INSTITUTIONAL RESEARCH Specialty Pharma COMPANY UPATE Member FINRA/SIPC

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1 INSTITUTIONAL RESEARCH Specialty Pharma COMPANY UPATE Member FINRA/SIPC Toll Free: North Federal Highway - Suite 500 Boca Raton, FL Biofrontera (Nasdaq/BFRA) BUY Strong 2018 continues in Q3 November 29, 2018 Robert M. Wasserman Senior Research Analyst rwasserman@dawsonjames.com Biofrontera is an international biopharmaceutical company specializing in dermatology Investment Highlights 1) Biofrontera reported positive results for its Q3/2018 quarter, including revenues of 5.6 million, an increase of nearly 140% over the same period one year ago. Revenue growth in the third quarter was led by an increase of 2.8 million from sales in the US, to 3.8 million, fueled by new product reimbursement codes in the US, a new contract with the US Veterans Administration (VA) hospitals, and quarter-end advanced purchasing in anticipation of a 5.6% price increase for Ameluz on October 1, Sales in Germany and Europe (ex-germany) also showed solid gains in the third quarter over last year, although not at the same rate as in the US. Overall gross margins declined in Q3/18 to 79.8% from 88.6% for the same period last year, primarily due to the lack this year of development revenues, which do not have corresponding cost of sales. Certain expense line items remained steady this year over last, including R&D and sales and marketing; however, there was a large increase in general and administrative costs this year, arising primarily from higher legal fees, consulting expenses, and administrative costs for the new US offices. Altogether, net losses decreased this year to 4.6 million or ( 0.10) per share from 5.6 million or ( 0.15) per share one year ago. Operating cash burn in the third quarter was approximately 4.9 million for Biofrontera, up slightly from 4.2 million for the same period last year, and at the end of the third quarter the Company held cash balances of 21.1 million, a comfortable cushion given current and projected operating results. Current Price $12.80 Price Target $23.50 Estimates F2016A F2017A F2018E Revenues ( 000s) 6,130 A 12,025 A 20,802 E 1Q March 1,017 2,616 A 4,676 A 2Q June 692 2,390 A 4,293 A 3Q September 1,173 2,328 A 5,583 A 4Q December 3,249 4,691 A 6,250 E EPS (diluted) ( 0.36) A ( 0.42) A ( 0.36) E 1Q March (0.01) (0.09) A (0.07) A 2Q June (0.10) (0.12) A (0.11) A 3Q September (0.12) (0.15) A (0.10) A 4Q December (0.13) (0.06) A (0.07) E EBITDA/Share ( 0.29) ( 0.28) ( 0.31) EV/EBITDA (x) N/A N/A N/A Stock Data 52-Week Range $11.25-$17.98 Shares (ADRs) Outstanding ($mil.) 22.3 Market Capitalization ($mil.) $285.3 Enterprise Value ($mil.) $259.2 Debt to Capital (9/18) 1.0% Book Value/ADR (9/18) $1.33 Price/Book 9.6 x Average Trading Volume (3-month) 2,800 Insider Ownership 35.1% Institutional Ownership 2.2% Short interest (Millions) N/A Dividend / Yield $0.00/0.0% * Share price is $, Financials in, 2 ADRs per share Price target and ratings changes over the past 3 yrs: Initiated - March 28, Buy - Price Target $ ) Company management has also used the positive revenue results for the first part of this year to increase revenue guidance for the year as a whole, to million, up from million previously and compared to 12.0 million actual for Results this year also do not include significant revenues from development contracts, which ended early in 2018, and contributed approximately 1.4 million in 2017 as compared to approximately 0.2 million this year. Bearing in mind the recent strong quarter, then, we are Please find Important Disclosures beginning on Page 5. Page 1 of 6

2 forecasting that Biofrontera will post revenues of 6.25 million in Q4/18, up 33.3% year-over-year, and 20.8 million for 2018 as a whole, representing a 73% jump over We are also estimating that the Company will show a net loss of 16.0 million or ( 0.36) per share in 2018, within the range of guidance of million in losses for the year provided by management following the third quarter results announcement. We are also estimating that revenue growth and reduced losses are again expected for 2019E for Biofrontera, including revenue growth of 40% to 29.1 million and net losses of 10.8 million or ( 0.24) per share. 2) Looking ahead, the March 2018 approval of Ameluz in combination with daylight photodynamic therapy (PDT) by the European Commission has already boosted sales in the Company s largest European market of Germany, and is expected to continue to spur growth the rest of this year and next. Also in Europe, Biofrontera s ongoing Phase 3 trial using Ameluz and PDT for the treatment of active keratoses on the extremities, trunk and neck is expected to report results early next year and could, if approved, help boost revenues further in the EU in In the US, in addition to the new VA contract (started in August 2018) and the recent 5.6% price hike for Ameluz fueling growth this year and next, the Company also recently started patient recruitment in a Phase 3 trial using its Ameluz in combination with its proprietary BF-RhodoLED lamp for the treatment of superficial basal cell carcinoma (BCC), with the study slated to be completed in If approved, the combination therapy would be the only treatment of its kind in the US. Also in preparation by the Company are two Phase 3 clinical studies using Ameluz to treat 1) squamous cell carcinoma in situ and 2) acne, targeting regulatory approvals and commercialization in both the US and EU markets. Conclusion While Biofrontera s newly-launched US ADRs have just held steady so far this year, Biofrontera shares still trade at a discount to valuations given dermatology R&D companies and recent buy-outs, as well as valuations given to other biopharma companies with recent new product approvals and recent launches in other areas of medical specialization, perhaps due to the Company s newness to US markets and only recent new product launches. However, with rapid growth forecast in its new US market, solid performance in the Company s original markets in the EU, a deep pipeline for new indications of existing products and new products as well, and a recently bolstered balance sheet, Biofrontera shares and ADRs may soon attract both growth-oriented and value-oriented investors, and therefore we are maintaining our Buy rating on BFRA ADRs with a month price target of $ (For a complete explanation of our Stock Valuation analysis on BFRA ADRs, please refer to our Initiation Report dated March 28, 2018). Risk Factors In addition to normal economic and market risk factors that impact most equities and the common risks shared by Biofrontera with other companies in the industry, we believe an investment in BFRA involves the following risks: Reliance on key management At present, BFRA relies on several key members of its management team who have been in key executive positions for an extended period of time. Should one or more of these key executives leave the Company, BFRA could find it difficult to replace their long-standing knowledge of operations and industry expertise. Reliance on future partnerships To date, BFRA has signed several marketing and development partnerships for its products in a number of geographic areas. Oftentimes in the case of partnerships or joint ventures certain factors related to product marketing and/or new product development may be determined by third parties and out of the control of Company management. Biofrontera 12/29/2018 Page 2 of 6

3 Limited stock liquidity Trading volume in BFRA on the Nasdaq exchange is comparatively light as these shares have a relatively limited history of trading compared with other healthcare stocks. As such, news regarding BFRA, its target market, partners and/or competitors could lead to significant volatility in the stock price. Competitive markets The Company and its partners compete in its target dermatology pharmaceutical market with a number of companies, many of which are considerably larger than the Company. There can be no assurance that the Company and its partners will be able to successfully compete and launch new products into these competitive markets in the future. FDA and regulatory risks BFRA and its partners are subject to regulatory review for ongoing product research and development as well as product manufacturing and assembly, including approval and review processes of the US Food and Drug Administration and other international regulatory agencies. In addition, the quality assurance and manufacture of the Company's products will be subject to ongoing oversight and regulation, and any negative correspondence from the FDA or other regulatory agencies in the future could have an adverse effect on the ongoing operations of the Company. Lack of historic profitability BFRA has not achieved operating profitability since its founding, and according to our forecasts may not be expected to do so in the near future. Although the Company maintains adequate cash reserves at the present time, there can be no assurance the Company will not need to raise additional working capital in the future should operating losses continue. Need to defend patents and other intellectual property BFRA currently has issued patents internationally and has patent applications pending in the US on its technology platforms and products, some of which may expire in the near future. The Company may be required to defend its patents in the US and overseas in the future, and there can be no assurance these defenses will be successful. Biofrontera 12/29/2018 Page 3 of 6

4 Source: Dawson James Securities, Inc. estimates; Company documents Biofrontera 12/29/2018 Page 4 of 6

5 Important Disclosures: Price Chart: Price target and ratings changes over the past 3 years: Initiated Buy - March 28, 2018 Price Target $23.50 Dawson James Securities, Inc. (the Firm ) is a member of the Financial Industry Regulatory Authority ( FINRA ) and the Securities Investor Protection Corporation ( SIPC ). The Firm does not make a market in the securities of the subject company (s). The Firm has engaged in investment banking relationships with BFRA in the prior twelve months, as a manager or co-manager of a public offering and has received compensation resulting from those relationships. The Firm may seek compensation for investment banking services in the future from the subject company(s). The Firm has received other compensation from the subject company(s) in the last 12 months for services unrelated to the managing or co-managing of a public offering. Neither the research analyst(s) whose name appears on this report nor any member of his (their) household is an officer, director or advisory board member of these companies. The Firm and/or its directors and employees may own securities of the company(s) in this report and may increase or decrease holdings in the future. As of October 31, 2018, the Firm as a whole did not beneficially own 1% or more of any class of common equity securities of the subject company (s) of this report. The Firm, its officers, directors, analysts or employees may effect transactions in and have long or short positions in the securities (or options or warrants related to those securities) of the company(s) subject to this report. The Firm may effect transactions as principal or agent in those securities. Analysts receive no direct compensation in connection with the Firm's investment banking business. All Firm employees, including the analyst(s) responsible for preparing this report, may be eligible to receive non-product or service specific monetary bonus compensation that is based upon various factors, including total revenues of the Firm and its affiliates as well as a portion of the proceeds from a broad pool of investment vehicles consisting of components of the compensation generated by investment banking activities, including but not limited to shares of stock and/or warrants, which may or may not include the securities referenced in this report. Although the statements in this report have been obtained from and are based upon recognized statistical services, issuer reports or communications, or other sources that the Firm believes to be reliable, we cannot guarantee their accuracy. All opinions and estimates included in this report constitute the analyst s judgment as of the date of this report and are subject to change without notice. Information about valuation methods and risks can be found in the STOCK VALUATION and RISK FACTORS sections of this report. Biofrontera 12/29/2018 Page 5 of 6

6 The securities of the company discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. This report is offered for informational purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such would be prohibited. Additional information is available upon request. Ratings Definitions: 1) Buy: the analyst believes the price of the stock will appreciate and produce a total return of at least 20% over the next months; 2) Neutral: the analyst believes the price of the stock is fairly valued for the next months; 3) Sell: the analyst believes the price of the stock will decline by at least 20% over the next months and should be sold. The following chart reflects the range of current research report ratings for all companies followed by the analysts of the Firm. The chart also reflects the research report ratings relating to those companies for which the Firm has performed investment banking services in the last twelve months. Analyst Certification: The analyst(s) whose name appears on this research report certifies that 1) all of the views expressed in this report accurately reflect his (their) personal views about any and all of the subject securities or issuers discussed; and 2) no part of the research analyst s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research report; and 3) all Dawson James employees, including the analyst(s) responsible for preparing this research report, may be eligible to receive non-product or service specific monetary bonus compensation that is based upon various factors, including total revenues of Dawson James and its affiliates as well as a portion of the proceeds from a broad pool of investment vehicles consisting of components of the compensation generated by investment banking activities, including but not limited to shares of stock and/or warrants, which may or may not include the securities referenced in this report. Biofrontera 12/29/2018 Page 6 of 6