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Item 1A. Risk Factors

2023-03-13 compared with 2022-04-11 · 1415 added, 1435 removed, 359 unchanged (89% of the section changed)

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We have listed

below (not necessarily in order of importance or probability of occurrence) the most significant risk factors applicable to us, but they

below (in order of importance or probability of occurrence) the most significant risk factors applicable to us, but they

do not constitute all of the risks that may be applicable to us.

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Related to the License and Supply Agreements and our Licensed Products

Currently, our sole source of revenue is from sales of products

we license from other companies.

If we fail to comply with our obligations in the agreements under which we license rights

from such third parties, or if the license agreements are terminated for other reasons, we could lose license rights that are important

to our business.

Certain important patents for our licensed product Ameluz ® expired in 2019.

Although the process of developing generic topical dermatological products for the first time presents specific challenges that may deter potential generic competitors, generic versions of Ameluz ® may enter the market following the recent expiration of these patents.

If this happens, we may need to reduce the price of Ameluz ® significantly and may lose significant market share.

Our business depends substantially on the success of our principal

licensed product Ameluz ® .

If the Ameluz Licensor is unable to successfully obtain and maintain regulatory approvals

or reimbursement for Ameluz ® for existing and additional indications, our business may be materially harmed.

The Ameluz Licensor currently depends on a single unaffiliated

contract manufacturer to manufacture Ameluz ® and has recently contracted with a second unaffiliated contract manufacturer

to begin producing Ameluz ® .

If the Ameluz Licensor fails to maintain its relationships with these manufacturers

or if both of these manufacturers are unable to produce product for the Ameluz Licensor, our business could be materially

If our Licensors or our Licensors’ manufacturing partners, as applicable, fail to manufacture Ameluz ® , RhodoLED ® lamps, Xepi ® or other marketed products in sufficient quantities and at acceptable quality and cost levels, or to fully comply with current good manufacturing practice, or cGMP, or other applicable manufacturing regulations, we may face a bar to, or delays in, the commercialization of the products under license to us or we will be unable to meet market demand, and lose potential revenues.

The Biofrontera Group has been involved in lawsuits to defend or enforce patents related to our licensed products and they or another licensor may become involved in similar suits in the future, which could be expensive, time-consuming and unsuccessful.

our sole source of revenue is from sales of products we license from other companies.

If we fail to comply with our obligations in

the agreements under which we license rights from such third parties, or if the license agreements are terminated for other reasons,

we could lose license rights that are important to our business.

important patents for our licensed product Ameluz ® expired in 2019.

Although the process of developing generic topical

dermatological products for the first time presents specific challenges that may deter potential generic competitors, generic versions

of Ameluz ® may enter the market following the recent expiration of these patents.

If this happens, we may need to

reduce the price of Ameluz ® significantly and may lose significant market share.

business depends substantially on the success of our principal licensed product Ameluz ® .

If the Ameluz Licensor is

unable to successfully obtain and maintain regulatory approvals or reimbursement for Ameluz ® for existing and additional

indications, our business may be materially harmed.

Ameluz Licensor currently depends on a single unaffiliated contract manufacturer to manufacture Ameluz ® and has contracted with a second unaffiliated contract manufacturer to begin producing Ameluz ® .

If the Ameluz Licensor fails

to maintain its relationships with these manufacturers or if both of these manufacturers are unable to produce product for the Ameluz

Licensor, our business could be materially harmed.

our Licensors or our Licensors’ manufacturing partners, as applicable, fail to manufacture Ameluz ® , RhodoLED ®

lamps, Xepi ® or other marketed products in sufficient quantities and at acceptable quality and cost levels,

or to fully comply with current good manufacturing practice, or cGMP, or other applicable manufacturing regulations, we may face

a bar to, or delays in, the commercialization of the products under license to us or we will be unable to meet market demand, and

lose potential revenues.

Biofrontera Group has been involved in lawsuits to defend or enforce patents related to our licensed products and they or another

licensor may become involved in similar suits in the future, which could be expensive, time-consuming and unsuccessful.

Related to Our Business and Strategy

The COVID-19 global pandemic has continued to negatively affect our sales and operations and may continue to do so.

Insurance coverage and medical expense reimbursement may be limited or unavailable in certain market segments for our licensed products, which could make it difficult for us to sell our licensed products.

We are fully dependent on our collaboration with the Ameluz Licensor

for our supply of Ameluz ® and RhodoLED ® lamps and future development of the Ameluz ®

product line, on our collaboration with Ferrer for our supply of Xepi ® and future development of Xepi ®

and may depend on the Ameluz Licensor, Ferrer or additional third parties for the supply, development and commercialization

of future licensed products or product candidates.

Although we have the authority under the Ameluz LSA with respect to the indications

that the Ameluz Licensor is currently pursuing with the FDA (as well as certain other clinical studies identified in the Ameluz

LSA) in certain circumstances to take over clinical development, regulatory work and manufacturing from the Ameluz Licensor

if they are unable or unwilling to perform these functions appropriately, the sourcing and manufacture of our licensed products as

well as the regulatory approvals and clinical trials related to our licensed products are currently controlled, and will likely continue

to be controlled for the foreseeable future, by our existing and future collaborators.

Our lack of control over some of these functions

could adversely affect our ability to implement our strategy for the commercialization of our licensed products.

Healthcare legislative changes may have a material adverse effect on our business and results of operations.

We face significant competition from other pharmaceutical and medical device companies and our operating results will suffer if we fail to compete effectively.

We also must compete with existing treatments, such as simple curettage and cryotherapy, which do not involve the use of a drug but have gained significant market acceptance.

COVID-19 global pandemic still affects our business and presents new challenges.

coverage and medical expense reimbursement may be limited or unavailable in certain market segments for our licensed products, which

could make it difficult for us to sell our licensed products.

are fully dependent on our collaboration with the Ameluz Licensor for our supply of Ameluz ® and RhodoLED ®

lamps and future development of the Ameluz ® product line, on our collaboration with Ferrer for our supply of

Xepi ® and future development of Xepi ® and may depend on the Ameluz Licensor, Ferrer or additional third

parties for the supply, development and commercialization of future licensed products or product candidates.

Although we have the

authority under the Ameluz LSA with respect to the indications that the Ameluz Licensor is currently pursuing with the FDA (as well

as certain other clinical studies identified in the Ameluz LSA) in certain circumstances to take over clinical development, regulatory

work and manufacturing from the Ameluz Licensor if they are unable or unwilling to perform these functions appropriately, the sourcing

and manufacture of our licensed products as well as the regulatory approvals and clinical trials related to our licensed products

are currently controlled, and will likely continue to be controlled for the foreseeable future, by our existing and future collaborators.

Our lack of control over some of these functions could adversely affect our ability to implement our strategy for the commercialization

of our licensed products.

legislative changes may have a material adverse effect on our business and results of operations.

face significant competition from other pharmaceutical and medical device companies and our operating results will suffer if we fail

to compete effectively.

We also must compete with existing treatments, such as simple curettage and cryotherapy, which do not involve

the use of a drug but have gained significant market acceptance.

market size for Ameluz ® for the treatment of actinic keratosis may be smaller than we have estimated.

If our Licensors face allegations of noncompliance with the law and encounter sanctions, their reputation, revenues and liquidity may suffer, and our licensed products could be subject to restrictions or withdrawal from the market.

Even if our Licensors obtain regulatory approvals for our licensed products and product candidates, or approvals extending their indications, they may not gain market acceptance among hospitals, physicians, health care payors, patients and others in the medical community.

A recall of our licensed drug or medical device products, or the discovery of serious safety issues with our licensed drug or medical device products, could have a significant negative impact on us.

Our licensed medical device product, the RhodoLED ® lamp, is subject to extensive governmental regulation, and failure to comply with applicable requirements could cause our business to suffer.

We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may be unable to successfully implement our business strategy.

Our business and operations would suffer in the event of system failures, cyber-attacks or a deficiency in our cyber-security.

our Licensors face allegations of noncompliance with the law and encounter sanctions, their reputation, revenues and liquidity may

suffer, and our licensed products could be subject to restrictions or withdrawal from the market.

if our Licensors obtain regulatory approvals for our licensed products and product candidates, or approvals extending their indications,

they may not gain market acceptance among hospitals, physicians, health care payors, patients and others in the medical community.

recall of our licensed drug or medical device products, or the discovery of serious safety issues with our licensed drug or medical

device products, could have a significant negative impact on us.

licensed medical device product, the RhodoLED ® lamp, is subject to extensive governmental regulation, and failure

to comply with applicable requirements could cause our business to suffer.

are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we

may be unable to successfully implement our business strategy.

business and operations would suffer in the event of system failures, cyber-attacks or a deficiency in our cyber-security.

Related to Our Financial Position and Capital Requirements

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profitability.

we fail to obtain additional financing, we may be unable to pursue our plans for strategic growth, including completing the

commercialization of Xepi ® and other products we may license.

we fail to obtain additional financing, we may be unable to pursue our plans for strategic growth, including completing the commercialization

of Xepi ® and other products we may license.

Our existing and any future indebtedness could adversely affect our ability

to operate our business.

The valuation of our equity investments is subject to volatility.

Related to Corporate Governance, Including Being a Public Company

We have identified a

material weakness in our internal control over financial reporting, resulting from control deficiencies related to management’s

review of work performed by specialists.

If we are unable to remediate this material weakness, or if we identify

previously identified a material weakness in our internal control over financial reporting, resulting from control deficiencies related

to management’s review of work performed by specialists.

If we identify

additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be

able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and

We have incurred, and will continue to incur,

increased costs as a result of operating as a public company, and our management is required to devote substantial time to

compliance with our public company responsibilities and corporate governance practices.

As a result of becoming a public company, we are obligated to

develop and maintain proper and effective internal controls over financial reporting and any failure to maintain the adequacy of

these internal controls may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We are an emerging growth company and smaller reporting company we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies or smaller reporting companies will make our common stock less attractive to investors.

have incurred, and will continue to incur, increased costs as a result of operating as a public company, and our management is required

to devote substantial time to compliance with our public company responsibilities and corporate governance practices.

a result of becoming a public company, we are obligated to develop and maintain proper and effective internal controls over financial

reporting and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company

and, as a result, the value of our common stock.

are an emerging growth company and smaller reporting company we cannot be certain if the reduced disclosure requirements applicable

to emerging growth companies or smaller reporting companies will make our common stock less attractive to investors.

Related to Our Securities and the Ownership of Our Common Stock

As of December 31, 2021 , Biofrontera

AG beneficially owns 46.8% of our outstanding shares of common stock and will be able to exert significant control over matters subject

to stockholder approval and its interests may conflict with ours or other stockholders in the future.

of December 31, 2022, Biofrontera AG beneficially owns 30.0% of our outstanding shares of common stock and will be able to exert

significant control over matters subject to stockholder approval and its interests may conflict with ours or other stockholders in

sales and issuances of our common stock or rights to purchase our common stock, including pursuant to our equity incentive plans,

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stock to decline.

we fail to regain compliance with applicable listing standards, our common stock and/or our publicly-traded warrants could be delisted

stockholder rights plan, or “poison pill,” includes terms and conditions which could discourage a takeover or other transaction

that stockholders may consider favorable.

charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market

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lose license rights that are important to our business.

We are a party to license agreements with Biofrontera

Pharma and Biofrontera Bioscience (for Ameluz ® and the RhodoLED ® lamp series) and with Ferrer

(for Xepi ® ) and expect to enter into additional licenses in the future.

Our existing license agreements impose, and we

expect that future license agreements will impose, on us various development, regulatory diligence obligations, payment of milestones

or royalties and other obligations.

If we fail to comply with our obligations under our license agreements, or we are subject to a bankruptcy

or insolvency, the licensor may have the right to terminate the license.

In the event that any of our existing or future important licenses

were to be terminated by the licensor, we would likely need to cease further commercialization of the related licensed product or be

required to spend significant time and resources to modify the licensed product to not use the rights under the terminated license.

the case of marketed products that depend upon a license agreement, we could be required to cease our commercialization activities, including

sale of the affected product.

For a summary of the terms of the license agreements, see “ Business—Commercial Partners

and Agreements ”.

are a party to license agreements with Biofrontera Pharma and Biofrontera Bioscience (for Ameluz ® and the RhodoLED ®

lamp series) and with Ferrer (for Xepi ® ) and expect to enter into additional licenses in the future.

license agreements impose, and we expect that future license agreements will impose, on us various development, regulatory diligence

obligations, payment of milestones or royalties and other obligations.

If we fail to comply with our obligations under our license agreements,

or we are subject to a bankruptcy or insolvency, the licensor may have the right to terminate the license.

In the event that any of our

existing or future important licenses were to be terminated by the licensor, we would likely need to cease further commercialization

of the related licensed product or be required to spend significant time and resources to modify the licensed product to not use the

rights under the terminated license.

In the case of marketed products that depend upon a license agreement, we could be required to cease

our commercialization activities, including sale of the affected product.

For a summary of the terms of the license agreements, see “ Business—Commercial

Partners and Agreements ”.

may arise between us and any of our Licensors regarding intellectual property subject to such agreements, including:

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market share for Ameluz ® .

The Ameluz Licensor holds another patent

family protecting the technology relating to nanoemulsions for which they have been issued patents in various jurisdictions and which

expire in December 2027.

Ameluz Licensor holds another patent family protecting the technology relating to nanoemulsions for which they have been issued patents

in various jurisdictions and which expire in December 2027.

A corresponding U.S.

patent application has been filed by the Ameluz Licensor but is still pending.

cannot guarantee that this U.S.

patent will be issued or, if issued, will adequately protect us against copying by competitors.

See “ Business—Intellectual

Property ” for more information on the patents held by the Ameluz Licensor.

Our business depends substantially on the success

of our principal licensed product Ameluz ® .

If the Ameluz Licensor is unable to successfully obtain and maintain

regulatory approvals or reimbursement for Ameluz ® for existing and additional indications, our business may be materially

Although the Ameluz

Licensor has received marketing approval in the United States for Ameluz ® for lesion- and field-directed treatment

of actinic keratosis in combination with photodynamic therapy using the BF-RhodoLED ® lamp series, there remains

a significant risk that we will fail to generate sufficient revenue or otherwise successfully commercialize the product in the United

The success of our product will depend on several factors, including:

successful completion of further clinical trials by the Ameluz Licensor;

receipt by the Ameluz Licensor of further regulatory approvals,

including for the marketing of Ameluz ® for additional indications;

the contract manufacturing facility maintaining regulatory compliance;

compliance with applicable law for our sales force and marketing efforts;

the contract manufacturing facility manufacturing sufficient quantities in acceptable quality;

the Ameluz Licensor sourcing sufficient quantities of raw materials

used to manufacture our licensed products;

continued acceptable safety and effectiveness profiles for our licensed products;

the Ameluz Licensor obtaining and maintaining patent and trade

secret protection and regulatory exclusivity;

the Ameluz Licensor protecting its intellectual property rights.

the Ameluz Licensor does not achieve one or more of these factors in a timely manner, or at all, we could experience significant

delays or an inability to successfully commercialize our licensed products, which would materially harm our business and we may not be

able to earn sufficient revenue and cash flows to continue our operations.

patent application has been filed by the Ameluz Licensor

but is still pending.

We cannot guarantee that this U.S.

patent will be issued or, if issued, will adequately protect us against copying

by competitors.

business depends substantially on the success of our principal licensed product Ameluz ® .

If the Ameluz Licensor is unable

to successfully obtain and maintain regulatory approvals or reimbursement for Ameluz ® for existing and additional indications,

our business may be materially harmed.

the Ameluz Licensor has received marketing approval in the United States for Ameluz ® for lesion- and field-directed treatment

of actinic keratosis in combination with photodynamic therapy using the BF-RhodoLED ® lamp series, there remains a significant

risk that we will fail to generate sufficient revenue or otherwise successfully commercialize the product in the United States.

of our product will depend on several factors, including:

completion of further clinical trials by the Ameluz Licensor;

by the Ameluz Licensor of further regulatory approvals, including for the marketing of Ameluz ® for additional indications;

contract manufacturing facility maintaining regulatory compliance;

with applicable law for our sales force and marketing efforts;

contract manufacturing facility manufacturing sufficient quantities in acceptable quality;

Ameluz Licensor sourcing sufficient quantities of raw materials used to manufacture our licensed products;

acceptable safety and effectiveness profiles for our licensed products;

Ameluz Licensor obtaining and maintaining patent and trade secret protection and regulatory exclusivity;

Ameluz Licensor protecting its intellectual property rights.

the Ameluz Licensor does not achieve one or more of these factors in a timely manner, or at all, we could experience significant delays

or an inability to successfully commercialize our licensed products, which would materially harm our business and we may not be able

to earn sufficient revenue and cash flows to continue our operations.

the Ameluz Licensor received approval from the FDA to market in the United States Ameluz ® in combination with photodynamic

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on October 21, 2021) or obtain any such new approval.

Ameluz Licensor currently depends on a single unaffiliated contract manufacturer to manufacture Ameluz ® and has

recently contracted with a second unaffiliated contract manufacturer to begin producing Ameluz ® .

If the Ameluz Licensor

fails to maintain its relationships with these manufacturers or if both of these manufacturers are unable to produce product for

the Ameluz Licensor, our business could be materially harmed.

Pursuant to the Ameluz LSA, the Ameluz Licensor

supplies us with Ameluz ® .

The Ameluz Licensor currently depends on a single unaffiliated contract manufacturer located

in Switzerland to manufacture Ameluz ® , Glaropharm AG, and has recently signed an agreement with a second unaffiliated

contract manufacturer located in Germany, Pharbil Waltrop GmbH, to begin to supply it with Ameluz ® to ensure stability

of the supply chain.

If the Ameluz Licensor fails to maintain its relationships with both of these manufacturers or if the Ameluz

Licensor fails to maintain its relationship with its current manufacturer and the second manufacturer has not yet completed the necessary

steps to begin manufacturing Ameluz ® , the Ameluz Licensor may be unable to obtain an alternative manufacturer of

Ameluz ® that could deliver the quantity of the product at the quality and cost levels that we require.

If the Ameluz Licensor fails to

maintain its relationships with these manufacturers or if both of these manufacturers are unable to produce product for the Ameluz Licensor,

our business could be materially harmed.

to the Ameluz LSA, the Ameluz Licensor supplies us with Ameluz ® .

The Ameluz Licensor currently depends on a single unaffiliated

contract manufacturer located in Switzerland to manufacture Ameluz ® , Glaropharm AG, and has signed an agreement

with a second unaffiliated contract manufacturer located in Germany, Pharbil Waltrop GmbH, to begin to supply it with Ameluz ®

to ensure stability of the supply chain.

If the Ameluz Licensor fails to maintain its relationships with both of these manufacturers

or if the Ameluz Licensor fails to maintain its relationship with its current manufacturer and the second manufacturer has not yet completed

the necessary steps to begin manufacturing Ameluz ® , the Ameluz Licensor may be unable to obtain an alternative manufacturer

of Ameluz ® that could deliver the quantity of the product at the quality and cost levels that we require.

Even if an acceptable

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market and could increase costs, particularly

if the Ameluz Licensor is unable to obtain Ameluz ® from alternative sources on a timely basis or on commercially

reasonable terms.

In addition, each manufacturer is regulated by the country in which it is located and by the FDA and must comply with

applicable laws and regulations.

Finding a suitable replacement of these particular partners would therefore be extremely difficult for

the Ameluz Licensor.

If the Ameluz Licensor lost these manufacturers, this could have a material adverse effect on our business,

prospects, financial condition and/or results of operations.

if the Ameluz Licensor is unable to obtain Ameluz ® from alternative sources on a timely basis or on commercially reasonable

In addition, each manufacturer is regulated by the country in which it is located and by the FDA and must comply with applicable

laws and regulations.

Finding a suitable replacement of these particular partners would therefore be extremely difficult for the Ameluz

If the Ameluz Licensor lost these manufacturers, this could have a material adverse effect on our business, prospects, financial

condition and/or results of operations.

If the suppliers fail to comply, this could harm our business.

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products are manufactured by single unaffiliated contract manufacturers.

Our Licensors would each need to spend substantial

time and expense to replace their respective contract manufacturer if such contract manufacturer failed to deliver products in the quality

and quantities we demand or failed to meet any regulatory or cGMP requirements.

Our Licensors take precautions to help safeguard their

respective manufacturing facilities, including acquiring insurance and performing on site audits.

However, vandalism, terrorism or a

natural or other disaster, such as a fire or flood, could damage or destroy manufacturing equipment or the inventory of raw material

or finished goods, cause substantial delays in operations, result in the loss of key information, and cause additional expenses.

Licensors’ insurance may not cover losses related to our licensed products in any particular case.

In addition, regardless of the

level of insurance coverage, damage to our Licensors’ facilities may have a material adverse effect on our business, financial

condition and operating results.

Our Licensors would each need to spend substantial time and

expense to replace their respective contract manufacturer if such contract manufacturer failed to deliver products in the quality and

quantities we demand or failed to meet any regulatory or cGMP requirements.

Our Licensors take precautions to help safeguard their respective

manufacturing facilities, including acquiring insurance and performing on site audits.

However, vandalism, terrorism or a natural or

other disaster, such as a fire or flood, could damage or destroy manufacturing equipment or the inventory of raw material or finished

goods, cause substantial delays in operations, result in the loss of key information, and cause additional expenses.

Our Licensors’

insurance may not cover losses related to our licensed products in any particular case.

In addition, regardless of the level of insurance

coverage, damage to our Licensors’ facilities may have a material adverse effect on our business, financial condition and operating

while our Licensors take reasonable precautions to ensure the successful production of our commercially licensed products, their contract

manufacturers may experience a myriad of business difficulties (i.e.

workforce instability, supply chain issues, erosion of customer

manufacturers may experience a myriad of business difficulties (i.e., workforce instability, supply chain issues, erosion of customer

base, etc.) that could impact their financial solvency.

Ferrer’s manufacturer of Xepi®

(Teligent, Inc.) filed for Chapter 11 bankruptcy on October 14, 2021, and on February 23, 2022 Teligent, Inc.

filed a motion to

convert their bankruptcy into a Chapter 7 liquidation.

We understand that Ferrer has concluded that whatever the outcome of the bankruptcy

or liquidation, whoever acquires the relevant assets of Teligent, Inc.

will not continue to manufacture Xepi ® .

is evaluating options for a new contract manufacturer for Xepi ® , but the process of engaging one or more new contract

manufacturers to replace Teligent, Inc.

will require significant time and expense, including the time it will take the new contract manufacturer(s)

to reach a level of production to meet our commercial needs.

Although we have inventory of Xepi ® on hand, we do not expect

it will be enough to complete the commercialization of Xepi ® in accordance with the originally planned timeline.

are any significant delays to, or changes in, our plans for the completion of the commercialization of Xepi ® , this could

have a material adverse effect on our business, prospects, financial condition and/or results of operations.

See “ Management’s

Discussion and Analysis of Financial Condition and Results of Operations—Key factors affecting our performance —Supply

Chain ” in this Form 10-K.

Ferrer’s manufacturer of Xepi ® (Teligent, Inc.) filed for

Chapter 11 bankruptcy on October 14, 2021, and on February 23, 2022 Teligent, Inc.

filed a motion to convert their bankruptcy into a

Chapter 7 liquidation.

Ferrer is in the process of qualifying a new third-party manufacturer in North America.

The process will require

significant time and expense, including the time it will take the new contract manufacturer to reach a level of production to meet our

commercial needs.

Although we have inventory of Xepi ® on hand, we do not expect it will be enough to complete the commercialization

of Xepi ® in accordance with the originally planned timeline.

If there are any significant delays to, or changes in, our

plans for the completion of the commercialization of Xepi ® , this could have a material adverse effect on our business,

prospects, financial condition and/or results of operations.

See “ Management’s Discussion and Analysis of Financial Condition

and Results of Operations—Key factors affecting our performance —Supply Chain ” in this Form 10-K.

Licensors’ manufacturing partners must comply with federal, state and foreign regulations, including FDA regulations governing

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addition, we are subject to regulations in various jurisdictions, including the Federal Drug Quality and Security Act and the Drug Supply

Chain Security Act in the United States, that require us to develop electronic systems to serialize, track, trace and authenticate units

Chain Security Act in the United States, which require us to develop electronic systems to serialize, track, trace and authenticate units

of our licensed products through the supply chain and distribution system.

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March 2018, DUSA Pharmaceuticals, Inc., or DUSA, brought a lawsuit against Biofrontera AG and its subsidiaries, including us, before

the District Court of Massachusetts (18-cv-10568-RGS) due to alleged infringement of its patents No.

9,723,991 (expired on May 16, 2019)

8,216,289 (expired on May 1, 2018) by sales of BF-RhodoLED ® lamps in the United States.

In July 2018, DUSA amended

its complaint to add claims of trade secret misappropriation by former employees who are now employed by us and are alleged to have misappropriated

documents that DUSA claims contained confidential information and/or trade secrets of DUSA, tortious interference with contractual relations

in connection with the hiring of former employees of DUSA and sales to former DUSA customers, and deceptive and unfair trade practices

related to the above claims.

For these claims, DUSA has asserted significant damages for profits allegedly lost by DUSA or alleged unjust

enrichment for profits gained by Biofrontera from sales of the BF-RhodoLED ® and Ameluz ® in the United States,

costs and attorneys’ fees, and supplemental damages for alleged willful infringement.

On November 29, 2021, before the trial began, we

entered into a confidential settlement and release agreement with the respect to the DUSA Litigation with DUSA.

See “ Commitments

and Contingencies—Legal proceedings ” in Note 23 to the audited financial statements as of and for the years ended

December 31, 2021 and 2020 as included in this Form 10-K

the District Court of Massachusetts (18-cv-10568-RGS) alleging patent infringement and other claims related to sales practices.

November 29, 2021, before the trial began, we entered into a confidential settlement and release agreement with the respect to the DUSA

Litigation with DUSA.

See “ Commitments and Contingencies—Legal proceedings ” in Note 24 to the audited financial

statements as of and for the years ended December 31, 2022 and 2021 as included in this Form 10-K

Biofrontera AG has agreed to pay a portion of the settlement, we remain jointly and severally liable to DUSA for the full settlement

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compel us to pay Biofrontera AG’s share.

If either we or Biofrontera AG violates the terms of the settlement agreement, this could

nullify the settlement and we may lose the benefits of the settlement and be liable for a greater amount.

If we become liable for more

than our agreed share of the aggregate settlement amount or the settlement is nullified, either of these events could have a material

adverse effect on our business, prospects, financial condition and/or results of operations.

If either we or Biofrontera AG violates the terms of the settlement agreement, this

could nullify certain aspects of the settlement and we may lose certain benefits of the settlement and be liable for a greater

If we become liable for more than our agreed share of the aggregate settlement amount, either of these events could have a

material adverse effect on our business, prospects, financial condition and/or results of operations.

As of December 31, 2022, the

Company has a receivable of $6.4 million due from Biofrontera AG for its share of the settlement amount.

Biofrontera Group has been involved in lawsuits to defend or enforce patents related to our licensed products and they or another licensor

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competitive position of our licensed products.

Our subsidiary and certain

third-party employees and our licensed patents are subject to foreign laws.

majority of the employees of Biofrontera AG, the parent company of the Ameluz Licensor, work in Germany and are subject to German

employment law.

Ideas, developments, discoveries and inventions made by such employees and consultants are subject to the provisions

of the German Act on Employees’ Inventions, which regulates the ownership of, and compensation for, inventions made by employees.

We face the risk that disputes can occur between Biofrontera AG and its employees or former employees pertaining to alleged non-adherence

to the provisions of this act that may impact our license depending on whether Biofrontera AG prevails or fails in any such dispute.

There is a risk that the compensation Biofrontera AG provided to employees who assign patents to them may be deemed to be insufficient

and Biofrontera AG may be required under German law to increase the compensation due to such employees for the use of the patents.

those cases where employees have not assigned their interests to Biofrontera AG, Biofrontera AG may need to pay compensation for the

use of those patents.

If Biofrontera AG is required to pay additional compensation or face other disputes under the German Act on Employees’

Inventions, the impact on our license could adversely affect our results of operations.

All employees of our wholly owned subsidiary, Bio-FRI GmbH, and a

majority of the employees of Biofrontera AG, the parent company of the Ameluz Licensor, work in Germany and are subject to German employment

Ideas, developments, discoveries and inventions made by such employees and consultants are subject to the provisions of the German

Act on Employees’ Inventions, which regulates the ownership of, and compensation for, inventions made by employees.

risk that disputes can occur between Biofrontera AG and its employees or former employees pertaining to alleged non-adherence to the

provisions of this act that may impact our license depending on whether Biofrontera AG prevails or fails in any such dispute.

a risk that the compensation Biofrontera AG provided to employees who assign patents to them may be deemed to be insufficient and Biofrontera

AG may be required under German law to increase the compensation due to such employees for the use of the patents.

In those cases where

employees have not assigned their interests to Biofrontera AG, Biofrontera AG may need to pay compensation for the use of those patents.

If Biofrontera AG is required to pay additional compensation or face other disputes under the German Act on Employees’ Inventions,

the impact on our license could adversely affect our results of operations.

international dealings with our Licensors may pose currency risks, which may adversely affect our operating results and net income.

Our operating results may be affected by volatility

in currency exchange rates and our ability to effectively manage our currency transaction risks.

In general, we conduct our business

with our Licensors and any third-party vendors in the local currency of the country in which such licensor or vendor operates.

not manage our foreign currency exposure in a manner that would eliminate the effects of changes in foreign exchange rates.

changes in exchange rates between these foreign currencies, the dollar and the euro will affect our selling, general and administrative,

related party, and the recorded levels of assets and liabilities held in a foreign currency and could result in exchange

losses in any given reporting period.

operating results may be affected by volatility in currency exchange rates and our ability to effectively manage our currency transaction

In general, we conduct our business with our Licensors and any third-party vendors in the local currency of the country in which

such licensor or vendor operates.

We do not manage our foreign currency exposure in a manner that would eliminate the effects of changes

in foreign exchange rates.

Therefore, changes in exchange rates between these foreign currencies, the dollar and the euro will affect

our selling, general and administrative, related party, and the recorded levels of assets and liabilities held in a foreign currency

and could result in exchange losses in any given reporting period.

the volatility of exchange rates, we can give no assurance that we will be able to effectively manage our currency transaction risks

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Related to Our Business and Strategy

COVID-19 global pandemic has continued to negatively affect our sales and operations and may continue to do so.

COVID-19 global pandemic still affects our business and presents new challenges.

the beginning of 2020, COVID-19 has become a global pandemic.

As a result of the measures implemented by governments around the world,

Biofrontera’s business operations have been directly affected.

In particular, there has been a significant decline in demand for

Biofrontera’s licensed products in the United States as a result of different priorities for medical treatments that emerged during

the COVID-19 pandemic, thereby causing a delay of many dermatological treatments and diagnosis.

Revenue from licensed product sales for

the fiscal year ended December 31, 2020 has declined by about 28.0% when compared to the fiscal year ended December 31, 2019.

our revenue from product sales for the year ended December 31, 2021 increased 28% when compared to the year ended December 31, 2020,

we cannot guarantee that this trend will continue.

See “ Management’s Discussion and Analysis of Financial Condition and

Results of Operation—Key factors affecting our performance—COVID-19 ” for more information on the impact of the

COVID-19 pandemic on our operations.

As long as the impact of the COVID-19 pandemic continues, we may experience disruptions that could

severely impact our business, operations, sales and marketing, as well as our Licensors’ preclinical studies and clinical trials,

in demand for our licensed products due to reduced numbers of in-person meetings with prescribers, and patient visits with physicians,

resulting in fewer new prescriptions and reduced demand for licensed products used in procedures;

due to travel limitations and mobility restrictions;

difficulties or postponement in conducting our Licensors’ clinical trials;

in employee resources that would otherwise be focused on the conduct of our sales and marketing activities, including because of

sickness of employees or their families or the desire of employees to avoid contact with other individuals.

our company has implemented comprehensive cost reductions, emergency plans to maintain central processes and activities to protect employees,

there can be no guarantee that these measures will be able to offset the impact of COVID-19 on business and operations of Biofrontera

in the long term.

to the COVID-19 pandemic, it is currently impossible to make reliable forecasts about the future performance of our business.

to which the COVID-19 pandemic will continue to impact our business, research and development efforts, clinical trials, prospects for

regulatory approval for new indications for the products we license, sales, marketing and other operations will depend on future developments,

which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration

of the outbreak, the extent and duration of travel restrictions and social distancing in the United States, business closures or business

disruptions and the effectiveness of vaccines and other actions taken to contain and treat the disease.

In addition, a recession or market

correction resulting from the spread of the COVID-19 pandemic could materially affect our business prospects and the value of our securities.

are fully dependent on our collaboration with the Ameluz Licensor for our supply of Ameluz ® and RhodoLED ®

lamps and future development of the Ameluz ® product line, on our collaboration with Ferrer for our supply of Xepi ®

and future development of Xepi ® and may depend on the Ameluz Licensor, Ferrer or additional third parties

for the supply, development and commercialization of future licensed products or product candidates.

Although we have the authority under

the Ameluz LSA with respect to the indications that the Ameluz Licensor is currently pursuing with the FDA (as well as certain

other clinical studies identified in the Ameluz LSA) in certain circumstances to take over clinical development, regulatory work and

manufacturing from the Ameluz Licensor if they are unable or unwilling to perform these functions appropriately, the sourcing

and manufacture of our licensed products as well as the regulatory approvals and clinical trials related to our licensed products are

currently controlled, and will likely continue to be controlled for the foreseeable future, by our existing and future collaborators.

Our lack of control over some of these functions could adversely affect our ability to implement our strategy for the commercialization

of our licensed products.

We do not own or operate manufacturing facilities

for clinical or commercial manufacture of any of our licensed products.

We outsource all manufacturing and packaging of our licensed

products to our Licensors, who may in turn contract with third parties to provide these services.

We have no direct control over the

manufacturing process of our licensed products.

This lack of control may increase quality or reliability risks and could limit our ability

to quickly increase or decrease production rates.

See “—If our Licensors’ manufacturing partners fail to manufacture

Ameluz ® , RhodoLED ® lamps, Xepi ® or other marketed products in sufficient quantities and

at acceptable quality and cost levels, or to fully comply with current good manufacturing practice, or cGMP, or other applicable manufacturing

regulations, we may face a bar to, or delays in, the commercialization of the products under license to us or we will be unable to meet

market demand, and lose potential revenues” for more information on the risks related to the manufacture of our licensed products.

Although under the Ameluz LSA we are entitled to enter into a direct agreement with the Ameluz Licensor’s supplier under

certain circumstances, this is only with respect to the indications that the Ameluz Licensor is currently seeking from the FDA

(as well as certain other clinical studies identified in the Ameluz LSA) most of which are described in the section titled “—Our

Licensors’ Research and Development Programs—Current Clinical Trials for Ameluz ® for the U.S.

and there is no guarantee that we will be able to do so under terms similar to the Ameluz Licensor’s existing agreement

or without delays or difficulties, each of which could have an adverse impact on our business or results of operations.

We currently do not have the ability to conduct

any clinical trials.

Under the Ameluz LSA and the Xepi LSA, our Licensors’ control clinical development as well as the regulatory

approval process for our licensed products.

Our lack of control over the clinical development and regulatory approval process for our

licensed products could result in delays or difficulties in the commercialization of our licensed products and/or affect the development

of future indications for our licensed products.

Although under the Ameluz LSA we are entitled to take over clinical trial and regulatory

work under certain circumstances with respect to the indications that the Ameluz Licensor is currently seeking from the FDA (as

well as certain other clinical studies identified in the Ameluz LSA) and subtract the cost of the trials from the transfer price of Ameluz ® ,

there is no guarantee that we will be able to do so without delays or difficulties that could have an adverse impact on our business

or results of operations and we do not have that right with respect to indications for Ameluz ® that we may desire the

Ameluz Licensor to pursue in the future.

As a result of the measures implemented by governments around the

world, our business operations have been directly affected.

In particular, we experienced a significant decline in demand for our

licensed products as a result of different priorities for medical treatments emerging, thereby causing a delay of actinic keratosis

treatment for most patients.

Our revenue was directly affected by the global COVID-19 pandemic starting in mid-March of 2020.

that point on, rising infection rates and the resulting American Academy of Dermatology’s official recommendation to care for

patients through remote diagnosis and treatment (telehealth) led to significantly declining patient numbers and widespread, albeit

temporary, physician practice closures.

As COVID-19 vaccines started to roll-out to the general public in March 2021, we experienced

an increase in patients willing to undergo treatment for actinic keratosis.

In the fourth quarter of 2021 continuing through 2022,

we again saw a seasonally strong increase in sales, indicating a revenue recovery from the global COVID-19 pandemic.

optimistic that our business will continue to thrive throughout 2023 as a result of the COVID-19 PHE sunsetting on May 11, 2023.

However, the ultimate extent of the impact of any epidemic, pandemic, outbreak, or other public health crisis on our

business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be

predicted, including new information that may emerge concerning the severity of such epidemic, pandemic, outbreak, or other public

health crisis and actions taken to contain or prevent the further spread, including the effectiveness of vaccination and booster

vaccination campaigns, among others.

Accordingly, we cannot predict the extent to which our business, financial condition and

results of operations will continue to be affected.

We remain focused on maintaining a strong balance sheet, liquidity and financial

flexibility and continue to monitor developments as we deal with the disruptions and uncertainties from a business and financial

perspective relating to COVID-19 and variants thereof.

are fully dependent on our collaboration with the Ameluz Licensor for our supply of Ameluz ® and RhodoLED ® lamps

and future development of the Ameluz ® product line, on our collaboration with Ferrer for our supply of Xepi ®

and future development of Xepi ® and may depend on the Ameluz Licensor, Ferrer or additional third parties for the

supply, development and commercialization of future licensed products or product candidates.

Although we have the authority under the

Ameluz LSA with respect to the indications that the Ameluz Licensor is currently pursuing with the FDA (as well as certain other clinical

studies identified in the Ameluz LSA) in certain circumstances to take over clinical development, regulatory work and manufacturing from

the Ameluz Licensor if they are unable or unwilling to perform these functions appropriately, the sourcing and manufacture of our licensed

products as well as the regulatory approvals and clinical trials related to our licensed products are currently controlled, and will

likely continue to be controlled for the foreseeable future, by our existing and future collaborators.

Our lack of control over some

of these functions could adversely affect our ability to implement our strategy for the commercialization of our licensed products.

do not own or operate manufacturing facilities for clinical or commercial manufacture of any of our licensed products.

We outsource all

manufacturing and packaging of our licensed products to our Licensors, who may in turn contract with third parties to provide these services.

We have no direct control over the manufacturing process of our licensed products.

This lack of control may increase quality or reliability

risks and could limit our ability to quickly increase or decrease production rates.

See “—If our Licensors’ manufacturing

partners fail to manufacture Ameluz ® , RhodoLED ® lamps, Xepi ® or other marketed products

in sufficient quantities and at acceptable quality and cost levels, or to fully comply with current good manufacturing practice, or cGMP,

or other applicable manufacturing regulations, we may face a bar to, or delays in, the commercialization of the products under license

to us or we will be unable to meet market demand, and lose potential revenues” for more information on the risks related to

the manufacture of our licensed products.

Although under the Ameluz LSA we are entitled to enter into a direct agreement with the Ameluz

Licensor’s supplier under certain circumstances, this is only with respect to the indications that the Ameluz Licensor is currently

seeking from the FDA (as well as certain other clinical studies identified in the Ameluz LSA) and there is no guarantee that we will

be able to do so under terms similar to the Ameluz Licensor’s existing agreement or without delays or difficulties, each of which

could have an adverse impact on our business or results of operations.

currently do not have the ability to conduct any clinical trials.

Under the Ameluz LSA and the Xepi LSA, our Licensors’ control

clinical development as well as the regulatory approval process for our licensed products.

Our lack of control over the clinical development

and regulatory approval process for our licensed products could result in delays or difficulties in the commercialization of our licensed

products and/or affect the development of future indications for our licensed products.

Although under the Ameluz LSA we are entitled

to take over clinical trial and regulatory work under certain circumstances with respect to the indications that the Ameluz Licensor

is currently seeking from the FDA (as well as certain other clinical studies identified in the Ameluz LSA) and subtract the cost of the

trials from the transfer price of Ameluz ® , there is no guarantee that we will be able to do so without delays or difficulties

that could have an adverse impact on our business or results of operations and we do not have that right with respect to indications

for Ameluz ® that we may desire the Ameluz Licensor to pursue in the future.

addition, under the Ameluz LSA and the Xepi LSA, we are not obligated or tasked with the duty to defend the intellectual property related

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property related to our licensed products.

Biofrontera AG is

a significant stockholder of the Company and, as a result of its control of the manufacture, clinical development and regulatory approval

of Ameluz ® may exert greater influence on the Company relative to the percentage of its ownership of the Company’s

AG is a significant stockholder of the Company and, as a result of its control of the manufacture, clinical development and regulatory

approval of Ameluz ® may exert greater influence on the Company relative to the percentage of its ownership of the Company’s

outstanding common stock.

See “—Risks Related to Our Securities and Ownership of Our Common Stock— As of December

31, 2021, Biofrontera AG beneficially owns 46.8% of our stock after the completion of the initial public offering and will be

able to exert significant control over matters subject to stockholder approval, and its interests may conflict with ours or other

stockholders’ in the futur e” for

more information on the risks related to Biofrontera AG’s beneficial ownership of the Company’s common stock.

31, 2022, Biofrontera AG beneficially owns 30.0% of our stock after the completion of the initial public offering and will be able to

exert significant control over matters subject to stockholder approval, and its interests may conflict with ours or other stockholders’

in the future” for more information on the risks related to Biofrontera AG’s beneficial ownership of the Company’s

common stock.

coverage and medical expense reimbursement may be limited or unavailable in certain market segments for our licensed products, which

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legislative changes may have a material adverse effect on our business and results of operations.

the United States and certain other countries, there have been a number of legislative and regulatory changes to the health care system

that could impact our ability to sell our licensed products profitably.

In particular, the Medicare Prescription Drug, Improvement, and

Modernization Act of 2003 revised the payment methodology for many products under Medicare in the United States, which has resulted in

lower rates of reimbursement.

In 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation

Act of 2010, or collectively, the Affordable Care Act, was enacted.

On January 20, 2017, President Donald Trump signed an executive order

stating that the administration intended to seek prompt repeal of the Affordable Care Act, and, pending repeal, directed by the U.S.

Department of Health and Human Services and other executive departments and agencies to take all steps necessary to limit any fiscal

or regulatory burdens of the Affordable Care Act.

the United States and certain other countries, there have been a number of legislative and regulatory changes to the health care

system that could impact our ability to sell our licensed products profitably.

In particular, the Medicare Prescription Drug,

Improvement, and Modernization Act of 2003 revised the payment methodology for many products under Medicare in the United States,

which has resulted in lower rates of reimbursement.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the

Health Care and Education Reconciliation Act of 2010 the (“PPACA” or collectively, the “ACA”), was signed into law, which substantially changed

the way healthcare is financed by both governmental and private insurers in the United States.

its enactment, there have been executive, judicial and Congressional challenges to certain aspects of the ACA, and we expect there

will be additional challenges and amendments to the ACA in the future.

On January 20, 2017, President Donald Trump signed an

executive order stating that the administration intended to seek prompt repeal of the Affordable Care Act, and, pending repeal,

directed by the U.S.

Department of Health and Human Services and other executive departments and agencies to take all steps

necessary to limit any fiscal or regulatory burdens of the Affordable Care Act.

On January 28, 2021, President Joseph R.

signed the Executive Order on Strengthening

Medicaid and stated his administration’s intentions to reverse the actions of his predecessor and strengthen the Affordable Care

As part of this Executive Order, the Department of Health and Human Services, United States Treasury, and the Department of Labor

are to review all existing regulations, orders, guidance documents, policies, and agency actions to consider if they are consistent with

ensuring both coverage under the Affordable Care Act and if they make high-quality healthcare affordable and accessible to Americans.

At this time we are unsure what effect the new administration’s policies or this executive order will have.

There is significant

uncertainty about the future of the Affordable Care Act in particular and healthcare laws generally in the United States.

The continued

expansion of the government’s role in the U.S.

healthcare industry may further lower rates of reimbursement for pharmaceutical

We are unable to predict the likelihood of changes to the Affordable Care Act or other healthcare laws which may negatively

impact our profitability.

Biden intends, as his predecessor did, to take action against drug prices which are considered “high.” The most likely time

to address this would be in the reauthorization of the Prescription Drug User Fee Act (PDUFA) 2022 as part of a package bill.

continues to be a subject of debate at the executive and legislative levels of U.S.

government and we expect to see legislation focusing

on this in the coming year.

The American Rescue Plan Act of 2021 signed into law by President Biden on March 14, 2021 includes a provision

that will eliminate the statutory cap on rebates drug manufacturers pay to Medicaid beginning in January 2024.

With the elimination of

the cap, manufacturers may be required to compensate states in an amount greater than what the state Medicaid programs pay for the drug.

Affordable Care Act is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending,

enhance remedies against fraud and abuse, add new transparency requirements for healthcare and the health insurance industry, impose

new taxes and fees on the healthcare industry and impose additional health policy reforms.

This law revises the definition of “average

manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states once the provision

is effective.

Further, the law imposes a significant annual fee on companies that manufacture or import branded prescription drug products.

Substantial new provisions affecting compliance have also been enacted, which may require us to modify our business practices with healthcare

practitioners.

Some of the provisions of the Affordable Care Act

have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges.

Thus, the full

impact of the Affordable Care Act, any law replacing elements of it, or the political uncertainty surrounding its repeal or replacement

on our business remains unclear.

Such developments may materially adversely affect the prices we are able to receive for our licensed

products or otherwise materially adversely affect our ability to profitably commercialize our licensed products in the United States.

Other legislative changes have been proposed and adopted

in the United States since the Affordable Care Act was enacted.

On August 2, 2011, the Budget Control Act of 2011, among other things,

created measures for spending reductions by Congress.

A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted

deficit reduction of at least $1.2 trillion for the years 2012 through 2021, was unable to reach required goals, thereby triggering the

legislation’s automatic reduction to several government programs.

This includes aggregate reductions of Medicare payments to providers

up to 2% per fiscal year.

The American Taxpayer Relief Act of 2012, or the ATRA, among other things, reduced Medicare payments to several

providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the

government to recover overpayments to providers from three to five years.

The current U.S.

administration continues to focus heavily on

drug pricing issues and Congress has introduced a multitude of legislative proposals aimed at drug pricing.

For example, the Prescription

Drug Pricing Reduction Act of 2019 proposes to, among other things, penalize pharmaceutical manufacturers for raising prices on drugs

covered by Medicare Parts B and D faster than the rate of inflation, cap out-of-pocket expenses for Medicare Part D beneficiaries, and

proposes a number of changes to how drugs are reimbursed in Medicare Part B.

A similar drug pricing bill, the Elijah E.

Cummings Lower

Drug Costs Now Act proposes to enable direct price negotiations by the federal government on certain drugs (with the maximum price paid

by Medicare capped based on an international index), requires manufacturers to offer these negotiated prices to other payers, and restricts

manufacturers from raising prices on drugs covered by Medicare Parts B and D.

In May 2019, Centers for Medicare & Medicaid Services,

or CMS, issued a final rule requiring drug manufacturers to include certain drug price information in television advertisements for products

that are covered by Medicare and Medicaid.

The final rule was struck down by a federal district court in July 2019.

The ruling was appealed

and the federal district court’s holding was upheld.

The ruling may be further appealed and there is no assurance as to whether

we will be required to comply with the price transparency requirements.

We cannot predict whether any proposed legislation will become

law and the effect of these possible changes on our business cannot be predicted at this time.

In addition to legislative proposals, Congressional

Committees have requested certain manufacturers provide specific documents and detailed information regarding drug pricing practices.

If we become the subject of any government investigation with respect to our drug pricing, marketing, or other business practices, we

could incur significant expense and could be distracted from operation of our business and execution of our strategy.

Any such investigation

could also result in reduced market acceptance and demand for our licensed products, could harm our reputation and our ability to market

our licensed products in the future, and could have a material adverse effect on our business, financial condition, results of operations

and growth prospects.

At the state level, there are similar new laws and ongoing ballot initiatives that create additional pressure on

our drug pricing and may also affect how our licensed products are covered and reimbursed.

A number of states have adopted or are considering

various pricing actions, such as those requiring pharmaceutical manufacturers to publicly report proprietary pricing information, limit

price increases or place a maximum price ceiling or cap on certain products.

Existing and proposed state pricing laws have added complexity

to the pricing of drugs and may already be impacting industry pricing decisions.

We expect continued significant focus on health care

and drug pricing legislation.

There have been, and likely will continue to be, legislative and regulatory proposals at the U.S.

and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare.

We cannot predict

the initiatives that may be adopted in the future.

Additionally, third-party payors, including governmental payors, managed care organizations

and private health insurers, are increasingly challenging the prices charged for medical products and services and examining their cost

effectiveness.

The continuing efforts of governments, insurance companies, managed care organizations and other payors of healthcare services

to contain or reduce costs of healthcare and/or impose price controls may adversely affect:

the demand for our licensed products,

if our Licensors obtain regulatory approvals;

our ability to set a price or obtain reimbursement that we believe is fair for our licensed products;

our ability to generate revenues and achieve or maintain profitability;

the level of taxes that we are required to pay.

Any denial or reduction in reimbursement from Medicare

or other programs or governments may result in a similar denial or reduction in payments from private payors, which may adversely affect

our future profitability.

To date, we have a relatively short history of

sales of our licensed products in the United States.

We have limited relatively short history of sales

of our licensed products to date.

The Biofrontera Group, including Biofrontera as a wholly owned subsidiary of Biofrontera AG at the

time, launched the commercialization of Ameluz ® and the RhodoLED ® lamp for actinic keratosis in the

United States in October 2016 and we have a limited history of marketing our licensed products in the United States.

In addition, we

began marketing the drug Xepi ® in the United States following our acquisition of Cutanea in March 2019 and have a limited

history of marketing Xepi ® in the United States.

While our licensed products have gained acceptance in the markets we

serve, our licensed products may never generate substantial revenue or profits for us.

We must establish a larger market for our licensed

products and build that market through marketing campaigns to increase awareness of, and confidence by doctors in, our licensed products.

We expect this to continue to be even more challenging in the near term as a result of current measures and regulations implemented by

governments worldwide in an attempt to control the COVID-19 pandemic, which may lead to declining demand in some of our markets in the

foreseeable future for our licensed products as different priorities for medical treatments emerge, thereby causing a delay of

actinic keratosis treatment for most patients.

signed the Executive Order on Strengthening Medicaid and stated his administration’s intentions to reverse the actions of his

predecessor and strengthen the Affordable Care Act.

As part of this Executive Order, the Department of Health and Human Services,

United States Treasury, and the Department of Labor are to review all existing regulations, orders, guidance documents, policies,

and agency actions to consider if they are consistent with ensuring both coverage under the Affordable Care Act and if they make

high-quality healthcare affordable and accessible to Americans.

On March 11, 2021, President Joseph R.

signed into law the American Rescue Plan Act of 2021 to further

strengthen Medicaid and the ACA and on April 5, 2022, President Joseph R.

signed the Executive Order on Continuing to Strengthen

Americans’ Access to Affordable, Quality Health Coverage in which he celebrated the significant progress across the U.S.

healthcare more affordable and accessible.

In this Executive Order, President Joseph R.

directed agencies “with responsibilities

related to Americans’ access to health coverage” to “review agency actions to identify ways to continue to expand the

availability of affordable health coverage.” The continued expansion of the

government’s role in the U.S.

healthcare industry may further lower rates of reimbursement for pharmaceutical products.

unable to predict the likelihood of changes to the Affordable Care Act or other healthcare laws which may negatively impact our

profitability, we continue to closely monitor all changes.

Biden intends, as his predecessor did, to take action against drug prices which are considered “high.” The most likely

time to address this would be in the reauthorization of the Prescription Drug User Fee Act (“PDUFA”) in 2022 as part of

a package bill.

Drug pricing continues to be a subject of debate at the executive and legislative levels of U.S.

The American Rescue Plan Act of 2021 signed into law by President

Biden on March 14, 2021 includes a provision that will eliminate the statutory cap on rebates drug manufacturers pay to Medicaid

beginning in January 2024.

With the elimination of the cap, manufacturers may be required to compensate states in an amount greater

than what the state Medicaid programs pay for the drug.

Additionally, the Inflation Reduction Act of 2022 contains substantial drug pricing reforms, including the establishment

of a drug price negotiation program within the U.S.

Department of Health and Human Services that would require manufacturers to charge

a negotiated “maximum fair price” for certain selected drugs or pay an excise tax for noncompliance, the establishment of

rebate payment requirements on manufacturers of certain drugs payable under Medicare Parts B and D to penalize price increases that outpace

inflation, and requires manufacturers to provide discounts on Part D drugs.

Substantial penalties can be assessed for noncompliance with

the drug pricing provisions in the Inflation Reduction Act of 2022.

The Inflation Reduction Act of 2022 could have the effect of reducing

the prices we can charge and reimbursement we receive for our products, if approved, thereby reducing our profitability, and could have

a material adverse effect on our financial condition, results of operations and growth prospects.

The effect of Inflation Reduction Act

of 2022 on our business and the pharmaceutical industry in general is not yet known.

the passage of the Inflation Reduction Act of 2022, President Biden signed The Executive Order on Lowering Prescription Drug Costs for

Americans, effective October 14, 2022.

This Executive Order is intended to drive down prescription drug costs and attempts to make use

of HHS’s Center for Medicare and Medicaid Innovation (“Innovation Center”).

The Innovation Center tests health care

payment and delivery models with the goal of improving health care quality and ensuring the efficiency of health care delivery.

Executive Order further requires that HHS consider utilizing the Innovation Center’s testing to identify payment and delivery models

that would “lower drug costs and promote access to innovative drug therapies for beneficiaries enrolled in Medicare and Medicaid

programs, including models that may lead to lower cost-sharing for commonly used drugs and support value-based payment that promotes

high-quality care.”

the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product

pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure

and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

We expect that additional federal, state and foreign healthcare reform

measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare

products and services, which could result in limited coverage and reimbursement and reduced demand for our products, once approved, or

additional pricing pressures.

Additionally,

third-party payors, including governmental payors, managed care organizations and private health insurers, are increasingly challenging

the prices charged for medical products and services and examining their cost effectiveness.

The continuing efforts of governments, insurance

companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose

price controls may adversely affect:

demand for our licensed products,

our Licensors obtain regulatory approvals;

ability to set a price or obtain reimbursement that we believe is fair for our licensed products;

ability to generate revenues and achieve or maintain profitability;

level of taxes that we are required to pay.

denial or reduction in reimbursement from Medicare or other programs or governments may result in a similar denial or reduction in payments

from private payors, which may adversely affect our future profitability.

date, we have a relatively short history of sales of our licensed products in the United States.

have limited relatively short history of sales of our licensed products to date.

The Biofrontera Group, including Biofrontera as a wholly

owned subsidiary of Biofrontera AG at the time, launched the commercialization of Ameluz ® and the RhodoLED ® lamp

for actinic keratosis in the United States in October 2016 and we have a limited history of marketing our licensed products in the United

In addition, we began marketing the drug Xepi ® in the United States following our acquisition of Cutanea in March

2019 and have a limited history of marketing Xepi ® in the United States.

While our licensed products have gained acceptance

in the markets we serve, our licensed products may never generate substantial revenue or profits for us.

We must establish a larger market

for our licensed products and build that market through marketing campaigns to increase awareness of, and confidence by doctors in, our

licensed products.

We expect this to continue to be even more challenging in the near term as a result of current measures and regulations

implemented by governments worldwide in an attempt to control the COVID-19 pandemic, which may lead to declining demand in some of our

markets in the foreseeable future for our licensed products as different priorities for medical treatments emerge, thereby causing a

delay of actinic keratosis treatment for most patients.

If we are unable to expand our current customer base and obtain market acceptance

2 unchanged sentences

profitability, we may not be able to sustain or increase profitability.

Competing products and future emerging products

may erode sales of our licensed products.

Reimbursement issues affect the economic competitiveness

of our licensed products as compared to other therapies.

See “— Insurance coverage and medical expense reimbursement may

be limited or unavailable in certain market segments for our licensed products, which could make it difficult for us to sell our licensed

Our industry is subject to rapid, unpredictable and

significant technological change and intense competition.

Our competitors may succeed in developing, acquiring, or licensing on an exclusive

basis, products that are safer, more effective or more desirable than our licensed products.

Many of our competitors have substantially

greater financial, technical and marketing resources than we have.

In addition, several of these companies have significantly greater

experience than we or our Licensors do in developing products, conducting preclinical and clinical testing, obtaining regulatory approvals

to market products for health care, and marketing healthcare products.

Mergers and acquisitions in the pharmaceutical and

biotechnology industries may result in even more resources being concentrated in our competitors.

Competition may increase further as

a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries.

We cannot guarantee that new drugs or future developments

in drug technologies will not have a material adverse effect on our business.

Increased competition could result in price reductions,

lower levels of government or other third-party reimbursements, failure to achieve market acceptance and loss of market share, any of

which could adversely affect our business, results of operations and financial condition.

Further, we cannot give any assurance that developments

by our competitors or future competitors will not render our technologies obsolete or less advantageous.

We face significant competition from other pharmaceutical

and medical device companies and our operating results will suffer if we fail to compete effectively.

We also must compete with existing

treatments, such as simple curettage and cryotherapy, which do not involve the use of a drug but have gained significant market acceptance.

The pharmaceutical and medical device industry is

characterized by intense competition and rapid innovation.

Our competitors may be able to develop other products that are able to achieve

similar or better results for the treatment of actinic keratosis.

We expect that our future competitors will include mostly established

pharmaceutical companies, such as Sun Pharma (DUSA) and Galderma.

Most of our competitors have substantially greater financial, technical

and other resources, such as larger research and development staffs and experienced marketing and manufacturing organizations and well-established

sales forces.

Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability

of capital for investment in these industries.

Our competitors may succeed in developing, acquiring

or licensing products that are more effective or less costly than our licensed products and product candidates.

In addition, our licensed

products compete with other therapies, such as simple curettage and, particularly in the United States, cryotherapy, which do not involve

products and future emerging products may erode sales of our licensed products.

Reimbursement

issues affect the economic competitiveness of our licensed products as compared to other therapies.

See “— Insurance coverage

and medical expense reimbursement may be limited or unavailable in certain market segments for our licensed products, which could make

it difficult for us to sell our licensed products .”

industry is subject to rapid, unpredictable and significant technological change and intense competition.

Our competitors may succeed

in developing, acquiring, or licensing on an exclusive basis, products that are safer, more effective or more desirable than our licensed

Many of our competitors have substantially greater financial, technical and marketing resources than we have.

several of these companies have significantly greater experience than we or our Licensors do in developing products, conducting preclinical

and clinical testing, obtaining regulatory approvals to market products for health care, and marketing healthcare products.

and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated in our competitors.

Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of

capital for investment in these industries.

cannot guarantee that new drugs or future developments in drug technologies will not have a material adverse effect on our business.

Increased competition could result in price reductions, lower levels of government or other third-party reimbursements, failure to achieve

market acceptance and loss of market share, any of which could adversely affect our business, results of operations and financial condition.

Further, we cannot give any assurance that developments by our competitors or future competitors will not render our technologies obsolete

or less advantageous.

face significant competition from other pharmaceutical and medical device companies and our operating results will suffer if we fail

to compete effectively.

We also must compete with existing treatments, such as simple curettage and cryotherapy, which do not involve

the use of a drug but have gained significant market acceptance.

If we are not able to compete effectively with the

competitors and competing therapies, we may lose significant market share in the relevant markets, which could have a material adverse

effect on our revenue, results of operations and financial condition.

If we are unable to maintain effective marketing

and sales capabilities or enter into agreements with third parties to market and sell our licensed products, we may be unable to generate

revenue growth.

In order to grow the market for our licensed products,

especially a newer licensed product like Xepi ® , we must continue to build our marketing, sales and distribution capabilities

in the United States.

The development and training of our sales force and related compliance plans to market our licensed products are

expensive and time consuming and can potentially delay the growth of sales of our licensed products.

In the event we are not successful

in expanding our marketing and sales infrastructure, we may not be able to successfully grow the market our licensed products, which would

limit our revenue growth.

market size for Ameluz ®

for the treatment of actinic keratosis may be smaller than we have estimated.

The public data regarding the market for actinic keratosis

treatments in the United States may be incomplete.

Therefore some of our estimates and judgments are based on various sources which we

have not independently verified and which potentially include outdated information, or information that may not be precise or correct,

potentially rendering the U.S.

market size for treatment of actinic keratosis with Ameluz ® smaller than we have estimated,

which may reduce our potential and ability to increase sales of Ameluz ® and revenue in the United States.

Although we have

not independently verified the data obtained from these sources, we believe that such data provide the best available information relating

to the present market for actinic keratosis treatments in the United States, and we often use such data for our business and planning

If our Licensors face allegations of noncompliance

with the law and encounter sanctions, their reputation, revenues and liquidity may suffer, and our licensed products could be subject

to restrictions or withdrawal from the market.

Any government investigation of alleged violations

of the law could require our Licensors to expend significant time and resources in response and could generate negative publicity.

failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate

revenues from our licensed products.

If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company

and our operating results will be adversely affected.

Additionally, if we are unable to generate revenues from our product sales, our

potential for achieving profitability will be diminished and the capital necessary to fund our operations will be increased.

Even if our Licensors obtain regulatory approvals

for our licensed products, or approvals extending their indications, they may not gain market acceptance or become widely accepted among

hospitals, physicians, health care payors, patients and others in the medical community.

In May 2016, Biofrontera Bioscience received approval

from the FDA to market in the United States.

Ameluz ® in combination with photodynamic therapy using the BF-RhodoLED ®

lamp for lesion-directed and field-directed treatment of actinic keratoses of mild-to-moderate severity on the face and scalp.

launched the commercialization of Ameluz ® and the BF-RhodoLED ® lamp for actinic keratosis in the United

States in October 2016.

Even with regulatory approval, Ameluz ® may not receive wide acceptance among hospitals, physicians,

health care payors, patients and others in the medical community.

In addition, Xepi ® received approval from the FDA in

2017 and may not gain market acceptance over time.

Market acceptance of any of our licensed products depends on a number of factors, including:

the clinical indications for which they are approved, including any restrictions placed upon the product in connection with its approval, such as patient registry or labeling restriction;

the product labeling, including warnings, precautions, side effects, and contraindications that the FDA or other regulatory authorities approve;

the potential and perceived advantages of our product candidates over alternative products or therapies;

relative convenience and ease of administration;

the effectiveness and compliance of our sales and marketing efforts;

acceptance by major operators of hospitals, physicians and patients of our licensed products or candidates as a safe and effective treatment;

the prevalence and severity of any side effects;

product labeling or product insert requirements of the FDA or other regulatory authorities;

any Risk Evaluation and Mitigation Strategy that the FDA might require for our drug product candidates;

the timing of market introduction of our licensed product or product candidates as well as competitive products;

the perceived advantages of our licensed products over alternative treatments;

the cost of treatment in relation to alternative products;

the availability of adequate reimbursement and pricing by third party payors and government authorities, including any conditions for reimbursement required by such third-party payors and government authorities.

If our licensed products and product candidates are

approved, and/or receive label extensions, but fail to achieve market acceptance among physicians, patients, payors, or others in the

medical community in the United States, we will not be able to generate significant revenues, which would have a material adverse effect

on our business, prospects, financial condition and results of operations.

With respect to our licensed products, we may be

subject to healthcare laws, regulation and enforcement.

Our failure to comply with those laws could have a material adverse effect on

our results of operations and financial condition.

We may be subject to additional healthcare regulation

and enforcement by the U.S.

pharmaceutical and medical device industry is characterized by intense competition and rapid innovation.

Our competitors may be able

to develop other products that are able to achieve similar or better results for the treatment of actinic keratosis.

We expect that our

future competitors will include mostly established pharmaceutical companies, such as Sun Pharma (DUSA) and Galderma.

Most of our competitors

have substantially greater financial, technical and other resources, such as larger research and development staffs and experienced marketing

and manufacturing organizations and well-established sales forces.

Competition may increase further as a result of advances in the commercial

applicability of technologies and greater availability of capital for investment in these industries.

competitors may succeed in developing, acquiring or licensing products that are more effective or less costly than our licensed products

and product candidates.

In addition, our licensed products compete with other therapies, such as simple curettage and, particularly in

the United States, cryotherapy, which do not involve the use of a drug but have gained significant market acceptance.

we are not able to compete effectively with the competitors and competing therapies, we may lose significant market share in the relevant

markets, which could have a material adverse effect on our revenue, results of operations and financial condition.

we are unable to maintain effective marketing and sales capabilities or enter into agreements with third parties to market and sell our

licensed products, we may be unable to generate revenue growth.

order to grow the market for our licensed products, especially a newer licensed product like Xepi ® , we must continue to

build our marketing, sales and distribution capabilities in the United States.

The development and training of our sales force and related

compliance plans to market our licensed products are expensive and time consuming and can potentially delay the growth of sales of our

licensed products.

In the event we are not successful in expanding our marketing and sales infrastructure, we may not be able to successfully

grow the market our licensed products, which would limit our revenue growth.

market size for Ameluz ® for the treatment of actinic keratosis may be smaller than we have estimated.

public data regarding the market for actinic keratosis treatments in the United States may be incomplete.

Therefore, some of our estimates

and judgments are based on various sources which we have not independently verified and which potentially include outdated information,

or information that may not be precise or correct, potentially rendering the U.S.

market size for treatment of actinic keratosis with

Ameluz ® smaller than we have estimated, which may reduce our potential and ability to increase sales of Ameluz ®

and revenue in the United States.

Although we have not independently verified the data obtained from these sources, we believe

that such data provide the best available information relating to the present market for actinic keratosis treatments in the United States,

and we often use such data for our business and planning purposes.

our Licensors face allegations of noncompliance with the law and encounter sanctions, their reputation, revenues and liquidity may suffer,

and our licensed products could be subject to restrictions or withdrawal from the market.

government investigation of alleged violations of the law could require our Licensors to expend significant time and resources in response

and could generate negative publicity.

Any failure to comply with ongoing regulatory requirements may significantly and adversely affect

our ability to commercialize and generate revenues from our licensed products.

If regulatory sanctions are applied or if regulatory approval

is withdrawn, the value of our company and our operating results will be adversely affected.

Additionally, if we are unable to generate

revenues from our product sales, our potential for achieving profitability will be diminished and the capital necessary to fund our operations

will be increased.

if our Licensors obtain regulatory approvals for our licensed products, or approvals extending their indications, they may not gain market

acceptance or become widely accepted among hospitals, physicians, health care payors, patients and others in the medical community.

May 2016, Biofrontera Bioscience received approval from the FDA to market in the United States.

Ameluz ® in combination

with photodynamic therapy using the BF-RhodoLED ® lamp for lesion-directed and field-directed treatment of actinic keratoses

of mild-to-moderate severity on the face and scalp.

We launched the commercialization of Ameluz ® and the BF-RhodoLED ®

lamp for actinic keratosis in the United States in October 2016.

Even with regulatory approval, Ameluz ® may not

receive wide acceptance among hospitals, physicians, health care payors, patients and others in the medical community.

In addition, Xepi ®

received approval from the FDA in 2017 and may not gain market acceptance over time.

Market acceptance of any of our licensed products

depends on a number of factors, including:

clinical indications for which they are approved, including any restrictions placed upon the product in connection with its approval,

such as patient registry or labeling restriction;

product labeling, including warnings, precautions, side effects, and contraindications that the FDA or other regulatory authorities

potential and perceived advantages of our product candidates over alternative products or therapies;

convenience and ease of administration;

effectiveness and compliance of our sales and marketing efforts;

by major operators of hospitals, physicians and patients of our licensed products or candidates as a safe and effective treatment;

prevalence and severity of any side effects;

labeling or product insert requirements of the FDA or other regulatory authorities;

Risk Evaluation and Mitigation Strategy that the FDA might require for our drug product candidates;

timing of market introduction of our licensed product or product candidates as well as competitive products;

perceived advantages of our licensed products over alternative treatments;

cost of treatment in relation to alternative products;

availability of adequate reimbursement and pricing by third party payors and government authorities, including any conditions for

reimbursement required by such third-party payors and government authorities.

our licensed products and product candidates are approved, and/or receive label extensions, but fail to achieve market acceptance among

physicians, patients, payors, or others in the medical community in the United States, we will not be able to generate significant revenues,

which would have a material adverse effect on our business, prospects, financial condition and results of operations.

respect to our licensed products, we may be subject to healthcare laws, regulation and enforcement.

Our failure to comply with those

laws could have a material adverse effect on our results of operations and financial condition.

may be subject to additional healthcare regulation and enforcement by the U.S.

federal government and by authorities in the United States.

laws include, without limitation, state

and federal anti-kickback, federal false claims, privacy, security, financial disclosure laws, anti-trust, Physician Payment Sunshine

Act reporting, fair trade regulation and advertising laws and regulations.

Many states and other jurisdictions have similar laws and regulations,

some of which are broader in scope.

If our operations are found to be in violation of any of such laws or any other governmental regulations

that apply to us, we may be subject to penalties, including, but not limited to, civil and criminal penalties, damages, fines, the curtailment

or restructuring of our operations, the exclusion from participation in federal, state or other healthcare programs and imprisonment,

any of which could adversely affect our ability to operate our business and our financial results.

Increased Health and Human Services, Office of Inspector

General (OIG), scrutiny on the sale of products through specialty pharmacies or through physician practices by means of direct investigation

or by issuance of unfavorable Opinion Letters which may curtail or hinder the sales of our licensed products based on risk of enforcement

upon ourselves or our buyers.

The OIG continues to make modifications to existing Anti-Kickback Statute, or AKS, safe harbors which may

increase liability and risk for our company as well as adversely impact sales relationships.

On November 20, 2020, OIG issued the final

rule for Safe Harbors under the Federal AKS.

This new final rule creates additional safe harbors including ones pertaining to patient

OIG is able to modify safe harbors as well as regulatory compliance requirements which could impact out business adversely.

The majority of states also have statutes or regulations

similar to these federal laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states,

apply regardless of the payer.

In addition, some states have laws that require pharmaceutical companies to adopt comprehensive compliance

Certain states also mandate the tracking and require reporting of gifts, compensation, and other remuneration paid by us to

physicians and other health care providers.

In September 2010, OIG issued a Special Advisory Bulletin

to notify drug manufacturers that OIG intended to pursue enforcement actions against drug manufacturers that failed to submit timely average

manufacturer price, or AMP, and average sales price, or ASP, information.

The Medicaid Drug Rebate Program requires manufacturers to enter

into and have in effect a national rebate agreement with the Secretary of Health and Human Services in order for Medicaid payments to

be available for the manufacturer’s covered outpatient drugs.

Companies with such rebate agreements are required to submit certain

drug pricing information to CMS, including quarterly and monthly pricing data.

There has been an increased level of federal enforcement

against drug manufacturers that have failed to provide timely and accurate pricing information to the government.

Since September 2010,

OIG has settled 13 cases against drug manufacturers relating to drug price reporting issues, totaling approximately $18.5 million.

expect continued enforcement directed at companies that fail to make accurate and timely price reports.

If we were found to make the required

pricing disclosures, we could incur significant expense and delay.

A recall of our licensed drug or medical device

products, or the discovery of serious safety issues with our licensed drug or medical device products, could have a significant negative

impact on us.

The FDA and other relevant regulatory agencies have

the authority to require or request the recall of commercialized products in the event of material deficiencies or defects in design or

manufacture or in the event that a product poses an unacceptable risk to health.

Manufacturers may, under their own initiative, recall

A government-mandated or voluntary recall by us or one of our distributors could occur as a result of an unacceptable risk

to health, component failures, manufacturing errors, design or labeling defects or other deficiencies and issues.

Recalls of our licensed

products would divert managerial and financial resources and have an adverse effect on our and our Licensors’ reputation, financial

condition and operating results, which could impair our or our Licensors’ ability to market, sell or produce our licensed products

in a cost-effective and timely manner.

Further, under the FDA’s medical device reporting,

or MDR, regulations, our Licensors are required to report to the FDA any event which reasonably suggests that our licensed product may

have caused or contributed to a death or serious injury or in which our licensed product malfunctioned and, if the malfunction of the

same or similar device marketed by us were to recur, would likely cause or contribute to death or serious injury.

The FDA also requires

reporting of serious, life-threatening, unexpected and other adverse drug experiences and the submission of periodic safety reports and

other information.

Product malfunctions or other adverse event reports may result in a voluntary or involuntary product recall and other

adverse actions, which could divert managerial and financial resources, impair our and our Licensors’ ability to market, sell or

manufacture our licensed products in a cost-effective and timely manner and have an adverse effect on our reputation, financial condition

and operating results.

Any adverse event involving our licensed products

could result in future voluntary corrective actions, such as recalls or customer notifications, or regulatory agency action, which could

include inspection, mandatory recall or other enforcement action.

Any corrective action, whether voluntary or involuntary, will require

the dedication of our Licensors’ time and capital, distract our Licensors’ management from operating their business and may

harm our and our Licensors’ reputation and financial results as well as threaten our marketing authority for such products.

Our licensed medical device product, the RhodoLED ®

lamp, is subject to extensive governmental regulation, and failure to comply with applicable requirements could cause our business to

The medical device industry in the United States is

regulated extensively by governmental authorities, principally the FDA and corresponding state agencies.

The regulations are very complex

and are subject to rapid change and varying interpretations.

Regulatory restrictions or changes could limit our ability to carry on or

expand our operations or result in higher than anticipated costs or lower than anticipated sales.

laws include, without limitation, state and federal anti-kickback, federal false claims, privacy, security, financial disclosure

laws, anti-trust, Physician Payment Sunshine Act reporting, fair trade regulation and advertising laws and regulations.

Many states and

other jurisdictions have similar laws and regulations, some of which are broader in scope.

If our operations are found to be in violation

of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, but not limited

to, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation

in federal, state or other healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business

and our financial results.

Health and Human Services, Office of Inspector General (OIG), scrutiny on the sale of products through specialty pharmacies or through

physician practices by means of direct investigation or by issuance of unfavorable Opinion Letters which may curtail or hinder the sales

of our licensed products based on risk of enforcement upon ourselves or our buyers.

The OIG continues to make modifications to existing

Anti-Kickback Statute, or AKS, safe harbors which may increase liability and risk for our company as well as adversely impact sales relationships.

On November 20, 2020, OIG issued the final rule for Safe Harbors under the Federal AKS.

This new final rule creates additional safe harbors

including ones pertaining to patient incentives.

OIG is able to modify safe harbors as well as regulatory compliance requirements which

could impact out business adversely.

majority of states also have statutes or regulations similar to these federal laws, which apply to items and services reimbursed under

Medicaid and other state programs, or, in several states, apply regardless of the payer.

In addition, some states have laws that require

pharmaceutical companies to adopt comprehensive compliance programs.

Certain states also mandate the tracking and require reporting of

gifts, compensation, and other remuneration paid by us to physicians and other health care providers.

September 2010, OIG issued a Special Advisory Bulletin to notify drug manufacturers that OIG intended to pursue enforcement actions against

drug manufacturers that failed to submit timely average manufacturer price, or AMP, and average sales price, or ASP, information.

Medicaid Drug Rebate Program requires manufacturers to enter into and have in effect a national rebate agreement with the Secretary of

Health and Human Services in order for Medicaid payments to be available for the manufacturer’s covered outpatient drugs.

with such rebate agreements are required to submit certain drug pricing information to CMS, including quarterly and monthly pricing data.

There has been an increased level of federal enforcement against drug manufacturers that have failed to provide timely and accurate pricing

information to the government.

Since September 2010, OIG has settled 13 cases against drug manufacturers relating to drug price reporting

issues, totaling approximately $18.5 million.

We expect continued enforcement directed at companies that fail to make accurate and timely

price reports.

If we were found to make the required pricing disclosures, we could incur significant expense and delay.

recall of our licensed drug or medical device products, or the discovery of serious safety issues with our licensed drug or medical device

products, could have a significant negative impact on us.

FDA and other relevant regulatory agencies have the authority to require or request the recall of commercialized products in the event

of material deficiencies or defects in design or manufacture or in the event that a product poses an unacceptable risk to health.

Manufacturers

may, under their own initiative, recall a product.

A government-mandated or voluntary recall by us or one of our distributors could occur

as a result of an unacceptable risk to health, component failures, manufacturing errors, design or labeling defects or other deficiencies

Recalls of our licensed products would divert managerial and financial resources and have an adverse effect on our and our

Licensors’ reputation, financial condition and operating results, which could impair our or our Licensors’ ability to market,

sell or produce our licensed products in a cost-effective and timely manner.

under the FDA’s medical device reporting, or MDR, regulations, our Licensors are required to report to the FDA any event which

reasonably suggests that our licensed product may have caused or contributed to a death or serious injury or in which our licensed product

malfunctioned and, if the malfunction of the same or similar device marketed by us were to recur, would likely cause or contribute to

death or serious injury.

The FDA also requires reporting of serious, life-threatening, unexpected and other adverse drug experiences

and the submission of periodic safety reports and other information.

Product malfunctions or other adverse event reports may result in

a voluntary or involuntary product recall and other adverse actions, which could divert managerial and financial resources, impair our

and our Licensors’ ability to market, sell or manufacture our licensed products in a cost-effective and timely manner and have

an adverse effect on our reputation, financial condition and operating results.

adverse event involving our licensed products could result in future voluntary corrective actions, such as recalls or customer notifications,

or regulatory agency action, which could include inspection, mandatory recall or other enforcement action.

Any corrective action, whether

voluntary or involuntary, will require the dedication of our Licensors’ time and capital, distract our Licensors’ management

from operating their business and may harm our and our Licensors’ reputation and financial results as well as threaten our marketing

authority for such products.

licensed medical device product, the RhodoLED ® lamp, is subject to extensive governmental regulation, and failure to comply

with applicable requirements could cause our business to suffer.

medical device industry in the United States is regulated extensively by governmental authorities, principally the FDA and corresponding

state agencies.

The regulations are very complex and are subject to rapid change and varying interpretations.

Regulatory restrictions

or changes could limit our ability to carry on or expand our operations or result in higher than anticipated costs or lower than anticipated

The FDA and other U.S.

agencies regulate numerous elements of our and our Licensors’ business, including:

product design and development;

pre-clinical and clinical testing and trials;

product safety;

establishment registration and product listing;

governmental agencies regulate numerous elements of our and our Licensors’ business, including:

design and development;

and clinical testing and trials;

establishment

registration and product listing;

distribution;

labeling, manufacturing and storage;

pre-market clearance or approval;

advertising and promotion;

marketing, manufacturing, sales and distribution;

relationships and communications with health care providers;

adverse event reporting;

market exclusivity;

servicing and post-market surveillance;

recalls and field safety corrective actions.

working to commercialize a new lamp, the “RhodoLED ® XL,” which was approved by the FDA on October 21, 2021

manufacturing and storage;

clearance or approval;

and promotion;

manufacturing, sales and distribution;

relationships

and communications with health care providers;

event reporting;

and post-market surveillance;

and field safety corrective actions.

are working to commercialize a new lamp, the “RhodoLED ® XL,” which was approved by the FDA on October 21,

2021 and allows use of Ameluz ® on more distant Actinic Keratosis lesions.

Management believes that this new lamp, could provide

new business growth opportunities for our company.

In the United States, according to FDA guidance, products for PDT, such as Ameluz ®

gel and its corresponding lamp(s), must be approved as combination products that cover both the drug and the lamp.

the Biofrontera Group (which included Biofrontera prior to our initial public offering) received approval from the FDA to market

in the United States Ameluz ® in combination with photodynamic therapy using the BF-RhodoLED ® lamp for lesion-directed

and field-directed treatment of actinic keratoses of mild-to-moderate severity on the face and scalp.

The applicable office of the FDA

has determined that if the Ameluz Licensor develops a new lamp to be used with Ameluz ® , beyond the existing approved

RhodoLED ® lamp series, the Ameluz Licensor must seek a new approval utilizing the “New Drug Application”

Management believes that this new lamp, could

provide new business growth opportunities for our company.

In the United States, according to FDA guidance, products for PDT, such as

Ameluz ® gel and its corresponding lamp(s), must be approved as combination products that cover both the drug and the lamp.

In May 2016, the Biofrontera Group (which included Biofrontera prior to our initial public offering) received approval from the FDA to

market in the United States Ameluz ® in combination with photodynamic therapy using the BF-RhodoLED ® lamp

for lesion-directed and field-directed treatment of actinic keratoses of mild-to-moderate severity on the face and scalp.

The applicable

office of the FDA has determined that if the Ameluz Licensor develops a new lamp to be used with Ameluz ® , beyond the existing

approved RhodoLED ® lamp series, the Ameluz Licensor must seek a new approval utilizing the “New Drug Application”

As part of a drug/device combination, the lamp is by definition classified as a class III medical device and as such requires

1 unchanged sentence

A new lamp will also require changes in the “Prescribing Information” of the drug.

If the Ameluz Licensor develops this new lamp, once the Ameluz Licensor’s PMA application is submitted to the FDA as part

of this approval process, it may take more than six months, plus, if needed, time required to answer questions or provide additional

Prior to submission, the Ameluz Licensor will need to perform final tests on the lamp prototype, including technical tests

by a certified laboratory and a usability study.

During the process, there is a risk that the FDA might ask for additional tests or even

clinical trials, and there is no assurance that the Ameluz Licensor will be able to satisfy the FDA’s requests for additional

tests or trials in a timely manner, or at all, and there is no assurance that the Ameluz Licensor will be able to develop this

new lamp, or obtain approval to use it in the United States for PDT treatment of actinic keratosis in combination with Ameluz ® .

The FDA can delay, limit or deny clearance or

approval of a device for many reasons, including:

the Biofrontera Group’s inability to demonstrate that its products are safe and effective for their intended uses or substantially equivalent to a predicate device;

the data from the Biofrontera Group’s clinical trials may not be sufficient to support clearance or approval;

the manufacturing process or facilities we use may not meet applicable requirements.

In addition, the FDA and other regulatory authorities

may change their respective clearance and approval policies, adopt additional regulations or revise existing regulations, or take other

actions which may prevent or delay approval or clearance of our licensed products under development or impact our ability to modify our

currently cleared or approved products on a timely basis.

Any delay in, or failure to receive or maintain, clearance

or approval for such products under development that we expect to license could prevent us from generating revenue from these products

or achieving profitability.

Additionally, the FDA and comparable foreign regulatory authorities have broad enforcement powers.

enforcement or inquiries, or other increased scrutiny of us, could dissuade some customers from using our licensed products and adversely

affect our reputation and the perceived safety and efficacy of our licensed products.

Failure to comply with applicable regulations could

jeopardize our ability to sell our licensed products and result in enforcement actions against our Licensors such as fines, civil penalties,

injunctions, warning letters, Form 483 reports, recalls of products, delays in the introduction of products into the market, refusal of

the FDA or other regulators to grant future clearances or approvals, and the suspension or withdrawal of existing approvals by the FDA

or other regulators.

Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material

adverse effect on our reputation, business, financial condition and operating results.

As a result of our IT infrastructure, we are subject

to governmental regulation and other legal obligations in the EU and European Economic Area, or EEA, related to privacy, data protection

and data security and, as a result of our sales in California, the California Consumer Privacy Act (CCPA).

Our actual or perceived failure

to comply with such obligations could harm our business.

We are subject to diverse laws and regulations relating

to data privacy and security in the EU and eventually in the EEA, including Regulation 2016/679, known as the GDPR.

The GDPR applies extraterritorially

and implements stringent operational requirements for controllers and processors of personal data.

New global privacy rules are being

enacted and existing ones are being updated and strengthened.

We are likely to be required to expend capital and other resources to ensure

ongoing compliance with these laws and regulations.

Complying with these numerous, complex and often changing

regulations is expensive and difficult.

Failure by us, any partners, our service providers, or our employees or contractors to comply

with the GDPR could result in regulatory investigations, enforcement notices and/or fines of up to the higher of €20 million or up

to 4% of our total worldwide annual revenue.

In addition to the foregoing, a breach of privacy laws or data security laws, particularly

those resulting in a significant security incident or breach involving the misappropriation, loss or other unauthorized use or disclosure

of sensitive or confidential patient or consumer information, could have a material adverse effect on our business, reputation and financial

As a data controller, we are accountable for any third-party

service providers we engage to process personal data on our behalf.

We attempt to mitigate the associated risks by performing security

assessments and due diligence of our vendors and requiring all such third-party providers with data access to sign agreements and obligating

them to only process data according to our instructions and to take sufficient security measures to protect such data.

There is no assurance

that these contractual measures and our own privacy and security-related safeguards will protect us from the risks associated with the

third-party processing, storage and transmission of such information.

Any violation of data or security laws by our third-party processors

could have a material adverse effect on our business and result in the fines and penalties outlined above.

Where we transfer personal data of EU citizens or

anyone residing in the EU out of the EU and EEA, we do so in compliance with the relevant data export requirements from time to time.

There is currently ongoing litigation challenging the commonly used transfer mechanism, the EU Commission approved model clauses.

16, 2020, the Court of Justice of the European Union, or CJEU, issued a judgment which annulled, without granting a grace or transition

period, the European Commission’s Decision (EU) 2016/1250 of July 12, 2016 on the adequacy of the protection provided by the U.S.

Privacy Shield (a mechanism for complying with data protection requirements when transferring personal data from the EU to the United

Accordingly, such framework is not a valid mechanism to comply with EU data protection requirements when transferring personal

data from the European Union to the United States.

To the extent that we were to rely on the EU-U.S.

Privacy Shield Framework, we will

not be able to do so in the future, which could increase our costs and limit our ability to process personal data from the EU.

decision also cast doubt on the viability of one of the primary alternatives to the U.S.

Privacy Shield, namely, the European Commission’s

Standard Contractual Clauses, as a vehicle for such transfers in all circumstances.

Use of the standard contractual clauses must now be

assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular applicable

surveillance laws and rights of individuals and additional measures and/or contractual provisions may need to be put in place, however,

the nature of these additional measures is currently uncertain.

The CJEU went on to state that if a competent supervisory authority believes

that the Standard Contractual Clauses cannot be complied with in the destination country and the required level of protection cannot be

secured by other means, such supervisory authority is under an obligation to suspend or prohibit that transfer.

At present, there are

few, if any, viable alternatives to the Standard Contractual Clauses, and the law in this area remains dynamic.

These changes may require

us to find alternative bases for the compliant transfer of personal data outside the EEA and we are monitoring developments in this area.

We are also subject to evolving European privacy laws

on cookies and on e-marketing.

The EU is in the process of replacing the e-Privacy Directive (2002/58/EC) with a new set of rules taking

the form of a regulation, which will be directly implemented in the laws of each European member state.

The draft e-Privacy Regulation

imposes strict opt-in marketing rules with limited exceptions for business-to-business communications, alters rules on third-party cookies,

web beacons and similar technology and significantly increases fining powers to the greater of €20 million or 4% of total worldwide

annual revenue.

While the e-Privacy Regulation was originally intended to be adopted on May 25, 2018 (alongside the GDPR), it is still

going through the European legislative process.

The GDPR is directly applicable in each EU Member

State, however, it provides that EU Member States may introduce further conditions, including limitations which could limit our ability

to collect, use and share personal data (including health and medical information), or could cause our compliance costs to increase, ultimately

having an adverse impact on our business.

The GDPR imposes onerous accountability obligations requiring data controllers and processors

to maintain a record of their data processing and implement policies as part of its mandated privacy governance framework.

It also requires

data controllers to be transparent and disclose to data subjects (in a concise, intelligible and easily accessible form) how their personal

information is to be used, imposes limitations on retention of personal data;

If the Ameluz Licensor develops this new lamp, once the Ameluz Licensor’s PMA application is submitted to the FDA as part of this

approval process, it may take more than six months, plus, if needed, time required to answer questions or provide additional data.

to submission, the Ameluz Licensor will need to perform final tests on the lamp prototype, including technical tests by a certified laboratory

and a usability study.

During the process, there is a risk that the FDA might ask for additional tests or even clinical trials, and there

is no assurance that the Ameluz Licensor will be able to satisfy the FDA’s requests for additional tests or trials in a timely

manner, or at all, and there is no assurance that the Ameluz Licensor will be able to develop this new lamp, or obtain approval to use

it in the United States for PDT treatment of actinic keratosis in combination with Ameluz ® .

FDA can delay, limit or deny clearance or approval of a device for many reasons, including:

Biofrontera Group’s inability to demonstrate that its products are safe and effective for their intended uses or substantially

equivalent to a predicate device;

data from the Biofrontera Group’s clinical trials may not be sufficient to support clearance or approval;

manufacturing process or facilities we use may not meet applicable requirements.

addition, the FDA and other regulatory authorities may change their respective clearance and approval policies, adopt additional regulations

or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our licensed products under

development or impact our ability to modify our currently cleared or approved products on a timely basis.

delay in, or failure to receive or maintain, clearance or approval for such products under development that we expect to license could

prevent us from generating revenue from these products or achieving profitability.

Additionally, the FDA and comparable foreign regulatory

authorities have broad enforcement powers.

Regulatory enforcement or inquiries, or other increased scrutiny of us, could dissuade some

customers from using our licensed products and adversely affect our reputation and the perceived safety and efficacy of our licensed

to comply with applicable regulations could jeopardize our ability to sell our licensed products and result in enforcement actions against

our Licensors such as fines, civil penalties, injunctions, warning letters, Form 483 reports, recalls of products, delays in the introduction

of products into the market, refusal of the FDA or other regulators to grant future clearances or approvals, and the suspension or withdrawal

of existing approvals by the FDA or other regulators.

Any of these sanctions could result in higher than anticipated costs or lower than

anticipated sales and have a material adverse effect on our reputation, business, financial condition and operating results.

a result of our current IT infrastructure and German-based subsidiary, we are subject to governmental regulation and other legal obligations in the EU and

European Economic Area, or EEA, related to privacy, data protection and data security and, as a result of our sales in California,

the California Consumer Privacy Act (CCPA).

Our actual or perceived failure to comply with such obligations could harm our

are subject to diverse laws and regulations relating to data privacy and security in the EU and eventually in the EEA, including Regulation

2016/679, known as the GDPR.

The GDPR applies extraterritorially and implements stringent operational requirements for controllers and

processors of personal data.

New global privacy rules are being enacted and existing ones are being updated and strengthened.

likely to be required to expend capital and other resources to ensure ongoing compliance with these laws and regulations.

with these numerous, complex and often changing regulations is expensive and difficult.

Failure by us, any partners, our service providers,

or our employees or contractors to comply with the GDPR could result in regulatory investigations, enforcement notices and/or fines of

up to the higher of €20 million or up to 4% of our total worldwide annual revenue.

In addition to the foregoing, a breach of privacy

laws or data security laws, particularly those resulting in a significant security incident or breach involving the misappropriation,

loss or other unauthorized use or disclosure of sensitive or confidential patient or consumer information, could have a material adverse

effect on our business, reputation and financial condition.

a data controller, we are accountable for any third-party service providers we engage to process personal data on our behalf.

to mitigate the associated risks by performing security assessments and due diligence of our vendors and requiring all such third-party

providers with data access to sign agreements and obligating them to only process data according to our instructions and to take sufficient

security measures to protect such data.

There is no assurance that these contractual measures and our own privacy and security-related

safeguards will protect us from the risks associated with the third-party processing, storage and transmission of such information.

violation of data or security laws by our third-party processors could have a material adverse effect on our business and result in the

fines and penalties outlined above.

we transfer personal data of EU citizens or anyone residing in the EU out of the EU and EEA, we do so in compliance with the relevant

data export requirements from time to time.

There is currently ongoing litigation challenging the commonly used transfer mechanism, the

EU Commission approved model clauses.

On July 16, 2020, the Court of Justice of the European Union, or CJEU, issued a judgment which

annulled, without granting a grace or transition period, the European Commission’s Decision (EU) 2016/1250 of July 12, 2016 on

the adequacy of the protection provided by the U.S.

Privacy Shield (a mechanism for complying with data protection requirements when

transferring personal data from the EU to the United States).

Accordingly, such framework is not a valid mechanism to comply with EU

data protection requirements when transferring personal data from the European Union to the United States.

To the extent that we were

to rely on the EU-U.S.

Privacy Shield Framework, we will not be able to do so in the future, which could increase our costs and limit

our ability to process personal data from the EU.

The same decision also cast doubt on the viability of one of the primary alternatives

Privacy Shield, namely, the European Commission’s Standard Contractual Clauses, as a vehicle for such transfers in

all circumstances.

Use of the standard contractual clauses must now be assessed on a case-by-case basis taking into account the legal

regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals and additional measures

and/or contractual provisions may need to be put in place, however, the nature of these additional measures is currently uncertain.

CJEU went on to state that if a competent supervisory authority believes that the Standard Contractual Clauses cannot be complied with

in the destination country and the required level of protection cannot be secured by other means, such supervisory authority is under

an obligation to suspend or prohibit that transfer.

At present, there are few, if any, viable alternatives to the Standard Contractual

Clauses, and the law in this area remains dynamic.

These changes may require us to find alternative bases for the compliant transfer

of personal data outside the EEA and we are monitoring developments in this area.

GDPR is directly applicable in each EU Member State, however, it provides that EU Member States may introduce further conditions, including

limitations which could limit our ability to collect, use and share personal data (including health and medical information), or could

cause our compliance costs to increase, ultimately having an adverse impact on our business.

The GDPR imposes onerous accountability

obligations requiring data controllers and processors to maintain a record of their data processing and implement policies as part of

its mandated privacy governance framework.

It also requires data controllers to be transparent and disclose to data subjects (in a concise,

intelligible and easily accessible form) how their personal information is to be used, imposes limitations on retention of personal data;

defines for the first time pseudonymized ( i.e.

, key-coded) data;

introduces mandatory data breach notification requirements;

and sets higher standards for data controllers to demonstrate that they

have obtained valid consent for certain data processing activities.

In addition to the foregoing, a breach of the GDPR could result in

regulatory investigations, reputational damage, orders to cease/change our use of data, enforcement notices, as well potential civil claims

including class action type litigation where individuals suffer harm.

California recently enacted the California Consumer

Privacy Act, or CCPA, which will, among other things, require new disclosures to California consumers and afford such consumers new abilities

to opt out of certain sales of personal information, which went into effect on January 1, 2020.

This Act also applies to any information

of certain patients that a drug company may possess.

It remains unclear what, if any, modifications will be made to this legislation or

how it will be interpreted in the years to come.

The effects of the CCPA potentially are significant, however, and may require us to modify

our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.

As a general matter, compliance

with laws, regulations, and any applicable rules or guidance from self-regulatory organizations relating to privacy, data protection,

information security and consumer protection, may result in substantial costs and may necessitate changes to our business practices, which

may compromise our growth strategy, adversely affect our ability to acquire customers, and otherwise adversely affect our business, financial

condition and operating results.

Noncompliance with CCPA could result in regulatory investigations, reputational damage, orders to cease/change

our use of data, enforcement notices, as well potential civil claims including class action type litigation where individuals suffer harm.

We are highly dependent on our key personnel, and

if we are not successful in attracting and retaining highly qualified personnel, we may be unable to successfully implement our business

Our ability to compete in the highly competitive

pharmaceutical industry depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel

with specialized scientific and technical skills.

We are highly dependent on our management, scientific, medical and operations personnel,

including Erica Monaco, our Chief Executive Officer, and Prof.

Hermann Lübbert, our Executive Chairman.

The loss of the

services of any of our executive officers or other key employees and our inability to find suitable replacements could potentially harm

our business, prospects, financial condition or results of operations.

Despite our efforts to retain valuable employees,

members of our management team may terminate their employment with us on short notice.

Although we have, or are in the process of negotiating,

employment agreements with our key employees, these employees could leave our employment at any time, with certain notice periods.

do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees.

Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers

as well as junior, mid-level and senior scientific and medical personnel and sales representatives.

Many of the other biotechnology and pharmaceutical

companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer

history in the industry than we do.

They may also provide more diverse opportunities and better chances for career advancement.

these characteristics may be more appealing to high quality candidates than what we can offer.

If we are unable to continue to attract

and retain high quality personnel, our ability to commercialize our licensed products will be limited.

Our employees may engage in misconduct or other

improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of employee fraud or other

Misconduct by employees could include intentional failures to comply with FDA regulations, provide accurate information to

the FDA, comply with manufacturing standards we have established, comply with healthcare fraud and abuse laws and regulations, report

financial information or data accurately or disclose unauthorized activities to us.

In particular, sales, marketing and business arrangements

in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other

abusive practices in the United States as well as in any other jurisdictions where we conduct our business.

These laws and regulations

may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs

and other business arrangements.

Employee misconduct could also involve the improper use of information obtained in the course of clinical

trials, which could result in regulatory sanctions, inability to obtain product approval and serious harm to our reputation.

always possible to identify and deter employee misconduct, and any precautions we take to detect and prevent this activity may not be

effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or

lawsuits stemming from a failure to be in compliance with such laws or regulations.

If any such actions are instituted against us, and

we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including

the imposition of significant fines or other sanctions.

We will need to grow the size of our organization

and we may experience difficulties in managing this growth.

As of December 31, 2021, we had 69 employees.

the longer term, as our development and commercialization plans and strategies develop, and as we continue operating as a public company,

we expect to need additional managerial, operational, sales, marketing, financial and other personnel.

Future growth would impose significant

added responsibilities on members of management, including:

identifying, recruiting, integrating, maintaining and motivating existing or additional employees;

improving our operational, financial and management controls, reporting systems and procedures.

Our future financial performance and our ability to

commercialize and market our licensed products will depend, in part, on our ability to effectively manage any future growth, and our management

may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount

of time to managing these growth activities.

If we are not able to effectively expand our organization by hiring new employees and expanding

our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to commercialize our licensed

products and, accordingly, may not achieve our commercialization goals.

Due to our ongoing assessment of the size of the required

sales force, we may be required to hire substantially more sales representatives to adequately support the commercialization and marketing

of our licensed products or we may incur excess costs as a result of hiring more sales representatives than necessary.

We may be competing

with companies that currently have extensive and well-funded marketing and sales operations.

Our business and operations would suffer in the

event of system failures, cyber-attacks or a deficiency in our cyber-security.

Despite the implementation of security measures, our

internal computer systems and those of our current and future contract and research organizations, or CROs, and other contractors and

consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication

and electrical failures.

The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including

by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of

attempted attacks and intrusions from around the world have increased.

While we have not experienced any such material system failure,

accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material

disruption of our development programs and our business operations.

To the extent that any disruption or security breach were to result

in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could

incur liability and the further development and commercialization of our licensed products and product candidates could be delayed.

If product liability lawsuits are brought against

us, we may incur substantial liabilities and may be required to limit commercialization of our licensed products.

We face an inherent risk of product liability as a

result of the clinical testing of our licensed products and face an even greater risk if we commercialize our licensed products on a larger

For example, we may be sued if our licensed products allegedly cause injury or are found to be otherwise unsuitable during clinical

testing, manufacturing, marketing or sale.

Any such product liability claims may include allegations of defects in manufacturing;

a failure to warn of dangers inherent in the product, negligence, strict liability;

sets higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities.

In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease/change

our use of data, enforcement notices, as well potential civil claims including class action type litigation where individuals suffer

January 1, 2020, California enacted the California Consumer Privacy Act, or CCPA, which, among other things, requires

new disclosures to California consumers and affords such consumers new abilities to opt out of certain sales of personal information.

This Act also applies to any information of certain patients that a drug company may

It remains unclear what, if any, modifications will be made to this legislation or how it will be interpreted in the years

The effects of the CCPA potentially are significant, however, and may require us to modify our data processing practices

and policies and to incur substantial costs and expenses in an effort to comply.

As a general matter, compliance with laws,

regulations, and any applicable rules or guidance from self-regulatory organizations relating to privacy, data protection,

information security and consumer protection, may result in substantial costs and may necessitate changes to our business practices,

which may compromise our growth strategy, adversely affect our ability to acquire customers, and otherwise adversely affect our

business, financial condition and operating results.

Noncompliance with CCPA could result in regulatory investigations, reputational

damage, orders to cease/change our use of data, enforcement notices, as well potential civil claims including class action type

litigation where individuals suffer harm.

Since its enactment, four (4) additional states – Colorado, Connecticut, Utah, and Virginia – have enacted

comprehensive consumer data privacy laws similar to the CCPA, indicating a potential trend that may continue to spread across the U.S.

are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may

be unable to successfully implement our business strategy.

ability to compete in the highly competitive pharmaceutical industry depends upon our ability to attract and retain highly qualified

managerial, scientific and medical personnel with specialized scientific and technical skills.

We are highly dependent on our

management, scientific, medical and operations personnel, including Erica Monaco, our Chief Executive Officer, Prof.

Lübbert, our Executive Chairman and Fred Leffler, our Chief Financial Officer.

The loss of the services of any of our executive officers or other key employees and our

inability to find suitable replacements could potentially harm our business, prospects, financial condition or results of

our efforts to retain valuable employees, members of our management team may terminate their employment with us on short notice.

we have, or are in the process of negotiating, employment agreements with our key employees, these employees could leave our employment

at any time, with certain notice periods.

We do not maintain “key man” insurance policies on the lives of these individuals

or the lives of any of our other employees.

Our success also depends on our ability to continue to attract, retain and motivate highly

skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel and sales representatives.

of the other biotechnology and pharmaceutical companies that we compete against for qualified personnel have greater financial and other

resources, different risk profiles and a longer history in the industry than we do.

They may also provide more diverse opportunities

and better chances for career advancement.

Some of these characteristics may be more appealing to high quality candidates than what we

If we are unable to continue to attract and retain high quality personnel, our ability to commercialize our licensed products

will be limited.

employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

are exposed to the risk of employee fraud or other misconduct.

Misconduct by employees could include intentional failures to comply with

FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we have established, comply with healthcare

fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us.

In particular,

sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent

fraud, kickbacks, self-dealing and other abusive practices in the United States as well as in any other jurisdictions where we conduct

our business.

These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales

commission, customer incentive programs and other business arrangements.

Employee misconduct could also involve the improper use of information

obtained in the course of clinical trials, which could result in regulatory sanctions, inability to obtain product approval and serious

harm to our reputation.

It is not always possible to identify and deter employee misconduct, and any precautions we take to detect and

prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental

investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.

If any such actions

are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant

impact on our business, including the imposition of significant fines or other sanctions.

will need to grow the size of our organization and we may experience difficulties in managing this growth.

of December 31, 2022, we had 81 employees.

In the longer term, as our development and commercialization plans and strategies develop,

and as we continue operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and

other personnel.

Future growth would impose significant added responsibilities on members of management, including:

recruiting, integrating, maintaining and motivating existing or additional employees;

our operational, financial and management controls, reporting systems and procedures.

future financial performance and our ability to commercialize and market our licensed products will depend, in part, on our ability to

effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from

day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

If we are not able to effectively

expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully

implement the tasks necessary to commercialize our licensed products and, accordingly, may not achieve our commercialization goals.

to our ongoing assessment of the size of the required sales force, we may be required to hire substantially more sales representatives

to adequately support the commercialization and marketing of our licensed products or we may incur excess costs as a result of hiring

more sales representatives than necessary.

We may be competing with companies that currently have extensive and well-funded marketing

and sales operations.

business and operations would suffer in the event of system failures, cyber-attacks or a deficiency in our cyber-security.

the implementation of security measures, our internal computer systems and those of our current and future contract and research organizations,

or CROs, and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters,

terrorism, war and telecommunication and electrical failures.

The risk of a security breach or disruption, particularly through cyber-attacks

or cyber-intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number,

intensity and sophistication of attempted attacks and intrusions from around the world have increased.

While we have not experienced

any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our

operations, it could result in a material disruption of our development programs and our business operations.

To the extent that any

disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential

or proprietary information, we could incur liability and the further development and commercialization of our licensed products and product

candidates could be delayed.

product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization

of our licensed products.

face an inherent risk of product liability as a result of the clinical testing of our licensed products and face an even greater risk

if we commercialize our licensed products on a larger scale.

For example, we may be sued if our licensed products allegedly cause injury

or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale.

Any such product liability claims

may include allegations of defects in manufacturing;

defects in design;

a failure to warn of dangers inherent in the product, negligence,

strict liability;

and a breach of warranties.

also be asserted under state consumer protection acts.

If we cannot successfully defend ourselves against product liability claims, we

may incur substantial liabilities or be required to limit commercialization of our licensed products and product candidates.

Even a successful

defense would require significant financial and management resources.

Regardless of the merits or eventual outcome, liability claims may

costs to defend litigation and other proceedings;

a diversion of management’s time and our resources;

decreased demand for our licensed products;

injury to our reputation;

withdrawal of clinical trial participants;

initiation of investigations by regulators;

product recalls, withdrawals or labeling, marketing or promotional restrictions;

loss of revenue;

substantial monetary awards to trial participants or patients;

exhaustion of any available insurance and our capital resources;

the inability to commercialize our licensed products;

a decline in our share price.

We currently maintain product liability insurance.

If such insurance is not sufficient, or if we are not able to obtain such insurance at an acceptable cost in the future, potential product

liability claims could prevent or inhibit the commercialization of our licensed products and the products we license in the future.

successful claim could materially harm our business, financial condition or results of operations.

Additionally, we cannot guarantee that

continued product liability insurance coverage will be available in the future at acceptable costs.

Failure to comply with the U.S.

Foreign Corrupt

Practices Act or other applicable anti-corruption legislation could result in fines, criminal penalties and an adverse effect on our business.

We do business with Licensors in a number of countries

throughout the world.

We are committed to doing business in accordance with applicable anti-corruption laws.

We are subject, however,

to the risk that our officers, directors, employees, agents and collaborators may take action determined to be in violation of such anti-corruption

laws, including the U.S.

Claims could also be asserted under state consumer protection acts.

If we cannot successfully

defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of

our licensed products and product candidates.

Even a successful defense would require significant financial and management resources.

Regardless of the merits or eventual outcome, liability claims may result in:

to defend litigation and other proceedings;

diversion of management’s time and our resources;

demand for our licensed products;

to our reputation;

of clinical trial participants;

of investigations by regulators;

recalls, withdrawals or labeling, marketing or promotional restrictions;

monetary awards to trial participants or patients;

of any available insurance and our capital resources;

inability to commercialize our licensed products;

decline in our share price.

currently maintain product liability insurance.

If such insurance is not sufficient, or if we are not able to obtain such insurance at

an acceptable cost in the future, potential product liability claims could prevent or inhibit the commercialization of our licensed products

and the products we license in the future.

A successful claim could materially harm our business, financial condition or results of operations.

Additionally, we cannot guarantee that continued product liability insurance coverage will be available in the future at acceptable costs.

to comply with the U.S.

Foreign Corrupt Practices Act or other applicable anti-corruption legislation could result in fines, criminal

penalties and an adverse effect on our business.

do business with Licensors in a number of countries throughout the world.

We are committed to doing business in accordance with applicable

anti-corruption laws.

We are subject, however, to the risk that our officers, directors, employees, agents and collaborators may take

action determined to be in violation of such anti-corruption laws, including the U.S.

Foreign Corrupt Practices Act of 1977, the U.K.

Bribery Act 2010 and the European Union Anti-Corruption Act,

as well as trade sanctions administered by the U.S.

Office of Foreign Assets Control and the U.S.

Bribery Act 2010 and the European Union Anti-Corruption Act, as well as trade sanctions administered by the U.S.

Office of Foreign Assets

Control and the U.S.

Department of Commerce.

Any such violation

could result in substantial fines, sanctions, civil and/or criminal penalties or curtailment of operations in certain jurisdictions and

might adversely affect our results of operations.

In addition, actual or alleged violations could damage our reputation and ability to

Our licensed products will be subject to ongoing

regulatory requirements and we may face future development, manufacturing and regulatory difficulties.

Our licensed drug products Ameluz ®

and Xepi ® and any other drug products we license or acquire will be subject to ongoing regulatory requirements for labeling,

packaging, storage, advertising, promotion, sampling, record-keeping, submission of safety and other post-market approval information,

importation and exportation.

In addition, approved products, manufacturers and manufacturers’ facilities are required to comply

with extensive FDA requirements and the requirements of other similar regulatory authorities, including ensuring that quality control

and manufacturing procedures conform to cGMP requirements.

Accordingly, we rely on our Licensors to expend time,

money and effort in all areas of regulatory compliance, including manufacturing, production and quality control.

Our Licensors will also

be required to report certain adverse reactions and production problems, if any, to the FDA and other similar regulatory authorities and

to comply with certain requirements concerning advertising and promotion for our licensed products and potential products.

If a regulatory authority discovers previously unknown

problems with a product, such as adverse events of unanticipated or unacceptable severity or frequency, or problems with the facility

where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, it may impose restrictions on

that product, including requiring withdrawal of the product from the market.

If our licensed products or potential products fail to comply

with applicable regulatory requirements, a regulatory authority may, among other actions against our Licensors or applicable third parties:

issue warning letters or Form 483 (or similar) notices requiring our Licensors or applicable third parties to modify certain activities or correct certain deficiencies;

require product recalls or impose civil monetary fines;

mandate modifications to promotional materials or require our Licensors to provide corrective information to healthcare practitioners;

require our Licensors or applicable third parties to enter into a consent decree or permanent injunction;

impose other administrative or judicial civil or criminal actions, including monetary or other penalties, or pursue criminal prosecution;

withdraw regulatory approval;

refuse to approve pending applications or supplements to approved applications filed by our Licensors;

impose restrictions on operations, including costly new manufacturing requirements;

seize or detain products.

To the extent that such adverse actions impact our

rights under our license and supply agreements or otherwise restrict our ability to market our licensed products, they could adversely

impact our business and results of operation.

Generic manufacturers may launch products at risk

of patent infringement.

If other manufacturers launch products to compete

with our licensed products or product candidates in spite of our Licensors’ patent position, these manufacturers would likely erode

our market and negatively impact our sales revenues, liquidity and results of operations.

Risks Related to Our Financial Position and Capital

We have a history of operating losses and anticipate

that we will continue to incur operating losses in the future and may never sustain profitability.

We have incurred losses in each year since inception.

Our net loss for the fiscal years ended December 31, 2021 and December 31, 2020 was $37.7 million and $11.0 million, respectively.

Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties

or curtailment of operations in certain jurisdictions and might adversely affect our results of operations.

In addition, actual or alleged

violations could damage our reputation and ability to do business.

licensed products will be subject to ongoing regulatory requirements and we may face future development, manufacturing and regulatory

difficulties.

licensed drug products Ameluz ® and Xepi ® and any other drug products we license or acquire will be subject

to ongoing regulatory requirements for labeling, packaging, storage, advertising, promotion, sampling, record-keeping, submission of

safety and other post-market approval information, importation and exportation.

In addition, approved products, manufacturers and manufacturers’

facilities are required to comply with extensive FDA requirements and the requirements of other similar regulatory authorities, including

ensuring that quality control and manufacturing procedures conform to cGMP requirements.

we rely on our Licensors to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production

and quality control.

Our Licensors will also be required to report certain adverse reactions and production problems, if any, to the

FDA and other similar regulatory authorities and to comply with certain requirements concerning advertising and promotion for our licensed

products and potential products.

a regulatory authority discovers previously unknown problems with a product, such as adverse events of unanticipated or unacceptable

severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or

labeling of a product, it may impose restrictions on that product, including requiring withdrawal of the product from the market.

our licensed products or potential products fail to comply with applicable regulatory requirements, a regulatory authority may, among

other actions against our Licensors or applicable third parties:

warning letters or Form 483 (or similar) notices requiring our Licensors or applicable third parties to modify certain activities

or correct certain deficiencies;

product recalls or impose civil monetary fines;

modifications to promotional materials or require our Licensors to provide corrective information to healthcare practitioners;

our Licensors or applicable third parties to enter into a consent decree or permanent injunction;

other administrative or judicial civil or criminal actions, including monetary or other penalties, or pursue criminal prosecution;

regulatory approval;

to approve pending applications or supplements to approved applications filed by our Licensors;

restrictions on operations, including costly new manufacturing requirements;

or detain products.

the extent that such adverse actions impact our rights under our license and supply agreements or otherwise restrict our ability to market

our licensed products, they could adversely impact our business and results of operation.

manufacturers may launch products at risk of patent infringement.

other manufacturers launch products to compete with our licensed products or product candidates in spite of our Licensors’ patent

position, these manufacturers would likely erode our market and negatively impact our sales revenues, liquidity and results of operations.

Related to Our Financial Position and Capital Requirements

have a history of operating losses and anticipate that we will continue to incur operating losses in the future and may never sustain

profitability.

have incurred losses in each year since inception.

Our net loss for the fiscal years ended December 31, 2022 and December 31, 2021 was

$0.6 million and $37.7 million, respectively.

As of December 31, 2022, we had an accumulated deficit of $79.5 million.

Our ability to become profitable depends on our ability

to further commercialize our principal licensed product Ameluz ® .

Even if we are successful in increasing our licensed product

sales, we may never achieve or sustain profitability.

In the long term, we anticipate increasing our sales and marketing expense as we

attempt to exploit the regulatory approvals to market Ameluz ® in the United States for the photodynamic therapy treatment

of actinic keratoses of mild-to-moderate severity on the face and scalp.

There can be no assurance that our sales and marketing efforts

will generate sufficient sales to allow us to become profitable.

Moreover, because of the numerous risks and uncertainties associated

with commercializing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable,

We cannot rule out the possibility that we may engage

in additional equity or debt financing in the future, which could dilute the voting rights of stockholders and the value of their shares.

If we are unable to achieve profitability over time or to obtain additional equity or debt financing in such a scenario, this would have

a material adverse effect on our financial condition.

If we fail to obtain additional financing, we

may be unable to pursue our plans for strategic growth, including completing the commercialization of Xepi ® and

other products we may license.

Our operations have consumed substantial amounts

of cash since inception.

Going forward, we expect that we will require significant funds in order to pursue our plans for strategic

growth, including completing the commercialization of the drug Xepi ® , the rights to which we acquired in March 2019

through our purchase of Cutanea, and the subsequent merger of Biofrontera and Cutanea.

Through December 31,

2021, we received an aggregate of $41.7 million, including $14.9 million from a sale of common stock in our IPO, $13.6 million from a

private placement, and $13.2 million from warrants exercised for common stock.

We believe with the funds available from these transactions

that we will have sufficient funds to support the operating, investing, and financing activities of the Company through at least twelve

months from the date of the issuance of this Form 10-K.

However, changing circumstances may cause us to consume capital significantly

faster than currently anticipated, and we may need to spend more money than currently expected because of circumstances beyond our control.

In addition, if we choose to take significant steps towards the realization during the current fiscal year of longer-term goals for

our strategic growth, we may need to raise additional capital through debt or equity financing in order to complete those steps during

the current fiscal year.

Our future funding requirements, both near- and long-term, will depend on many factors, including, but not

the effects of competing technological and market developments;

the cost and timing of completion of commercial-scale manufacturing activities;

the cost of establishing or maintaining sales, marketing and distribution capabilities for Ameluz ® photodynamic therapy or other licensed products or potential products in the United States;

the impact of COVID-19 on our licensor’s clinical trials, the timing of regulatory approvals obtained by our Licensors, demand for our licensed products, our ability to market and sell our licensed products and other matters.

We cannot be certain that additional funding for

any purpose will be available to us on acceptable terms, or at all.

If we are unable to raise additional capital in sufficient amounts

and on terms acceptable to us, we may have to significantly delay, scale back or discontinue the commercialization of our licensed products

or other plans for strategic growth.

We also could be required to license our rights to our licensed products and product candidates

to third parties on unfavorable terms.

In addition, any equity financing would likely result in dilution to holders of our securities,

and any debt financing would likely involve significant cash payment obligations and include restrictive covenants that may restrict

our ability to operate our business.

Any of the above events could prevent us from realizing

business opportunities or prevent us from growing our business or responding to competitive pressures, which could have a material adverse

effect on our business, prospects, financial condition and/or results of operations and could cause the price of our shares to decline.

Our existing and any future indebtedness could

adversely affect our ability to operate our business.

Under the Share Purchase and Transfer Agreement

dated March 25, 2019 (as amended, the “Share Purchase Agreement”), by and among Biofrontera Newderm LLC, Biofrontera AG,

Maruho Co., Ltd.

ability to become profitable depends on our ability to further commercialize our principal licensed product Ameluz ® .

if we are successful in increasing our licensed product sales, we may never achieve or sustain profitability.

In the long term, we anticipate

increasing our sales and marketing expense as we attempt to exploit the regulatory approvals to market Ameluz ® in the

United States for the photodynamic therapy treatment of actinic keratoses of mild-to-moderate severity on the face and scalp.

be no assurance that our sales and marketing efforts will generate sufficient sales to allow us to become profitable.

Moreover, because

of the numerous risks and uncertainties associated with commercializing pharmaceutical products, we are unable to predict the extent

of any future losses or when we will become profitable, if ever.

cannot rule out the possibility that we may engage in additional equity or debt financing in the future, which could dilute the voting

rights of stockholders and the value of their shares.

If we are unable to achieve profitability over time or to obtain additional equity

or debt financing in such a scenario, this would have a material adverse effect on our financial condition.

we fail to obtain additional financing, we may be unable to pursue our plans for strategic growth, including completing the commercialization

of Xepi ® and other products we may license.

operations have consumed substantial amounts of cash since inception.

Going forward, we expect that we will require significant funds

in order to pursue our plans for strategic growth, including completing the commercialization of the drug Xepi ® , the rights

to which we acquired in March 2019 through our purchase of Cutanea, and the subsequent merger of Biofrontera and Cutanea.

the year ended December 31, 2022, we received an aggregate of $14 million, including $9.4 million from a private placement, net of

issuance costs, and $4.6 million from warrants exercised for common stock.

We believe with the funds available from these

transactions and availability under a working capital line of credit, that we will have sufficient funds to support the operating,

investing, and financing activities of the Company through at least twelve months from the date of the issuance of this Form 10-K.

However, changing circumstances may cause us to consume capital significantly faster than currently anticipated, and we may need to

spend more money than currently expected because of circumstances beyond our control.

In addition, if we choose to take significant

steps towards the realization during the current fiscal year of longer-term goals for our strategic growth, we may need to raise

additional capital through debt or equity financing in order to complete those steps during the current fiscal year.

funding requirements, both near- and long-term, will depend on many factors, including, but not limited to:

effects of competing technological and market developments;

cost and timing of completion of commercial-scale manufacturing activities;

cost of establishing or maintaining sales, marketing and distribution capabilities for Ameluz ® photodynamic therapy

or other licensed products or potential products in the United States;

impact of COVID-19 on our licensor’s clinical trials, the timing of regulatory approvals obtained by our Licensors, demand

for our licensed products, our ability to market and sell our licensed products and other matters.

cannot be certain that additional funding for any purpose will be available to us on acceptable terms, or at all.

If we are unable to

raise additional capital in sufficient amounts and on terms acceptable to us, we may have to significantly delay, scale back or discontinue

the commercialization of our licensed products or other plans for strategic growth.

We also could be required to license our rights to

our licensed products and product candidates to third parties on unfavorable terms.

In addition, any equity financing would likely result

in dilution to holders of our securities, and any debt financing would likely involve significant cash payment obligations and include

restrictive covenants that may restrict our ability to operate our business.

of the above events could prevent us from realizing business opportunities or prevent us from growing our business or responding to competitive

pressures, which could have a material adverse effect on our business, prospects, financial condition and/or results of operations and

could cause the price of our shares to decline.

existing and any future indebtedness could adversely affect our ability to operate our business.

the Share Purchase and Transfer Agreement dated March 25, 2019 (as amended, the “Share Purchase Agreement”), by and among

Biofrontera Newderm LLC, Biofrontera AG, Maruho Co., Ltd.

and Cutanea, pursuant to which Biofrontera Newderm Inc.

LLC, a wholly owned subsidiary of Biofrontera Inc., acquired

Cutanea from Maruho Co., Ltd., we are required to repay to Maruho Co., Ltd., $3.6 million on December 31, 2022 and $3.7 million on December

31, 2023 in start-up costs that Maruho Co., Ltd.

paid to us, in connection with such acquisition (not to exceed $7.3 million in

the aggregate).

Our indebtedness could have significant adverse consequences,

requiring us to dedicate a portion of our cash to the payment of interest and principal, reducing money available for working capital, capital expenditure, product development and other general corporate purposes;

increasing our vulnerability to adverse changes in general economic, industry and market conditions;

increasing the risk of dilution to the holders of our shares in the event any of these bonds are exercised for or converted into our ordinary shares;

limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete, including changes arising as a result of the COVID-19 pandemic;

placing us at a competitive disadvantage to competitors that are better capitalized than we are.

We may not have sufficient funds and may be unable

to arrange for additional financing to pay the amounts due under our existing debt obligation to Maruho Co.

under the terms of such

Share Purchase Agreement, and which must be repaid if certain profits from the sale of Cutanea products the Biofrontera Group agreed to

share with Maruho are less than the amount of such start-up costs.

We may also engage in debt financing in the future.

Failure to make payments or comply with covenants under such debt could result in an event of default and acceleration of amounts due.

If an event of default occurs and the lender or lenders accelerate the amounts due, we may not be able to make accelerated payments, and

such lenders could file suit against us to collect the amounts due under such obligations or pursue other remedies.

In addition, the covenants

under such debt obligations could limit our ability to obtain additional debt financing.

If we are unable to satisfy such debt obligations

it could have material adverse effect on our business, prospects, financial condition and/or results of operations.

Risks Related to Corporate Governance, Including

Being a Public Company

have identified a material weakness in our internal control over financial reporting, resulting from control deficiencies related

LLC, a wholly owned

subsidiary of Biofrontera Inc., acquired Cutanea from Maruho Co., Ltd., we are required to repay to Maruho Co., Ltd., $3.6 million on

December 31, 2022 and $3.7 million on December 31, 2023 in start-up costs that Maruho Co., Ltd.

paid to us, in connection with such acquisition

(not to exceed $7.3 million in the aggregate).

have filed for arbitration against Maruho with the International Chamber of Commerce (“ICC”) regarding issues with Maruho’s

contract manufacturer that were not disclosed at the time of the Agreement and therefore are evaluating the repayment of the $7.3 million

of start-up costs.

The arbitration notes that Maruho breached the agreement with Cutanea due to the undisclosed manufacturing

issues and seeks damages as well as a declaration that we are not obligated to repay Maruho

In addition, on March 9, 2023, we entered into a commitment

letter (the “Commitment Letter”) with MidCap Business Credit LLC (“MidCap”), in respect of MidCap’s commitment

to provide us with a senior secured asset based revolving line of credit, subject to the borrowing base formula, minimum excess availability

and other terms and conditions thereof, in the aggregate principal amount of up to $6.5 million (the “Revolving Facility”).

The Revolving Facility shall be secured by a lien on substantially all of the assets of the Company, subject to customary exceptions.

For additional details regarding the Revolving Facility see Item 9.B.

Other Information in this Form 10-K.

Entry into the Revolving

Facility will be subject to customary closing conditions, including the execution and delivery of appropriate definitive documentation

related to the Revolving Facility, to include customary representations, warranties, covenants, events of default and other terms and

conditions, and there can be no assurance that such closing conditions will be satisfied or that the Revolving Facility will be entered

into prior to the expiration of MidCap’s commitment or at all.

indebtedness could have significant adverse consequences, including:

us to dedicate a portion of our cash to the payment of interest and principal, reducing money available for working capital, capital

expenditure, product development and other general corporate purposes;

our vulnerability to adverse changes in general economic, industry and market conditions;

the risk of dilution to the holders of our shares in the event any of these bonds are exercised for or converted into our ordinary

our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete, including changes

arising as a result of the COVID-19 pandemic;

us at a competitive disadvantage to competitors that are better capitalized than we are.

may not have sufficient funds and may be unable to arrange for additional financing to pay the amounts due under our existing debt obligation

to Maruho Co.

under the terms of such Share Purchase Agreement, and which must be repaid if certain profits from the sale of Cutanea

products the Biofrontera Group agreed to share with Maruho are less than the amount of such start-up costs.

may also engage in debt financing in the future.

Failure to make payments or comply with covenants under such debt could result in an

event of default and acceleration of amounts due.

If an event of default occurs and the lender or lenders accelerate the amounts due,

we may not be able to make accelerated payments, and such lenders could file suit against us to collect the amounts due under such obligations

or pursue other remedies.

In addition, the covenants under such debt obligations could limit our ability to obtain additional debt financing.

If we are unable to satisfy such debt obligations it could have material adverse effect on our business, prospects, financial condition

and/or results of operations.

valuation of our equity investments is subject to volatility.

market valuation of our equity investments, especially as it relates to our investment in Biofrontera AG which is publicly traded,

may experience substantial price volatility which, when accounted for under GAAP, could have a material adverse effect on our

financial condition and results of operations.

Refer to Note 6, Investments in Equity Securities , to our consolidated

financial statements for information on our equity investments.

of December 31, 2022, our investment in Biofrontera AG, a foreign publicly held company and significant shareholder, had a balance

of $10.5 million.

Our shares of Biofrontera AG are carried in our consolidated balance sheets at fair value based on the closing

price of the shares owned on the last trading day of the reporting period.

Those investments

can be negatively affected by market and economic factors including liquidity, credit deterioration, financial results, interest

rate fluctuations, or other factors.

Although we intend to liquidate our investment in Biofrontera AG within the next twelve months,

we cannot guarantee that we will able to do so within that timeframe.

As a result, as long as we hold these equity investments,

future fluctuations in their value could result

in significant losses and could have a material adverse impact on the Company’s financial condition and results of

Related to Corporate Governance, Including Being a Public Company

previously identified a material weakness in our internal control over financial reporting, resulting from control deficiencies related

to management’s review of work performed by specialists.

If we are unable to remediate this weakness, or if we identify

additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able

to accurately or timely report our financial condition or results of operations, which may adversely affect our business and stock price.

A material weakness is a

deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility

that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

connection with the audits of our financial statements as of and for the years ended December 31, 2020 and December 31, 2021,

we identified a material weakness in our internal control over financial reporting.

The material weakness we identified pertains to management’s

review of work performed by specialists;

as the Company’s management review control over information provided to and

produced by a third-party specialist was not sufficiently precise to identify errors in the valuation of an intangible asset.

Specifically, as part of the initial valuation of an intangible asset in connection with the Cutanea acquisition we failed to identify

a computational error within the valuation model for the Xepi ® intangible asset.

In addition, in 2021 an error in the

valuation of the same intangible asset was identified relating to insufficient information being provided to the third-party specialist

in connection with an impairment assessment.

we have taken steps to enhance our internal control environment and continue to address the underlying cause of the material weakness

with the implementation of additional controls including those designed to strengthen our review and validation of the work product from

third-party service providers, the steps we have taken to date were not sufficient to remediate this material weakness or to avoid the

identification of material weaknesses in the future.

We will monitor the effectiveness of our remediation plan and will make changes

we determine to be appropriate.

As a result, management has concluded that the material weakness was not fully remediated as of December

We are still in process of remediating this material

weakness as of December 31, 2021.

If we are unable to remediate this material weakness, or if we identify additional material weaknesses

in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report

our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, our stock price.

We have incurred, and will continue to incur,

increased costs as a result of operating as a public company, and our management is required to devote substantial time to

compliance with our public company responsibilities and corporate governance practices.

As a public company, and particularly after we

are no longer an “emerging growth company,” we have incurred and will continue to incur significant legal,

accounting and other expenses that we did not incur as a private company.

The Sarbanes-Oxley Act of 2002, or the Sarbanes Oxley Act,

the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules

and regulations impose various requirements on public companies.

Our management and other personnel will need to devote a substantial

amount of time to compliance with these requirements.

Moreover, these rules and regulations will increase our legal and financial compliance

costs and will make some activities more time-consuming and costly.

If, notwithstanding our efforts to comply with new or changing laws,

regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us, and our business may

Further, failure to comply with these laws, regulations and standards may make it more difficult and more expensive for us

to obtain directors’ and officers’ liability insurance, which could make it more difficult for us to attract and retain qualified

members to serve on our board of directors or committees or as members of senior management.

We cannot predict or estimate the amount

of additional costs we will incur as a public company or the timing of such costs.

As a result of becoming a public company, we

are obligated to develop and maintain proper and effective internal control over financial reporting and any failure to maintain

the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our common

We will be required, pursuant to Section 404 of the

Sarbanes Oxley Act, or Section 404, to furnish a report by management on, among other things, the effectiveness of our internal controls

over financial reporting for the fiscal year ending December 31, 2022.

This assessment will need to include disclosure of any material

weaknesses identified by our management in our internal controls over financial reporting.

Our independent registered public accounting

firm will not be required to attest to the effectiveness of our internal controls over financial reporting until our first annual report

required to be filed with the SEC following the date we are no longer an emerging growth company, as defined in the JOBS Act.

time as we are required to obtain auditor attestation, if we then have a material weakness, we would receive an adverse opinion regarding

our internal control over financial reporting from our independent registered public accounting firm.

We will be required to disclose

significant changes made in our internal control procedures on a quarterly basis.

We have already begun the process of compiling the

system and processing documentation necessary to perform the evaluation needed to comply with Section 404 and anticipate we will be able

to complete our evaluation, testing and any required remediation in a timely fashion.

Our compliance with Section 404 will require that

we incur additional legal, accounting and other compliance expense and expend significant management efforts.

We currently do not have

an internal audit group, and although we have accounting and finance staff with appropriate public company experience and technical accounting

knowledge, we may need to hire additional consultants or staff to perform the evaluation needed to comply with Section 404.

If we identify additional material weaknesses in the future or otherwise

fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition

or results of operations, which may adversely affect our business and stock price.

material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is

a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected

on a timely basis.

connection with the audit of our financial statements as of and for the year ended December 31, 2021, we identified a material weakness

in our internal control over financial reporting.

The material weakness we identified pertains to management’s review of work performed

by specialists;

as the Company’s management review control over information provided to and produced by a third-party specialist

was not sufficiently precise to identify errors in the valuation of an intangible asset.

Specifically, as part of the initial valuation

of an intangible asset in connection with the Cutanea acquisition we failed to identify a computational error within the valuation model

for the Xepi ® intangible asset.

In addition, in 2021 an error in the valuation of the same intangible asset was identified

relating to insufficient information being provided to the third-party specialist in connection with an impairment assessment.

have taken steps to enhance our internal control environment and continue to address the underlying cause of the material weakness with

the implementation of additional controls including those designed to strengthen our review and validation of the work product from third-party

service providers.

As of December 31, 2022, the steps we have taken to date were determined to be sufficient to remediate this material

As a result, management has concluded that the material weakness was fully remediated as of December 31, 2022.

we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may

not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence

in us and, as a result, our stock price.

have incurred, and will continue to incur, increased costs as a result of operating as a public company, and our management is required

to devote substantial time to compliance with our public company responsibilities and corporate governance practices.

a public company, and particularly after we are no longer an “emerging growth company,” we have incurred and will continue

to incur significant legal, accounting and other expenses that we did not incur as a private company.

The Sarbanes-Oxley Act of 2002,

or the Sarbanes Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other

applicable securities rules and regulations impose various requirements on public companies.

Our management and other personnel will

need to devote a substantial amount of time to compliance with these requirements.

Moreover, these rules and regulations will increase

our legal and financial compliance costs and will make some activities more time-consuming and costly.

If, notwithstanding our efforts

to comply with new or changing laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings

against us, and our business may be harmed.

Further, failure to comply with these laws, regulations and standards may make it more difficult

and more expensive for us to obtain directors’ and officers’ liability insurance, which could make it more difficult for

us to attract and retain qualified members to serve on our board of directors or committees or as members of senior management.

predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs.

a result of becoming a public company, we are obligated to develop and maintain proper and effective internal control over financial

reporting and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company

and, as a result, the value of our common stock.

will be required, pursuant to Section 404 of the Sarbanes Oxley Act, or Section 404, to furnish a report by management on, among other

things, the effectiveness of our internal controls over financial reporting for the fiscal year ended December 31, 2022.

This assessment

will need to include disclosure of any material weaknesses identified by our management in our internal controls over financial reporting.

Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial

reporting until our first annual report required to be filed with the SEC following the date we are no longer an emerging growth company,

as defined in the JOBS Act.

At such time as we are required to obtain auditor attestation, if we then have a material weakness, we would

receive an adverse opinion regarding our internal control over financial reporting from our independent registered public accounting

We will be required to disclose significant changes made in our internal control procedures on a quarterly basis.

have already begun the process of compiling the system and processing documentation necessary to perform the evaluation needed to comply

with Section 404 and anticipate we will be able to complete our evaluation, testing and any required remediation in a timely fashion.

Our compliance with Section 404 will require that we incur additional legal, accounting and other compliance expense and expend significant

management efforts.

We currently do not have an internal audit group, and although we have accounting and finance staff with appropriate

public company experience and technical accounting knowledge, we may need to hire additional consultants or staff to perform the evaluation

needed to comply with Section 404.

the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our internal control over

1 unchanged sentence

For example, in connection

with the audits of our financial statements as of and for the years ended December 31, 2021 and 2020, we identified a material

weakness in our internal control over financial reporting.

See “— We have identified a material weakness in our internal

control over financial reporting, resulting from control deficiencies related to management’s review of work performed

by specialists.

If we are unable to remediate this material weakness, or if we identify additional material weaknesses in the future

or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial

condition or results of operations, which may adversely affect our business and stock price.

We cannot assure you that the measures we have taken to date, and are continuing

to implement, will be sufficient to avoid additional material weaknesses or significant deficiencies in our internal controls over financial

reporting in the future.

Any failure to maintain effective internal controls over financial reporting could severely inhibit our ability

to accurately report our financial condition or results of operations.

If we are unable to conclude that our internal control over financial

reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant

deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our

financial reports, the market price of shares of our common stock could decline, and we could be subject to sanctions or investigations

by Nasdaq, the SEC or other regulatory authorities.

Failure to remedy any material weakness in our internal control over financial reporting,

or to implement or maintain other effective control systems required of public companies, could also negatively impact our ability to

access to the capital markets.

In addition, effective disclosure controls and procedures

enable us to make timely and accurate disclosure of financial and non-financial information that we are required to disclose.

company, if our disclosure controls and procedures are ineffective, we may be unable to report our financial results or make other disclosures

accurately on a timely basis, which could cause our reported financial results or other disclosures to be materially misstated and result

in the loss of investor confidence and cause the market price of our securities.

We are an emerging growth company and a smaller

reporting company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies or smaller reporting

companies will make our common stock less attractive to investors.

We are an “emerging growth company” as

defined in the JOBS Act.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such

time as those standards apply to private companies.

We have elected to use this exemption from new or revised accounting standards and,

therefore, we will not be subject to the same new or revised accounting standards as other public companies that have not made this election.

For as long as we continue to be an emerging growth

company, we also intend to take advantage of certain other exemptions from various reporting requirements that are applicable to other

public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports

and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder

approval of any golden parachute payments not previously approved.

We cannot predict if investors will find our common stock less attractive

because we will rely on these exemptions.

If some investors find our common stock less attractive as a result, there may be a less active

trading market for our common stock and our stock price may be more volatile.

We will remain an emerging growth company until the

earliest of (i) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more;

(ii) the last day

of the fiscal year following the fifth anniversary of the date of the closing of our initial public offering;

(iii) the date on which

we have issued more than $1.0 billion in nonconvertible debt during the previous three fiscal years;

or (iv) the date on which we are

deemed to be a “large accelerated filer” under the rules of the SEC.

Additionally, we are a “smaller reporting company”

as defined in Item 10(f)(1) of Regulation S-K.

Even after we no longer qualify as an emerging growth company, we may still qualify as

a “smaller reporting company,” which would allow us to continue to take advantage of many of the same exemptions from disclosure

requirements, including presenting only the two most recent fiscal years of audited financial statements and reduced disclosure obligations

regarding executive compensation in this Annual Report on Form 10-K and our periodic reports and proxy statements.

We will remain a smaller

reporting company until the last day of the fiscal year in which (1) the market value of our shares of common stock held by non-affiliates

exceeds $250 million as of the prior the end of our second fiscal quarter ending December 31 st of each year, or (2) our annual

revenues exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates exceeds

$700 million as of the prior to the end of our second fiscal quarter ending December 31 st of each year.

To the extent we take

advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies

difficult or impossible.

Risks Related to Our Securities and Ownership of

Our Common Stock

As of December 31, 2021, Biofrontera AG beneficially

owns 46.8% of our outstanding shares of common stock and will be able to exert significant control over matters subject to stockholder

approval, and its interests may conflict with ours or other stockholders’ in the future

As of December 31, 2021, Biofrontera AG beneficially

owns in the aggregate approximately 46.8% of our outstanding voting stock and will continue to exert significant influence on the company.

In addition, Biofrontera AG’s beneficial ownership would be further reduced by the exercise of any of the 4,349,537 outstanding

warrants issued in connection with our initial public offering.

However, it would likely continue to have a significant portion (and

perhaps even a majority) of the voting power in a shareholder meeting.

As a result, Biofrontera AG will have the ability to significantly

influence us through this ownership position.

with the audits of our financial statements as of and for the years ended December 31, 2021 and 2020, we identified a material weakness

in our internal control over financial reporting.

See “— We previously identified a material weakness in our internal control

over financial reporting, resulting from control deficiencies related to management’s review of work performed by specialists.

identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may

not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business

and stock price.

cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to avoid additional material

weaknesses or significant deficiencies in our internal controls over financial reporting in the future.

Any failure to maintain effective

internal controls over financial reporting could severely inhibit our ability to accurately report our financial condition or results

of operations.

If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered

public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting,

we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of shares of our common

stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.

to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control

systems required of public companies, could also negatively impact our ability to access to the capital markets.

addition, effective disclosure controls and procedures enable us to make timely and accurate disclosure of financial and non-financial

information that we are required to disclose.

As a public company, if our disclosure controls and procedures are ineffective, we may

be unable to report our financial results or make other disclosures accurately on a timely basis, which could cause our reported financial

results or other disclosures to be materially misstated and result in the loss of investor confidence and cause the market price of our

are an emerging growth company and a smaller reporting company and we cannot be certain if the reduced disclosure requirements applicable

to emerging growth companies or smaller reporting companies will make our common stock less attractive to investors.

are an “emerging growth company” as defined in the JOBS Act.

Under the JOBS Act, emerging growth companies can delay adopting

new or revised accounting standards until such time as those standards apply to private companies.

We have elected to use this exemption

from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other

public companies that have not made this election.

as long as we continue to be an emerging growth company, we also intend to take advantage of certain other exemptions from various reporting

requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive

compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote

on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We cannot predict if investors

will find our common stock less attractive because we will rely on these exemptions.

If some investors find our common stock less attractive

as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which we have total annual gross

revenue of $1.235 billion or more;

(ii) the last day of the fiscal year following the fifth anniversary of the date of the closing of

our initial public offering;

(iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous

three fiscal years;

or (iv) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC.

Additionally,

we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.

Even after we no longer qualify as an

emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to continue to take

advantage of many of the same exemptions from disclosure requirements, including presenting only the two most recent fiscal years of

audited financial statements and reduced disclosure obligations regarding executive compensation in this Form 10-K and

our periodic reports and proxy statements.

We will remain a smaller reporting company until the last day of the fiscal year in which

(1) the market value of our shares of common stock held by non-affiliates exceeds $250 million as of the prior the end of our second

fiscal quarter ending December 31 st of each year, or (2) our annual revenues exceeded $100 million during such completed fiscal

year and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the prior to the end of our second

fiscal quarter ending December 31 st of each year.

To the extent we take advantage of such reduced disclosure obligations,

it may also make comparison of our financial statements with other public companies difficult or impossible.

Related to Our Securities and Ownership of Our Common Stock

of December 31, 2022, Biofrontera AG beneficially owns 30.0% of our outstanding shares of common stock and will be able to exert significant

control over matters subject to stockholder approval, and its interests may conflict with ours or other stockholders in the future.

of December 31, 2022, Biofrontera AG beneficially owns in the aggregate approximately 30.0% of our outstanding voting stock and will

continue to exert significant influence on the company.

In addition, Biofrontera AG’s beneficial ownership would be further

reduced by the exercise of any of the 9,197,109 outstanding warrants issued in connection with our initial public offering and private placements.

However, it would likely continue to have a significant portion (and perhaps even a majority) of the voting power in a shareholder

As a result, Biofrontera AG will have the ability to significantly influence us through this ownership position.

Biofrontera AG may be able to determine all matters requiring stockholder approval.

example, Biofrontera AG may be able to control elections of directors, amendments of our organizational documents, our financing and

dividend policy and approval of any merger, sale of assets or other major corporate transaction.

This may prevent or discourage unsolicited

acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders .

Moreover, because of the significant ownership position

held by Biofrontera AG and our classified board structure, new investors may not be able to effect a change in the Company’s business

or management, and therefore, stockholders would be subject to decisions made by management and Biofrontera AG.

Biofrontera AG’s interests may differ from our

interests and the interests of our other stockholders, and therefore actions Biofrontera AG takes with respect to us, as a significant

shareholder, including under the Ameluz LSA, may not be favorable to us or our public stockholders.

For a discussion of the risks related

to our license agreement with Biofrontera AG, see “ Risks Related to the License and Supply Agreements and Our Licensed Products .”

Furthermore, Biofrontera

AG is a public company with a comparatively low amount of shares that are regularly traded and several shareholders who each hold a significant

stake in Biofrontera AG.

Any of these shareholders may exert their influence on Biofrontera AG by voting in favor of proposals that are

in their individual interest or electing members to Biofrontera AG’s supervisory board who could act to align Biofrontera AG’s

actions with the interests of such shareholders.

Under German law, company management must obtain the consent of the supervisory board

for certain actions.

Since 2017, several legal actions have been filed by one of Biofrontera AG’s significant shareholders opposing

resolutions passed at the shareholders’ meetings, including actions for annulment and rescission of resolutions related to financing

transactions undertaken by Biofrontera AG and they could seek to cause Biofrontera AG to take actions as our significant shareholder that

no longer support our strategy as set forth in this Form 10-K and may be contrary to the interests of our other stockholders.

If Biofrontera AG sells a controlling interest

in our company to a third party in a private transaction, you may not realize any change-of-control premium on shares of our common stock

and we may become subject to the control of a presently unknown third party.

Although Biofrontera AG holds less than the

majority of the voting power of our common stock, it may still exert a controlling influence over us, since many shares of our common

stock are held by retail investors who may not vote at shareholder meetings.

The ability of Biofrontera AG to privately sell its

shares of our common stock, with no requirement for a concurrent offer to be made to acquire all of the shares of our common stock held

by our other stockholders, could prevent you from realizing any change-of-control premium on your shares of our common stock that may

otherwise accrue to Biofrontera AG on its private sale of our common stock.

Additionally, if Biofrontera AG privately sells its controlling

equity interest in our company, we may become subject to the control of a presently unknown third party.

Such third party may have conflicts

of interest with those of other stockholders.

In addition, if Biofrontera AG sells a controlling interest in our company to a third party,

our indebtedness may be subject to acceleration, and our other commercial agreements and relationships, including any remaining agreements

with Biofrontera AG, could be impacted, all of which may adversely affect our ability to run our business as described herein and may

have a material adverse effect on our business, financial condition and results of operations.

Provisions of our outstanding warrants could discourage

an acquisition of us by a third party.

In addition to the discussion of the provisions

of our certificate of incorporation and our bylaws, certain provisions of our outstanding warrants could make it more difficult

or expensive for a third party to acquire us.

The warrants prohibit us from engaging in certain transactions constituting “fundamental

transactions” unless, among other things, the surviving entity assumes our obligations under the warrants.

These and other provisions

of our outstanding warrants could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to

Our share price may be volatile, and you may be

unable to sell your shares and/or warrants at or above the offering price.

The market price of our common stock is likely to

be volatile and could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control,

the success of existing or new competitive products or technologies;

regulatory actions with respect to Ameluz ® , the BF-RhodoLED ® lamp (and its successors) or Xepi ® or our competitors’ products;

actual or anticipated fluctuations in our financial condition and operating results, including fluctuations in our quarterly and annual results;

announcements of innovations by us, our Licensors or our competitors;

overall conditions in our industry and the markets in which we operate;

market conditions or trends in the biotechnology industry or in the economy as a whole;

addition or loss of significant healthcare providers or other developments with respect to significant healthcare providers;

changes in laws or regulations applicable to Ameluz ® , the BF-RhodoLED ® lamp (and its successors) or Xepi ® ;

actual or anticipated changes in our growth rate relative to our competitors;

announcements by us, our Licensors or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

additions or departures of key personnel;

issuance of new or updated research or reports by securities analysts;

fluctuations in the valuation of companies perceived by investors to be comparable to us;

disputes or other developments related to the patents covering our licensed products, and our Licensors’ ability to obtain intellectual property protection for our licensed products;

security breaches;

litigation matters;

announcement or expectation of additional financing efforts;

sales of our common stock by us or our stockholders;

share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

the expiration of contractual lock-up agreements with our executive officers, directors and stockholders;

general economic and market conditions.

Furthermore, the stock markets have experienced price

and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies.

These fluctuations

often have been unrelated or disproportionate to the operating performance of those companies.

These broad market and industry fluctuations,

as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations,

may negatively affect the market price of our common stock.

In the past, companies that have experienced volatility in the market price

of their stock have been subject to securities litigation.

This risk is especially relevant for biopharmaceutical companies, which have

experienced significant stock price volatility in recent years.

We may be the target of this type of litigation in the future.

litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which

could seriously harm our business.

Future sales of our common stock in the public

market could cause our share price to fall.

of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress

the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities.

We had 17,104,749 shares of common stock outstanding as of December 31, 2021, of which 9,104,749 shares are freely tradable without

restrictions or further registration required under the Securities Act.

The remaining 8,000,000 million shares are currently unregistered

and held by Biofrontera AG.

Warrants are exercisable for our common stock,

which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

As of [March 31], 2022, we have a total of 4,349,537 outstanding warrants which may each be exercised for one share of our common stock.

of the shares issuable upon exercise of the warrants have been registered on effective registration statements and therefore, when issued,

will be freely tradable without restriction or further registration required under the Securities Act.

Any shares of our common stock issued upon exercise of outstanding warrants will result in dilution to the then existing

holders of our common stock and increase the number of shares eligible for resale in the public market.

Sales of substantial numbers of

such shares in the public market could adversely affect the market price of our common stock.

If securities or industry analysts do not publish

research or publish unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will be influenced

by the research and reports that industry or securities analysts publish about us or our business.

If one or more of these analysts ceases

coverage of our company or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn

could cause our stock price or trading volume to decline.

Moreover, if our operating results do not meet the expectations of the investor

community, one or more of the analysts who cover our company may change their recommendations regarding our company, and our stock price

could decline.

Our quarterly operating results may fluctuate significantly.

We expect our operating results to be subject to quarterly

fluctuations.

Our net loss and other operating results will be affected by numerous factors, including:

variations in the level of expenses related to our marketing efforts;

any litigation, including intellectual property infringement lawsuits related to our licensed products, in which we may become involved;

regulatory developments affecting Ameluz ® , the BF-RhodoLED ® lamp (and its successors) or Xepi ® ;

our execution of any licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements;

the timing of milestone payments under our existing license agreements;

the level of underlying demand for Ameluz ® and Xepi ® and customers’ buying patterns.

If our quarterly operating results fall below the

expectations of investors or securities analysts, the price of our common stock could decline substantially.

Furthermore, any quarterly

fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.

Future sales and issuances of our common stock

or rights to purchase our common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage

ownership of our stockholders and could cause the stock price of our common stock to decline.

In the future, we may sell common stock, convertible

securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time.

We also expect

to issue common stock to employees, consultants and directors pursuant to our equity incentive plans.

If we sell common stock, convertible

securities or other equity securities in subsequent transactions, or common stock is issued pursuant to equity incentive plans or the

Unit Purchase Option, investors may be materially diluted.

New investors in such subsequent transactions could gain rights, preferences

and privileges senior to those of holders of our common stock.

We have never paid dividends on our common stock

and we do not intend to pay dividends for the foreseeable future.

Consequently, any gains from an investment in our common stock will

likely depend on whether the price of our common stock increases.

We have never declared or paid any dividends on our

common stock and do not intend to pay any dividends in the foreseeable future.

We anticipate that we will retain all of our future earnings

for use in the operation of our business and for general corporate purposes.

Any determination to pay dividends in the future will be

at the discretion of our board of directors.

Accordingly, investors must rely on sales of their common stock after price appreciation,

which may never occur, as the only way to realize any future gains on their investments.

For more information, see the section of this Form 10-K captioned “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity

and Capital Resources .”

Our charter documents and Delaware law could prevent

a takeover that stockholders consider favorable and could also reduce the market price of our stock.

Our amended and restated certificate of incorporation

and our amended and restated bylaws contains provisions that could delay or prevent a change in control of our company.

provisions could also make it more difficult for stockholders to elect directors and take other corporate actions.

These provisions may frustrate or prevent any attempts

by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our

board of directors, which is responsible for appointing the members of our management.

In addition, we are subject to the anti-takeover provisions

contained in Section 203 of the Delaware General Corporation Law, or the DGCL.

Under Section 203 of the DGCL, a corporation may not, in

general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for

three years or, among other exceptions, the board of directors has approved the transaction.

These and other provisions in our amended and restated

certificate of incorporation and our amended and restated bylaws and under Delaware law could discourage potential takeover attempts,

reduce the price investors might be willing to pay in the future for shares of our common stock and result in the market price of our

common stock being lower than it would be without these provisions.

Our amended and restated certificate of incorporation

provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and

our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,

officers or employees.

Our amended and restated certificate of incorporation

provides that the Court of Chancery of the State of Delaware is, to the fullest extent permitted by applicable law, the exclusive forum

any derivative action or proceeding brought on our behalf;

any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any of our current or former directors, officers, employees or our stockholders;

any action asserting a claim against us arising under the DGCL, our amended and restated certificate of incorporation, or our amended and restated bylaws (as either may be amended from time to time) or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware;

any action asserting a claim against us that is governed by the internal-affairs doctrine.

However, Section 27 of the Exchange Act creates exclusive

federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations

Consequently, the exclusive forum provisions will not apply to suits brought to enforce any liability or duty created by the

Exchange Act or to any claim for which the federal courts have exclusive jurisdiction.

Moreover, Section 22 of the Securities Act creates

concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability created by the Securities

Act or the rules and regulations thereunder.

We note that investors cannot waive compliance with

the federal securities laws and the rules and regulations thereunder.

Our amended and restated certificate of incorporation will

further provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts are the sole

and exclusive forum for the resolution of any complaint asserting a right under the Securities Act.

The Supreme Court of the State of

Delaware has held that such provisions are facially valid under Delaware law.

While there can be no assurance that federal or state courts

will follow the holding of the Delaware Supreme Court or determine that the provision should be enforced in a particular case, application

of the provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought

in federal court and cannot be brought in state court.

By becoming a stockholder in our Company, you will

be deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporation related to choice

This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable

for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers

and other employees and result in increased costs for investors to bring a claim.

If a court were to find the exclusive forum provision

in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs

associated with resolving the dispute in other jurisdictions, which could seriously harm our business.

Claims for indemnification by our directors and

officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available

Our amended and restated certificate of incorporation

and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted

by Delaware law.

In addition, as permitted by Section 145 of the DGCL,

our amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide that:

we will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law.

Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful;

we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;

we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification;

we will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification;

the rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons;

we may not retroactively amend our amended and restated

bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.

The Pre-funded Warrants

and Purchase Warrants are accounted for as a warrant liability and recorded at fair value with changes in fair value each period reported

in earnings, which may have an adverse effect on the market price of our common stock.

GAAP, we are required to evaluate the

warrants to determine whether they should be accounted for as a warrant liability or as equity.

At each reporting period (1) the accounting

treatment of the warrants will be reevaluated for proper accounting treatment as a liability or equity and (2) the fair value of the

liability of the warrants will be re-measured and the change in the fair value of the liability will be recorded as other income (expense)

in our income statement of operations.

For example, Biofrontera AG may be able to

control elections of directors, amendments of our organizational documents, our financing and dividend policy and approval of any

merger, sale of assets or other major corporate transaction.

This may prevent or discourage unsolicited acquisition proposals or

offers for our common stock that you may feel are in your best interest as one of our stockholders .

because of the significant ownership position held by Biofrontera AG and our classified board structure, new investors may not be able

to effect a change in the Company’s business or management, and therefore, stockholders would be subject to decisions made by management

and Biofrontera AG.

AG’s interests may differ from our interests and the interests of our other stockholders, and therefore actions Biofrontera AG

takes with respect to us, as a significant shareholder, including under the Ameluz LSA, may not be favorable to us or our public stockholders.

For a discussion of the risks related to our license agreement with Biofrontera AG, see “ Risks Related to the License and Supply

Agreements and Our Licensed Products .”

Biofrontera AG is a public company with a comparatively low amount of shares that are regularly traded and several shareholders who each

hold a significant stake in Biofrontera AG.

Any of these shareholders may exert their influence on Biofrontera AG by voting in favor

of proposals that are in their individual interest or electing members to Biofrontera AG’s supervisory board who could act to align

Biofrontera AG’s actions with the interests of such shareholders.

Under German law, company management must obtain the consent

of the supervisory board for certain actions.

Since 2017, several legal actions have been filed by one of Biofrontera AG’s significant

shareholders opposing resolutions passed at the shareholders’ meetings, including actions for annulment and rescission of resolutions

related to financing transactions undertaken by Biofrontera AG and they could seek to cause Biofrontera AG to take actions as our significant

shareholder that no longer support our strategy as set forth in this Form 10-K and may be contrary to the interests of our other stockholders.

Biofrontera AG sells a controlling interest in our company to a third party in a private transaction, you may not realize any change-of-control

premium on shares of our common stock and we may become subject to the control of a presently unknown third party.

Biofrontera AG holds less than the majority of the voting power of our common stock, it may still exert a controlling influence over

us, since many shares of our common stock are held by retail investors who may not vote at shareholder meetings.

The ability of Biofrontera

AG to privately sell its shares of our common stock, with no requirement for a concurrent offer to be made to acquire all of the shares

of our common stock held by our other stockholders, could prevent you from realizing any change-of-control premium on your shares of

our common stock that may otherwise accrue to Biofrontera AG on its private sale of our common stock.

Additionally, if Biofrontera AG

privately sells its controlling equity interest in our company, we may become subject to the control of a presently unknown third party.

Such third party may have conflicts of interest with those of other stockholders.

In addition, if Biofrontera AG sells a controlling

interest in our company to a third party, our indebtedness may be subject to acceleration, and our other commercial agreements and relationships,

including any remaining agreements with Biofrontera AG, could be impacted, all of which may adversely affect our ability to run our business

as described herein and may have a material adverse effect on our business, financial condition and results of operations.

of our outstanding warrants could discourage an acquisition of us by a third party.

addition to the discussion of the provisions of our certificate of incorporation and our bylaws, certain provisions of our outstanding

warrants could make it more difficult or expensive for a third party to acquire us.

The warrants prohibit us from engaging in certain

transactions constituting “fundamental transactions” unless, among other things, the surviving entity assumes our obligations

under the warrants.

These and other provisions of our outstanding warrants could prevent or deter a third party from acquiring us even

where the acquisition could be beneficial to you.

share price may be volatile, and you may be unable to sell your shares and/or warrants at or above the offering price.

market price of our common stock is likely to be volatile and could be subject to wide fluctuations in response to many risk factors

listed in this section, and others beyond our control, including:

success of existing or new competitive products or technologies;

actions with respect to Ameluz ® , the BF-RhodoLED ® lamp (and its successors) or Xepi ® or

our competitors’ products;

or anticipated fluctuations in our financial condition and operating results, including fluctuations in our quarterly and annual

announcements

of innovations by us, our Licensors or our competitors;

conditions in our industry and the markets in which we operate;

conditions or trends in the biotechnology industry or in the economy as a whole;

or loss of significant healthcare providers or other developments with respect to significant healthcare providers;

in laws or regulations applicable to Ameluz ® , the BF-RhodoLED ® lamp (and its successors) or Xepi ® ;

or anticipated changes in our growth rate relative to our competitors;

announcements

by us, our Licensors or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

or departures of key personnel;

of new or updated research or reports by securities analysts;

in the valuation of companies perceived by investors to be comparable to us;

or other developments related to the patents covering our licensed products, and our Licensors’ ability to obtain intellectual

property protection for our licensed products;

or expectation of additional financing efforts;

of our common stock by us or our stockholders;

price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

expiration of contractual lock-up agreements with our executive officers, directors and stockholders;

economic and market conditions.

the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity

securities of many companies.

These fluctuations often have been unrelated or disproportionate to the operating performance of those

These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions,

interest rate changes or international currency fluctuations, may negatively affect the market price of our common stock.

companies that have experienced volatility in the market price of their stock have been subject to securities litigation.

especially relevant for biopharmaceutical companies, which have experienced significant stock price volatility in recent years.

be the target of this type of litigation in the future.

Securities litigation against us could result in substantial costs and divert

our management’s attention from other business concerns, which could seriously harm our business.

we fail to regain compliance with applicable listing standards, our common stock and publicly-traded warrants could be delisted from

requires listing issuers to comply with certain standards in order to remain listed on its exchange.

If, for any reason, Nasdaq should

delist our common stock from trading on its exchange and we are unable to obtain listing on another reputable national securities exchange,

a reduction in some or all of the following may occur, each of which could materially adversely affect our stockholders:

liquidity and marketability of our common stock and/or publicly-traded warrants;

market price of our common stock;

ability to obtain financing for the continuation of our operations;

number of institutional and general investors that will consider investing in our common stock;

number of market makers in our common stock;

availability of information concerning the trading prices and volume of our common stock;

number of broker-dealers willing to execute trades in shares of our common stock.

February 24, 2023, we received a letter (the “Notice”) from the Listing Qualifications Staff of the Nasdaq Stock Market,

LLC (“Nasdaq”) indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business

days, we are no longer in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on

the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) .

We were provided a compliance period of 180 calendar days

from the date of the Notice, or until August 23, 2023, to regain compliance with the minimum closing bid requirement, pursuant to Nasdaq

Listing Rule 5810(c)(3)(A).

If we fail to regain compliance within the allotted compliance periods,

including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that our common stock and publicly-traded warrants

will be subject to delisting.

We would then be entitled to appeal Nasdaq’s determination, but there can be no assurance that Nasdaq

would grant our request for continued listing.

will continue to monitor the closing bid price of our common stock and seek to regain compliance with all applicable Nasdaq requirements

within the allotted compliance periods and may, if appropriate, consider available options, including implementation of a reverse stock

split of our common stock, to regain compliance with the minimum closing bid requirement.

If we seek to implement a reverse stock split

in order to remain listed on Nasdaq, the announcement or implementation of such a reverse stock split could negatively affect the price

of our common stock and/or publicly-traded warrants.

addition, if we fail to regain compliance to be eligible to trade on Nasdaq or obtain listing on another reputable national securities

exchange, we may have to pursue trading on a less recognized or accepted market, such as the over the counter markets, our stock may

be traded as a “penny stock” which would make transactions in our stock more difficult and cumbersome, and we may be unable

to access capital on favorable terms or at all, as companies trading on alternative markets may be viewed as less attractive investments

with higher associated risks, such that existing or prospective institutional investors may be less interested in, or prohibited from,

investing in our common stock.

This may also cause the market price of our common stock to further decline.

sales of our common stock in the public market could cause our share price to fall.

of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could

depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity

We had 26,699,002 shares of common stock outstanding as of December 31, 2022, of which 18,699,002 shares are freely

tradable without restrictions or further registration required under the Securities Act.

The remaining 8,000,000 million shares are

currently unregistered and held by Biofrontera AG.

are exercisable for our common stock, which would increase the number of shares eligible for future resale in the public market and result

in dilution to our stockholders.

of March 10, 2023, we have a total of 9,197,109 outstanding warrants which may each be exercised for one share of our common

All of the shares issuable upon exercise of the warrants have been registered on effective registration statements and therefore,

when issued, will be freely tradable without restriction or further registration required under the Securities Act.

Any shares of our

common stock issued upon exercise of outstanding warrants will result in dilution to the then existing holders of our common stock and

increase the number of shares eligible for resale in the public market.

Sales of substantial numbers of such shares in the public market

could adversely affect the market price of our common stock.

securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading

volume could decline.

trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about

us or our business.

If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, we could

lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Moreover, if our operating

results do not meet the expectations of the investor community, one or more of the analysts who cover our company may change their recommendations

regarding our company, and our stock price could decline.

quarterly operating results may fluctuate significantly.

expect our operating results to be subject to quarterly fluctuations.

Our net loss and other operating results will be affected by numerous

factors, including:

in the level of expenses related to our marketing efforts;

litigation, including intellectual property infringement lawsuits related to our licensed products, in which we may become involved;

developments affecting Ameluz ® , the BF-RhodoLED ® lamp (and its successors) or Xepi ® ;

execution of any licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements;

timing of milestone payments under our existing license agreements;

level of underlying demand for Ameluz ® and Xepi ® and customers’ buying patterns.

our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could

decline substantially.

Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to

fluctuate substantially.

sales and issuances of our common stock or rights to purchase our common stock, including pursuant to our equity incentive plans, could

result in additional dilution of the percentage ownership of our stockholders and could cause the stock price of our common stock to

the future, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in

a manner we determine from time to time.

We also expect to issue common stock to employees, consultants and directors pursuant to our

equity incentive plans.

If we sell common stock, convertible securities or other equity securities in subsequent transactions, or common

stock is issued pursuant to equity incentive plans or the Unit Purchase Option, investors may be materially diluted.

New investors in

such subsequent transactions could gain rights, preferences and privileges senior to those of holders of our common stock.

have never paid dividends on our common stock and we do not intend to pay dividends for the foreseeable future.

Consequently, any gains

from an investment in our common stock will likely depend on whether the price of our common stock increases.

have never declared or paid any dividends on our common stock and do not intend to pay any dividends in the foreseeable future.

We anticipate

that we will retain all of our future earnings for use in the operation of our business and for general corporate purposes.

Any determination

to pay dividends in the future will be at the discretion of our board of directors.

Accordingly, investors must rely on sales of their

common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

information, see the section of this Form 10-K captioned “ Management’s Discussion and Analysis of Financial Condition

and Results of Operations—Liquidity and Capital Resources .”

stockholder rights plan, or “poison pill,” includes terms and conditions which could discourage a takeover or other transaction

that stockholders may consider favorable.

October 24, 2022, stockholders of record at the close of business on that date received a dividend of one right (a “Right”)

for each outstanding share of common stock.

Each Right entitles the registered holder to purchase one one-thousandth of a share of Series

A Junior Participating Cumulative Preferred Stock of the Company (the “Preferred Stock”), at a price of $5.00 per one thousandth

of a share of Preferred Stock, subject to adjustment (the “Exercise Price”).

The Rights are not exercisable until the Distribution

Date (as defined below).

The description and terms of the Rights are set forth in the Stockholder Rights Agreement between the Company

and Computershare Trust Company, N.A., as rights agent, dated as of October 13, 2022.

Rights Agreement imposes a significant penalty upon any person or group that acquires 20% or more (but less than 50%) of our then-outstanding

common stock without the prior approval of our board of directors.

A person or group that acquires shares of our common stock in excess

of the applicable threshold, subject to certain limited exceptions, is called an “Acquiring Person.” Any rights held by an

Acquiring Person are void and may not be exercised.

A person or group who beneficially owned 20% or more of our outstanding Common Stock

prior to the first public announcement of the adoption of the Rights Agreement will not trigger the Rights Agreement so long as they

do not acquire beneficial ownership of any additional shares of Common Stock at a time when they still beneficially own 20% or more of

such Common Stock.

Rights will not be exercisable until the earlier of ten days after a public announcement by us that a person or group has become an Acquiring

Person and ten business days (or a later date determined by our board of directors) after a person or group begins a tender or an exchange

offer that, if completed, would result in that person or group becoming an Acquiring Person (the earlier of such dates being herein referred

to as the “Distribution Date”).

At any time after a person becomes an Acquiring Person, the Board of Directors may, at its

option, exchange all or any part of the then outstanding and exercisable Rights for shares of Common Stock at an exchange ratio of one

share of Common Stock for each Right, subject to adjustment as specified in the Rights Agreement.

Notwithstanding the foregoing, the

Board of Directors generally will not be empowered to effect such exchange at any time after any person becomes the beneficial owner

of 50% or more of the Common Stock of the Company.

Rights will expire at the close of business on October 13, 2023;

provided that if the Company’s stockholders have not ratified

the Stockholder Rights Agreement by the close of business on the first day after the Company’s 2023 annual meeting of stockholders

(including any adjournments or postponement thereof), the Rights will expire at such time, in each case, unless previously redeemed or

exchanged by the Company.

Rights have certain anti-takeover effects, including potentially discouraging a takeover that stockholders may consider favorable.

Rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by the board of directors.

charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price

of our stock.

amended and restated certificate of incorporation and our amended and restated bylaws contains provisions that could delay or prevent

a change in control of our company.

These provisions could also make it more difficult for stockholders to elect directors and take other

corporate actions.

provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult

for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

addition, we are subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law, or the DGCL.

Under Section 203 of the DGCL, a corporation may not, in general, engage in a business combination with any holder of 15% or more of

its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved

the transaction.

and other provisions in our amended and restated certificate of incorporation and our amended and restated bylaws and under Delaware

law could discourage potential takeover attempts, reduce the price investors might be willing to pay in the future for shares of our

common stock and result in the market price of our common stock being lower than it would be without these provisions.

amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive

forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable

judicial forum for disputes with us or our directors, officers or employees.

amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is, to the fullest extent

permitted by applicable law, the exclusive forum for:

derivative action or proceeding brought on our behalf;

action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any of our current or former directors, officers,

employees or our stockholders;

action asserting a claim against us arising under the DGCL, our amended and restated certificate of incorporation, or our amended

and restated bylaws (as either may be amended from time to time) or as to which the DGCL confers jurisdiction on the Court of Chancery

of the State of Delaware;

action asserting a claim against us that is governed by the internal-affairs doctrine.

Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created

by the Exchange Act or the rules and regulations thereunder.

Consequently, the exclusive forum provisions will not apply to suits brought

to enforce any liability or duty created by the Exchange Act or to any claim for which the federal courts have exclusive jurisdiction.

Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any

duty or liability created by the Securities Act or the rules and regulations thereunder.

that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

and restated certificate of incorporation will further provide that, unless we consent in writing to the selection of an alternative

forum, the federal district courts are the sole and exclusive forum for the resolution of any complaint asserting a right under the Securities

The Supreme Court of the State of Delaware has held that such provisions are facially valid under Delaware law.

While there can

be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court or determine that the provision should

be enforced in a particular case, application of the provision means that suits brought by our stockholders to enforce any duty or liability

created by the Securities Act must be brought in federal court and cannot be brought in state court.

becoming a stockholder in our Company, you will be deemed to have notice of and have consented to the provisions of our amended and restated

certificate of incorporation related to choice of forum.

This exclusive forum provision may limit a stockholder’s ability to bring

a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage

lawsuits against us and our directors, officers and other employees and result in increased costs for investors to bring a claim.

a court were to find the exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable

in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm

our business.

for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us

and may reduce the amount of money available to us.

amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers,

in each case to the fullest extent permitted by Delaware law.

addition, as permitted by Section 145 of the DGCL, our amended and restated bylaws and our indemnification agreements that we have entered

into with our directors and officers provide that:

will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request,

to the fullest extent permitted by Delaware law.

Delaware law provides that a corporation may indemnify such person if such person

acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant

and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful;

may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;

are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that

such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled

to indemnification;

will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by

that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought

to enforce a right to indemnification;

rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements

with our directors, officers, employees and agents and to obtain insurance to indemnify such persons;

may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers,

employees and agents.

of the warrants to purchase shares of our common stock are accounted for as a warrant liability and recorded at fair value with changes

in fair value each period reported in earnings, which may have an adverse effect on the market price of our common stock.

GAAP, we are required to evaluate the outstanding warrants to purchase our common stock to determine whether they should be

accounted for as a warrant liability or as equity.

At each reporting period (1) the accounting treatment of the warrants will be

reevaluated for proper accounting treatment as a liability or equity and (2) the fair value of the liability of the warrants will be

re-measured and the change in the fair value of the liability will be recorded as other income (expense) in our consolidated statement of

Such accounting treatment may adversely affect the market price of our securities.

changes in the inputs and assumptions for the valuation model we use to determine the fair value of such liability may have a material

impact on the estimated fair value of the warrant liability.

In addition, changes in the inputs

and assumptions for the valuation model we use to determine the fair value of such liability may have a material impact on the

estimated fair value of the warrant liability.

As a result, our financial statements and results of operations will fluctuate

quarterly, based on various factors, such as the share price of our common stock, many of which are outside of our control.

price is volatile, we expect that we will recognize non-cash gains or losses on our warrants or any other similar derivative instruments

in each reporting period and that the amount of such gains or losses could be material.

The impact of changes in fair value on earnings

may have an adverse effect on the market price of our common stock.

As of the date of this Form 10-K, no Pre-funded

Warrants (as defined below) remain outstanding, however for our accounting for the period ended December 31, 2021, we have concluded

that the Pre-funded Warrants contain provisions requiring liability classification.

Therefore, we are accounting for the Pre-funded Warrants

as a warrant liability at fair value upon issuance through the exercise of the Pre-funded Warrants in December 2021 and recorded changes

in fair value as of the end of the reporting period.

Although the warrants issued in connection with

our initial public offering, which are listed on The Nasdaq Capital Market, do not contain the same provisions as the Pre-funded Warrants

and, therefore, are accounted for as equity;

the Purchase Warrants (as defined below) do have the same provisions as the Pre-funded Warrants.

Therefore, we are currently accounting for the Purchase Warrants as a warrant liability at fair value upon issuance and will continue

to do so for each reporting period in which the Purchase Warrants contain the applicable provisions.

share price is volatile, we expect that we will recognize non-cash gains or losses on our warrants or any other similar derivative

instruments in each reporting period and that the amount of such gains or losses could be material.

The impact of changes in fair

value on earnings may have an adverse effect on the market price of our common stock.

warrants issued in connection with our initial public offering, the (“IPO Warrants”) were accounted for as equity as these

instruments meet all of the requirements for equity classification under ASC 815-40.

(See Note 19.

Stockholders’ Equity)

warrants issued in connection with the private placement offerings (completed on December 1 , 2021 and May 16, 2022), as well as

the Inducement Warrants issued on July 26, 2022 were accounted for as liabilities as these warrants provide for a cashless settlement

provision which fails the requirement of the indexation guidance under ASC 815-40 (collectively

“PIPE Warrants”).

The resulting warrant liabilities are re-measured at each balance sheet date until their exercise or expiration,

and any change in fair value is recognized in the Company’s consolidated statement of operations.

Refer to Note 4.

Measurements.

As of the date of this Form 10-K,

no Purchase Warrants have been exercised and 2,857,143 Purchase Warrants remain outstanding.

See “ Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Recent

Sales of Unregistered Securities” for more information on the Pre-funded Warrants and Purchase Warrants .”

7,704,715 PIPE Warrants remain outstanding.

Stockholders’ Equity in our audited financial statements for the fiscal

year ended December 31, 2022 included in this Form 10-K for more information on the Warrants.

Unresolved Staff Comments

Not applicable.

Our headquarters is located in Woburn, Massachusetts,

where we lease approximately 16,128 square feet under a lease agreement that has an initial term expiring in September 2025.

headquarters is located in Woburn, Massachusetts, where we lease approximately 16,128 square feet under a lease agreement that has an

initial term expiring in September 2025.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors