BIOFRONTERA INC. Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain statements in this Form 10-Q constitute "forward-looking statements". Such statements include estimates of our expenses, future revenue, capital requirements, our need for additional financing, statements regarding the efficacy and intended use of our technologies under development, the timelines and strategy for bringing licensed products to market, the timeline for regulatory review and approval of our licensed products, and other statements that are not historical facts, including statements which may be preceded by the words "intends," "may," "will," "plans," "expects," "anticipates," "projects," "predicts," "estimates," "aims," "believes," "hopes," "potential" or similar words. Forward-looking statements are not guaranties of future performance, are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond our control. Actual results may differ materially from the expectations contained in the forward-looking statements.
Factors that may cause such differences include, but are not limited to:
? our reliance on sales of products we license from other companies as our sole
source of revenue;
? the success of our competitors in developing generic topical dermatological
products that successfully compete with our licensed products;
? the success of our principal licensed product Ameluz®;
? the ability of Biofrontera Pharma, Biofrontera Bioscience and Ferrer
Internacional S.A. ("Ferrer"), referred to collectively as our ("licensors")
to establish and maintain relationships with contract manufacturers that are
able to supply us with enough of the licensed products to meet our demand;
? the ability of our licensors or our licensors' manufacturing partners, as
applicable, to supply Ameluz®, BF-RhodoLED® lamps, Xepi® or other licensed
products that we market in sufficient quantities and at acceptable quality and
cost levels, and to fully comply with current good manufacturing practice or
other applicable manufacturing regulations;
? the ability of our licensors to successfully defend or enforce patents related
to our licensed products;
? the effect of the COVID-19 global pandemic, including mitigation efforts and
economic effects;
? the availability of insurance coverage and medical expense reimbursement for
our licensed products;
? the impact of legislative and regulatory changes;
? competition from other pharmaceutical and medical device companies and
existing treatments, such as simple curettage and cryotherapy;
? our success in achieving profitability;
? our ability to obtain additional financing as needed to implement our growth
strategy;
? our success in remediating material weaknesses in our internal control over
financial reporting and in establishing adequate internal controls over
financial reporting;
? our ability to retain and recruit key personnel;
? our success in making the transition to operate as a public company;
? such other risks identified in Item 1A. Risk Factors in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2021 and any other filings
with the SEC .
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More detailed information about us and the risk factors that may affect the
realization of forward-looking statements, including the forward-looking
statements in this Quarterly Report on Form 10-Q, is set forth in our filings
with the
Overview
We are a
Our principal licensed product is Ameluz®, which is a prescription drug approved
for use in combination with our licensor's FDA-approved medical devices, the
BF-RhodoLED® lamp series consisting of the BF-RhodoLED® and the RhodoLED® XL
lamps, for photodynamic therapy in
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 adults and children 2 months and older. We are
currently selling Xepi® for this indication in the
Our principal objective is to increase the sales of our licensed products in
? expanding our sales in
BF-RhodoLED® lamp series for the treatment of minimally to moderately thick
actinic keratoses of the face and scalp and positioning Ameluz® to be a leading
photodynamic therapy product, by growing our dedicated sales and marketing
infrastructure in
? expanding our sales of Xepi® for treatment of impetigo by improving the market
positioning of the licensed product; and
? leveraging the potential for future approvals and label extensions of our
portfolio products that are in the pipeline for the U.S. market through the
LSAs with our Licensors. 21
Our strategic objectives also include further expansion of our product and business portfolio through various methods to pursue selective strategic investment and acquisition opportunities to expand and support our business growth, including but not limited to:
? in-licensing further products or product opportunities and developing them for
the U.S. market;
? procuring products through asset acquisition from other healthcare companies;
and
? procuring products through share acquisition of some or all shares of other
healthcare companies, including the possible acquisition of shares of our
former parent company and significant stockholder, Biofrontera AG .
We devote a substantial portion of our cash resources to the commercialization of our licensed products, Ameluz®, the RhodoLED® lamp series. We have financed our operating and capital expenditures through cash proceeds generated from our product sales and proceeds received in equity financings.
We believe that important measures of our results of operations include product revenue, operating income (loss) and adjusted EBITDA (a non-GAAP measure as defined below). Our sole source of revenue is sales of products that we license from certain related and unrelated companies. Our long-term financial objectives include consistent revenue growth and expanding operating margins. Accordingly, we are focused on licensed product sales expansion to drive revenue growth and improve operating efficiencies, including effective resource utilization, information technology leverage and overhead cost management.
Key factors affecting our performance
As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting our results of operations.
Seasonality
Because traditional photodynamic therapy treatments using a lamp are performed more frequently during the winter, our revenue is subject to some seasonality and has historically been higher during the first and fourth quarters than during the second and third quarters.
COVID-19
Since the beginning of 2020, COVID-19 has become a global pandemic. As a result
of the measures implemented by governments around the world, our business
operations have been directly affected. In particular, we experienced a
significant decline in demand for our licensed products as a result of different
priorities for medical treatments emerging, thereby causing a delay of actinic
keratosis treatment for most patients. Our revenue was directly affected by the
global COVID-19 pandemic starting in mid-March of 2020. From that point on,
rising infection rates and the resulting
22 Supply Chain
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. In
Components of Our Results of Operations
Product Revenue, net
We generate product revenues through the third-party sales of our licensed products Ameluz®, RhodoLED® lamps and Xepi®. Revenues from product sales are recorded net of discounts, rebates and other incentives, including trade discounts and allowances, product returns, government rebates, and other incentives such as patient co-pay assistance. Revenue from the sales of our RhodoLED® lamp and Xepi® are relatively insignificant compared with revenues generated through our sales of Ameluz®.
The primary factors that determine our revenue derived from our licensed products are:
? the level of orders generated by our sales force;
? the level of prescriptions and institutional demand for our licensed products;
and ? unit sales prices. Related Party Revenues
We also generate insignificant related party revenue in connection with an agreement with Biofrontera Bioscience to provide RhodoLED® lamps and associated services for the clinical trials performed by Biofrontera Bioscience.
Cost of Revenues,
Cost of revenues, related party, is comprised of purchase costs of our licensed
products, Ameluz® and RhodoLED® lamps from
Cost of Revenues, Other
Cost of revenues, other, is comprised of purchase costs of our licensed product, Xepi®, third-party logistics and distribution costs including packaging, freight, transportation, shipping and handling costs, inventory adjustment due to expiring Xepi® products, as well as sales-based Xepi® royalties.
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Selling, General and Administrative Expense
Selling, general and administrative expenses consist principally of costs associated with our sales force, commercial support personnel, personnel in executive and other administrative functions, as well as medical affairs professionals. Other selling, general and administrative expenses include marketing, trade, and other commercial costs necessary to support the commercial operation of our licensed products and professional fees for legal, consulting, accounting services and the amortization of our intangible asset.
Selling, General and Administrative Expenses,
Selling, general and administrative expenses, related party, primarily relate to
the services provided by our significant stockholder, Biofrontera AG, for
accounting consolidation, IT support, and pharmacovigilance. These expenses were
previously charged to us based on costs incurred plus 6% in accordance with the
2016 Services Agreement. As of
Restructuring Costs
We restructured the business of Cutanea and incurred restructuring costs, which
were subsequently reimbursed by
Change in Fair Value of Contingent Consideration
In connection with the Cutanea acquisition, we recorded contingent consideration
related to the estimated profits from the sale of Cutanea products to be shared
equally with
Change in Fair Value of Warrant Liabilities
Common stock warrants issued in conjunction with private placement financing transactions are accounted for as liabilities in accordance with ASC 815-40.
The warrant liability is measured at fair value at inception and on a recurring basis, with changes in fair value presented within the consolidated statements of operations.
Interest Expense, net
Interest expense, net, primarily consists of amortization of the contract asset
related to the start-up cost financing from
24 Other Income, net
Other income, net primarily includes (i) reimbursed Share Purchase Agreement costs, and (ii) gain (loss) on foreign currency transactions.
Income Taxes
As a result of the net losses, we have incurred in each fiscal year since inception, we have recorded no provision for federal income taxes during such periods. Income tax expense incurred relates to state income taxes.
Results of Operations
Comparison of the Three Months ended
The following table summarizes our results of operations for the three months
ended
(in thousands) 2022 2021 Change Product revenues, net$ 4,290 $ 4,319 $ (29 ) Related party revenues 32 15 17 Revenues, net 4,322$ 4,334 (12 ) Operating expenses: Cost of revenues, related party 2,127 2,249 (122 ) Cost of revenues, other 98 41 57 Selling, general and administrative 7,765 17,090 (9,325 ) Selling, general and administrative, related party 171 160 11 Restructuring costs - 199 (199 )
Change in fair value of contingent consideration (2,200 ) 700 (2,900 ) Total operating expenses
7,961 20,439 (12,478 )
Loss from operations (3,639 ) (16,105 ) 12,466
Change in fair value of warrant liabilities 1,185 - 1,185
Interest expense, net (89 ) (86 ) (3 )
Other income, net (22 ) 185 (207 )
Loss before income taxes (2,565 ) (16,006 ) 13,441
Income tax expenses 1 6 (5 )
Net loss $ (2,566 ) $ (16,012 ) $ 13,446
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Operating Expenses
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
The decrease was primarily driven by legal settlement expense incurred in 2021
of
Restructuring Costs
There were no restructuring costs for the three months ended
Change in Fair Value of Contingent Consideration
The change in fair value of contingent consideration was a decrease of
Change in Fair Value of Warrant Liabilities
The change in fair value of warrant liabilities was a decrease of
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Comparison of the Nine Months ended
The following table summarizes our results of operations for the nine months
ended
(in thousands) 2022 2021 Change Product revenues, net$ 18,467 $ 14,890 $ 3,577 Related party revenues 63 42 21 Revenues, net 18,530$ 14,932 3,598 Operating expenses: Cost of revenues, related party 9,504 7,630 1,874 Cost of revenues, other 425 339 86 Selling, general and administrative 25,050 27,412 (2,362 ) Selling, general and administrative, related party 612 520 92 Restructuring costs - 654 (654 )
Change in fair value of contingent consideration (4,100 ) 1,698 (5,798 ) Total operating expenses
31,491 38,253 (6,762 )
Loss from operations (12,961 ) (23,321 ) 10,360
Change in fair value of warrant liabilities 15,267 - 15,267
Interest expense, net (160 ) (255 ) 95
Other income, net 30 419 (389 )
Income (loss) before income taxes 2,176 (23,157 ) 25,353
Income tax expenses 31 51 (20 )
Net income (loss) $ 2,145 $ (23,208 ) $ 25,353
Product Revenue, net
Net product revenue was
27 Operating Expenses
Cost of Revenues,
Cost of revenues, related party was
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
The decrease was primarily driven by legal settlement expense incurred in 2021
of
Restructuring Costs
There were no restructuring costs for the nine months ended
Change in Fair Value of Contingent Consideration
The change in fair value of contingent consideration was a decrease of
Change in Fair Value of Warrant Liabilities
The change in fair value of warrant liabilities was a decrease of
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Net Income (Loss) to Adjusted EBITDA Reconciliation for the Nine Months Ended
We define adjusted EBITDA as net income or loss before interest income and expense, income taxes, depreciation and amortization, and other non-operating items from our consolidated statements of operations as well as certain other items considered outside the normal course of our operations specifically described below. Adjusted EBITDA is not a presentation made in accordance with GAAP. Our definition of adjusted EBITDA may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. Adjusted EBITDA should not be considered as an alternative to net income or loss, operating income/(loss), cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance or liquidity. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.
Change in fair value of contingent consideration: Pursuant to the Share Purchase
Agreement, the profits from the sale of Cutanea products will be shared equally
between
Change in fair value of warrant liabilities: The warrants issued in conjunction with private placement equity financings were accounted for as liabilities in accordance with ASC 815-40. The warrant liabilities were measured at fair value at inception and are remeasured at each reporting date, with changes in fair value presented within the consolidated statement of operations. We exclude the impact of the change in fair value of warrant liabilities as this is non-cash.
Stock based compensation: To measure operating performance, we exclude the impact of costs relating to share-based compensation. Due to the subjective assumptions and a variety of award types, we believe that the exclusion of share-based compensation expense, which is typically non-cash, allows for more meaningful comparisons of our operating results to peer companies. Share-based compensation expense can vary significantly based on the timing, size and nature of awards granted.
Expensed issuance costs: To measure operating performance, we exclude the portion of issuance costs related to our warrant liabilities. We do not expect to incur this type of expense on a recurring basis and believe the exclusion of these costs allows management and the users of the financial statements to better understand our financial results.
Adjusted EBITDA margin is adjusted EBITDA for a particular period expressed as a percentage of revenues for that period.
We use adjusted EBITDA to measure our performance from period to period and to compare our results to those of our competitors. In addition to adjusted EBITDA being a significant measure of performance for management purposes, we also believe that this presentation provides useful information to investors regarding financial and business trends related to our results of operations and that when non-GAAP financial information is viewed with GAAP financial information, investors are provided with a more meaningful understanding of our ongoing operating performance.
The below table presents a reconciliation from net income (loss) to Adjusted
EBITDA for the three and nine months ended
Three months ended Nine months ended
September 30, September 30,
2022 2021 2022 2021
Net income (loss) $ (2,566 ) $ (16,012 ) $ 2,145 $ (23,208 )
Interest expense, net 89 86 160 255
Income tax expense 1 6 31 51
Depreciation and amortization 130 134 394 409
EBITDA (2,346 ) (15,786 ) 2,730 (22,493 )
Change in fair value of contingent
consideration (2,200 ) 700 (4,100 ) 1,698
Change in fair value of warrant
liabilities (1,185 ) - (15,267 ) -
Legal settlement expenses - 11,250 - 11,250
Stock-based compensation 400 - 1,469 -
Expensed issuance costs 320 - 1,045 -
Adjusted EBITDA $ (5,011 ) $ (3,836 ) $ (14,123 ) $ (9,545 )
Adjusted EBITDA margin -115.9 % -88.5 % -76.2 % -63.9 %
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Adjusted EBITDA
Adjusted EBITDA decreased from
Adjusted EBITDA decreased from
Liquidity and Capital Resources
The Company's primary sources of liquidity are its existing cash balances and
cash flows from equity financing transactions. In July of 2022, we received
proceeds of
Since we commenced operations in 2015, we have generated significant losses. For
the nine months ended
The Company's short-term material cash requirements include working capital
needs and satisfaction of contractual commitments including auto leases (see
Note 23, Commitments and Contingencies),
Additionally, we expect to continue to incur operating losses due to significant
discretionary sales and marketing efforts as we seek to expand the
commercialization of our licensed products in
Our future growth is dependent on our ability to obtain additional equity. Based on current operating plans and financial forecasts, we expect that our current cash and cash equivalents, will be sufficient to fund our operations for at least the next twelve months from the date of issuance of our financial statements. However, if our current operating plans or financial forecasts change, or we are unable to obtain additional financing, we may need to reduce the discretionary spend on promotional expenses, branding, marketing consulting and defer some hiring. While we expect to continue being flexible in our spending over the next twelve months, we do not consider there to be a need to significantly revise our operations currently.
The adequacy of our available funds to meet our future operating and capital requirements will depend on many factors, including the amounts of future revenues generated by our licensed products. Due to numerous factors described in more detail under the caption Part I, Item 1A, "Risk Factors" of the Form 10-K and our contractual obligations and commitments, we may require significant additional funds earlier than we currently expect in order to continue to commercialize Ameluz®, BF-RhodoLED® lamp series, and to support the operating, investing, and financing activities of the Company beyond the next twelve months.
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Our future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:
? the costs of our commercialization activities for Ameluz®;
? the extent to which we acquire or invest in licensed products, businesses and
technologies;
? the extent to which we choose to establish collaboration, co-promotion,
distribution or other similar agreements for our licensed products;
? the cost to fulfill our contractual obligations for various operating leases on
vehicles and office space;
? the requirement to pay back
and make any contingent profit- sharing payments to
the Cutanea acquisition; and
? the ability to collect a receivable of
accordance with the Settlement Allocation Agreement) for reimbursement of legal
settlement payments to be made on their behalf for which both parties are
jointly and severally liable.
We will continue to assess our operating costs and expenses and our cash and cash equivalents and, if circumstances warrant, we will make appropriate adjustments to our operating plan.
Cash Flows
The following table summarizes our cash provided by and (used in) operating, investing and financing activities:
Nine Months Ended September 30,
(in thousands) 2022 2021
Net cash used in operating activities $ (7,928 ) $ (5,725 )
Net cash used in investing activities (3,070 ) (2 )
Net cash provided by (used) in financing activities 14,021 (638 )
Net increase (decrease) in cash and restricted cash $ 3,023
Operating Activities
During the nine months ended
During the nine months ended
Investing Activities
During the nine months ended
During the nine months ended
Financing Activities
During the nine months ended
During the nine months ended
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Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations are based on our consolidated financial statements, which have
been prepared in accordance with
Our significant accounting policies are described in more detail in Note 2 - Summary of Significant Accounting Policies, to our financial statements included in our Annual Report on Form 10-K.
Critical Accounting Estimates
A summary of our critical accounting estimates is included in the Company's
Annual Report on Form 10-K for the year ended
Off-balance Sheet Arrangements
Besides the contractual obligations and commitments as discussed in the section
titled Liquidity and Capital Resources, we did not have during the periods
presented, and we do not currently have, any other off-balance sheet
arrangements, as defined in the rules and regulations of the
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to take advantage of such extended transition period, which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to "opt out" of such extended transition period or (ii) no longer qualify as an emerging growth company.
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