BFRI US Equity☆

UNITED

STATES

SECURITIES

AND EXCHANGE COMMISSION

WASHINGTON,

D.C. 20549

FORM

10-K

(Mark

One)

FOR

THE FISCAL YEAR ENDED DECEMBER 31, 2022

OR

FOR

THE TRANSITION PERIOD FROM _________TO__________

COMMISSION

FILE NUMBER 001-40943

BIOFRONTERA

INC.

(Exact

name of registrant as specified in its charter)

120 Presidential Way, Suite 330

Woburn, Massachusetts 01801

(Address of principal executive offices) (Zip code)

(781)245-1325

(Registrant’s

telephone number, including area code)

Securities

registered pursuant to Section 12(b) of the Act:

Common Stock, par value $0.001 per share BFRI The Nasdaq Stock Market LLC

Preferred Stock Purchase Rights The Nasdaq Stock Market LLC

Securities

registered pursuant to Section 12(g) of the Act:

None

Indicate

by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate

by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate

by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange

Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)

has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate

by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule

405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant

was required to submit such files). Yes ☒ No ☐

Indicate

by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting

company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”

“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☒

If

an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying

with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate

by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness

of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered

public accounting firm that prepared or issued its audit report. ☐

If

securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant

included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether

any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of

the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate

by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As

of June 30, 2022, the last day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of

the common stock held by non-affiliates of the registrant was approximately $35.4 million, based on the closing price of the registrant’s

common stock.

As

of March 13, 2023, there were 26,699,002 shares outstanding of the registrant’s common stock, par value $0.001 per share.

DOCUMENTS

INCORPORATED BY REFERENCE:

None.

TABLE

OF CONTENTS

PART I.

Item 1. Business 4

Item 1A. Risk Factors 13

Item 1B. Unresolved Staff Comments 44

Item 2. Properties 44

Item 3. Legal Proceedings 44

Item 4. Mine Safety Disclosures 44

PART II.

Item 6. Reserved 46

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 59

Item 8. Financial Statements and Supplementary Data F-1

Item 9A. Controls and Procedures 60

Item 9B. Other Information 60

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 60

PART III.

Item 10. Directors, Executive Officers and Corporate Governance 61

Item 11. Executive Compensation 64

Item 14. Principal Accountant Fees and Services 76

PART IV.

Item 15. Exhibit and Financial Statement Schedules 77

SIGNATURES 80

BASIS

OF PRESENTATION

As used in this Annual Report on Form 10-K for the fiscal year ended December

31, 2022 (the “Form 10-K”), unless the context otherwise requires, references to “we,” “us,” “our,”

the “Company,” “Biofrontera” and similar references refer to Biofrontera Inc. which includes its wholly owned

subsidiary Bio-Fri GmbH (“Bio-FRI” or “subsidiary”). References in this Form 10-K to the “Biofrontera

Group” refer to Biofrontera AG and its consolidated subsidiaries, Biofrontera Pharma GmbH (individually, “Biofrontera

Pharma”), Biofrontera Bioscience GmbH (individually “Biofrontera Bioscience”), Biofrontera Neuroscience GmbH,

and Biofrontera Development GmbH. References in this Form 10-K to “Ferrer” refer to Ferrer Internacional S.A. References

in this Form 10-K to Biofrontera’s “Licensors” refer collectively to Biofrontera Pharma, Biofrontera Bioscience

and Ferrer. References in this Form 10-K to “Ameluz Licensor” refer collectively to Biofrontera Pharma and Biofrontera

Bioscience. References in this Form 10-K to “Maruho” refer to Maruho Co., Ltd. References in this Form 10-K to

“Cutanea” refer to Cutanea Life Sciences, Inc., which was acquired by Biofrontera in 2019 (“Cutanea acquisition”).

SPECIAL

NOTE REGARDING FORWARD-LOOKING STATEMENTS

The

following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated

financial statements and the related notes, which appear elsewhere in this Form 10-K. This Form 10-K, including the section titled “Management’s

Discussion and Analysis of Financial Condition and Results of Operations,” may contain predictive or “forward-looking statements”

within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts,

in this annual report, including statements regarding our strategy, future operations, regulatory process, future financial position,

future revenue, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements.

The words “believe”, “anticipate”, “intend”, “expect”, “target”, “goal”,

“estimate”, “plan”, “assume”, “may”, “will”, “predict”, “project”,

“would”, “could” and similar expressions are intended to identify forward-looking statements, although not all

forward-looking statements contain these identifying words.

You

should read this Form 10-K and the documents that we have filed as exhibits completely and with the understanding that our actual future

results may be materially different from what we expect. While we have based these forward-looking statements on our current expectations

and projections about future events, we may not actually achieve the plans, intentions or expectations disclosed in or implied by our

forward-looking statements, and you should not place undue reliance on our forward-looking statements. These forward-looking statements

are subject to risks, uncertainties and assumptions about us and accordingly, actual results or events could differ materially from the

plans, intentions and expectations disclosed in or implied by the forward-looking statements we make. Factors that could cause such differences

include, but are not limited to:

● our ability to achieve and sustain profitability;

● our ability to compete effectively in selling our licensed products;

● changes in our relationship with our Licensors;

● our Licensors’ ability to manufacture our licensed products;

● market risks regarding consolidation in the healthcare industry;

● the fact that product quality issues or product defects may harm our business;

● any product liability claims;

● our ability to regain compliance with Nasdaq continued listing standards;

● our ability to comply with the requirements of being a public company;

Our

forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments

that we may make. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future

events or otherwise, except as required by law. Any forward-looking statements speak only as of the date on which they are made, and

we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise

after the date of this Form 10-K, except as required by applicable law. Investors should evaluate any statements made

by us in light of these important factors.

PART

I

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. 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.

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, 2022, Biofrontera AG held 30% 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, 2022, the company had 81 employees all of which were full-time employees and 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, 2022, no customer represented

more than 10% of the net accounts receivable balance. For the year ended December 31, 2022, 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:

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 photodynamic therapy 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 (“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. Actinic keratoses 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 and these treatments can be used in combination.

In

general, photodynamic therapy is a two-step process:

During

this process, energy from the light activates the photosensitizer. In photodynamic therapy, 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. Photodynamic therapy 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

photodynamic therapy 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 experiencing up to 91% clearance after

one or two treatments3 with limited or no scaring. 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, constitutes 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. This targeted market is about 11% or $440 million of the total AK market.6

Ameluz® PDT is competitive in the market. We are leveraging medical affairs, advisory boards, 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

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

$286.00 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’ research and development

programs

We are a sales organization with focus on commercializing our portfolio of licensed products that are already FDA-approved.

Research and development 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 (when available) 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.

A

summary of our understanding of the Licensor’s clinical trials is below:

Clinical Phase

Product Indication Pre-clinical I II III Status

Ameluz® Moderate to severe acne ● CSR expected Q2 – 2024

Ameluz® Squamous cell carcinoma in situ ● Plan to start enrollment in 2024

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 BF-RhodoLED® model will continue to be offered in the U.S. market.

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.

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.

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 impetigo8 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’ research and development 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.

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, Ferrer is in the process of qualifying a new third-party manufacturer

in North America. The expectation is that this process will be completed by early 2024. Once the new third-party manufacturer is qualified,

we expect the supply of Xepi® will meet future needs. 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.

7How to Treat Impetigo and Control This Common Skin Infection | FDA

8 From CLS link to Johns Hopkins Impetigo

| Johns Hopkins Medicine

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 2028and 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.

Xepi®

is protected by four patents in the United States held by Ferrer. The primary patent protecting the active ingredient in Xepi®

expires 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

On

June 16, 2021, we entered into the Ameluz LSA with Biofrontera Pharma and Biofrontera Bioscience. Under the terms of the Ameluz

LSA, we were 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 and agreed to purchase a minimum number of units according to an agreed schedule.

On

October 8, 2021, we entered into an amendment to the Ameluz LSA under which the price we pay per unit will be based upon our sales history,

although the minimum number of units to purchase per year remains unchanged.

The

amendment to the Ameluz LSA that became effective on October 8, 2021, also shifted the costs of clinical development for FDA-approved

indications that are not currently being sought by the Ameluz Licensor, as described below.

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 milestone or

royalty obligations associated with this agreement. Any changes to pricing of supply of Ameluz® or RhodoLED® lamps

would require agreement by both contract parties.

The

Ameluz LSA will remain in effect until June 2036, at which time the Ameluz LSA may automatically renew depending on Biofrontera’s

achievement of certain revenue goals. Both parties may terminate the agreement early for a material breach after a 60-day cure period.

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.

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.

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. 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.

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.

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;

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;

● 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;

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.

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.

Item

1A. Risk Factors

Summary

of Material Risk Factors

Our

business, results of operations and financial condition and the industry in which we operate are subject to various risks. We have listed

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. New risks may emerge from time to time, and it is not possible for us

to predict all potential risks or to assess the likely impact of all risks. You should read this summary together with the more detailed

description of each risk factor contained below. Some of these material risks include:

Risks

Related to the License and Supply Agreements and our Licensed Products

Risks

Related to Our Business and Strategy

Risks

Related to Our Financial Position and Capital Requirements

● The valuation of our equity investments is subject to volatility.

Risks

Related to Corporate Governance, Including Being a Public Company

Risks

Related to Our Securities and the Ownership of Our Common Stock

Risks

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.

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. 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”.

Disputes

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

● our right to sublicense patent and other rights to third parties;

● our right to transfer or assign the license; and

● the effects of termination.

These,

or other disputes over intellectual property that we have licensed may prevent or impair our ability to maintain our current arrangements

on acceptable terms or may impair the value of the arrangement to us. Any such dispute, or termination of a necessary license, could

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

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.

The

patent family that protected the technology relating to nanoemulsion of 5-aminolevulinic acid, the active ingredient in Ameluz®,

against copying by competitors expired on November 12, 2019. This patent family included U.S. Patent No. 6,559,183, which, prior to its

expiration, served as a material, significant and possibly the only barrier to entry into the U.S. market by generic versions of Ameluz®.

Although the process of developing generic topical dermatological products presents specific challenges that may deter potential generic