Biofrontera Inc

Previous wording

We are a U.S.-based biopharmaceutical company commercializing a portfolio of pharmaceutical products for the treatment of dermatological conditions with a focus on photodynamic therapy (“PDT”) and topical antibiotics. The Company’s licensed products are used for the treatment of actinic keratoses (“AKs”), which are pre-cancerous skin lesions, as well as impetigo, a bacterial skin infection. Our subsidiary, Discovery, was formed on February 9, 2022, as a German presence to facilitate our relationship with Biofrontera Pharma and Biofrontera Bioscience (together, the “Ameluz Licensor”), both of which are related parties as they are wholly owned subsidiaries of Biofrontera AG.

Current wording

We are a U.S.-based biopharmaceutical company commercializing a portfolio of pharmaceutical products for the treatment of dermatological conditions with a focus on photodynamic therapy (“PDT”) and topical antibiotics. The Company’s licensed products are used for the treatment of actinic keratoses (“AKs”), which are pre-cancerous skin lesions, as well as impetigo, a bacterial skin infection. Our subsidiary, Discovery, was formed on February 9, 2022, as a German presence that manages our clinical trial work and facilitates our relationship with Biofrontera Pharma and Biofrontera Bioscience (together, the “Ameluz Licensor”), both of which are related parties as they are wholly owned subsidiaries of Biofrontera AG.

Previous wording

Our second prescription drug licensed product in our portfolio is Xepi® (ozenoxacin cream, 1%), a topical non-fluorinated quinolone that inhibits bacterial growth. Currently, no antibiotic resistance against Xepi® is known and it has been specifically approved by the FDA for the treatment of impetigo, a common skin infection, due to Staphylococcus aureus or Streptococcus pyogenes. It is approved for use in the United States in adults and children 2 months and older. Our exclusive license and supply agreement, as amended (“Xepi LSA”), with Ferrer that we assumed on March 25, 2019 through our acquisition of Cutanea Life Sciences, Inc. (“Cutanea”) enables us to market and sell this product in the United States.

Current wording

Our second prescription drug licensed product in our portfolio is Xepi® (ozenoxacin cream, 1%), a topical non-fluorinated quinolone that inhibits bacterial growth. Currently, no antibiotic resistance against Xepi® is known and it has been specifically approved by the FDA for the treatment of impetigo, a common skin infection, due to Staphylococcus aureus or Streptococcus pyogenes. It is approved for use in the United States in adults and children 2 months and older. Our exclusive license and supply agreement, as amended (“Xepi LSA”), with Ferrer that we assumed on March 25, 2019 through our acquisition of Cutanea Life Sciences, Inc. (“Cutanea”) enables us to market and sell this product in the United States. The Company has generated limited revenue from sales of Xepi due to third-party manufacturing delays that have hampered our commercialization of the product. Ferrer is now in the process of qualifying a new contract manufacturer. If the new contract manufacturer is qualified, we believe that it will be able to supply enough of the Xepi® product line to meet market demand for as long as we maintain it.

Previous wording

While our Licensors take reasonable precautions to ensure the successful production of our commercially licensed products, their contract manufacturers may experience a myriad of business difficulties (i.e., workforce instability, supply chain issues, erosion of customer base, etc.) that could impact their financial solvency. As previously disclosed since 2021, the Xepi product has experienced manufacturing delays at Ferrer’s third-party manufacturer, which have not yet been resolved. We expect to receive commercial product in the second or third quarter of 2025. In addition, we launched the commercial distribution of the RhodoLED® XL on June 10, 2024. However, we have historically experienced delays due to supply chain issues, and there is a possibility that there are additional supply chain challenges, or our orders are fulfilled at a slower rate than expected. Despite these historic and possible future delays, we expect total revenues will not be significantly impacted (i.e., we experience less growth than expected vs. declining sales) since the majority of our revenues are from sales of Ameluz® and we have RhodoLED® Lamps on hand and on order. We continue to monitor the impacts of the supply chain on our business and are focused on ensuring the stability of the supply chains for Ameluz® and RhodoLED®Lamps.

Current wording

While our Licensors take reasonable precautions to ensure the successful production of our commercially licensed products, their contract manufacturers may experience a myriad of business difficulties (i.e., workforce instability, supply chain issues, erosion of customer base, etc.) that could impact their financial solvency. We have historically experienced delays in delivery times of our RhodoLED®Lamps due to supply chain issues and there is a possibility that there may be additional supply chain challenges, or our orders are fulfilled at a slower rate than expected. Despite these historic and possible future delays, we expect total revenues will not be significantly impacted (i.e., we experience less growth than expected vs. declining sales) since the majority of our revenues are from sales of Ameluz® and we have RhodoLED® Lamps on hand and on order. We continue to monitor the impacts of the supply chain on our business and are focused on ensuring the stability of the supply chains for Ameluz® and RhodoLED®Lamps.

Previous wording

Effective February 12, 2024, the Second A&R Ameluz LSA, among other things, was amended to change the Transfer Price to 25% of the anticipated net selling price per unit through 2025 and then increasing over time pursuant to the schedule set forth in the Second A&R Ameluz LSA to a maximum of 35% of the anticipated net selling price starting in 2032, subject to a minimum dollar amount per unit.

Current wording

Effective February 12, 2024, the Second A&R Ameluz LSA, among other things, was amended to change the Transfer Price to 25% of the anticipated net selling price per unit through 2025 and then increasing over time pursuant to the schedule set forth in the Second A&R Ameluz LSA to a maximum of 35% of the anticipated net selling price starting in 2032, subject to a minimum dollar amount per unit. We expect to see an impact from the change in the transfer pricing under the Second A&R Ameluz LSA in the fourth quarter as we receive product under the new pricing.

Previous wording

Selling, general and administrative expenses, related party, relate to the services provided by our significant stockholder, Biofrontera AG, primarily for regulatory support and pharmacovigilance. These expenses are charged to us based on costs incurred plus 6% in accordance with the Amended and Restated Master Contact Services Agreement entered into on December 2021 (the “2021 Services Agreement”). The 2021 Services Agreement enables us to continue relying on Biofrontera AG and its subsidiaries for various services it has historically provided to us, including regulatory and pharmacovigilance support for as long as we deem necessary. We currently have statements of work in place regarding, regulatory affairs, medical affairs, pharmacovigilance, and investor relations services, and are continuously assessing the other services historically provided to us by Biofrontera AG to determine (i) if they will be needed, and (ii) whether they can or should be obtained from other third-party providers. As of June 30, 2024, we have eliminated the need for information technology services from Biofrontera AG.

Current wording

Selling, general and administrative expenses, related party, relate to the services provided by our significant stockholder, Biofrontera AG, primarily for regulatory support and pharmacovigilance. These expenses are charged to us based on costs incurred plus 6% in accordance with the Amended and Restated Master Contact Services Agreement entered into on December 2021 (the “2021 Services Agreement”). The 2021 Services Agreement enables us to continue relying on Biofrontera AG and its subsidiaries for various services it has historically provided to us, including regulatory and pharmacovigilance support for as long as we deem necessary. We currently have statements of work in place regarding regulatory affairs, medical affairs, pharmacovigilance, and investor relations services, and are continuously assessing the other services historically provided to us by Biofrontera AG to determine (i) if they will be needed, and (ii) whether they can or should be obtained from other third-party providers.

Previous wording

Interest expense, net, primarily consists of interest on our debt instruments, as well as amortization of the contract asset related to the start-up cost financing from Maruho under a share purchase agreement, offset by immaterial amounts of interest income earned on our financing of customer purchases of BF-RhodoLED®lamps.

Current wording

Interest expense, net, primarily consists of interest on our debt instruments, offset by immaterial amounts of interest income earned on our cash balances at financial institutions and financing of customer purchases of BF-RhodoLED®lamps.

Previous wording

Cost of revenues, related party for the three months ended June 30, 2024 increased by $1.3 million, or 47.6% as compared to the three months ended June 30, 2023. This was driven by the increase in Ameluz® product revenue. Cost of revenues, related party, is directly correlated to the selling price of Ameluz® under the Ameluz LSA. There has been no impact from the change in the transfer pricing under the Second A&R Ameluz LSA, as we have yet to purchase inventory under the new terms.

Current wording

Cost of revenues, related party for the three months ended September 30, 2024 increased by $0.3 million, or 6.8% as compared to the three months ended September 30, 2023. This was driven by an increase of $0.5 million due to the increase in RhodoLED® XL product revenue, partially offset by a decrease of $0.2 million, due to decrease in sales of Ameluz®. We expect to see an impact from the change in the transfer pricing under the Second A&R Ameluz LSA in the fourth quarter as we are receiving product under the new pricing.

Previous wording

Selling, general and administrative expenses for the three months ended June 30, 2024 decreased by $3.5 million, or 30.9% as compared to the three months ended June 30, 2023. The decrease was primarily driven by a $1.5 million decrease in legal costs, due to lower legal activity level, especially since the settlement with Biofrontera AG in April 2023, as well as a decrease of non-personnel sales and marketing expenses of $0.8 million, and a decrease in general business consulting expense of $0.4 million. The decrease was further attributable to a $0.8 million decrease in personnel costs due to change in headcount and reduced severance, which was offset by a $0.2 million increase in accrued bonus compared to the three months ended June 30, 2023 due to the use of a higher performance factor for the calculation.

Current wording

Selling, general and administrative expenses for the three months ended September 30, 2024 decreased by $0.2 million, or 2.3% as compared to the three months ended September 30, 2023. The decrease was primarily driven by a $0.5 million decrease in general business administration expenses, as well as a decrease of non-personnel sales and marketing expenses of $0.2 million, and a $0.3 million decrease in personnel costs due to change in headcount and reduced severance, which was offset by a $0.8 million increase in legal expenses related to the complaints filed by DUSA Pharmaceuticals, Inc., Sun Pharmaceutical Industries, Inc., and Sun Pharmaceutical Industries LTD (collectively “SUN”) with the International Trade Commission (“ITC”) and the US District Court for the district of Massachusetts.

Previous wording

As of December 31, 2023, the Company had transferred substantially all of its investment in Biofrontera AG to Maruho in exchange for the release of certain obligations, in accordance with the Settlement Agreement and Mutual Release (the “Release”), dated December 27, 2023. As a result, during the second quarter of 2024, the net balance of our investment in Biofrontera AG was minimal as was the related change in fair value.

Current wording

As of December 31, 2023, the Company had transferred substantially all of its investment in Biofrontera AG to Maruho in exchange for the release of certain obligations, in accordance with the Settlement Agreement and Mutual Release (the “Release”), dated December 27, 2023. As a result, during the third quarter of 2024, the net balance of our investment in Biofrontera AG was minimal as was the related change in fair value.

Previous wording

Cost of revenues, related party for the six months ended June 30, 2024 increased by $0.7 million, or 9.8% as compared to the six months ended June 30, 2023. This was driven by the increase in Ameluz® product revenue. Cost of revenues, related party, is directly correlated to the selling price of Ameluz® under the Ameluz® LSA.

Current wording

Cost of revenues, related party for the nine months ended September 30, 2024 increased by $1.0 million, or 8.7% as compared to the nine months ended September 30, 2023. This was driven by the increase in both Ameluz® and RhodoLED® XL Lamp product revenue.

Previous wording

Selling, general and administrative expenses for the six months ended June 30, 2024 decreased by $4.1 million, or 19.2% as compared to the six months ended June 30, 2023. The decrease was primarily driven by a $2.5 million decrease in non-recurring legal costs due to the settlement with Biofrontera AG in April 2023, a decrease of non-personnel sales and marketing expenses of $1.1 million, and a net decrease of $0.3 million in personnel expenses.

Current wording

Selling, general and administrative expenses for the nine months ended September 30, 2024 decreased by $4.3 million, or 14.3% as compared to the nine months ended September 30, 2023. The decrease was primarily driven by a $1.7 million decrease in legal costs due to the settlement with Biofrontera AG in April 2023, a $1.3 million decrease of non-personnel sales and marketing expenses due to a lower level of marketing activities in general, a $0.6 million decrease in general business administration, and a net decrease of $0.6 million in personnel expenses, partially offset by costs relating to the complaints filed by SUN.

Previous wording

R&D expenses for the six months ended June 30, 2024 increased by $0.6 million as compared to the six months ended June 30, 2023. The increase was attributable to our assumption of all clinical trial activities for Ameluz® in the United States effective June 1, 2024. The following table summarizes our research and development expenses:

Current wording

R&D expenses for the nine months ended September 30, 2024 increased by $1.3 million as compared to the nine months ended September 30, 2023. The increase was attributable to our assumption of all clinical trial activities for Ameluz® in the United States effective June 1, 2024. The following table summarizes our research and development expenses:

Previous wording

The change in fair value of warrant liabilities was $2.0 million for six months ended June 30, 2024, as compared to $1.4 million for the six months ended June 30, 2023. The change in fair value of warrant liabilities was driven primarily by a decrease in the underlying value of the Company’s Common Stock paired with a higher population of warrants outstanding for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Current wording

The change in fair value of warrant liabilities was $1.3 million for nine months ended September 30, 2024, as compared to $2.0 million for the nine months ended September 30, 2023. The change in fair value of warrant liabilities was driven primarily by a decrease in the underlying value of the Company’s Common Stock paired with a higher population of warrants outstanding for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Previous wording

As of December 31, 2023, the Company had transferred substantially all of its investment in Biofrontera AG to Maruho in exchange for the release of certain obligations, in accordance with the Release. As a result, during the second quarter of 2024, the net balance of our investment in Biofrontera AG was minimal as was the related change in fair value.

Current wording

As of December 31, 2023, the Company had transferred substantially all of its investment in Biofrontera AG to Maruho in exchange for the release of certain obligations, in accordance with the Release. As a result, during the third quarter of 2024, the net balance of our investment in Biofrontera AG was minimal as was the related change in fair value.

Previous wording

Effective as of January 4, 2024, we voluntarily terminated the Loan and Security Agreement (the “Loan Agreement”) with Midcap Business Credit LLC. The Company recognized a $0.3 million loss on debt extinguishment upon the early termination of the Loan Agreement related to prepayment fees and the write-off of deferred financing costs.

Current wording

Effective as of January 4, 2024, we voluntarily terminated the Loan Agreement with Midcap Business Credit LLC. The Company recognized a $0.3 million loss on debt extinguishment upon the early termination of the Loan Agreement related to prepayment fees and the write-off of deferred financing costs.

Previous wording

The increase of interest expense of $0.5 million was driven by the interest and debt discount recognized on the loans issued on December 21, 2023, for an aggregate principal balance of $4.0 million. The loans required the Company to make weekly payments of principal and interest in the amount of approximately $0.2 million through July 5, 2024, the maturity date. Interest expense is recognized using the effective interest method, such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period until maturity.

Current wording

The increase of interest expense of $1.7 million was driven by the interest and debt discount recognized on the loans issued on December 21, 2023, for an aggregate principal balance of $4.0 million. The loans required the Company to make weekly payments of principal and interest in the amount of approximately $0.2 million through July 5, 2024, the maturity date. Interest expense was recognized using the effective interest method, such that a constant effective interest rate was applied to the carrying amount of the debt at the beginning of each period until maturity.

Previous wording

Net Loss to Adjusted EBITDA Reconciliation for the Three and Six Months Ended June 30, 2024 and 2023

Current wording

Net Loss to Adjusted EBITDA Reconciliation for the Three and Nine Months Ended September 30, 2024 and 2023

Previous wording

Change in fair value of contingent consideration: Pursuant to a share purchase agreement with Maruho, the profits from the sale of Cutanea products were to be shared equally between Maruho and Biofrontera until 2030. The fair value of the contingent consideration was determined to be $6.5 million on the acquisition date and was re-measured at each reporting date. We exclude the historical impact of the change in fair value of contingent consideration as this is non-cash. We were relieved of our obligations relating to the contingent consideration under the Release. As such, our results of operations for the three and six months ended June 30, 2024 were not impacted by the change in fair value.

Current wording

Change in fair value of contingent consideration: Pursuant to a share purchase agreement with Maruho, the profits from the sale of Cutanea products were to be shared equally between Maruho and Biofrontera until 2030. The fair value of the contingent consideration was determined to be $6.5 million on the acquisition date and was re-measured at each reporting date. We exclude the historical impact of the change in fair value of contingent consideration as this is non-cash. We were relieved of our obligations relating to the contingent consideration under the Release. As such, our results of operations for the three and nine months ended September 30, 2024 were not impacted by the change in fair value.

Previous wording

The below table presents a reconciliation from net loss to Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023:

Current wording

The table below presents a reconciliation from net loss to Adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023:

Previous wording

Adjusted EBITDA increased from ($7.9) million for the three months ended June 30, 2023 to ($4.7) million for the three months ended June 30, 2024. The increase was driven by an increase in revenue of $2.0 million and a decrease of $3.0 million in various sales, general and administrative expenses, partially offset by an increase in our cost of revenues of $1.5 million.

Current wording

Adjusted EBITDA decreased from ($3.9) million for the three months ended September 30, 2023 to ($4.6) million for the three months ended September 30, 2024. The decrease was primarily driven by an increase in R&D expenses of $0.6 million.

Previous wording

Adjusted EBITDA increased from ($11.9) million during the six months ended June 30, 2023 to ($9.3) million for the six months ended June 30, 2024. The increase in Adjusted EBITDA was primarily driven by an increase in revenue of $1.2 million and a decrease in selling, general and administrative expenses of $3.0 million, due primarily to decreased level of marketing activities and savings in legal expenses. This is partially offset by an increase in our cost of revenues of $1.0 million and an increase in R&D expenses of $0.6 million.

Current wording

Adjusted EBITDA increased from ($15.8) million during the nine months ended September 30, 2023 to ($13.9) million for the nine months ended September 30, 2024. The increase in Adjusted EBITDA was primarily driven by a decrease in selling, general and administrative expenses of $3.2 million, due primarily to a decreased level of marketing activities and savings in legal expenses. This is partially offset by an increase in R&D expense of $1.3 million.

Previous wording

Since we commenced operations in 2015, we have generated significant losses. We incurred net cash outflows from operations of $8.0 million and $14.0 million for the six months ended June 30, 2024 and 2023, respectively. The Company had an accumulated deficit as of June 30, 2024 of $110.3 million. The Company’s primary sources of liquidity are its cash collected from the sales of its products, and cash flows from financing transactions. As of June 30, 2024, we had cash and cash equivalents of $4.4 million, compared to $1.3 million as of December 31, 2023. These conditions and current cash flow projections raise substantial doubt about our ability to continue as a going concern for at least twelve months from the issuance date of this report. However, management believes that its plan alleviates the substantial doubt about the Company’s ability to continue as a going concern for at least one year from the date these financial statements are issued.

Current wording

Since we commenced operations in 2015, we have generated significant losses. We incurred net cash outflows from operations of $9.3 million and $16.0 million for the nine months ended September 30, 2024 and 2023, respectively. The Company had an accumulated deficit as of September 30, 2024 of $116.0 million. The Company’s primary sources of liquidity are its cash collected from the sales of its products, and cash flows from financing transactions. As of September 30, 2024, we had cash and cash equivalents of $2.9 million, compared to $1.3 million as of December 31, 2023.

Previous wording

Based on the plans described above, management believes that the Company will have sufficient liquidity to meet its funding requirements for at least one year from the date these financial statements are issued. However, this will depend on several factors, including executing on its sales plan and planned cost reductions within the time period needed, as well as other possible challenges and unforeseen circumstances. A lack of execution or unforeseen circumstances may require the Company to raise additional capital or debt which may not be available on acceptable terms, or at all, which could result in a material adverse effect on the Company, as well as its business, financial condition, results of operations, growth prospects and financial statements.

Current wording

The company believes that the implementation of such plans will provide the opportunity for the Company to continue as a going concern. However, no assurance can be given that the Company will be successful in these efforts and will depend on several factors, including executing on its sales plan and planned cost reductions within the time period needed, as well as other possible challenges and unforeseen circumstances. A lack of execution or unforeseen circumstances may require the Company to raise additional capital or debt which may not be available on acceptable terms, or at all, which could result in a material adverse effect on the Company, as well as its business, financial condition, results of operations, growth prospects and financial statements.

Previous wording

During the six months ended June 30, 2024, operating activities used $8.0 million of cash, primarily resulting from our loss from operations of $10.7 million, adjusted for non-cash expense of stock-based compensation of $0.4 million, non-cash interest expense of $0.2 million, loss on debt extinguishment of $0.3 million, depreciation and amortization in the aggregate of $0.6 million, and net cash used by changes in our operating assets and liabilities of $3.0 million, offset by the change in fair value of warrant liabilities of $2.0 million,.

Current wording

During the nine months ended September 30, 2024, operating activities used $9.3 million of cash, primarily resulting from our loss from operations of $16.4 million, adjusted for non-cash expense of stock-based compensation of $0.7 million, non-cash interest expense of $0.2 million, loss on debt extinguishment of $0.3 million, depreciation and amortization in the aggregate of $0.9 million, and net cash used by changes in our operating assets and liabilities of $6.1 million, offset by the change in fair value of warrant liabilities of $1.3 million,.

Previous wording

During the six months ended June 30, 2023, operating activities used $14.0 million of cash, primarily resulting from our loss from operations of $17.3 million, adjusted for non-cash expense of stock-based compensation of $0.6 million, non-cash interest expense of $0.2 million, depreciation and amortization in the aggregate of $0.5 million, and the change in fair value of investment, related party of $4.4 million, offset by net cash used by changes in our operating assets and liabilities of $1.0 million, the change in fair value of contingent consideration of $0.1 million and the change in fair value of warrant liabilities of $1.4 million.

Current wording

During the nine months ended September 30, 2023, operating activities used $16.0 million of cash, primarily resulting from our loss from operations of $23.7 million, adjusted for non-cash expense of stock-based compensation of $0.8 million, non-cash interest expense of $0.3 million, depreciation and amortization in the aggregate of $0.8 million, net cash used by changes in our operating assets and liabilities of $0.9 million, the change in fair value of contingent consideration of $0.1 million and the change in fair value of investment, related party of $6.6 million; partially offset by the change in fair value of warrant liabilities of $2.0 million.

Previous wording

During the six months ended June 30, 2024, net cash used in investing activities consisted of $0.1 million of capitalized software and computer purchases, which were partially offset by the proceeds from the sales of equity investments.

Current wording

During the nine months ended September 30, 2024, net cash used in investing activities consisted of $0.1 million of capitalized software and computer purchases, which were partially offset by the proceeds from the sales of equity investments.

Previous wording

During the six months ended June 30, 2023, net cash provided by investing activities consisted of the proceeds from the sales of equity investments, partially offset by the purchase of machinery & computer equipment.

Current wording

During the nine months ended September 30, 2023, net cash provided by investing activities of $0.5 million consisted of the proceeds from the sales of equity investments of $0.6 million, partially offset by the purchase of machinery and computer equipment.

Previous wording

During the six months ended June 30, 2024, net cash from financing activities consisted of proceeds of $7.7 million, net of capitalized issuance costs, from the issuance of preferred stock and warrants, and $7.4 million from the exercise of warrants for preferred stock, offset by repayments of $3.7 million on our short-term loan, repayments of $0.2 million on our line of credit and prepayment fees of $0.2 million to extinguish our line of credit. SeeNote 11 Debt.

Current wording

During the nine months ended September 30, 2024, net cash from financing activities consisted of proceeds of $7.7 million, net of capitalized issuance costs, from the issuance of preferred stock and warrants, and $7.4 million from the exercise of warrants for preferred stock, offset by repayments of $4.0 million on our short-term loan, repayments of $0.2 million on our line of credit and prepayment fees of $0.2 million to extinguish our line of credit. SeeNote 10 Debt.

Previous wording

During the six months ended June 30, 2023, net cash from financing activities consisted of a net $1.1 million of proceeds from our line of credit.

Current wording

During the nine months ended September 30, 2023, net cash from financing activities consisted of a net $1.7 million of proceeds from our line of credit.

Previous wording

A summary of our critical accounting estimates is discussed in the section entitled “Critical Accounting Estimates” inItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K. There were no material changes to our critical accounting estimates for the six months ended June 30, 2024, except for the following:

Current wording

A summary of our critical accounting estimates is discussed in the section entitled “Critical Accounting Estimates” inItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K. There were no material changes to our critical accounting estimates for the nine months ended September 30, 2024, except for the following: