Biofrontera Inc. (BFRI) Earnings Call Transcript

Good morning, everyone, and thanks for joining the conference call covering Biofrontera Inc.'s financial results for the first quarter of 2026, along with a business update. I want to point out that some of what management discusses today falls under the safe harbor protections of the Private Securities Litigation Reform Act. A word of caution to those listening: Biofrontera's management will be sharing forward-looking statements, and because of the risks and uncertainties tied to the company's business, actual results could end up differing materially from what those statements state or imply. You can find all of those risks and uncertainties laid out in detail, and they are qualified by, the cautionary language in Biofrontera's press releases and SEC filings — that includes the quarterly report on Form 10-Q covering the quarter that ended March 31, 2026, as well as the annual report on Form 10-K covering the year that ended December 31, 2025. On top of that, this call includes time-sensitive information that holds true only as of the date of this live broadcast. Except where the law requires it, Biofrontera takes on no obligation to revise or update any forward-looking statements so they reflect events or circumstances arising after today's conference call. There will also be mentions of certain non-GAAP financial measures during today's call. It's Biofrontera's belief that these measures give investors useful information, but they should not be treated as a replacement for GAAP, nor should anyone view them as a replacement for operating results figured out in accordance with GAAP. You can find a reconciliation of non-GAAP to GAAP results in the press release that went out today, and it's also posted on the company's website, www.biofrontera-us.com, in the Investor Relations section. One more note: management will be referring to adjusted EBITDA, which is a non-GAAP financial measure. It's defined as net income or loss, excluding interest income and expense, income taxes, depreciation and amortization, plus certain other nonrecurring or noncash items, which include changes in fair value of warrant liabilities and stock-based compensation. Having said all that, I'd now like to hand the call over to Hermann Luebbert, who serves as CEO, Chairman and Founder of Biofrontera. Hermann?

Sure thing, Ben — and a good morning to everybody joining us. Looking at our main performance indicators, Q1 of 2026 was a solid one. On the product side, revenue came in at $10.1 million, up about 17% compared with the $8.6 million we posted in the same period of 2025. With the Biofrontera AG strategic transaction behind us, this marks the first complete quarter reflecting our revised cost base, and what we're seeing confirms the business model shift landed exactly as intended. The numbers also make clear just how well our commercial team is executing and how Ameluz PDT keeps gaining traction among dermatology practitioners. George Jones, our CCO, is going to walk you through those details in a moment. Before we go further, I want to remind everyone about the strategic deal that wrapped up in October 2025. Through it, Biofrontera Inc. gained complete ownership and control over every U.S. right, approval, and patent tied to Ameluz and RhodoLED — that covers the New Drug Application, the Investigational New Drug application, all manufacturing rights and contracts, and all intellectual property. In December 2025, the FDA officially moved the NDA and IND over to us. With the earnout structure now in place, we owe 12% of net sales whenever yearly U.S. Ameluz revenues sit at or below $65 million, and 15% once they go above that mark. This took the place of the transfer pricing model, which had been 25% to 35% of revenue. You can plainly see how this is playing out in our Q1 results. We saw our gross margin grow to roughly 80%, up from about 62% during the same quarter last year. Meanwhile, cash consumed by our operations was essentially zero—only $70,000—which is a huge swing from the $4.1 million we burned in operations during Q1 2025, and it puts us on track to reach cash flow breakeven within this year. Our CFO, Fred Leffler, will walk you through the financials in more depth shortly. Now I'd like to discuss the major clinical and regulatory strides we've achieved both during and after the first quarter. Starting with superficial basal cell carcinoma: back in February 2026, we shared news that the FDA had wrapped up its filing review and given the green light to our supplemental New Drug Application for Ameluz PDT, which is aimed at treating that condition. September 28, 2026 is the PDUFA target action date. Should it get the nod, Ameluz would become the first PDT drug cleared in the United States for treating a cancer, which amounts to a major extra commercial opening for our platform and hands us a notable edge over what our direct competitor is capable of. Moving to the second item, actinic keratosis affecting the extremities, neck and trunk: in February 2026, we reported favorable top line results, statistically significant, from our Phase III clinical trial. The trial hit its main goal, showing Ameluz was far better than the vehicle gel with strong statistical significance. We also shared news that the database for the Phase I pharmacokinetic study—needed for our FDA submission—is now locked. Together, these results back our strategy to submit a supplemental NDA during Q3 of 2026, seeking to broaden the Ameluz label so it covers AK treatment outside the face and scalp, on areas as large as 240 square centimeters. About 58 million grown-ups across the United States have one or more AK lesions, meaning treatment of extensive regions on the limbs, neck, and torso represents a substantial market opportunity for the RhodoLED lamps we've already got in place. And third, moderate to severe acne vulgaris. During March 2026, we shared findings from a Phase II trial involving Ameluz PDT. Under the 3-hour incubation protocol, the protocol population saw a 58% decrease in inflammatory lesions when treated with Ameluz, versus 37% for vehicle gel. Satisfaction among patients was extremely strong, with 86% indicating they would opt for PDT again. Given these results, our plan is to consult with the FDA about the design of a future Phase III program during the latter half of 2026. Acne vulgaris is a long-term condition that impacts millions of adults and adolescents, and we think Ameluz PDT could provide a differentiated option for treating the moderate to severe form of this disease. Turning to company matters, I'm happy to share that as of May 6, 2026, we got official written notice from NASDAQ verifying we're back in compliance with the Minimum Bid Price Requirement set out in Listing Rule 5550(a)(2). For the necessary 10 straight business days, our common stock's closing bid price stayed at or above $1 per share. Last, I'd like to mention that we keep watching the shifting global trade landscape, which includes tariffs recently placed on goods coming in from certain nations. Since all of our products are brought in from Europe, we're continually evaluating what this could mean for our supply chain, the cost of our products, and how we set prices. At this point, I'll hand things over to our Chief Commercial Officer, George Jones, so he can give everyone a closer look at how we're executing on the commercial side. George?

Thanks, Hermann, and good morning to everyone. It's a pleasure to take you through how our commercial efforts progressed during the first quarter of 2026. As Hermann mentioned, product revenues came in at $10.1 million, which represents growth of roughly 17% compared with the same period last year. That revenue gain came mainly from an increase of about 16% in Ameluz unit volume, together with a price increase we put into effect during the fourth quarter of 2025. If we look more closely at that unit volume growth, Ameluz unit volumes rose from roughly 25,000 tubes in Q1 2025 to approximately 29,000 tubes of Ameluz in Q1 2026, which works out to year-over-year growth of about 16%. That comes on the heels of our record sales in Q4. This ongoing volume momentum shows the effect of the execution improvements we've put in place, along with widening adoption of Ameluz PDT. Now turning to lamps — the RhodoLED lamp placements. In Q1 of 2026, we shipped about 32 lamps, which brought our installed base to roughly 773 lamps across 709 dermatology offices as of March 31, 2026. When we examine how our sales force is executing, our focused commercial strategy is producing the momentum we're seeing. That strategy centers on greater accountability throughout our commercial organization, sharper customer segmentation, and data-driven targeting supported by AI. We keep emphasizing more in-person sales activity, since we know it has the greatest impact with our customers; we also benefited from lower sales force turnover in Q1 2026 compared with Q1 2025, because as our newer reps have gotten to know their customers and their territories, they can drive results more effectively. I also wanted to circle back on something we talked about on our last call. During Q4 2025, we started an inside sales pilot to cover vacant territories, white space, and smaller accounts. I'm happy to report that in Q1, we began fully rolling out this program, and it has already started producing results for us. The expanding installed lamp base, reduced sales force turnover, broader customer adoption, plus the possibility of expanded uses for Ameluz with the near-term label expansion in sBCC and AK in the trunk and extremities, as well as the advancement of the acne program, give us multiple vectors for continued growth and tailwinds for our business. I'm looking forward to updating you on our progress in the quarters ahead. With that, I'll hand the call over to Fred Leffler, our Chief Financial Officer, to walk through the financial results. Fred?

Thanks, George, and hello everybody — good morning. I'd like to take you through the numbers for our first quarter, which closed on March 31, 2026. Unless I say otherwise, everything I compare is against the same period a year ago. You can find a complete reconciliation between GAAP and non-GAAP figures in the press release that went out earlier today, and it's posted on our website as well. All right, let's begin with how Q1 2026 turned out. Revenue came in at roughly $10.1 million, versus about $8.6 million during the first quarter of 2025 — that's a 17% gain. Most of that gain came from a 16% rise in Ameluz unit volume, plus the effect of the price increase we put in place during the fourth quarter of 2025, which added roughly $0.2 million of revenue. This marked the first complete quarter showing our new cost structure following the strategic transaction I mentioned before, and our cost of revenues dropped by around 40% compared to a year earlier, going from $3.1 million down to $1.8 million. Thanks to the new earnout agreement, our cost of revenue as a share of product revenue fell sharply relative to the 25% transfer price that applied back in Q1 of 2025. During this quarter, we recorded $1.2 million of earnout expense tied to that new agreement. Consequently, gross profit on product sales rose substantially, with gross margin reaching approximately 80%, versus 62% a year earlier in the first quarter of 2025 — an 18% improvement. That aligns with the annualized benefit we anticipated from the new cost structure, which will show up across all of 2026 and is moving us toward our longer-term gross margin goal of 80% to 85%. Total operating expenses for Q1 2026 came to $14.4 million, compared with $13.1 million in the first quarter of 2025. Leaving out cost of revenues, operating expenses were $12.3 million, against $9.9 million a year earlier. Operating expenses this quarter include $0.4 million for patent remediation, and I'll say more about that when I cover operating loss. Selling, general and administrative expenses totaled $11.0 million in the first quarter of 2026, up from $8.7 million in the same quarter last year — a $2.3 million increase, or roughly 27%. Let me go through the main pieces and call them out. Selling and marketing expenses rose by about $0.8 million, which reflects having our direct sales team fully in place along with more sales activity, such as sales meetings, conferences and exhibits. General and administrative expenses also went up by roughly $0.8 million, mostly because of legal costs tied to ongoing patent-related claims. On top of that, as part of the strategic transaction, we took on responsibility for manufacturing operations in the fourth quarter of 2025. Since we're currently working to obtain the approvals and licenses needed to start manufacturing later in 2026, those manufacturing-related costs of $0.6 million showed up in SG&A this quarter. Research and development expenses fell by $0.3 million, landing at $0.9 million for the first quarter of 2026, compared with $1.2 million in the prior year quarter. The drop mostly came from some clinical trials hitting major completion milestones in the quarter. Also in that quarter, we put money into our development programs for AK, acne, superficial basal cell carcinoma, and lamps. Our operating loss for Q1 2026 came to $4.3 million, versus a $4.5 million loss in Q1 2025. That quarter included $0.4 million in patent remediation expense, which we strip out since it stems from specific negative legal and regulatory issues that don't reflect how the company is performing operationally on an ongoing basis. If you take out that expense, our underlying operating loss for Q1 2026 would have come in at roughly $3.9 million, which is a $0.7 million improvement, thanks to a $2.7 million bump in gross profit that was partly offset by a $2.3 million rise in SG&A. Net loss for Q1 2026 totaled $4.8 million, or $0.41 per share, versus a net loss of $4.2 million, or $0.47 per share, in the same quarter a year earlier. Two nonrecurring items affected that net loss comparison: the patent remediation I mentioned a moment ago, plus a $0.8 million swing in the noncash change in fair value — specifically the fair value of warrant liabilities, which went from a $0.5 million gain in Q1 2025 to a $0.2 million loss in Q1 2026. Once you adjust for those items, the underlying gain shows up in our adjusted EBITDA, which I'll get to now. Moving to adjusted EBITDA, our non-GAAP metric, Q1 was negative $3.6 million, versus negative $4.4 million in the same quarter last year — an improvement of about $0.8 million. Our adjusted EBITDA margin went from negative 51% a year earlier to negative 35%. That gain was mainly due to the $2.7 million increase in gross profit, offset by the $2.3 million increase in SG&A. Keep in mind that adjusted EBITDA leaves out interest, taxes, depreciation and amortization, plus certain other nonrecurring or noncash items, such as changes in fair value of warrant liabilities, stock-based comp, the patent remediation expense, and inventory write-down recognized during the quarter. You can find a full reconciliation from GAAP net loss to adjusted EBITDA in the press release we filed earlier today, and it will also be filed as part of our Form 10-Q. Now let's move to the balance sheet and liquidity. As of March 31, 2026, our cash and cash equivalents stood at $6.3 million, versus $6.4 million as of December 31, 2025. Cash used in operating activities during Q1 was only $70,000, compared with $4.1 million in the same quarter the previous year. This near breakeven cash result marks a dramatic improvement, and it reflects the combined effect of higher revenues, the much lower cost structure under the new earnout agreement, and favorable working capital changes, including a $3.4 million collection of accounts receivable. As we've disclosed in our filings, the company has included a going concern qualification in its statements. Even though we've shown substantial movement toward breaking even on cash flow, the capital we have on hand means we still need to keep growing our commercial activities and keep a tight grip on costs. Our approach to handling that involves ongoing growth in Ameluz revenue, collecting the upcoming $1 million milestone from the Xepi divestiture completed in 2025, and, should the need arise, obtaining a working capital line of credit or something similar. That wraps up our look at the financial results and business activities, so we're ready now to field questions from the analysts who cover us. Operator?

Regarding what you may be aware of concerning off-label usage...

Alright. Are you able to hear me at this point?

Congratulations on a solid quarter. Could you fellows assist me in grasping how much off-label use exists, probably into what's least risky, which is AK on the extremities? Do you possess any reasonable idea about Ameluz' utilization beyond what's indicated on label?

Yes. Some off-label use definitely occurs. But because certain payers are rather touchy about that and will not reimburse physicians who do so, doctors tend to be reluctant to engage in off-label use; thus the — though no clear figures are available to us, we would not anticipate that the present off-label use outside AK on the face and scalp, at least within the AK business, is large.

All right. Could you help us understand the possible paths that the acne program, and any later clinical work in acne, might take? In other words, do you fully anticipate being ready right now for a Phase III study? Or is it your view that some Phase II work might actually be required once more?

It's hard to answer that, since this has to be talked over with the FDA. My belief is that another Phase II isn't necessary. In my view, we have gathered the data required to move ahead into Phase III. A fair amount has been learned, and the clinical findings line up nicely with the top other topical products available on the market. So our thinking is that, provided the FDA doesn't see things differently, a direct move into Phase III would be possible.

And Jonathan, let me also mention this: although we are aware of a certain amount of off-label usage, our approach is to promote the product strictly according to its label, and we make certain that each person at Biofrontera does the same, never promoting any application that falls outside the label.