Biofrontera AG Sponsored ADR (BFRA) 2021 Q2 法說會逐字稿

Yes, ladies and gentlemen, welcome to the conference call of Biofrontera AG. Per customers' request, this conference will be recorded. (Operator Instructions)

May I now hand you over to Pamela Keck, Head of Investor Relations, who will lead you through this conference. Please go ahead.

Thank you. Good morning, good afternoon, and welcome to Biofrontera's earnings conference call for the first 6 months ended June 30, 2021. Yesterday, we issued a press release announcing financial results for the 6 months ended June 30, 2021. We encourage everyone to read the press release as well as the half year report, both of which are available on our website.

Please note that certain information discussed on this call today is covered under the safe harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that during this call, Biofrontera's management will be making forward-looking statements. Actual results could 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.

This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, August 20, 2021. Biofrontera undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

And with that, I would now like to turn the call over to Hermann Lubbert, our CEO. Hermann? Hermann, you might be on mute.

Sorry, I was on mute. Yes. Thank you, Pamela. Thank you very much, ladies and gentlemen, for taking the time to participate in today's call. With me today is Ludwig Lutter, our CFO. He will present the financial results in a second. Following that, I would like to share with you updates regarding our current regulatory and clinical development as well as the current business performance and activities. But first now to the financial results of the first 6 months of 2021. For that, I would like to hand over to Ludwig.

Yes. Thank you, Hermann, and thank you all for joining us today. I'd like to start by providing you with an overview of the financial results for the first 6 months ended June 30, 2021. Following the challenges resulting from the COVID-19 pandemic, the company sales experienced a slow start into the first half of 2021. However, from mid-March onwards, a clear recovery in sales developments became apparent. This includes our key market, the U.S.A., where we have been generating sales comparable to pre-pandemic levels again since mid-March. More information on that in just a moment.

First, general revenue development of the group. For the period January 1 through January 30, 2021, Biofrontera Group generated a total of sales, EUR 13.1 million a 19% decrease to EUR 16.1 million in the same -- in sales in the same period of last year. However, I'd like to draw the attention to the fact that total revenue in 2020 reporting period included a onetime payment of EUR 6 million received under a license agreement in April 2020.

For this reason, we believe it is important to compare revenue generated from actual product sales. And as such, revenues from product sales in the first half of 2021 were EUR 13.1 million, and that is up 35% compared to EUR 9.7 million in the first half.

The year-on-year sales recovery, which we already perceived in mid-March, especially in our largest market, the U.S., continued certainly to a large extent, attributable to the recovery of the general pandemic situation in the U.S. as well as in Germany. Due to the pandemic and for better comparability, we're not only comparing our revenue development in the reporting period with our prior year period but also with the revenue in the first half of 2019 pre-pandemic. As a result, a slight decline of 5% in product sales were recorded across all markets in the first half of 2021 compared to 2019. However, again, the lower product sales are mainly due to the month of January and February in 2021, which was still heavily affected by the pandemic and which had a strong impact on sales, specifically in the U.S. In the second quarter, again, of 2021, total product sales already exceeded those of 2019 pre-pandemic.

Let's look at our key markets in the U.S. now. There are -- there, the company generated revenues from product sales in the amount of EUR 8.7 million in the first half year compared to EUR 6.3 million in the same period last year, an increase of 36%. While sales in the U.S. in January and February '21 were significantly lower than the previous year during the pandemic, in the U.S., we were able to record a considerable year-on-year sales recovery starting mid-March.

Compared to the U.S. product sales in 2019, the product -- the company recorded a decrease of 16% in the month of January to June '21. Again, product sales in January and February '21 were still heavily impacted by the pandemic. However, second quarter revenue from Ameluz in the U.S. increased by about 7% compared to Q2 of 2019.

Moving on to the German market. Here, the company generated product sales of EUR 2.7 million compared to EUR 2.4 million in the same period last year, an increase of 15%. For added transparency, it's worth mentioning that revenues from product sales in Germany increased in 2020 even despite pandemic-related restrictions in the initial corona shock freeze in April 2020. This trend was supported by the possibility of daylight PDT, which can now be performed without direct contact with a physician as well as the March 2020 EU approval expansion to include treatment of actinic keratosis on trunk and extremities.

Compared to the first half of 2019, still pre-pandemic, the company recorded an increase of around 26% in Germany for the current reporting -- compared to the current reporting period. In the rest of Europe, sales improved by 78% to EUR 1.7 million compared to EUR 1 million in the first half of 2020. There, the company recorded a large increase in sales in the second quarter, particularly compared to the second quarter of 2020, in part because June 2021 sales included a first batch of Ameluz for the reintroduction in the Scandinavian market by our partner, Galenica AB. Typically, sales with distribution partners in other European countries account only for a small share of total sales.

Given the volatile sales development in our markets due to the constantly changing governmental restrictions, we have been publishing preliminary sales numbers on a monthly basis starting April this year. The company -- the company's preliminary unaudited revenue from product sales in July 2021 amounted to approximately EUR 1.6 million, an increase of 3% compared to July of 2020. Preliminary revenues from product sales in the U.S. were around EUR 1 million compared to EUR 0.8 million in July 2020, an increase of 29%.

In Germany, revenues from product sales amounted to approximately EUR 0.4 million compared to EUR 0.6 million in July 2020. As already noted, the comparatively high sales number in July '20 in Germany resulted from catch-up effects due to the previous weak months caused by the pandemic and the possibility of daylight and the label expansion. In the rest of Europe, the company generated a plus of 20% compared to about EUR 0.2 million in July 2020.

Comparing July 2021 sales in July 2019, before the pandemic, the encouraging trend becomes very apparent. As such, an increase of 9% in July 2021 for total product sales was achieved in all markets compared to July '19. In the U.S., product sales increased by about 15% compared to July '19. And for the same period, sales were up by about 6% in Germany, while sales revenue in the remaining European markets decreased by approximately 11% compared to July 2019.

Now back to the reporting period for 6 months of 2021. Gross profit decreased by EUR 3.5 million in the first half of 2021 to EUR 11.1 million compared to EUR 14.6 million prior year period. The gross margin decreased to 85% compared to 91% in the prior year period. Again, this is mainly due to the onetime payment as part of the licensing agreement of EUR 6 million included in past year's -- the prior year's figure.

Research and development costs increased slightly to EUR 2.9 million in the first half year of 2021 to EUR 2.4 million -- sorry, in the previous year period, which is mainly due to the effects of the cost-cutting measures implemented in 2020 to counter the effects of the COVID-19 pandemic. Research and development expenses include the costs for clinical trials, but also the expenses for regulatory affairs, i.e., the granting, maintenance and extension of our approvals.

G&A expenses increased to EUR 5.6 million in the first half of 2021 from EUR 4.4 million in the first half of 2020, mainly due to the cost saving measures implemented in the previous year as a result of the COVID-19 pandemic as well as the increase in the accrual for anticipated litigation expenses for the DUSA litigation in the U.S.

Sales and marketing expenses amounted to EUR 10.2 million in the first half of 2021, a decrease of 16% compared to the prior year period. The decrease is primarily due to the impairment loss of EUR 2 million on the Xepi license included in the 2020 figure.

Selling expenses mainly include the expense for our own sales force in Germany, Spain, The U.K. and The United States as well as all marketing expenses. In 2021, fiscal year EBITDA and EBIT were introduced as key performance indicators for management reporting. Both have become established internationally as key performance indicators and are replacing the previously reported KPI of profit or loss from operating activities.

Group EBITDA includes earnings before interest, taxes, depreciation and amortization and decreased by EUR 5.1 million to a negative EUR 5.8 million in the first half of 2021 compared to a negative EUR 0.7 million in the first half of 2020, which, again, is for the most part due to the previously mentioned onetime payment in April 2020. Group EBIT includes earnings before interest and taxes and decreased by EUR 2.9 million to minus EUR 7.4 million compared to about minus EUR 4.5 million in the first half of 2020.

Cash and equivalents amounted to EUR 32.6 million as of June 30, 2021, compared to EUR 16.5 million on December 31 of 2020. This includes the proceeds -- the gross proceeds of EUR 24.7 million from the capital increase completed in February '21. From today's perspective, the Biofrontera Group has sufficient liquidity to implement the group's strategy in the upcoming 12 months.

And with this summary, I'll hand it over back to Hermann again, who will update you on the operational progress. Hermann?

Yes. Thank you, Ludwig. Let's start with an update on the regulatory and clinical side. In February and March 2021, the company made 2 submissions to the U.S. Food and Drug Administration, or FDA, enabling the simultaneous use of up to 3 tubes of Ameluz per PDT, short photodynamic therapy. On the one hand, while also seeking approval for a larger red light, the RhodoLED-XL, on the other hand.

In June 2021, the meeting with the FDA for both submissions took place in which the further proceeding was determined. With regards to the approval process of the RhodoLED-XL lamp, the FDA has confirmed that the data are sufficient for the submission so that the evaluation process has been initiated.

Regarding the application for amendment of the product information to extended posology allowing the simultaneous use of 3 tubes of Ameluz, FDA did not express any concerns related to efficacy or to the results from the Phase I pharmacokinetic study underlying the application. However, to amend the product information, the regulatory agency recommended the submission of expanded safety data. The FDA agreed with the proposal to observe systemic and local side effects during treatment with 3 tubes of Ameluz on the heads of 100 patients. This safety study is scheduled to start in the second half of 2021.

Now a few words on the current sales performance. The trend in the first half of the year shows that we are slowly recovering from the pandemic. Sales development since mid-March has benefited from the easing of restrictions due to the pandemic. As a result, we have been able to achieve encouraging product sales at pre-crisis levels in recent months.

Product sales from all markets in the Q2 2021 showed an increase in sales of around 126% compared to Q2 2020 and around 10% compared to Q2 2019 prior to the pandemic. In our largest market, The U.S., product revenue from sales of Ameluz and the red light lamp, RhodoLED, increased by approximately 130% in the second quarter of 2021 compared to Q2 2020 and approximately 7% compared to Q2 2019, which is encouraging and shows that we have come through the pandemic in good shape and have returned to our growth trajectory.

Last week, our sales team came together for the (inaudible) sales meeting, where among other things, new marketing campaigns for Ameluz and Xepi presented. With these, we want to leverage the momentum in the market to further dive the exposure of our products among U.S. dermatologists. Ameluz is one of the most efficacious products for the treatment of sun-induced photo damage in the market environment with enormous growth potential, particularly in the U.S.A. Over the next few years, we intend to not only improve the positioning of Ameluz within the photodynamic therapy market segment, but also focus on expanding PDT on the expense of other therapy options.

In Europe, we have already succeeded in doing so to some extent. In Germany, in particular, we have not only established ourselves as the market leader within PDT, but have also significantly expanded the PDT market as a whole.

We also used the U.S. sales meeting to present the relaunch campaign for our second product sold in the U.S., Xepi, to our U.S. sales team. Following the extensive opening of dermatology practicing to patients and sales representatives, our topical antibiotic can now be marketed with considerably greater efforts than was previously possible under pandemic conditions. Despite a significantly higher price than generic competitor products, all major private players have agreed to provide unrestricted reimbursement for Xepi. This, together with our copayment assistance program, provides a solid foundation for the new marketing campaign.

All in all, the business performance in the first half of 2021 was in line with our expectations and the encouraging development in recent months leaves us optimistic. The company fully maintains the guidance for the 2021 financial year published on April 12. Accordingly, we expect annual sales between EUR 25 million and EUR 32 million as well as EBITDA loss of between EUR 11 million and EUR 14 million and EBIT loss of between EUR 13 million and EUR 16 million. Details on the forecast can be found in our annual report 2020.

To this end, however, it must be said that the change in the group structure in connection with the completion of the planned IPO of Biofrontera Inc., here, I refer to the material news release dated July 6, 2021, may have an impact on the Biofrontera Group's guidance for the full year 2021. However, as long as Biofrontera Inc. continues to be fully accounted for in the consolidated financial statements after the planned IPO, the IPO will have no impact on the group's guidance.

And that brings me to the next topic. We view the planned IPO of Biofrontera Inc., our currently wholly-owned U.S. subsidiary as a feasible and quite possibly the only way to raise capital. This will allow Biofrontera Inc. to fund its growth independently of Biofrontera AG. In many respects, the regulatory framework of the German capital market as well as corporate law create unnecessary hurdles that German companies with a capital-intensive business model such as that of Biofrontera AG have to overcome in order to obtain growth capital.

By listing our U.S. sales company, we are allowing the company greater flexibility in structuring its own growth financing. After all, Biofrontera Inc. serves the world's largest pharmaceutical market and aims to increase sales as quickly as possible. To do this, the company needs capital to optimize its sales structures and to enhance the promotion of its product portfolio.

2021 is turning out to be largely positive for the U.S. capital market. We would like to take advantage of this momentum in the capital market as a spring board for our listing of Biofrontera Inc. in a liquid and favorable market environment.

With a successful IPO of Biofrontera Inc., Biofrontera Group would be excellently positioned to fully exploit the growth potential on both sides of the Atlantic in the coming years. Above all, we would like to thank our employees and our Supervisory Board whose commitment and flexibility on idle Biofrontera to consistently pursue this path.

I would now like to open the line for questions. Thank you very much.

(Operator Instructions) And the first question we've received is from Bruce Jackson, The Benchmark Company.

I wanted to talk about the launch of Xepi for a moment. So in terms of the call points, is it the same physician that's currently using Ameluz or is it a different physician? Are there people out there who are using both -- who could potentially use both drugs and it could be sales effort be more efficient because of that?

They are largely overlapping. Ameluz is sold to those offices that do PDT. And in general, these are the larger offices, and they also use more antibiotics and smaller offices in general. However, there are exceptions where you find doctors that do a lot of prescription drugs and particularly stay away from generic drugs where that's possible. And those are, of course, potential customers for Xepi, and we are going to visit them at all.

On top of that, there are dermatologists who are specialized on pediatric dermatology and bacterial infections in general and impetigo, in particular, frequently occur in children or even young children, they would either go to these dermatologists and they hardly see any actinic keratosis because they are specialized on dermatology in children. However, for Xepi, they are very important customers for us. So there is a large overlap. And to the greatest extent, these are the same customers, but there are other niches that we have to go to with Xepi.

Okay. Great. That was very helpful. The other question I had was just with regard to the general U.S. market trends right now and COVID-19. There's been a little bit of a resurgence since the close of the quarter. Are you seeing anything regionally or geographically that's new and could potentially impact your outlook and how the rest of the year unfolds?

Well, obviously, we are carefully watching the development of COVID-19 measures. And you know that in some countries, the COVID measures have become stronger. Again, there's -- we have to wear masks again, like in California and to a certain extent, in Massachusetts. This has not yet reflected on our ability to visit the doctor's offices. We also don't expect another shutdown to come. I think nobody expects that, but we don't know more than anybody else does.

Next question is from Thomas Flaten, Lake Street Capital Markets.

Just on the XL lamp, in the absence of having the label change for 3 tubes, can you just walk us through what the sales pitch is going to be on the larger lamp compared to the smaller current lamp?

Yes, absolutely. So usually, most actinic keratosis actually occurs on the head. So face or scalp, and that is usually treated with one tube. Now if you treat the entire face or spots directed treatment of actinic keratosis on various parts of the face, then with the current lamp, you need several illuminations. And that is actually allowed according to label. So this is in label to illuminate several times. However, it is obviously an additional burden to the patient and its extra work for the doctor's office.

So the larger lamp would prevent that burden and that additional work. So we do believe that this actually has a large impact of convincing offices to switch over to the red light as opposed to other lamps that they use and subsequently also use our product.

Great. And then to follow up on Bruce's question about the outlook for the year, if I just double your first half revenues that puts me well inside your guidance range, are you not increasing the range because of concerns about COVID? Or how should we think about the low end of your guidance range, which would be -- which would represent a downtick second half over first half?

Yes. Yes, we are -- well, you're right. We could be thinking about increasing the range. We have decided not to do this because there are too many variables still for the rest of the year. And as you know, we have a seasonal business, and Q4 is always the best sales month for us. And if everything develops as positively as it does develop now and continues to develop this way, then our guidance may turn out to be low. However, at this point, we simply think we don't have the information that would be required to raise the guidance.

If I may insert Thomas, you can blame it on the CFO, who is always the conservative guy who looks into the glass ball and says, way too early to really make a statement. So let's stick with preferably a conservative outlook from today's point of view as opposed to having to change that again. So just simply not enough information that we have. Let's look into Q4, and then we'll know more.

Got it. And then one final question. Of the R&D projects, so for example, the acne study or the illumination protocol, how many of those are dependent on the Biofrontera Inc. IPO? And how many have you contemplated just with your current cash reserves at the group level?

None of these. Maybe some of the later ones like squamous cell carcinoma in situ, also the Phase III trials for the acne project, which are not listed in our reports yet. But obviously, after Phase II comes Phase III, those would probably be delayed until we have further financing. But the smaller ones, so we have -- that we are planning now and intend to start, none of this will be -- will depend on the IPO because all these studies will actually be paid out of Biofrontera bioscience irrespective of whether the IPO happens or not.

At the moment, there are no further questions. (Operator Instructions) As we haven't received any further questions, I would like to hand back to you.

Yes. Then I would like to say thank you for taking the time, and I wish you a nice Friday afternoon and a nice weekend. Bye-bye.

Same from me. Thank you very much.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.