Business Overview and History
Biofrontera Inc. (NASDAQ:BFRI) is a U.S.-based biopharmaceutical company that specializes in the development and commercialization of dermatological products, with a focus on photodynamic therapy (PDT) and topical antibiotics. The company's journey has been marked by strategic advancements, challenges, and a relentless pursuit of innovation to position itself as a resilient player in the dermatology space.
Biofrontera Inc. was founded in 2015 as a U.S.-based biopharmaceutical company focused on commercializing a portfolio of pharmaceutical products for the treatment of dermatological conditions. The company's initial licensed products were used for the treatment of actinic keratoses (AKs), which are pre-cancerous skin lesions, as well as impetigo, a bacterial skin infection.
The company's principal licensed product is Ameluz, a prescription drug approved for use in combination with photodynamic therapy (PDT) for the treatment of AKs of mild-to-moderate severity on the face and scalp. In the United States, the PDT treatment is used for both lesion-directed and field-directed treatment of AKs. Biofrontera began selling Ameluz for this indication in the U.S. under an exclusive license and supply agreement with the Ameluz Licensor in 2016.
In 2019, Biofrontera expanded its portfolio through the acquisition of Cutanea Life Sciences, Inc., which provided the company with the exclusive license and supply agreement for Xepi (ozenoxacin cream, 1%), a topical non-fluorinated quinolone that inhibits bacterial growth. Xepi was specifically approved by the FDA for the treatment of impetigo due to Staphylococcus aureus or Streptococcus pyogenes.
Throughout its history, Biofrontera has faced several challenges in commercializing its licensed products. The company experienced delays in delivery times of its RhodoLED Lamps due to supply chain issues, and it generated limited revenue from sales of Xepi due to third-party manufacturing delays. Additionally, the company has incurred significant losses since commencing operations in 2015, resulting in substantial doubt about its ability to continue as a going concern.
Despite these challenges, Biofrontera has remained focused on the growth and development of its core Ameluz product. In 2024, the company achieved a significant milestone when the U.S. Food and Drug Administration (FDA) approved the company's supplemental new drug application to increase the maximally approved dosage of Ameluz from one to three tubes per treatment. This approval allows healthcare professionals greater flexibility in addressing larger or multiple treatment areas for patients undergoing PDT for AKs on the face and scalp, leading to greater convenience for both providers and their patients.
Financial Overview
Biofrontera's financial performance has been mixed in recent years, with the company reporting net losses in 2021, 2022, and 2023. In 2021, the company reported a net loss of $37.7 million, followed by a net loss of $640,000 in 2022 and a net loss of $20.1 million in 2023. The company's annual revenue has also fluctuated, with $24.1 million in 2021, $28.7 million in 2022, and $34.1 million in 2023.
For the most recent fiscal year (2023), Biofrontera reported revenue of $34.1 million, a net loss of $20.1 million, and negative operating cash flow of $24.9 million. In the most recent quarter (Q3 2024), the company reported revenue of $9.0 million, a net loss of $5.7 million, and year-over-year revenue growth of 1.5%. It's worth noting that the revenue increase would have been 19% if not for 4,640 units of Ameluz being delayed to Q4 due to Hurricane Milton.
For the first nine months of 2024, Biofrontera reported net product revenue of $24.7 million, up 5.6% compared to the same period in 2023. This increase was mainly driven by a $1.1 million increase in the average sale price of Ameluz, as well as a $0.6 million increase in device sales due to the launch of the RhodoLED XL lamp in June 2024. However, these increases were partially offset by a decrease in sales volume of Ameluz of approximately $0.5 million, which was impacted by office closures and shipping delays associated with Hurricane Milton.
Despite these challenges, Biofrontera has demonstrated its ability to manage costs effectively. In the first nine months of 2024, the company reduced its selling, general, and administrative expenses by 14% compared to the same period in 2023, highlighting its commitment to operational efficiency.
Liquidity
As of September 30, 2024, Biofrontera reported cash and cash equivalents of $2.9 million, compared to $1.3 million as of December 31, 2023. The company's current ratio, a measure of its ability to meet short-term obligations, stood at 1.53 as of September 30, 2024, indicating a relatively strong liquidity position. The quick ratio, which excludes inventory from current assets, was 0.94.
The company's debt-to-equity ratio was 0.18, suggesting a relatively low level of leverage. However, Biofrontera's management has determined that substantial doubt exists about the company's ability to continue as a going concern for at least twelve months from the issuance date of the financial statements, due to its losses and projected cash needs.
It's worth noting that the company had a revolving line of credit with MidCap Business Credit LLC that was terminated in January 2024.
Clinical and Regulatory Advancements
Biofrontera's research and development efforts have been focused on expanding the use of Ameluz for various dermatological conditions. In October 2024, the company announced highly statistically significant results from its Phase 3 study evaluating the use of Ameluz-PDT in the treatment of superficial basal cell carcinoma (sBCC), a subgroup of the most common skin cancer in the United States. The primary endpoint of complete clinical and histological clearance was achieved in 65.5% of patients treated with Ameluz-PDT, compared to 4.8% with placebo-PDT.
The company also has an ongoing Phase 2 clinical trial evaluating the use of Ameluz-PDT for the treatment of moderate-to-severe acne, a market with significant unmet medical needs. As of September 30, 2024, the enrollment for this study stood at 84% of the target patient population.
In addition to these clinical advancements, Biofrontera has taken control of all clinical trial activities for Ameluz in the United States, effective June 1, 2024. This strategic move allows the company to have more effective cost management and direct oversight of trial efficiency, which is expected to contribute to the company's profitability in the long run.
Product Portfolio and Market Positioning
Biofrontera's product portfolio is primarily focused on two key products:
1. Ameluz: This is the company's principal licensed product, a prescription drug approved for use in combination with PDT for the lesion-directed and field-directed treatment of actinic keratoses (AKs) of mild-to-moderate severity on the face and scalp. The recent FDA approval to increase the maximally approved dosage from one to three tubes per treatment is expected to provide greater flexibility for healthcare professionals and convenience for patients.
2. Xepi: This is Biofrontera's second prescription drug licensed product, a topical non-fluorinated quinolone approved by the FDA for the treatment of impetigo. However, the company has generated limited revenue from Xepi due to third-party manufacturing delays. In the third quarter of 2024, Biofrontera reached the decision to divest its Xepi product line.
The company's research and development program is focused on label expansion for Ameluz as well as supporting PDT growth by improving the capabilities of its RhodoLED Lamps. The change to the Ameluz label and the RhodoLED XL lamp are both foundational to support the potential expansion of the label to include trunk and extremities, which the company expects to add in the next couple of years.
Competitive Landscape and Risks
Biofrontera operates in a competitive dermatology market, facing competition from both generic topical dermatological products and existing treatments, such as simple curettage and cryotherapy. The company's ability to maintain its market share and drive revenue growth will depend on its ability to differentiate its products, continuously improve its offerings, and effectively navigate the regulatory landscape.
Additionally, Biofrontera's reliance on its Licensors, Biofrontera Pharma GmbH, Biofrontera Bioscience GmbH, and Ferrer Internacional S.A., for the supply of its licensed products poses a risk. Any disruptions in the supply chain or manufacturing issues experienced by these Licensors could have a significant impact on Biofrontera's operations and financial performance.
The company's future growth and profitability will also hinge on its ability to successfully navigate the COVID-19 pandemic and any potential future disruptions, as well as manage the ongoing legal proceedings with DUSA Pharmaceuticals, Inc., Sun Pharmaceutical Industries, Inc., and Sun Pharmaceutical Industries LTD. These parties allege that Biofrontera has promoted Ameluz in a manner inconsistent with its approved FDA labeling, claims which the company denies and is vigorously defending against.
Future Outlook and Guidance
Despite the challenges faced, Biofrontera remains optimistic about its future prospects. For the full year 2024, the company expects revenue growth to be in the mid- to high-teens, similar to prior years. This guidance takes into account the 5% price increase for Ameluz implemented on October 1, 2024, mirroring the price increase from 2023.
Biofrontera anticipates achieving cash flow breakeven towards the end of 2025 into 2026, reflecting the company's focus on operational efficiency and revenue growth. The company plans to actively promote the new FDA approval that allows for the use of up to 3 tubes of Ameluz per treatment, now that the reimbursement obstacle has been removed.
Conclusion
Biofrontera Inc. has demonstrated resilience and a commitment to innovation in the dermatology market. Despite facing various challenges, the company has made strategic advancements, such as the FDA approval for increased Ameluz dosage and the assumption of clinical trial activities for its flagship product. The positive results from its Phase 3 trial for superficial basal cell carcinoma treatment and the ongoing acne study suggest potential for future growth and market expansion.
However, Biofrontera's long-term success will depend on its ability to effectively manage its supply chain, navigate the competitive landscape, and capitalize on emerging opportunities in the dermatology space. The company's focus on cost management and operational efficiency, coupled with its strategic product developments, positions it to potentially overcome its current financial challenges and achieve sustainable growth in the coming years.