Biofrontera Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unless noted otherwise, dollar amounts below are in millions; the filing reports financial statements in thousands. Per-share data reflect the subsequent 1-for-20 reverse stock split.
Business context
Biofrontera commercializes licensed dermatology products in the United States, principally Ameluz used with RhodoLED lamps for photodynamic treatment of actinic keratoses. Xepi is licensed for impetigo. The company began limited R&D in May to improve its PDT lamps and support product demonstrations.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net revenue | $5.85 | $4.46 | $14.58 | $14.21 |
| Gross profit and margin | $2.96; 50.6% | $1.90; 42.7% | $7.09; 48.7% | $6.50; 45.8% |
| Operating loss | $(8.70) | $(6.21) | $(14.19) | $(9.32) |
| Net income (loss) | $(9.84) | $(0.85) | $(17.32) | $4.71 |
| Adjusted EBITDA (non-GAAP) | $(7.92) | $(7.14) | $(11.91) | $(9.53) |
Q2 net product revenue rose 31.3%, primarily on higher Ameluz volume, expanded sales coverage and greater dermatologist adoption. First-half revenue increased 2.6%. Operating expenses rose, led by SG&A: Q2 SG&A increased 18.5% to $11.46 million; first-half SG&A increased 23.0% to $21.25 million. Management cited personnel costs, legal expenses, and sales-force expansion. Results also included non-cash fair-value changes: first-half investment losses of $4.42 million and warrant-liability gains of $1.40 million. The prior-year first-half result included a $14.08 million warrant-liability gain, helping explain the swing from prior-year net income to a loss.
First-half operating cash outflow was $14.03 million, compared with $1.99 million in the prior-year period. Inventory increased by $7.62 million and contributed to cash use. Investing activities provided $0.16 million, including equity-investment sale proceeds; financing provided $1.11 million net from the credit line. Cash and cash equivalents were $4.45 million at June 30, down from $17.21 million at year-end; a related-party investment was valued at $5.94 million. The investment is Biofrontera AG shares, some of which the company said were not fully under its control to vote or dispose of.
Current assets were $32.30 million and current liabilities $25.35 million. The company reported $1.11 million outstanding on its revolving line of credit. The credit facility provides up to $6.5 million, subject to borrowing-base limits and other conditions, and is secured by substantially all company assets. Total liabilities were $29.73 million. The balance sheet also included $7.30 million of Maruho start-up financing due by year-end 2023 and $6.09 million of accrued legal-settlement liabilities.
Outlook, risks and unusual items
- Management said it expects revenue to increase through the remainder of 2023 as the expanded commercial team becomes more productive. No numerical revenue or earnings guidance was provided.
- Management concluded that substantial doubt exists about the company’s ability to continue as a going concern for at least 12 months after issuance of the financial statements. It cited operating losses, planned inventory purchases, a final settlement payment and the need for additional capital or alternative financing. Management’s funding efforts are not assured of success.
- Xepi commercialization has been delayed by manufacturer issues and limited revenue. Ferrer is qualifying Cambrex as a new contract manufacturer, with production expected to begin in early 2024. The filing also describes complications renewing Xepi’s marketing authorization; no impairment was recorded after the company’s recoverability assessment.
- The company is withholding the $7.3 million Maruho start-up financing repayment while pursuing ICC arbitration over alleged undisclosed manufacturing issues. The agreement also provides for sharing product profits with Maruho through 2030. The outcome and timing of arbitration are uncertain.
- Biofrontera and Biofrontera AG remain jointly and severally liable for the remaining DUSA litigation settlement payments. The company recorded a $6.1 million liability and a $3.7 million receivable from Biofrontera AG for its share; collection and the settlement obligations are relevant risks.
- Ameluz and RhodoLED supply depend on licensors and contract manufacturers, and product sales depend on licensed products. The company also identifies competition, reimbursement, financing needs and execution of its commercial strategy as risks.
- Shares began trading after a 1-for-20 reverse split on July 5, 2023. Q2 and year-to-date figures presented in the filing were retrospectively adjusted for the split.
Most important facts for investors to verify
- Available liquidity, borrowing-base capacity and the company’s ability to raise financing in light of the going-concern warning and cash burn.
- Whether the $7.3 million Maruho repayment is made, deferred or affected by arbitration, and the potential financial consequences of the dispute.
- Progress on Xepi authorization and Cambrex qualification, and continued availability of Ameluz and RhodoLED supplies.
- Collection of the $3.7 million settlement reimbursement receivable from Biofrontera AG and the remaining DUSA settlement obligations.
- Whether revenue growth and improved commercial productivity can offset elevated SG&A and recurring operating losses.