Botanix Pharmaceuticals Limited (BOT) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining today's investor webinar for Botanix Pharmaceuticals with the ASX ticket code BOT. My name is Jane Morgan, the Investor and Media Relations Manager. And today, I am joined by our Executive Chairman, Vincent Ippolito, our CEO, Dr. Howie McKibbon; and our U.S. CFO, Chris Lesovitz. So for those who are new to the Botanix story, Botanix is a commercial stage dermatology company operating in Australia and the United States with this FDA-approved product Sofdra, which is available in America. Sofdra is a prescription-only topical gel medicine, which used to treat excessive underarm sweating or more formally known as primary axillary hyperhidrosis. It is used in treating 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 primary growth driver. Today's presentation will be followed by a Q&A session. [Operator Instructions] Vince, I'm going to hand to you.

Thank you, Jane, and a pleasant good morning to everyone here joining us from Australia. Dr. Howie McKibbon and myself are here live in Sydney for this call. Chris Lesovitz is calling in from our headquarters in the U.S. and we're pleased to present the Botanix Quarterly Activity Report and 4C Quarterly Cash Flow Report for the period ending 30 June 2026. And the company has come a long way since our highly successful commercial launch of Sofdra a little over a year ago, and we're very pleased with the progress that we've made, most certainly the quarter-over-quarter growth and we believe that we're well positioned for continued growth, most certainly as we enter into our next fiscal year here currently. Well, this presentation contains forward-looking statements. These are not guarantees of future performance and are subject to risks and uncertainty, many outside of our control. We encourage everyone to please read this presentation alongside our periodic and continuous announcement lodged with the ASX this morning. You could find it there. This presentation does not constitute financial product advice or an offer of securities. Well, we've got a little over 300 people registered for this webinar this morning. So let's get started. I'm going to turn it over to Dr. Howie McKibbon. Howie?

Yes. Thank you very much, Vince. And just to round out the corporate overview. You can see our leadership team here. And that team shares deep dermatology experience. Many of the members have previously collaborated at successful derm companies, including Medicis, Anacor and Dermavant. They've launched over 30 dermatology products, many of which went on to become market leaders. And together, the group has an unmatched record in commercializing products and achieving exits to larger partners ultimately for the benefit of shareholders. Next slide, please. So everything we're doing at Botanix comes down to 3 priorities. First, continue to build Sofdra into the market-leading treatment for primary axillary hyperhidrosis. Sofdra addresses a large underserved population of around 10 million U.S. patients with patent protection that goes out to 2040, providing a very long runway for the commercialization pathway. Sofdra continues to perform at a high level with 25% growth in total prescription shipments to almost 34,000 in Q4 of this fiscal year '26. Second, leverage the company platform that we've invested in. We spent the last year building capabilities, not just for one product but for dermatology franchise. The platform we've built improves gross to net, delivers fill rates 2.5x the industry standard has a high rate of fully reimbursed prescriptions and most importantly, it's backed by high physician and patient satisfaction. Now third, remain disciplined while being committed to pursuing opportunities that can accelerate value creation. The company is prime for additional products that would profit from our distribution efficiencies, scalable platform and experienced sales force, which together support additional products at a low incremental investment. Sofdra's success is proof of the platform's capabilities. Now these priorities aren't independent. They reinforce each other. As Sofdra grows, our platform becomes more valuable. As the platform continues to perform additional products become more attractive. It's a cycle that creates leverage over time for the company. Right. So a little over a year ago, we were talking about the potential of becoming a commercial company. Today, we're talking about executing as well. We've generated over $150 million in cumulative gross revenue over the past 12 months. More importantly, we've shipped over 105,000 prescriptions to patients who needed a better treatment option. It's not a number on a slide, every one of those prescriptions represents a physician who chose Sofdra over another option and patients whose quality of life improved. Those decisions create momentum and we are seeing that momentum build quarter after quarter. Now prescription growth remains the engine of our business and momentum continues to build. Shipments increased another 25% during the quarter, again, reaching nearly 34,000. And more importantly, June was the strongest month in our company's history with almost 13,000 shipments. Now what gives me even greater confidence, however, is the feedback that we're receiving directly from prescribers. In our most recent survey, 100% of responding prescribers told us they expect to either maintain or increase their Sofdra prescribing over the next 6 months. Now that's not some, not most, that's every prescriber we surveyed. When physicians who use your product tell you they plan to continue writing more prescriptions, we're continuing their prescription writing pattern. It's a powerful indicator of both product satisfaction and future demand. And this reinforces the strong foundation we've built and supports our confidence in continued prescription growth trajectory. Next slide, please. Let's turn to net revenue, resumed growth in Q4, increasing 45% to $10.1 million from $6.9 million in Q3. So let me remind you why net revenue dipped in Q3, while prescriptions were increasing. The answer is the annual deductible reset. Now here's how it works. Every January, U.S. health insurance is reset. Many patients have to pay their full medical costs out of pocket until they hit their deductible again, that temporarily compresses what we collect on each prescription even when volume is strong. Then typically in May and going forward, reimbursement rates normalize as patients meet those deductibles and revenue resumes its climb. You can see exactly that pattern in Q4's rebound to $10.1 million. It's seasonable, it's predictable and it's behind us. Our U.S. CFO, Chris Lesovitz, will take us through the financial results. I'll come back to speak about future catalysts, and then we'll take some Q&A. So over to you for now, Chris. Thank you.

Thank you, Howie. One thing you will notice from today's presentation is that we are not chasing growth at any cost. We are focused on growing profitable prescriptions. Growing profitable prescriptions is what creates the long-term shareholder value. So the Gross to net yield is a key driver, which is essentially the percentage of gross revenue that converts net revenue. It follows the same seasonal pattern as net revenue, recovering strongly from 18% in Q3 to 22% in Q4. This clearly illustrates that exiting the deductible reset period drives higher gross to net yield for Sofdra as high deductible plan units typically transition into fully reimbursed units from May onward as Howie noted previously. Gross to net is expected to continue its upward trajectory into the next quarter. Now turning to our quarterly performance on the next slide. Q4 delivered a very strong outcome from a cash management and balance sheet perspective. We closed the quarter with $36.6 million in cash after the completion of our $45 million capital raise in April. This strengthened liquidity position provides flexibility as we continue to support sales growth and execute our commercialization strategy. On the inventory, we ended the quarter with approximately $31.3 million compared to $34.5 million in Q3. Importantly, this inventory position reflects a healthy supply of API and finished good product to support our expected near- and medium-term growth requirements. Operating cash outflow improved materially to $10.6 million representing a 54% reduction compared with prior quarter. This reflects a combination of strong sales receipts, disciplined spending and the absence of significant inventory and API purchases that impacted cash flow in Q3. On the next slide, we will look more closely at the operating cash flow. Q4 represented a step forward in our path towards sustainability. You can see here, operating cash flow improved by $12.6 million, declining from $23.3 million in Q3 to $10.6 million in Q4. The biggest driver was revenue growth. Receipts from product sales increased to $13.4 million, up 19% quarter-over-quarter, reflecting continued growth in prescription demand and improved gross cash collections. At the same time, manufacturing costs decreased dramatically to approximately $1.2 million. As a reminder, the prior quarter included significant inventory and API purchases, whereas Q4 reflected more normalized production requirements. We also continue to manage operating expenses carefully. Operating costs declined approximately 10% to $11.5 million while G&A and staff costs remain essentially flat quarter-over-quarter. So when you put these elements together, we achieved a meaningful reduction in operating cash burn, driven by higher sales receipts, operational discipline and a normalization of inventory spending. This demonstrates the scalability of the business model as revenue continues to grow. Now on the next slide, we look forward to driving sustainable growth. So alongside the cash flow initiatives just discussed, we are taking action to improve the efficiency of our resource allocation. This is probably the best example of how we think about running the business, data should drive decisions. Our analysis showed that 90% of prescriptions that are generated from 39 of our 50 sales territories. As a result, we are completing a sales force sizing and alignment initiative designed to concentrate on our resources where they generate the greatest return. So by reallocating high-value physician targets from 11 underperforming territories to our 39 top-performing territories, we can sustain 94% coverage, maximize commercial effectiveness and accelerate prescription growth. Importantly, these are expected to reduce overall operating costs by approximately 12% beginning July 31, 2026, from our current quarter ending run rate. So taken together, these initiatives demonstrate our commitment to balancing growth with financial discipline. We are improving cash efficiency, optimizing our cost base and ensuring that capital is directed towards the highest return opportunities. With that said, this wraps up our financial review, and I'll turn it back over to Howie.

Yes. Thanks, Chris, and we'll be happy to take additional questions on the results as soon as we finish the presentation. Let's turn toward our focus on unlocking and enhancing shareholder value. Our efforts fall under 3 key areas. We want to raise operational execution and capital efficiency, explore strategic acquisition activity and prepare to execute licensing opportunities. Now this quarter, we made significant progress toward continuing to grow Sofdra, improving cash flow performance and optimizing resource allocation, the numbers we've already reviewed until that story. Botanix has been successful in preparing to execute licensing opportunities as well. What I mean by that are some of the recent developments that have further strengthened the company's IP property -- I'm sorry, IP estate around Sofdra enhancing its long-term value proposition well into 2040. We have begun onboarding our alternate API supplier, which is expected to reduce COGS by 25% to 40% as well as provide redundancy in the supply chain. And the Botanix fulfillment platform is prepared to support additional products, and I'll expand over that in the next few slides. For some time now, we have been talking about making Sofdra and Botanix more attractive for strategic acquisitions. Those efforts are starting to pay off. The company is currently pursuing strategic acquisition opportunities to accelerate or improve value creation and is also engaging with significant inbound interest, including potential licensing and acquisition opportunities. Next slide. Let's briefly revisit the opportunity for Sofdra itself before we get to those other aspects. Primary axillary hyperhidrosis affects 10 million Americans in the United States. And despite being common, it remains significantly undertreated, represents a substantial commercial opportunity, and that's the one we're focused on and maximizing right now, and we're still in the early stages of that market penetration. On the next slide, we'll turn to the compound itself. Now hyperhidrosis is a medical condition that causes excessive sweating beyond what the body needs to maintain normal body temperature. And Sofdra is the first and only FDA-approved new chemical entity for primary axillary hyperhidrosis. And just to remind you, there are only between 45 and 50 new chemical entities approved in the U.S. each year. So we're fortunate to have one and one that resides in a large market with great opportunity. Patients appreciate the convenience of the applicator. Physicians are seeing positive outcomes and satisfaction remains high. Now combined with broad reimbursement and growing physician awareness, along with long-term patent protection, we believe Sofdra is well positioned for continued adoption. We've also continued strengthening our IP position. In our experience, strong IP supports an extended commercialization runway and expand strategic opportunities for licensing out to other geographies as well as acquisition. Earlier this month, Botanix received an intention to grant for a European patent application for the applicator itself. Now keep in mind, physicians have told us already that the applicator is one of the main reasons they prescribe the product. So we're locking down that key piece of the product profile that drives actual prescribing behavior and did it in a geography where Sofdra has not yet been launched, affording us, again, an opportunity to out license in that area. In the U.S., multiple patents will now cover the 3 most stable crystalline forms or polymorph, the sofpironium bromide. That includes the current commercial polymorph and other possible polymorph. That makes it extremely difficult to synthesize a different polymorph sofpironium bromide without infringing on these patents. We're not aware of another viable way to manufacture the product, and ultimately, that leads toward longer protection and a longer commercialization pathway, both for Sofdra and Botanix. Alongside these existing patents, these developments strengthen the company's IP has stayed around Sofdra to enhance its long-term value proposition. We're sharing up protection on the molecule, the crystal form, the applicator and the supply chain, which I will discuss in the next few slides. So there's a significant cost reduction opportunity as well as the opportunity to derisk the supply chain, which is well underway. Our secondary API supplier is progressing through technical transfer, reducing -- I'm sorry, recently concluding feasibility studies of all the analytical methods and initial scale-up batches. So once commercialized, again, we expect a 25% to 40% reduction in cost of goods sold. Now beyond lower costs, this diversifies our supply chain, provides additional manufacturing located in the U.S. and is another key factor for elevating the value proposition for M&A. Next slide. Let's turn to the platform. This is one of Botanix's most valuable assets. It's the fulfillment platform that we've built. This slide walks through how it seamlessly connects the prescriber, the patient, the pharmacy and the managed care organizations. Now with it, we have achieved higher fill rates, improved gross to nets, better reimbursement outcomes and a seamless experience for patients and physicians that they've both spoken about with regard to their affinity for the product and the platform itself. Importantly, the platform is proven and it's scalable. It's prime for additional products that can be integrated at a low incremental cost. Adding a product that isn't achieving its refill or gross to net potential could greatly enhance an acquired product's commercial success. Additional products can leverage this infrastructure with relatively little incremental investment, improving returns on future business development. Now together, these features support the value prop for licensing and M&A in the future, which we are squarely focused on over the next quarter. So looking forward, we see several meaningful catalysts. First and foremost, continue the momentum that we've built with the launch and growth curve of Sofdra. Second, additional products can be added to the commercial platform and assume all the benefits that Sofdra gets with the platform. The ability to lower manufacturing costs where we've made significant progress toward decreasing them from 25% to 40%. Potential international licensing opportunities, and the Botanix value proposition for M&A is elevated by Sofdra's long IP runway to 2040 and bolstered by recent IP activity. Now collectively, these initiatives provide multiple opportunities to increase shareholder value. So that brings us to the end of the formal presentation. I'd like to thank you for your time today. I'll hand it back to Vince for Q&A, and looking forward to taking all of your questions. Thank you.

Thank you, Howie. Thank you, Chris, for the presentation. We did get a number of questions here, some in which I have consolidated together. So why don't we get started? Chris, I think I'm going to give you the first couple of questions that we've got. They were around the financials and gross to nets, a number of questions on that. So the first question was, what can we expect for total outflows or spend in the next quarter? Can you give you us any guidance on that, Chris?

Yes. So as I discussed earlier, we did a sales force optimization here, reducing the sales force size down by 11. So we anticipate this will be lowering operating costs by 12%. As I mentioned, that's going to start on July 31, and that's off of our current run rate that we just finished the prior quarter. One thing I would do want to caution is that we are currently contemplating 2 activities, this upcoming quarter as well. The technical transfer that --- Howie just discussed with Piramal, that kicks off this quarter, which will increase spend as well as manufacturing costs will increase before the U.S. tariffs take effect as we expedite our domestic production plan while seeking acceptance from our tariff exception plan. And I just want to remind everybody that we do not have any API purchases expected until December of 2027. This also will -- with the continued revenue growth in Q1 fiscal year '27, these costs should offset some of the 2 initiatives that I spoke about as well.

Thank you, Chris. There was a few questions here on the gross to net questions on the current quarter, previous quarters, the growth rates, things of that nature. I'm going to give you the first part of this question. I'm going to ask, Howie to answer the second part of this question. So were you expecting the gross to net to be 22% for this quarter? And how does that really compare? And then Howie, the second part of that is, is the 30% to 40% gross to net that we've mentioned in the past still attainable for the company. So Chris, why don't you take the first part here?

Okay. Yes, 100% was in line with our expectations. We are very pleased with the increase in the -- with the scripts and a solid growth in gross to net yield from 18% to 22%. Looking back to last year, our gross to net finished at 21% for the same quarter. Another way we can look at the gross to net is on a calendar basis. In calendar year 2025, which was our first year of launch, we started with a gross to net of 15% and then exited that calendar year in December at 24%. So with that said, we can expect a similar growth trend show improvement each quarter in the calendar year 2026 and have finished out this year in December, with the same trends as last year.

Yes, I'll get to the second part of that question. And to add on what Chris said, what we want to see is improvement compared to the same quarter prior year. We want to higher faster at all times, but we're happy to see that improvement. There are key drivers that go into the gross to net, where we still have the ability to move forward and improve over time. Number one is the percentage of prior auths that are submitted and ultimately, the percentage of prior authorizations that are approved, okay? So we have stabilized the amount or the number of prior auths that are submitted now as we've been growing prescriptions. We've added additional staff to the platform to improve upon that particular metric. And ultimately, our approval rate is very good compared to the industry, but we can always get better there as well. So those are 2 areas of focus. In the future, now think about this, right now, everybody gets the product for $0. There's no co-pay. But we buy down the co-pay for the patient and whether that prior auth went through or whether it didn't go through. In the future, there might be a scenario where if you get to a refill and the prior authorization has not been submitted, you might charge a co-pay. But right now, during the launch phase, we're not going to do that. My point is to tell you that there are a number of key drivers to continue to move that. And right now, we are focused on prior auth submissions and prior auth approvals.

Great. Thank you. Let's move on here. The API supplier was another question that we got and the current status of where we are exactly with the secondary API supplier. So Howie, do you want to touch upon that? I know you discussed it a little bit in the presentation. Maybe you can comment on it for us here.

Yes. And just to clarify what Chris said earlier, when he said these activities will start to occur. They've already started to occur. There are certain activities that do trigger payments, and those are the ones that we are contemplating. But thus far, technical transfer, which is the know-how to make the API has already begun. We've recently concluded feasibility studies of all the analytical methods as well as the initial scale-up of batches. And over the next 6 to 9 months, Piramal will develop the process and make engineering and development batches, followed by expansion to commercial scale batches. Ultimately, this will then be submitted to the FDA for approval in a typical fashion. Timely completion of this is important for a couple of reasons, to get to that COGS reduction of 25% to 40% to ensure that we have derisked our supply chain. But ultimately, as we do this, it also ticks off boxes with regard to being a preferred partner or a company of choice with regard to mergers and acquisitions. What they want to see is a derisked supply chain, a COGS that ultimately gets you to an elevated gross profit and intellectual property that forms a moat around your product both inside the United States and other geographies.