Item 1. Business
Item
1. Business
Overview
We
are a U.S.-based biopharmaceutical company commercializing a portfolio of pharmaceutical products for the treatment of dermatological
conditions with a focus on photodynamic therapy (“PDT”) and topical antibiotics with PDT contribution to the largest amount
of our business. The Company’s licensed products are used for the treatment of actinic keratoses, which are pre-cancerous skin
lesions, as well as impetigo, a bacterial skin infection.
In May 2023, we began research and development (“R&D”)
activities to support PDT growth and will continue to opportunistically invest in these activities going forward. Our R&D
program currently aims to improve the capabilities of our BF-RhodoLED® lamps to better fulfill the needs of dermatologists. Our goal
is to improve the effectiveness of our commercial team by allowing sales representatives to carry approved devices with them allowing
for easier product demonstrations and evaluations.
Effective June 1, 2024, we will take control of
all clinical trials relating to Ameluz ® in the US, allowing for more effective cost management and direct oversight
of trial efficiency.
Biofrontera
Inc. includes its wholly owned subsidiary Bio-FRI GmbH, a limited liability company organized under the laws of Germany. Our subsidiary,
Bio-FRI was formed on February 9, 2022, as a German presence to facilitate our relationship with the Ameluz Licensor.
Company
Overview
We
were formed in March 2015 as Biofrontera Inc., a Delaware corporation, and a wholly owned subsidiary of Biofrontera AG, a stock corporation
organized under the laws of Germany. On November 2, 2021, we consummated our initial public offering and subsequently we ceased to be
deemed a company controlled by Biofrontera AG. As of December 31, 2023, Biofrontera AG held 26.4% of the outstanding shares of our common
stock. With our national commercial team, we generate revenue by selling our licensed products directly to dermatology offices and groups.
Employees
As
of December 31, 2023, the company had 85 employees, of which 83 were full-time employees and two were part-time employees. Approximately
57% are focused on marketing and sales activities. Our commercial team covers the continental United States, and our headquarters
is in Woburn, MA.
Significant
customers
We
have a wide and diverse customer base with no single customer dominating our revenues. At December 31, 2023, no customer represented
more than 10% of the net accounts receivable balance. For the year ended December 31, 2023, no customer represented more than 10% of
net revenues.
Our
Strategy
Our
principal objective is to improve patient outcomes by increasing the sales of our licensed products. The key elements of our strategy
include the following:
●
expand
our sales in the United States of Ameluz ® in combination with the BF-RhodoLED ® lamp series for the
treatment of minimally to moderately thick actinic keratoses of the face and scalp and positioning Ameluz ® to be standard
of care in the United States by focusing on acquisition of new customers and growth of the therapy in our current customer base;
4
●
expand
sales of Xepi ® for treatment of impetigo by improving the market positioning of the licensed product;
●
leverage
the potential for future approvals and label extensions of our licensed portfolio products that are in the pipeline for the U.S.
market through our license and supply agreements with the Licensors; and
●
opportunistically
add complementary products or services to our portfolio by acquiring or licensing IP to further leverage our commercial infrastructure
and customer relationships.
By
executing these four strategic objectives, we will fuel company growth, deepen our trusted relationships in the dermatology community,
and above all, help patients live healthier, more fulfilling lives.
Ameluz ®
and RhodoLED ® Lamp Series
Our
principal licensed product is Ameluz ® , which is a prescription drug approved for use in combination with the
RhodoLED ® lamp series, for PDT (when used together, “Ameluz ® PDT”). In the United States,
the PDT treatment is used for the lesion-directed and field-directed treatment of actinic keratoses (“AK”) of
mild-to-moderate severity on the face and scalp. AKs are premalignant lesions of the skin that can potentially develop into skin
cancer (squamous cell carcinoma) if left untreated. 1 International treatment guidelines list PDT as the
“gold standard” for treating AK, especially multiple AKs and the surrounding photodamaged skin. 2 We are
currently selling Ameluz ® for this indication in the U.S. under an exclusive license and supply agreement (as amended
the “Ameluz LSA”) between Biofrontera, Inc. and the Ameluz Licensors.
AKs
are superficial potentially pre-cancerous skin lesions caused by chronic sun exposure that may, if left untreated, develop into a form
of potentially life-threatening skin cancer called squamous cell carcinoma. AKs typically appear on sun-exposed areas,
such as the face, bald scalp, arms or the back of the hands, and are often elevated, flaky, and rough in texture, and appear on the skin
as hyperpigmented spots. AKs are typically treated with cryotherapy, topicals, or PDT. These treatments can be used in combination,
which is the number one indication for those 45 years of age and older.
In
general, PDT is a two-step process:
●
the
first step is the application of a drug known as a “photosensitizer,” or a pre-cursor of this type of drug, which tends
to accumulate in cancerous cells; and
●
the
second step is activation of the photosensitizer by controlled exposure to a selective light source in the presence of oxygen.
During
this process, energy from the light activates the photosensitizer. In PDT, the activated photosensitizer transfers
energy to oxygen molecules found in cells, converting the oxygen into a highly reactive oxygen species (“ROS”), which
destroys or alters the sensitized cells. PDT can be a highly selective treatment that targets specific cells while
minimizing damage to normal surrounding tissues. It also can allow for multiple courses of therapy. Hence the mode of action of
PDT requires destruction of the altered cells, temporary local skin reactions and inflammation of the treated area
might be expected. The Ameluz ® PDT therapy is highly effective with patients - efficacy is up to 91% clearance after
one or two treatments 3 with limited or no scarring. The therapy also may provide protection from potentially fatal
progress of mild or invisible AKs. 4
Market
and competitive landscape
AK
currently affects approximately 58 million Americans which lead to roughly 13 million treatments annually. 5 Cryotherapy is
the traditional and most common form of treatment but may not be as effective and may leave scarring; cryotherapy is estimated to be
approximately 86% of the market. Topicals, medications which patients apply to the lesion multiple times per day for up to several weeks,
constitute approximately 12% of the market. PDT is approximately 2% of the market. The total market size is estimated to be roughly
$4 billion for the three therapy types. Our primary competitor in the PDT space is Levulan ® and the associated light,
Blu-U ® .
Our
goal is to continue expansion in the current PDT market share and focus on converting cryotherapy treatments of more than 14 lesions
as a field therapy such as Ameluz ® PDT could be more effective and lead to better patient outcomes. This targeted market
is about 11% or $500 million of the total AK market. 6 Ameluz ® PDT is competitive in the market. We are leveraging
medical affairs, advisory boards, reimbursement resources, and key opinion leaders in order to educate the market on the use and benefits
of Ameluz ® PDT.
1
Fuchs & Marmur, Dermatol Surg. 2007 Sep; 33(9):1099-101
2
Werner RN, Stockfleth E, Connolly SM, et al. Evidence- and consensus-based (S3) Guidelines for the Treatment of Actinic Keratosis
- International League of Dermatological Societies in cooperation with the European Dermatology Forum - Short version. J Eur Acad Dermatol
Venereol. 2015;29(11):2069-2079. doi:10.1111/jdv.13180
3
For full prescribing information for Ameluz, please see https://bit.ly/AmeluzPI.
4
Reinhold et al. 2016 Br. J. Derm. DOI 10.1111/bjd. 14498
5
www.skincancer.org/skin-cancer-information/actinic-keratosis
6
Market data accessible from CMS and IQVIA, 2020
5
Sales,
marketing and distribution
We
are currently selling our portfolio of licensed products in the United States through the use of our own commercial organization. We
have a single sales force who markets all our licensed products across the dermatology space. We launched the commercialization of Ameluz ®
in combination with the RhodoLED ® lamp for the treatment of actinic keratosis in the United States in October 2016.
Ameluz ® PDT is an in-office procedure. Ameluz ® is distributed as a “buy-and-bill” drug that
is purchased by the dermatologist, rather than distribution through pharmacies. Our customers will purchase our device and Ameluz ®
which will be held in inventory. When a dermatologist uses our product in a treatment, a payor will be billed, and the provider
will be paid for both the product and light treatment. There are well established PDT CPT Codes. Ameluz ® PDT is covered
by code number 96574 which has an average reimbursement of $273.00 per light treatment and has to be performed by a qualified healthcare
professional. Public information regarding CPT reimbursement is available at https://www.cms.gov/medicare/physician-fee-schedule/search?Y=0&T=4&HT=0&CT=3&H1=96574&M=5.
Our
licensors’ R&D programs
We
are a sales organization with focus on commercializing our portfolio of licensed products that are already FDA-approved. R&D efforts for label extensions in order to optimize the market positioning of the products are the responsibility of the respective
licensor and are governed by the respective LSAs.
Under
the Ameluz LSA, we hold the exclusive license to sell Ameluz ® and the RhodoLED ® lamp series comprising
the RhodoLED ® and the new, more advanced RhodoLED ® XL (available in the second quarter of 2024) in the United States for all
indications currently approved by the FDA as well as all future FDA-approved indications identified under the Ameluz LSA.
On February 19, 2024, the Ameluz LSA was amended with
the Second Amended and Restated License and Supply Agreement (the “Second A&R Ameluz LSA”), effective February 13. The Second A&R Ameluz LSA amends and restates the Ameluz LSA, originally dated as of October 1, 2016, between
the Company and Amulez Licensor, which was subsequently amended on July 1, 2019, June 16, 2021, October 8, 2021, December 5, 2023, and
January 26, 2024. Among other things, the Second A&R Ameluz LSA reduces the
transfer price of Ameluz ® from 50% to 25% for all purchases in 2024 and 2025. Starting on January 1, 2026, until 2032 there
will be stepwise increases in the transfer price from 25% to 35% for sales related to actinic keratosis and, if approved by the FDA, basal
cell carcinoma and squamous cell carcinoma. The transfer price for sales related to acne, another indication currently in development,
will remain at 25% indefinitely. The transfer price covers the cost of goods, royalties on sales, and services including all regulatory
efforts, agency fees, pharmacovigilance, and patent administration.
Effective June 1, 2024, the Company will take control of all clinical trials relating to
Ameluz ® in the US, allowing for more effective cost management and direct oversight of trial efficiency. The reduced
Ameluz LSA transfer price will allow the Company to finance such R&D activities and continue our commercial growth
trajectory.
A
summary of our understanding of the Licensor’s clinical trials is below:
Clinical
Phase
Product
Indication
Pre-clinical
I
II
III
Status
Ameluz ®
Superficial
basal cell carcinoma
●
Last-patient-in
treatment phase in August 2023; Last-patient-out of treatment phase expected in March 2024; Clinical Study Report (CSR) expected
Q4 – 2024
Ameluz ®
Actinic
keratosis
●
Phase
I safety study applying 3 tubes of Ameluz® to an expanded treatment area of 60 cm²; completed and submitted to FDA
Ameluz ®
Moderate
to severe acne
●
Phase
II is recruiting; CSR expected in Q3 2025
Ameluz ®
Actinic
keratosis
●
Trunk
& extremities applying 1-3 tubes of Ameluz®; First patient dosed in Jan 2023; CSR expected in Q1-2026
Ameluz ®
Actinic
keratosis
●
Combination
daylight and conventional PDT, plan to start enrollment in 2025
Ameluz ®
Squamous
cell carcinoma in situ
●
Plan
to start enrollment in 2026
In
late October 2021, the new, larger RhodoLED ® XL was approved by the FDA in combination with Ameluz ® for
the treatment of mild and moderate actinic keratoses on the face and scalp, which corresponds to the current approval of
Ameluz ® . The new PDT-lamp enables the illumination of larger areas, thus allowing the simultaneous treatment of
several actinic keratoses distant from each other. The smaller BF-RhodoLED ® model will continue to be offered in the
U.S. market. Additionally, our licensor has been granted a patent for a pain-reduced PDT
procedure that combines daylight and conventional PDT and, if the respective Phase III trial leads to inclusion of the procedure
into the Ameluz ® label, may provide further patent protection beyond 2040.
Furthermore, the FDA recently approved a new formulation of Ameluz ® that lacks propylene glycol and reduces the
accumulation of certain contaminants over time. The new formulation will be implemented in all US productions of
Ameluz ® starting in 2024. A corresponding patent application has been filed with the U.S. Patent
and Trademark Office, or USPTO, which, if granted, will extend protection of Ameluz ® to 2043.
Principal
suppliers
Our
source for the Ameluz ® and the RhodoLED ® lamp series is our Licensor, Biofrontera Pharma. Biofrontera Pharma
is considered the responsible manufacturer for Ameluz ® by the FDA. Biofrontera Pharma currently manufactures through a
single unaffiliated contract manufacturer in Switzerland, Glaropharm AG, and has recently signed an agreement with a second unaffiliated
contract manufacturer located in Germany, Pharbil Waltrop GmbH, to ensure stability of the supply chain. Our Licensor is responsible
for all raw materials, product, and shipment of products to our third-party logistics partner (“3PL”), Cardinal Health for
warehousing and distribution. We centralize our customer sales support and back-office functions through our headquarters in Woburn,
Massachusetts.
We
intend to continue our development of our sales and marketing infrastructure to effectively target the broad range of dermatologic prescribers.
To further our development, we plan to expand our headcount, increase our investment in market research and brand development, further
develop our distribution capabilities and explore broader payer relationships and coverage.
6
Xepi ®
Our
second prescription drug licensed product in our portfolio is Xepi ® (ozenoxacin cream, 1%), a topical non-fluorinated
quinolone that inhibits bacterial growth. Currently, no antibiotic resistance against Xepi ® is known and it has been specifically
approved by the FDA for the treatment of impetigo, a common skin infection, due to Staphylococcus aureus or Streptococcus pyogenes. It
is approved for use in the United States in adults and children 2 months and older. We are currently selling Xepi ® for
this indication in the United States under an exclusive license and supply agreement, as amended (“Xepi LSA”), with Ferrer
that was assumed by Biofrontera on March 25, 2019 through our acquisition of Cutanea (the “Cutanea Acquisition”).
Impetigo
is a common and highly contagious bacterial skin infection caused by bacteria. The bacteria that can cause impetigo include Group A beta-hemolytic
streptococcus and Staphylococcus aureus. It occurs most frequently in children 2 to 5 years old, but people of any age can be affected
and even more than once. Impetigo causes red sores that most often appear on the face, neck, arms, and legs. These sores can turn into
blisters that open and form a yellowish crust. Transmission of the disease is by direct contact and poor hygiene can increase the spread.
Although impetigo is a year-round disease, it occurs most often during the warm weather months. 7
Possible
complications of impetigo 8 can include:
●
Worsening
or spreading of the infection
●
Scarring,
which is more common with ecthyma
●
Impetigo
caused by beta-hemolytic strep bacteria can cause:
●
Kidney
damage (poststreptococcal glomerulonephritis)
●
Fever,
joint, and other problems (rheumatic fever)
Although
impetigo rarely leads to serious complications, effective treatment with drugs like Xepi ® can shorten how long impetigo
lasts.
Market
and competitive landscape
There
are more than 3 million cases of impetigo in the United States every year. 5 The market for topical antibiotics is driven by
generics with mupirocin being the top choice of topical antibiotics across all specialties. In 2021, over 13 million prescriptions were
written for mupirocin for a range of conditions. According to prescription data from IQVIA, dermatologists account for approximately
12% of the annual topical antibiotic prescriptions written or about 1.4 million prescriptions. Xepi ® is a prescription
product that is filled by specialty pharmacies nationwide and orders to these specialty pharmacies are fulfilled by our 3PL, Cardinal
Health. Sales to the specialty pharmacies are recognized net of sales deductions, which include expected returns, discounts and incentives
such as payments made under patient assistance programs.
Our
licensors’ R&D programs
Currently,
there are no clinical trials being conducted for Xepi ® , and we are unaware of any immediate or near-term plans of Ferrer
for a U.S.-market focused development pipeline.
Sales,
marketing and distribution
We
are currently selling our portfolio of licensed products in the United States through the use of our own commercial organization. We
have a single sales force who markets all our licensed products across the dermatology space.
There
has been limited revenue during the current reporting periods and issues with the third-party manufacturer that was providing our
supply of Xepi ® impacting the timing of sales expansion and improved market positioning. However, Ferrer is in
the process of qualifying a new third-party manufacturer in North America. The expectation is that this process will be completed in
the second half of 2024. Once the new third-party manufacturer is qualified, we expect the supply of Xepi ® will enable us to market and increase demand. Xepi ® is distributed through specialty pharmacies and generally covered by most commercial payers
without pre-approval or similar requirements. Our contracts with third-party payers/pharmacy benefit managers (“PBMs”)
generally require us to provide rebates based on utilization by the patients they cover. We believe that Xepi ® has
the potential to be another innovative product with a large market potential.
7
How to Treat Impetigo and Control This Common Skin Infection | FDA
8
From CLS link to Johns Hopkins Impetigo | Johns Hopkins Medicine
7
Intellectual
Property
We
do not own any material patents or trademarks. We license the rights and trademarks related to the products we sell.
Ameluz ®
and the RhodoLED ® lamp series are approved by the FDA as a combination product, such that the label requires the
use of both products together. The Licensor has patent protection on its nanoemulsion technology in the United States until 2028 and
three new patent family applications on the BF-RhodoLED ® lamps and general PDT illumination procedures, two of which are
already granted, and one is listed in the Orange Book, that could jointly extend protection until 2040. Additionally, a new patent regarding
an Ameluz formulation without propylene glycol filed at USPTO in 2023, if granted, extends protection to 2043.
Xepi ®
is protected by four patents in the United States held by Ferrer. The primary patent protecting the active ingredient in Xepi ®
expired in November 2023. However, there are treatment specific patents for the treatment of impetigo due to Staphylococcus aureus
or Streptococcus pyogenes and a method of treating nasopharynx infections in asymptomatic nasal carriers expiring in 2032 and 2029, respectively.
Commercial
Partners and Agreements
Ameluz ®
and RhodoLED ® Lamp Series License Service Agreement
Under
the terms of the Ameluz LSA, we are granted an exclusive, non-transferable license to use Biofrontera Pharma and Biofrontera
Bioscience technology to use, import, export, distribute, market, offer for sale and sell Ameluz ® and the
RhodoLED ® lamp series for its approved indications within the United States and certain of its territories. The price we pay per unit will be based upon our sales history. The Ameluz
LSA will remain in effect for fifteen years and automatically renew for a period of five years, in perpetuity as long as certain minimum
revenues are achieved. See Note 23. Commitments and Contingencies .
In
addition, under the Ameluz LSA, the Ameluz Licensor agrees to sell us the RhodoLED ® lamp series at cost plus a low
double digit handling fee. There are no milestones or royalty obligations associated with this agreement. Any changes to the pricing
of supply of Ameluz ® or RhodoLED ® lamps would require agreement by both contract parties.
The
Ameluz LSA also provides that we will indemnify the Ameluz Licensor, subject to certain conditions, for any claims related to a breach
of our representations and covenants under the agreement or any other gross negligent, willful or intentionally wrongful act, error or
omission on our part. Under the terms of the agreement, the Ameluz Licensor will indemnify us, subject to certain conditions, against
claims related to the licensed products.
8
Under
the Ameluz LSA, the Ameluz Licensor is responsible for obtaining and maintaining the rights to all FDA approvals (and any required maintenance
thereafter) needed for the Ameluz Licensor to manufacture Ameluz ® and/or the RhodoLED ® lamp series and/or
for Biofrontera to sell Ameluz ® and/or the RhodoLED ® lamp series in the United States. Likewise, the Ameluz
Licensor is responsible to maintain a pharmacovigilance database and to respond appropriately to all relevant queries of any regulatory
authority pertaining to pharmacovigilance (Biofrontera is required to provide reasonable support relating to any regulatory issues relating
to pharmacovigilance and/or product recalls). Furthermore, the Ameluz Licensor will, in agreement with Biofrontera, perform and finance
clinical trials to promote the Ameluz ® market positioning in the U.S. market for indications that are identified in the
amendment signed on October 8, 2021, including the clinical studies. With respect to the indications currently pursued by the Ameluz
Licensor, we have the authority under the Ameluz LSA, in certain circumstances, to take over clinical development from the Ameluz Licensor,
if they are unable or unwilling to perform these functions appropriately and subtract the cost from the transfer price of future shipments.
The pursuit of any additional indications would need to be separately negotiated between us and the Ameluz Licensor.
Conversely,
under the Ameluz LSA, Biofrontera is responsible for obtaining all state licenses or any other similar approvals required to market Ameluz ®
and/or the RhodoLED ® lamp in the United States. Biofrontera must also carry out all mandatory reporting responsibilities
under federal and state law with respect to compliance with the Prescription Drug Marketing Act, the Sunshine Act, or any other similar
laws and regulations. Biofrontera is also responsible for all activities related to reimbursement and pricing of the products within
the United States. Biofrontera is required by the Ameluz LSA to use commercially reasonable efforts and resources to exploit the license
and market Ameluz ® and the RhodoLED ® lamp in the United States (“commercially reasonable efforts”
being defined in terms of comparison against industry standards and practices for a company of comparable size and capability and active
in the same business area).
Under
the Ameluz LSA, if product or lamps are not delivered in conformance with certain specifications of this Agreement and the Quality Assurance
Agreement, and the Ameluz Licensor does not remedy its failure, then we will have the right to organize manufacturing on our own, and
step into contracts with the Ameluz Licensor’s manufacturers, such that we will replace the Ameluz Licensor as a party to these
contracts. If we pursue this option, the Ameluz Licensor must use its best efforts to assist with the transferring of these manufacturing
contracts without delay and at its own cost. No transfer price will be paid to the Ameluz Licensor thereafter for products or lamps that
are manufactured by third parties.
On February 19, 2024, we entered into the Second
A&R Ameluz LSA, which is discussed above in the section entitled “ Ameluz ® and RhodoLED ® Lamp
Series - Our licensors’ R&D programs .
Effective June 1, 2024, the Company will take
control of all clinical trials with Ameluz ® in the US, allowing for more effective cost management and direct
oversight of trial efficiency. The reduced transfer price in the Second A&R Ameluz LSA will allow the Company to finance such
R&D activities and continue our commercial growth trajectory.
Ferrer
Internacional S.A.
On
March 25, 2019, we assumed the rights, duties and obligations of Cutanea under the Xepi LSA as part of the acquisition of Cutanea. Under
the terms of the Xepi LSA, we have been granted an exclusive, royalty-bearing license in the United States and certain of its territories,
including the right to sublicense under certain conditions, to develop, make, have made, use, register, market, promote, sell, have sold,
offer for sale and import Xepi ® .
Under
the Xepi LSA, we are obligated to make payments to Ferrer upon the occurrence of certain milestones. Specifically, we must pay Ferrer
(i) $2,000,000 upon the first occasion when annual net sales of Xepi ® under the Xepi LSA exceed $25,000,000, and (ii)
$4,000,000 upon the first occasion annual net sales of Xepi ® under the Xepi LSA exceed $50,000,000. The maximum potential
milestone payments remaining under this agreement total $6,000,000. These are both sales-based milestones. There are no development milestones
within the agreement.
The
terms of the Xepi LSA also provide for us to purchase Xepi ® from Ferrer and pay royalties at a high single digit percentage
based on net sales. Royalties are paid quarterly when the related sales occur. There are no other performance obligations required for
royalties to be incurred. Furthermore, while Ferrer is approval holder for Xepi ® , the administration of the NDA is managed
by Biofrontera Bioscience, a related party. We are fully dependent on our collaboration with Ferrer for our supply of Xepi ® from their
sole supplier.
The
Xepi LSA will continue for the longer of (a) 12 years following the first commercial sale of Xepi ® or (b) 12 years from
the date of latest product to launch under the Xepi LSA, concluding in 2030. However, the Xepi LSA will automatically terminate concurrently
with the termination of Ferrer’s license with Toyama Chemical Co., Ltd., also in 2030. Ferrer covenants under the agreement to
make commercially reasonable efforts to extend its license agreement with Toyama. Although recent developments with respect to the third-party
manufacturer that was providing our supply of Xepi ® have impacted the timing of sales expansion and improved market positioning,
we believe that Xepi ® has the potential to be another innovative product with a large market potential in our portfolio.
See “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates
—Intangible Assets and Impairment Assessment ” in this Form 10-K.
9
Under
the Xepi LSA, Biofrontera is required to obtain and maintain all “Marketing Authorizations and Regulatory Approvals” in Ferrer’s
name, as well as to obtain and maintain all other licenses and certificates required for the wholesale and/or retail sale of Xepi ®
in the United States. Biofrontera must also participate in a “Joint Steering Committee,” which is intended, in part,
to ensure (among other things) that Biofrontera uses commercially reasonable efforts to market and sell Xepi ® in the United
States. This joint steering committee is required to meet at least once per year, unless agreed otherwise by the parties.
Government
and Industry Regulation
Governmental
authorities in the United States, at the federal, state and local level, extensively regulate, among other things, the research, development,
testing, manufacture, safety surveillance, efficacy, quality control, labeling, packaging, distribution, record keeping, promotion, storage,
advertising, distribution, marketing, sale, export and import, pricing (including discounts and rebates), and the reporting of safety
and other post-market information of the products we distribute. These laws and regulations may require administrative guidance for implementation,
and a failure to comply could subject us to legal and administrative actions. Enforcement measures may include substantial fines and/or
penalties, orders to stop non-compliant activities, criminal charges, warning letters, product recalls or seizures, delays in product
approvals, exclusion from participation in government programs or contracts as well as limitations on conducting business in applicable
jurisdictions and could result in harm to our reputation and business. Compliance with these laws and regulations may be costly and may
require significant technical expertise and capital investment to ensure compliance.
U.S.
Drug Development and Review
Drug
Development Process
General
Information about the Drug Approval Process and Post-Marketing Requirements
The
U.S. system of new drug and biologics approval is a rigorous process. The following general comments about the drug approval process
are relevant to the development activities undertaken by our Licensors.
Investigational
New Drug Application (“IND”): After certain pre-clinical studies are completed, an IND application is submitted to the FDA
to request the ability to begin human testing of the drug or biologic. An IND becomes effective thirty days after the FDA receives the
application (unless the FDA notifies the sponsor of a clinical hold), or upon prior notification by the FDA.
Phase
1 Clinical Trials: These trials typically involve small numbers of healthy volunteers or patients and usually define a drug candidate’s
safety profile, including the safe dosage range.
Phase
2 Clinical Trials: In Phase 2 clinical trials, controlled studies of human patients with the targeted disease are conducted to assess
the drug’s effectiveness. These studies are designed primarily to determine the appropriate dose levels, dose schedules and route(s)
of administration, and to evaluate the effectiveness of the drug or biologic on humans, as well as to determine if there are any side
effects on humans to expand the safety profile following Phase 1. These clinical trials, and Phase 3 trials discussed below, are designed
to evaluate the product’s overall benefit-risk profile, and to provide information for physician labeling.
Phase
3 Clinical Trials: This Phase usually involves a larger number of patients with the targeted disease. Investigators (typically physicians)
monitor the patients to determine the drug candidate’s efficacy and to observe and report any adverse reactions that may result
from long-term use of the drug on a large, more widespread, patient population.
During
the Phase 3 clinical trials, typically the drug candidate is compared to either a placebo or a standard treatment for the target disease.
NDA
or Biologics License Application (“BLA”): After completion of all three clinical trial Phases, if the data indicates that
the drug is safe and effective, an NDA or BLA is filed with the FDA requesting FDA approval to market the new drug as a treatment for
the target disease.
Risk
Evaluation and Mitigation Strategy Authority under the Food and Drug Administration Amendments Act (“FDAAA”): The FDAAA also
gave the FDA authority to require the implementation of a Risk Evaluation and Mitigation Strategy (“REMS”) for a product
when necessary to minimize known and preventable safety risks associated with the product. The FDA may require the submission of a REMS
before a product is approved, or after approval based on “new safety information,” including new analysis of existing safety
information. A REMS may include a medication guide, patient package insert, a plan for communication with healthcare providers, or other
elements as the FDA deems are necessary to assure safe use of the product, which could include imposing certain restrictions on distribution
or use of a product. A REMS must include a timetable for submission of assessments of the strategy at specified time intervals. Failure
to comply with a REMS, including the submission of a required assessment, may result in substantial civil or criminal penalties.
Other
Issues Related to Product Safety: Adverse events that are reported after marketing approval also can result in additional limitations
being placed on a product’s use and, potentially, withdrawal of the product from the market. In addition, under the FDAAA, the
FDA has authority to mandate labeling changes to products at any point in a product’s life cycle based on new safety information
derived from clinical trials, post-approval studies, peer-reviewed medical literature, or post-market risk identification and analysis
systems data.
Clinical
trials may experience delays or fail to demonstrate the safety and efficacy, which could prevent or significantly delay obtaining regulatory
approval.
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Clinical
trials require the investment of substantial financial and personnel resources. The commencement and completion of clinical trials may
be delayed by various factors, including scheduling conflicts with participating clinicians and clinical institutions, difficulties in
identifying and enrolling patients who meet trial eligibility criteria, failure of patients to complete the clinical trial, delays in
accumulating the required number of clinical events for data analysis, delay or failure to obtain the required approval to conduct a
clinical trial at a prospective site, and shortages of available drug supply. Moreover, the outcome of a clinical trial is often uncertain.
There may be numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent regulatory
approval. In addition, the results of early-stage clinical trials do not necessarily predict the results of later-stage clinical trials.
Later-stage clinical trials may fail to demonstrate that a drug product is safe and effective despite having progressed through initial
clinical testing. Clinical trial data results are susceptible to varying interpretations, and such data may not be sufficient to support
approval by the FDA. The ability to commence and complete clinical trials may be delayed by many factors that are beyond our licensors
control, including:
●
delays
obtaining regulatory approval to commence a trial;
●
delays
in reaching agreement on acceptable terms with contract research organizations (“CROs”) and clinical trial sites;
●
delays
in obtaining institutional review board (“IRB”), approval at each site;
●
slower
than anticipated patient enrollment or an inability to recruit and enroll patients to participate in clinical trials for various
reasons;
●
inability
to retain patients who have initiated a clinical trial;
●
lack
of funding to start or continue the clinical trial, including as a result of unforeseen costs due to enrollment delays, requirements
to conduct additional trials and studies;
●
negative
or inconclusive results;
●
deficiencies
in the conduct of the clinical trial, including failure to conduct the clinical trial in accordance with regulatory requirements,
good clinical practice, or clinical protocols;
●
deficiencies
in the clinical trial operations or trial sites resulting in the imposition of a clinical hold; or
●
adverse
medical events or side effects experienced by patients during the clinical trials as a result of or resulting from the clinical trial
treatments;
Delays
can also occur if a clinical trial is suspended or terminated by the IRBs of the clinical trial sites in which such trials are being
conducted, or by the FDA or other regulatory authorities. Such authorities may impose a suspension or termination of the clinical
trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or
clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting
in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, or failure to demonstrate a benefit from
using a drug.
Post-Approval
Requirements for Approved Drugs
Any
of our licensed drug products that require FDA approvals are subject to continuing regulation by the FDA, including, among other things,
record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information,
product sampling and distribution requirements, and complying with FDA promotion and advertising requirements, which include, among other
requirements, standards for direct-to-consumer advertising, restrictions on promoting drugs for uses or in patient populations that are
not described in the drug’s approved labeling (known as “off-label use”), limitations on industry sponsored scientific
and educational activities, and requirements for promotional activities involving the internet. Although physicians may prescribe legally
available drugs for off-label uses, manufacturers may not market or promote such off-label uses.
In
addition, quality control and manufacturing procedures must continue to conform to applicable manufacturing requirements after approval.
We are relying exclusively on our licensors’ or their manufacturing partner’s facilities for the production of clinical and
commercial quantities of our products in accordance with Current Good Manufacturing Practices (“cGMP”) regulations. cGMP
regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and
documentation and the obligation to investigate and correct any deviations from cGMP. Drug manufacturers and other entities involved
in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies
and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly,
manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.
Discovery of problems with a product after approval may result in restrictions on a product manufacturer or holder of an approved NDA,
including, among other things, recall or withdrawal of the product from the market. In addition, changes to the manufacturing process
are strictly regulated, and depending on the significance of the change, may require prior FDA approval before being implemented and
development of and submission of data to support the change. Other types of changes to the approved product, such as adding new indications
and additional labeling claims, are also subject to further FDA review and approval, as well as, possibly, the development and submission
of data to support the change.
The
FDA also may require post-approval, sometimes referred to as Phase 4, trials and surveillance to monitor the effects of an approved product
or place conditions on an approval that could restrict the distribution or use of the product. Discovery of previously unknown problems
with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity,
judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or communications with doctors,
and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to a product’s
approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk
management measures, such as a risk evaluation and mitigation strategy. Also, new government requirements, including those resulting
from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of
our product label extensions or products under development.
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FDA
Regulation for Medical Devices
After
a device is placed on the market, regardless of its classification or premarket pathway, numerous regulatory requirements apply. These
include, but are not limited to:
●
establishing
establishment registration and device listings with the FDA;
●
Quality
System Regulation, or QSR, which requires manufacturers, including third party manufacturers and certain other parties, to follow
stringent design, testing, process control, documentation, corrective action/preventive action, complaint handling and other quality
assurance procedures, as applicable;
●
labeling
statutes and regulations, which prohibit the promotion of products for uncleared or unapproved, or off-label uses and impose other
restrictions on labeling;
●
clearance
or approval of product modifications that could affect (or for 510(k) devices, significantly affect) safety or effectiveness or that
would constitute a change (or for 510(k) devices, a major change) in intended use;
●
medical
device reporting regulations, which require that manufacturers report to the FDA if an event reasonably suggests that their device
may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a
death or serious injury if the malfunction of the same or a similar device of the manufacturer were to recur;
●
corrections
and removals reporting regulations, which require that manufacturers report to the FDA field corrections and product removals if
undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA, that may present a risk to health.
In addition, the FDA may order a mandatory recall if there is a reasonable probability that the device would cause serious adverse
health consequences or death; and
●
post-approval
restrictions or conditions, including requirements to conduct post-market surveillance studies to establish additional safety or
efficacy data.
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The
FDA has broad post-market and regulatory enforcement powers. The agency may conduct announced and unannounced inspections to determine
compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of subcontractors. Failure
by us or our suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDA or other regulatory
authorities, which may result in sanctions and related consequences including, but not limited to:
●
untitled
letters or warning letters;
●
fines,
injunctions, consent decrees and civil penalties;
●
recall,
detention or seizure of our products;
●
operating
restrictions, partial suspension or total shutdown of production;
●
refusal
of or delay in granting our requests for 510(k) clearance or premarket approval of new products or modified products;
●
withdrawing
510(k) clearance or premarket approvals that are already granted;
●
refusal
to grant export approval for our products;
●
criminal
prosecution; and
●
unanticipated
expenditures to address or defend such actions.
Our
Licensors are subject to announced and unannounced device inspections by FDA and other regulatory agencies overseeing the implementation
and adherence of applicable local, state and federal statutes and regulations.
Fraud
and Abuse Laws
We
are subject to healthcare anti-fraud and abuse regulations that are enforced by the U.S. federal government and the states in which we
conduct our business. The laws that may affect our ability to operate include:
●
the
federal healthcare programs’ Anti-Kickback Law;
●
federal
false claims laws;
●
federal
criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare
matters;
●
the
federal Civil Monetary Penalties Law, which imposes penalties against any person or entity that, among other things, is determined
to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item
or service that was not provided as claimed or is false or fraudulent; and
●
state
law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services
reimbursed by any third-party payor, including commercial insurers.
The
federal Anti-Kickback Statute makes it illegal for any person or entity, including a prescription drug manufacturer (or a party acting
on its behalf) to knowingly and willfully, directly or indirectly, solicit, receive, offer, or pay any remuneration that is intended
to induce the referral of business, including the purchase, order, or lease of any good, facility, item or service for which payment
may be made under a federal health care program, such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted
to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers
on one hand and prescribers, purchasers, formulary managers, and beneficiaries on the other. Although there are a number of statutory
exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn
narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations
may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular
applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead,
the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances.
Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration
is to induce referrals of federal health care covered business, the Anti-Kickback Statute has been violated. Violations of this law are
punishable by up to five years in prison, and can also result in criminal fines, civil monetary penalties, administrative penalties and
exclusion from participation in federal health care programs.
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Additionally,
the intent standard under the Anti-Kickback Statute was amended by the Affordable Care Act to a stricter standard such that a person
or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
In addition, the Affordable Care Act codified case law that a claim including items or services resulting from a violation of the federal
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. Because of the breadth
of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge
under one or more of such laws.
Federal
false claims and false statement laws, including the federal civil False Claims Act, prohibits, among other things, any person or entity
from knowingly presenting, or causing to be presented, for payment to, or approval by, federal programs, including Medicare and Medicaid,
claims for items or services, including drugs, that are false or fraudulent or not provided as claimed. Entities can be held liable under
these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate
billing or coding information to customers, promoting a product off-label, or for providing medically unnecessary services or items.
In addition, activities relating to the sale and marketing of products are subject to scrutiny under this law. Penalties for the federal
civil False Claims Act violations may include up to three times the actual damages sustained by the government, plus mandatory civil
penalties for each separate false claim, the potential for exclusion from participation in federal health care programs, and, although
the federal civil False Claims Act is a civil statute, False Claims Act violations may also implicate various federal criminal statutes.
Healthcare
Privacy and Security Laws
We
may be subject to, or our marketing activities may be limited by, the federal Health Insurance Portability and Accountability Act of
1996, or HIPAA, and its implementing regulations, which established uniform standards for certain “covered entities” (healthcare
providers, health plans and healthcare clearinghouses) governing the conduct of certain electronic healthcare transactions and protecting
the security and privacy of protected health information. The American Recovery and Reinvestment Act of 2009, commonly referred to as
the economic stimulus package, included sweeping expansion of HIPAA’s privacy and security standards called the Health Information
Technology for Economic and Clinical Health Act, or HITECH, which became effective on February 17, 2010. Among other things, the new
law makes HIPAA’s privacy and security standards directly applicable to “business associates,” independent contractors
or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of
a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates
and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal
courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions.
Available
Information
We
are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Exchange
Act requires us to file periodic reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”).
The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s website at http://www.sec.gov .
We
also maintain a website at https://www.biofrontera-us.com. The Information on our website is not incorporated by reference into this
Form 10-K and does not constitute a part of this Form 10-K. We make available, free of charge, on our website our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such with, or furnish it to, the SEC.
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