Biofrontera Inc. (BFRI) Earnings Call Transcript

Good morning, and welcome to BioFrontera's conference call covering third quarter 2026 financial results and a business update. I'd like to note that some of the information management discusses on today's call falls under the safe harbor provisions of the Private Securities Litigation Reform Act. Forward-looking statements will be made by management, and because of risks and uncertainties tied to the company's business, actual results could differ materially from what those statements state or imply. On this call, forward-looking statements cover when and how well the Ameluz commercial launch for superficial basal cell carcinoma will go; the company's supplemental new drug application concerning actinic keratosis on the extremities, neck, and trunk; what the International Trade Commission orders will mean; the remediation plan and the RhodoLED XLC; results of appeals and patent proceedings now pending; the company's liquidity and whether it can keep operating as a going concern, plus how it intends to fix that situation; and whether the company meets NASDAQ's continued listing standards. All risks and uncertainties are spelled out and governed by the cautionary language found in BioFrontera's press releases and SEC filings — this includes the quarterly report on Form 10-Q covering the quarter that ended September 30, 2026, which the company anticipates filing later today, along with the annual report on Form 10-K covering the year that ended December 31, 2025. Furthermore, time-sensitive information is included in this conference call, and it holds true solely as of the moment of this live broadcast. BioFrontera assumes no duty to revise or update any forward-looking statements so they reflect events or circumstances arising after this conference call's date, unless the law demands it. Certain non-GAAP financial measures will be referenced during today's call. BioFrontera feels these metrics give investors helpful data, but they shouldn't be treated as a replacement for GAAP, and they also shouldn't be seen as a replacement for operating results calculated under GAAP. You can find a reconciliation from non-GAAP to GAAP figures in the press release we issued today, and it's posted on the company's website, www.biofrontera-us.com, in the investor relations section. Management will be referring to adjusted EBITDA, which is a non-GAAP financial measure—its definition is net loss before interest expense, net income taxes, depreciation and amortization, plus certain other non-recurring or non-cash items, including changes in fair value of warrant liabilities and of the related party investment, patent remediation expense, and ITC-related inventory write-downs, along with stock-based compensation. With that being said, I'd like to hand things over now to BioFrontera's Chairman, CEO, and Founder, Hermann Luebbert. Hermann, the floor is yours.

Yes, I’d been on mute. Thank you. Well, thanks, Ben. And thanks to all of you for being with us this morning. Can you hear me now? Good. So during the third quarter, what the company can sell and who it can sell to changed, with two events occurring within five days of each other in September. I want to begin with both of those before we get into the numbers. On September 9, the FDA approved Ameluz photodynamic therapy for treating superficial basal cell carcinoma in adults. That makes Ameluz the first PDT approved in the United States for treating a skin cancer. Until now, the approved use of our label covered only mild to moderate actinic keratosis located on the face and scalp. We have just gained a second indication. Superficial basal cell carcinoma makes up as much as 20% of all basal cell carcinomas, which are the most common cancers in the United States. Many of these patients currently receive surgical treatment. With Ameluz PDT, dermatologists gain a non-surgical choice offering a favorable cosmetic result, which they can provide through a red lamp already present in the office. Furthermore, we think that approval for treating a skin cancer will convince more physicians to adopt Ameluz PDT in their offices as a routine treatment and to purchase one of our red lamps. Next, on September 14 — four days after that preliminary BCC green light — U.S. Customs and Border Protection determined that our redesigned large field lamp, known as RhodoLED XLC, does not infringe the asserted claims of the Sun Pharmaceutical patents and falls outside the exclusion order issued by the International Trade Commission earlier in the year. Some context: those ITC orders became effective July 6. Starting then, the original RhodoLED XL could no longer be imported or sold by us, and Ameluz could not be sold for use with it. For customers who owned only the RhodoLED XL, purchasing Ameluz from us was temporarily impossible. Following the September 14 CBP ruling, we are now able to offer the RhodoLED XLC. That gives people who previously bought the RhodoLED XL a large 5-panel lamp that falls outside the ITC orders, and it sits alongside our smaller BF-RhodoLED lamp, which likewise is not subject to those orders. And naturally, we can continue supplying Ameluz to any customer who owns either an XLC or a BF-RhodoLED lamp. By September, the count of customers placing orders with us was back at where it stood a year earlier. During our previous call, I stated that our commercial plan would not be built around the hope of a courtroom win. That is exactly what happened. Our design work accounted for those patents, we secured a favorable ruling, the FDA raised no objections, and we're now handling remediation of the affected lamps out in the field—something we anticipate being largely finished by the close of Q2 2027. Beyond that, appeals are headed to the Federal Circuit: one challenging the Commission's determination, another challenging the Patent Office Director's decision. I'm not going to guess at the duration or the outcome of those appeals; this matter did hit us financially during the quarter. Fred will take you through the specifics, but the primary driver of our operating loss exceeding the second quarter's figure was legal fees, remediation costs, and inventory write-downs tied to the ITC matter. I view the bulk of that as the expense of putting the problem behind us rather than pipeline spending, since it offers the clearest view of how this company grows in 2027 and beyond. First, superficial basal cell carcinoma. Following FDA feedback on the marketing material we anticipate, we expect to begin commercializing Ameluz for sBCC, with a full launch in the first quarter of 2027. This launch will be introduced through the lamps already in customers' hands and via the dermatology sales channels we currently call on. George is going to walk through how we're getting ready. Next, actinic keratosis affecting the arms and legs, the neck, and the torso. We filed our supplemental new drug application in early October seeking to broaden the Ameluz label past the face and scalp, allowing treatment of AK across the whole body. The FDA has set a PDUFA date of August 5, 2027, and its initial review is now underway. AK is typically a condition caused by ultraviolet exposure and shows up on any part of the body that gets frequent sun. Those areas of the body may exceed the face and scalp in size, and our application covered a treatment field reaching 240 square centimeters, backed by the favorable Phase III data we reported earlier this year. Since PDT over larger regions tends to bring more discomfort, we submitted an illumination protocol to the FDA as well, which should lessen that pain. Roughly 58 million adults in America have one or more AK lesions, so addressing the extremities, neck, and trunk substantially broadens Ameluz usage across each of our customers' practices and on every lamp already deployed; that is the overall picture. Twelve months back, we had a single indication, and a transfer price was consuming between 25% and 35% of the revenue we brought in. As of today, the U.S. assets belong to us, we hold two approved indications, a third has been filed, and our lamp portfolio carries no ITC exclusion order. All of those indications go through the very same lamps and the very same sales force. At this point I'd like to hand things over to George Jones, our Chief Commercial Officer. George?

Thanks, Hermann, and good morning, everyone. Third-quarter product revenues came in at $9.1 million, roughly 30% higher than the same period a year ago. Ameluz unit volume rose about 23%, with the remainder of the growth driven by a price increase we put in place during the fourth quarter of '25, along with higher lamp sales in the quarter. During Q3, we sold roughly 25,120 tubes of Ameluz, which is up 23% from 20,380 in Q3 of 2025. Let me go a bit deeper into the results. In June and into early July, before the ITC orders took effect, quite a few customers bought Ameluz sooner than they otherwise would have. Those purchases gave us a fast start to the quarter; we made sure customers had ample supply of Ameluz to treat their patients while we worked on the remediation efforts Hermann discussed earlier; the stronger July simply reflected a shift in timing, and we believe that inventory was largely worked through by the end of Q3. It's important to keep in mind that the ITC orders affected only about 200 customers and 25% of our Ameluz sales volume, and our other customers were able to keep purchasing Ameluz as usual. Turning to lamps, we finished the quarter with an installed base of 853 lamps across 742 different dermatology offices. That includes roughly 12 of the small BF-RhodoLED lamps sold in Q3 to customers who wanted a BioFrontera red light but didn't want to wait until the XLC was available; that's good news. Once we received Customs and Border Protection approval, we started processing exchanges of the XLC lamps. They began shipping in Q3 but weren't installed until early October. Reflecting on the quarter, I'm particularly pleased with the progress on the remediation efforts Hermann mentioned. By placing both BF-RhodoLED and XLC lamps in offices that had previously purchased the XL lamps, we've been able to cut significantly the share of Ameluz sales affected by the ITC order, from approximately 25% of Ameluz volume down to just 10% of Ameluz sales volume today. On sales execution, I couldn't be more impressed with this BioFrontera team. They've never faced a challenge they couldn't overcome. We're seeing real momentum in our business. Every key sales metric was positive year-over-year, both in Q3 and across the first nine months of the year. In Q3, orders rose 6% year-over-year, tubes per order were up 21%, and new locations buying Ameluz grew by 11%, or 39% year-over-year. Looking at 2026 so far, tubes of Ameluz were up 23%, the number of orders was up 13%, and tubes per order were up 10% year-over-year. Beyond that, in 2026 we've seen lower turnover in our sales force and a positive effect from our new inside sales efforts, which is contributing to our overall results. Now turning to sBCC and getting ready to launch, I want to begin by noting that we've seen considerable early interest in learning more about Ameluz for superficial basal cell carcinoma, and our customers clearly believe this new indication offers meaningful differentiation between Ameluz red light PDT and our competitors. As was mentioned earlier, we're launching with a phased approach, and phase one is already underway. Let me highlight a few phase one items for you. We've started conversations with KOLs about the sBCC data and gotten excellent feedback. Our reimbursement strategy has been confirmed. As Hermann mentioned, we've submitted our marketing claims to the FDA for their feedback. Full product training begins this week, and our launch meeting is set for mid-January. Importantly, to support the launch, I want to reiterate that we'll rely on our current sales infrastructure and call on many of the same dermatology offices that are already equipped and ready to expand their utilization and offer their patients an innovative non-surgical option to treat their superficial basal cell carcinomas. We're looking forward to the fourth quarter and to finishing 2026 strong; with that, I'll turn the call over to Eugene Leffler, our Chief Financial Officer. Fred?

Thank you, George, and good morning everyone. I'll walk you through what we reported for the third quarter and the first nine months, both of which closed on September 30, 2026. Unless I note otherwise, each comparison is with the same period one year ago. A full reconciliation of GAAP to non-GAAP measures is available in the press release we filed earlier this morning, and it's posted on our website as well. All right, third quarter revenues were $9.1 million, compared with $7.0 million last year, a 29.8% increase. As George mentioned, volume grew 23.3%, which equates to approximately $1.6 million, and the rest came from the Q4 2025 price hike and stronger device sales. Essentially, that entire volume increase represents roughly $1.6 million in orders placed during early July, before the ITC effective date took hold; across the first nine months, revenue reached $31.2 million, a 26.6% gain versus $24.6 million. That growth reflects Ameluz unit volume expansion of about $5.5 million, including roughly $3.6 million related to accelerated order timing plus around $0.7 million attributable to the Q4 2025 price increase. For the quarter, cost of revenues was $2.3 million versus $2.0 million, which left us with gross profit of $6.7 million and a gross margin of 74.4%, compared with 70.7% a year ago — an improvement of roughly 370 basis points. That gain reflects the cost structure we put in place through the strategic transaction Hermann discussed earlier, namely Ameluz direct cost plus a 12% earn-out on net revenue. The third-quarter margin sits below the approximately 80% we posted in the first half, for a couple of reasons. To start, lamp and device costs came in $0.4 million above expectations, reflecting stronger XL sales along with $0.3 million in RhodoLED lamp inventory write-downs. That figure includes a $0.2 million write-down on XL long-term raw materials and work in process. Gross margin for the nine months reached 78.0%, up from 67.7% a year earlier. Selling, general, and administrative expenses—counting the related party line—were $12.5 million this quarter versus $10.4 million last year, a rise of $2.1 million. The main drivers were a $1.1 million increase in general and administrative expense—largely $0.9 million in greater legal fees tied to the ITC matter—along with $0.7 million of costs in lamp manufacturing and in regulatory and product affairs, functions we assumed through last year's strategic transaction. There was also $0.5 million of higher direct sales expense, specifically commissions on greater Ameluz volumes, which were partially offset by $0.3 million of reductions in related party SG&A; for the nine months, SG&A came to $33.2 million versus $29.6 million, an increase of $3.5 million. R&D spending came in at $0.5 million for the quarter versus $0.9 million, and at $1.8 million across the nine months compared with $2.9 million — a drop that shows our clinical trials are now largely finished. That works out to $0.89 per share. Patent remediation set us back $0.3 million in the quarter, and $0.7 million across the nine months. Now I'd like to walk you through the total expense associated with the ITC matter so far, excluding legal fees, since those appear across a number of separate line items. As of September 30, we had recorded $1.1 million in aggregate charges, consisting of $0.6 million of accrued remediation costs and $0.5 million in inventory write-downs. Within those remediation expenses, inventory in the program represented $0.2 million, while $0.4 million had either been paid already or is still owed in cash. The net loss for the quarter was $6.4 million, or $0.42 per share, versus a net loss of $6.6 million, or $0.62 per share, in the prior year. For the nine months, net loss came to $11.8 million, or $1.67 per share, compared with $16.2 million in 2025. Adjusted EBITDA for the quarter was negative $5.5 million versus negative $6.0 million, and our adjusted EBITDA margin was negative 60.2% against a negative margin of 80.7% last year; over the nine months, adjusted EBITDA was negative $9.3 million versus negative $15.5 million, with a margin of negative 29.7% compared to negative 63.0%. The third quarter is seasonally our weakest, and this year it also absorbed some ITC legal spend, which we did not add back into adjusted EBITDA. Turning to the balance sheet and liquidity, cash and cash equivalents stood at $3.2 million as of September 30, 2026, compared with $6.4 million at December 31, 2025. Operating cash usage for the first nine months of 2026 was $3.2 million, versus $11.0 million in the same period a year earlier. Liabilities totaled $21.7 million, up from $18.1 million at the end of 2025. Our only outstanding debt is roughly $4.7 million in convertible notes on a net basis, due in November 2027. We carry no bank debt and no long-term debt. Following Q3, stockholders' deficit was $0.2 million as of September 30, 2026. That puts us currently below NASDAQ's minimum stockholders' equity threshold, though we expect to file our Form 10-K and intend to submit a compliance plan if needed. I'd also like to address the going concern disclosure head-on. In the Form 10-Q we plan to file later today, management has concluded that substantial doubt exists about the company's ability to continue as a going concern for at least 12 months after that filing is issued. Our plan to address this has four components, all of which the Form 10-Q will detail: first, continuing to grow Ameluz revenue—Q4 is usually our strongest quarter—including support from the sBCC launch while we keep expenses under control; second, securing a working line of credit and drawing on it; third, the next $1.0 million milestone payment from the Zepi divestiture, which we expect in December, contingent on the purchaser hitting certain milestones; and fourth, if needed, raising more capital through equity or debt. Some of these factors are beyond what we can influence, and those plans have not cleared up the substantial uncertainty. With that, our rundown of the financial results is finished, and we're ready to take questions from the analysts who follow us. Earnings came in at $0.89 per share.

Hello, good morning, and thank you for taking my questions. I'd like to examine the operating expense profile as we head into the fourth quarter. The third quarter included several special charges. Where do you expect that core rate for cost of goods sold to land? And what kind of gross margins should we anticipate? On SG&A, could you perhaps provide a rough indication of how that might turn out?

Yes, thanks for the question. As for gross profit, I anticipate it returning to roughly our 80% mark. Nothing that I know of in the fourth quarter ought to drive it lower the way the charges did in Q3. On SG&A, apart from the legal items I mentioned, we've generally done an excellent job controlling our costs and doing what's necessary to support the business. I expect that to carry on, and we'll handle the legal costs as required.