Q4 2023 NovaBay Pharmaceuticals Inc Earnings Call
Participants
Jody Cain; IR Contact Officer; NovaBay Pharmaceuticals Inc
Justin Hall; CEO and General Counsel; NovaBay Pharmaceuticals Inc
Tommy Law; Interim Chief Financial Officer, Treasurer; NovaBay Pharmaceuticals Inc
Jeffrey Cohen; Analyst; Ladenburg Thalmann & Co
Edward Woo; Analyst; Ascendiant Capital
Presentation
Operator
Hello, and welcome to the NovaBay Pharmaceuticals fourth-quarter and full year 2023 financial results conference call. All participants will be in listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded.
I would now like to hand the call to Jody Cain. Please go ahead.
Jody Cain
This is Jody Cain with LHA. 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. These 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 company's control that impact the broader economy. This means that results could change at any time, and the contemplated impact of such circumstances [on own] for base operations, financial results, and outlook is a best estimate based upon information available for today's discussion.
For a list and description of risks and uncertainties, please review NovaBay's 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, March 26, 2024. NovaBay 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 Hall. Justin?
Justin Hall
Thank you, Jody. Good afternoon, everyone, and thank you for joining us. 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 DERMAdoctor reduces our operating expenses, which aligns with our priority of extending our cash runway in this continued challenging capital market environment. NovaBay acquired DERMAdoctor 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 skincare segment, which was a major factor in our decision to divest DERMAdoctor.
Our focus is now on opportunities in our core eyecare business. Avenova spray is established as the number one doctor recommended anti-microbial lid and lash solution, providing us a platform of loyal customers from which to grow.
This customer loyalty is evidenced by the 64% year-over-year increase in online subscription-based unit sales, and the 38% increase in the number of subscription based sales on Amazon and Avenova.com, our two most productive OTC 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 sales and marketing spend for the year by 17% through our digital marketing expertise.
Our physician dispense channel also contributed to the growth of our eyecare 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 avenue of a branded product.
Last year, we also launched our new avenue of allograft through the physician dispense channel this prescription only allograft provides a protective environment for covering 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 bio retain 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 allografts in candidate selection.
More recently, we executed on our growth strategy through a co new co-marketing agreement with Eyenovia. Eyenovia recently announced FDA approval of prescription only clobetasol a unique and differentiated steroid prescribed by cataract surgeons.
Clobetasol provides ophthalmologists and ocular surgery patients with a compelling rapid, sustained and more convenient solution for postoperative 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, absent absence of inflammation within 15 days of ocular surgery. This is the first new ophthalmic steroid to enter the U.S. market in more than 15 years.
Under our co-marketing agreement, we will leverage our established relationships with thousands of eye care professionals to market the newly approved clobetasol product. Our channel provides a ready-made opportunity to accelerate this product's commercialization, which is complementary to our avenue of a line of products.
In addition, Eyenovia 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 grow sales of Avenova.
We're excited to partner with Eyenovia, 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 dispense channel has become increasingly important in building our avenues of business that 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 lot to review our financial results. Tommy?
Tommy Law
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 net for the fourth quarter of 2023 were $3.7 million, which included $2.8 million from the Eye Care and Wound Care segment and $0.9 million from the skin care segment. Total sales for the 2023 quarter increased by 2% from $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.
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 decrease in headcount and the use of outside professional services.
R&d expenses for the fourth quarter of 2023 were reduced to $4,000 from $66,000 for the prior year period. Among non cash items, we recorded goodwill, intangible and other asset impairment charges related to the impairment of the German DR business for the four quarters of 2023 and 2022 of $2.6 million and $6.7 million, respectively.
Fourth quarters of 2023 and 2022 also include a noncash gain on changes in fair value of warrant liabilities of $56,000 and $976,000, respectively. The fourth quarter of 2022 included a noncash gain on changes in fair value of contingent liability of $342,000, which was related to the derma DR business. Other expenses net for the fourth quarter of 2023 was $766,000, primarily due to the amortization of discount and issuance costs related to the convertible notes issued in May 2023.
This compares with other expenses net for the fourth quarter of 2022 of $98,000. Net loss attributable to common stockholders for the fourth quarter of 2023 was 9.2 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 of $8.2 million or $4.33 per share.
Turning now to our full year financial results, total sales net for 2023 were $14.7 million, an increase of 2% versus 2022 and included $11.2 million from Eye Care and Wound Care segment and $3.6 million from the skin care segment. Year-over-year sales of our Eye Care and Wound Care segment grew 9% and were driven by higher average sales through our physician dispense and OTC channels, as well as a contribution for from our branded wound care product.
Gross margin on net product revenue remained relatively unchanged for 2023 and 2022 at 54% by 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 $68,000 versus $174,000 for the prior year, we recorded 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 indefinite-lived intangible assets and long life assets related to the German doctor business were fully impaired in the 2023 year for 2023 and 2022, we recorded a non-cash loss on the modification of common stock warrants of 0.3 million and $1.9 million, respectively, for 2023 and 2022.
Non-cash gain on changes in fair value of warrant liability was $0.3 million and $5.4 million, respectively, for 2020 to non-cash gain on changes in fair value of contingent liability, but $0.6 million. Other expense net for 2023 was $2.1 million versus other expense net of $0.3 million for 2022, with the increase primarily due to an Amazon position 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 to preferred stock conversion prices of $7.1 million.
This compared with a net loss attributable to common stockholders for 2022 of $16.3 million or $10.10 per share, which included a non-cash adjustment to preferred stock conversion prices of $5.7 million.
We reported cash and cash equivalents of $3.1 million as of December 31st, 2023, we received $1.1 million upon the closing of the derma doctor divestiture. And lastly, with the sale of German doctor, we will go back to managing our business as a signal signal singles segment or more profitable eye and woundcare segments.
And now I'll turn the call back to Justin with the sale of DERMAdoctor.
Justin Hall
Now close to we look forward to focusing once again on our eye care business segment of Inova is a well established brand that still has tremendous growth potential for example, we're having success with various programs in the physician dispense 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 Eyenovia.
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.
Question and Answer Session
Operator
Thank you very much. We will now begin the question and answer session. (Operator Instructions)
Jeffrey Cohen, Ladenburg Thalmann & Co.
Jeffrey Cohen
Hello, Justin and Tommy how are you?
Justin Hall
Hey, Jeff.
Jeffrey Cohen
I just saw a couple of questions from my end. I guess, firstly, maybe could you talk a little bit about Sonoma and suddenly your territories over the past few months and maybe some minor Satori comments regarding 24 chart.
Justin Hall
Yes, absolutely. So we are working with Sonoma on expanding into the EU on announcing that agreement earlier this year. The first step is to approach various distributors over in the EU. So we have been working with Sonoma on those partnerships to get those people interested on the product will be their Sonoma product, their hypochlorous acid, but branded as an avenue of product. And so we are reaching out to distributors over there and gauging interest.
Jeffrey Cohen
Okay, got it. So on and would that be broken out into China breakout in your revenues other than ION scanned at the moment?
Justin Hall
Yes. So probably not. So we typically in the past have not broken out on by distribution channel or by sales channel. So I don't think that we're going to break that out in the future, but happy to provide some commentary around that as sales grow.
Jeffrey Cohen
Okay. And then could you talk about how you're targeting some initial accounts for potential new launches and new products? And maybe talk about the demographics on some of the our subscription customers as well?
Justin Hall
Sure.
Well, I think the most exciting thing that we have going on right now is our partnership with Eyenovia So in all of 2023, we operated with just an inside sales force. We had no field sales representatives. And with Eyenovia, 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 having a much broader reach on. 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 Avenue, but we scaled that back tremendously, especially during the pandemic when it just didn't make sense to have field sales reps driving around and company cars visiting doctors' offices.
So we did switch over to an inside rep model, which is very cost effective, but is also somewhat limiting. You know, there are certain accounts in 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.
So we're partnering with Eyenovia. So we're going to get that field sales rep. They also on their side, they're getting an inside sales team that's really experienced and has a full CRM of existing customers that they can reach out to and sell to. So I think the major push that we're going to have in 2024 is to really leverage that physician dispense channel and get the avenue of a brand out in front of more patients. So we're going to be having hopefully a lot more prescription Avenue, but that will turn into a direct to consumer sales. And that's really that's really what we're pushing in 2024 as our strategy.
Jeffrey Cohen
Okay. And then I think lastly for us, as far as some your market share, as you said, is that changing at all from 24 compared to 23?
Justin Hall
Yes. 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 made a sort of monumental shift because we saw some real promise in that market. And so we thought selling over the counter products consumer products directly to the end consumer over the Internet was going to be sort of our our future. And we, as I said on the call on 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 depending solely on a direct-to-consumer sales platform where eyeballs need to be bought online ad spend is quite high in building a consumer brand. So shifting away from that and 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 on it is a different sales and marketing strategy and one that we shifted to sort of in the tail end of 2023, but were all in on it now in 2024.
Jeffrey Cohen
Great, that does for us. Thanks for taking the questions.
Justin Hall
Thanks. Jeff.
Operator
Thank you.
Edward Woo, Ascendiant Capital.
Edward Woo
Yes, thanks for taking my question. My question is, should we expect a lot less new product from you guys as you just focus on out of Nova?
Justin Hall
Yes.
I just 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 avenue of allograft and our partnership with BioStim. So we entered into that agreement and started selling the advent of allograft in Q4, which is incredible innovation on a good lucrative agreement that allows both of us to profit and then more recently with the Eyenovia agreement.
So that's also bringing a lot of innovation, a very unique differentiated product on 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.
Edward Woo
Great.
Thank you and good luck.
Justin Hall
Thanks, Ed.
Operator
Thank you. This concludes our question and answer session. I would now like to turn the call back over to Justin Hall for closing remarks.
Justin Hall
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 eye care business. We look forward to providing an update during our next quarterly call in May. Thanks again, and have a nice day.
Operator
The conference has now concluded. Thank you for your participation. You may now disconnect your lines.
