Biofrontera Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Financial statements are unaudited. Biofrontera commercializes licensed dermatology products, principally Ameluz for actinic keratosis, and also sells Xepi for impetigo and BF-RhodoLED lamps.
Financial performance and liquidity
Unless otherwise noted, amounts are in millions of dollars.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $4.334 | $3.252 | $14.932 | $10.277 |
| Operating loss | $(16.105) | $(2.344) | $(23.321) | $(9.418) |
| Net loss | $(16.012) | $(2.985) | $(23.208) | $(10.801) |
| Adjusted EBITDA, non-GAAP | $(3.836) | $(3.127) | $(9.545) | $(9.149) |
| Adjusted EBITDA margin, non-GAAP | (88.5%) | (96.2%) | (63.9%) | (89.0%) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(5.725) | $(11.706) |
Q3 product revenue grew 33.5%; nine-month product revenue grew 45.6%. Management attributed growth mainly to increased Ameluz volume and a January 2021 price increase. Ameluz generated $14.6 million of nine-month 2021 revenue; Xepi revenue was minimal and lower year over year. Operating and net losses widened substantially, largely because of the $11.25 million litigation settlement expense and higher selling, general and administrative costs.
At September 30, cash and cash equivalents were $1.716 million, down from $8.080 million at December 31, 2020. Current assets were $10.137 million and current liabilities $11.291 million, a $1.154 million working-capital deficit. Total liabilities were $32.734 million and stockholders’ deficit was $17.380 million. No principal was outstanding under the $20 million intercompany revolving facility at quarter-end. The filing does not identify conventional third-party debt outstanding; it reports $15.795 million in net acquisition contract liabilities, including start-up financing and contingent consideration.
Material changes and unusual items
- Nine-month operating cash use improved year over year, but included a large favorable working-capital effect from recording the $11.25 million legal settlement liability. Cash from operations therefore should not be viewed as a recurring cash-burn measure without adjustment.
- SG&A increased sharply: it included the $11.25 million settlement accrual, as well as increased marketing, staffing and sales-force costs. The company also recorded $1.698 million of noncash expense from remeasurement of contingent consideration for the Cutanea acquisition.
- The Ameluz license transfer price was amended October 8, 2021: the rate is 50% of anticipated net price up to $30 million in applicable annual product revenue, 40% on the portion from $30 million to $50 million, and 30% above $50 million. The amendment also provides certain rights to take over specified clinical and regulatory work and offset eligible trial costs against transfer prices.
- On November 2, 2021, the company completed its IPO, estimating net proceeds of $15.4 million. Subsequent warrant exercises generated estimated net proceeds of $3.9 million. A November 29 private-placement agreement was expected to generate approximately $15 million gross, subject to closing.
Outlook, risks and controls
Management expects continued product revenue and operating losses as it invests in U.S. commercialization, public-company infrastructure, systems and personnel. It stated that the $20 million revolving facility, IPO proceeds and anticipated private-placement proceeds would fund operations for at least 12 months from issuance of the interim statements. This assessment depends in part on financing availability and completion of the private placement; the filing provides no specific revenue or profitability guidance.
Key risks include reliance on licensed products and third-party suppliers, dependence on Ameluz, possible generic competition, reimbursement and market competition, COVID-19 disruption, seasonality, and reliance on parent Biofrontera AG and other collaborators. The company must repay $7.3 million of Maruho start-up financing in installments in 2022 and 2023 and share specified Cutanea product profits with Maruho through 2030. A separate $2 million and $4 million Xepi milestone payments may be triggered at annual sales thresholds of $25 million and $50 million, respectively; timing and likelihood were not estimable.
The company recorded an $11.25 million obligation for its share of a litigation settlement agreed November 29, payable in three installments over two years plus interest. Management reported disclosure controls were ineffective at September 30, 2021 because a material weakness involving oversight of third-party service providers remained under remediation. The filing also checked “No” to whether required Exchange Act reports had been filed during the preceding 12 months.
Investor verification priorities
- Confirm the settlement payment schedule, interest and cash impact, and whether the recorded liability fully reflects the company’s obligation.
- Track actual proceeds and closing status of the private placement, IPO warrant exercises, and use of proceeds.
- Assess cash burn excluding settlement-related working-capital effects, and monitor liquidity against the company’s stated 12-month runway.
- Verify Ameluz revenue growth, product economics under the amended transfer-price tiers, and progress toward product diversification.
- Monitor remediation of the material weakness and any subsequent control findings.
- Review the assumptions behind contingent consideration, Maruho profit sharing and repayments, and potential Xepi milestone obligations.