Biofrontera Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Financial amounts are in U.S. dollars. The company commercializes licensed dermatology products, principally Ameluz for actinic keratosis, as well as Xepi and BF-RhodoLED lamps.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Net revenue | $9.751 million | $4.744 million; up 105.5% |
| Operating loss | $3.110 million | $3.528 million loss |
| Net income (loss) | $5.561 million | $3.534 million loss |
| Adjusted EBITDA (non-GAAP) | $2.956 million loss | $2.813 million loss |
| Adjusted EBITDA margin | (30.3%) | (59.3%) |
| Operating cash flow | $2.112 million used | $3.443 million used |
- Product revenue was $9.736 million; Ameluz generated approximately $9.6 million, Xepi $0.1 million, and lamps $0.1 million. Management attributed the increase mainly to higher Ameluz order volume, with a smaller contribution from price.
- Gross profit was approximately $4.601 million, or 47.2% of net revenue, compared with approximately $2.173 million, or 45.8%, in Q1 2021. Selling, general and administrative expense rose 60% to $7.616 million, including higher legal, insurance, staffing, stock compensation, travel and consulting costs.
- Reported net income included an $8.711 million noncash gain from the decline in the fair value of warrant liabilities. Excluding that remeasurement, adjusted EBITDA remained negative.
- Cash and cash equivalents were $22.428 million at March 31, down from $24.545 million at year-end 2021. Current assets were $42.531 million and current liabilities $12.359 million. Cash used in investing was $5,000; there was no financing cash flow in the quarter.
- Total liabilities were $31.786 million, including $12.874 million of net acquisition contract liabilities, a $4.143 million warrant liability, and legal-settlement liabilities. The filing reports no conventional bank debt.
Material changes and notable items
- Revenue more than doubled year over year, while operating loss narrowed by $0.418 million. Higher sales-related cost of revenue and SG&A partly offset revenue growth.
- Net results swung to profit primarily because of the warrant-liability fair-value gain; the company continued to report operating losses and negative operating cash flow.
- Biofrontera AG owes reimbursement for its share of a $22.5 million legal settlement. The company reported a related-party receivable of approximately $11.3 million; the first reimbursement had not been paid as of May 11, 2022. The parties remain jointly and severally liable to the claimant.
- The company must repay Maruho $3.6 million on December 31, 2022 and $3.7 million on December 31, 2023 for start-up financing, and share specified Cutanea product profits equally through 2030.
Outlook, risks and controls
- Management expects existing cash to fund operations for at least 12 months from issuance of the financial statements, but anticipates needing equity or debt financing for longer-term growth. The filing says continued losses and financing needs raise doubt about the company’s ability to continue as a going concern; management considers its plans to mitigate that doubt.
- Management expects continued operating losses and higher 2022 capital spending, including for an ERP system. If forecasts change or financing is unavailable, it may reduce discretionary promotional and consulting spending or defer hiring.
- Xepi supply is at risk after its manufacturer entered bankruptcy and liquidation proceedings. Ferrer is seeking an alternative supplier; management expects shipment delays for up to 18 months and estimates a $0.5 million net Xepi revenue impact over the next 12 months. It expects limited total-revenue impact because Ameluz is the principal revenue source.
- Management described Q4 2021 and Q1 2022 as a seasonally strong sales recovery following pandemic-related disruption, but said the continuing effects of COVID-19 and variants remain uncertain. PDT sales are historically stronger in Q1 and Q4.
- Other key risks include dependence on licensed products and licensors for supply, competition and reimbursement, achieving profitability, and obtaining financing. The company also faces potential Xepi milestone payments to Ferrer if sales thresholds are reached.
- Disclosure controls were assessed as ineffective at March 31, 2022 because a material weakness in review of third-party specialist work had not been fully remediated. Management cited prior errors involving the Xepi intangible-asset valuation and said remediation remained in progress.
Important facts for investors to verify
- Whether Ameluz sales growth and margins persist, and whether seasonality or market conditions affect subsequent quarters.
- Cash runway and financing needs against continued operating cash burn, planned spending and contractual payments.
- Timing and collection of Biofrontera AG’s settlement reimbursements, including the effect of joint and several liability if payment is delayed or not made.
- Progress in qualifying an alternative Xepi manufacturer and the resulting product availability and revenue impact.
- Whether the material weakness is remediated and disclosure controls become effective.
- The nature of the reported Q1 profit: net income includes a substantial noncash warrant revaluation gain, while adjusted EBITDA and operating cash flow were negative.