industry standard of safety stock. Related to inventory, our assets include $5.2 million for replacement inventory. This is due to Biofrontera AG deciding on a voluntary recall of three batches of Ameluz. We were notified of the issue in February of 2024. The batches will be replaced at no cost to us, and we expect to receive these batches in the third quarter. This will not impact our ability to fulfill orders in the meantime. Finally, we had an outstanding balance of $2.4 million in short-term debt that we expect to pay down by early July 2024. With that overview of our business and financial performance, Hermann and I are now ready to take questions from our covering analysts. Operator?

Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jonathan Aschoff with ROTH. Please go ahead.

Jonathan Aschoff: Thank you. Good morning, guys. My first question is, does that greater than 5% Jan through April sales result, is that a big underestimation of the actual growth that simply fits the definition of one of the two milestones you had to hit to trigger the second $8 million investment or is it actually really close to 5%?

Fred Leffler: Hi, Jonathan. Fred Leffler here. I can take that. That was based on the milestone, like you said, that we had to hit. We didn't issue the specific number, but I can give an update on Q2, or we'll give the update on Q2 in August.

Jonathan Aschoff: Okay. Are you guys still comfortable with cash flow breakeven around the year-end '25 or has that changed a bit?

Fred Leffler: That is still the expectation. As Hermann said, we are taking on the clinical costs and we will start seeing the savings of the LFA amendments later this year through 2025 to help fund that. And as long as we operate and hit our budget numbers, I don't foresee that as being an issue.

Jonathan Aschoff: Okay. Did the last basal cell carcinoma patient have their final assessment last quarter and therefore, you're still expecting to give us data in the third quarter of this year?

Hermann Luebbert: That's correct. So the data we would provide -- we expect to provide for the clinical phase and the FDA wants us to submit the one-year follow-up. So the last patient out there would be in November or December. So the follow-up data would be available early in Q2 and then prepared for FDA submission.

Jonathan Aschoff: Okay. And I remember hearing from the prior management that dermatologists, if they had to cover a greater area and only allowed to use one tube, they would use the Ameluz a little thinner than indicated so it could cover a greater area. Wouldn't that kind of, I don't know, imply that if they can use more than one tube that they would definitely do that so they could get a higher reimbursement per procedure?

Hermann Luebbert: Well, doctors, of course, if they can, tend to use the products according to label and the payers are more and more looking after that. And so our currently ongoing submission, FDA submission for three tubes is very, very relevant in that respect. So the timeline there hasn't changed. So we expect some kind of preliminary review results in early August and then the PDUFA date is in November.

Jonathan Aschoff: Okay. Could you just help us with the enrollment for acne and peripheral AK?

Hermann Luebbert: Yes. So the enrollment for acne and peripheral AK, I have the numbers in the presentation. So for, one second, so for peripheral AK, current enrollment is 57% of the patients. And for acne, it's 74% of the subjects.

Jonathan Aschoff: Thank you very much, guys. That was all.

Hermann Luebbert: Thank you.

Operator: The next question comes from Bruce Jackson with The Benchmark Company. Please go ahead.

Bruce Jackson: Hi. Good morning and thanks for taking my questions. I'm trying to kind of sort through the impact from Change Healthcare. So we're up 5% year-to-date. How do you think the rest of the year unfolds? So second quarter is generally seasonally weak and then the back half year can have other anomalies to it. But how do you see the sales unfolding for the rest of the year?

Hermann Luebbert: As Fred said, we don't expect this to have a long-term impact. It was an impact mostly in February and March when this actually happened, doctors were not paid for our services. That's when all the services at doctors' offices actually came down, including, of course, PDT, with Ameluz. But then in April, we did already see the upswing and could not only make up for those 90% loss. But as we said, it's more than 5% above last year. So we don't expect a long-term effect of this and still expect the same kind of growth that we did at the beginning of the year.

Bruce Jackson: Okay. And then my second question is about the XL lamp launch. I think I heard you're going to be receiving from the, I'm sorry, when is the XL lamp going to launch? That's my question.

Hermann Luebbert: It's going to launch by the end of Q2.

Bruce Jackson: End of Q2. Okay. Super. That's it for me. Thank you.

Hermann Luebbert: Great. Thank you, Bruce.

Fred Leffler: Thanks. Thanks, Bruce.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Hermann Luebbert: Yes. Well, thank you for everybody's time participation, the questions. And we look forward to our next call, where hopefully, we can again present positive news. Thank you 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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