Biofrontera Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial amounts below are in U.S. dollars; millions are used unless stated otherwise. The filing retrospectively reflects a 1-for-20 reverse stock split effective July 3, 2023.
Business context
Biofrontera commercializes licensed dermatology products, principally Ameluz for photodynamic therapy (PDT) used to treat actinic keratoses, alongside RhodoLED lamps and Xepi for impetigo. Ameluz accounts for most product revenue. The company began limited R&D in May 2023 to improve its PDT lamps and support product demonstrations. Xepi commercialization remains constrained by manufacturing delays; its licensor is qualifying a replacement manufacturer expected to begin production in 2024.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue, net | $8.9m | $4.3m | $23.5m | $18.5m |
| Gross profit and margin | Approx. $4.3m; 48.4% | Approx. $2.1m; 48.5% | Approx. $11.4m; 48.6% | Approx. $8.6m; 46.4% |
| Loss from operations | $(4.6)m | $(3.6)m | $(18.8)m | $(13.0)m |
| Net income (loss) | $(6.3)m | $(2.6)m | $(23.7)m | $2.1m |
| Adjusted EBITDA (non-GAAP) | $(3.9)m | $(5.0)m | $(15.8)m | $(14.1)m |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(16.0)m | $(7.9)m |
Gross profit and margins are approximate calculations from reported revenue less cost of revenue. Q3 revenue rose 107% year over year; nine-month revenue rose 27%. Management attributed growth mainly to higher Ameluz sales volume, expanded sales capacity and increased dermatologist adoption. Q3 purchases were also accelerated ahead of a 5% Ameluz price increase effective October 1, 2023. Gross margin was broadly stable in Q3 and improved year to date.
Q3 adjusted EBITDA improved year over year, but the nine-month adjusted EBITDA loss widened. SG&A rose 19% year to date, mainly from personnel, sales-related travel and medical education, and legal costs. The nine-month GAAP comparison was also affected by non-cash fair-value changes: the prior-year period included a large warrant-liability gain, while 2023 included losses on the Biofrontera AG investment.
Financial position and liquidity
- At September 30, 2023, cash and cash equivalents were $3.4m, the Biofrontera AG investment was $3.3m, and current assets totaled $29.6m, including $16.1m of inventory.
- Current liabilities were $29.1m; total liabilities were $33.1m. The balance sheet reported a $1.0m line-of-credit balance, while cash-flow financing activity showed $1.7m net proceeds from the facility during the nine-month period.
- Cash, cash equivalents and restricted cash fell $13.8m from year-end 2022 to $3.6m. The company used $16.0m in operating cash, received $0.5m from investing activities and $1.7m net from financing activities.
- Management concluded that substantial doubt exists about the company’s ability to continue as a going concern for at least one year from issuance of the financial statements. It anticipated needing additional capital or other financing to fund operations during the first half of 2024 and until operating cash flow is sufficient, if ever.
- A revolving credit facility provides up to $6.5m, subject to borrowing-base limits and an availability block; it matures in May 2026 and is secured by substantially all company assets.
Material changes, outlook and risks
- Post-quarter financing: The November 2, 2023 closing of a public offering generated approximately $4.5m gross proceeds; management cited approximately $4.1m net capital raised. The offering included common shares or pre-funded warrants and warrants, creating potential dilution. Existing warrants were amended to reduce their exercise price to $3.55 and extend their term.
- Inventory and cash planning: Management said it was working to improve working capital, particularly inventory levels, and expected the next product delivery may be needed in Q3 2024 depending on sales. It cautioned that financing and continued-operation plans are not assured.
- Legal matters: The company remains jointly and severally liable with Biofrontera AG for the remaining DUSA settlement payments; it recorded a $6.0m settlement liability and a $2.8m related-party receivable. Separately, DUSA and Sun entities sued alleging promotion of Ameluz inconsistent with FDA labeling. Biofrontera denies the claims; it could not estimate a material loss or range at this preliminary stage.
- Maruho obligations and dispute: Biofrontera is withholding repayment of the $7.3m Cutanea start-up financing pending arbitration in which it seeks damages and a ruling that repayment is not required. The contractual repayment schedule included $3.7m due December 31, 2023. The company also shares certain Cutanea product profits with Maruho through 2030.
- Commercial and operating risks: Revenue depends on licensed products and third-party supply. Xepi has had limited revenue and delayed manufacturing; Ameluz sales are seasonal, historically stronger in the first and fourth quarters. Management expects commercial-team productivity to support continued revenue growth, but provided no quantified revenue or earnings guidance.
- Other notable items: The company recorded $6.6m of nine-month losses on its Biofrontera AG investment. It reported that 3.4m of its AG shares were not fully under its control to vote or dispose of pending transfer to its brokerage account.
Investor verification priorities
- Confirm post-offering cash, net proceeds, warrant terms and resulting fully diluted share count.
- Assess cash runway, available borrowing capacity, inventory purchasing needs and the feasibility of additional financing; note the explicit going-concern uncertainty.
- Track Ameluz sales after the October price increase and determine whether Q3 purchases were pulled forward.
- Verify Cambrex’s Xepi qualification and production timeline, and whether supply recovery translates into meaningful sales.
- Monitor the DUSA promotion lawsuit, remaining settlement payments and Biofrontera AG reimbursement, as well as the Maruho arbitration and repayment exposure.
- Review related-party balances and transactions, including Ameluz supply costs and the Biofrontera AG investment’s liquidity and control arrangements.