Biofrontera AG
Q3 2018 Earnings Call Transcript

Published: 16 Nov 2018

[Operator:]

Dear ladies and gentlemen, welcome to the Biofrontera’s Third Quarter 2018 Earnings Conference Call. At our customers' 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 Pamela Keck, Head of Investor Relations who will lead you through the conference. Please go ahead.

[Pamela Keck:]

Thank you. Good morning and welcome to Biofrontera’s third quarter nine months ended September 30, 2018 earnings conference call. Before we begin with the call, I have to go through some household items received first. Earlier this morning, we issued a press release announcing our financial results for the nine months ended September 30, 2018. We would like to remind everyone that we will only be summarizing results in this call today. Biofrontera’s earnings report for the reporting period ended September 30, 2018 the corresponding news release and our Annual Report on Form 20-F have been filed on EDGAR, and are also available in the Investors section of our website. 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, our 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 and qualified by the cautionary statements contained in Biofrontera’s press release and SEC filings, including its Annual Report on Form 20-F and subsequent filings. This conference call contains time sensitive information that is accurate only as of the date today for this call right now on November 16, 2018. Biofrontera undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. And with that, I would now like to turn the call over to Dr. Hermann Lübbert.

[Hermann Lübbert:]

Thank you, Pamela. Thank you everyone for joining us this morning for Biofrontera's third quarter 2018 earnings conference call. Today I'm accompanied by Christoph Dünwald, our Chief Commercial Officer. Pamela Keck, you just heard, our Head of Investor Relations. I will provide you with a brief summary of our updates in both the U.S. and Europe during the reporting period and discuss the financial results of the first nine months of 2018. After that, Christoph Dünwald will provide an update on our commercial products. Over the course of 2018, we have made great strides in our business strategy. We have outperformed our expectations for the reporting period January through September, driven by the improved competitive positioning and market potential of Ameluz in the U.S. and Europe. We nearly doubled or total revenue year-over-year for the first nine months to about €14.6 million. Even better our pure product sales increased by more than 138%. In the U.S., our direct sales force continues to successfully goal Ameluz into a household name for photodynamic therapy supported by the recently improved reimbursement rates under our product specific J-code and procedural CPT codes. The renewed goals in the EU has been driven by Ameluz label expansions into basal cell carcinoma last year, and even more so by the regulatory approval and commercialization of Ameluz in combination with daylight photodynamic therapy this year, which significantly improved the reimbursement and competitiveness of Ameluz. It seems our global strategy is paying off. Looking to the future, we believe that we have the opportunity to significantly expand the reach of Ameluz with our ongoing studies for treatment of BCC in the U.S. as well as the treatment of actinic keratoses on the extremities, trunk and neck. But before we elaborate on our recent successes and upcoming milestones, I would like to review the financials. For the first 9 months ended September 30, 2018, we reported total revenue of about €14.6 million compared to approximately €7.3 million for the same period in 2017. This represents a 98% increase year-over-year. Looking at all pure product sales revenue, we saw a 131% increase compared to last year. Revenue in the U.S. improved by 204% to about €10.2 million in the reporting period compared to €3.2 million last year. As I already mentioned, the main reasons for the successful sales development in the U.S. are the significant improvement in reimbursement with the product specific J-code and the revised CPT-codes. And in September, we saw a significant increase in sales caused by an anticipatory effect through the expected 5.6% increase in the list price of Ameluz as of October 1st. Revenue in Germany amounted to about €2.1 million for the first nine months of 2018 compared to €1.7 million in 2017, a 24% growth year-over-year. This growth was mostly due to the summer months following European approval for daylight-PDT in March. Our revenue in the remainder of Europe increased by 73% to about €2.1 million for the first nine months of 2018 compared to €1.2 million in 2017. The increase in sales in Europe overall is also mainly due to the introduction of daylight-PDT. Revenues from other regions in the reporting period amounted to about €0.2 million compared to the previous year of €1.1 million. In 2017, this revenue mostly consisted of revenues from a preclinical research collaboration that was completed on March 31st. Gross profit increased by 83% to €11.7 million in the first nine months of 2018 from €6.4 million in 2017. Gross margin decreased to 81% from 88% for the same period in the previous year. The reason for the decrease was a significant reduction in revenues from development projects, which were not offset by any cost of sales in the previous year period. Research and development expenses remained almost flat at about €3.2 million in the first nine months compared to the same period last year. Research and development costs primarily include costs for clinical studies, as well as regulatory expenses such as fees for maintaining and extending our regulatory approvals. General and administrative expenses were about €7.3 million in this reporting period and reported year-over-year from about €3.6 million in 2017. The increase is mainly due to higher legal and consulting costs, as well as administrative costs in the U.S. compared to the previous year period. Sales and marketing expenses increased less than 1% to about €12.7 million in the first nine months of 2018 from €12.6 million in the previous year. Sales costs include the costs for our direct sales costs in Germany, Spain, Great Britain and the U.S., as well as marketing expenses. The increased sales activities in the U.S. are reflected in both the sales costs and also the administrative costs in the U.S. For the first 9 months of 2018, we reported a net loss of about €12.7 million. In the same period of 2017, we saw a net loss of about €13.7 million. This will adds to a loss of €0.28 per share in 2018 and €0.38 per share in 2017. Cash and cash equivalents on the balance sheet were about €21.1 million as of September 30, 2018, compared to €11.1 million as of December 31, 2017. Finally, as already announced in October, we have raised our revenue guidance for the full year of 2018 from €16 million to €20 million to €19 million to €22 million. We are, however, maintaining or forecast for the consolidated net loss at €15 million to €16 million for 2018 due to continuously high costs from ongoing legal disputes, which offset the higher revenue contribution. With the financials complete, let me turn the call over to Christoph to highlight our commercial progress in the U.S. and in Europe. Thank you.

[Christoph Dünwald:]

Thank you, Hermann. Since 2017, we have been on a row, and we have been doubling our product sales. And during the third quarter of 2018, we have consistently followed this trend. We expect to close out 2018 successfully. And as Hermann just mentioned, recently raised our revenue forecast. But we still have some struggle with new and unexpected problems regarding reimbursement in the U.S. in July and August. We experienced our first real momentum of exponential growth in September. The month of September 2018 was the most successful month in Biofrontera’s history from the sales perspective. We were able to sell 22,000 tubes of Ameluz in just one month. What is particularly pleasing about the sales record is that all sales teams globally contributed to the success. Of course, sales in our largest market, the U.S., contributed the most, but Europe is also continuing its dynamic growth. In the U.S., we are executing our growth strategy. Initially, our team has been focusing on the low hanging groups, dermatologists who already familiar with the photodynamic therapy. We were able to establish our product in the U.S. market with the total sales of over $20 million since the launch, two years ago. We should now be able to attract new customers to the PDT markets. In the U.S., only 3% of diagnosed AK patient are treated the photodynamic therapy, that has to and will change. Our sales team of 37 employees currently covered around 85% of the United States. We enjoy a very low turnover of employees, and assume that in the medium-term, a total of around 50 sales employees will be sufficient to cover the dermatology market in the U.S. The team is supported by seven additional employees on the medical scientific side, and now three reimbursement specialists. As experts in photodynamic therapy, our experienced team continues to educate U.S. dermatologists about the high efficacy of Ameluz and for AK treatment and train the personnel in dermatology offices on how to use our products. Our growing business success in the U.S. validates the performance of our sales team and the great collaboration across all areas in our company. Over 900 customers have ordered and used Ameluz on patients since we launched the product. More interestingly, however, is that the average order sizes from repeat customers doubled during the third quarter compared to previous quarters. Some of that is certainly due to the strong September sales. And then we announced a price increase of 5.6% as of October 1st. However, we also see the increasing order sizes as the sign of successful establishment of Ameluz with our customers. Nobody talks upon -- stuff up on a product they are not convinced about. With the revised CPT-codes, Ameluz has now a significant reimbursement advantage over traditional prior therapy, the historically preferred treatment for actinic keratosis. PDT with Ameluz has become even more attractive for dermatologists, highly effective, excellent cosmetic results and attractively reimbursed. We see this as a great opportunity to gain a higher share of the entire AK market in the U.S. Let me comment on the Europe. We are very satisfied with the sales growth of 45% in the first 9 months for Europe as a whole, motivated by our potential we naturally want to maintain this growth momentum. The European approval for daylight-PDT, which we received in March, finally allows us to compete with the tropical drugs. The approval for daylight therapy was almost equivalent to a new product launch. In Germany, our most important European market, prescriptions for Ameluz, doubled -- more than doubled during the summer months of June and July alone compared to the same period last year. We also recorded strong growth in Spain, following the launch of Ameluz with daylight-PDT. In the first nine months of 2018, we already achieved the same total sales, as in the entire previous year. In addition, we continued to advance the use of Ameluz in treatment of basal cell carcinoma and field cancerisation in Europe. These approvals have not only expanded the market opportunities for Ameluz, but have also enabled the sale on Ameluz to hospitals where many European dermatologists practice. In the UK, we used the second and third quarter to establish our sales team. A great deal of work has gone into the administrative steps with individual hospitals to put Ameluz on their formulary, the progress requisites to sell their in the future. We see a large percentage growth in the UK, all by from a valuable base, and our confidence to generate more significant sales here very, very soon. As mentioned before, we have taken the strong step in the third quarter as an opportunity to raise our sales forecast for the year as a whole. We are now in the peak season for PDT in all markets and are making every effort to close 2018 extremely successfully. A year-over-year doubling of product sales is our declared goal. And now let me hand the call back to Hermann for an update on the clinical front and some closing remarks.

[Hermann Lübbert:]

Yes, thank you, Christoph. Let me now give you a brief summary on our current Phase III trials and some final remarks. In July, we completed patient enrollment for our Phase III trial of Ameluz, examining the safety and efficacy of PDT for the treatment of actinic keratosis on the extremities, tongue and neck. Our goal for the study is to enable patients to receive treatment of actinic keratosis and field cancerisation on the entire body. Patients with actinic keratosis on the face or skull oftentimes have other severely affected areas. We anticipate results from this trial in the first quarter of 2019. If approved, Ameluz would be the only PDT drug in Europe and the U.S. that could be used to treat actinic keratosis of all degrees of severity on the extremities, trunk and neck, which would further increase our competitive advantage over existing PDT drugs. In September, after consultation with the FDA, we initiated patient recruitment in our U.S. Phase III trial evaluating Ameluz and our BF-RhodoLED lamp for the treatment of superficial basal cell carcinoma. We expect to announce results from the study in the first half of 2020, followed by a potential FDA submission for the label expansion. Following successful FDA approval, Ameluz would be the only drug in the U.S. for the treatment of superficial BCC through photodynamic therapy. There are more than four million BCC treatments performed each year in the United States. The approval would allow us to finally offer patients and physicians a treatment option for superficial BCC with higher frequency and excellent cosmetic results. While still a few years away, this label expansion will serve as another pillar to our growth. Thus far, we have had a very successful 2018, and expect to continue to execute on our strategic cost initiatives. Operationally, we have built a very strong U.S. commercial infrastructure. We expect our sales force to drive continued adoption of Ameluz. We have consistently outperformed in the U.S. and reignited revenue goals in Europe. Clinically, we have continued to increase the indications for Ameluz, and have a number of ongoing trials, which will continue to support Ameluz growth in the long term. In summary, we are doing exactly what we said we would do, executing our overarching strategy of expanding the positioning and market potential of Ameluz, by increasing our sales efforts and adding indications to the label. Looking ahead, we intend to keep this trend going and expect to close out the year with a strong finish as the winter months tend to be seasonally strong for PDT treatments. We remain focused on successful execution of our strategy in both the U.S. and Europe. With that, I would like to reiterate our deepest thanks, first of all, to our employees, but also our shareholders and Board of Directors for the contributions. And now, I would like to open the call for questions.

[Operator:]

Thank you. Then we will now begin our question-and-answer session. [Operator Instructions] We received the first question. It comes from Bruce Jackson of the Benchmark Company. Please go ahead. Your line is now open.

[Bruce Jackson:]

Congratulations on the progress, and nice job on the very thorough review of the results, but just a couple of questions. With the United States and the price increase, sometimes there’s a phenomenon where sales might dip right after the price increase due to physicians stocking up and then rebound. I was just wondering if you could give us a little bit of a description about the current trends in the fourth quarter, and how sales are trending after the price increase?

[Hermann Lübbert:]

So we’ve been very careful with a price increase, and it’s basically the inflation rate. First price increase that we introduced since the launch, and was only 5.6%. While we’ve seen from strengths strong growth or stronger sales in September, we see the momentum that we have throughout the year going forward in October. And so this is not the case that now the fourth quarter floating off. So we are actually very pleased.

[Bruce Jackson:]

Okay, great. And then with the plans to continue expanding the sales force, in terms of the pace of hiring, is this something where you might bring out a bunch of people all at once? Or will you just hire opportunistically over the next several quarters? And do you have any comment on the pace of the hiring of sales people in the United States?

[Hermann Lübbert:]

We did that more on opportunistic base. This year, again, we have plans probably to be at 27 people. And when we saw that we have momentum going then we added extra people. Yes, we would do that. We have plans for next year for certain number. But I'm not expecting that we're going to add great, great numbers of sales people now, since we think that overall, as I stated earlier, about 50 people would be enough. So once we are to full capacity with these 50 people that really depends on the uptick in the market. So we are very sensible there. But if we have an opportunity and we have -- go for it.

[Bruce Jackson:]

So it's a long-term target with no particular target date attached to it.

[Hermann Lübbert:]

That's correct.

[Bruce Jackson:]

Okay, great. And then last question for me on the Maruho agreement. You showed some feasibility in the first phase of the agreement. I was just wondering if there had been any progress made in discussions with Maruho about the next steps on that project.

[Christoph Dünwald:]

The idea behind the project was -- to answer the question that are using Nanoemulsion Technology that Biofrontera has developed for Ameluz, whether that could be applied in a similar way to stabilize other active ingredients that are used in dermatology. So the first phase of the project that was completed in March, the idea was just to answer that question. So we have not, up to this point, discussed any long-term rights, since this is all our patented technology, all the long-term rights are still with us. Now with the continuation of the project, of course, this kind of discussion has to be done, which is all we are currently doing. So we are discussing the projects, market potential the implications of the rights subsequent to the project. And that's going to be ongoing. And so I hope we will be able to present something although sooner than later.

[Operator:]

Thank you. At the moment there are no further questions. [Operator Instructions] There are no further questions. I hand back to you.

[Hermann Lübbert:]

Yes. So if here are no further questions, we thank everybody for taking the time this morning in the U.S., and this afternoon in Europe. We wish you a nice day and even nicer weekend. Thank you very much.

[Christoph Dünwald:]

Thank you. Bye-bye.

[Hermann Lübbert:]

Bye-bye.

[Operator:]

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