Biofrontera AG
Q2 2021 Earnings Call Transcript

Published: 20 Aug 2021

[Operator:]

Dear ladies and gentlemen, welcome to the conference call of Biofrontera AG. 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. May I now hand you over to Pamela Keck, Head of Investor Relations, who will lead you through this conference. Please go ahead.

[Pamela Keck:]

Thank you. Good morning. Good afternoon. And welcome to Biofrontera’s earnings conference call for the first six months ended June 30, 2021. Yesterday, we issued a press release announcing financial results for the six 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 Lübbert, our CEO. Hermann? Hermann, you might be unmute.

[Hermann Lübbert:]

Sorry, I was on mute. Yes. Thank you, Pamela. And 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 of all, to the financial results of the first six months of 2021. For that, I would like to hand over to Ludwig.

[Ludwig Lutter:]

Yeah. 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 six months ended June 30, 2021. Following the challenges resulting from the COVID-19 pandemic, the company’s sales experienced a slow start into the first half of 2021. However, from mid-March onwards, a clear recovery in sales development became apparent. This includes our key market the USA, 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 of January 1 to January 30, 2021, Biofrontera Group generated a total of sales €13.1 million, a 90% decrease to €16.1 million in the same -- in sales in the same period of last year. However, I’d like to draw your attention to the fact that total revenue in 2020 reporting period included a one-time payment of €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 €13.1 million and that is up 35%, compared to €9.7 million in the first half of 2020. The year-on-your 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 low 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 €8.7 million in the first half year, compared to €6.3 million in the same period last year, an increase of 36%. While sales in the U.S. in January and February 2021 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 2021. Compared to the U.S. product sales in 2019, products -- the company recorded a decrease of 15% in the month of January to June 2021. Again, product sales in January, February 2021 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 €2.7 million, compared to €2.4 million in the same period last year, an increase of 15%. For added transparency, it is worth mentioning that revenues from product sales in Germany increased in 2020 even despite pandemic-related restrictions and 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 expanding of -- 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 periods. In the rest of Europe, sales improved by 78% to €1.7 million, compared to €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 of Scandinavian markets by our partner Galenica AB. Typically sales with distribution partners in other European countries account for 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 €1.6 million, an increase of 3% compared to July of 2020. Preliminary revenues from product sales in the U.S. were around €1 million, compared to €0.8 million in July 2020, an increase to 29%. In Germany, revenue from product sales amounted to approximately €0.4 million, compared to €0.6 million in July 2020. As already noted, the comparatively higher sales number in July 2020 in Germany resulted from ketchup effects due to the previous week 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 €0.2 million in July 2020. Comparing July 2021 sales with 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 2019. In the U.S. product sales increased by about 15% compared to July 2019 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 first six months of 2021. Gross profit decreased by €3.5 million in the first half of 2021 to €11.1 million, compared to €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 one-time payment as part of the licensing agreement of €6 million included in past years -- in prior year’s figure. Research and development costs increased slightly to €2.9 million in the first half of 2021 to €2.4 million 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 €5.6 million in the first half of 2021 from €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 €10.2 million in the first half of 2021, a decrease of 16% compared to the prior year period. The decrease was primarily due to the impairment loss of €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, amortization and decreased by €5.1 million to a negative €5.8 million in the first half of 2021, compared to negative €0.7 million in the first half of 2020, which again, is for the most part due to the previously mentioned one-time payment in April 2020. Group EBIT includes earnings before interest and taxes and decreased by €2.9 million to minus €7.4 million, compared to about €4 -- minus €4.5 million in the first half of 2020. Cash and equivalents amounted to €32.6 million as of June 30, 2021, compared to €16.5 million on December 31, 2020. This includes the proceeds -- the gross proceeds of €24.7 million from the capital increase completed in February 2021. 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?

[Hermann Lübbert:]

Yeah. Thank you, Ludwig. Let’s start with an update on the regulatory and clinical side. In February and March 2021, the company made two submissions to the U.S. Food and Drug Administration or FDA, enabling the simultaneous use of up to three 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 regard 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 extend the pathology allowing the simultaneous use of three tubes of Ameluz, FDA did not express any concerns related to efficacy or to the results from the Phase I pharmacokinetics study underlying the application one. However, to amend the product information, regulatory agency recommended the submission of expanded safety data. The FDA agreed with a proposal to observe systemic and local side effects during treatment with three 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 developments 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 we turn to our goal trajectory. Last week, our sales team came together for the semi-annual sales meeting, well, among other things, new marketing campaigns for Ameluz and Xepi were presented. With these we want to leverage the momentum in the market to further drive the exposure of our products among U.S. dermatologists. Ameluz is one of the most efficacious products for the treatment of sun induced photodamage in the market environment with enormous cost potential, particularly in the USA. 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 extending 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 I’ve also significantly expanded the mark -- PDT market as a whole. We also use the U.S. meeting to present the re-launch 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 effort than was previously possible under pandemic conditions. Despite its significantly higher price than generic competitor products, all major private payers have agreed to provide unrestricted reimbursement for Xepi. This, together with our Co-Payment 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 12th. Accordingly, we expect annual sales between €25 million and €32 million, as well as EBITDA loss of between €11 million and €14 million and EBIT loss of between €13 million and €16 million. Details on the forecast can be -- details on the forecast can be found in our annual report 2020. To this end, however, it must be said that a 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. are 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 and structuring its own growth financing. After all, Biofrontera Inc. serves the world’s largest pharmaceutical market and hence 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 springboard 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 enabled Biofrontera to consistently pursue this path. I would now like to open the line for questions. Thank you very much.

[Operator:]

Thank you. And the first question we’ve received is from Bruce Jackson, The Benchmark Company. Your line is now open. Please go ahead.

[Bruce Jackson:]

Hi. Good morning and thank you for taking my questions. I want to talk about the launch of the Xepi for a moment. So in terms of the call points, is it the same physician that’s currently using Ameluz or is it different physician? Are there other people out there who are using both, who could potentially use both drugs and it could be sales that would be more efficient because of that?

[Hermann Lübbert:]

Well, they are largely overlapping and we also saw those offices that do PDT, and in general, these are the larger offices and they also use more antibiotics than 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 that’s possible and also, of course, potential customers for Xepi 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, and 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 specialize on dermatology and 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.

[Bruce Jackson:]

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 bit of resurgence since the close of the quarter. Are you seeing anything regionally or geographically that’s new and could potentially impact your outlook on how the rest of the year unfolds?

[Hermann Lübbert:]

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, those left 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.

[Bruce Jackson:]

Okay. That’s helpful though. So thank you very much for answering my questions.

[Hermann Lübbert:]

Yeah. Thanks Bruce.

[Operator:]

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

[Thomas Flaten:]

Thank you and thanks for taking my questions as well. Just on the XL lamp, in the absence of having the label change for three 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?

[Hermann Lübbert:]

Yeah. Absolutely. So, usually, most actinic keratosis actually occurs on the head. So face or scalp, bald scalp and that is usually treated with lamp to. Now, if you treat the entire face or sports directed treatment of actinic keratosis on various parts of the face, then with the current lamp, you need several illuminations. So that is actually allowed according to level. So this is in level to illuminate several times. However, it is obviously an additional burden to the patient and it’s 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 that light as opposed to other lamps that they use and subsequently also use our product.

[Thomas Flaten:]

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?

[Hermann Lübbert:]

Yeah. Well, you’re right, we could be thinking about increasing the range, we have decided not to do this because too many valuables still for the rest of the year. And as you know, we have a seasonal business. So Q4 is always the best sales month for us. And if other thing 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 will require us to raise the guidance.

[Ludwig Lutter:]

If I may insert, Thomas, this -- you can blame it on the CFO…

[Thomas Flaten:]

Yeah.

[Ludwig Lutter:]

… who is always the conservative guy who looks into the glass bowl 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.

[Thomas Flaten:]

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?

[Hermann Lübbert:]

None of these, maybe some of the later ones, like squamous cell carcinoma in situ and 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 by Biofrontera Bioscience irrespective of whether the IPO happens or not.

[Thomas Flaten:]

Excellent. I appreciate you taking the question. Thank you.

[Hermann Lübbert:]

Thank you, Thomas.

[Operator:]

At the moment, there are no further questions. As we haven’t received any further questions, I would like to turn back to you.

[Hermann Lübbert:]

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

[Ludwig Lutter:]

Thank you. Same from me. Thank you very much.

[Operator:]

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