Biofrontera AG (BFAGY) Management on Q4 2021 Results - Earnings Call Transcript

Biofrontera AG (OTCPK:BFAGY) Q4 2021 Results Conference Call May 2, 2022 8:00 AM ET

Company Participants

Anke zur Mühlen - Corporate Communications & Investor Relations

Ludwig Lutter - Chief Financial Officer

Conference Call Participants

Bruce Jackson - The Benchmark Company

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. [Operator Instructions]

I now hand you over to Anke zur Mühlen, who will lead you for this conference. Please go ahead.

Anke zur Mühlen

Welcome to Biofrontera's Conference Call on the Publication of our Annual Report 2021. On Saturday, we issued a press release on the financial results for the fiscal year 2021. We would like to remind you that in today's conference call, we will only provide a summary of the results. The annual report and the press release are available in the Investors section of our website. We encourage you to read the documents in their entirety.

We caution the audience that Biofrontera's management will make forward-looking statements during this conference call. Actual results could differ materially from those expressed or implied by such forward-looking statements due to the risks and uncertainties associated with the Company's business. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, May 2, 2022. Biofrontera undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

With that, I would now like to turn over to our CFO, Mr. Ludwig Lutter.

Ludwig Lutter

Thank you, Anke, very much. And thank you, dear shareholders, for taking the time today to participate in our fiscal 2021 earnings conference call.

I'd like to start with a summary of Biofrontera's business, on our sales and clinical developments. I've now been a member of the Management Board at Biofrontera for just over a year and a number of changes in the structure of Biofrontera AG particularly in the last financial year.

The successful IPO of Biofrontera Inc., our former 100% subsidiary, was a major and successful milestone in our corporate history. Biofrontera Inc. is now in an excellent position to leverage the potential of [Audio Gap] by further enhancing its investments in its sales activities.

German Biofrontera companies will benefit directly from this growth through the existing license and supply agreement and can now focus directly on the European business. As we already announced in our forecast for the current financial year, this brings our company a big step closer to breakeven.

Now back to the beginning of last year. After we started in 2021, with a successful capital increase that generated proceeds of gross €24.7 million for our company, a licensing agreement for the marketing of Ameluz was concluded with Medac GmbH for Poland in July. [indiscernible] Poland are expected to commence this year now that intensive work on the reimbursability of Poland has been underway for quite some time.

In the fourth quarter of 2021, operational success then came one after another. As already mentioned, we were able to successfully IPO our U.S. subsidiary, Biofrontera Inc., on the U.S. Stock Exchange NASDAQ. We had decided to take the step because we were no longer able to ensure the financing of the dynamic development of Biofrontera Inc. due to the growth-inhibiting restrictions of the German corporate law.

Shortly after the IPO of Biofrontera Inc. was able to raise additional capital in a private placement in the amount of approximately $15 million and can now invest these liquid funds directly and the further expansion of its sales activities.

Previously, we had already received FDA approval for our RhodoLED XL lamp, which can now be used to illuminate large areas, enabling the simultaneous treatment of multiple actinic keratoses located further apart from each other.

Also in November 2021, preparations for our clinical trial program were completed so that we were able to initiate the study in the centers for the safety study on the use of three tubes of Ameluz and for the acne study directly after the end of the pandemic-related U.S. travel restrictions so that patient recruitment is now progressing the studies.

In December, shortly before the start of the jury trial, an out-of-court settlement was reached with DUSA Pharmaceuticals Inc. With the payment of a settlement, some of the totaling €22.5 million, half of which is being paid by Biofrontera AG, we were able to bring this legal dispute to an early end and eliminate the risk potentially associated with the jury trial.

Also in the last days of 2021, we received the grant from the U.S. patent office of 2 patents related to our new RhodoLED XL lamp. Together, these two patents are an important step in strengthening our competitive advances as well as protecting the Ameluz and the RhodoLED lamp series for potential generic competition in the U.S. market. The listing in the FDA's Orange book in February of this year also facilitates the monitoring of generic approvals in the U.S.

Now to our sales activities. Germany is Biofrontera AG's largest European sales market. In 2021, a total of 850,000 prescriptions were issued for treatment of AK, actinic keratoses, a slight increase of about 35,000 treatments, previous year was about 814,000. However, the market is still dominated by topical drugs, which still accounted for a market share of about 3% in 2021 and thus even recorded a slight market increase. PDT progress -- products in the aggregate, on the other hand, sales to grow in 2021 minus 2%.

But this is mainly due or mainly a result of the decline of sales of our competitor products. Ameluz, on the other hand, so the market share in the PDT is about 64% in 2021 compared to around 62% in 2020. The further establishment of daylight PDT in Ameluz to prove itself as a strong market leader in the PDT market compared to the competitor products. German product sales amounted to €5.3 million compared to €5.2 million in 2020, thus, slightly up by about around 2%. In the rest of Europe, Biofrontera achieved product sales of €3.3 million compared to €2.1 million in 2020, a significant increase of 55%.

This significant rise in sales was due to the fact that sales in the Scandinavian countries, which are covered by our licensing partner, Galenica, I mentioned it, were launched in the middle of last year.

For Poland, again, as I mentioned earlier, the licensing partnership was also [indiscernible] into with MEDAC. Sales activities will commence this year.

For Spain, we were able to report a positive development at the beginning of this year. Since April '22, Ameluz can now be sold in Spain again at its previous price of €150 per tube after the Spanish Ministry had significantly reduced the price by decree in 2020. This also hurt us quite significantly in the European markets.

And Biofrontera, its largest market, the U.S., the total AK market grew by 4% compared to 2020. However, it still has not reached pre-pandemic level as this still represents a 12.2% decline compared to 2019. However, in the PDT segment, we were able to further expand our market share and thus increase our own sales so that the share of Ameluz PDT is now at 25.6% as compared to 24.5% in the previous year. However, in the view of the fact that our Ameluz tubes increased by 23% year-on-year, it is reasonable to assume that this market share of just below 26%, which is based on publicly available figures, may represent to lower proportion for our share.

In 2021, new sales momentum was greater in the U.S. with the result that marketing gradually picked up over the past year. As a result, sales in the U.S. were around €20.2 million in the reporting period, up 22% compared to the 2020 pandemic year particularly with a strong second and third quarter. Q4 was slightly weaker than the previous year, which is mainly due to the fact that a price increase was not implemented until the end of Q1 this year, 2022. And the related stockpiling did not occur to the same extent in Q4 2021 as it did in the previous years.

Now, I'd like to elaborate on the key financial figures. Due to many and significant one-time effects, our income statement for 2021 requires some explanation so that the actual operating business becomes more transparent. Please note our P&L for 2021 is still fully consolidated. It includes Biofrontera Inc., while the balance sheet as of December 31, 2021, shows the deconsolidated structure, meaning without Biofrontera Inc.

First, let's look at revenues. Biofrontera Group generated total revenues of €28.8 million in 2021, a decrease of 5% to the previous year €30.3 million. Please note the previous year's figure revenues included a one-time payment of €6 million, which the Company received as part of a licensing agreement. However, revenues from product sales only improved by 20% year-on-year to €28.8 million from €23.9 million in the previous year. There were no sales from other items in the financial year, previously €6.5 million in the previous year including -- and that includes the aforementioned €6 million license payment from Maruho.

Gross profit decreased by €1.9 million in the reporting year to €24.9 million compared to €26.8 million in the prior year period. Gross margin decreased from 88% in 2020 to 86% in 2021, again, mainly due to the revenues from licenses included in the prior year's figure which are not offset or are not directly related to cost of sales.

The cost of materials included in the cost of sales amounted to €2.94 million in 2021, virtually unchanged versus 2020. And now operating expenses, research and development expenses amounted to €7 million, previous year €4.8 million. Such include the cost for clinical trials but also expenses for regulatory, i.e., for granting, maintaining and extending our approvals. The increase in R&D expenses is mainly due to an increase in activities in the area for our clinical trials.

G&A expenses amounted to €30.8 million in 2021, previous year was €9.2 million and thus increased by a total of €21.6 million compared to the previous year. This is mainly due to the cost for the out-of-court settlement of the legal dispute with DUSA Pharmaceuticals in the amount of $22.5 million, roughly equaling €19.5 million.

Selling expenses amounted to €22.5 million, a slight increase of the previous year figure of €20.5 million. Main driver was increase in selling and marketing activities after COVID-19 pandemic cost-saving measures were eased. Selling expenses include the cost of our own sales force in Germany, Spain, the U.K. and the United States as well as marketing expenses and the amortization of Xepi license amounting to €1.8 million in 2020; in the previous year, €3.8 million.

Group EBITDA improved by €32.7 million to €28 million in fiscal 2021 compared to the prior year period, where a negative €4.7 million was recorded. However, again, this includes one-time effects from the DUSA settlement with DUSA Pharmaceuticals already announced in December and from the deconsolidation of Biofrontera Inc. totaling net €39.7 million.

EBITDA for 2021 adjusted for these special or one-time effects amounted to a negative €11.8 million and, thus, a decrease of roughly €1 million compared to the EBITDA of the previous year of €10.7 million negative also on an adjusted basis.

EBIT for 2021 also adjusted for these one-time effects came to negative €15 million, a decrease of again around €1 million compared with the likewise adjusted prior year figure of negative €14 million.

With that, all KPIs reported or we provided guidance for where within such guidance provided. Other expenses and income totaled €60 million in the reporting period compared to previous year figure of negative €2.4 million and mainly including in the deconsolidation gain from the departure or deconsolidation of Biofrontera Inc. from group financials in the amount of €59.2 million.

In addition, income from currency translation amounted to €160,000 are reflected in here compared to expenses of €3.6 million from currency translation in 2020. As a result, our earnings before taxes or EBT for financial 2021 amounted to €35.7 million compared to the loss of €12.7 million in 2020.

And now the forecast. The group expects sales of €24 million to €27 million in fiscal '22. However, sales growth is still highly dependent on the further recovery from the pandemic and the development of the Ukraine crisis. In the U.S., the main sales market for our flagship product Ameluz, we expect to see a considerable increase in the momentum and demand development over the course of the year. The preliminary sales figures of Biofrontera Inc. for Q1 2022, which shows sales of just under $10 million for the first quarter, support this expectation.

In Germany, most European sales market we expect the continued expansion of the PDT market by gaining further market share especially triggered by the growth driver daylight PDT. For the rest of Europe, we expect growing sales in Scandinavia and from the second half of this year on and also initial sales from the licensing and supply agreement with Medac Gesellschaft for special preparation GmbH in Poland.

If the markets continue to recover, we expect EBITDA to be close to breakeven and EBIT to be negative in the low single-digit million range in 2022. We also expect a positive EBITDA and EBIT in the low single million dollar range, both starting 2023 onwards.

Now briefly to the current business development. At the beginning of 2022, the Company decided to delist of Biofrontera AG from NASDAQ and deregistered from SEC reporting requirements in the U.S. The main purpose of the delisting was to reduce the complexity of financial reporting and administrative costs.

In addition, Biofrontera AG's strategic focus is now clearly on its European markets. The ADS continue to be tradable on the U.S. overall counter market under the symbol BFAGY and are, of course, also transferable into ordinary Biofrontera shares.

In April, we invited our shareholders to an Extraordinary Shareholder Meeting at which we presented two proposed resolutions for cattle measures. As a result of the settlement reached with DUSA and the payment of the associated half of the settlement fee totaling $11.25 million, of which the first partial payment was due upon conclusion of the agreement. Biofrontera AG has a short-term liquidity requirement. Initially, it was planned to generate the cash required by a partial sale of Biofrontera Inc. shares.

The new Supervisory Board does not currently support this means of raising capital as a primary option. Therefore, two alternative capital raising measures were proposed at the Extraordinary Shareholders Meeting in April whereby our shareholders result an ordinary capital increase with subscription rights at €1 per new share. At the same time and also endeavoring to raise debt, so we can meet our payment obligations in a timely manner.

Following the election of the new Supervisory Board in December, Professor Dr. Franca Ruhwedel decided to resign her Board seat in February for good reason. We very much regret her decision and would like to thank her once again for a strong commitment. As a proven financial expert, she was an enrichment for the Supervisory Board of Biofrontera AG both professionally and personally.

After our lawsuits between Deutsche Balaton Group and

[Technical Difficulty]

Operator

Dear, ladies and gentlemen, we will be back in a minute. Thank you for your patience.

Dear, ladies and gentlemen, thank you for your patience. We're now back on.

Ludwig Lutter

Yes, apologies. Obviously, some technical issues here, and let me just continue where I dropped off. After our lawsuits between Deutsche Balaton Group and Biofrontera were settled at the -- as part of the mediation agreement, the Deutsche Balaton Group filed a declaratory lawsuit with the Cologne Regional Court on December 13, 2021, the day before the Annual General Meeting, of which the Company only learned by court service on February 9, 2022.

The content of the lawsuit is again the legal investigation and determination of the so-called unwritten competence of the General Shareholder Meeting. In addition, Maruho Deutschland GmbH informed us in April that it intends to file a lawsuit against the capital measure resolutions passed at the Extraordinary General Meeting beginning of April.

After this exciting year, I would like to express my warmest thanks to our employees, our supervisory board and you, dear shareholders, for your commitment to our company. Thank you very much.

With that, I'd like to now open the lines for any questions.

Question-and-Answer Session

Operator

[Operator Instructions] We have a first question. It's from Bruce Jackson of The Benchmark Company. The line is now open for you.

Bruce Jackson

With regard to the market conditions in Germany and Spain, can you tell us a little bit about the impact of COVID-19 and whether or not it's had any impact on patient access to the physician offices?

Ludwig Lutter

Sure, Bruce. Happy to do so. Thanks for your question. Yes, we still feel it. Our sales teams are still reporting that it's not quite back to normal yet. We've seen some pretty nice performance, though, in Spain. It's growing nicely. Nevertheless, we still see, my gut feeling or what I hear back from the field, is there was still something around 20% or so, again, gut feeling, below what we could be without the pandemic.

Bruce Jackson

And then with regard to Maruho, they've got a number of projects that are ongoing with you. Do you have any update on any of those projects, for example, the Asia-Pacific distribution agreement or any of the other development projects?

Ludwig Lutter

Nothing significant or nothing really timely yet. They're working on it. They're working on the approvals, Maruho is, and they are doing so with the speed that -- as quickly as possible. Nevertheless, we do not expect any revenues from Asia Pac this year or next year. We're more looking into the time range of '24, '25.

Bruce Jackson

All right. That's it for me.

Ludwig Lutter

Thank you, Bruce.

Operator

[Operator Instructions] There are no further questions, and so I hand back to you.

Ludwig Lutter

Yes. Thank you very much for taking the time to listening to our call and much appreciate it. And we're looking forward to speaking to you soon again with some good news. Thank you.

Operator

Ladies and gentlemen, thank you for your attendance.