Biofrontera Inc. (BFRI) Q1 2019 Earnings Report, Transcript and Summary

Dear ladies and gentlemen, welcome to the conference call to discuss Q1 2019 results. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]. May I now hand you over to Ms. Keck who will lead you through this conference. Please go ahead, madam.

Thank you. Good morning and welcome to Biofrontera's first quarter 2019 earnings conference call. E Earlier this morning, Biofrontera issued a press release announcing financial results for the three months ended March 31, 2019. We encourage everyone to read today's press release, as well as Biofrontera's quarterly report which has been published on our website. The company's press release is also available on Biofrontera's website at www.biofrontera.com. Please note that certain of the information discussed on the 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. These forward-looking statements are subject to a number of risks, including risks related to fluctuations in our financial result, our ability to attract and retain key personnel, risks of our clinical trial, the timing and our ability to submit applications for, obtain and maintain regulatory approvals for our product candidates, and others detailed in, and qualified by, cautionary statements contained in our press releases and SEC filings, including our annual report on Form 20-F and subsequent filings. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, today on May 29, 2019. Biofrontera undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. With that, I would now like to turn the call over to Dr. Hermann Lübbert. Biofrontera's Chief Executive Officer. Hermann, go ahead. Hermann Lübbert: Yeah. Thank you, Pamela. And thank you everyone for joining us today for Biofrontera's first quarter 2019 earnings conference call. Today, I'm joined by Christoph Dünwald, our Chief Commercial Officer, will provide an update on our commercial strategy, and our Chief Financial Officer, Thomas Schaffer, who will review our financials. Overall, 2019 is shaping up to be a very active year for Biofrontera and we are working diligently to ensure that it will be another year of operational and strategic success. In the first quarter, we increased total revenue by approximately 46%, primarily driven by the US and representing our first consecutive quarter of strong growth. These results continue to highlight our ability to execute on our strategic growth initiatives for Ameluz. Earlier this year, we reported positive results from our Phase III clinical trial, examining the safety and efficacy of conventional photodynamic therapy with mild to severe actinic keratoses with Ameluz for the treatment on extremities, trunk and neck. Patients were treated on one side of the body with Ameluz, on the other side with a placebo gel that was identical to Ameluz, but did not contain the active ingredient. The study which took place at six study sites in Germany met all primary and secondary endpoints, demonstrating that Ameluz was superior to placebo with a mean total lesion clearance rate of 86% compared to 33% for placebo. This result represents the primary endpoint of the study, but the study also shows highly significant results on all secondary endpoints. For example, at 12 weeks, after the last of one or two PDTs, 67% of patients who were treated with Ameluz were completely cleared of all the AK lesion compared to only 12% of the placebo treated ones. This compelling results helped to further support Ameluz as a highly efficacious therapy and we expect to file for label extension with the European Medicines Agency, EMA, and the US FDA in the third quarter of this year. If approved, Ameluz would be the only photodynamic therapy in Europe and the US for treatment of actinic keratosis of all severities on the extremities, trunk and neck, which would further increase our competitive advantage over other PDT drugs on the market. More recently, we announced a collaboration agreement with our strategic partner, Maruho, to continue our previous branded generics program and we have selected one of the four active ingredients tested under the earlier collaboration to prepare for clinical trials. Under the terms of the agreement, existing IP, specifically for Biofrontera's nanoemulsion technology remains with the original owner, while the results of the development are equally shared by both parties. Costs associated with the new project phase, up to €1.1 million, will be provided exclusively by Maruho. To use the results, Maruho will however still need to acquire a license for Biofrontera's nanoemulsion technology. In addition to this collaboration agreement, we also recently signed a nonbinding term sheet with Maruho for a joint research program for the label extension of Ameluz for the most severe forms of acne. As you remember, acne is an indication we have been exploring for the US market and believe it could be another significant growth opportunity for Ameluz. We are currently planning a proof-of-concept trial and a maximal use pharmacokinetic style, the cost of which would be borne by Maruho in an amount yet to be specified. These trials would be followed by at least two Phase III trials as required for the US marketing approval for acne. According to the term sheet, Maruho will also cover the costs of the Phase III trials and Biofrontera would grant Maruho a license for marketing Ameluz in parts of East Asia and Oceania. If both companies will not agree on such a license, Biofrontera will reimburse Maruho for the cost of the Phase III trials, provided the trials have been successful. We look forward to providing additional updates as this collaboration develops further. Let me know turn back to the acquisition of Cutanea. As briefly mentioned earlier, Cutanea has two FDA-approved prescription drugs – AKTIPAK and Xepi. AKTIPAK is a prescription gel for the treatment of acne and Xepi was approved last year as a prescription drug for the topical treatment of impetigo, a frequent bacterial skin infection. It's important to note that Xepi is the only drug in its class that is approved by the FDA also for the use with antibiotics resistant bacteria, such as MRSA. We have been working diligently to complete the integration of Cutanea in order to incorporate these two new products into our commercial portfolio and have our sales reps carrying them in their bag for which they are very excited. Up to the end of the current quarter, the two new products will still be marketed by the Cutanea sales team. Starting on July 1, a combined sales team will be responsible for marketing and selling of all three drugs. Since our last earnings call, we completed an important step in this transition period, which was the transfer of the US registration dossier of our NDA for AKTIPAK from Cutanea to Biofrontera. This transfer now makes us the authorized marketing holder for AKTIPAK. This means that we are now the primary contact for the FDA regarding AKTIPAK and will assume all responsibilities related to compiling and maintaining the regulatory dossier, informing the FDA about any changes related to the product and maintaining a pharmacovigilance system for the drug. Marketing authorization holder for Xepi is the Spanish company Ferrer and Biofrontera will assume all responsibilities with respect to the communication with the FDA. We are very excited to have these two additional drugs under the Biofrontera umbrella and believe we have the sales and marketing infrastructure and the necessary scientific and regulatory experience and know-how to market both products in tandem with Ameluz successfully. As outlined before, starting July 1, we expect to sell all three products with the combined sales force made up of our experience legacy sales representatives as well as a number of new sales representatives and sales trainers who are joining us from Cutanea. On that note, I would like to now hand the call over to Christoph to discuss our commercial progress. Christoph Dünwald: Thank you, Hermann. Biofrontera has built a robust sales and marketing infrastructure in the US, Spain, Germany, and recently added a team in the UK. Our first quarter 2019 product sales were €6.8 million. This marks the highest quarterly revenues we accomplished so far in the company's history. Our sales teams globally contributed again to the success. Naturally, our largest market, the US, realized the largest contribution. Europe, however, is also continuing its dynamic growth due to the launch of daylight PDT last spring. Our goal is to expand the use of PDT in dermatology and the daylight PDT seems to capture the interest of more and more dermatologists in Europe. The workshops we are currently running in our three main European markets, Germany Spain and the UK, are well attended. But, first, let me talk about the development in the US where we continued to successfully execute our growth strategy. Initially, our team have been focusing on the low-hanging fruit, dermatologists who are already familiar with photodynamic therapy. Today, with total sales of over $30 million since the launch of Ameluz in October 2016, we can proudly say that we have established Ameluz and the BF-RhodoLED in the US market. US sales grew in the first quarter with 52%. With many reimbursement issues from the past now solved and the published average selling price that is adding simplicity to the reimbursement process, we are able to attract new customers to the PDT market. In the US, only 3% of the treated AK patients are treated with photodynamic therapy. This has to, and will, change and Biofrontera will be the driver of that growth. The recent acquisition of Cutanea gave us the possibility to realign our sales territories and we are now planning to cover the dermatology market in the US with a team of 45 sales employees, plus five regional managers. The team is supported by eight additional employees on the medical scientific side and four reimbursement specialists. Recruitment for all open positions is ongoing and we will take several members from Cutanea onboard. We are very pleased with the new sales talents. In terms of the newly acquired product, AKTIPAK and Xepi is taking place in June. And as of the 1 July, we will be working with one integrated sales force selling all products across the United States. Let's come to Europe now. We are very satisfied with the sales growth of 72% in Germany during the first three months. This growth momentum shows that we were able to gain more dermatologists prescribing and using Ameluz during the winter months. When not used in combination with natural daylight, dermatologists start to use Ameluz in daylight-simulated PDT with a variety of different labs. This means we are truly able to expand the market to new uses and the majority of that growth benefits Biofrontera through increased Ameluz sales. The sales for the rest of Europe remains flat year-over-year, which is due to the fact that we were able to control the reimport situation that skewed our numbers in the beginning of 2018. Business in Spain, strong. And we managed to compensate the price reduction of 27% we had to accept from the Spanish administration by increasing unit sales. Our UK team reports good progress with many public hospitals that put Ameluz on their formulary. With that, we anticipate an increasing sales momentum in the coming months. In addition, we continue to advance the use of Ameluz in the treatment of basal cell carcinoma and field cancerization in Europe. These approvals have not only expanded the market opportunities for Ameluz, but also have enabled the sale of Ameluz to hospitals where many European dermatologists practice. And, of course, the BCC indication adds to the reputation of Ameluz as a real cancer treatment. The acquisition of Cutanea is a fantastic opportunity to transform Biofrontera into a specialty pharmaceutical company in dermatology. We look forward to continue delivering strong growth and further strengthen Biofrontera. Our targets for 2019 are ambitious, but we would do, again, our best to achieve them and lead Biofrontera to breakeven. The success of 2018 is our inspiration for new records this year. We are off to a great start. And with that, I will hand over to Thomas for the financial review. Thomas?

Thank you, Christoph. And good afternoon, good morning to everyone on this conference call today. I would like to briefly review our financial performance in the first quarter of the 2019 financial year. For the first quarter ended March 31, 2019, we reported total revenue of €6.8 million compared to €4.7 million in the same period in 2018, representing a 46% increase year-over-year primarily due to strong growth in the United States. Revenue in the US grew significantly to €5.2 million for the first quarter 2019 compared to €3.4 million the same period last year, representing a 52% increase. Revenue in Germany amounted to €1.1 million for the first quarter of 2019 compared to €0.6 million for the first quarter of 2018. That represents a 72% increase. And this increase was primarily driven by the approval and marketing of Ameluz for daylight PDT. Our revenue in the remainder of Europe remained essentially flat at €0.6 million for the first quarter 2019 compared to the €0.6 million in the same period in 2018. That is due to the elimination of reimports within the EU that we encountered in the first quarter of 2018. Our gross profit on sales increased by €1.8 million to reach €5.8 million in the first quarter 2019 compared to €4.0 million in the first quarter 2018. The gross margin was stable at 86% in the first three months of 2019 compared to the previous year. Going forward, we will have the opportunity to improve our gross margins earned from Ameluz thanks to the recent approval from the EMA and FDA to upscale our batch sizes for the production of Ameluz fivefold. Not only will this improve our gross margins, but it will also allow us to ensure a secure supply of Ameluz as we work to further expand our customer base in both the EU and in the US. Research and development expenses increased 16% to €1.1 million in the first quarter 2019 compared to €0.9 million in the same period last year. R&D costs include costs for clinical studies as well as regulatory expenses. For example, fees for maintaining and extending our regulatory approvals. G&A, general and administrative, expenses were approximately €2 million for the first quarter of 2019 compared to €1.4 million in the first quarter of 2018. This increase was primarily driven by the expansion of our business activities as well as higher legal and consulting costs. Sales and marketing expenses increased 29% to €5.6 million for the first quarter 2019 compared to €4.3 million in the previous year. The increase in sales and marketing expenses reflects our growing sales activities in the US as well as the start of a dedicated sales force in the UK. For the first quarter 2019, we reported a net loss of €3.0 million or €0.06 per share compared to a net loss of €3.2 million or €0.08 per share for the same period in 2018. Cash and cash equivalents were at €21.8 million as of March 31, 2019 compared to €19.5 million as of December 31, 2018. And we believe we currently have sufficient liquidity to implement our growth strategy. Cash as at 31 March includes €5 million from a drawdown of another tranche from the EIB loan, loan from the European Investment Bank, which we made in the first quarter as the availability period for this tranche was about to expire. With the first quarter 2019 financials complete, I would like to reiterate Biofrontera's guidance for the full year 2019. For the 2019 financial year, we expect revenue to be in the range of €35 million to €40 million. These numbers do not include any revenues from Cutanea products. Loss from operations is expected to be between €7 million and €9 million. And loss before income taxes is expected to be between €9 million and €11 million. Additionally, we maintain that we expect to become operationally breakeven in the fourth quarter of this year. So, again, this guidance is unchanged to our earlier published guidance. We are currently working on the business combination reporting as well as the purchase price allocation and are also evaluating any impact on our financial statements from the consolidation of Cutanea. We anticipate that it will not lead to any negative changes in operating activities nor will it have any negative effects on our cash position for the full year 2019. We expect sales from AKTIPAK and Xepi to be in the mid-single digit million range, which are not included in our full-year guidance mentioned earlier. Additionally, any incremental marketing costs we will incur in 2019 for the commercialization of the acquired products will be prefinanced by Maruho and will consequently not affect our total sales cost in 2019. I would now like to hand over to Hermann for some closing remarks. Hermann? Hermann Lübbert : Yeah. Thank you very much. With the financials complete, I would like to say a few words about our extraordinary shareholder meeting held on May 15. We called the meeting upon request by one of our major shareholders, Deutsche Balaton AG, in order to discuss Maruho's voluntary public tender offer in the form of a partial also to the shareholder of Biofrontera AG to acquire up to 4.3 million registered shares for a cash consideration in the amount of €6.60 per share at the time of the meeting. As you may know, since then, Maruho has adjusted the cash consideration to €7.20 per share. All shareholders have the opportunity to speak and ask questions during the meeting. An opportunity that was specifically used by representatives from both Maruho and Deutsche Balaton, who were present at the meeting. The representatives from Maruho explained their intentions to work as partner of Biofrontera long term, helping Biofrontera's commercial goals in the US and in Europe and supporting Biofrontera's current strategy. They confirmed that they do not intend to induce changes in Biofrontera's supervisory board, upper management or employee structure. Biofrontera's management and supervisory board appreciate these goals and have expressed a favored opinion on Maruho's offer. With that said, let me conclude by saying that 2019 is providing to be a significant year in Biofrontera's history as we continue to accelerate our goals in the US, strengthen our strategic partnership with Maruho and make a major transformational change and step forward with the acquisition of Cutanea Life Sciences. Over the coming months, we expect to complete our consolidation of Cutanea and are very excited to begin leveraging our expanded product portfolio, including AKTIPAK and Xepi through our sales and marketing infrastructure in the US. In addition, we will continue to develop our clinical programs, including preparing our submission for the label extension of Ameluz to include actinic keratosis on the extremities, trunk and neck in the US and the EU, as well as continue to move our branded generics program with Maruho forward. While our Phase III trial on superficial basal cell carcinoma in the US is progressing, we are now planning the Phase II study on moderate to severe acne. We are confident that we will continue to successfully execute our growth strategy and would like to thank all of our employees and shareholders for their continued support as we seek to transform Biofrontera into a multiproduct dermatology company. And now, I would like to open the call for questions.

[Operator Instructions]. The first question is from Bruce Jackson, The Benchmark Company. Your line is now open. Please go ahead.

Hi. Good day. And congratulations on all of the progress. Hermann Lübbert: Thanks.

Yes. So, in terms of the Cutanea revenues, so you're officially going to have the combined sales force going in the third quarter. What happens with the second quarter revenue? Do you get to book that or does that go to Maruho?

No, we book the revenues in our books.

Okay.

Yeah. Cutanea is owned by Biofrontera since March 25th. So, Maruho is going to reimburse us for costs as agreed, but revenues are consolidated in our P&L.

Okay. Okay. And then, with regard to the acne development project with Maruho, you've got the letter of understanding. What's the next step in that project? And do you have a – you said meeting with the FDA, and do you have a meeting set up yet? Hermann Lübbert: We have not yet set up a meeting with the FDA. We are in the process of preparing the acne clinical trial with the clinical investigators in the US.

Okay. Do you have a rough idea of when that might happen? Would it be third quarter, fourth quarter, second half of the year, something like that? Hermann Lübbert: Second half of the year, yes.

Okay, all right. That's it for me. Thank you very much. Hermann Lübbert: Thanks, Bruce. Christoph Dünwald: Thank you, Bruce.

The next question is from Thomas Flaten, Lake Street Capital Markets. Your line is now open. Please go ahead.

Thank you. Good afternoon, guys. Just a follow-up on the prior question about acne. Do you have a sense of the duration of the initial Phase II and what size of study we can anticipate or is it too early to ask that question? Hermann Lübbert: We think that the study – the size of the study will be somewhere between 150 and 200 patients. And the duration of the study, each study participant will probably be in the study for four months. So, if we can manage to recruit these patients within, let's say, nine months to a year, we are basically looking at a study duration of approximately one-and-a-half years.

Great. And then, I just wanted to confirm your comments during the call. And you think two Phase III studies will be required for approval. Do you have a sense of size of study for those? Hermann Lübbert: No. I cannot have an idea about that. This really depends on the results of the Phase II trials and they will be needed to do the power calculations to then calculate the size of the Phase III trials.

And then, just the last question for me, the most recent comments that came out of Deutsche Balaton, do you have a comment to that? Hermann Lübbert: Comments that came out of Deutsche Balaton with respect to what?

With respect to changes to management that were announced late last week? Hermann Lübbert: We are facing this kind of comments through Deutsche Balaton since quite a while. And it's typical for Deutsche Balaton to do this kind of things with the companies they invest in. And it's certainly not the opinion of the majority of the shareholders as has been expressed in multiple shareholder meetings where their proposals have never found any majority.

Great. Thank you, guys. Appreciate it. Christoph Dünwald: Thank you, Thomas.

The next question is from Ross Blair, Bryan, Garnier & Co. Your line is now open. Please go ahead.

Hi there. Thank you for taking my questions. And just two today. The first question being how much of the US revenue growth do you believe is based on the implementation of the new CPT codes? And in your outlook for this year, if you could give a rough estimate on the number of scripts you need for the revenue outlook. Thank you.

Okay. So, the CPT code definitely is helping. This is based on discussions that we have with our KOLs that work with us. Up to 75% of the people are actually using the highest CPT codes when using Ameluz. So, definitely, that is helping – establishing Ameluz as a PDT drug. The overall number of prescriptions that we need for breakeven, everything – that is all baked in our budget and in the guidance. So, if we achieve the guidance of $35 million to $40 million, we will achieve the breakeven.

Perfect. Thank you very much. Christoph Dünwald: Thank you, Ross.

There are currently no further questions. [Operator Instructions]. And we've received a further question from Gary Waanders, Bryan, Garnier & Co. Your line is now open. Please go ahead.

Hi there. Just a question on sort of the breakdown between modalities of delivering PDT. Do you have any sense of, over time, or in this quarter, what proportion of patients are receiving daylight PDT versus a lamp-based PDT? Thanks. Hermann Lübbert: Okay. So, daylight PDT is only available in Europe and it's reimbursed in our markets yet. And this is actually depending on the season. So, in Germany, for instance, it's only possible between March and October. And, therefore, what I said in our talk earlier, in our explanations earlier, many, many doctors now have started using artificial daylight, daylight-simulating PDT treatments with a variety of different lights. So, it really depends. If you're in a hospital setting like in Spain and in the UK where treatment is done, then of course during the daylight season, that could be up to 100% for certain hospitals. And then, in the winter, it goes down to the conventional PDT. Already have it in Germany where you have a private sector that is fully reimbursing PDT where these private patients are throughout the year receiving conventional PDT and the publicly insured patients are receiving daylight PDT. So, there is no easy answer to that question, what percentage. But we definitely have seen, in the past also – obviously, it dipped during the summer months for PDT treatments, which is completely gone also, almost reversed now with daylight PDT available.

And in the US, ultimately, will daylight – or do you expect daylight PDT to be covered by the same sort of codes? Would there be any preference on dermatologists to use one or another modality? Hermann Lübbert: Well, in the US, the situation is different, in that conventional PDT is paid for. So, the doctor, if he does the PDT procedure, he can get paid for that through the CPT codes, which isn't the case in most settings in Europe. When we look at daylight PDT and at the clinical data, it's not quite as good as conventional PDT. So, it's still a very good treatment of actinic keratosis compared to other treatment options, but not compared to conventional PDT. So, there is – currently no desire in the US from the medical point of view to actually introduce daylight PDT as a treatment modality.

Okay, understood. Thank you very much. Hermann Lübbert: Sure. Christoph Dünwald: Thank you, Gary.

And we have a follow-up question from Bruce Jackson, The Benchmark Company. Your line is now open. Please go ahead.

Hi. Just one quick question for Christoph. I wanted to know if the publication of the reimbursement rates has helped you in terms of commercial uptake in the United States, especially with the new doctors. Christoph Dünwald: Well, growth is 52%. So, definitely, this is also helping. Once the average selling price is published, reimbursement really gets easier. And definitely that helped. And we were trying to get [indiscernible] published for the last three years and were actually quite happy that that finally happened effective 1 January. So, definitely, helpful.

Okay, thank you very much. Christoph Dünwald: Thank you, Bruce.

There are no further questions. Hermann Lübbert: So, if there are no further questions, then we thank you all very much for taking the times to participate in the telephone conference and wish you a nice remaining day. Thank you very much. Christoph Dünwald: Thank you very much, everyone.

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