Biofrontera AG
Q2 2018 Earnings Call Transcript

Published: 31 Aug 2018

[Operator:]

Good day, and welcome to the Biofrontera's 2018 Half Year Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Pamela Keck. Please go ahead, madam.

[Pamela Keck:]

Thank you. Hello, and welcome to Biofrontera's first half 2018 earnings conference call. Earlier this morning, before you just a few minutes ago, I guess, we issued a press release announcing financial results for the six month in the June 30, 2018. We would like to remind everyone that we will only be summarizing results in today's call. Biofrontera's half year report and condensed consolidated interim financial statements for the reporting period ended June 30, 2018, the corresponding of which released in our Annual Report on Form 20-F have been filed on EDGAR, and are also available in the Investor section of our Web site at www.biofrontera.com on the financial results. We encourage you to review the documents in their entirety. Please note that certain 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 risk, including risks related to fluctuations and our financial results, 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 approval for our product candidates and other detailed in and are qualified by the cautionary statements contained in our news releases and SEC filings, including its Annual Report on Form 20-F and subsequent fillings. This conference call contains time sensitive information that is accurately only as of today of this live broadcast on August 31, 2018. Biofrontera undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances as of the date of this conference call. With that, I will now like to turn the call over to our CEO, Professor Hermann Lübbert. Hermann, go ahead.

[Hermann Lübbert:]

Thank you very much. I would like to start by thanking everyone for joining us this morning at Biofrontera's first half 2018 earnings conference call. In addition to Pamela with me here today are Thomas Schaffer, our Chief Financial Officer who will review our financials and Christoph Dünwald, our Chief Commercial Officer who will provide an update on our commercial products. We are extremely pleased with our results for the first half of 2018 that in accordance with our strategy as we extended the approvals on those to include further uses and expanded our product sales. The results have gradually become more-and-more representative of the commercial potential and clinical advancements that we continue to identify our products. In the first six months, we successfully increased our total revenue to €9 million, 79% improvement compared to the same period last year. Even more important, revenue from products which is representative of the long-term potential of Ameluz more than doubled to €8.8 million. This was primarily driven by the success of our U.S. direct sales force as they leverage improved reimbursement for physicians and coding clarity from the Centers for Medicare & Medicaid Service, in short CMS. Specifically, sales in the U.S. increased by 170% to a total of €6.4 million compared to the previous year period. Our total revenue in the EU also increased to about 31% year-over-year to €2.4 million euro due to the commercial launch of Ameluz for the treatment of basal cell carcinoma last year, followed by the approval of daylight photo dynamic therapy in March 2018 by the European Commission. As we continue to market Ameluz for daylight PDT, we look forward to maintaining our growth in Europe. In less than two years, the U.S. has become our most important market. The fact that all our distribution partners jointly represent only an insignificant part of our revenue is tied to the strategic value of our decisions to build our own sales force in the U.S. two years ago. Growth in the EU and the U.S., we are extremely confident about the near and long-term future of the Ameluz markets. Before we hear more about the commercial success of Ameluz and the work we have been doing to optimize Ameluz product positioning and market potential in the field of photodynamic therapy, Thomas will review the financials.

[Thomas Schaffer:]

Thank you, Herman and a warm welcome from my side to everyone on the call. As Herman has already summarized for the first six months ended June 30, 2018, we reported total revenue of approximately €9 million compared to approximately €5 million for the same period in 2017, a 79% increase year-over-year. Revenue from product sales were €8.8 million compared to the prior year period of €4.2 million, which represents product sales revenue growth of 109%. In detail, sales revenue in the U.S. grew significantly in the last reporting period to approximately €6.4 million compared to only €2.4 million in the same period last year, a 170% improvement. In less than two years, the U.S. has not only become the most important market for Ameluz but already represents 73% to almost three quarters of our total revenue. Revenue in Germany amounted to €1.2 million for the first half of 2018, which is a slight increase of 7% from the first half of 2017. Our revenue in the remainder of Europe amounted to €1.2 million euro for the first half of 2018, an increase of 65% compared to the same periods of last year. Other revenue generated about €1.1 million in the first half of 2018, a decrease of 83% compared to € 0.8 million in the first half of 2017. This revenue represent our charges to Maruho, the largest Company's dermatology company for work performed in the first phase of the collaboration agreement through which we had also received revenue from development projects in last year's period. As reported earlier, this agreement has come to an end and both Maruho and Biofrontera are currently considering a continuation of the collaboration under a new agreement. However, we haven't made any decision yet to concerning the details and timing of such a new agreement. Research and development costs remain flat at approximately €2.2 million in the first half compared to the same period last year. These development costs include expenses for our clinical development costs, as well as regulatory expenses, especially fees for maintaining our approvals. Sales and marketing expenses have remained flat at approximately €8.3 million in the first half of 2018 compare to the same period of previous years. Sales and marketing costs include the cost of our direct field sales teams in Germany, Spain, the U.S. and since recently also in the UK, as well as marketing expenses. Our G&A, general and administrative costs have increased from €1.8 million to €4.8 million. This is due to the fact that we now present our administrative expenses incurred in the United States under this line item rather than under sales cost as we have done previously but the increase is further due to increased legal expenses to defend the claims raised both by DUSA and by Deutsche Balaton. For the first half year of 2018, we reported a net loss of approximately €7.7 million or €0.18 per share compared to a net loss of approximately €8.7 million or €0.23 per share for the same period in 2017. Cash and cash equivalents on the balance sheet was approximately €26.3 million as of June 30, 2018 compared to €11.1 million as of December 31, 2017. The improvement of our cash position is due to our recent capital increase and to the listing on the NASDAQ capital markets in February this year, which from a cash flow perspective should leave well positioned to execute on our strategy. As I said before, about 73% of sales revenue in the reporting period came from U.S. sales. And this percentage is anticipated to increase even further. This was one of the reasons for the decision to complete the dual listing in February on the U.S. stock exchange in our largest market, and thereby strengthened our recognition among American customers and investors. That said, we reaffirmed our current guidance, including anticipated revenue of €16 million to €20 million for the full year 2018. With that, I would like to complete the financial section here. And let me now turn over the call to Christoph to highlight our commercial success in the U.S. and in Europe.

[Christoph Dünwald:]

Thank you, Thomas. We were really proud to have sales from product for the full year in 2017 and we continue in the same direction 2018. We did it again and more than doubled our product sales in the first six months of this year. Throughout the first half of 2018, we continue to focus on the expansion of our commercial efforts in our four home markets, that being the U.S., Germany, Spain, and since May of this year, the UK. In the U.S., we had at the end of June a strong team of 32 reps and today there're even 37 reps with corresponding regional sales managers. This means that we accomplished our goal for this year to have all planned territories manned for the important PDT season that starts now in September. Currently, our salesforce covers 85% of the U.S., which is split into five main regions each with their own regional sales manager and a medical liaison manager. We anticipate growing the commercial team further in the future to capture the full potential of the markets. We believe a total of 50 employees and sales will be the right-sized efficiently penetrate the dermatology market across the United States. Our experienced team continues to introduce our product offering and train dermatologists in the use of the Ameluz and the BF-RhodoLED. Jointly, the drug sales for photodynamic therapy of actinic keratosis in the U.S. represent approximately $114 million an market that we can now serve even better by leveraging our unique product specific J-codes and revised CPT codes. These codes went into effect earlier this year and significantly improved physician reimbursement for BDT. While the experience from administrative challenges with the introduction of the new J-codes and the updates of the data basis for correct reimbursement, we were still able to exhibit strong growth for Ameluz. Our growing commercial success in the United States highlights the achievement of our sales force and the great team work across all departments of our Company. Over 850 customers have now ordered an experienced Ameluz since we launched the product almost two years ago. This represents approximately 15% to 20% of all dermatologists who currently offer PDT treatments. Additionally, the revised CPT codes and enumerates PDT with Ameluz now up to $249 for the treatments and performance by qualified healthcare professional. This positions the PDT with Ameluz at a significant reimbursement advantage over prior therapy to historically favor treatment for actinic keratosis is in the United States. As a result, Ameluz has become a more attractive treatment option for dermatologists and they believe this creates a great opportunity for us to capture even greater share of the entire AK market. The grant of a five year contract with the U.S. department of veteran affairs showed VA for the sale of Ameluz in combination with our red light PDT to all the healthcare facilities that’s another commercial milestone for us. A recent study states that about 230 veterans are currently being treated for non-myeloma skin cancer. The contract value of approximately $450,000 as published by the government agency is based on current sales in PDT. However, there is no actual limitation to the volume of Ameluz. Ameluz can now be sold to any VA facility nationwide under this contract however the uptake of Ameluz will take its due time. The potential is great as the VA contracts will allow more patients to receive effective treatment for their case. Ameluz has been listed on the federal supply schedule since last fall, and we intend to continue pursuing similar opportunities as part of our overall growth strategy. Turning now to Europe where we experienced significant growth as well. We’re quite pleased with the revenue growth of 31% for the total European business in the first six months, and are motivated by our potential to keep this momentum going. The European approval for daylight PDT, which we received in March allows us to complete within the patient applied topical market. This segment makes up the vast majority of all AK treatments prescribed in Europe and particularly a feature of the German healthcare system [branded] Ameluz and daylight PDT fully reimbursable, but it is not reimbursed for use in conventional PDT by public insurance companies. After launching Ameluz in daylight PDT in April, we experienced strong growth in Germany and Spain. Furthermore, we continue to drive the adoption of Ameluz for the treatment of basal cell carcinoma and field cancerisation in Europe. These approvals have not only expanded the market opportunity for Ameluz, but also allowed us to begin selling Ameluz in hospitals where many European dermatologists are based. Our Spanish sales for has strongly increased the local market share, and we expect this trend to continue due to our label extensions. With the expansion opportunities in Europe, we have decided to build an old but to build and own sales force in the UK. This team is led by Alexander Richardson who joined us from Galderma where he was head of the prescription business unit for more than 10 years. In the UK, an estimated 80% of all PDT treatments are for the treatment of BCC. Most of the PDT treatments are performed in hospitals with the EU label extensions for BCC and the daylight's PDT opportunity we are excited about the growth potential in the UK and look forward to maintaining our momentum throughout EU. With a strong sales growth achieved so far, we are confident that we will meet our sales goals for the total year as well. With that, I will now hand back to Hermann who will provide you with more detail on the progress on our regulatory and medical front.

[Hermann Lübbert:]

Thank you very much Christoph. Biofrontera's strategy is to focus first on exploiting the potential of photodynamic therapy and dermatology by growing Ameluz sales short-term and long-term for strong marketing and sales efforts. And second more long-term, by increasing its market potential for approvals for new indications and uses. The approval of Ameluz in combination with daylight photodynamic therapy by the European Commission as mentioned by Christoph and previously of superficial and modular basal cell carcinoma, has allowed Ameluz to gain further recognition as an effective treatment option. In Germany, daylight PDT now allows for full reimbursement by both private and public health insurance and thus opens up a significant market potential specifically fall to summer season. Ameluz is the only PDT worldwide that is approved for the treatment of larger areas affected by AKs or in the EU also field cancerisation, high efficacy and now the equivalent sites along this improvement skin rejuvenation effect that is even listed in the official European product information, should render PDT with Ameluz a preferred treatment option for these conditions. Recently, the Scottish Medicines Consortium or SMC, as well as the corresponding regulators in Wales, have formally recommended the prescription of Ameluz for the treatment of superficial or nodular BCC within the UK's National Health Service. This ruling of the agencies was underlying our strategic decision to hire an entire sales team for Britain from competitor Galderma, and since then we observe for continuous goal of Ameluz sales in the UK. In the U.S., the new CPT codes active since January 2018 and the need for fields directed treatment should allow PTT, particularly with Ameluz, to win market share from cryotherapy. Cryotherapy is still the dominant treatment option in the multibillion dollar actinic keratosis academic resources market in the U.S. To even further enhance the market potential of Ameluz, we are continuing to work towards expanding the box label. We just recently announced the completion of patient recruitment for our Phase III trial of Ameluz and our BF-RhodoLED lamp, examining the safety and efficacy of conventional PDT for the treatment of AK of all degrees of severity on the extremities, trunk and neck. This multicenter randomized double-blind intra-individual study includes 50 patients in six study centers in Germany. Our goal for this time is to enable patients to receive reimbursed treatment of AK's and field cancerisation on the entire body. As it is very probable that patients with actinic keratoses on the face and sculpt also have other severely affected areas. We look forward to the results from this trial in the first quarter of 2019 and expect applications for marketing authorization extensions to be submitted to the European Medicines Agency and the FDA by the third quarter of 2019. If approved, Ameluz would be the only PDT drug in Europe and the U.S. that is approved to treat AKs of all severities -- of all degrees of severity on larger fields of the extremities, trunk and neck. The study has therefore another important milestone and increasing the competitiveness of Ameluz in both Europe and the U.S. In the U.S., we are looking to expand the use of Ameluz to include superficial BCC, basal cell carcinoma. More than 4 million treatments of basal cell carcinoma are registered annually just in the U.S., many of which may be eligible for treatment with PDT. We anticipate initiating patient enrollment for our Phase 3 study this September. While approval is still a few years away, it will serve as another pillar to the Company’s future growth. In closing, we continue to be pleased with our commercial and clinical progress. After years of preparation, we maintain our focus on the execution of our corporate and commercial strategy. We believe that the U.S. represents a huge opportunity and look forward to maintaining the momentum in the U.S. as dermatologists increasingly adopt Ameluz for the treatment of actinic keratosis and potential basal cell carcinoma in the future. We also believe that we have growth potential as well as U.S. and along with our sales, we will continue to increase our pipeline of label extensions for Ameluz in both regions. Due to our recent NASDAQ listing, Biofrontera has become more visible in the U.S., both in the financial as well as in the medical world. We remain committed to the successful execution of our strategy for Ameluz as we position ourselves as a leader in photodynamic therapy and drive long term shareholder value. With that, let me thank our employees, shareholders and Board of Directors for their contribution as we continue on the successful journey. And now, I would like to open the call for questions.

[Operator:]

[Operator Instructions] We have one question on the line from Bruce Jackson from the Benchmark Company. Please go ahead.

[Bruce Jackson:]

So I’ve got a three part question on the commercial operations, beginning with the United States then moving over to Europe. And then I wanted to discuss the annual revenue guidance. So in the United States, you announced that you've got the contact with the Veteran’s Administration in August. And is that going to have any impact on third quarter, and what do you think the overall potential for that contract?

[Hermann Lübbert:]

This is the entry, so that we can nationwide supply Ameluz and our BF-RhodoLED to the VA institutions, but the uptake of Ameluz will take time. So we will have first sales here and the real potential as I said 230 veterans are having non-myeloma skin cancer. And of course not everybody will be treated with BDT, but we will like to have our fair share of that.

[Bruce Jackson:]

And then outside of the VA, how is the rest of the market during so far in the third quarter?

[Hermann Lübbert:]

In the third quarter, usually there is some seasonality that we see in the market and so we experienced that this year as well. There has been a situation that we had to create with CMS on reimbursement, we do that at the moment and so the third quarter is probably at the moment in line with our expectations. And it will depend now on September that all the reimbursement issues are in the database is and we can continue with the momentum that we experienced in the first half of the year. But rear view PDT season starts in September and we expect a very, very strong fourth quarter.

[Bruce Jackson:]

Then moving over to Europe, you’ve experienced some nice uptick with the daylight therapy in Germany and Spain. Is there any seasonality there as well and will you expect follow through in those markets for the rest of the year?

[Hermann Lübbert:]

So it actually -- it's almost reversed, because with the daylight PDT, the summer months now become a real opportunity for us. And where we have usually the seasonality going into little valley during summer, now we could maintain actually the level of sales in Germany and Spain throughout the summer, which is really a good signal. And I do expect that some of these doctors that now experienced PDT with daylight, probably will move into conventional therapy as well in the latest season of -- from September in conventional PDT from September to the winter month.

[Bruce Jackson:]

So the given….

[Hermann Lübbert:]

Redeploy the…

[Bruce Jackson:]

And then just overall on the revenue guide for the year, it looks like if you were to even be flat sequentially for the next couple of quarters, you would still be in above the lower end of your guidance range. I'm just curious as to why it didn't bring up the lower end of the guidance range for the year?

[Thomas Schaffer:]

As I have said earlier, we maintain our guidance for this year we thought and agreed to be optimistic enough to think that we would most likely end up at the lower end of the range -- at the higher end of the range. We didn't want to change the range at all unless we have a lot more confidence that we would end up with different numbers and then probably amend the range accordingly.

[Bruce Jackson:]

One more question on the Maruho agreement. So you've completed the work that you agreed to to-date. What are potentially the next steps for you with Maruho? I know you haven't decided exactly what you're going to do yet. But what's the process that you're going through at the Maruho? And when do you expect to have a better view of what's going to happen next?

[Hermann Lübbert:]

The Maruho agreement as we formed it in the first place was an agreement with the aim to actually figure out what the potential of new formulations of certain blocks could potentially be whether we could actually make it to work. And in this agreement, we have not provided, agreed or discussed even rights on -- marketing rights in various parts of the word. Maruho has said that they are not interested in marketing rights in Europe, so those would probably fall to Biofrontera if we were to continue and at ever bring the product to market. However, we haven't had any discussion on other parts of the word. And the further we go the clear I have to be -- of course, the picture of both sides as to where the expectations of respective other sites are going to be. So now if we continue then making these points clear becomes more important that actually was two years ago. So the negotiations are actually more difficult than in the first phase. Having said that, both sides are still in the phase where they think about whether -- what the interests actually are and where we want to be going. So we haven't started any commercial discussions yet.

[Bruce Jackson:]

Okay, and congratulations again and all the progress during the quarter. I'm going to back in queue.

[Hermann Lübbert:]

Thank you.

[Operator:]

[Operator Instructions] There are no further questions in the queue at this time. I would now like to turn the call back to the host for any additional or closing remarks.

[Hermann Lübbert:]

Since there are no further questions, I would like to thank you again for taking the time and interest and joining us for the call. Thank you very much.

[Operator:]

Thank you. That concludes today’s conference. Thank you for your participation, ladies and gentlemen, you may now disconnect.