Biofrontera Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter earnings report; quarterly results are not clearly provided in the filing excerpt. Figures below are in U.S. dollars.
Business context
Biofrontera commercializes licensed dermatology products in the United States. Its principal product, Ameluz, is used with RhodoLED lamps for photodynamic treatment of actinic keratosis (AK). Xepi is a licensed topical antibiotic for impetigo. The company depends on licensors and third-party manufacturers for product supply, regulatory work and development.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net revenue | $24.1 million | $18.8 million |
| Operating loss | $25.2 million | $9.6 million |
| Net loss | $37.7 million | $11.0 million |
| Adjusted EBITDA (non-GAAP) | $(12.7) million | $(9.2) million |
| Net cash used in operating activities | $26.7 million | $12.4 million |
| Cash and cash equivalents at year-end | $24.5 million | $8.1 million |
- Revenue increased 27.9%, principally from higher Ameluz volume and pricing. Ameluz revenue was $23.6 million; RhodoLED lamp revenue was about $0.4 million; Xepi revenue was minimal.
- Approximate gross profit was $11.4 million, or 47% of revenue, compared with $9.8 million, or 52%, in 2020, calculated as revenue less the two reported cost-of-revenue lines.
- SG&A rose to $36.5 million from $17.7 million. The increase included $11.25 million of DUSA settlement expense, marketing and staffing increases, and $1.4 million of private-placement warrant issuance costs.
- The $37.7 million net loss included a $12.8 million non-cash loss from remeasuring warrant liabilities. Adjusted EBITDA is a company-defined non-GAAP measure and also excludes specified items.
- Financing generated $43.2 million in 2021 from the IPO, a private placement and warrant exercises. The $47.0 million intercompany loan had been converted to equity in 2020; no principal was outstanding at year-end. A separate $20 million intercompany facility was undrawn and effectively terminated after the IPO.
- Year-end total assets were $53.2 million, total liabilities $41.9 million and stockholders’ equity $11.3 million. The balance sheet included $12.9 million of warrant liabilities, which are not conventional borrowings.
Material changes and developments
- Revenue recovered from pandemic-affected 2020 levels, rising 28% in 2021. Management reported U.S. AK treatments grew 4% and Ameluz sales grew 9% in 2021; Ameluz’s share of the PDT drug segment rose to 25.6% from about 24.5%.
- The FDA approved the larger RhodoLED XL lamp in October 2021 for use with Ameluz for the existing AK indication.
- The company completed its IPO in November 2021 and a roughly $15 million private placement in December. Biofrontera AG held 46.8% of outstanding common shares at year-end.
- The company settled DUSA litigation in November 2021 for $22.5 million in aggregate, payable in three annual installments. Biofrontera Inc. and Biofrontera AG agreed to bear half each, but the company is jointly and severally liable for the full amount.
Outlook, risks and unusual items
- Management expects continued operating losses while investing in sales, marketing, systems and public-company infrastructure. It expects current cash to fund operations for at least 12 months from issuance of the financial statements, but also expects to seek debt or equity financing for longer-term growth. Management disclosed going-concern doubt and stated its plans mitigate that doubt.
- Xepi supply is disrupted: its manufacturer, Teligent, entered Chapter 11 in October 2021 and moved toward Chapter 7 liquidation in February 2022. Ferrer was seeking an alternative supplier. Management anticipated shipment delays for up to 18 months and estimated a $0.5 million net Xepi revenue impact over the next 12 months.
- Maruho start-up financing requires repayments of $3.6 million in 2022 and $3.7 million in 2023. The company also shares specified Cutanea product profits with Maruho through 2030. Xepi sales milestones could require payments to Ferrer of $2 million and $4 million at specified annual sales thresholds.
- Biofrontera AG had not reimbursed the company for its first settlement share by April 2022. The company recorded a related-party receivable and says it has contractual remedies, including interest and offsets against amounts owed to Biofrontera AG.
- A material weakness in internal control over financial reporting remained unremediated at year-end, involving management review of specialist work and valuation of the Xepi intangible asset. Management also concluded disclosure controls were ineffective. The financial statement audit opinion was unqualified; the auditor did not attest to internal controls.
- Other key risks include dependence on licensed products and suppliers, potential generic competition following expiry of an important Ameluz patent in 2019, reimbursement and pricing pressure, clinical and regulatory uncertainty, COVID-19 effects, and Biofrontera AG’s significant influence.
Important facts for investors to verify
- Whether Biofrontera AG has paid the settlement reimbursement due to Biofrontera Inc., and the timing and funding of remaining settlement installments.
- Progress in qualifying replacement Xepi manufacturing capacity, inventory sufficiency and actual commercial impact versus management’s estimates.
- Cash burn, financing needs and liquidity relative to the stated 12-month runway; monitor the Maruho repayments and other contractual commitments.
- Progress toward remediating the internal-control material weakness and improving disclosure controls.
- Ameluz growth, gross margin and reimbursement trends, including whether the RhodoLED XL and Ameluz clinical programs translate into commercial expansion.
- Potential dilution from outstanding warrants, options and equity plans, and the effects of warrant-liability remeasurement on reported earnings.