Prepared remarks
Good morning, and welcome to Biofrontera Inc.'s third quarter 2024 financial results and business update conference call. Please note that certain information discussed during today's call by management is covered under the safe harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that Biofrontera's management will be making forward-looking statements and that actual results may differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. All risks and uncertainties are detailed in and are qualified by the cautionary statements contained in Biofrontera's press releases and SEC filings. Also, this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, November 14, 2024. Biofrontera undertakes no obligations to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as required by law.
During today's call, there will be references to certain non-GAAP financial measures. Biofrontera believes these measures provide useful information for investors, yet should not be considered as a substitute for GAAP, nor should they be viewed as a substitute for operating results determined in accordance with GAAP. A reconciliation of non-GAAP to GAAP results is included in today's press release.
Yes. Thank you, Andrew, and my thanks to everyone joining us this morning. On today's call, I'll provide an overview of our accomplishments during the third quarter and first nine months of 2024. Fred Leffler, our CFO, will follow with a discussion on financial results. Both of us will be happy to answer questions after our prepared remarks. Let me start by highlighting the tremendous progress we made in previous months. First, comparing the first nine months of 2024 with 2023, the total number of Ameluz tubes ordered by our customers has slightly increased while we significantly reduced costs. Second, we improved our FDA label, adding value to our product. Third, we got outstanding clinical results for a new indication. Fourth, we launched our RhodoLED XL lamp. And finally, fifth, we transferred all clinical trial activities on Ameluz to Biofrontera Inc. About the first point of increasing revenue and reducing cost.
Revenues in the third quarter increased by 1.5% to $9 million. Furthermore, delivery of 4,640 tubes of Ameluz, valued at $1.5 million, was delayed to October due to Hurricane Milton. Without this delay, our Q3 growth would have been 19% compared to the previous year. All the delayed product was shipped to customers early in October and will be recognized as sales in the current quarter. For the first nine months, our sales grew by $1.3 million to $24.8 million, an increase of 5.6%. Without the impact of Hurricane Milton on delivery of Ameluz, the growth would have been 12%. While growing our business, we strongly controlled our cost and were able to reduce our SG&A expenses by 14% in the first nine months of the year compared to last year. About the second point, the improvement of our FDA label. FDA decided on October 4 to approve the use of up to three tubes of Ameluz per treatment. This allows healthcare professionals greater flexibility in addressing larger or multiple treatment areas for patients undergoing photodynamic therapy for AK on the face and scalp, leading to greater convenience for both healthcare providers and their patients.
AK is the second most common diagnosis made by dermatologists in the United States, with an estimated 13 million treatments provided each year in the U.S. The restriction of one tube per treatment has slowed the growth of Ameluz sales, and lifting this will help Ameluz take a larger piece of the PDT market. Point three is our progress in clinical trials. We performed several clinical trials with the aim to improve our label and enhance the use of our product in actinic keratosis, but also to add other indications like moderate-to-severe acne to the label. We believe that this indication has a major medical need as current medication is less than ideal, thus moderate-to-severe acne has the potential to be a major, potentially blockbuster market for Ameluz PDT. Our Phase 2 study in this indication is progressing as planned with 106 of 126, that is 84% of the patients currently enrolled. We anticipate a readout of the data in the fall of next year.
Most recently, however, we have locked the database in our superficial BCC Phase 3 study. The results are very encouraging with the histological clearance endpoint achieving 75.9% of total clearance at a high degree of statistical significance. We expect the last patient to complete the first year of a five-year follow-up phase this month. One-year follow-up data has been the requirement by the FDA for approval such that now we are awaiting this important milestone. With this coming up, we expect submission to the FDA at the end of the first half of 2025, with approval in the spring of 2026. Basal cell carcinoma, of which superficial basal cell carcinoma as a subgroup is the most common form of skin cancer and the most frequently occurring form of all cancers. In the U.S. alone, an estimated 3.6 million cases are diagnosed each year, a subset of which is superficial basal cell carcinoma.
BCCs arise from the abnormal uncontrolled growth of so-called basal cells at the bottom of the epidermis. They rarely spread beyond the original tumor site, but if untreated, can become locally invasive, going wide and deep into the skin and destroying skin tissue and even the bone. The fourth point I mentioned is the launch of our RhodoLED XL lamp. This lamp offers an alternative for doctors who wish to treat larger skin regions with Ameluz PDT. Many doctors have chosen this option while others prefer the smaller, easier-to-handle BF-RhodoLED lamp model. Since its launch in June and until September 30, we installed 39 RhodoLED XL lamps along with an additional 66 BF-RhodoLED lamps in the first three quarters of 2024. Our sales thus had a good mix of our older BF-RhodoLED lamp model and our recently launched RhodoLED XL lamps. Together, these are 105 new lamps out in the field, slightly higher than the 101 lamps in the same period of 2023.
We are optimistic that our lamp sales will continue to increase at a strong pace, supporting increased Ameluz usage as our customers can now get better Ameluz reimbursement following the recent FDA approval of up to three Ameluz tubes per treatment. By renegotiating the performance of all clinical research early in the year, responsibility for which we have assumed since June 2024, we took control over the further development of Ameluz in the U.S. Since this releases the German Biofrontera AG from the obligation to perform certain clinical trials, we agreed on a significantly reduced transfer price for Ameluz, a game-changing development rendering Biofrontera Inc. more profitable and bringing the breakeven point closer. According to the agreement, we assumed control over the management of all clinical trials with Ameluz as of June 1, 2024. This process was seamless and none of the ongoing clinical trials were negatively affected.
We are in the process of completing three clinical trials. I did already mention the superficial BCC Phase 3 and the acne Phase 2 trials. For our Phase 3 trial on actinic keratosis in the periphery, that means on extremities and neck and trunk, we have now enrolled 130 of about 165 patients corresponding to 79%, thus enrollment for all ongoing studies is coming to an end in the coming six to nine months, exciting and important events for the development of our products and our company.
Thank you, Hermann, and it's great to be talking with everyone again. I will start with our third quarter 2024 results. Total revenues for the third quarter of 2024 were $9.0 million compared with $8.9 million for the third quarter of 2023. This increase was driven by a $600,000 increase from sales of devices, specifically the RhodoLED XL lamp since its launch in June of 2024. This was offset by a net decrease in the sales of Ameluz of $0.5 million. The decrease of Ameluz sales in units was impacted by the delayed shipping of 4,640 units at the end of September 2024 due to Hurricane Milton forcing office closures and shipping delays throughout the Southeast. Had the orders been delivered in the third quarter, revenues would have been about $10.5 million or growth of about 19% quarter-over-quarter. Total operating expenses were $14 million for the third quarter of 2024 compared with $13.5 million for the third quarter of 2023.
Cost of revenues were $4.9 million for the third quarter of 2024 compared with $4.6 million for the prior year quarter. This was driven by an increase of $0.5 million due to the increase in RhodoLED product revenue, partially offset by a decrease of $0.2 million due to the weather-related delays in the sales of Ameluz, which I just mentioned earlier. We will see the impact of both the revenue and the associated cost of goods for these delayed shipments in the fourth quarter. Selling, general, and administrative expenses were $8.4 million for the third quarter of 2024 compared with $8.6 million for the third quarter of 2023. The decrease was primarily driven by about a $0.5 million decrease in general business administration expenses as well as a decrease of non-personnel sales and marketing expenses of about $0.2 million and a $0.3 million decrease in personnel costs due to changes in headcount and reduced severance that we saw in the prior year.
This was offset by about an $0.8 million increase in legal expenses related to the complaints filed by DUSA Pharmaceuticals with the International Trade Commission (ITC) in the U.S. District Court for the District of Massachusetts. The net loss for the third quarter of 2024 was $5.7 million compared with a net loss of $6.3 million for the prior year quarter. The decrease in the net loss is primarily driven by a lower change in fair value of our investment in related parties as we have unwound that position in the past 12 months, and this was partially offset by a loss due to a change in the fair value of our warrants. Adjusted EBITDA for the third quarter of 2024 was negative $4.6 million compared with negative $3.9 million for the third quarter of 2023, reflecting higher SG&A costs, driven primarily by R&D activities that we took over in June of this year. We look at adjusted EBITDA, a non-GAAP financial measure, as a better indication of ongoing operations, and this measurement is defined as net income or loss, excluding interest income and expense, income taxes, depreciation and amortization and certain other nonrecurring or noncash items.
I'll refer you to the table in our news release we issued yesterday for a reconciliation of GAAP to non-GAAP financial measures. I will now summarize our performance in the first nine months of 2024. Total revenues increased by $1.3 million or 5.6% as compared to the same period last year from $23.4 million to $24.7 million. This increase was driven by both a higher unit sale price of Ameluz in the first nine months of 2024 and revenue increase associated with device sales due to the launch of the RhodoLED XL lamp in June of 2024. After a revenue decline in the first quarter, followed by 8% growth in the first half of 2024, we would now be at about 12% growth year-to-date had there been no shipping impact from Hurricane Milton. Total operating expenses were $40.2 million for the nine months ended September 30, 2024, compared with $42.3 million for the same period last year. Cost of revenue increased from the prior year to $13.3 million for the nine months ended September 30, 2024, compared with $12.1 million for the same period last year.
Selling, general, and administrative expenses decreased to $25.6 million compared to $29.9 million in the prior year. The decrease was primarily driven by reduced SG&A from lower sales and marketing spend where we are managing our personnel and non-personnel expenses very closely, along with lower legal expenses despite the 2024 ITC complaint expenses I mentioned earlier. We expect to see the bulk of these ITC-related legal expenses in the next several months. Adjusted EBITDA was negative $13.9 million for the nine months ended September 30, 2024, compared with negative $15.8 million for the same period last year. Again, please refer to our press release we issued yesterday for a reconciliation of GAAP to non-GAAP financial measures. Now turning to our balance sheet. As of September 30, 2024, we had cash and cash equivalents of $2.9 million compared with $1.3 million as of December 31, 2023.
We received the replacement product in July for three recalled lots of Ameluz that happened earlier this year and moved that value from other assets related party back to inventory. We have successfully reduced our inventory levels closer to industry standards. It was $6.5 million at the end of the third quarter, including both Ameluz and the Rhodo series lamps, and we'll receive two shipments of Ameluz in the fourth quarter. We have been evaluating the strategic options for our XEPI product and have concluded to deeply explore the disposition of that asset. We have progressed in the disposition process far enough that we have moved the XEPI asset to held for sale. Finally, we paid down the outstanding balance of our bridge loan early in the third quarter. So with that overview of our business and recent financial performance, Hermann and I are now ready to take questions from our covering analysts.
Questions and answers
The first question comes from Jonathan Aschoff with ROTH Capital. Please go ahead.
Thank you. Good morning, guys. I was curious at first, when will the cost of revenue start to better reflect the 25% that you said is valid through next year rather than more closely reflect the older 50% that we still see?
Jonathan, Fred here. We expect that to see that impact in the fourth quarter. We needed to go through our older inventory first.
Okay. Do you still expect to be cash flow breakeven by the end of next year and to still grow revenue this year 20% over 2023?
We expect to have revenue growth similar to prior years this year, targeting mid- to high teens. We anticipate reaching cash flow breakeven towards the end of 2025 into 2026.
Okay. That's totally helpful. For the orders that fell into October, did you apply the October 1 price increase to them, or did you maintain the previous pricing?
We grandfathered in the older price. All the orders were placed in Q3. There were delays due to office closures in Florida, Georgia, and issues with FedEx, which caused them to arrive later, so the revenue was recognized in Q4. However, all orders were placed in Q3 at the price before the increase on October 1.
Okay. Lastly, can I just have the enrollment numbers for the acne and the peripheral AK trials?
Yes. So the enrollment for the peripheral AK is now 130 or 165 patients. And the enrollment of the acne study is 106 of 126.
Thank you very much, Hermann. That's all from me.
Thank you, Jonathan.
The next question comes from Bruce Jackson with The Benchmark Company. Please go ahead.
Hi. Good morning. Congratulations on all of the progress. I have two questions about the fourth quarter. Traditionally, it can be challenging to forecast revenue after a price increase, so I'm interested in your expectations for revenue in the fourth quarter following the price increase, especially considering the delayed orders. Also, could you remind us of the amount of the price increase?
The price increase was 5%, similar to what we implemented in 2023. We anticipate growth to align with previous years, but not in the high teens. We expect to have a very strong Q4, as it is typically our strongest quarter during 'PDT season.' Hermann, if you would like to add anything, I will pause here.
Yes, Q4 is typically our strongest quarter. The key question is how much demand has shifted into Q3 due to the price increase. Last year, we implemented the same 5% price hike, which allows us to use that as a reference. Despite the price increase and higher sales in Q3, Q4 remained significantly stronger. Important factors for Q4 include the tendency for doctors to perform more PDT during the winter, leading to increased orders, and potential tax incentives that encourage orders before year-end. These factors remain consistent despite the price increase, and we anticipate a very strong Q4. Additionally, we have over 4,000 tubes that will supplement our usual development efforts.
Okay. And then one other element to the fourth quarter is the new 3-tube approval. So I'm kind of curious to know if you've seen any customer response yet to the new labeling, and if that's had any impact on the orders?
Well, we have not so far because we didn't want to, and we actively prevented it. The reason is that having the three tubes in the label doesn't automatically mean that the doctors also get reimbursed. And we wanted to avoid a situation where a doctor believes that because of the label change, he can now do it and then he doesn't get paid. And so before we wanted to go ahead with this, we had to remove the so-called MUE at CMS. Now, this has happened, so there is no MUE anymore on Ameluz so that from now on, all the insurance companies, also the private payers have been notified that they should change their systems. So we believe that starting next week, we can actively promote the possibility of using three tubes. And then in December, we hopefully see the uptake based on this.
Okay, great. That's it for me. Thank you for taking my questions.
Yes. Well, thank you, operator. So as you heard, the third quarter and the first nine months of this year have been very positive with the significant increase in Ameluz tubes ordered even if a few thousand couldn't be delivered due to the hurricane. And taking into account the FDA approval and outstanding clinical results, we are very optimistic about the future of Biofrontera. I would like to thank everyone for participating in this call, and we look forward to speaking with you again when we report our fourth quarter 2024 results. Thank you, and have a nice day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.