Botanix Pharmaceuticals Limited (BOT) Earnings Call Transcript

Let's get into it. Good morning, everyone, and thank you for joining today's investor webinar for Botanix Pharmaceuticals with the ASX ticker code BOT. My name is Wilamina Russo, Investor and Media Relations. And today, I'm joined by Vince Ippolito, the Executive Chairman; Dr. Howie McKibbon, the CEO; and Chris Lesovitz, the U.S. CFO. For those of you new to the Botanix story, Botanix is a commercial stage dermatology company operating in Australia and the United States with its FDA-approved product Sofdra available in America. Sofdra is a prescription-only topical gel medicine used to treat excessive underarm sweating, also known as primary axillary hyperhidrosis in adults and children aged 9 and over. The company has transitioned from a development stage business into a revenue-generating commercial entity with Sofdra as its growth driver. Now there will be time at the end for questions. So if you have something you would like to ask the gentlemen, please use the question function to type your questions there. Also, please note, thank you to everyone who has e-mailed questions prior to the webinar. I have been receiving them. They are being considered by the Board and some of them will be addressed in the Q&A component following the presentation. Now important notice with our disclaimer. Please note that this presentation contains forward-looking statements. These are not guarantees of future performance and are subject to risks and uncertainties, many outside our control. Please read this presentation alongside the company's periodic and continuous disclosure announcements lodged with the ASX. And this presentation does not constitute financial product advice or an offer of securities. With that done and dusted, Howie, I'll hand over to you to please get us started.

All right. Thank you very much, Wilamina, and thank you all for joining us today. Today, we're going to provide a performance update as well as outline actions taken to maximize shareholder value, strengthen our financial position and capitalize on meaningful value creation opportunities. Now to support these objectives, we've taken decisive steps to significantly restructure our operations, reducing headcount by approximately 60% and operating expenses by roughly 50%. Importantly, we expect to retain approximately 75% of our revenue-generating ability. These actions were designed to materially extend the cash runway for Botanix. They reflect a deliberate effort to create a leaner, more efficient organization without compromising our ability to generate revenue or pursue strategic growth. And while these measures strengthen our financial foundation, they are much more than about cost reduction. They provide the financial flexibility and time needed to pursue several compelling opportunities to unlock additional shareholder value. Specifically, we're focused on 3 strategic priorities: first, expanding our portfolio through targeted complementary in-licensing opportunities; second, maximizing the global commercial potential of our assets through strategic partnerships outside of the U.S.; and third, pursuing opportunities to potentially transact the company. Now taken together, we believe these actions position us to operate more efficiently while preserving multiple pathways to create meaningful value for shareholders over time. Next slide Wilamina. Okay. So as you can see here, demand continues to strengthen as we build Sofdra into the market-leading treatment for primary axillary hyperhidrosis. In Q1 of FY 2027, prescriptions shipped reached 35,130, reflecting continued quarter-over-quarter growth. We saw a 32% growth in the most recent 6 months compared with the previous 6 months period, underscoring sustained demand and growing physician adoption. Consistent prescription growth reinforces the strength of Sofdra's commercial opportunity and demonstrates its increasing acceptance as a treatment option for patients living with primary axillary hyperhidrosis. Now looking ahead, this positive prescription trajectory provides a strong foundation for future revenue remains a key indicator of the significant long-term commercial potential we see for Sofdra. Next slide, please. So while prescription demand remained strong, gross to net yield declined to 21% during the quarter. Now we believe this was primarily driven by lower prior authorization or PA submission volumes. Prior authorizations as you know, are a critical part of converting prescriptions into reimbursed revenue, and we've identified an operational inefficiency in PA processing and immediately implemented corrective actions. We optimized our submissions by prioritizing the processing of higher-value prior auths with higher probability of success. Additional training was provided to PA coordinators and follow-up with appropriate physicians was increased. And although many factors can affect gross to net yield, as you know, we believe this was likely the main cause of the lower gross to net yield in Q1 of FY '27. Based on those actions, we expect an improvement in PA submission and the corresponding gross to net performance going forward, assuming all other market conditions remain consistent. Our focus remains on translating strong underlying prescription demand into sustainable net revenue growth through improved operational execution and reimbursement efficiency over the next quarters and quarters beyond. Next slide, please. Net revenue for the first quarter was $10.1 million, consistent with the prior quarter. While revenue remained flat sequentially, it's important to view this performance in the context of the strong underlying prescription growth we discussed earlier. As highlighted on the previous slide, it is likely that the reduction in PA submissions negatively impacted the gross to net conversion offsetting the revenue benefit of prescription volumes. The key distinction here is that the underlying demand continued to strengthen, while reimbursement execution constrain revenue realization during the quarter, we anticipate the improvement next quarter and again in quarters beyond. With corrective actions now implemented to improve, our efficiency is a meaningful opportunity to better translate our prescription growth into net revenue growth in future quarters. Our priority continues to be moving forward to close the gap between prescription demand and revenue realization, ensuring that growing commercial momentum behind Sofdra is more effectively reflected to the net revenue performance. With that, I'll turn the presentation over to Chris Lesovitz, our U.S. CFO, for financial update. Chris?

Thank you, Howie. So Q1 reflected continued execution against our objective of improving cash efficiency while supporting commercial growth. We ended the quarter with approximately $24.4 million in cash and cash equivalents and $30.8 million of inventory. Our net operating cash outflow improved to $9.2 million, representing a 13% reduction compared to the quarter. This improvement was driven by higher sales receipts, lower manufacturing spend during the quarter and disciplined management of operating expenses. These results demonstrate early progress from the actions taken to improve operating efficiency while maintaining support for the commercial business. Going to the next slide, we will look at the cash outflows. Looking at the quarter in more detail. Product sales receipts increased 13% to $15.2 million, reflecting stronger underlying demand and collections. At the same time, product manufacturing costs declined 35%. While operating expenses, staff costs and general and administrative expenses, all decreased compared with prior quarter. As a result, net operating cash outflows improved to $9.2 million, down from $10.6 million in Q4 2026. It's important to note that inventory in the balance sheet was deliberately increased ahead of the anticipated pharmaceutical tariff impacts. As a result, we expect approximately $2 million of manufacturing-related cash outflows in the upcoming quarter with no further planned manufacturing spend for the remainder of fiscal year 2027. On the next slide, I'll walk through our upcoming quarter plans. So our focus remains on maximizing the capital available to execute our strategy. The business has now transitioned to an operating model targeting approximately 50% lower operating expenses while maintaining roughly 75% of revenue-generating ability. The model assumes continued product sales performance, minimal manufacturing spend following the inventory build approximately 50% lower operating and personnel costs for the balance of fiscal year 2027. Stable G&A expenses and gross to net deductions that scale with revenue. When executed as planned, these actions are expected to materially reduce the cash burn and extend the cash runway of the company. With that, I'll now hand this back to Howie, who will go into more detail about the plans.

Yes. Thank you, Chris. So let's talk about the 75% retention of our ability to keep our net revenue. So our expectation is that we can retain approximately 75% of our net revenue-generating ability following the restructuring. And it's grounded in historical performance data, the market data that we have or experience. But most importantly, what we've seen occur with the growth of Sofdra in specific territories and what we've seen occur when the territory goes vacant. The analysis supports a more focused commercial model built around 3 key elements: concentrating the resources in the highest performing territories. The addition of high-value targets in those adjacent territories to those 13 and the continued prescribing activity in territories no longer directly covered by our sales force. Let's start with the current business. Today, 13 territories generate 45% to 50% of our total revenue. In fact, we see the prescriptions that go through each territory from each physician and what the net selling price is. They can add high-value targets in adjacent territories to their current routing without sacrificing the regional frequency on their current physicians, which gives you another 5% to 8%. We have experienced, again, as I said, not only in derm, not only with hyperhidrosis, but specifically with Sofdra as to what occurs when a territory goes vacant. Habits are formed, education has occurred and the doctors do not stop writing the product. These 3 dynamics position us to preserve approximately 75% of our revenue-generating ability while operating with a significantly reduced cost structure. Ultimately, our objective is to maintain meaningful commercial performance with a leaner, more productive footprint, allowing us to preserve cash while continuing to capitalize on the underlying demand for Sofdra while we unlock additional shareholder value. Next slide, please. Wilamina. Now in parallel with our cost reduction initiatives, we've identified several meaningful opportunities to improve commercial efficiency and drive revenue growth without increasing our OpEx. And these opportunities are focused on optimizing key elements of our existing commercial model. They include prior authorization or increasing prior authorization submissions along with the approval rates, improving co-pay efficiency, increasing prescription shipment rates and strengthening patient refill persistent rates -- persistency rates. Importantly, even modest -- I'm sorry, modest improvements across these metrics have the potential to meaningfully enhance gross to net yield and accelerate net revenue growth. One of the more compelling opportunities is to improve patient refills, achieving just one additional fill per patient annually could increase net sales by approximately 20%. This represents a very significant opportunity to generate incremental revenue from our existing patient base. We have a dedicated team focused on executing against this objective as well as improving our gross to net. Our focus is not simply on growing prescription volume but on growing profitable prescriptions and maximizing the revenue generated from each patient. We believe this disciplined approach to commercial execution, combined with our significantly lower cost structure provides a compelling opportunity to improve our operating leverage, strengthen our financial performance and ultimately create sustainable, long-term shareholder value. Next slide. So these decisive actions we've taken to reduce our cost structure, extend our cash runway are important steps, but they're not the end goal. We're focused on maximizing value for shareholders. And with a leaner operating model, greater financial flexibility, we believe we are better positioned to pursue key catalysts to unlock that value. These include expanding our patient portfolio through in-licensing opportunities or adding additional products, unlocking additional global commercial value through strategic international partnerships and evaluating broader strategic alternatives, including transacting the company. Importantly, we view these opportunities as complementary pathways to create shareholder value rather than relying on just a single outcome. And our central message is that extending our cash runway, provides more than additional time. It creates greater strategic flexibility, strengthens our negotiating position and gives us more opportunities to execute initiatives that can unlock meaningful value. We remain focused on pursuing these opportunities with disciplined balancing near-term financial priorities with our commitment to maximizing long-term shareholder returns. Next slide. We're actively evaluating multiple strategic value creation initiatives and potential nondilutive funding opportunities through a structured and disciplined process. The Board remains focused on carefully assessing each opportunity, engaging with potential counterparties and determining which alternatives have the greatest potential to maximize shareholder returns. To support this process, we've engaged experienced external advisers. Hogan Lovells has provided legal and regulatory due diligence support while H.C. Wainwright & Co. is advising on mergers and acquisitions, valuation, transaction assessment and financial due diligence. Now these engagements reflect the seriousness and discipline with which we are approaching and thoroughly evaluating the opportunities available to the company. And while no outcome is assured, our objective remains clear, to pursue a rigorous comprehensive evaluation of opportunities that have the potential to unlock meaningful value for shareholders. We believe this disciplined approach supported by experienced advisers and enhanced financial flexibility positions us to make informed strategic decisions in the best interest of the company and its shareholders. Wilamina, we can go to the final slide. Thank you. So in closing, Botanix remains a commercial stage company with an FDA-approved new chemical entity, growing prescription demand and multiple compelling pathways to create shareholder value. Now importantly, what we've built extends well beyond a single product. We have established a scalable commercial platform with the capabilities to support a broader dermatology franchise. The platform is designed to optimize gross to net, deliver prescription fill rates that are now 2.5x the industry standard that we look to improve upon, achieve high levels of fully reimbursed prescriptions and support strong physician and patient satisfaction. These capabilities on their own represent a significant competitive advantage and provide that foundation for both continued Sofdra growth and potential future portfolio expansion. Now at the same time, we've taken decisive action to significantly reduce our cost structure, extend our cash runway and preserve the financial flexibility needed to pursue strategic opportunities. Importantly, we believe we can continue to grow Sofdra through efficient commercial execution without materially increasing our operating expenses. Our ambitions extend beyond optimizing the existing business. Our Board is actively evaluating a range of strategic opportunities that could accelerate shareholder value realization. As I said earlier, these include potential acquisitions, complementary in-licensing opportunities as well as evaluating significant inbound interest involving potential licensing arrangements and acquisition transactions. We are approaching each of these opportunities with discipline and a clear focus on delivering the best possible outcome for shareholders. Ultimately, we believe Botanix today represents a compelling combination of growing commercial asset an established and scalable dermatology platform, a substantially leaner cost structure and multiple opportunities to unlock additional value. And our priorities are clear: continued to strengthen the underlying business, execute with financial discipline and actively pursue the strategic opportunities that can deliver meaningful returns. We believe the actions we've taken position Botanix for an important next chapter, and we look forward to keeping shareholders informed as we make progress. Thank you again for your continued support and interest in Botanix. That concludes our formal presentation. I'll hand it over to Vince now to lead the Q&A session, and we look forward to your questions.

All right. Thank you, Howie. Thank you, Chris, for the presentation. We did get a number of questions in here. And so why don't we just jump right into some of the questions that have been asked. So Howie, I'm going to ask you the first question that we have here. Can you explain why you're confident you can keep the 75% of revenue generating capacity after reducing the workforce.

Yes. It's a good question. I think it's a linchpin here, and it's one where we're fortunate to have a large number of data sets to inform the model. And that model is based on historical derm data, current market data and daily generated data that come from the platform, the Botanix fulfillment platform. That includes actual prescriptions, refills, reimbursement revenue and patient persistence. So we do have more data than the majority of pharmaceutical companies with which to make these decisions. And we're able to pinpoint the actual value per territory, the value of the targets in the adjacent territories and what occurs when call activity changes and when a territory goes vacant. And that only tells us for a fact that 13 of these territories generate 45% to 50% of net revenue. High-value prescribers maintain in the adjacent geographies can account for an additional 5% to 8%. And we have good modeling to show how prescription behavior changes when you remove the rep in the territory, for each of the territories in the country that have been vacant prior to this and then filled ultimately or not filled in certain cases. So that continued prescribing activity in those territories that are no longer directly covered contributes another 20% to 24% of revenue retention. So if you add up those numbers, you get 70% to 82%, 75% is the middle value, like with anything else, we'll adjust based on the data, add targets, remove targets to optimize our revenue-generating capability. But taken together, 75% of the current revenue-generating capability can be maintained, and we're able to do that when reducing our cost structure by approximately 50%.

Thank you, Howie. Another one here for you. Actually, it's a 2-part question on gross to net. Why did the revenue remain flat despite prescription growth? When do you expect gross to net to improve? And then I'll ask you the second part of the question after this.

Yes. With over 35,000 prescriptions shipped, we were pleased with the increased demand and adoption for Sofdra. With the quarterly revenue remaining at $10.1 million because of the gross to net decline to 21% offset that growth. We believe that the lower gross to net is primarily the result of reduced PA submissions. And we're able to isolate that variable. It's the only one that changed during that time period. It wasn't driven by a reduction in prescription demand. We believe we've identified the issue and address the issue so that not only are we going to go back to the same percentage of prior auth submissions, but our goal is to increase that. And as we showed on prior slides today, modest increase in submissions on their own can improve gross to net by 1.5 to 2 points. And Vince, let me also speak to what we've done there in case anybody missed that. A couple of things we're able to improve upon, you're optimizing the process by having your higher value prior auths submitted first, number one. Those that have a higher probability of success, number two, and you're giving additional training to the coordinators that are there. So as volume increased over time, we needed to ensure that they understood the priority of prior auths that go in so that not only could we maximize throughput, but the quality of that throughput. And we're already seeing improvement in our prior auth approval rate. The deck earlier outlined multiple opportunities to improve our gross to net, including the submission rates, but the approval rates are also important. Improved ship rates and increased fills per patient have a direct impact on net sales. So we have a team led by our Chief Operating Officer, Paul Seaback, who will be highly focused on these initiatives moving forward and be able to come back and report to you next time as to not only what the output was, but what additional improvements we'll be making in the future.

Howie, you showed a slide on the incremental gains that can be added from the gross to net. Is it still realistic to hit the 30% to 40%?

It is. And you can see how you can get there. Once we get back to our normal pace of -- if you look at last year's gross to net as to where we should be this year, if not better. You can see where that would come from. Right now, our PA submissions are under -- or were under 70%. We get that back up to our baseline and then improve another 5 percentage points there, you're going to pick up between 1 and 2 points of your gross to net. Approval rates change, improve as a function of us learning the process for the plans over time and automating that on our end. And then really, in order to get there, and we'll pull this lever at some point, okay? We will start charging at some point in the future, USD 50 for those patients who have a refill where the prior auth hasn't been submitted. Now just to take us back, we talked about this since the beginning, during the launch of the product, we want to make sure that every patient has the ability to have experience with the product. Physicians have a frictionless experience so that they can be bought into the attributes, the safety and efficacy for Sofdra. We're getting to the point where they're there. We're going to want to ensure that in the future, we're able to keep the promise to physicians and patients that everyone will get it and they will in the first. What we're asking is that physicians do go back and submit that prior auth on the patient's behalf for the refills in the future. And once we pull that lever, you can expect a 6% to 9% improvement in our gross to net. So the numbers are there to get us between the 30% and 40%. It's really a function of when we pull that last lever. And it's something that we're contemplating now, but we do want to make sure that each of the physicians that are on our target list are bought in, understand the process and have had a good experience with the product.