17. Commitments and Contingencies

Leases

The Company leases office space, warehouse space and vehicles. The Company has elected the short-term lease exemption under ASC 842-20-25-2 for leases with an initial term of twelve months or less. For its office, warehouse and vehicle leases, the Company has not elected the practical expedient in ASC 842-10-15-37 and therefore does not combine lease components with associated non-lease components.

The lease for our office space at 120 Presidential Way, Woburn, MA expired in November 2025. The Company elected to not renew the lease and has no remaining commitments under this agreement. Lease expense was recognized through the expiration date, and the ROU asset and related lease liability were derecognized.

The Company’s corporate headquarters is located at 660 Main Street, Woburn, MA, under a 63-month operating lease that commenced on December 1, 2025 and expires on February 28, 2031. Under the terms of the agreement, the Company was entitled to a rent-free period for the first three months of the lease and reduced rent payments for months four through nine, followed by periodic escalated payments thereafter. The Company provided the landlord with a security deposit in the amount of $0.2 million, which was recorded as other assets in the condensed consolidated balance sheets.

The Company also leases office and warehouse space at Hemmelrather Weg 201, 51377 Leverkusen, Germany under an operating lease agreement commencing on January 1, 2026, with a lease term of 10 years with automatic twelve-month renewal periods thereafter unless terminated by either party upon twelve months’ prior written notice. The Company has not included any of the automatic twelve-month renewal periods in the lease term used to measure the operating lease liability, as the Company is not reasonably certain to exercise these renewal options at lease commencement. The new lease arrangement resulted in $1.3 million of right-of-use-assets obtained in exchange for new operating lease liabilities. The lease includes an initial rent-free period of three months, with the base rent subject to adjustment if the German consumer price index moves by ten percent or more from the lease commencement date or most recent adjustment. In connection with the lease, the Company provided a security deposit in the amount of $0.1 million.

The Company leases vehicles under a master agreement, pursuant to which each vehicle is leased for an initial non-cancelable term of twelve months, and thereafter on a month-to-month basis. Based on historical retention experience of approximately three years, the vehicles have varying expiration dates through August 2029.

Operating lease cost was $0.2 million and $0.4 million for the three and six months ended June 30, 2026, respectively, and $0.2 million and $0.4 million for the three and six months ended June 30, 2025, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $0.3 million and $0.4 million for the six months ended June 30, 2026 and 2025, respectively. At June 30, 2026, the weighted-average remaining lease term for the Company’s operating leases was 6.5 years and the weighted-average discount rate was 9.9%.

Future lease payments under non-cancelable leases as of June 30, 2026 were as follows (in thousands):

 Schedule of Future Commitments and Sublease Income

Minimum Sales or Minimum Order

Until the earlier to occur of (i) the Company manufactures orders meeting one million tubes of Ameluz^® during the period from June 1, 2025 through May 31, 2031, or (ii) the expiration of patent protection, which is expected to occur in December 2043 (the “Asset Reversion Term”), starting January 1, 2026 and continuing until the end of the Asset Reversion Term, the Company shall be required to manufacture or order from suppliers at least 80,000 tubes of Ameluz^® per year (the “Minimum Order Amount”). The Company is on track to meet the annual Minimum Order Amount by the end of the year.

Supply Agreement

On December 12, 2025, Discovery entered into a Supply Agreement (“Supply Agreement”) with Midas Pharma GmbH (“Midas”). Among other things, the Supply Agreement provides that Midas will supply Discovery or its contract manufacturers, in the aggregate, 100 kg of the active pharmaceutical ingredient (“API”) 5-Aminolevulinic acid Hydrochloride through the second quarter of 2028. Under the terms of the Supply Agreement, Discovery will provide Midas with a twenty-four (24) month non-binding rolling forecast, which shall 1) indicate the anticipated quantity of API required by the company and 2) be updated every twelve (12) months during the term of the agreement.

Licensing Agreement with Optical Tools

On December 2, 2022, the Company entered into the technology transfer agreement with Optical Tools LLC (“Optical Tools”), Stephen Tobin and Paul Sowyrda (the “OT Agreement”). The OT Agreement allowed for the transfer of the assigned patents and trademarks, and upon notification by the Company to Optical Tools, the research and development of certain prototypes. The Company paid a licensing fee of $0.2 million which was expensed during the year ended December 31, 2022.

On May 28, 2023, the Company authorized Optical Tools to design, develop, manufacture, and deliver at least two portable photodynamic therapy lamp prototypes (“PDT Device”) using the technology in the assigned patents. The PDT Device provides illumination, based on different light profiles, to the external skin surface of the human body. The Company is to reimburse Optical Tools for all reasonable out-of-pocket, material and labor costs per the OT Agreement.

As part of the OT Agreement, Optical Tools will be eligible to receive regulatory and sales milestone payments totaling up to $1.0 million, and royalties of up to 3% of net revenue of certain products developed under the OT Agreement.

The Company did not make any milestone or royalty payments or accruals for such payments during the three and six months ended June 30, 2026 or 2025.

Legal proceedings

At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of ASC 450, Contingencies. The Company expenses as incurred the legal costs related to such legal proceedings.

Legal Proceedings

On September 13, 2023, Biofrontera was served with a complaint filed by DUSA Pharmaceuticals, Inc., Sun Pharmaceutical Industries, Inc., and Sun Pharmaceutical Industries LTD (collectively, “SUN”) in which SUN alleges (i) breach of contract, (ii) violation of the Lanham Act, and (iii) unfair trade practices under Massachusetts law. All claims stem from allegations that Biofrontera has promoted its Ameluz^® product in a manner that is inconsistent with its approved FDA labeling. Though this complaint was originally filed in the United States District Court for the District of Massachusetts, this matter has been transferred by agreement of the parties to the United States District Court for the District of New Jersey. In March 2024, Biofrontera filed a partial motion to dismiss the Lanham Act and Massachusetts statutory claims, which was denied on October 15, 2024. Biofrontera subsequently answered SUN’s complaint and filed counterclaims on October 30, 2024 alleging (i) violation of the Lanham Act, (ii) deceptive trade practices under Georgia law, and (iii) trade libel/product disparagement, which SUN answered on December 17, 2024. On March 11, 2025, Biofrontera received an additional notice alleging breach of contract through unlawful marketing practices which makes reference to similar previous communications sent by SUN to Biofrontera on February 4, 2022 and September 9, 2022. SUN has since amended its complaint to include the allegations contained therein with its existing claims.

Discovery is ongoing in the above-referenced matters. The Company denies the claims brought by SUN and intends to defend them vigorously. Based on the Company’s assessment of the facts underlying the above claims and the uncertainty of litigation, the Company cannot estimate the possibility of a material loss, nor the potential range of loss that may result from this action. If the final resolution of the matter is adverse to the Company, it could have a material impact on the Company’s financial position, results of operations, or cash flows.

Separately, on June 26, 2024 and June 27, 2024, SUN filed two complaints against Biofrontera, Biofrontera AG, Biofrontera Pharma, and Biofrontera Bioscience with the United States District Court for the District of Massachusetts (the “Massachusetts District Court”) and the Commission, both alleging that the RhodoLED^® XL infringes either/both of two patents held by SUN (individually, the “‘028 Patent” and the “‘512 Patent,” and collectively the “SUN Patents”). The complaint filed in the Massaschusetts District Court has been held in abeyance pending the completion of the investigation before the Commission and any subsequent appeals.

In the Commission proceeding, a hearing was held in front of an administrative law judge (“ALJ”) between June 30, 2025 and July 3, 2025, and on September 30, 2025, the ALJ issued an Initial Determination (“ID”) finding the SUN Patents to be valid and infringed, and that importation of Biofrontera’s RhodoLED^® XL violates Section 337 of the Tariff Act of 1930. Following review by the Commission (during which time the ID had no immediate effect), on May 6, 2026, the Commission adopted the ID in its Final Determination (“FD”) and issued a LEO and corresponding cease and desist order (“CDO”), prohibiting the Company from importing and/or selling the RhodoLED^® XL in the United States and restricting the Company from importing or selling Ameluz^® for use with the RhodoLED^® XL. Importation and sale of Ameluz for use with the BF-RhodoLED is not affected. The LEO and CDO were both subject to a 60-day Presidential Review period that concluded on July 6, 2026, prior to which time the Company was permitted to continue to import and sell the RhodoLED^® XL (and Ameluz^® for use with the RhodoLED^® XL) and after which the Company has implemented measures to comply with the CDO and LEO, including but not limited to ceasing importation and sales of the RhodoLED^® XL (and Ameluz^® for use with the RhodoLED^® XL).

Separately, Biofrontera challenged the validity of the SUN Patents by filing separate petitions for inter partes review (“IPR”) at the United States Patent Trial and Appeal Board (“PTAB”) for each of the SUN Patents. The IPR filed in relation to the ‘512 Patent was discretionarily denied by the PTAB on July 2, 2025 for administrative reasons. However, the IPR filed in relation to the ‘028 Patent was instituted in February 2025, and the PTAB issued a final written decision on February 23, 2026 (the “FWD”) finding all challenged claims in the ‘028 Patent to be unpatentable. On March 25, 2026, SUN requested that the Director of the United States Patent and Trademark Office (“USPTO”) review the FWD and either reverse and vacate the PTAB’s FWD, or vacate the PTAB’s FWD and de-institute the IPR, which the Company opposed. On July 29, 2026, the USPTO Director granted SUN’s request, vacating the PTAB’s FWD and dismissing the IPR concerning the ‘028 Patent.

The Company may appeal both the Commission’s determination and the USPTO Director’s decision to the U.S. Court of Appeals for the Federal Circuit. In addition, on June 4, 2026, the Company submitted a ruling request to U.S. Customs and Border Protection regarding a redesigned version of the RhodoLED^® XL that the Company contends falls outside the purview of the LEO and CDO. No ruling has been issued and a response is expected in September or October 2026.

The Company evaluated this matter and concluded that a loss is probable and reasonably estimable as of the balance sheet date. As such, the total estimated remediation cost of $0.5 million, representing management’s best estimate within a range of $0.4 million to $0.6 million, has been recognized as a $0.4 million charge to operating expenses within patent remediation expense and a $0.1 million charge to cost of revenues, other on the condensed consolidated statements of operations for the six months ended June 30, 2026, offset with an inventory write-down of $0.1 million, presented as a reduction of inventories on the condensed consolidated balance sheets, in accordance with ASC 330-10-35; and an accrued remediation liability of $0.4 million, presented within accrued expenses and other current liabilities on the condensed consolidated balance sheets.

The Company continues to deny SUN's infringement allegations and disagrees with the Commission's Final Determination. The Company is complying, and intends to continue to comply, with the LEO and CDO for so long as they remain in effect. While there can be no assurance that any appeal will be successful or that the orders will be modified, rescinded, or stayed, the Company intends to continue to defend the remaining above-referenced matters vigorously.

Based on the Company’s assessment of the facts underlying the above-referenced patent matters, as well as the uncertainty of litigation, except as stated above, the Company cannot estimate the possibility of a material loss, nor the potential range of loss that may result from either action. Money damages are not available to SUN based on the ruling by the Commission or any related appeals. If the final resolution of the case before the Massachusetts District Court is adverse to the Company, it could have a material impact on the Company’s financial position, results of operations, or cash flows.