Biofrontera – in a new light
Annual report 2017
NASDAQ,
we’re coming
Our U.S.
footprint
PDT for
everyone!
Together
to success
Key figures and highlights 2017
Biofrontera – in a new light
Letter to the shareholders
Investor Relations
Corporate Governance
Report of the Supervisory Board of Biofrontera AG for the 2017 financial year
Combined management report for parent company and Group
as of 31 December 2017
Consolidated balance sheet as of 31 December 2017
Consolidated statement of comprehensive income for the 2017 financial year
Statement of changes in equity for 2017
Consolidated cash flow statement for the 2017 financial year
Notes to the consolidated financial statements as of 31 December 2017
Auditor’s Report
3
4
12
14
19
21
26
48
50
51
52
53
88
Key figures and highlights 2017
Highlights 2017
• Sales increased by 96% to EUR 12 million. Significant sales revenue growth in the USA.
• Received approval by the European Commission of label extension for Ameluz® to include
treatment of basal cell carcinoma in January 2017
• Significant improvement of liquidity through loan agreement with European Investmentbank
• Appointment of Randall Wilhoite as COO of U.S. subsidiary and strengthening of U.S. sales support
services
• Agreement with FDA concerning Ameluz® development plan for BCC
• J-Code and new CPT-Codes become effective in January 2018
• NASDAQ listing in combination with capital increase in February 2018
• Received approval by the European Commission for Ameluz® in combination with daylight PDT in
March 2018
Key consolidated figures calculated in accordance with IFRS
In kEUR
Profit & Loss
Sales revenue
sales revenue from product sales
sales revenue from development projects
down payments
Research and development costs
Sales costs
General administrative costs
Loss from operations
Total result for the period
Cash flow
Cash flows from operational activities
Cash flows from investment activities
Cash flows from financing activities
In kEUR
Balance sheet
Balance sheet total
Current liabilities (w/o provisions)
Long-term liabilities
Equity, subscribed capital and capital reserve
Equity ratio
Liquid funds
Employees as at 31 December
Biofrontera share
Shares outstanding
Share price (closing Xetra)
31.12.2017
31.12.2016
12,025
10,602
1,423
0
(4,225)
(16,922)
(3,097)
(13,934)
(15,248)
(13,119)
(375)
9,451
6,130
4,913.5
1,177
40
(4,640)
(8,764)
(2,853)
(11,779)
(10,732)
(10,259)
(455)
21,881
31.12.2017
31.12.2016
19,848
1,577
12,355
139,186
17%
11,083
123
23,879
2,616
3,597
136,399
66%
15,126
94
38,416,828
4.15
37,722,433
3.16
Biofrontera AG Annual report 2017
3
Over 40% share price
increase between the listing
resolution and the day after
the NASDAQ listing
A listing on NASDAQ and an IPO on the world‘s most important technology and
biotechnology market offers a company like Biofrontera major opportunities.
It enables us to present ourselves with greater credibility and self-confidence
in our operative business in the U.S.. We enjoy access to the most important
capital markets and most experienced investors in this area, and our shareholders
have a chance to achieve a significantly better valuation of their company. After
just a few weeks on NASDAQ we can say that taking this step was the right decision.
The share price of Biofrontera AG has increased considerably since our related
announcement, and our sales are feeling the effects of the company‘s markedly
better positioning in the USA. Our Management and Supervisory boards had
long conducted discussions about a NASDAQ listing. Over the past two years, we
have discussed and evaluated the opportunities and risks at many conferences
and in many discussions with banks and investor representatives, and presented
our company to important capital market representatives. At our Annual General
Meeting in May 2017, we also informed our shareholders about our considerations.
Following an in-depth review of the situation – including by the U.S. stock market
regulator –, we finally decided on 11 January 2018 on a NASDAQ listing in combination
with a capital increase. And, on February 14, 2018, it occurred: the first trading
day of our ADS (American Depositary Shares) on NASDAQ! One Biofrontera ADS
corresponds to two Biofrontera shares, and it traded at USD 13, significantly
higher than its USD 9.88 issue price.
We now enjoy direct access to the world‘s most important and largest capital
market. And – not to forget – the U.S. market is also the world‘s largest pharma-
ceuticals market. Our share price gained more than 40% in the period between
passing our listing resolution and the day after the NASDAQ listing alone. With
the NASDAQ listing, however, we are primarily pursuing long-term objectives and
strategies. We aim to grow further and with our current positioning we now have
significantly more ways to exploit growth opportunities and position the company
even better and on a more stable basis worldwide.
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Biofrontera AG Annual Report 2017
NASDAQ, we’re coming
”With the listing on NASDAQ we have enhanced our visibility, broadened our
investor base and further improved our financing options. US investors
regard a listing in their home market as a type of quality seal, which gives
them a significantly better perception of smaller companies like us. At the
same time, we are boosting our products‘ recognition in the US pharma-
ceuticals market, and we are enhancing our reputation among customers,
suppliers and potential employees.”
Thomas Schaffer
Chief Financial Officer
NASDAQ
What is an ADS?
According to information provided by NASDAQ itself,
NASDAQ (National Association of Securities Dealers
Automated Quotations) is the largest electronic stock
exchange in the USA. As at first especially young
growth and technology stocks were registered in
this computer trading system after it was founded
in 1971, NASDAQ is often referred to as the „tech“
stock exchange. NASDAQ has meanwhile developed
into a trading platform for several thousands of
companies in numerous sectors, including pharma-
ceuticals and biotechnology.
American Depositary Shares (ADSs) refer to US dollar-
denominated share certificates embodying a certain
number of a foreign company‘s deposited shares. Such
certificates give U.S. investors the opportunity to
purchase and trade U.S. securities without the need to
make recourse to foreign securities.
In Biofrontera‘s case, one ADS represents two ordinary
shares of Biofrontera AG with a par value of EUR 1.00
per share. The ADS programme of Biofrontera AG is
managed by BNY Mellon as the U.S. custodian bank.
Facts about the U.S. listing
Opening price on NASDAQ
First trading day
Subscription price
Subscription period
Placing volume in the U.S.
USD 13.00 per ADS
14 February 2018
USD 9.88 per ADS (EUR 4.00 per share)
30 January – 12 February 2018
1,300,483 ADS (1,215,000 + 85,483 from greenshoe),
corresponding to 2,600,966 shares
NASDAQ ticker symbol
Share capital following U.S. listing
BFRA
44,416,828 shares
Biofrontera AG Annual Report 2017
5
Our U.S. footprint
In a country where Apple is building hospitals, Amazon is setting up health
insurance, and Uber is conveying patients to physicians with its Uber
Health service, Biofrontera – with Ameluz® and photodynamic therapy – aims
to revolutionise the treatment of non-melanoma skin cancer.
Randy Wilhoite has been COO of our U.S. branch operation since March 2017. He
is chiefly responsible for the infrastructure of our U.S. subsidiary. We have set
ourselves an ambitious target: Biofrontera is to become the leading PDT company
in the U.S.. Customer confidence plays a key role in this context, as physicians
expect not only a high-quality product but also excellent service from our
company. We took many important steps in 2017 to strengthen customer
relationships, and brought the order registration, invoicing and customer
service areas back in-house, which had previously been performed for us by a
large pharmaceuticals logistics company when we started our activities in the
U.S.. In other words, we are now in sole command of our customer relationships,
and we contract other companies to implement only pure logistics and the
technical service of our lamps. And it goes without saying that we have further
established our sales operation and medical liaison department. Today we can
deliver our services to customers from New York to Los Angeles, from Miami to
Seattle, and even on Hawaii, in all their PDT matters.
Following a fourth quarter of 2017 characterised by strong sales, Ameluz®
received its own reimbursement code (J-Code) in early 2018, enabling the
medication to be reimbursed through patients‘ insurance policies. This makes
the reimbursement process simple and secure for physicians. Following a year
during which Ameluz® was reimbursed only as part of a so-called Miscellaneous
Code, this makes selling far easier for us. Furthermore, the CMS (Center of
Medical Services) in the U.S. reviewed the reimbursement codes for performing
photodynamic therapy – in other words, the compensation of the medical
treatment. For the first time, PDT will be reimbursed at a higher rate than
cryotherapy, which has been the most widely distributed treatment for actinic
keratosis in the U.S. to date.
Prospects for Ameluz® are thus good, but doctors need to be convinced of the
new treatment methods‘ benefits. This is not an easy task and requires constant
effort as well as time. The potential inherent in the U.S. spurs us on daily,
however. The world‘s largest pharmaceuticals market offers us enormous
opportunities. Today, PDT has comprised approximately only 3% of the
12.6 million actinic keratosis treatments in the U.S.. If we succeed in establishing
PDT as the preferred treatment, we, as an innovative provider, will benefit
disproportionately from such potential growth. If the new indications for
Ameluz® for which we are striving then come to bear in the future, the establish-
ment of our own organisation will have been more than worthwhile.
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Biofrontera AG Annual Report 2017
”We see enormous sales growth from PDT in the U.S. medium-term. In 2016,
around 12.6 million actinic keratosis treatments were performed in the
U.S., including around 370,000 with PDT. Most patients are still treated
with cryotherapy, but I‘m confident we can motivate physicians to rethink
now we have the new billing codes. If they were to treat just one percent
of actinic keratosis patients with Ameluz® instead of cryotherapy in the
future, this would already generate USD 30 million more sales for Ameluz®.
In Europe, the approval of daylight PDT with Ameluz® also opens up entirely
new market opportunities, which we will seize. We have strengthened
ourselves considerably in our sales and marketing in the past two years
and expect these investments to already pay off this year.”
Christoph Dünwald
Chief Sales and Marketing Officer
2015
04/ Founding of
Biofrontera Inc.
11/ Christoph Dünwald
becomes CCO
07/ Application for
approval filed with FDA
12/ FDA issues Small
Business Waiver
05/ FDA issues approval
for Ameluz®
2016
02/ First presentation
of Phase III trial data in
the USA (South Beach
Symposium)
10/ Ameluz® sales launch
03/ Randall Wilhoite
becomes COO of U.S.
branch operations
08/ Integration of marketing
and sales support into
Biofrontera Inc.
10/ Ameluz® obtainable in
veterans‘ healthcare
12/ IND submitted for
BCC trial
06/ Appointments to key
positions (medical science,
finance, operations)
2017
01/ New US website
08/ Agreement with FDA
concerning Ameluz®
development plan for BCC
09/ Jeffrey Holm becomes
VP Marketing
10/ One year of Ameluz®
in the USA: 425 physicians,
USD 5 million of sales
02/ NASDAQ listing
2018
01/ J-Code and new
CPT-Codes become
effective
The USA is the largest pharmaceuticals market in the
world by far. Around half of the 20 biggest pharma-
ceutical companies are based there. Measured in
terms of market capitalisation, the healthcare sector
is the second largest sector in the S&P 500 share
index and the fastest growing overall. For good reason,
Americans regard themselves as technology leaders
and innovation drivers in medicine and pharma-
ceuticals.
What is a J-Code and what are CPT-Codes?
Since 2 January 2018, Ameluz® has had its own J-Code with the
name J7345. Why is this important? In the USA, physicians
purchase such medications – which are applied in connection with
a medical procedure – directly from the manufacturer. In other
words, they pre-finance such purchases. Once they have
performed a treatment, they can then easily use the J-Code to
apply for reimbursement from the respective authority. Without
a J-Code, they must use an unspecific Miscellaneous Code, which
requires considerably greater effort for both physicians and
payors. This means, a large proportion of the administrative
burden previously incurred by physicians is now dispensed with.
The new CPT-Codes, which also became effective on 2 January
2018, make Ameluz® even more attractive for physicians to utilise.
The CPT-Code determines the amount of additional reimburse-
ment physicians receive for applying Ameluz®. And the two new
codes 96573 and 96574 – which are reserved for so-called
healthcare professionals – receive significantly higher payments
than the previous 96567 code, which is now applicable only for PDT
treatments performed by less qualified personnel. At up to USD
249 per treatment, physicians thereby receive a much more
attractive payment than previously, especially as – although
cryotherapy is compensated by the number of lesions treated –
compensation reaches only USD 148 for the treatment of 15 and
more lesions, at which point it is capped.
Biofrontera AG Annual Report 2017
7
Our mission is to make
photodynamic therapy
with Ameluz® accessible
to all patients with field
cancerisation and actinic
keratosis.
In the U.S., we are gradually tapping the
largest market for actinic keratosis. To date
mainly cryotherapy – freezing, in other
words – has been deployed in the U.S. to
treat non-melanoma skin cancer, a treat-
ment that can lead to permanent white skin
marks or even scar formation. Our medica-
tion Ameluz®, in combination with photo-
dynamic therapy, is not only extremely
effective but also achieves an outstanding
cosmetic result. Ameluz® is the only PDT
medication approved in the U.S. to treat
larger areas. Since January, we have had
our own reimbursement code for Ameluz®
in the U.S., which makes it a lot more
attractive for US dermatologists to pre-
scribe. A growing number of physicians and
patients are deciding in favour of our inno-
vative treatment method.
We have also made great progress in Europe.
In early March 2018, the European Commis-
sion issued its approval for daylight PDT for
field cancerisation and actinic keratosis.
And finally, the 90 percent of the market
for statutory health-insured individuals is
opening up for us in Germany, as with day-
light PDT the time-consuming procedure in
the medical practice is dispensed with
(which makes Ameluz® applied with a lamp
procedure a not automatically reimbursed
treatment form). After application, the
patient spends approximately two hours in
natural daylight. This treatment is similarly
effective to conventional PDT but has
higher recurrence rates.
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Biofrontera AG Annual Report 2017
PDT for everyone!
”In recent years, we have successfully reached one milestone after another
in optimising the strategic market positioning of our product Ameluz®. All the
signs now point to growth: photodynamic therapy with Ameluz® is a highly
effective way to treat actinic keratosis and basal cell carcinoma. The large-
area treatment of field cancerisation is leading to outstanding cosmetic
results and reducing the light-induced signs of skin ageing. Daylight PDT in
Europe and improved billing codes in the U.S. open up enormous market
potential for Ameluz®. Our investments to expand the indications and approvals
of Ameluz® offer additional growth opportunities.”
Prof. Dr. Hermann Lübbert
Chief Executive Officer
Daylight or lamp?
A lamp is traditionally deployed as a light source in photodynamic therapy. Biofrontera has developed the
BF-RhodoLED® for photodynamic therapy with Ameluz®, which is easy to use and very energy-efficient. No other lamp
on the market offers comparable power and flexibility. The advantage with treating with a lamp is that the affected
areas need to be illuminated for just a few minutes. Furthermore, the lamp can be used to treat not only field
cancerisation and actinic keratosis but also basal cell carcinoma.
Field cancerisation and actinic keratosis can be treated similarly effectively with daylight. Although the illumination
effect must occur over a longer period, the treatment has the advantage of being largely pain-free. In addition,
daylight treatment in Germany is also open to patients with statutory health insurance, while photodynamic
therapy in combination with the BF-RhodoLED® lamp is only reimbursed by private health insurers. Conventional
PDT nevertheless enjoys its status because of the higher recurrence rates in daylight PDT observed in our studies.
For this reason, a combination of low-pain daylight PDT with conventional PDT would be ideal.
USA and EU in numbers
58,000,000 Americans suffer from actinic keratosis
At least 5,000,000 Europeans suffer from actinic keratosis,
presumably significantly more
Around 12.6 million actinic keratosis treatments annually
Around 2.1 million actinic keratosis treatments annually
Around 370,000 PDT treatments annually
(relates to drug sales of approx. USD 130 million)
Around 120,000 million actinic keratosis treatments annually
(relates to drug sales of approx. EUR 22 million)
27,000 tubes of Ameluz® sold in 2017
28,000 tubes of Ameluz® sold in 2017
Sales in all federal states of the U.S.
Sales in 8 EU countries + Israel and Switzerland
Approval of Ameluz® for
- actinic keratosis (mild and moderate) on the face and scalp
- treatment of individual actinic keratoses on larger areas
- conventional PDT
Approval of Ameluz® for
- actinic keratosis (mild and moderate) on the face and scalp
- field cancerisation
- superficial and nodular basal cell carcinomas
- conventional and daylight PDT
Sales 2017: EUR 6.3 million
Sales 2017: EUR 4.3 million
Biofrontera AG Annual Report 2017
9
Together to success
Our employees are the key to our success. Day by day, they work with motivation
and full commitment to further advance Biofrontera. In Germany and America, a
total of 130 colleagues from the most varied departments such as research,
development, regulatory, production, quality management, marketing and sales
work together closely and based on trust. Only together can we be successful.
Dr. Beate Schmitz –
Director Clinical Trial Management, Leverkusen
I head up the implementation of clinical trials. As with all my colleagues, the work
this entails is significant, especially as we are now performing clinical trial
management in-house ourselves. Documents for clinical trials need to be prepared
and approved, agreements need to be concluded with trial centres, implementation
must be monitored and results reports have to be produced. On clearly defined
tasks, we work together with Clinical Research Organisations, which support us
in data recording, data management, statistics and monitoring, and abroad in
requirements typical for the relevant country. I‘m very proud to have worked
together on ensuring Ameluz® made a successful market launch. Our work forms
an important basis for the market success of Ameluz®.
Dr. Montserrat Foguet – Vice President Regulatory Affairs and Production, Leverkusen
I head up the Regulatory Affairs and Pharmaceuticals Production departments.
Firstly, I‘m concerned with legislation and directives. My responsibilities include
receiving and maintaining approvals for medications in the EU and the USA. I‘m the
contact point for the approvals authorities such as the FDA, the EMA and the German
Federal Institute for Drugs and Medical Devices (BfArM), and I‘m responsible for
communicating with these authorities. As the head of production, I coordinate the
work of our contract manufacturers, and ensure our medications are produced in
compliance with our instructions. I also ensure sufficient medications are always
available for sale in our various markets. I can also be creatively involved in the new
formulations area. We‘re testing the potential of our nanoemulsion technology with
various substances. In other words, we‘re working on potential new medications.
Biofrontera is a special company, and we‘re all proud of our success.
Dr. Markus Osterloh –
Senior Manager Regulatory Affairs Medical Devices, Leverkusen
My task is to ensure our BF-RhodoLED® medical product is safe to use and is
always compliant with all market approval requirements in our target markets.
Together with my colleagues, I‘m responsible for implementing any adjustments
that might be required if and when problems arise. For this, we define the develop-
ment and production processes and ensure the quality of BF-RhodoLED® remains
at a consistently high level. We also prepare relevant documents for the approvals
process, which we then submit to the authorities and other audit organisations.
I‘m very motivated by the ambitious targets we‘ve set ourselves at Biofrontera,
and by the conviction we can also achieve them.
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Biofrontera AG Annual Report 2017
Dr. Wiebke Meyer-Wendt – Director Quality Management, Leverkusen
I‘m responsible for maintaining and improving our quality management system. All
departments are audited as part of regular self-inspections, involving reviewing com-
pliance with the regulations for our processes, working instructions and regulatory
requirements. This forms a good basis for the inspections that various authorities
conduct annually at our company, as a manufacturer of pharmaceuticals, medical
products and cosmetics. My department is also responsible for the market clearance
of our pharmaceuticals and medical products. To this is added the supervision and
qualification of our suppliers – ranging from on-site auditing and quality assurance
agreements through to supervising the quality of delivered goods, such as by incoming
goods inspections. My work at Biofrontera presents me with new challenges constantly.
But that‘s not a problem, as we all „pull together“ here.
Darrell Lowman –
Quality Assurance Director, Wakefield
My task at Biofrontera is quality management in the U.S.. As the company‘s local
representative in matters relating to product control, safety and efficacy, I‘m in
constant communication with my German colleagues as well as with our field sales
force, suppliers, customers, patients and regulatory authorities. I conduct quality
management training in the U.S. and I‘m also responsible for the controlling,
approval and cataloguing of our marketing material. I appreciate the family-type
atmosphere and good working climate at Biofrontera and I‘m proud we can offer
our customers a high-quality medication to treat actinic keratosis.
Jeff Holm –
Vice President of US Marketing, Wakefield
I joined Biofrontera a year ago to establish marketing as well as the training
platform that provides content-based orientation for our field sales force and
managers in the U.S.. In my role as VP Marketing, I‘ve developed the strategic
framework to establish the U.S. business. Our strategy consists not just of expanding
our market shares within the existing PDT market. No, our aims are higher!
We‘re tasked with convincing providers to switch from topical treatments and
cryotherapy to PDT – as this is basically the treatment I‘d select for myself. So,
there‘s a lot to do in the U.S. market, and every day I look forward to rolling up my
sleeves and contributing my part to our success.
Bryan Rose –
Director of Market Access, Wakefield
I ensure that as many patients as possible receive refunded access to our product.
To achieve this, I speak with health insurance companies, regulatory authorities
and other payors. If I succeed in convincing them of the clinical and economic
benefits of Ameluz®, then they include our Ameluz® treatment in their reimburse-
ment lists. I enjoy working at Biofrontera because here I can work on establishing
a company in the U.S. from the ground up. Because of this, I have a broad spectrum
of tasks, and my work always is very varied and entails a lot of responsibility.
Biofrontera AG Annual Report 2017
11
Letter to the shareholders
Dear shareholders,
We look back on a very successful 2017 financial year, which was largely devoted to the USA topic. After launching Ameluz® in
the US pharmaceutical market in October 2016, we established our organisation with all requisite functions, and at the same
time advertised our products in the market. Overall, we achieved a doubling in sales revenues compared with the previous
year, whereby approximately half of our sales revenue this year already derived from the USA. Despite the significance of the
US market, the new indication to treat basal cell carcinoma and the results of the Phase III trial on daylight PDT also represent
quite important milestones for the European market. All in all, some extremely important long-term activities were
successfully concluded during 2017, which in sum have positioned our Ameluz® medication to enjoy outstanding market
opportunities both in the USA and in Europe. We have been working towards this strategically for many years and are
correspondingly proud of the results.
During the first half of 2017, our sales in the USA faced the challenge of some unavoidable start-up difficulties. An individual J-
Code (a product-specific billing code), which dermatologists require to bill the medication without problem, was still lacking.
This is only issued by the American administration in the year following the application. For its part, the application can only
be submitted in the January following the approval of the medication. Consequently, physicians' billing systems were unable
to seamlessly communicate with those at the health insurance funds, and refunds were frequently turned down. Especially
with a product such as Ameluz®, which we sell directly to the physician without a pharmacy as an intermediary, the ability to
reimbursement is important so physicians do not lose all their invested capital. To support physicians in billing, we availed
ourselves of the services of the company Pinnacle from the midyear stage. Not least because of this, billing problems then
increasingly diminished toward the second half of the year. In November, the Centres for Medicare and Medicaid Services
(CMS) held out the prospect of an individual J-Code for Ameluz®, which became effective on 1 January 2018. This code is
meanwhile integrated into almost all billing systems, and Ameluz® is gradually being reimbursed at its full price by almost all
insurers. The last transition difficulties should have been tackled during the course of 2018.
Biofrontera was required to clear a further hurdle with the certifications of our local subsidiary Biofrontera Inc. in the
individual states of the USA. Only with such licences is it possible to sell pharmaceuticals in the respective states, and a
separate licence is even frequently required for medical products (Biofrontera's PDT lamp BF-RhodoLED®). In order to quickly
enter the market following approval, after the market launch Biofrontera initially utilised the existing licences of a wholesaler
to which it exclusively directly sold all products, and which was then responsible for resale and the entire commercial
processing. Besides the related costs, Biofrontera was thereby also not always able to respond sufficiently quickly and flexibly
to dermatologists' requirements. For this reason, the fact that Biofrontera has finally gained possession of all its individual
licenses itself and has been able to take over the entire operative processing has exerted a very positive impact. Since
summer 2017, Biofrontera Inc. has been the direct business partner to American dermatologists, with the wholesaler now
acting only as a provider of warehousing and logistics services to Biofrontera.
A further important event of 2017 was the review of the procedural billing codes (CPT-Codes) for PDT in the US market. This
was enabled, as with Ameluz® a new medication with a somewhat different application protocol had arrived in the U.S. market
compared with the previously available PDT medication. This situation was utilised by the American Medical Association to
advance the introduction of additional CPT-Codes for PDT. For the first time, the physician can now receive around USD 100
more for PDT with Ameluz® than can be billed at maximum for the dominant cryotherapy treatment. For PDT with the
application protocol of the competitor product, the physician receives USD 60 less than is the case with Ameluz®, given correct
interpretation of the codes. As a consequence, a good chance exists of also significantly expanding Ameluz® PDT into the
cryotherapy area.
In January 2017, the European Commission approved the new indication for Ameluz® to treat superficial and nodular basal cell
carcinoma. We also received the data from the Phase III clinical trial for daylight PDT in the first quarter of 2017, and in June
we applied for the approval for daylight PDT with Ameluz®. In the first quarter of 2018, we received this approval from the
European Commission, shortly after the one-year follow-up of this trial showed a significantly superior effect compared with
the competitor product Metvix®, which is especially based on considerably lower recurrence rates.
While the doubling of our sales revenues from around EUR 6 million in 2016 to approximately EUR 12 million in 2017 is certainly
a very pleasing success, at the start of the year we expected even faster growth rate, which led us to downgrade our forecast
slightly in autumn. Towards the end of the year, the positive developments and the new market opportunities already became
evident, and revenue in the fourth quarter picked up significantly. This positive trend continued in the first quarter of 2018,
and our forecast for 2018 envisages total sales revenues (excluding revenues from research partnerships) at between
12
Biofrontera AG Annual Report 2017
EUR 16 million and EUR 20 million, and consequently further considerable growth of 35-70%. The EUR 15.8 million net loss
incurred for 2017 was within the planned range.
This growth was accompanied by the further expansion of our corporate structures. Overall, the number of employees
increased from 94 individuals on 31 December 2016 to 123 on 31 December 2017, with a large proportion of the new staff being
appointed in the USA. As of 31 December 2017, 48 staff were active in the USA, including 35 in sales and marketing or as
advisory scientists, providing support to the sales force in the field in responding to scientific questions.
The necessary financing was secured by a EUR 5.0 million convertible bond issued in January as well as a very prestigious loan
from the European Investment Bank. To date, an amount of EUR 10 million has been drawn from the loan, which has been
approved for a total of EUR 20 million. The conditions are significantly more favourable than with comparable debt financing
offered to companies in our sector.
Given considerable fluctuations, the stock market price per share has performed well during the year. The share price started
the year at around EUR 3.00 and ended 2017 at approximately EUR 4.00. The positive performance of the Biofrontera share
accelerated significantly as part of the listing on the US technology stock market, NASDAQ. This listing was very successfully
implemented in early 2018, when the share's valuation leaped, accompanied by a marked rise in liquidity.
All of these successes and our share's value appreciation are attributable to the efforts of our creative and extraordinarily
committed employees. We are grateful to have such colleagues. We take this opportunity to not only bestow our generous
praise on them, but also to say a very warm thank you.
We would also like to thank you, as shareholders, for believing in Biofrontera, our products and our further strategy, and for
continuing to support us.
Following our long-term strategy, the success story of Biofrontera has been continued for a further year and has gained
significant momentum.
Kind regards
Prof. Dr. Hermann Lübbert
Christoph Dünwald
Thomas Schaffer
Management Board of Biofrontera AG
Biofrontera AG Annual report 2017
13
Investor relations
The shares of Biofrontera AG, Leverkusen, have been traded in the Prime Standard segment of the Frankfurt Stock Exchange
since 3 June 2014. They have been listed in the Regulated Market of the Düsseldorf Stock Exchange since 2006, and on the
Regulated Market of the Frankfurt Stock Exchange since 2012. Since February 2018, Biofrontera shares are also traded in the
form of ADSs (American Depositary Shares) on the US NASDAQ Capital Market.
The Biofrontera share
Key share data
Share class
Stock exchange
Other trading platforms
Shares in issue as of 31 December 2017
Share capital
ISIN
WKN (German Securities Identification)
Ticker symbol
Tracker symbol Nasdaq
Designated Sponsor
Share price as of 31 December 2017
52-week high* (22 February 2017)
52-week low* (9 November 2017)
Registered shares (no par value)
Frankfurt Stock Exchange, NASDAQ Capital Market
XETRA, Berlin, Düsseldorf, Munich, Stuttgart, Tradegate
38,416,828
EUR 38,416,828
DE0006046113
604611
B8F
BFRA
Lang & Schwarz Broker GmbH
EUR 4.15
EUR 4.86
EUR 3.05
Market capitalisation as of 31 December 2017
EUR 159.5 million
Average daily trading volume (52 weeks as of 31 December 2017)
51,875 shares per day
* based on XETRA closing prices
Share price performance
The capital market environment in Germany proved positive overall in 2017. Political uncertainties were largely eclipsed, with
only the intensification of the conflict between the USA and North Korea placing markets under slightly more pressure during
the third quarter. The price of the Biofrontera stock was chiefly affected by specific corporate news. At the start of the year,
the stock registered a sharp rise of 53.8% within just seven weeks, reaching its high of EUR 4.86 on 22 February 2017. This
increase was most likely triggered by the European Commission's approval of a new indication for Ameluz® for basal cell
carcinoma at the end of January, the positive results of the Phase III trial for Ameluz® with daylight PDT reported in early
February, and progress made with establishing sales and marketing in the USA. The share price subsequently consolidated
before incurring price losses at the end of June. It rapidly recovered, however, thanks to positive corporate news from the
USA, e.g. the agreement reached with the FDA concerning the Ameluz® development plan for basal cell carcinoma, the inclusion
of Ameluz® PDT in the US veteran administration’s federal supply schedule, and strong sales growth in the first year after
market launch. A further setback in the share price to EUR 3.05 occurred in November, however, due to the somewhat weak
third quarter and related correction in the sales revenue and earnings guidance for the 2017 financial year. The stock gained
ground again in December thanks to strong sales revenue figures from the USA for the autumn months and the prospect of
accelerated market penetration after receiving the J-Code from January 2018, and again exceeded the EUR 4 level in early
December. It closed the end of the year at a price of EUR 4.15. Starting from previous year's close of EUR 3.16, this represents a
solid share price appreciation of 31.3% for 2017. After the end of the financial year, the share continued to outperform, with
especially the announcement of the NASDAQ listing on 11 January 2018 catering for a sharp price increase of almost 50% to
EUR 6.21 as of 31 January 2018.
14
Biofrontera AG Annual Report 2017
Share price chart
Shareholder structure
The shareholder structure of Biofrontera AG as of 31 December 2017 is as follows (based on voting rights notifications as per
31 December 2017):
* directly and/or indirectly attributable
Biofrontera AG Annual report 2017
15
Further financial instruments
Key data for warrant bond with warrants I!
Stock exchange
WKN (German Securities ID)
ISIN
Term, maturity date
Step coupons
Par value/denomination
Key data for the 2016-2021 Convertible Bond!
Stock exchange
WKN (German Securities ID)
ISIN
Term, maturity date
Coupon
Par value/denomination
Total volume
Initial conversion price
Conversion price from 01/01/2017
Conversion price from 01/01/2018
Adjusted conversion price since March 2018
Key data for the 2017-2022 Convertible Bond!
Stock exchange
WKN (German Securities ID)
ISIN
Term, maturity date
Coupon
Par value/denomination
Total volume
Initial conversion price
Conversion price from 01/04/2017
Conversion price from 01/01/2018
Adjusted conversion price since March 2018
Düsseldorf
A0Z169
DE000A0Z1690
8 years, 31/12/2017 (repaid early on 03/08/2017)
4 % (2010), 6 % (2011), 8 % (2012)
EUR 100.00
Not admitted to trading
A2BPFQ
DE000A2BPFQ5
4 years, 31/12/2020
6 %
EUR 100.00
EUR 4,999,000
EUR 3.00
EUR 4.00
EUR 5.00
EUR 4.75
Düsseldorf, since February 2017
A2BPDE
DE000A2BPDE6
5 years, 31/12/2021
6 %
EUR 100.00
EUR 4,999,000
EUR 3.50
EUR 4.00
EUR 5.00
EUR 4.75
16
Biofrontera AG Annual Report 2017
Investor relations work
Biofrontera sets great store by active, comprehensive and continuous communication with investors and analysts. The aim at
all times is to provide information about the company on a basis that is reliable, open and prompt.
Roadshows and conferences provide the Biofrontera management the opportunity to conduct extensive and personal
discussions with institutional investors (both equity and debt investors) and analysts. Such discussions were conducted on
many days during the 2017 financial year, including at capital market centres in the USA and many important European cities.
Biofrontera participated mainly at internationally oriented, Healthcare-sector conferences in 2017, but was also represented at
events with a more specialist focus.
For private investors, Biofrontera uses its own format to explain and discuss central corporate topics in detail. At this year's
shareholder evening on 29 November 2017, investors' questions related mainly to the company's future prospects in the USA.
For example, responses were given to questions relating to the size of the markets for actinic keratosis and basal cell
carcinoma, and about competitors and general structures (US dermatologists' practice structure, off-label use).
Along with quarterly statements for the first and third quarter and the half-year financial report, Biofrontera informed
investors, analysts and further interested capital market participants in a total of 12 press releases and 22 investor relations
releases. The Management Board held telephone conferences to comment on the Group's published results and report on
significant developments and current activities. The annual analysts' conference occurred as part of the Equity Capital Forum
in Frankfurt on 28 November 2017.
The Ordinary Annual General Meeting of Biofrontera AG was held on 24 May 2017 in Leverkusen. A total of 58 percent of the
voting capital of Biofrontera AG comprising 38,416,428 shares as of this date were represented there. Attendance thereby
improved considerably compared with the previous year. The management's proposals relating to authorising the
Management Board to create a new Authorized Capital I with the possibility to exclude subscription rights only for fractional
amounts as well as a new Authorized Capital II with the possibility to exclude subscription rights for fractional amounts as well
as pursuant to Section 186 (3) Clause 4 of the German Stock Corporation Act (AktG) achieved the requisite three-quarters
majority of the share capital represented. One shareholder brought a lawsuit against the AGM resolution to create the
Authorized Capital II, however. This claim was rejected by the District Court of Cologne in the first instance, although the
claimant has filed an appeal against this decision. For this reason, Authorized Capital II has not yet been entered in the
company's articles of association.
Biofrontera implemented only a smaller capital measure in 2017. In January 2017, 49,990 convertible bonds in a total nominal
amount of EUR 4,999,000 were issued and successfully placed. No further capital measures were implemented in 2017.
In May, Biofrontera entered into a loan agreement with the European Investment Bank (EIB), in which the EIB provides the
Biofrontera Group a loan of up to EUR 20 million. The repayment is secured by a guarantee from the European Fund for
Strategic Investments (EFSI). The loan can be drawn in three tranches. The first tranche of EUR 10 million was drawn in July
and partly utilised to repay the 2009/2017 warrant bond in an amount of EUR 5.5 million including interest. A further EUR 10
million can be utilised in two tranches after achieving certain operative milestones. Each tranche must be repaid five years
after being drawn.
Analyst coverage
Biofrontera is covered by the following analysts:
Broker
The Benchmark Company, LLC
Dawson James Securities
Lake Street Capital Markets
Shore Capital Stockbroker Limited
sc-consult GmbH
Analyst
Raymond Myers
Robert M. Wasserman
Bruce Jackson
Tara Raveendran
Holger Steffen
Biofrontera AG Annual report 2017
17
Roadshows
Date
23-26 January 2017
1 February 2017
28 March 2017
29 March 2017
30 March 2017
10-13 April 2017
19 April 2017
20 April 2017
22 June 2017
12 July 2017
20 July 2017
25 July 2017
23 October 2017
26 October 2017
2-3 November 2017
10 November 2017
24 November 2017
Conferences
Location
New York
Munich
Monaco
Paris
Vienna
New York
Zürich
Geneva
London
New York
Munich
Vienna
Bremen
Zürich
London
Munich
Amsterdam
Date
Conference
9-12 January 2017
22-23 February 2017
6-8 March 2017
9 May 2017
15-16 June 2017
20 June 2017
JP Morgan 35th Annual Healthcare Conference (San Francisco)
McGuire Woods 14th Annual Healthcare and Life Sciences Finance Conference (Chicago)
Cowen 37th Annual Healthcare Conference (Boston)
8th DVFA Spring Conference (Frankfurt)
Marcum Micro Cap Conference (New York)
Prior Capital Market Conference (Frankfurt)
10-12 September 2017
Rodman & Renshaw 19th Annual Global Investment Conference (New York)
19 October 2017
16 November 2017
3rd Annual Dawson James Small Cap Growth Stock Conference (Jupiter)
9th Annual McGuire Woods Pharmaceutical and Medical Device Conference (Chicago)
27-29 November 2017
Equity Capital Forum (Frankfurt)
14 December 2017
Benchmark’s Annual Micro Cap Discovery One on One Conference (Chicago)
18
Biofrontera AG Annual Report 2017
Corporate governance report for the 2017 financial year 2017
including the corporate governance declaration pursuant to
Sections 289 f, 315b HGB for Biofrontera AG and the Group
I. Statement pursuant to Section 161 AktG (disclosure pursuant to Section
289 a (2) subsection 1 HGB forming part of the corporate governance
declaration)
The Management and Supervisory boards issued the following compliance statement in December 2017:
Statement by the Management and Supervisory boards of Biofrontera AG (the
company) concerning the German Corporate Governance Code, pursuant to Section 161
of the German Stock Corporation Act (AktG)
Pursuant to Section 161 of the German Stock Corporation Act (AktG), the Management and Supervisory boards of Biofrontera
AG are obligated to state each year that the recommendations of the "Government Commission on the German Corporate
Governance Code" ("Code"), as published by the Federal Ministry of Justice in the official section of the electronic Federal
Gazette (Bundesanzeiger), have been and are being complied with, or which recommendations were not or are not being
adhered to and why such is the case ("compliance statement"). The compliance statement must be made permanently
accessible to the shareholders. The Management and Supervisory boards hereby issue the following compliance statement:
Since the submission of its last compliance statement in December 2017, Biofrontera AG has complied with the
recommendations of the Code in the version specified therein taking into account the exceptions therein stated, and will
comply with the version dated 7 February 2017, with the following exceptions:
Deductibles in respect of the D&O insurance (No. 3.8 subsection 3)
The company has taken out D&O insurance cover, which provides no deductible for Supervisory Board members. In the
company's view, such a deductible is not required to ensure the Supervisory Board members' motivation and sense of
responsibility. A deductible would, however, probably undermine the company's aspirations to attract outstanding people from
Germany and abroad to serve on its Supervisory Board. The Supervisory Board has consequently been expressly exempted
from the new provisions regarding the deductible in the German Act regarding the Appropriateness of Management Board
Remuneration (VorstAG) (Section 116 AktG).
General limit to be specified for the term of office on the Supervisory Board (No. 5.4.1)
As part of its diversity goals, the Supervisory Board should specify a general limit for the term of office on the Supervisory
Board. In the company's case, however, specifying a general limit for the term of office is not considered to be appropriate
from the current perspective. This is because, in the Supervisory Board's opinion, it is not possible to abstractly determine a
length of time that could usefully be specified as a general maximum limit for the term of office. Instead, each case should be
assessed individually as to whether the existing length of membership on the Supervisory Board might conflict with proper
and impartial fulfilment of the mandate.
Structure of remuneration for the Supervisory Board (No. 5.4.6)
The company does not take committee membership into consideration when remunerating the Supervisory Board members.
Given the close coordination in the six-member Supervisory Board, a differentiation of the Supervisory Board remuneration
according to committee membership is not required at present, especially as the members generally have around the same
workloads resulting from membership of the various committees.
Reporting (No. 7.1.2)
Financial reports, half-yearly reports and interim reports are published within the statutory periods.
Biofrontera AG Annual report 2017
19
Leverkusen, December 2017
Prof. Dr. Hermann Lübbert
Management Board of Biofrontera AG
Thomas Schaffer Christoph Dünwald
Dr. Ulrich Granzer
Chairman of the Supervisory Board
II. Corporate Governance Report
The current corporate governance report is available on the company’s website at www.biofrontera.com in the section
“Investors“, sub-section “Corporate Governance“.
20
Biofrontera AG Annual report 2017
Report of the Supervisory Board of Biofrontera AG for the 2017
financial year
Dear Shareholders
In the 2017 financial year, Biofrontera AG and its subsidiaries reported very pleasing
developments in the areas the Supervisory Board considers important: in May 2016,
the FDA (U.S. Food and Drug Administration), approved Ameluz® to treat mild and
moderate actinic keratosis on the face and scalp for marketing in the USA. Sales and
marketing in the USA started in October 2016. The 2017 financial year was then entirely
characterised by the expansion of our sales and marketing activities in the USA, where
we are seeing a very dynamic trend. Approximately one year after market launch, we
are achieving more revenue in the USA with our Ameluz® product than in Europe. The
issuance of a product-specific J-Code to simplify cost reimbursement for prescribing
physicians proved very important in this connection, as has the amendment of
reimbursement amounts for photodynamic therapy (CPT-Codes) as of 1 January 2018,
with which we are very pleased.
We also made good progress in the area of new indications for Ameluz®. The European
Commission approved a new indication for Ameluz® to treat superficial and nodular basal cell carcinoma, for example. A
further Phase III trial, whose study protocol we are currently discussing with the FDA, is required for Ameluz® to also receive
this new indication for the US market. Additionally, in March 2018, the European Commission issued approval for Ameluz® in
combination with photodynamic daylight therapy (daylight PDT), thereby enabling future utilisation of Ameluz® without special
lamps as light sources. The approval for daylight PDT should significantly increase the market potential for Ameluz® in Europe
and improve the reimbursement status of the medication in Germany.
The third very important aspect reflects our successful capital market activities. In 2017, we received a loan from the European
Investment Bank with a total volume of EUR 20 million, of which an initial tranche of EUR 10 million has already been drawn
down. In February 2018, Biofrontera AG achieved a further major and important milestone: listing on the US NASDAQ Stock
Market accompanied by the placing of a capital increase. This has laid the financial foundation for the company's further
successful growth.
I would like to take this opportunity on behalf of the entire Supervisory Board to extend my very warm thanks to you,
esteemed shareholders, for your commitment and trust, because, without the financial resources provided by our
shareholders, the support for the strategy pursued by the Management and Supervisory boards, and especially also our
shareholders' patience, the successful implementation of Biofrontera's long-term strategy would have been impossible to
date.
Supervision and consultation
The Supervisory Board's activities included supervising and consulting with the Management Board concerning the
management of the company and the Group. In the reporting year, the Supervisory Board monitored the Management Board's
activities and discussed future business decisions and plans with it.
The Supervisory Board discharged the responsibilities incumbent upon it according to the law, the company's bylaws, the
German Corporate Governance Code (Code), and its rules of business procedure.
The Supervisory Board's discussions with the Management Board were based on reports by the Management Board, and also
involved reviewing and taking into consideration business documents and draft resolutions. In particular, the Supervisory
Board also reviewed the legality, propriety and expediency of measures proposed by the company's management team, as
well as the economic feasibility of such measures.
The Management Board provided the Supervisory Board with regular, timely and comprehensive reports. The Supervisory
Board was continuously informed by the Management Board, both during and outside meetings, about the company's current
performance. Based on the Management Board's written and verbal reports, the Supervisory Board comprehensively discussed
business developments and the company's situation at its meetings. Furthermore, the Chief Executive Officer and the
Supervisory Board Chairman regularly exchanged information and ideas. In particular, the Supervisory Board was consulted
about decisions of fundamental significance for the company. Deviations in business performance from the plans were
explained to the Supervisory Board by the Management Board, and discussed with it. Additionally, the Supervisory Board
Biofrontera AG Annual report 2017
21
examined the extent to which its decisions, proposals and recommendations were subsequently taken into account and
implemented by the Management Board in running the company.
If Management Board decisions required Supervisory Board approval or if the Management Board sought approval in relation
to particular measures, the Supervisory Board was briefed in advance by way of information and documents of relevance for
the decision. Approval was subsequently granted following consultation at meetings of the Supervisory Board or – in the case
of decisions involving a circulation procedure – in or after a conference call.
Consultations and areas of focus
In fulfilling its responsibilities, the Supervisory Board held six meetings during the reporting year. The Supervisory Board also
passed resolutions outside the scope of meetings.
16 February 2017
In a telephone conference on 16 February 2017, the Management Board informed the Supervisory Board about various debt
financing possibilities under discussion, including negotiations with the European Investment Bank, which subsequently led to
a financing arrangement. A listing on the US NASDAQ Stock Market was also discussed. The Supervisory Board was unanimous
that plans for a listing on the US NASDAQ Stock Market should be pursued further.
5 April 2017
The meeting on 5 April 2017 concerned the financial statements. The Management Board reported on achievements in 2016.
Furthermore, current developments, including the financial and liquidity positions, were discussed. Focus areas included sales
figures and developments in the USA. After discussing the 2016 financial statements, the consolidated financial statements
and the combined management report for the company and the Group, the Supervisory Board approved the reports of the
auditor present at the meeting, raised no reservations on the basis of the results of its own audit, and approved both the
separate and consolidated financial statements. It thereby followed the recommendation of its Audit Committee. Both the
separate and consolidated financial statements of Biofrontera Aktiengesellschaft for the 2016 financial year were adopted as a
consequence.
23 May 2017
At the meeting on 23 May 2017, the Supervisory Board requested information about the Group's financial development. The
R&D & Market Access Committee reported to the plenary board. Related questions under discussion included the
reimbursement of Ameluz® in the USA and the importance of the J-Code for future business development.
14 July 2017
Discussion at the 14 July 2017 meeting included planning, including tax planning, as well as a lawsuit pending against AGM
resolutions of 24 May 2017. The Supervisory Board also approved the early repayment of a warrant bond.
29 September 2017
The Management Board initially reported at this meeting on progress in the research and development area, especially in
relation to new indications for Ameluz®. Furthermore, the Management Board reported on sales revenue trends, marketing
activities and the financial position. Moreover, the billing procedure in the USA and the expected issuing of the J-Code as of 1
January 2018 were discussed.
6 December 2017
At this meeting, the Management Board reported in depth on business development during the first nine months of 2017 and
provided an outlook for the 2017 results. The Supervisory Board also concerned itself with the budget planning for 2018, which
it approved. In addition, the Management Board reported on current trends in the research & development area as well as
regulatory matters. Furthermore, the Supervisory Board discussed a successor for Mark Reeth, who had stepped down from
the Supervisory Board, and unanimously proposed the appointment of Mr. Reinhold Eyring to the Cologne Registry Court. As
part of this meeting, the Supervisory Board reallocated the personnel composition of the Supervisory Board committees.
Members' meeting attendance
Apart from the 23 May 2017 meeting, all members participated at all of the aforementioned Supervisory Board meetings. One
member was unable to attend the 23 May 2017 meeting.
22
Biofrontera AG Annual report 2017
Supervisory Board committees
The Supervisory Board has currently formed an Audit Committee, a Nomination Committee, a Personnel Committee and an R&D
& Market Access Committee. The Supervisory Board appoints a Supervisory Board member as committee chair in each case.
Pursuant to the rules of procedure for the Supervisory Board, the Supervisory Board chair is expected to chair the committees
that handle Management Board contracts and prepare Supervisory Board meetings. The Supervisory Board chair should not be
the Audit Committee chair too. These requirements were taken into account when making appointments. The committee chairs
report to the Supervisory Board on the committees' work.
All the committee members participated in all the committee meetings in 2017.
Audit Committee
The Audit Committee focuses particularly on issues relating to financial accounting and risk management, the auditor's
mandatory independence and the issuing of the audit mandate to the auditor, as well as overseeing the audit of the company's
annual financial statements. At companies as defined in Section 264d of the German Commercial Code (HGB), which includes
Biofrontera Aktiengesellschaft, the Supervisory Board's nomination for the selection of the auditor must be based on the Audit
Committee's recommendation. Furthermore, at companies as defined in Section 264d of the German Commercial Code (HGB),
at least one member of the Supervisory Board must possess expertise in the financial accounting or auditing areas and be a
member of the Audit Committee.
The Audit Committee comprised the following individuals: Hansjörg Plaggemars, Jürgen Baumann and John Borer. Mr.
Baumann is the current chair.
The committee met once during the reporting year: with the auditor in order to prepare for the Supervisory Board's financial
statements meeting on 5 April 2017.
On 5 April 2017, the committee made its recommendation to the plenum regarding the selection of the auditor for the 2018
financial year.
Personnel Committee
The Personnel Committee prepares decisions for the Supervisory Board regarding the appointment and dismissal of
Management Board members. Unlike in the past, the plenum is now assigned responsibility for remuneration decisions, as a
result of changes in the German Act regarding the Appropriateness of Management Board Remuneration (VorstAG), so the
Personnel Committee now only performs preparatory work.
The Audit Committee comprised the following individuals: Jürgen Baumann, John Borer and Dr. Ulrich Granzer. Mr. Baumann is
the current chair.
The committee met on 5 April 2017. The meeting discussed target attainment by the Management Board members during 2016
as well as setting performance targets for 2017, which the plenum adopted correspondingly on 5 April 2017.
R&D & Market Access Committee
The R&D & Market Access Committee deals with key issues related to product development. It also concerns itself with
questions concerning sales and marketing and the refunding of Ameluz® in the target markets, especially the USA. Moreover, it
examines opportunities arising for licence business and related contractual contacts, and consults with the Management
Board concerning specific negotiations. It comprises the following individuals at present: Hansjörg Plaggemars, Dr. Ulrich
Granzer and Kevin Weber. Dr. Granzer is the current chair. The committee met on 5 April 2017 and 12 May 2017.
Nomination Committee
In addition to the chair, the Nomination Committee includes two further Supervisory Board members who are elected to the
committee. The Nomination Committee's task is to propose suitable candidates for the Supervisory Board's election proposals
to the AGM. Here, the Nomination Committee considers the balance and variety of knowledge, skills and experience of all the
Supervisory Board members, and prepares candidate profiles. The Nomination Committee is also to make proposals to the
Supervisory Board concerning, and communicate results from, a regular assessment of the knowledge, capabilities and
experience of both the members individually as well as the Supervisory Board in its entirety. In the course of performing its
duties, the Nomination Committee can draw on company resources it deems appropriate and also on external consultants
within the necessary framework.
Biofrontera AG Annual report 2017
23
The Nomination Committee currently comprises: Dr. Ulrich Granzer, Hansjörg Plaggemars and John Borer. Dr. Granzer is the
chair.
Separate and consolidated financial statements for 2017
The audit firm Warth & Klein Grant Thornton AG Wirtschaftsprüfungsgesellschaft, Düsseldorf, was appointed auditor and Group
auditor for the 2017 financial year by the Annual General Meeting on 24 May 2017 and was subsequently awarded the
corresponding mandate by the Supervisory Board. The auditor's statement of independence was obtained. Warth & Klein Grant
Thornton AG Wirtschaftsprüfungsgesellschaft audited the separate and consolidated financial statements of Biofrontera
Aktiengesellschaft, which the Management Board prepared, and the combined management report for the 2017 financial year,
and issued unqualified audit opinions for them. Furthermore, the auditor noted that the Management Board had established an
appropriate information and monitoring system which was suitable, both in terms of its design and operation, to identify at an
early stage any developments that might jeopardise the company as a going concern.
The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS).
The financial statements documents were discussed in detail by the Audit Committee on 25 April 2018 and at the subsequent
financial statements meeting of the Supervisory Board on the same day – on each occasion in the presence of, and after a
report by, the auditor. All Supervisory Board members received the financial statements documents and the audit reports
drawn up by the auditor in good time before the financial statements meeting, and studied the documents thoroughly. At the
financial statements meeting, the separate and consolidated financial statements were discussed extensively with the
Management Board. The auditor reported on the audit, commented on the main audit topics, and was at the Supervisory
Board's disposal to answer questions and provide information. The auditor also provided information about its findings on
internal controlling and risk management with regard to the accounting process.
All questions posed by the Supervisory Board were answered in full by the Management Board and the auditor.
The Supervisory Board took note of the audit reports, the separate and consolidated financial statements and the combined
management report for the company and the Group.
After discussing the separate financial statements, the consolidated financial statements and the combined management
report for the company and the Group, the Supervisory Board approved the auditor's reports and the results of the audit,
expressed no reservations on the basis of the results of its own audit, and approved both the separate and the consolidated
financial statements.
The annual financial statements of Biofrontera Aktiengesellschaft were adopted as a consequence.
This Supervisory Board report was adopted at the financial statements meeting on 25 April 2018, as well as the corporate
governance declaration.
The Supervisory Board has further informed himself about the results of the audit of the F-1 registration statement prepared
by Warth & Klein Grant Thornton AG for the listing of Biofrontera’s securities on the NASDAQ Capital Market.
Auditor responsible
Since the 2017 financial year, Dr. Thomas Senger has served Biofrontera AG as the company's mandated independent auditor in
the auditing of the financial statements.
Corporate governance and compliance declaration pursuant to Section 161 AktG
Further information on corporate governance is available in the annual report and online at www.biofrontera.com, under
"Investors" / "Corporate Governance", as well as in the corporate governance declaration. Details of the Supervisory Board's
objectives regarding its composition and the status of implementation are also published there.
Conflicts of interest
Dr. Granzer advised the company in 2017 in a capacity extending beyond his Supervisory Board membership. Dr. Granzer
assisted the company with the implementation of the US approval's regulatory processes, in particular during the preparation
of meetings with the FDA and the creation of the registration dossiers. When deciding on the assignment of such tasks, Dr.
Granzer abstained from voting, to avoid any appearance of a conflict of interest. No evidence exists of any conflicts of interest
24
Biofrontera AG Annual report 2017
of which the Supervisory Board must be notified without delay, and of which the Annual General Meeting should be informed,
in relation to members of the Management or Supervisory boards.
Mr. John Borer is a senior staff member, but not a shareholder of The Benchmark Company, LLC. Along with two further
investment banks, The Benchmark Company, LLC, advised Biofrontera AG as part of its US stock market listing. Mr. Borer was
not involved in coordination regarding the question of mandating The Benchmark Company, LLC.
By way of precaution, it should be noted that Deutsche Balaton Aktiengesellschaft, Heidelberg, whose Management Board
included Mr. Hansjörg Plaggemars until 31 May 2017, held a total of 8.28 % of the shares and voting rights in Biofrontera
Aktiengesellschaft in the reporting year on the basis of published voting rights notifications.
Personnel changes on the Supervisory Board
Mr. Mark Reeth relinquished his mandate as a member of the Supervisory Board with effect as of 31 October 2017. The Cologne
District Court appointed Mr. Reinhard Eyring, resident in Kronberg, Taunus, lawyer and partner in the Ashurst LLP legal
practice in Frankfurt am Main, as Mr. Reeth's successor as a member of the company's Supervisory Board pursuant to Section
104 (1) and (2) of the German Stock Corporation Act (AktG).
The Supervisory Board would like to thank the Management Board and the staff of both Biofrontera Aktiengesellschaft and the
Biofrontera Group for their great commitment, dedication and outstanding performance during the past financial year.
Leverkusen, 25 April 2018
Dr. Ulrich Granzer
Chairman of the Supervisory Board
Biofrontera AG Annual report 2017
25
Combined management report for parent company and Group as of
31 December 2017
Basis of the Group
Group structure
This report describes the business performance of the Group (hereinafter also referred to as "Biofrontera" or the "Biofrontera
Group") for the 2017 financial year. The Group consists of the parent company Biofrontera AG and five wholly owned direct
subsidiaries – Biofrontera Bioscience GmbH, Biofrontera Pharma GmbH, Biofrontera Development GmbH, Biofrontera
Neuroscience GmbH and Biofrontera Inc. The registered office of Biofrontera Inc. is located in Wakefield, Massachusetts, USA.
All the other companies are based at the parent company's seat in Leverkusen, Germany.
The listed public stock corporation ("Aktiengesellschaft" in German, abbreviated "AG") performs a holding company function
in the group of companies and secures the necessary financing for the Group. Biofrontera Bioscience GmbH undertakes the
research and development tasks for the Group and is the holder of patents and the approval for Ameluz®. Based on a licence
agreement with Biofrontera Bioscience GmbH, Biofrontera Pharma GmbH (which is also the holder of the CE certificate for BF-
RhodoLED®) is responsible for the manufacturing and also the further licensing and marketing of the Biofrontera Group's
approved products. Biofrontera Inc. is responsible for US marketing of the Biofrontera Group's approved products.
Biofrontera Development GmbH and Biofrontera Neuroscience GmbH were established as additional wholly-owned subsidiaries
of Biofrontera AG in December 2012. The purpose of both companies is to pursue the development of pipeline products that do
not form part of Biofrontera's core business and consequently cannot be sufficiently financed as part of normal business
development. The product BF-derm1, which is intended for the treatment of severe chronic urticaria, is now the responsibility
of Biofrontera Development GmbH, while the product BF-1, which is intended for the prophylactic treatment of migraines, is the
responsibility of Biofrontera Neuroscience GmbH. This outsourcing of development candidates has created a structure through
which the financing of the further development of these two products can be uncoupled from the normal Group financing.
Group strategy
The Biofrontera Group's strategic objective is to position itself globally as a pharmaceuticals company specialising in
photodynamic therapy (PDT). Focus areas of activity include further expanding our products' sales, as well as extending the
approvals of Ameluz® to include further indications to enhance its brand potential.
Biofrontera is the first German start-up company to receive centralised approval for a completely independently developed
medication marketed under the Ameluz® brand. Since its launch in February 2012, Biofrontera has been deploying its own sales
force to market Ameluz® to dermatologists in Germany, as well as in Spain since March 2015. Ameluz® is available in the United
Kingdom, but will not be actively marketed by Biofrontera until 2018 due to the new indications for field cancerisation, basal
cell carcinoma (BCC) and the application of daylight PDT, which by then should have been granted prospectively. Licensing
partners distribute the drug in some other European Union countries, as well as in Israel and Switzerland.
A U.S. subsidiary, Biofrontera Inc., based in Wilmington, Delaware, has been set up to market in the USA. The U.S. subsidiary has
established all functions and meanwhile received all licences required for a sales and marketing company in the
pharmaceuticals and medical products area. Many important aspects such as approvals, production, IT, clinical trials etc.
continue to be covered exclusively by the German companies with worldwide responsibility.
For all of the markets Biofrontera serves, Ameluz® is produced by a contract manufacturer in Switzerland. The PDT lamp is
produced at Biofrontera's headquarters in Leverkusen, Germany.
After regulatory progress in 2016 was dominated by the important approval of Ameluz® by the American regulator, the FDA, in
May 2016, important new indications were subsequently received, especially in Europe. The approval to treat field
cancerisation was granted in July 2016, directly followed by the application for the new indication for basal cell carcinoma. The
European Commission already issued the approval to treat superficial and nodular basal cell carcinomas in January 2017. In
June 2017, Biofrontera applied for an expansion of the approval of Ameluz® to include daylight PDT for actinic keratosis (AC)
and field cancerisation, with the positive vote of the European Medicines Agency being granted in January 2018 and approval
by the European Commission in March 2018.
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Biofrontera AG Annual report 2017
Although the potential of Ameluz® is far from being exhausted (Biofrontera is currently pursuing approval for basal cell
carcinoma in the USA, too, and the efficacy of PDT for some further indications has already been shown), the company has
thereby already succeeded in placing the product outstandingly in the market in both Europe and the USA.
The USA will represent the most important market for Ameluz® long-term. Already half of the sales revenues were generated
there in 2017, and these are set to grow further in 2018. For this reason, it is logical that Biofrontera's focus is increasingly
directed to the USA. This factor also lies behind the decision to list the company in our largest market, thereby strengthening
our credibility to US customers and investors. Especially for this reason, Biofrontera listed the company's shares on the
NASDAQ technology stock exchange in February 2018.
The 2017 business year was again a quite crucial and very successful year for Biofrontera, when it made further important
preparations for a successful future. Given this, and the related challenges for Biofrontera, the Group also strengthened its
personnel base. The number of the company's staff grew from 94 to 123 during the course of 2017, with 48 of these staff
already being employed in the USA.
Products
Ameluz®
Ameluz® 78 mg/g Gel ("Love the Light" – development name: BF-200 ALA) received a first centralised European approval for
the treatment of mild and moderate actinic keratoses on the face and scalp in December 2011. Its significant superiority
compared to its direct competitor product Metvix® was proven for this indication during Phase III development. Actinic
keratoses are superficial forms of skin cancer, and a risk exists that they can spread to deeper layers of skin, and thereby
form squamous cell carcinoma. The combination of Ameluz® with light treatment is an innovative approach that constitutes a
form of photodynamic therapy (PDT). The product information approved by the European Medicines Agency (EMA) explicitly
mentions the significant superiority of Ameluz® for removing all of a patient's keratoses compared to its direct competitor
product.
In the Phase III approval trials, Ameluz® showed excellent healing rates and demonstrated marked and statistically significant
superiority compared to the approved comparator product tested in parallel. In the first Phase III trial in which the drug was
combined with an LED lamp, all keratoses were completely removed in 87% of patients treated with Ameluz®, and as many as
96% were completely eradicated in terms of the number of individual keratosis lesions (all the values stated are ITT – intent to
treat – values). In the second Phase III approval trial, the effectiveness of Ameluz® was tested in comparison with the approved
standard medication. The trial's results provided evidence that Ameluz® was clearly superior to the competitor product
already available in Europe at the time. Based on the average for all lamps, Ameluz® resulted in the complete healing of actinic
keratoses in 78% of patients, whereas the approved competitor product achieved a healing rate of only 64%. With LED lamps,
the healing rates increased to 85% for Ameluz® and 68% for the competitor product. The side effect profile was comparable
for both products.
As approval in the USA requires a combination of both drug and lamp, Biofrontera has developed its own PDT lamp, BF-
RhodoLED®, and has had it CE-certified in the EU, which also required the entire company to be certified pursuant to the ISO
9001 and ISO 13485 standards. In preparation for the approval in the USA, a Phase III trial was performed with a combination of
Ameluz® and BF-RhodoLED®. With this combination, 91% of patients were cleared of all keratoses, and in terms of the number
of individual lesions, 94% were completely removed after treatment (99.1% of mild and 91.7% of moderate lesions).
As it has been widely reported in the specialist literature that PDT enjoys pronounced skin-rejuvenating properties,
particularly in the case of sun-damaged skin, and in this trial – for the first time in a Phase III trial of PDT anywhere in the
world – the drug was applied over large-surface areas (field-directed therapy), the cosmetic result was measured without
taking the disappearance of the keratotic lesions into consideration. All the skin-ageing parameters that were tested improved
significantly as a result of the treatment. An improvement in the UV-induced skin ageing of patients treated with Ameluz®
observed immediately after PDT continued to develop during the follow-up period. Before PDT, only 14.8% of patients had no
impairments to the skin surface. Whereas twelve weeks after the last PDT, 63% of patients were already free of such cosmetic
damage, this percentage rose to 72.2% after a year. Similar results were also observed for pigment disorders. Before PDT,
hyperpigmentation occurred in 59.3% and hypopigmentation in 46.3% of patients, with 48.1% exhibiting irregular
pigmentation. Twelve weeks after Ameluz® PDT, these rates initially fell to 42.6%, 29.6% and 29.6%, and decreased over the
course of a year to 24.1%, 11.1% and 18.5%. These results clearly show that the skin rejuvenation effect achieved using
photodynamic therapy with Ameluz® is long-lasting, and the repair processes triggered by the therapy remain active for at
least 12 months.
Biofrontera AG Annual report 2017
27
Based on the Phase III trial for field therapy, the European Commission, after a positive vote, approved Ameluz® to treat field
cancerisation, and the results relating to an improvement in skin appearance were included in the official product information
in the EU.
Two of the Phase I trials required by the American approval authority, the FDA, were also already completed in 2015. These
clinical trials were initiated with a total of approximately 240 patients or test persons to add the safety data required for
registration in the USA to the European approval package for Ameluz®. Specifically, one of the trials was a sensitisation study,
which determines the potential of Ameluz® to trigger allergies, and the other was a maximal use trial, which tests the
absorption in the blood of the active ingredient in Ameluz®, aminolevulinic acid, and the light-activated metabolite
protoporphyrin IX in cases of treatment with the maximum quantity, in other words, the application of a complete tube onto
the defective skin. No safety concerns were identified in either of the trials.
Based on the aforementioned trials, Biofrontera received approval for Ameluz® in the USA in May 2016. The approved indication
relates to "lesion- and field-directed PDT for mild and moderate actinic keratosis on the face and scalp".
Actinic keratosis is classified as a tumour that requires treatment, and the international treatment guidelines list
photodynamic therapy as the gold standard for the removal of actinic keratoses, particularly for patients with large keratotic
areas ("field cancerisation"). The latest statistics show that actinic keratosis is becoming a widespread disease, with up to
8 million people affected in Germany alone, with a marked uptrend. A total of even as many as 58 million individuals are
estimated to suffer actinic keratosis in the USA. In particular, subclinical and mild actinic keratoses can develop into life-
threatening squamous cell carcinomas, and this occurs to the relevant lesions within two years on average. The fact that
doctors are taking actinic keratosis increasingly seriously as a consequence, is illustrated by the fact that actinic keratosis
has been recognised in Germany as an occupational disease since summer 2013. Since then, occupational insurance
associations have been obligated to cover the treatment costs of patients who have mainly worked outdoors for a long time
and who fulfil certain criteria, for the duration of these patients' lives. The related payment modalities were set in March 2016,
with PDT being included as a treatment method. PDT can be used to treat actinic keratosis in the context of an occupational
disease, and can be billed accordingly.
At present, actinic keratoses are treated applying a wide range of methods. Lesions are treated, sometimes for weeks, with
topical creams, which are often ineffective, or the diseased skin may be removed by mechanical intervention (curettage) or
freezing (cryotherapy), which very often leads to scar formation or permanent pigment disorders, besides offering little
efficacy.
The market for topical creams continues to report constant growth, and medicinally and legally questionable PDT formulations
continue to be utilised in Germany. Because Ameluz® is the market leader among independent dermatologists in Germany in
the PDT proprietary medicinal product market, a significant increase in sales can and must result from the aforementioned
sectors.
The AK-patients treated in the Phase III trial were observed by the trial doctors for a year after the final treatment. Here, the
long-term nature of the pharmaceutical effect of Ameluz® was analysed in terms of effectiveness, safety and cosmetic result.
In the three trials, patients who had received Ameluz® PDT with an LED lamp had recurrence rates between 22% and 40% after
12 months. The recurrence rate is defined in this context as the percentage of patients exhibiting at least one AC again after 12
months. These figures lie considerably below the recurrence rates for all other AK therapies described in the literature.
The overall advantages of Ameluz® in terms of effectiveness, handling, user-friendliness and skin rejuvenation effects, as well
as the high healing and comparatively low recurrence rates of PDT in the treatment of actinic keratoses, lead to the
expectation that this treatment option will attract to an even greater extent the attention of dermatologists over the next few
years. This will be helped by the expansion in 2017 of the range of indications to include basal cell carcinoma, as the vast
majority of PDT treatments are conducted for this indication, particularly in the UK and Spain.
Biofrontera has conducted a Phase III trial for the extension of the European approval to include the BCC indication. BCCs are
the most common invasive tumours that affect humans and account for approximately 50% to 80% of all skin cancers.
Around 30% of all Caucasians develop at least one BCC in their lifetime, and cases are increasing rapidly worldwide due to
increased exposure to UV light. Surgical removal is the most frequent treatment currently used especially in the USA but this
can lead to clearly visible scarring, whereas treatment with PDT, which is an alternative particularly in the treatment of thin
BCCs, gives rise to excellent cosmetic results. In the pivotal Phase III trial, a total of 278 patients were treated. This trial was
under the clinical management of Prof. Colin Morton (UK) and Prof. Markus Szeimies (Germany) and was conducted at 27
clinical trial centres in England and Germany. In the clinical trial, the effectiveness and safety of Ameluz® were compared with
that of Metvix®, a drug already approved in the EU for the treatment of BCC. Non-aggressive (superficial and nodular) BCCs
28
Biofrontera AG Annual report 2017
with a thickness of up to 2 mm were included in the trial. The trials results have been available since January 2016 and confirm
the company's positive expectations. Ameluz® achieved the complete elimination of all BCCs from the patient in 93.4% of
cases compared to 91.8% with Metvix®. Greater differences occurred with thicker BCCs. For example, 89.3% of nodular
carcinomas were removed entirely with Ameluz®, and just 78.6% with Metvix®. Recurrence rates after 12 months were higher
for Metvix® than for Ameluz®.
Based on the results of this Phase III trial, Biofrontera applied to the European regulator in July 2016 for approval to treat BCC
with Ameluz®, which the European Commission issued in January 2017.
Between June and September 2016, patients were treated as part of a Phase III clinical trial, in which the efficacy and safety of
Ameluz® in combination with PDT in daylight were measured in comparison with Metvix® in treating mild and moderate actinic
keratosis. This comparative, randomised, observer-blind multicentre trial was conducted at seven trial centres in Spain and
Germany with a total of 52 patients. The clinical endpoint of the trial was the total cure rate for all lesions on each treatment
side 12 weeks after treatment. The secondary clinical endpoint comprised determining medication safety and additional
efficacy parameters. The trial was jointly directed by Dr. Susana Puig, Research Director at the August Pi I Sunyer Biomedical
Research Institute and Professor at the University of Barcelona as the main research director in Spain, and Prof. Thomas
Dirschka, founder of the private dermatology practice CentroDerm as the main research director in Germany. Each patient had
between 3 and 9 mild to moderate actinic keratoses (Olsen grades 1 and 2) on each of two comparable treatment areas on the
face and/or scalp. The selection of medication for the respective treatment side was random. The last patient completed the
clinical phase of the trial in December 2016. The trial's results proved the non-inferiority (relevant from a regulatory
standpoint) of Ameluz® compared with Metvix®. All relevant secondary endpoints produced comparable or higher healing rates
for Ameluz® in relation to Metvix®.
While the difference in the healing rates between the two products was quite slight after three months, statistically significant
differences were evident during the one-year subsequent observation period. Three months after one-off treatment with
daylight PDT, 79.8% of Ameluz® and 76.5% of Metvix® patients were fully clinically healed. One year after treatment, however,
19.9% of lesions were recurring after Ameluz® PDT and 31.6% after Metvix® PDT (p<0.01). The recurrence rates for lesions that
are more difficult to treat, such as moderately thick lesions (Olsen II) or lesions on the scalp, amounted to 20.5% and 23.4%
respectively for Ameluz® and 34.3% and 43.7% respectively for Metvix® (p<0.01).
In 2017, Biofrontera applied for the approval of daylight PDT with Ameluz®, and in March 2018 it received approval from the
European Commission to treat actinic keratosis and field cancerisation with Daylight PDT. Daylight PDT comprises a favourable
and pain-free alternative to PDT treatment with a special lamp. Here, the topically applied medication is activated by natural or
artificial daylight. As treatment in Daylight PDT does not need to be administered at a physician's practice, it competes directly
with the self-applied topical medications that are much more widely disseminated in Europe, and is consequently also
reimbursed by statutory healthcare funds in Germany. It is anticipated that the significantly superior efficacy one year after
PET compared with Metvix® will make market penetration by Ameluz® easier.
BF-RhodoLED®
BF-RhodoLED® is a lamp designed for PDT, and utilises LEDs emitting red light at a wavelength of approximately 635 nm. Light
at this wavelength, which is ideally suited for PDT illumination with drugs containing ALA or methyl ALA, is red, but still below
the warming infrared range. The BF-RhodoLED® lamp combines a controlled and consistent emission of light at the required
wavelength with simplicity, user-friendliness and energy efficiency. In the European version, light energy and fan power
settings can be adjusted during a PDT treatment session to reduce any pain caused by the treatment. No other lamp on the
market offers comparable power and flexibility. BF-RhodoLED® has been CE-certified since November 2012 and is distributed
throughout the EU. For marketing in the USA, the final assembly of the PDT lamp was relocated to Biofrontera's premises, and
Biofrontera itself has been performing final assembly since July 2016. From the FDA's perspective, Biofrontera is consequently
the manufacturer responsible for the product.
Belixos®
Belixos® is a modern active cosmetic product specially developed for sensitive and irritated skin. The biocolloid technology
patented by Biofrontera, which optimises epidermal penetration, makes the products unique: pure plant biocolloids are
combined with medicinal plant extracts to form an extraordinary combination of active substances with proven depth
penetration, drawing on the best of both nature and science.
The belixos® Creme rapidly and reliably soothes itching and is the ideal basic treatment for inflamed, reddened and flaky skin.
It soothes the skin, reduces scratching and allows the skin to regenerate naturally. belixos® Creme, which has been available
since 2009, has consequently proved particularly useful as an effective basic treatment for atopic dermatitis and psoriasis.
Biofrontera AG Annual report 2017
29
Other specialist regenerative cosmetic products for skin problems have been developed over the past two years. The typical
deep yellow colour is the unmistakeable mark of quality. This is derived from the traditional medicinal plant extract obtained
from the roots of Mahonia aquifolium. Belixos® products use only natural active substance extracts with clinically proven
effects.
belixos® Liquid is an innovative scalp tonic with a practical pipette for dosing, which soothes scalps irritated by psoriasis or
eczema, for example, and restores their balance. For itchy and flaky scalps, a combination of anti-inflammatory Mahonia,
moisturising oats, irritation-relieving panthenol and a special zinc PCA complex is used.
belixos® Gel is specially cosmetically formulated for skin that is inflamed, reddened and prone to skin blemishes, providing an
effective treatment for rosacea and acne. The gel texture is formulated to be extra grease-free, has a complex of active
substances consisting of anti-inflammatory mahonia and Sepicontrol A5, is antibacterial, removes hardened skin and regulates
sebum.
belixos® Protect is a modern daily care product specially developed for sun-damaged skin. With its skin-regenerative
properties deriving from highly concentrated niacinamide, it leaves skin smooth and helps repair damaged skin. It also
contains UVA and UVB broad spectrum protection with SPF15 to protect against further light-induced skin ageing and
hyperpigmentation.
!
Belixos® products are manufactured according to stringent quality and environmental regulations. They are free of paraffins,
parabens, ethyl alcohol, animal products, dyes and fragrances that may have negative dermatological effects. Its skin
compatibility was certified as "very good" by the independent Dermatest Institute. Belixos® is obtainable in selected
pharmacies, dermatological institutes and from the online retailer Amazon.
Sales and markets
With its central European approval, Ameluz® can be sold and distributed in all EU countries as well as in Norway, Iceland and
Liechtenstein. In many European countries, however, price and reimbursement status must be defined before market launch,
which can be a very protracted process. To date in Europe, the company has commenced sales and distribution in Germany,
the UK, Spain, Austria, the Netherlands, Luxembourg, Belgium, Denmark, Sweden, Norway, Switzerland and Slovenia. The drug is
available in these countries at a pharmacy retail price of between just under EUR 200 and approximately EUR 270 per 2g tube.
In Benelux and Slovenia, Biofrontera cancelled its contracts with its sales partners in 2017, as the local sales revenues
generated by these partners failed to justify our regulatory expense.
Ameluz® is marketed in Germany as well as in Spain by Biofrontera's own field sales force, and in other European countries
through marketing partners. In the UK, Biofrontera already terminated its contract with a local marketing company on 31 July
2015. As basal cell carcinoma and daylight PDT have now been approved, Biofrontera will become active again in this market
with its own sales team. By way of preparation, the company has applied for reimbursement for Ameluz® in its basal cell
carcinoma indication. Both the Scottish Medicine Consortium (SMC) as well as the corresponding regulator in Wales have
recognised the reimbursement of Ameluz®. The SMC has recommended prescribing Ameluz® to treat superficial or nodular
basal cell carcinomas (BCC) within the UK National Health Service (NHS). The Scottish regulator's decision will be accepted
within the UK if no separate process is conducted there.
In Germany, the market share of Ameluz® in the segment of PDT medications made available by public-sector German
pharmacies has long been constant at above 70%, although over the past months of 2016 has receded by a slight proportion
due to the launch of a daylight PDT product identical to Metvix®. Although the market share of Ameluz® in conventional PDT
rose again in 2017, the PDT market reported strong growth overall especially thanks to daylight PDT, for which Ameluz® was
not yet approved during this year. It is expected that daylight PDT will gain market shares in the future that to date have been
reserved for self-applied topical creams.
Approval for BCC is a prerequisite for the widespread application of Ameluz® in hospitals, as BCC is mainly treated there,
whereas this is only relatively rarely the case for actinic keratosis. This indication plays an essential role in the breakthrough
of Ameluz®, especially in European countries outside Germany where dermatologists work mainly in hospitals. BCCs are the
most common invasive tumours that affect humans and account for 50% to 80% of all invasive white skin cancers. Around
30% of all Caucasians develop at least one BCC in their lifetime, and this is a rapidly growing trend worldwide due to increased
exposure to UV light. BCCs are mostly removed surgically, although this can result in unattractive scar formation. Treatment
with PDT is a highly effective alternative which also leads to excellent cosmetic results. According to a market study published
in 2014 by Technavio, the international market for actinic keratosis medications is expected to grow by approximately 8%
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Biofrontera AG Annual report 2017
annually, from approximately USD 546 million to USD 942 million by 2020. However, the market for BCC medications is
expected to grow to a multiple of its current size, from approximately USD 236 million today to nearly USD 5 billion over the
same period, because the availability of new drugs (Ameluz® is also mentioned in this context) will mean that fewer and fewer
patients undergo operations.
Sales in Spain were initially handled by Allergan SA, but since March 2015 Biofrontera has marketed its products itself in Spain
through its own branch operation, Biofrontera Pharma GmbH sucursal en España. In Denmark, Sweden and Norway, Ameluz® is
marketed by Desitin Arzneimittel GmbH, and in Austria by Pelpharma Handels GmbH. The contracts with PHA Farmed
Consultancy s.p. for Slovenia and with Bipharma N.V. for the Benelux countries were terminated by Biofrontera during the
course of 2017, as the revenues achieved by the sales partners in their respective regions were too low to justify the additional
regulatory expense incurred. Louis Widmer SA has been granted the Ameluz® distribution licence for Switzerland and
Liechtenstein, and the Ameluz® distribution licence for Israel has been granted to Perrigo Israel Agencies Ltd. It was necessary
to undergo an independent approval process in these countries, which was conducted by the aforementioned distribution
partners in collaboration with Biofrontera. In Switzerland, both the approval and the reimbursement approval were issued in
December 2015. Market launch occurred at the start of 2016. In Israel, the Israeli health authorities issued approval for Ameluz®
in April 2016. Reimbursement by healthcare insurance funds was approved for immunosuppressed patients. Marketing in Israel
started in summer 2017, with very modest sales revenues having been generated to date.
The contracts with the sales partners were concluded in such a way that Biofrontera has received no downpayment, or only a
modest downpayment, and the regional partners purchase Ameluz® from Biofrontera at a price that is linked to their own sales
price. Biofrontera's share of the sales price varies considerably depending on the market conditions in each country, ranging
from 35% to 60% of net sales.
Biofrontera launched Ameluz® in the US market in October 2016. Marketing in the USA is being realised through the company's
own subsidiary, Biofrontera Inc., which was founded for this purpose in March 2015. Very qualified and experienced local staff
were hired for important key positions in the USA, with hiring continuing. Some of the staff have switched from direct
competitors to join Biofrontera. Although the medication market for AK as well as the reimbursement systems in US
healthcare were intensively analysed in advance with the help of a market access consulting company and an advisory group,
the lack of a specific reimbursement code (J-Code) for Ameluz® initially proved to be a major disadvantage. Until an individual
reimbursement code was issued – for which Biofrontera applied in January 2017 and which came into force in January 2018 –
Ameluz® had to be reimbursed in the USA through a so-called Miscellaneous Code. Although this is a normal procedure for any
newly launched medication due to the prescribed application periods, this still made it difficult to process the reimbursement
at physicians' practices, and consequently continued to hamper sales revenue growth in 2017. Especially as Ameluz® – as a so-
called "buy-and-bill" medication – is purchased directly by the physician, the reimbursement risk as well as the additional work
entailed in the reimbursement without a special reimbursement code remains with the physician. This reduces the willingness
to stock up with larger volumes of the new medication.
The medication and the lamp have been approved as a combination product in the USA. For this reason, their market
penetration speeds mutually affect each other. The relevance of lamp sales for Biofrontera sales revenues is less than
originally assumed, however, as physicians in the U.S. are very willing to also utilise Ameluz® off-label with other lamps.
Physicians are permitted to utilise medications "off-label" outside the approval, although the company is not permitted to
market on such a basis.
Further development projects
In July 2016, the company agreed a research partnership with Maruho Co., Ltd, ("Maruho"), a Japanese company specialising in
dermatology, as part of which possibilities to jointly develop pharmaceutical products based on Biofrontera's proprietary
nanoemulsion technology are to be researched. Ameluz® was developed with a similar strategy. The nanoemulsion technology
stabilised the active substance and improved skin penetration, leading to greater clinical efficacy. According to the
agreement, Maruho will bear all costs connected with the exploratory research for new product candidates. The plan is that
the parties should be joint owners of the intellectual property they develop. In terms of marketing, Biofrontera is to receive
the license in Europe. As the agreement is limited to Europe, further regional rights have not yet been discussed or
determined. The agreement was initially limited to 31 December 2017 and was extended until 31 March 2018. The parties are
currently discussing a potential further extension or expansion.
Biofrontera AG Annual report 2017
31
Patent and trademark developments since 31 December 2016
Nanoemulsion
The "nanoemulsion" patent was issued in September in Hong Kong.
A further office action has been issued for the share of the patent in the USA.
The patent in Argentina is no longer being pursued.
Migraine
The patent "Antimigraine compounds and their use" (US Patent Application No. 14/765,176) was issued in the USA (US
9,708,304).
A further office action was issued for the European part of the patent, which will be responded to by the deadline.
Steering system
The Management Board manages Biofrontera AG, and is responsible for, and supervises, the operating business. The
Management Board receives and reviews internal management reports to this end.
Sales revenue forms the central management metric in the context of such reporting, which is reported by product and region.
In addition, liquidity trends are utilised as an important key indicator and management metric. Liquidity trends are monitored
daily. Liquidity is defined as the sum of the cash position and bank deposits. Furthermore, research & development costs as
well as sales & marketing costs and equity form important management metrics.
Key financial performance indicators
Sales revenue
Internal steering focuses on sales revenue trends. Consolidated sales revenue comprises sales to wholesalers, physicians and
clinics, as well as sales to our licensing partners.
As medications in Germany are not sold directly to patients, the company also receives data about pharmacies' sales, reported
by regional segments, enabling an analysis of prescription trends in Germany.
Liquidity
A daily summary of all funds held on bank accounts is prepared in order to monitor liquidity.
Key non-financial performance indicators
Number of employees
Personnel figures (measured in terms of full-time equivalents/FTEs) represent a further relevant management metric. In the
recruitment of personnel, the company focuses primarily on staff possessing the requisite qualifications and expertise to
reach the objectives that are set in the operative and administrative areas. Personnel costs are always monitored on the basis
of normal salary levels for the sector. This steering system is applied on a consolidated basis, so the entire Group is managed
according to standard systems.
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Biofrontera AG Annual report 2017
Economic and business report
for the 2017 financial year for the Biofrontera Group:
•
•
•
•
•
Sales revenue: EUR 12.0 million (prior-year period: EUR 6.1 million), equivalent to year-on-year sales revenue growth
of 96%. Significant sales revenue growth in the USA
Operating result: EUR -13.9 million (prior-year period: EUR -11.8 million)
Consolidated result before tax: EUR -16.1 million (prior-year period: EUR -10.6 million)
Liquid assets as of 31 December: EUR 11.1 million (previous year EUR 15.1 million)
Undiluted earnings per share amounted to EUR -0.42 (previous year EUR -0.36)
Biofrontera Group financial position and performance
Sales revenue
The Biofrontera Group generated EUR 12,025 thousand of sales revenue in the 2017 financial year (previous year
EUR 6,130 thousand), representing 96% year-on-year growth. Revenues from the sale of products in Germany increased by 6%
to EUR 2,673 thousand (previous year EUR 2,515 thousand), while revenues generated in European countries outside Germany
grew by 30% to EUR 1,616 thousand (previous year EUR 1,247 thousand). In the USA, revenues from the sale of products
registered significant growth of 448% to EUR 6,312 thousand (previous year EUR 1,153 thousand). After all necessary individual
state licenses to distribute pharmaceuticals and medical products in the USA had been acquired, Biofrontera placed product
sales under its own management at the start of the second half of 2017. Sales in the USA had previously been processed
through a wholesaler as part of a title model. The development partnership with Maruho generated revenue of
EUR 1,423 thousand in the 2017 financial year (previous year EUR 1,177 thousand).
In its separate financial statements for the 2017 financial year prepared according to the accounting regulations of the
German Commercial Code (HGB), Biofrontera AG reported sales revenue of EUR 2,598 thousand (previous year
EUR 2,038 thousand).
Cost of sales, gross profit
The gross profit on sales improved from EUR 4,478 thousand to EUR 10,310 thousand. The gross margin increased to 86%,
compared to 73% in the same period in the previous year. The year-on-year gross margin improvement mainly reflects the
higher revenue portion from sales markets in the USA and Europe served directly by Biofrontera, where all of the margin
generated remains with Biofrontera, by contrast with sales through licence partners.
Moreover, start-up costs to fulfil FDA requirements connected with the approval issued in 2016 were incurred in 2016, which
were no longer incurred in 2017. Accordingly, the cost of sales rose only slightly to EUR 1.715 thousand, thereby reaching 14%
of sales revenue (previous year EUR 1,652 thousand, or 27%).
Development costs
Research and development costs amounted to EUR 4,225 thousand
in the 2017 financial year, compared with
EUR 4,640 thousand in the prior-year period. This year-on-year reduction is chiefly due to a decrease in FDA fees to maintain
the US approval in the 2017 financial year.
Sales and marketing costs
Sales and marketing costs of EUR 16,922 thousand reflect a 93% increase compared with the previous year's period
(EUR 8,764 thousand). The sales and marketing costs include the costs of our own field sales team in Germany, Spain and in
the US, as well as marketing expenses. This increase is mainly attributable to expenses for the further establishment and
expansion of sales structures, and the marked rise in the number of staff in the USA.
Administrative costs
Administrative costs increased by EUR 244 thousand year-on-year to EUR 3,097 thousand in the 2017 financial year (previous
year EUR 2,853 thousand). Financing costs shown under administrative costs include primarily consultancy and placement fees
in connection with support for the search for investors. The rise in administrative costs is attributable not least to a greater
requirement for legal advice due to lawsuits brought by a shareholder.
Biofrontera AG Annual report 2017
33
Financial result
The financial result chiefly comprises the interest expenses on the 2009/2017 warrant bond calculated applying the effective
interest method (EUR 331 thousand; previous year EUR 463 thousand), the 2016/2021 and 2017/2011 convertible bonds placed in
2016 and 2017 (EUR 189 thousand; previous year EUR 13 thousand) as well as the EIB loan made available in July 2017
(EUR 516 thousand; previous year EUR 0 thousand). The aforementioned interest expenses on the warrant bond 2009/2017 of
EUR 331 thousand (previous year EUR 463 thousand) include the opposite effect of EUR 146 thousand (previous year
EUR 204 thousand) from the repurchase of part of the warrant bond on 28 February 2014. In August 2017, the warrant bond was
repaid early at par plus accrued interest.
Other income and expenses
After having generated other income of EUR 2,451 thousand in the 2016 financial year, mainly due to the repayment of the FDA
submission fee of EUR 2,140 thousand, other income in the 2017 financial year amounted to EUR 260 thousand. Other expenses
rose by EUR 1,285 thousand to EUR 1,333 thousand in the 2017 financial year. This change reflects chiefly currency exchange
rate losses on intragroup US dollar loans made by Biofrontera AG to Biofrontera Inc.
Investments
The capital expenditure in the reporting period arises predominantly from the purchase of software (EUR 15 thousand;
previous year EUR 25 thousand), right-of-use assets connected with the prototype of the PDT lamp (EUR 99 thousand; previous
year EUR 36 thousand), as well as further laboratory devices (EUR 194 thousand; previous year EUR 290 thousand) and other
fixtures and equipment (EUR 83 thousand; previous year EUR 117 thousand). The asset disposals with costs totalling
EUR 16 thousand (previous year EUR 65 thousand) resulted primarily from sales of the rental lamps in an amount of
EUR 16 thousand (previous year EUR 52 thousand).
Inventories
Inventories amount to EUR 3,733 thousand (previous year EUR 3,646 thousand). These included: finished products (Ameluz®)
amounting to EUR 598 thousand, BF-RhodoLED® lamps recorded in the inventories amounting to EUR 1,011 thousand, Belixos®
products amounting to EUR 90 thousand, merchandise in the amount of EUR 32 thousand as well as work in progress, and raw
materials and supplies reported at EUR 2,002 thousand.
Receivables
Trade receivables reduced slightly, by EUR 63 thousand, from EUR 1,624 thousand as of 31 December 2016 to EUR 1,561 thousand
in the 2017 financial year.
Share capital
The fully paid in share capital of the parent company, Biofrontera AG, amounted to EUR 38,416,828.00 on 31 December 2017. It
was divided into 38,416,828 registered shares with a nominal value of EUR 1.00 each. On 31 December 2016, the share capital
amounted to EUR 37,722,433.00 and was increased during the course of the 2017 financial year through the exercising of
conversion rights from the 2016/2021 Convertible Bond as well as from the 2017/2022 Convertible Bond by an amount of
EUR 694,395.00, divided into 694,395 registered shares.
In November 2016, 49,990 subordinated convertible 2016/2021 bonds were issued in a total nominal amount of EUR 4,999,000
("convertible bond"). The bonds were offered at a subscription price of 100% of the nominal value per bond in a denomination
of EUR 100.00 per bond, and were fully placed. Shareholders were granted indirect subscription rights to the bonds. The
conversion price amounted initially to EUR 3.00 per share, EUR 4.00 per share from 1 January 2017 and EUR 5.00 per share
from 1 January 2018. Shareholders were granted statutory subscription rights in a 607:1 ratio at an issue price of EUR 100.00
per bond. The total issue volume amounted to EUR 5.0 million. In the 2017 financial year, bonds in a nominal amount of
EUR 106,800 were converted into the company's shares. Pursuant to section 12 of the terms and conditions of the bonds, the
conversion price was reduced in March 2018 by EUR 0.25 to EUR 4.75.
On 23 December 2016, the company's Management Board approved the issue of a further convertible bond, which was placed in
full in an amount of EUR 5.0 million in January 2017. The bond's initial conversion price amounts to EUR 3.50, to EUR 4.00 from
1 April 2017 and to EUR 5.00 from 1 January 2018. The bonds carry 6% p.a. interest on their par value from 1 February 2017.
Unless previously converted, the bond is to be repaid in cash on 1 January 2022. As of 31 December 2017, bonds in a nominal
amount of EUR 2,337,200 were converted into the company's shares. Pursuant to section 11 of the terms and conditions of the
bonds, the conversion price was reduced in March 2018 by EUR 0.25 to EUR 4.75.
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Biofrontera AG Annual report 2017
Group equity and company equity
The Group has equity amounting to EUR 3,381 thousand based on IFRS accounting principles.
Biofrontera AG has equity of EUR 94,491 thousand as of 31 December 2017 based on accounting standards pursuant to the
German Commercial Code (HGB) (previous year EUR 95,566 thousand). Overindebtedness in the meaning of insolvency law
does not exist at the two subsidiaries Biofrontera Bioscience GmbH and Biofrontera Pharma GmbH, as positive going concern
forecasts exist for both companies. The net loss incurred for the year for Biofrontera AG amounts to EUR -3,995 thousand
(previous year EUR -1,962 thousand).
Financial position
The company's capital management body regularly reviews the equity ratio of both the Group and the parent company. The
management's objective is to ensure an appropriate equity base, within the framework of the expectations of the capital
market, and creditworthiness with respect to national and international business partners. The company's Management Board
ensures that all Group companies have sufficient equity and debt funding at their disposal.
Cash flow from operating activities reduced year-on-year, mainly due to the increased net loss, by EUR 2,860 thousand from
EUR -10,259 thousand to EUR -13,119 thousand in 2017.
Cash flow from investing activities increased by EUR 80 thousand two EUR -375 thousand, especially due to a reduction in
capital expenditure, which decreased by EUR 87 thousand to EUR 397 thousand.
flow
from
financing activities reduced by EUR 12,429 thousand year-on-year,
Cash
from EUR 21,881 thousand to
EUR 9,451 thousand. In 2017, cash flow from financing activities especially includes proceeds from drawing down the EIB loan in
an amount of EUR 10 million less transaction costs, proceeds from the issuance of the convertible bond 2017/22 in an amount
of EUR 5.0 million as well as the early repayment of Warrant Bond I including accumulated interest in an amount of
EUR 5.2 million, as well as payments for option bonds held by the company in an amount of EUR 1.6 million. The prior-year
period was characterised by the issuing of New Shares with total issue proceeds of EUR 24.2 million.
The company was able to meet its payment obligations at all times, but might continue to depend on additional financing
measures in the future. To date, Biofrontera has always succeeded in obtaining the necessary financing for its business
operations through injections of equity. The company currently has sufficient liquidity available thanks to the first tranche of
EUR 10 million of the European Investment Bank (EIB) loan in July 2017, although especially thanks to the proceeds from the
capital increase implemented in February 2018.
On the basis of its previous, invariably successful experience with capital measures, the Management Board assumes that the
liquidity required for business activities can be further ensured. If these valid estimates are, contrary to expectations, not
realised, this could constitute a threat to the company’s continued existence.
Target attainment in 2017
Group sales revenue
Research and development costs
Sales and marketing costs
Administrative costs
Revised
forecast 2017
EUR 12 million
Forecast 2017
EUR 14 -18 million
EUR 6 to 7 million
EUR 18 to 21 million
EUR 3 to 4 million
Consolidated result before tax
EUR -14 to -17 million
EUR -18 million
Target attainment
as of 31/12/2017
EUR 12.0 million
EUR 4.2 million
EUR 16.9 million
EUR 3.1 million
EUR -16.1 million
In 2017, Biofrontera achieved its financial targets based on the forecast it revised in November 2017. The company failed to
fully achieve its originally expected sales revenue reflecting start-up difficulties in ramping up sales in the USA due to the lack
of a J-Code. Research and development costs fell short of their budgeted amount, as costs for the BCC trial will not be
incurred until 2018. Sales and marketing costs were also below budget, as most of the new hires in the USA occurred
somewhat later during the year.
The consolidated result before tax of EUR -16.1 million lies within the range of the original expectations, although was slightly
more positive than in the revised forecast, as some costs connected with clinical trials as well as legal advisory costs proved
somewhat lower than planned.
Biofrontera AG Annual report 2017
35
Personal matters
Management Board
The Management Board consists of Prof. Dr. Hermann Lübbert (Chief Executive Officer), Mr. Thomas Schaffer (Chief Financial
Officer) and Mr. Christoph Dünwald (Chief Commercial Officer).
The remuneration of the Management Board members consists of a fixed salary that is paid in twelve equal monthly
instalments. In addition, an annual, performance-based bonus exists for the Management Board members, as well as a long-
term remuneration component consisting of participation in the company's share option programme. Company cars are also
available to the directors for business and private use.
Staff
As of 31 December 2017, 123 employees worked for the Biofrontera Group (previous year 94). Of these, 23 were employed at
Biofrontera AG (previous year 20), 13 at Biofrontera Bioscience GmbH (previous year 9) and 39 at Biofrontera Pharma GmbH
including the Spanish office (previous year 41). No staff are employed at Biofrontera Development GmbH or Biofrontera
Neuroscience GmbH. Biofrontera Inc. employed a total of 48 staff (previous year 24).
Employee stock option programme 2010
In order not to be at a disadvantage in the future in recruiting and retaining staff, the company must continue to be able to
offer share and/or securities-based remuneration. Moreover,
in accordance with the German Act regarding the
Appropriateness of Management Board Remuneration (VorstAG), such schemes must be linked to the company's long-term
performance and profitability. The Annual General Meeting held on 2 July 2010 granted the Management and Supervisory
boards the authorisation to issue, up to 839,500 options to directors and employees over the next 5 years. Further related
provisions were specified in the invitation to the Annual General Meeting and are available on the company's website. The
issue of the first tranche of these options is described in the consolidated financial statements for the financial year ending 31
December 2010. The second tranche occurred in calendar 2011 and is described in the consolidated financial statements for the
financial year ending 31 December 2011. In the first half of 2012, a further 116,500 options were issued at an exercise price of
EUR 3.30 and EUR 4.09 respectively each (third tranche). On 2 September 2013, 179,500 options were issued with an exercise
price of EUR 3.373 each (fourth tranche). In a further tranche (fifth tranche) on 2 April 2014, a total of 159,350 options were
issued at an exercise price of EUR 3.43 each.
The vesting period for the first tranche ran until 24 November 2014, and the vesting period for the second tranche ran until 30
September 2015 or 07 October 2015 respectively. The option rights from the first tranche expired on 24 November 2016 and
from the second tranche the option rights expired on 30 September or 07 October 2017 respectively, as the exercise terms
were not met. The vesting period for the third tranche ran until 23 March 2016 or 11 May 2016 respectively, and the vesting
period for the fourth tranche ended on 02 September 2017. No options had been exercised from these tranches up to the
reporting date. No options from the fifth tranche could be exercised due to the vesting period. A total of 142,250 options were
forfeited by employees leaving the company.
The cost expensed in the reporting period amounted to EUR 42 thousand (previous year EUR 62 thousand).
The authorisation to issue options under the 2010 share option programme ended on 1 July 2015. By resolution of the Annual
General Meeting on 28 August 2015, the Conditional Capital III provided to service options under this programme was reduced
to EUR 542,400.00.
In March 2018, the exercise prices were adjusted pursuant to section 11 of the options' terms and conditions. The exercise price
for the third tranche now amounts to EUR 3.02 and EUR 3.81 respectively, for the fourth tranche to EUR 3.093 and for the fifth
tranche to EUR 3.15.
Employee stock option programme 2015
After the end of the 2010 employee share option programme, the company's Annual General Meeting on 28 August 2015
authorised the Management and Supervisory boards until 27 August 2020 to issue to Management Board members and
employees up to 1,814,984 subscription rights to up to EUR 1,814,984 of the company's ordinary registered shares according to
the more detailed specifics of the authorisation resolutions. Further related provisions were specified in the invitation to the
2015 Annual General Meeting and are available on the company's website (2015 option programme).
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Biofrontera AG Annual report 2017
On 18 April 2016, a total of 425,000 options were issued for the first time from the potential 1,814,984 share options (exercise
price: EUR 2.49 per option). On 1 December 2016, a further 130,500 options (second tranche) were issued with an exercise price
of EUR 3.28 each. On 28 April 2017, a further 329,000 options (third tranche) were issued at an exercise price of EUR 4.02 each
and on 28 November 2017 a further 300,500 options (fourth tranche) were issued at an exercise price of EUR 3.33 each. A total
of 41,500 options were forfeited by employees leaving the company. Due to the vesting period, no options have yet been
exercised or forfeited. As a consequence, 629,983 options are still outstanding on 31 December 2017. The cost expensed in the
reporting period amounted to EUR 139 thousand (prior-year period: EUR 49 thousand).
In March 2018, the exercise prices were adjusted pursuant to section 13 of the options' terms and conditions. The exercise
price for the first tranche now amounts to EUR 2.25, EUR 3.04 for the second tranche, EUR 3.78 for the third tranche and
EUR 3.09 for the fourth tranche.
Supervisory Board
As a result of the resolution passed by the Annual General Meeting held on 31 May 2016, the Supervisory Board has consisted of
the following members since 31 May 2016:
Dr. Ulrich Granzer
Jürgen Baumann
John Borer
Hansjörg Plaggemars
Kevin Weber
Supervisory Board Chairman, Owner and Managing Director of Ulrich Granzer
Regulatory Consulting & Services, resident in Munich, Germany
Deputy Supervisory Board Chairman, management consultant, resident in Monheim
Head of Investment Banking at The Benchmark Company LLC, New York, USA, resident
in Jersey City, NJ, USA
Management consultant, Value Consult, resident in Stuttgart
Principal of Skysis, LLC., Scottsdale, AZ, USA, resident in Scottsdale, AZ, USA
Mark Reeth relinquished his Supervisory Board mandate as of 31 October 2017.
Mark Reeth
Attorney, resident in Frederick, MD, USA
Based on a resolution of the Cologne District Court of 1 February 2018, the Supervisory Board includes the following member as
a representative of the shareholders:
Reinhard Eyring
Partner of Ashurst LLP law firm, Frankfurt/Main, resident in Kronberg/Taunus.
The Supervisory Board members held the following other supervisory board positions and positions on comparable domestic
and foreign boards during the reporting period:
Hansjörg Plaggemars
OOC CTV Verwaltungs GmbH, Managing Director
Stellar Diamonds plc, non-executive Director
Eurohaus Frankfurt AG, Management Board member
Youbisheng Green Paper AG, Supervisory Board Chairman
Ming Le Sports AG, Supervisory Board Chairman
Nordic SSW 1000 Verwaltungs AG, Supervisory Board Chairman
Balaton Agro Invest AG, Management Board member
Carus AG, Supervisory Board member
Deutsche Balaton Immobilien I AG, Supervisory Board member
Alpha Cleantec AG, Management Board member
Delphi Unternehmensberatung AG, Management Board member
Strawtec Group AG, Management Board member
S&O Agrar AG, Management Board member
Reinhard Eyring
DESTAG Deutsche Steinindustrie AG, Bensheim, Supervisory Board Chairman
Vanguard AG, Berlin, Supervisory Board Chairman
In the 2017 financial year, compensation paid to Supervisory Board members amounted to EUR 110 thousand (previous year
EUR 113 thousand). The compensation transactions are classified as short-term employee benefits as per IAS 24.17(a).
During the reporting period, the company availed itself of additional advisory services from Supervisory Board member Dr.
Ulrich Granzer. Dr. Granzer assisted the company with key issues relating to the preparation of the applications for approval
Biofrontera AG Annual report 2017
37
submitted to the supervisory authorities in Europe and the USA. During the course of the 2017 financial year, advisory services
amounting to EUR 34 thousand (previous year EUR 10 thousand) were provided by Granzer Regulatory Consulting & Services.
Accounts payable to Granzer Regulatory Consulting & Services amounted to EUR 0 thousand on 31 December 2017 (31 December
2016: EUR 7 thousand). The amounts stated here do not include statutory VAT at the current rate of 19%. The underlying
consultancy contract was approved in consideration of the statutory provisions.
38
Biofrontera AG Annual report 2017
Risk, opportunity and forecast report
Risk and opportunity report
Risk management system
Biofrontera's management deploys a comprehensive risk management system to counter risks within the Group.
The risk and opportunity management system for the Biofrontera Group applies equally to Biofrontera AG. By virtue of its
holding company function, Biofrontera AG controls all the legally independent entities within the Biofrontera Group. For this
reason, risks and opportunities must be assessed on a standard basis across the entire Group.
The primary objective of the Biofrontera Group is to achieve sustainable and long-term growth while increasing the company's
value continuously. Risk management plays a major role in achieving this objective. Risk management at Biofrontera involves
the identification of risks that could lead to lasting or significant harm to the company's financial position and performance,
as well as the responsible analysis and monitoring of such risks and initiation of suitable countermeasures. This requires the
establishment of guidelines, organisational structures and measuring and monitoring processes that are specifically geared to
the Biofrontera Group's activities.
Correspondingly detailed risk prevention measures are essential to fully exploit the opportunities arising from Biofrontera's
business activities. In the 2017 financial year, Biofrontera's existing risk management structures were further developed to
reflect the quality management system required for pharmaceutical manufacturers and businesses as well as medical device
manufacturers. This system incorporates sales and marketing activities, as well as the international responsibilities of licence
holders with regard to the manufacture and sale of drugs, medical devices and cosmetics.
The management of opportunities and risks at Biofrontera
The Biofrontera Group's risk management system is integrated into the Group's corporate processes and decision-making
processes, thereby forming an integral element of planning and controlling processes Group-wide. Risk management and
control mechanisms are coordinated with each other. These ensure that risks of relevance the company are identified and
evaluated at an early stage. They also serve to rapidly seize potential opportunities.
Risk management at Biofrontera is organised both locally and centrally. Opportunities and risks are regularly identified,
evaluated and analysed at all hierarchical levels. All Group management staff are involved in Group-wide risk policy and
associated reporting. This includes the Management Board, the Group companies' managing directors, and process and project
managers.
The Risk Management Team headed by the Chief Executive Officer is responsible for the centrally organised risk management
system. It coordinates the individual management bodies and ensures they receive their information continuously and
promptly. The Risk Management Team is also responsible for the continuous monitoring of risk profiles, for initiating risk
prevention measures, and for corresponding monitoring instruments. The Biofrontera Group management holds regular
meetings at which the Group's central and operational departments exchange information relevant to risk management at all
levels.
The Risk Management Officer, who is also a member of the Risk Management Team, is the Group-wide contact individual. If
unexpected risks arise, he/she immediately initiates the necessary steps to counteract them.
The Risk Manager is responsible for developing the risk management system, and for ensuring it is properly documented in the
risk manual. Furthermore, the Risk Manager sets uniform standards and ensures that similar types of risk management
processes are implemented throughout the Biofrontera Group. Regular analysis of key business performance figures helps to
ensure that any possible discrepancies from expected performance levels can be identified and assessed at an early stage,
allowing necessary countermeasures to be adopted in good time. Overall monitoring is conducted in relation to the sales
activities for Ameluz®, including the PDT lamp, and Belixos®. Risk planning and identification in this area are performed in
collaboration with the relevant unit managers.
Risks and opportunities relating to future business development and growth
The Biofrontera Group is endeavouring to achieve its strategic objectives, especially the establishment of its own sales
operation in some countries, the identification of sales partners, and approval of development projects. It has already
obtained not only European but also especially US approval for Ameluz®, giving it the opportunity to grow rapidly and become
very profitable.
Biofrontera AG Annual report 2017
39
In addition to general risks, such as market developments and the competitive situation, the company is also exposed to
specific risks associated with the pharmaceutical and biotechnology sectors.
It is possible that the product Ameluz® will not prove to be successful in competition with other treatment options for actinic
keratosis or BCC. Despite the greater effectiveness of Ameluz®, doctors may resort to other products more often than
expected because of the higher treatment costs associated with PDT, for which they frequently do not obtain any, or only
insufficient, remuneration from the healthcare systems.
Biofrontera is required to make recourse to suppliers to manufacture its products, and changing such suppliers would entail
protracted regulatory approval processes. Problems at, or with, such suppliers can place a burden on, or incapacitate, the
company's ability to deliver its products and services, which would lead to a shortfall in revenues. Biofrontera endeavours to
minimise such dependencies by establishing alternative suppliers.
No guarantee exists that a product will be launched on the market at the end of a project's development period – which is 6 to
10 years on average. A lack of success in the individual development steps could incur additional costs, cause project delays or
even bring project development to a complete halt. It is possible that none, or only some, of the funds invested will be
recouped in sales revenue.
The company endeavours to counterbalance such risks, to some extent by selecting projects with relatively attractive risk
profiles, by setting up a project control and reporting system, and by drawing on the outstanding professional expertise of the
Supervisory Board members. The project control system represents the entire development process in detail right up to
approval, making it possible to analyse the effects that even small changes or delays – with clinical trials, for example – can
exert on the development process and on its costs. This makes it possible to precisely observe the development risk
associated with individual projects and take the steps necessary to minimise the development risk.
Due to the existing loss situation and uncertainties relating to future further expansion of business, the company's survival
will continue to depend substantially on further cash injections from shareholders or other capital investors. Investors'
acceptance of this industry and its associated risks as well as the special accounting characteristics and overall fiscal
conditions is of great importance in this context. The company cannot influence such circumstances, although they are of
crucial importance for the company during its development and growth phase and when it is reliant on the financial markets
for injections of the equity its requires.
Patent protection
Patents guarantee the protection of our intellectual property. If our products are marketed successfully, the resultant profits
can be deployed for sustainable ongoing investment in research and development activities. Due to the long intervening
period between the patent application and the launch of a product, Biofrontera generally has only a few years to earn a
suitable income from its intellectual work. This makes it all the more important for the Group to obtain effective and secure
patent protection. The majority of our products are subject to patent protection. If a patent expires, or we cannot defend it
successfully, we generally face the prospect of increased competition and price pressure resulting from the market entry of
generic drug suppliers. Moreover, third-party claims regarding Biofrontera's potential infringement of patents or other
protective rights may hinder or completely prevent the development or manufacturing of certain products, and may obligate
us to pay damages or royalties to third parties. Our patent department regularly reviews the current patent situation, in
cooperation with the relevant operational departments, and monitors possible patent infringement attempts, so that it can
take suitable legal steps if necessary. We consider it unlikely that patent risks will arise.
Products and product stewardship
Biofrontera assesses potential environmental and health risks associated with a product along the entire value chain. This
includes every stage from research and development to disposal, including production, marketing and customer use. Although
comprehensive trials are conducted prior to approval/registration, it is possible that some or all of our products will
subsequently be withdrawn from the market for various reasons, including the emergence of unexpected side effects. Sales
may be stopped voluntarily or as a consequence of legal or official measures. Possible payments of damages associated with
the aforementioned risks could exert a considerable negative effect on the company's financial results. As no previously
unknown drug side effects have appeared, we consider it highly improbable that risks of this kind will arise.
Purchasing
Purchase prices for raw materials may vary considerably, and they cannot always be passed on to our customers through
price adjustments due to regulated drug prices. The safety and tolerance of our products, and protection of our employees
40
Biofrontera AG Annual report 2017
and of the environment, form key priorities. Risks associated with the manufacturing, bottling, storage and transportation of
products may result in personal injury or material or environmental damage, and may give rise to an obligation to pay
damages. Here Biofrontera is dependent to some extent on individual suppliers. Using our own audit and monitoring system,
we regularly ensure that the manufacturing conditions at our most important suppliers meet the required standard. This
enables us to avoid such risks and damages. We have already established two suppliers of the agent aminolevulinic acid,
whose manufacturing processes have been approved by the EMA. Biofrontera is the owner of the Drug Master File for one of
the two manufacturers. This will ensure the long-term supply security of aminolevulinic acid. We have also established our own
production facilities for the final assembly and final quality control of the BF-RhodoLED® lamp to reduce our dependence on
suppliers in this area too.
Staff
Qualified and dedicated staff are a key prerequisite for the company's success. Competitive compensation and extensive
training and development opportunities are essential to this end. We also pursue a diversity-orientated personnel policy to
exploit the labour market's full potential. To date, Biofrontera is always succeeded in recruiting the qualified staff the
company requires. For this reason, the company regards this risk as low.
Information technology
The Group's business processes and internal and external communication are increasingly based on global IT systems. A
significant technical malfunction or total failure of IT systems could result in severe impairment of our business processes. It
is of fundamental importance to us that both internal and external data remain confidential. If the confidentiality, integrity or
authenticity of data or information were to be lost, the manipulation and/or uncontrolled outflow of data and know-how could
arise. We have adopted appropriate measures to counteract this risk, such as a comprehensive authorisation concept. The
measures adopted by the company have always proven adequate to date, so such risk is to be regarded as low.
Liquidity risk
Liquidity risks arise from the possibility that the Group will be unable to fulfil existing or future payment obligations due to not
having sufficient funds. We calculate and manage the liquidity risk in our weekly and medium-term liquidity planning sessions.
Payment obligations arising from financial instruments are defined separately in the consolidated financial statements based
on their due dates.
To ensure payment security, cash and cash equivalents are held available so that all the Group's scheduled payment
obligations can be fulfilled on their respective due dates. The level of this liquidity reserve is reviewed regularly and adjusted
to current circumstances where necessary.
The company was able to meet its payment obligations at all times, but will continue to potentially depend on additional
financing measures in the future. To date, Biofrontera has always succeeded in providing the necessary financing for its
business operations through equity or debt funding. The company currently has sufficient liquidity available thanks to the
issuing of the subordinated convertible bonds in January 2017, the drawing down of an initial tranche of EUR 10 million from
the European Investment Bank loan, although especially thanks to the proceeds from the capital increase implemented in
February 2018.
On the basis of its previous, invariably successful experience with capital measures, the Management Board assumes that the
liquidity required for business activities can be further ensured. If these valid estimates are, contrary to expectations, not
realised, this could constitute a threat to the company’s continued existence.
Law and compliance
The Group may be subject to litigation or legal proceedings in the future. In particular, this includes risks arising from product
liability, antitrust law, competition law, patent law, tax law and environmental protection. Inquiries and investigations on
grounds of possible infringements of statutory or regulatory provisions may result in criminal and civil sanctions, including
considerable fines or other financial disbenefits, and these may harm the company's reputation and ultimately exert a
negative effect on the company's success and performance.
Litigation
In June 2017, the company was served a lawsuit by shareholder Deutsche Balaton Aktiengesellschaft, in which this shareholder
asserts the invalidity of certain resolutions of the Ordinary AGM of 24 May 2017. The Cologne Regional Court rejected the
lawsuit in December 2017, as the plaintiff lacked right of action. Deutsche Balaton appealed this ruling January 2018,
Biofrontera AG Annual report 2017
41
submitting its statement on its grounds for appeal in March 2018. The company has applied for this appeal to be rejected. The
plaintiff has failed to render a statement of its case. As a consequence, the reasons for the rejection of the lawsuit by the
Cologne Regional Court are unchanged.
Furthermore, the same shareholder has applied to the Cologne Regional Court for a special audit in order to investigate the
contractual situation with Maruho Co. Ltd., Japan, and some further business transactions. This application for special audit
was already declined without a hearing of the company in November 2017. Deutsche Balaton has lodged a related complaint.
Deutsche Balaton and its affiliated company Delphi Unternehmensberatung AG respectively had also already submitted an
identical application for a special audit at the company's Ordinary AGM, where it was also declined by a large majority of the
votes present. The company regards the allegations made in the application as being without substance. From the company's
perspective, they serve solely to discredit the Management and Supervisory boards of Biofrontera AG.
In March 2018, DUSA Pharmaceuticals Inc. brought a lawsuit against Biofrontera AG and all subsidiaries before the District
Court of Massachusetts due to alleged infringement of its patents No. 9,723,991 and No. 8,216,289. The sales of our BF-
RhodoLED® in the USA would be affected. The company is currently examining these claims. It anticipates only a low
commercial risk to derive from them, however.
Forecast report (outlook)
Biofrontera has rapidly established its subsidiary in the USA and hired many qualified staff. We will further strengthen our
marketing and sales activities in the EU and in the USA in 2018, and hire further staff, although the number of new hires will
reduce considerably compared with the previous year. Biofrontera will be present at the most important American
dermatology conferences and will continue to aim for broad-based reporting about white skin cancer and Ameluz® among
physicians and the general public. To prepare for the new BCC indication in the USA, the study protocol for the planned Phase
III trial is currently being discussed with the American regulator, the FDA. We will begin the trial as soon as the related
agreement with the FDA has been reached, prospectively in the second half of 2018. In connection with this trial and the
current Phase III trial for actinic keratosis on the trunk and extremities, Biofrontera will also invest funds this year in new
indications for Ameluz®. In March 2018, the European Commission issued a new indication for daylight PDT in the EU. We expect
this new indication to positively affect sales revenue growth in Europe. In the USA, we anticipate marked sales revenue growth
in 2018. In particular, the issuing of an individual billing code for Ameluz (J-Code) as well as an increase in the billing
possibilities for physicians when performing PDT (CPT-Codes) should exert a positive effect on the course of our business.
Forecast of key financial figures
For the 2018 financial year, Biofrontera expects revenue from product sales to lie in an approximate range between
EUR 16 million and EUR 20 million. The termination of the license agreement with Bipharma B.V. for Belgium and the
Netherlands in 2017 will exert only minor effects on sales revenue, as we also achieved only a low level of revenue with this
license partner in the past. Despite the aforementioned positive developments, it remains very difficult to plan sales revenue
growth, thereby leading to a considerable fluctuation range in achievable sales revenues. The sales revenues referred to in
this forecast do not include any income from the research partnership with Maruho. The original cooperation agreement has
meanwhile expired. It will be possible to forecast potential future sales revenues only once a new agreement has been
concluded with Maruho.
Biofrontera anticipates approval and development costs of around EUR 6 million to EUR 7 million excluding potential R&D costs
from the collaboration with Maruho. In a similar manner to sales revenue, it will only be possible to forecast such costs after a
new cooperation agreement has been concluded with Maruho. Sales and marketing costs represent the by far largest
operative cost block. We expect a further slight increase in such costs in 2018, principally because of the staff hired during the
course of last year. Their related costs will be expensed on a full-year basis in 2018. Besides this, we will occasionally hire
further staff and invest to a greater extent in conferences and marketing activities. We expect that sales and marketing costs
will amount to an approximate total between EUR 18 million and EUR 20 million. Administrative costs will rise slightly compared
with 2017 and stand at between EUR 7 million and EUR 8 million approximately. This is chiefly attributable to the establishment
of support functions in the USA, such as finance, compliance and customer services, as well as higher auditing costs reflecting
the considerably greater scope of our US business. The planned administrative costs in USA of approximately EUR 2 million will
be reported under administrative costs from the 2018 financial year, rather than under sales and marketing costs. We continue
to expect rising costs for legal advice due to the many lawsuits brought by an activist shareholder.
No significant investments in property, plant and equipment are planned for 2018.
42
Biofrontera AG Annual report 2017
The financial result reflects interest payments and the reversal of discounts applied under the effective interest method to the
still-outstanding convertible bond as well as interest payments for the European Investment Bank loan. This will amount to a
total of approximately EUR -1 million.
With the aforementioned conditions and forecasts, the company will achieve a consolidated result of EUR -15 million to
EUR - 16 million in 2018. Attaining this result depends significantly on sales revenue trends.
Remuneration report
The total remuneration paid to members of the Management Board in the 2017 financial year and the total accumulated
number of stock options issued to the Management Board were as follows as of 31 December 2017:
Non-performance-based salary
component 2017
Non-performance-based salary
component 2016
Performance-based salary
component 2017
Performance-based salary
component 2016
Stock options
(31 December 2017)
Prof. Dr. Hermann Lübbert
Thomas Schaffer
Christoph Dünwald
EUR 366 thousand
EUR 241 thousand
EUR 242 thousand
EUR 363 thousand
EUR 213 thousand
EUR 236 thousand
EUR 76 thousand
EUR 67 thousand
EUR 48 thousand
EUR 72 thousand
EUR 63 thousand
EUR 6 thousand
236,850
125,000
90,000
Fair value when granted (2017)
EUR 299 thousand
EUR 145 thousand
EUR 112 thousand
Stock options (31.12.2016)
196,850
85,000
50,000
Fair value when granted (2016)
EUR 227 thousand
EUR 83 thousand
EUR 50 thousand
thereof granted in 2017
thereof granted in 2016
70,000
80,000
40,000
50,000
40,000
50,000
All salaries/bonuses are classified as short-term employee benefits as defined in IAS 24.17 (a).
Company cars are also available to the directors for business and private use. The existing employment contracts stipulate
that – depending on the achievement of targets to be mutually agreed – an annual bonus is payable. If the targets are
exceeded, the maximum annual bonus payable is capped. If the targets are missed by a margin no greater than 30% (in other
words, a level of at least 70% is achieved), the bonus payment is reduced straight-line. No bonus is payable if the targets are
missed by a greater margin than this. The measurement factors are set at the end of each financial year for the following
financial year in a mutually agreed target agreement.
Severance pay in the case of early termination of Management Board duties without good grounds is capped at twice the
specified annual salary, and amounts to no more than the total remuneration due for the remaining period of the contract
(severance cap). In case of a takeover bid in accordance with the German Securities Acquisition and Takeover Act (WpÜG) all
members of the Management Board are eligible for severance payments in the amount of three annual salaries.
To further enhance the long-term incentive effect of variable compensation and consequently align it with the company's
sustainable development and growth, the Management Board members have obligated themselves to hold as private assets
ordinary shares in the company for share options granted from the 2010 share option program for a three-year period
beginning one month after the options' issue date ("restricted shares"), and thereby be invested in the company. The level of
personal commitment is specified differently in detail for each member of the Management Board. An early sale of such
restricted ordinary share must be reported immediately to the Supervisory Board Chair, and the company can request a return
transfer of an equivalent number of stock options free of charge within a month of receiving such notification, with the most
recently granted options being those that must be returned first (last in, first out). A return transfer is not required if the
Management Board member can demonstrate that the sale of the restricted shares was necessary to meet pressing financial
obligations. In 2010, the Chief Executive Officer was granted 35,000 options, and the other Management Board member was
granted 20,000 options, and in 2011, the Chief Executive Officer was granted 30,000 options and the other Management Board
member was granted 20,000 options on this basis. In 2012, a further 40,000 options were granted to the Chief Executive
Officer, and an additional 25,000 options were granted to the other Management Board member. In the 2013 financial year, the
Biofrontera AG Annual report 2017
43
Chief Executive Officer was granted 30,000 options, and the other Management Board member was granted 15,000 options,
and in the 2014 financial year, 16,850 options were granted to the Chief Executive Officer, and 20,000 options were granted to
the other Management Board member. No options were granted to the Management Board members in 2015. In the 2016
financial year, 80,000 options were granted to the Chief Executive Officer, and the other Management Board members were
each granted 50,000 options. In the 2017 financial year 70,000 options were granted to the Chief Executive Officer, and the
other Management Board members were each granted 40,000 options.
Options granted in the 2010 financial year forfeited in November 2016 and options granted in the 2100 financial year forfeited
in September 2017.
Members of the Management Board held the following other supervisory board positions and positions on comparable
domestic and foreign boards during the reporting period:
Thomas Schaffer
Industrial Tracking Systems AG, Fürstenfeldbruck, Chairman of the Supervisory Board
Other disclosures pursuant to Sections 289 (4) and 315 (4) of the German Commercial
Code (HGB)
Management Board members are appointed and removed pursuant to Sections 84 and 85 of the German Stock Corporation Act
(AktG). The composition of the Management Board is specified in more detail in Section 9 (3) of the bylaws. Pursuant to this,
the Management Board must consist of one or more members. The Management Board comprises three individuals. The
Supervisory Board appoints Management Board members and determines their number. The Supervisory Board may appoint a
Chief Executive Officer.
The employment contract of the Chief Executive Officer and that of the Chief Financial Officer include a compensation
agreement in the form of a special right of termination, for example in the case of a takeover bid as defined in the German
Securities Acquisition and Takeover Act (WpÜG).
Pursuant to Sections 119 (1) No. 5, 179 and 133 of the German Stock Corporation Act (AktG), amendments to the bylaws must be
approved by a resolution of the Shareholders' General Meeting. Where legally permissible, a simple majority of the share
capital represented at the vote is sufficient for such a resolution, in accordance with Section 179 (2) Clause 2 AktG in
combination with Section 22 (2) of the bylaws, instead of the majority of three quarters of the represented share capital
stipulated in Section 179 (2) Clause 1 AktG. Pursuant to Section 179 (1) Clause 2 AktG in combination with Section 22 (2) of the
bylaws, the Supervisory Board is authorised to make changes that affect only the wording of the bylaws.
With regard to the repurchasing of shares, the Management Board is not subject to any restrictions beyond those specified in
the German Stock Corporation Act (AktG).
Accounting risk management system and internal control system
In the section below, in addition to the risk management system already explained under the relevant subsection, the
significant aspects of the internal control and risk management system relating to accounting processes for the stand-alone
as well as the consolidated group financial statements, pursuant to Section 289 (5) of the German Commercial Code (HGB), as
amended by the German Accounting Law Modernisation Act (BilMoG), are described.
The financial accounting process at Biofrontera AG aims to ensure that the figures and information provided in external
accounting instruments (bookkeeping, components of the stand-alone as well as the consolidated group financial statements,
and the combined company and Group management report) are accurate and complete, and comply with the relevant legal
requirements and bylaw provisions. The related existing structures and processes also include the risk management system
and internal control measures relating to the financial accounting processes. In connection with the growing sales and
marketing activities, the internal accounting control system is subject to an ongoing monitoring and improvement process.
The risk management system aims to identify, assess and manage all the risks that could prevent the proper preparation of
the stand-alone as well as the consolidated group financial statements. Any risks identified must be assessed with regard to
their influence on the stand-alone as well as the consolidated group financial statements. The purpose of the internal
accounting control system is to ensure that the process of compiling financial statements complies with all the relevant laws
and regulations, by implementing appropriate guidelines, processes and controls to this end.
The risk management system and internal control system cover all the areas that are essential for the stand-alone and
consolidated group financial statements and all the processes relevant to the preparation of those same financial statements.
44
Biofrontera AG Annual report 2017
Significant aspects of accounting risk management and control include the clear assignment of responsibilities and controls
for the compilation of financial statements, as well as transparent accounting standards. The two sets of eyes principle and
separation of roles are also important control principles in financial accounting processes.
The Management Board assumes overall responsibility for the organisation of the internal control system. The quality
management/controlling/risk management areas and the financial accounting department are responsible for the internal
control system's coordinated subsystems.
Takeover information
Trading platforms
Biofrontera shares are traded under ticker symbol B8F and ISIN DE0006046113 in the Prime Standard segment of the Frankfurt
Stock Exchange and on all other German stock exchanges. In the U.S., shares of Biofrontera AG are traded as American
Depositary Shares (ADS) under the ticker symbol BFRA. One ADR securitises the right to two ordinary shares of Biofrontera AG.
Shareholders
The numbers of shares held by the shareholders on 31 December 2017, based on the most recent compulsory disclosures of the
shareholders, are as follows:
Maruho Co., Ltd., Osaka Japan
The total share of voting rights is assigned to Maruho Co., Ltd, Osaka, through the
company Maruho Deutschland GmbH, Düsseldorf, which is controlled by the former.
Wilhelm Konrad Thomas Zours
The voting rights through the chain of subsidiaries listed below are attributed to Mr.
Zours:
•
•
•
•
•
DELPHI Unternehmensberatung AG
VV Beteiligungen AG
Deutsche Balaton AG
ABC Beteiligungen AG
Heidelberger Beteiligungsholding AG
31.12.2017
EUR
7,631,586
31.12.2016
EUR
7,631,586
3,400,907
3,400,907
Semper Constantia Invest GmbH, Vienna, Austria
1,165,212
N/A
Universal-Investment-Gesellschaft mbH, Frankfurt am Main, Germany
The share of voting rights is attributed to Universal-Investment GmbH through the
company FEHO Vemögensverwaltungsgesellschaft.
799,463
799,463
Free float
Total
Share capital
25,419,660
38,416,828
25,890,477
37,722,433
On 31 December 2017, the fully paid-in share capital of the parent company, Biofrontera AG, amounted to EUR 38,416,828.00. It
was divided into 38,416,828 registered shares, each with a nominal value of EUR 1.00. On 31 December 2016, the share capital
amounted to EUR 37,722,433.00 and was increased during the course of the 2017 financial year through the exercising of
conversion rights from the 2016/2021 Convertible Bond as well as from the 2017/2022 Convertible Bond by an amount of
EUR 694,395.00, divided into 694,395 registered shares.
The Biofrontera AG shares were listed on the Regulated Market of the Düsseldorf Stock Exchange in 2006. In August 2012, the
company's shares were also admitted to trading on the Regulated Market of the Frankfurt Stock Exchange in response to an
application by the company. The company's shares are also traded on the Xetra computer trading system and all other
German stock exchanges. On 3 June 2014, the share was included in the Prime Standard of the Frankfurt Stock Exchange.
The introduction on the NASDAQ Stock Market in the U.S. occurred on 13 February 2018.
Biofrontera AG Annual report 2017
45
Existing capital
The company's share capital is conditionally increased by up to EUR 4,137,201.00 by the issuing of up to 4,137,201 new
registered no par value ordinary shares (Conditional Capital I). The purpose of the conditional capital increase is (i) to ensure
the granting of warrant rights and the agreement of warrant obligations in accordance with the bond conditions and (ii) to
ensure the fulfilment of conversion rights and the fulfilment of conversion obligations in accordance with the bond conditions,
which are issued, agreed and guaranteed by the company or its direct or indirect majority-owned subsidiaries (affiliated
companies) in the period up to 27 August 2020, based on the authorisation of the Annual General Meeting of 28 August 2015.
The conditional capital increase is to be implemented only in the event that financial instruments are issued based on the
authorisation of the Annual General Meeting of 28 August 2015, and only insofar as the holders or creditors of financial
instruments issued by the company exercise their warrant or conversion rights or fulfil their warrant or conversion
obligations. The new shares carry dividend rights from the start of the financial year in which they are issued. The
Management Board is authorised to determine the further details of the implementation of the conditional capital increase,
subject to the approval of the Supervisory Board. The Supervisory Board is authorised to amend Section 7 of the bylaws in
accordance with the use of conditional capital, and after the expiry of all warrant and conversion periods.
The Management Board is authorised until 23 May 2022, with Supervisory Board approval, to increase the company's share
capital by up to EUR 6,000,000 through the issuing, either once or on several occasions, of up to 6,000,000 ordinary
registered shares against cash capital contributions (Approved Capital I). The Management Board is authorised, with
Supervisor approval, to determine the further content of the share rights and the terms of the share issue. The new shares are
to be offered to the shareholders for subscription. Subscription rights can also be indirectly granted to the shareholders
pursuant to Section 186 (5) of the German Stock Corporation Act (AktG). The Management Board is authorised, with
Supervisory Board approval, to exclude shareholders' subscription rights for fractional amounts. The Supervisory Board is
authorised to adapt the wording of Section 7 of the bylaws after the complete or partial implementation of the share capital
increase in accordance with the respective utilisation of Approved Capital I and, if Approved Capital I has not been utilised, or
has not been fully utilised, by 23 May 2022, after the expiry of the authorisation period.
The share capital is conditionally increased by up to EUR 500,000 by the issuing of up to 500,000 new registered ordinary
shares, each of which constitutes a share of EUR 1.00 of the share capital (no par value shares) (Conditional Capital II). The
purpose of the conditional capital increase is to redeem warrant rights, pursuant to the warrant conditions, to the benefit of
the holders of warrants from warrant bonds issued on the basis of the authorisation resolution of the Annual General Meeting
of 17 March 2009. The new shares are issued at the warrant price set pursuant to the aforementioned authorisation
resolutions (issue amount pursuant to Section 193 (2) No. 3 AktG). The conditional capital increase is to be implemented only in
the event that warrant bonds are issued, and only insofar as that the holders of the warrants exercise their warrant rights, and
the company does not use other sources for the required shares or replace them with a cash payment. The new shares issued
by the exercise of the warrant right are dividend-entitled from the start of the financial year in which they are issued. The
Management Board is authorised to determine the further details of the implementation of the conditional capital increase,
subject to the approval of the Supervisory Board.
The company's share capital is conditionally increased by EUR 542,400 by the issuing of up to 542,400 no par value registered
shares (Conditional Capital III). The purpose of the conditional capital increase is solely to fulfil the warrants granted up to 1
July 2015 on the basis of the authorisation of the Annual General Meeting of 2 July 2010. The conditional capital increase is
implemented only insofar as holders of the issued warrants exercise their right to purchase shares in the company, and the
company does not grant any of its own shares or pay cash settlement in order to fulfil the warrants. The new shares are
dividend-entitled from the start of the financial year in which they are issued by the exercise of warrants.
The company's share capital is conditionally increased by EUR 1,814,984 by the issuing of up to 1,814,984 no par value
registered shares (Conditional Capital V). The purpose of the conditional capital increase is solely to fulfil the warrant rights
granted up to 27 August 2020 on the basis of the authorisation of the Annual General Meeting of 28 August 2015. The
conditional capital increase is implemented only insofar as holders of the issued warrants exercise their right to purchase
shares in the company, and the company does not grant any of its own shares or pay cash settlement in order to fulfil the
warrants. The new shares are dividend-entitled from the start of the financial year in which they are issued by the exercise of
warrants. The Supervisory Board is authorised to amend Section 7 of the bylaws in accordance with the use of conditional
capital, and after the expiry of all warrant and conversion periods.
The capital measure implemented in February 2018 generated changes relating to Approved Capital as well as the
corresponding authorisations of the Management Board. Further information on this can be found in the supplementary
report.
46
Biofrontera AG Annual report 2017
Corporate governance statement pursuant to Section 289f HGB and Section
315d HGB including the statement on the German Corporate Governance
Code required by Section 161 AktG
Pursuant to Sections 289f and 315d of the German Commercial Code (HGB), listed stock corporations are required to issue a
declaration relating to their corporate governance. This must either be included in the management report/Group
management report or be published on the company's website. The current corporate governance declaration by Biofrontera
AG and the corporate governance report are available on the company's website at www.biofrontera.com in the section
"Investors", subsection "Corporate Governance".
Leverkusen, 25 April 2018
Biofrontera AG
Prof. Dr. Hermann Lübbert
Chief Executive Officer
Christoph Dünwald
Chief Sales and Marketing Officer
Thomas Schaffer
Chief Financial Officer
Responsibility Statement
Affirmation of the legal representatives pursuant to Sections 297 (2) Clause
4 and 315 (1) Clause 5 HGB
We affirm that, to the best of our knowledge and in accordance with the applicable accounting principles, the consolidated
financial statement gives a true and fair view of the financial position, cash flows and results from operations of the Group,
and that the combined company and Group management report presents the business performance, including the business
results and the position of the Biofrontera Group and of Biofrontera AG, in such a way that a true and fair view is conveyed,
and that the main opportunities and risks relating to the anticipated performance of the Biofrontera Group and Biofrontera AG
are described.
Leverkusen, 25 April 2018
Biofrontera AG
Prof. Dr. Hermann Lübbert
Thomas Schaffer
Christoph Dünwald
Biofrontera AG Annual report 2017
47
Consolidated balance sheet as of 31 December 2017
Assets
In EUR thousands
Non-current assets
Tangible assets
Intangible assets
Total Non-current assets
Current assets
Current financial assets
Trade receivables
Other financial assets
Cash and cash equivalents
Total Current financial assets
Other current assets
Inventories
Raw materials and supplies
Unfinished products
Finished products and goods
Income tax reimbursement claims
Other assets
Total Other current assets
Total Current assets
Total assets
31 December 2017
31 December 2016
(1)
(1)
(3)
(4)
(7)
(2)
(6)
(5)
746
648
1,394
1,561
571
11,083
13,215
1,516
485
1,732
52
1,454
5,239
18,454
19,848
645
1,252
1,897
1,624
670
15,126
17,420
1,350
477
1,819
33
883
4,562
21,982
23,879
The accompanying notes are an integral part of these consolidated financial statements.
48
Biofrontera AG Annual report 2017
Liabilities
In EUR thousands
Equity
Subscribed capital
Capital reserve
Capital reserve from foreign currency conversion adjustments
Loss carried forward
Net loss of the year
Total equity
Long-term liabilities
Long-term financial liabilities
Current liabilities
Current financial liabilities
Trade payables
Current financial debt
Other financial liabilities
Total current financial liabilities
Other current liabilities
Income tax provision
Other provisions
Other current liabilities
Total other current liabilities
Total Current liabilities
Total equity and liabilities
(9)
(10)
(11)
(9)
(13)
(8)
(12)
(13)
31 December 2017
31 December 2016
38,417
100,769
700
(120,403)
(16,102)
3,381
37,722
98,677
(154)
(109,824)
(10,579)
15,842
12,355
3,597
1,084
170
20
1,274
-
2,535
303
2,838
4,112
19,848
2,093
274
59
2,426
-
1,824
190
2,014
4,440
23,879
The accompanying notes are an integral part of these consolidated financial statements.
Biofrontera AG Annual report 2017
49
Consolidated statement of comprehensive income for the 2017 financial year
In EUR thousands
Sales revenue
Cost of sales
Gross profit from sales
Operating expenses
Research and development costs
General administrative costs
thereof financing costs
Sales costs
Total Operating expenses
Loss from operations
Interest expenses
Interest income
Other expenses
Other income
Total interest and other (expenses)/income
Loss before income tax
Income tax
Loss for the period
Expenses and income not included in profit/loss
Items which may in future be regrouped into the profit and loss
statement under certain conditions
Translation differences resulting from the conversion of foreign
business operations
Other income total
Total loss for the period
(15)
(16)
(17)
(19)
(18)
(20)
(20)
(21)
(21)
(23)
(23)
(23)
01.01.-31.12.2017
01.01.-31.12.2016
12,025
(1,715)
10,310
(4,225)
(3,097)
(583)
(16,922)
(24,244)
(13,934)
(1,133)
38
(1,333)
260
(2,168)
(16,102)
-
(16,102)
6,130
(1,652)
4,478
(4,640)
(2,853)
(826)
(8,764)
(16,257)
(11,779)
(1,207)
3
(47)
2,451
1,200
(10,579)
-
(10,579)
854
854
(153)
(153)
(15,248)
(10,732)
Basic/diluted earnings per share
(22)
(0.42)
(0.36)
Both the profit/loss for the year and the total profit/loss for the period (comprehensive income) are fully attributable to the
shareholders of Biofrontera AG.
The accompanying notes are an integral part of these consolidated financial statements.
50
Biofrontera AG Annual report 2017
Consolidated statement of changes in equity for the 2017 financial year
Ordinary shares
number
Subscribed capital
EUR thousands
Capital reserve
EUR thousands
Capital from
foreign currency
conversion
adjustments
EUR thousands
Accumulated loss
EUR thousands
Total
EUR thousands
Balance as of 1 January 2016
Capital increase
Conversion from convertible bond 2016/2021
Exercise of detachable warrant rights from warrant bond 2011/2016
Foreign currency conversion adjustment
Costs of equity procurement
Changes in capital reserves pursuant to the issuance of the convertible bond
2016/2021
Increase in capital reserve from the stock option programme
Net loss of the year
Balance as of 31 December 2016
Conversion from convertible bond 2016/2021
Conversion from convertible bond 2017/2022
Foreign currency conversion adjustment
Increase in capital reserve from the stock option programme
Net loss of the year
Balance as of 31 December 2017
25,490,430
25,490
9,870,333
1,603,050
758,620
-
-
-
-
-
37,722,433
26,700
667,695
-
-
-
9,870
1,603
759
-
-
-
-
-
37,722
27
668
-
-
-
79,526
14,648
3,231
1,487
-
(321)
(4)
110
-
98,677
74
1,837
-
181
-
38,416,828
38,417
100,769
The accompanying notes are an integral part of these consolidated financial statements.
(1)
-
-
-
(153)
-
-
-
-
(154)
-
-
854
-
-
700
(109,824)
-
-
-
-
-
-
-
(10,579)
(120,403)
-
-
-
-
(16,102)
(136,505)
(4,809)
24,518
4,834
2,246
(153)
(321)
(4)
110
(10,579)
15,842
101
2,505
854
181
(16,102)
3,381
Consolidated cash flow statement for the 2017 financial year
In EUR thousands
Cash flows from operations
Loss for the period
Adjustments to reconcile loss for the period to cash flow into operations
01.01.-31.12.17
01.01.-31.12.16
(16,102)
(10,579)
Financial result
Depreciation
Losses from disposal of assets
Non-cash expenses and (income)
Changes in operating assets and liabilities
Trade receivables
Other assets and income tax assets
Inventories
Trade payables
Provisions
Other liabilities
Net cash flow used in operational activities
Cash flows from investment activities
Purchase of intangible and tangible assets
Interest received
Proceeds from sale of intangible and tangible assets
Net cash flow used in investment activities
Cash flows from financing activities
Proceeds from the issue of shares
Costs of equity procurement
Proceeds from issuance of convertible bonds 2016/2021
Proceeds from the exercise of detachable warrants from warrant bond 2011/2016
Proceeds from issuing convertible bonds 2017/2022
Proceeds from repayment of option bonds 2009/2017
Interest paid
Proceeds from drawing down EIB loans
Cash outflow for EIB loan procurement costs
Repayment of warrant bond 2011/2016
Repayment of warrant bond 2009/2017
Net cash flows provided by financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Composition of financial resources at the end of the period
1,094
884
-
1,080
63
173
(86)
(1,010)
711
74
(13,119)
(397)
6
16
(375)
-
(664)
-
-
4,999
1,590
(598)
10,000
(650)
-
(5,226)
9,451
(4,043)
15,126
11,083
1,204
831
5
(51)
(729)
(750)
(2,112)
1,050
782
90
(10,259)
(484)
3
26
(455)
24,518
(321)
4,995
2,246
-
-
(842)
-
-
(8,715)
-
21,881
11,167
3,959
15,126
Cash and cash equivalents
(26)
11,083
15,126
The accompanying notes are an integral part of these consolidated financial statements.
52
Biofrontera AG Annual report 2017
Notes to the consolidated financial statements as of 31 December
2017
Information about the company
Biofrontera AG (www.biofrontera.com), registered in the commercial register of Cologne District Court, Department B under No.
49717, and its wholly-owned subsidiaries Biofrontera Bioscience GmbH, Biofrontera Pharma GmbH, Biofrontera Development
GmbH, Biofrontera Neuroscience GmbH, all with head office at Hemmelrather Weg 201, 51377 Leverkusen, Germany, and
Biofrontera Inc., which is based in Wakefield, Massachusetts, research, develop and market dermatological products. Biofrontera
AG is the ultimate company which prepares consolidated financial statements for the group companies. The company's strategic
objective is to position itself globally as a pharmaceuticals company specialising in photodynamic therapy (PDT). Focus areas of
activity include further expanding our products' sales, as well as extending the approvals of Ameluz® to include further
indications to enhance its brand potential. Biofrontera AG (hereinafter also the "company" or "Biofrontera") pursues this goal
along with its subsidiaries. All the companies together form the "Biofrontera Group".
The Biofrontera Group was the first German pharmaceutical start-up company to receive centralised European and U.S. drug
approval for an independently developed drug, Ameluz®. In December 2011, Ameluz® was approved in Europe to treat light and
moderate actinic keratosis. In September 2016, European approval was expanded to treat field cancerisation, and in January 2017
to treat basal cell carcinoma. In March 2018, European approval was expanded again to include treatment with daylight PDT. In
May 2016, the U.S. Food and Drug Administration (or “FDA”) issued approval in the U.S. for lesion-directed and field-directed
treatment of actinic keratosis in combination with the red light lamp BF-RhodoLED®. In addition, a range of cosmetic products is
to be marketed. The first product in this range, Belixos® Creme, was launched in the autumn of 2009. A hair tonic, Belixos®
LIQUID, was introduced in the spring of 2014 and a Belixos® gel skin care for rosacea and acne was launched at the beginning of
December 2014. Belixos® Protect, a day cream with protective anti-ageing properties especially for light-damaged skin, followed
in July 2015. Belixos® Körpercreme (body cream) has been created to meet the widespread demand for a larger packaging of
Belixos® Creme, and is ideal for application to larger skin areas. Two further clinical development projects, one a dermatological
project and one for the prevention of migraines, have been spun off into dedicated subsidiaries and are not being actively
pursued at the present time.
The product Ameluz® (development name BF-200 ALA), which was approved in Europe at the end of 2011, has been tested for
European approval in one Phase II and two Phase III clinical trials to treat actinic keratosis. In preparation for approval in the
U.S., two Phase I trials and a further Phase III trial were conducted. Ameluz® consists of a combination of the drug aminolevulinic
acid (ALA) and a patent-protected nanoemulsion (BF-200), with the latter chemically stabilising the ALA and enhancing its skin
penetration. The clinical results regarding the treatment of actinic keratosis have shown its clear superiority to the competitor
product against which it was compared in the Phase III trials. An application for centralised European approval was submitted on
1 September 2010, and this approval was granted by the European Commission on 16 December 2011. Ameluz® has been sold in
Germany since February 2012 and in several other European countries since autumn 2012. In September 2016, approval was
expanded to treat field cancerisation, in other words, larger related areas permeated by tumour cells. Approval in the U.S. was
issued on 10 May 2016, with the U.S. market launch occurring in October 2016. A further Phase III trial on the treatment of basal
cell carcinoma formed the basis for the expansion of the existing European approval for this indication, which was issued in
January 2017. Ameluz® was also tested in a Phase III trial relating to application in daylight PDT in a direct comparison with its
competitor product. This study formed the basis for the European Commission to issue a further expanded approval in March
2018. In August 2017, the FDA confirmed in writing the regulatory path agreed with Biofrontera at a formal meeting for the
treatment of basal cell carcinoma with Ameluz®. The study protocol for a Phase III approval test that has yet to be conducted is
currently being discussed with the FDA.
In November 2012, Biofrontera's BF-RhodoLED® PDT lamp received pan-European approval for use as a medical device and has
since been sold together with Ameluz®. In Europe, doctors can opt to use any of the lamps approved for PDT, whereas in the U.S.
the approval of Ameluz® is combined with utilisation of the BF-RhodoLED® lamp. It is consequently approved as a combination
product along with the Ameluz®.
In July 2016, the company entered into a research collaboration and partnership with Maruho Co., Ltd, ("Maruho"), a Japanese
company specialising in dermatology, in which possibilities to jointly develop pharmaceutical products for the European market
based on Biofrontera's proprietary nanoemulsion technology are to be researched. This corresponds to the same strategy with
which Ameluz® was also developed. The nanoemulsion technology stabilised the active substance and improved skin
penetration, leading to greater clinical efficacy. This principle is also to be applied to other substances as part of the
collaboration and partnership with Maruho. According to the agreement, Maruho will bear all costs connected with the
exploratory research of new product candidates. The plan is that the parties should be joint owners of the intellectual property
Biofrontera AG Annual Report 2017
53
they develop. In terms of marketing, Biofrontera is to receive the license in Europe. As the agreement is limited to Europe,
further regional rights have not yet been discussed or determined. The agreement was initially limited to 31 December 2017 and
was extended until 31 March 2018. The parties are currently discussing a potential further extension or expansion.
The BF-derm1 project, which is currently not being actively pursued, was tested in a three-part Phase II trial for the treatment of
chronic, antihistamine-resistant urticaria. The trial demonstrated the drug's good efficacy, which reduced the intensity of
urticaria rashes and itching as well as reducing the amount of drowsiness-inducing antihistamines required by patients.
The BF-1 project is an innovative substance that is intended to be used for migraine prophylaxis. The substance was
administered to healthy subjects for the first time towards the end of 2006, by intravenous injection and in tablet form. The
company received the results of this trial in early 2007. They show that the substance is almost completely absorbed in the
intestine, and that it takes around two days for 50% of the substance to be broken down or excreted. These results are an
excellent starting point for developing the substance for administration in tablet form.
The intention is to finance the development of both BF-derm1 and BF-1 independently of Biofrontera's normal budget by seeking
funding providers who will benefit directly from the development of these products. For this reason, the two projects were
acquired by Biofrontera AG and transferred as shareholder contributions to the two subsidiaries Biofrontera Development GmbH
and Biofrontera Neuroscience GmbH, which were formed in December 2012. The product BF-derm1, which is intended for the
treatment of severe chronic urticaria, is now the responsibility of Biofrontera Development GmbH, while the product BF-1, which
is intended for the prophylactic treatment of migraines, is the responsibility of Biofrontera Neuroscience GmbH. This
outsourcing of development candidates has created a structure through which the financing of the further development of these
two products was uncoupled from the normal Group financing. As a result, the company's short-term financial plans can focus
on the market launch of Ameluz® in North America and the extension of its range of indications, as well as the establishment of
the Group as a specialist pharmaceutical company.
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Biofrontera AG Annual Report 2017
Summary of significant accounting policies
Basis for preparation of the consolidated financial statements
The consolidated financial statements for Biofrontera AG for the financial year from 1 January 2017 to 31 December 2017 have
been prepared in accordance with the International Financial Reporting Standards (IFRS) of the International Accounting
Standards Board (IASB) and the interpretations of the International Financial Reporting Standards Interpretations Committee
(IFRS IC), which are endorsed by the European Union (EU)) and applicable on the balance sheet date. In addition, statutory
provisions pursuant to Section 315a (1) of the German Commercial Code (HGB) have been complied with.
The assets and liabilities are recognised and measured in accordance with the IFRS that were mandatory on 31 December 2017.
Standards, amendments to standards and interpretations applied for the first time in the consolidated financial statements for
31 December 2017 are:
Standard / Interpretation
Amendments to IAS 7 "Statements of Cash Flows": Disclosure Initiative
Amendments to IAS 12 "Income Taxes": Recognition of Deferred Tax Assets for
Unrealised Losses
First-time mandatory
application in the EU
1 January 2017
1 January 2017
Amendments IFRS 12 "Disclosures of Interests in Other Companies": Annual Improvements Project Cycle
1 January 2017
2014-2016
With the exception of minor changes due to IAS 1, no changes have arisen for the consolidated financial statements of
Biofrontera AG.
Standards and interpretations that can be applied early voluntarily, but have not yet been applied early voluntarily:
Standard / Interpretation
IFRS 15 "Revenue from Contracts with Customers"
IFRS 9 "Financial Instruments"
IFRS 16 "Leases"
Amendments to IFRS 2 "Share-based Payment":
Classification and Measurement of Share-based Payment Transactions
Amendments to IFRS 4 "Insurance Contracts":
Applying IFRS 9 Financial Instruments together with IFRS 4 Insurance Contracts
Amendments to IFRS 9 “Financial instruments”:
Early repayment regulations with negative compensation
Amendments to IFRS 15 "Revenue from Contracts with Customers" Clarifications
Amendments to IFRS 1 "First-Time Application of IFRS":
Annual Improvements Project Cycle 2014-2016
Amendments to IAS 28 "Interests in Associates and Joint Ventures":
Annual Improvements Project Cycle 2014-2016
IFRIC 22 “Transactions in foreign currency and advance consideration”
Amendments to IAS 40 "Investment Property": Transfers of Investment Property
First-time mandatory
application in the EU
1 January 2018
1 January 2018
1 January 2019
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
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Standards and interpretations not (yet) applicable in the EU:
Standard / Interpretation
First-time mandatory application in the EU
Amendments to IAS 19 "Employee Benefits": Employee
Amendments to IAS 28 "Interests in Associates and Joint
Not yet known
Not yet known
Ventures": Long-Term Interests in Associates and Joint Ventures
IFRS 14 "Regulatory Deferral Accounts"
IFRS 17 "Insurance Contracts"
IFRIC 23 "Uncertainty about Income Tax Treatment"
Annual Improvements Project Cycle 2015-2017
No EU recognition
Not yet known
Not yet known
Not yet known
Changes to references to the framework concept in IFRS standards
Not yet known
It is expected that unless details of their effects are given below, the listed standards and interpretations that are not yet
applied will have no effect on the Biofrontera Group, in the absence of relevant facts and circumstances.
In May 2014, the IASB issued the new standard IFRS 15. The aim of this new standard concerning revenue recognition is to
amalgamate the various rules previously contained in different standards and interpretations. At the same time, uniform
principles are defined that are applicable for all sectors and for all types of revenue transactions. The questions regarding what
amount, at what time and for which time period revenue is to be realised are to be answered with the help of the 5-stage model.
In addition, the standard includes a number of other regulations covering detailed issues and an expansion of the disclosures
required. The new standard is to be applied to annual periods beginning on or after 1 January 2018. The first application must in
principle be carried out retrospectively, but various simplification options are available; earlier application is permitted.
In the U.S., some lamps (RhodoLED® (PDT lamp)) are made available to physicians in return for a fee for an up to six-month
evaluation period. A final decision to purchase does not need to be made until the end of this period. In 2017, the company
generated revenues from the monthly fees during the evaluation period, although not yet already from the sale of lamps. To this
extent, this relates to a matter to be assessed for the first time in 2018, from which no transition effects arise. Otherwise, in
relation to the product sales and revenues from the collaboration and partnership agreement with Maruho, no changes arise in
revenue recognition due to the first-time application of IFRS 15 in 2018. IFRS 15 will lead to a greater scope of mandatory
disclosures.
In January 2016, the IASB issued the new standard IFRS 16 – Leases. IFRS 16 establishes principles for the recognition,
measurement, presentation and disclosure of leases, and notes regarding leases, with the aim of ensuring that lessees and
lessors provide relevant information regarding the impact of leases. At the same time, the previous accounting model applied in
accordance with IAS 17, involving the classification into operating and finance leases, is abandoned in favour of a uniform
accounting model for leasing agreements with a mandatory control concept. For the lessee, the standard provides a single
accounting model. This model leads in the case of the lessee to all the assets and liabilities from leases being recognised on the
balance sheet, provided that their term is not less than 12 months or it is not a minor asset (option). The lessor continues to
differentiate, for accounting purposes, between finance and operating leases.
The mandatory first-time application date of IFRS 16 – Leases is for financial years beginning on or after 1 January 2019. Early
application is permitted, in principle, if IFRS 15 – Revenue from Contracts with Customers is already applied (early) in full. The
lessee either has to fully apply IFRS 16 retrospectively, with the inclusion of prior reporting periods, or has to recognise the
cumulative adjustment effect at the point in time of initial application as an entry in equity at the beginning of the financial year
of initial application. Based on the existing agreements, Biofrontera acts as both a lessor and as a lessee in operating leases.
Given the significant expansion of the U.S. business in relation to lamps (BF-RhodoLED® (PDT lamp)), it is expected that the first-
time application of IFRS 16 in 2019 will increase assets proportionally to the increase in liabilities for a net effect of zero on the
balance sheet. The gross effect, however, cannot yet be estimated as the likelihood of a customer exercising a contractual
option currently cannot be estimated. Management does not have historical data on which an estimate can be developed.
In July 2014, the IASB approved the final version of IFRS 9 "Financial Instruments". The new standard includes revised
regulations for the classification and measurement of financial assets, including impairment regulations, and supplements the
new hedge accounting regulations published in 2013. Furthermore, more extensive disclosure obligations pursuant to IFRS 9 are
to be complied with. The Group anticipates effects on the classification of financial instruments as well as expanded disclosures
in the notes to the financial statements. According to the amended impairment model, too, no effects are expected given the
continued lack of receivables defaults.
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Biofrontera AG Annual Report 2017
The accounting policies applied are consistent with those applied on 31 December 2016, with the exception of the new and
revised standards and interpretations described above that were applied from the 2017 financial year for the first time.
The consolidated financial statements as at 31 December 2017 are presented in euros (EUR) or thousands of euros.
The Biofrontera Group presents current and non-current assets and current and non-current liabilities as separate categories in
the balance sheet, in accordance with IAS 1.60, with these categories also being to some extent subdivided according to their
respective terms in the notes to the consolidated financial statement for 31 December 2017. The income statement is prepared
applying the cost of sales method. In this reporting format, the net sales revenue is set against the expenses incurred in
achieving it, subdivided into cost of sales, research and development costs, sales costs and general administration costs.
The consolidated financial statements for 31 December 2017 contain no separate segment-based reporting, as the activities of
the Biofrontera Group are limited to a single business segment in terms of the definition in IFRS 8. All business operations focus
on the product Ameluz®, including the supplementary products BF-RhodoLED® (PDT lamp) and Belixos®, and are internally
monitored and managed accordingly.
On 25 April 2018, the Management Board approved the consolidated financial statements for the financial year ending 31
December 2017 for publication and forwarding to the Supervisory Board.
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Basis of consolidation
The consolidated financial statements for the financial year ending 31 December 2017 include the financial statements of the
parent company, Biofrontera AG, and the subsidiary companies in which the parent has a direct majority of the voting rights. The
following companies have been included in the consolidated financial statements:
Biofrontera Pharma GmbH, Leverkusen, Germany, with a direct interest of 100%
Biofrontera Bioscience GmbH, Leverkusen, Germany, with a direct interest of 100%
1.
2.
3.
Biofrontera Development GmbH, Leverkusen, Germany, with a direct interest of 100%
4. Biofrontera Neuroscience GmbH, Leverkusen, Germany, with a direct interest of 100%.
5.
Biofrontera Inc., Wakefield, Massachusetts, U.S., with a direct interest of 100%
The basis for the consolidation of the companies included in the consolidated financial statements are the financial information
of these companies prepared for 31 December 2017 pursuant to uniform principles. The consolidated financial statements for 31
December 2017 have been prepared on the basis of uniform accounting policies (IFRS).
The subsidiaries have been fully consolidated from the date of acquisition. The date of acquisition is the date when the parent
company obtained control of these subsidiaries. The subsidiaries are included in the consolidated financial statements until
control over these companies no longer exists.
All inter-company balances and income and expenses have been eliminated on consolidation. Results of intra-group transactions
have been eliminated.
Immaterial Error Correction to previously issued consolidated financial statements
The company has made an immaterial error correction to the consolidated financial statements as of and for the years ended 31
December 2016 and 2015.
Management determined that it had incorrectly disclosed operating and financing cash flows related to non-cash components of
its convertible warrant bonds. This resulted in a gross-up of operating and financing activities in the net amount of EUR 0.5
million and EUR 62 thousand as of 31 December 2016 and 2015, respectively. The error had no impact on revenues or the results
of operations for any periods presented.
No correction was necessary as of and for the period ending 31 December 2017.
Translation of amounts in foreign currencies
The consolidated financial statements for 31 December 2017 have been prepared in EUR (or thousands of EUR), which is the
functional currency of all the German companies included in the consolidated financial statements, and is the Group's reporting
currency.
For subsidiaries with a functional currency that is the local currency of the country in which they have their registered office,
the assets and liabilities that are recognised in the foreign currency on the balance sheets of the foreign, economically
independent subsidiaries, are converted to euros applying the relevant period-end exchange rate (2017: 1.2022 USD/EUR,
previous year 1.052 USD/EUR). Income and expense items are translated applying the average exchange rates (2017: 1.1301
USD/EUR, previous year 1.107 USD/EUR) applicable to the relevant period. The differences resulting from the valuation of equity
at historical rates and applying the period-end exchange rates are reported as a change not affecting profit or loss and carried
directly to equity within the other equity components.
Transactions realised in currencies other than EUR are reported using the exchange rate on the date of the transaction. Assets
and liabilities are translated applying the closing exchange rate for each balance sheet date. Gains and losses arising from such
currency translations are recognised in income.
Application of estimates
The preparation of the consolidated financial statements for 31 December 2017 in accordance with IFRS required the use of
estimates and assumptions by the management that affect the value of assets and liabilities as reported on the balance sheet
date, and revenues and expenses arising during the financial year. The main areas in which assumptions, estimates and the
exercising of a degree of discretion are appropriate relate to the determination of the useful lives of non-current assets and the
formation of provisions, as well as income taxes. Estimates are also made as part of fair value measurement pursuant to IFRS 13.
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Biofrontera AG Annual Report 2017
Estimates are based on historical experience and other assumptions that are considered appropriate in the circumstances. They
are continuously reviewed but may vary from the actual values.
The carrying amounts of items affected by estimates are presented in the respective explanatory remarks concerning the items
in the notes to the consolidated financial statements.
Transactions with related parties
With regard to transactions with shareholders, particularly in connection with capital increases and the issue of Biofrontera AG
bonds, please see our comments in the appendix note "Equity".
With respect to the issue of share options to employees of the Biofrontera Group, please see our comments on the "Share Option
Plan" in the appendix note "Equity".
With regard to the remuneration of Management Board members, please see our comments in the appendix note "Members of
the Management Board".
With regard to the remuneration of Supervisory Board members, please see our comments in the appendix note "Members of the
Supervisory Board".
Tangible assets
Pursuant to IAS 16, tangible assets are recognised on the balance sheet at historical acquisition and production cost less
scheduled depreciation.
Depreciation of tangible assets is generally applied straight-line over the estimated useful life of assets (generally three to
thirteen years). The main useful lives are unchanged:
•
•
•
•
IT equipment
Fixtures and equipment
Office and laboratory facilities
Laboratory devices
3 years, straight-line
4 years, straight-line
10 years, straight-line
13 years, straight-line
Since 1 January 2008, low value assets with purchase costs of between EUR 150 and EUR 1,000 have been booked to the year of
acquisition as a single item for the relevant year, and are fully depreciated over five years.
Intangible assets
Purchased software is recognised at cost less amortisation applied straight-line over a three-year useful life.
Purchased intangible assets consist of licenses and other rights. They are recognised at cost less accumulated amortisation.
Only intangible assets purchased from third parties are capitalised as assets, as the requirements for the recognition of
internally generated intangible assets are not met. These intangible assets are capitalised as assets and generally amortised
straight-line over an estimated useful life of between 4 and 20 years.
No intangible assets exist with indefinite useful lives.
Borrowing costs are not recognised as part of the purchase cost of the acquired assets but are instead expensed in the period in
which they arrived, because the Group has no qualifying assets in the meaning of IAS 23.5.
Impairment of assets
The company tests assets for impairment when indications exist that the carrying amount of an asset exceeds its recoverable
amount. A possible impairment requirement of assets held for use is evaluated by comparing the carrying amount of an asset
with the cash flows that the asset is expected to generate in the future. When such an asset is considered to be impaired, the
impairment loss is measured at the amount by which the carrying amount of the asset exceeds its recoverable amount. Assets
that are to be sold are reported at the lower of the carrying amount or fair value less costs to sell.
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Financial instruments
The financial instruments held by the Biofrontera Group on the balance sheet date primarily consist of cash and cash
equivalents, trade payables and receivables as well as financial debt. Biofrontera does not deploy any financial derivatives, apart
from the derivative embedded within the EIB loan (so-called performance component). Due to the short terms of the trade
payables and trade receivables, the carrying amounts of such items correspond to their fair values. The remaining related
receivables and liabilities are classified to “Other Assets” or “Other Provisions”, respectively. The financial liabilities are
measured applying the effective interest method.
Financial investments held to maturity
The company classifies the securities held as current financial investments as “financial investments held to maturity”, in
accordance with IAS 39.9. As of 31 December 2016, Biofrontera had in its portfolio holdings of its own Warrant Bond I 2009/2017
with a nominal value of EUR 1.5 million. In 2016, the company identified an error related to the financial instruments held to
maturity made in 2014 and 2015. The warrant bonds were incorrectly impaired based on then existing market conditions in the
amount of EUR 0.1 million and EUR 0.2 million, respectively. Management concluded that an adjustment would be immaterial to
the current and prior years both individually and in the aggregate. In order to correct the error, an out of period adjustment to
reverse the cumulative impairment of EUR 0.3 million was recorded in the period ended December 31, 2016. In accordance with
IAS 32, the bonds are reported on a net basis with the corresponding bond debt.
As of 31 December 2017, through the repayment of the 2009/2017 as discussed in the notes below, the company no longer holds
any amount of their own financial instruments.
Inventories
Raw materials and supplies, as well as finished and unfinished goods, are recognised at the lower of cost or net realisable value.
Borrowing costs are not capitalised. Cost is calculated applying the first-in-first-out method (FIFO). A value adjustment is made
to the inventories on the balance sheet date if the net realisable value is lower than the carrying amount.
Trade receivables
Trade receivables are reported at their nominal value. Any value adjustments are booked directly against the relevant
receivable. Receivables denominated in foreign currencies have been translated into euros applying the exchange rates on the
balance sheet date, with any translation differences being recognised in profit or loss.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, cheques and bank deposits with a term of up to three months at the time of
acquisition, as well as current financial assets. These are measured at amortised cost.
Trade payables, overdrafts
Trade payables, as well as liabilities from current accounts and other liabilities are recognised at their redemption amount. Due
to their short-term nature, the reported carrying amount reflects the fair value. Foreign currency liabilities are translated
applying the period-end exchange rate. Exchange rate losses and gains are reported in the income statement.
Provisions
Provisions are formed if an obligation to third parties resulting from a past event exists, and is likely to result in an outflow of
assets in the future, and if the effect on assets can be reliably estimated.
Share options
Share options (equity-settled share-based payments) are valued at the fair value on the date of granting. The fair value of the
obligation is capitalised as a personnel expense over the retention period. Obligations relating to cash-settled share-based
payment transactions are recognised as liabilities and are measured at the fair value on the balance sheet date. In the event
that Biofrontera AG has the right to choose between payment in cash or payment using shares when a right is exercised, an
increase in the capital reserve is initially performed pursuant to IFRS 2.41 and IFRS 2.43. The costs are recognised over the
vesting period. The fair value of both cash-settled and equity-settled share-based payment transactions is generally determined
using a Monte Carlo valuation model.
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Warrant bonds
In accordance with IAS 32, warrant and convertible bonds are classified as compound financial instruments that represent a debt
security with an embedded conversion or subscription option. The issuer of such a financial instrument, which contains both a
liability and an equity component, is required to present the liability component and the equity component separately from the
financial instrument originally reported on the balance sheet. At inception, the fair value of the liability component is the
present value of the contractually agreed future cash flows discounted at the market interest rate prevailing at that date for
financial instruments that have a similar credit status and that generate substantially the same cash flows under the same
conditions, but for which no exchange or subscription option exists. Subsequent measurement is based on the effective interest
method.
If the warrant bonds are redeemed before maturity through early redemption or early repurchase, with the original conversion
rights remaining unchanged, the fee paid and all transactions relating to the repurchase or redemption are allocated to the
liability and equity components of the instrument at the time of the transaction. The method for the allocation of the fees and
transaction costs to the two components is identical to that utilised in the original allocation applied to the revenue received
when issuing the bond.
Convertible bonds
Convertible bonds comprise compound financial instruments, which are to be allocated to a debt component (bond) and an
equity component (conversion right) on initial recognition. The debt component (bond) is to be recognised at fair value when the
contract is concluded. The fair value in this context is calculated by discounting the contractually determined future payments
applying a standard market interest rate for a comparable bond without a conversion right. The issuer's default risk is also to be
taken into consideration. The equity component (conversion right) is calculated as the difference between the issue proceeds
and the present value of the liability (equity derivative, residual value method).
The following differentiation is made as part of the subsequent recognition of the convertible bond: The debt component is
carried forward at amortised purchase cost applying the effective interest method. The equity component is not subject to any
subsequent measurement.
EIB loan with an embedded derivative requiring separation
In May 2017, the company arranged a loan agreement for up to EUR 20 million with the European Investment Bank (EIB).
The loan is unsecured and guaranteed by our major subsidiaries. It is available in tranches within a two-year period. In July 2017,
the company drew down the first tranche of EUR 10 million, with two further tranches of EUR 5 million each being accessible
after certain milestones have been achieved. Each tranche must be paid back within five years after it has been made available.
The loan contains three different interest components: 1) a variable interest component, entailing quarterly interest payments
on the outstanding amounts based on 3-month EURIBOR plus a risk premium; 2) a fixed component at 6% per annum which is
due at term-end; and 3) a performance component which is due at the term-end, and whose level is derived from the market
capitalisation of Biofrontera AG but limited to a 4% per annum interest rate. The loan carries standard market interest.
The loan is carried forward at amortised purchase cost applying the effective interest method.
The performance component represents a separable financial instrument in the form of an embedded derivative, which is
measured at fair value on each reporting date, and is to be classified to a fair value hierarchy of level 3.
The market capitalisation at maturity is the same as that of the measurement cut-off date, which is based on the 90 trade days
preceding the measurement cut-off date. The performance-based interest payment for the first tranche is calculated based on a
notional 0.64% participation rate in the market capitalisation. This is discounted to the measurement cut-off date applying a
market interest rate.
Income tax
In accordance with IAS 12, Biofrontera recognises deferred taxes for valuation differences between IFRS valuation and tax law
valuation. Deferred tax liabilities are generally recognised for all taxable temporary differences – claims from deferred taxes are
only recognised to the extent that it is probable that taxable profits will be available to utilise the claims. The carrying amount of
deferred income tax assets is reviewed on each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available against which the deferred tax claim can be at least partially utilised. Previously
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61
unrecognised deferred income tax assets are reassessed on each balance sheet date and are recognised to the extent that it is
probable from a current perspective that sufficient future taxable profit will be available to realise the deferred tax asset.
Deferred tax liabilities and deferred tax assets are offset if a right to offset exists, and if they are levied by the same tax
authority.
Current taxes are calculated on the basis of the company's taxable earnings for the period. The tax rates applicable to the
respective companies on the balance sheet date are used for this purpose.
Earnings per share
In accordance with IAS 33 "Earnings per Share", earnings per share are calculated by dividing net consolidated income by the
weighted average number of outstanding shares during the year.
Leasing
The leases that have been entered into are classified as either finance leases or operating leases. If the lessor has transferred
all significant risks and opportunities onto the Group as a lessee, the Group is assigned beneficial ownership. The companies
included in the consolidated financial statements have contracts that are classified as operating leases. As such, ongoing lease
payments are expensed as they are incurred. Leases, if any, that are classified as finance leases are recognised as assets at the
lower of the present value of the minimum lease payments or the fair value of the leased asset at the beginning of the lease.
Finance lease assets are depreciated over the shorter of the lease duration or useful life if the transfer of ownership to the
lessee at the end of the contract term is uncertain.
Revenue recognition
The company recognises revenue in accordance with IAS 18 if the risks and opportunities connected with ownership have
transferred to the customer. The company realises its revenue primarily through the sale of its products. Income from milestone
and licensing agreements with third parties are recognised once the underlying contractual conditions are enforceable. The
receipt of revenue is recognised as revenue if the conditions of IAS 18 IE 20 are met in the form of a one-off contract start
payment.
Revenue and other income are recognised if the amount can be measured reliably and payment is sufficiently probable as well
as other conditions mentioned below are met. All income in connection with the sale of products and licence income is
recognised as revenue. Revenue is deemed to be realised when the deliveries and services owed have been provided and
substantial risk and opportunities have been passed to the acquirer.
Most of the revenues are generated by product sales. In accordance with respective local legislation concerning the marketing
of pharmaceuticals and medical products, Ameluz® is sold exclusively through pharmaceutical wholesalers or directly to
hospitals in Germany, as well as directly to pharmacies and hospitals in other European countries. In the U.S., Ameluz® is
reimbursed as a so-called "buy-and-bill drug" and consequently marketed directly to physicians. Additionally in 2017, revenue
was generated through passing costs on to Maruho Co. Ltd as part of the agreed development collaboration and partnership.
In the case of direct sales of the BF-RhodoLED® lamps, the delivered products and services on which amounts are owed are
settled only after complete installation, since the installation service requires specialised knowledge, is not just an ancillary
service and, for legal reasons, the lamp may only be used by the customer after successful installation. In the U.S., some lamps
are made available to physicians in return for a fee for an up to six-month evaluation period. A final decision to purchase does
not need to be made until the end of this period. The company generated revenues from the monthly fees during the evaluation
period, and from the sale of lamps.
Belixos® is predominantly sold through Amazon. Revenue is recognised after delivery and payment by the customer. Based on
experience, return rights granted with the sale through Amazon are exercised by customers only in very few cases.
Revenues are recognised less revenue based trade taxes and sales deductions. Expected sales deductions, for instance rebates,
discounts or returns, are recognised based on estimated values at revenue recognition. Payment terms for Ameluz® include
short-term payment terms with a possibility for sales rebates.
Licence income as well as milestone-based payments are recognised when the contractual obligation has been fulfilled.
62
Biofrontera AG Annual Report 2017
Cost of sales
The cost of sales includes material costs for sold products, payments to third parties for services directly attributable to
revenue generation, as well as directly attributable personnel expenses and depreciation, as well as proportional overhead
expenditures.
Research and development expenses
Pursuant to IAS 38, development costs are recognised as "intangible assets" under certain conditions. Research costs are
recognised as costs as they are incurred. Development costs are capitalised if certain conditions are fulfilled depending on the
possible outcome of development activities.
Estimates of such possible outcomes involve management making significant assumptions. In the management's opinion, due to
uncertainties related to the development of new products, the criteria prescribed under IAS 38.57 "Intangible Assets" for
capitalising development costs as assets are only fulfilled by the Biofrontera Group if the prerequisites for the expansion of the
European approval and the approval in the U.S. are met, and if it is likely a future economic benefit will accrue to the company.
The research and development costs relating to the medication Ameluz®, which has been approved in Europe and the U.S., and to
the company's other research and development projects, are consequently expensed in the period in which they are incurred.
Biofrontera AG Annual Report 2017
63
Intangible and tangible assets
Notes to the consolidated balance sheet
1.
Changes in non-current assets in the 2017 financial year, as well as accumulated depreciation, amortisation and impairment
losses, are presented in the statement of changes in non-current assets. Tangible assets consist mainly of office and business
equipment and laboratory and production facilities.
The additions to intangible assets and to tangible assets in the reporting period arise mainly from the purchase of software
(EUR 15 thousand; previous year: EUR 25), right-of-use assets connected with the prototype of the PDT lamp (EUR 99 thousand;
previous year: EUR 36 thousand), as well as further laboratory devices (EUR 194 thousand; previous year: EUR 290 thousand) and
other fixtures and equipment (EUR 83 thousand; previous year: EUR 117 thousand). The asset disposals with costs totalling
EUR 16 thousand (previous year EUR 66 thousand) resulted primarily from sales of the rental lamps in an amount of
EUR 16 thousand (previous year EUR 52 thousand).
The right-of-use assets reported with a net carrying amount totalling EUR 0.6 million relate mainly to rights totalling
EUR 0.5 million to use technology developed by the company ASAT Applied Science and Technology AG, Zug, Switzerland, in
terms of the active ingredient ALA (aminolevulinic acid), including all related patents and know how. The right-of-use assets that
are acquired are amortised over their estimated remaining useful life, from their date of acquisition, due to their direct usability.
This useful life is derived from the term of the patents issued and acquired by Biofrontera AG and is reviewed annually pursuant
to IAS 38.104. The remaining amortisation period amounts to 1 year (previous year: 2 years). No indications of impairment exist.
64
Biofrontera AG Annual Report 2017
Consolidated statement of changes in non-current assets in 2017
!!
!!
!!
!!
!!
!!
Cost
1 Jan. 17
Currency
Additions
Disposals
31 Dec. 17
Accumulated depreciation, amortisation and impairment
losses
1 Jan. 17
Additions
Disposals
Currency
31 Dec. 17
kEUR
translation
kEUR
kEUR
kEUR
kEUR
translation
kEUR
kEUR
kEUR
I. Tangible assets
!!
!!
!!
Operating and business equipment
3,834
II
Intangible assets
1.
Software and licences
2. Right-of-use assets
Total Intangible assets
Total non-current assets
444
6,089
6,533
10,367
(7)
(1)
-
(1)
(8)
278
15
99
114
392
16
-
-
-
16
!!
!!
!!
4,089
3,189
!!
(2)
!!
167
458
6,188
6,646
304
4,977
5,281
-
-
-
10,735
8,470
(2)
124
593
717
884
!!
11
-
-
-
11
3,343
428
5,570
5,998
9,341
Consolidated statement of changes in non-current assets in 2016
!!
!!
!!
!!
!!
!!
!!
!!
!!
I. Tangible assets
Cost
1 Jan. 16
Currency
Additions
Disposals
31 Dec. 16
Accumulated depreciation, amortisation and impairment
losses
1 Jan. 16
Additions
Disposals
Currency
31 Dec. 16
kEUR
translation
kEUR
kEUR
kEUR
kEUR
translation
kEUR
kEUR
kEUR
kEUR
kEUR
Operating and business equipment
3,477
II
Intangible assets
1.
Software and licences
2. Right-of-use assets
Total Intangible assets
!!
!!
Total non-current assets
419
6,053
6,472
9,949
!!
2
-
-
-
2
420
!!
25
36
61
481
3,834
3,104
!!
!!
65
!!
-
-
-
444
6,089
6,533
295
4,275
4,570
7,674
65
10,367
-
-
-
-
-
120
9
702
711
831
35
-
-
-
35
3,189
!!
304
4,977
5,281
8,470
645
373
140
1,112
1,252
1,897
124
1,778
1,902
2,275
Carrying amounts
31 Dec. 17
31 Dec. 16
kEUR
!!
kEUR
!!
746
30
618
648
1,394
645
140
1,112
1,252
1,897
Carrying amounts
31 Dec. 16
31 Dec. 15
2. Inventories
Inventories are comprised of finished products, work in progress, raw materials and supplies at the sales companies.
No impairment losses were recorded for inventories in 2017 (previous year: EUR 0).
Inventories amount to EUR 3.7 million (previous year EUR 3.6 million). In assessing the consumption of inventories, the
sequence of consumption is assumed to be based on the first-in-first-out (FIFO) method.
3. Trade receivables
The trade receivables are mainly attributable to the sale of Ameluz®, the BF-RhodoLED® PDT lamp and the medical cosmetic
product Belixos®, as well as receivable due from Maruho arising from revenues from development projects. It is expected that
all trade receivables will be settled within twelve months of the balance sheet date. Value adjustments for doubtful
receivables have not been applied since no receivables existed that were overdue as of 31 December 2017. For 31 December
2016, no value adjustments were recognized.
4. Other financial assets
The other financial assets comprise mainly prepayments rendered for studies (EUR 0.4 million; previous year: EUR 0.6 million)
and the depositing of collateral, mainly for credit cards and leased vehicles (EUR 0.1 million; previous year: EUR 0.1 million). No
individual value adjustments were applied during the reporting year (previous year: EUR 0).
5. Other assets
The other assets consist mainly of prepaid assets (EUR 0.5 million; previous year: EUR 0.7 million) and deferred costs for equity
procurement measures (EUR 0.9 million, previous year: EUR 0) in connection with the admission to listing on the NASDAQ Stock
Exchange on 13 February 2018, which were offset with the capital reserve on the listing date.
No individual value adjustments were applied during the reporting year (previous year: EUR 0).
Prepaid assets of 0.7 million, which were reported as other financial assets in the previous year, were reclassified to other
assets in order to conform to the current year presentation of the balance sheet.
6. Income tax reimbursement claims
These consist of claims for tax refunds relating to withheld capital gains tax, plus the Solidarity Surcharge (EUR 52 thousand;
previous year EUR 33 thousand).
7. Cash and cash equivalents
Cash and cash equivalents relate to cash in hand, cheques, bank deposits and money deposits with a term of up to three
months at the time of acquisition amounting to a total of EUR 11.1 million (previous year EUR 15.1 million). The carrying amounts
of the cash and cash equivalents correspond to their fair value, due to the short-term nature of these investments.
66
Biofrontera AG Annual Report 2017
8. Deferred income tax
The following table shows changes in the Group's existing deferred tax assets deriving, as a matter of principle, from tax loss
carryforwards:
31 December 2017
31 December 2016
Loss carried forward
Deferred
tax assets
Loss carried
forward
Deferred
tax assets
EUR thousands
EUR thousands
EUR thousands
EUR thousands
Corporation tax including Solidarity
Surcharge
Business tax
U.S. corporation tax
Total
119,725
107,962
8,026
18,947
17,949
2,007
38,903
111,742
100,716
1,673
17,683
16,744
418
34,845
These loss carryforwards have an unlimited carryforward period under current German law. In the USA, tax loss carryforwards
can be carried forward for 20 years in each case.
Due to the lack of predictability regarding future taxable profits, the existing deferred tax assets deriving, as a matter of
principle, from
loss carryforwards (EUR 38.9 million; previous year EUR 34.8 million) and deferred tax assets of
EUR 321 thousand (previous year EUR 244 thousand) were not recognised on the balance sheet, in accordance with IAS 12.34.
The following provides a reconciliation between expected and actual reported income tax expense, with the output value being
based on the rounded income tax rate of 32.5% currently applicable to the Biofrontera Group:
Consolidated earnings before tax
Expected income tax reimbursement at the tax rate of the parent company
Differences arising from different tax rates
Adjustments of deferred taxes due to tax rates
- From temporary differences
- From loss carry forwards
Tax increases due to non-deductible expenses
Changes in unrecognised deferred tax assets
- from active temporary differences
- from loss carryforwards
Other effects
Income taxes as per statement of comprehensive income
31.12.2017
31.12.2016
EUR thousands
EUR thousands
(16,102)
5,226
586
(121)
(1,014)
(646)
(194)
(4,161)
(323)
0
(10,579)
3,433
215
(145)
(251)
(238)
(241)
(2,529)
(248)
0
9. Equity
The fully paid in share capital of the parent company, Biofrontera AG, amounted to EUR 38,416,828 on 31 December 2017. It was
divided into 38,416,828 registered shares with a nominal value of EUR 1.00 each. On 31 December 2016, the share capital
amounted to EUR 37,722,433 and was increased during the course of the 2017 financial year through the exercising of
conversion rights from the 2016/2021 Convertible Bond as well as from the 2017/2022 Convertible Bond by an amount of
EUR 694,395, divided into 694,395 registered shares.
As part of the capital increase implemented in February 2016, the company’s share capital was increased against cash capital
contributions by EUR 2.4 million through issuing 2,357,384 new ordinary registered shares from approved capital.
Shareholders’ subscription rights were excluded for this capital increase. The new shares were offered to selected institutional
investors at an issue price of EUR 1.90 per new share, consequently for a total issue amount of EUR 4.5 million. These shares
were fully placed and the implementation of the capital increase was entered in the commercial register on 26 February 2016.
The net proceeds amounted to EUR 4.4 million.
Biofrontera AG Annual Report 2017
67
As part of the capital increase implemented in April 2016, the company’s share capital was increased against cash capital
contributions by EUR 2.5 million through issuing 2,499,999 new ordinary registered shares from approved capital. Statutory
subscription rights were granted to the shareholders. An “additional subscription” was also offered. In other words,
shareholders exercising subscription rights could apply to subscribe for unsubscribed shares at the subscription price. The
subscription price per share amounted to EUR 2.00. The capital increase was fully placed. The implementation of the capital
increase was entered in the commercial register on 26 April 2016. The net issue proceeds amounted to EUR 4.9 million.
As part of the capital increase implemented in November 2016, the company’s share capital was increased against cash capital
contributions by EUR 5.0 million through issuing 5,012,950 new ordinary registered shares from approved capital. The
implementation of the capital increase was entered in the commercial register on 21 November 2016. Statutory subscription
rights were granted to the shareholders in a 6:1 ratio. The subscription price per share amounted to EUR 3.00. The net issue
proceeds amounted to EUR 14.7 million.
In November 2016, 49,990 subordinated convertible 2016/2021 bonds were issued in a total nominal amount of EUR 5.0 million
("convertible bond"). The bonds were offered at a subscription price of 100% of the nominal value per bond in a denomination
of EUR 100.00 per bond, and were fully placed. Shareholders were granted indirect subscription rights to the bonds. The
conversion price amounted initially to EUR 3.00 per share, EUR 4.00 per share from 1 January 2017 and EUR 5.00 per share
from 1 January 2018. Shareholders were granted statutory subscription rights in a 607:1 ratio at an issue price of EUR 100.00
per bond. The total issue volume amounted to EUR 5.0 million. In the 2017 financial year, bonds in a nominal amount of
EUR 106,800 were converted into the company's shares. Pursuant to section 12 of the bonds' terms and conditions, the
conversion price was reduced in March 2018 by EUR 0.25 to EUR 4.75.
The exercising of 751,460 warrant rights from the 2011/2016 warrant bond generated issue proceeds of EUR 2.2 million in the
2016 financial year.
On 23 December 2016, the company's Management Board approved the issue of a further convertible bond, which was placed in
full in an amount of EUR 5.0 million in January 2017. The bond's initial conversion price amounts to EUR 3.50, to EUR 4.00 from
1 April 2017 and to EUR 5.00 from 1 January 2018. The bonds carry 6% per annum interest on the par value from 1 February
2017. Unless previously converted, the bond is to be repaid in cash on 1 January 2022. As of 31 December 2017, bonds in a
nominal amount of EUR 2,337,200 were converted into the company's shares. Pursuant to section 11 of the bonds' terms and
conditions, the conversion price was reduced in March 2018 by EUR 0.25 to EUR 4.75.
The Biofrontera AG shares were listed on the Regulated Market of the Düsseldorf Stock Exchange in 2006. In August 2012, the
company's shares were also admitted to trading on the Regulated Market of the Frankfurt Stock Exchange in response to an
application by the company. The company's shares are also traded on the Xetra computer trading system and all other
German stock exchanges. On 3 June 2014, the share was included in the Prime Standard of the Frankfurt Stock Exchange.
The introduction on the NASDAQ Stock Market in the U.S. occurred on 13 February 2018. Shares in Biofrontera AG are traded
there as American Depositary Shares (ADS) under the ticker symbol BFRA. One ADS securitises the right to two ordinary shares
of Biofrontera AG.
68
Biofrontera AG Annual Report 2017
The numbers of shares held by the shareholders on 31 December 2017, based on the most recent disclosure of the
shareholders, are as follows:
Maruho Co., Ltd., Osaka Japan
The total share of voting rights is assigned to Maruho Co., Ltd, Osaka, through the
company Maruho Deutschland GmbH, Düsseldorf, which is controlled by the former.
Wilhelm Konrad Thomas Zours
The voting rights through the chain of subsidiaries listed below are attributed to Mr.
Zours:
•
•
•
•
•
DELPHI Unternehmensberatung AG
VV Beteiligungen AG
Deutsche Balaton AG
ABC Beteiligungen AG
Heidelberger Beteiligungsholding AG
31.12.2017
EUR
7,631,586
31.12.2016
EUR
7,631,586
3,400,907
3,400,907
Semper Constantia Invest GmbH, Vienna, Austria
1,165,212
N/A
Universal-Investment-Gesellschaft mbH, Frankfurt am Main, Germany
The share of voting rights is attributed to Universal-Investment GmbH through the
company FEHO Vemögensverwaltungsgesellschaft.
799,463
799,463
Free float
Total
25,419,660
38,416,828
25,890,477
37,722,433
Consolidated equity determined in accordance with IFRS is managed as capital. The company's capital management body
regularly reviews the equity facilities available to the Group. The management's objective is to ensure an appropriate equity
base, within the framework of the expectations of the capital market, and creditworthiness with respect to national and
international business partners. The company's Management Board ensures that all Group companies have sufficient capital at
their disposal in the form of equity and debt funding.
The statement of changes in equity provides further information about the development of equity.
The following positions were reported in connection with the convertible bonds and bonds with warrants as of 31 December
2017 and 31 December 2016:
Non-current financial liabilities
(measured at amortised cost)
Current financial debt
(accrued interest from nominal interest rate)
Capital reserve
(equity component: 2016/2021 convertible bond)
Capital reserve
(equity component: 2011/2016 warrant bond)
Capital reserve
(equity component: 2009/2017 warrant bond)
Capital reserve
(equity component: 2017/2022 convertible bond)
31.12.2017
EUR thousands
31.12.2016
EUR thousands
2,693
85
348
1,227
1,485
296
3,597
273
348
1,227
1,485
-
The interest effects from the convertible bonds on non-current liabilities were calculated at 7.9% per annum for the 2016/2021
convertible bond on initial measurement, and at 7.6% per annum for the 2017/2022 convertible bond.
In accordance with IAS 32.37, equity procurement costs in connection with capital increases are deducted from the capital
reserve. The deduction in the year under review amounted to EUR 0 (previous year: EUR 0.3 million). In 2018, the
EUR 0.9 million of equity procurement costs incurred as part of the capital increase through the IPO in the U.S., which were
Biofrontera AG Annual Report 2017
69
deferred as other assets as of 31 December 2017, plus further equity procurement costs incurred in 2018, will be deducted from
the capital reserve.
In the event of the company achieving an annual surplus, the Management and Supervisory boards are authorised to transfer
all or part of the annual surplus that remains, after deduction of the sums to be placed in the legal reserves and of a loss
carried forward, to retained earnings. It is not permissible to transfer more than half of the annual surplus to retained
earnings if, after such a transfer, the other retained earnings would exceed half of the share capital. The shareholders' share
of profits are calculated based on the size of their holding of the share capital.
2010 share option programme
At the Annual General Meeting on 2 July 2010, the Management and Supervisory boards proposed a share option programme
for employees to the Annual General Meeting, which approved the initiative. Accordingly, the Management Board, or the
Supervisory Board if the beneficiaries are Management Board members, are entitled to issue up to 839,500 share options, the
exercising of which is linked to specific targets.
The programme has a total nominal volume of EUR 839,500 and a term of six years from the issue date, in other words, until
24 November 2016. For this, conditional capital amounting to EUR 839,500was approved by means of the issuing of up to
839,500 registered no par value unit shares with a proportional amount of the share capital of EUR 1.00 per share, in
accordance with Section 192 (1) No. 3 of the German Stock Corporation Act (AktG). The conditional capital was registered on 30
July 2010 in the commercial register of the Cologne District Court, under commercial register sheet number 49717. Eligibility
for the 2010 share option programme was granted to members of the Management Board and employees of the company as
well as to members of management bodies and employees of affiliates of Biofrontera AG.
The issue date was 24 November 2010. The granting of options is made without any payment being provided in return. On 24
November 2010, 106,400 options (first tranche) were issued with an exercise price per share of EUR 1.91. On 30 September and 7
October 2011 (second tranche) a further 96,400 options were issued with an exercise price of EUR 2.48 each. On 23 March 2012
and 11 May 2012 (third tranche), 65,000 options were issued with an exercise price of EUR 3.30 each, and 51,500 options were
issued with an exercise price of EUR 4.09 each. On 2 September 2013, 179,500 options were issued (fourth tranche) with an
exercise price of EUR 3.37 each. On 2 April 2014, 159,350 options were issued with an exercise price of EUR 3.43 each (fifth
tranche).
In accordance with the associated conditions, each subscription right that is granted entitles the beneficiary to acquire one
new registered no par value unit share in the company. The exercise price is equal to the arithmetical average (unweighted) of
the closing prices on the Frankfurt Stock Exchange in floor trading and in Xetra trading for the company's shares on the ten
trading days prior to the issuing of the share. However, the minimum exercise price amounts to the proportionate share of the
company's share capital allocated to each individual no par value unit share, pursuant to Section 9 (1) of the German Stock
Corporation Act (AktG).
The options granted can only be exercised after expiry of a vesting period. The vesting period is four years from the
respective date of issue. A prerequisite for the whole or partial exercising of the options is that the following performance
target is achieved:
Exercising the options from a tranche is possible if at the beginning of the respective exercise period, the price (hereinafter
referred to as the "reference price") of a share in Biofrontera Aktiengesellschaft exceeds the exercise price by at least 20%,
and a minimum reference price of at least EUR 5.00 is reached (hereinafter referred to as the "minimum reference price"). The
reference price is equal to the arithmetical average (unweighted) of the closing prices on the Frankfurt Stock Exchange in
floor trading and Xetra trading for the company's shares between the 15th and the 5th stock market day (in each case
inclusive) before the start of the respective exercise window. The minimum reference price is adjusted in the following cases
to align the specified performance target with changed circumstances:
-
-
70
In the event of a capital increase from company funds being implemented by issuing shares, the minimum reference
price is reduced by the same ratio as new shares issued compared to existing shares. If the capital increase is
implemented from company funds without issuing new shares (Section 207 (2) Clause 2 of the German Stock
Corporation Act [AktG]), the minimum reference price is not changed.
In the case of a capital reduction, no adjustment of the minimum reference price is implemented, provided that the
total number of shares is not changed by the capital reduction, or if the capital reduction is connected to a capital
repayment or purchase of treasury shares. In the case of a capital reduction performed by consolidating shares
Biofrontera AG Annual Report 2017
without capital repayment and in the case of increasing the number of shares with no associated change in capital
(share split), the minimum reference rate increases proportionally with the capital reduction or share split.
Other adjustments to the minimum reference price are not implemented.
The exercising of options is limited to the following time periods (hereinafter "exercise windows"), in other words, only
declarations of exercising of rights submitted to the company within an exercise window will be considered:
a) on the 6th and subsequent 14 banking days after the date of the Annual General Meeting (exclusive),
b) on the 6th and subsequent 14 banking days after the date of submission of the semi-annual or quarterly report or an
interim statement by Biofrontera AG (exclusive)
c)
in the period between the 15th and the 5th banking day before expiration of the options for each respective expiry
date (exclusive).
After the vesting period, the options can be exercised up until the expiry of six years from the date of issue (exclusive).
The right to exercise the options ends at the latest six years after the first day of issue. The right to exercise the first options
that were issued thus ends on 24 November 2016. If the options have not been exercised by this time, they expire without
provision of compensation. In the valuation of the employee share options, we have assumed an average holding period of 5
years.
Any claim by the beneficiaries to receive a cash settlement in the event of non-exercise of the options is invalid even in the
event of the existence of the above exercise prerequisites. An option may only be exercised if the holder has a current service
or employment contract with the company or another company affiliated with the company or if the holder is a member of the
Management Board or the management team of another company affiliated with the company.
In the event of the exercising of a subscription right, the company is generally and in specific cases permitted to choose
between granting the registered share in exchange for payment of the exercise price, or fulfilling its debt by paying a cash
settlement to the holder of the subscription right. The cash settlement per subscription right is equal to the difference
between the exercise price per share and the share price on the exercise date, minus due taxes and fees.
As this share option scheme entails share-based payment transactions in which the terms of the arrangement provide the
company with a choice of settlement, the company has decided, in accordance with IFRS 2.41 and IFRS 2.43, to recognise the
transactions pursuant to the provisions for equity-settled share-based payments (IFRS 2.10-29). For this reason, the fair value
of a share from this share option programme with a grant date of 24 November 2010 was determined, on the basis of a
binomial model, to have a fair value of EUR 0.57 / share option. The pro rata amounts are recognised in instalments over the
vesting period until the end of the vesting period as personnel expenses and as an increase in the capital reserve. Share price
volatilities of 45.78% and 51.3% were applied in calculating the fair value of the options granted in 2010 and 2011, volatilities of
53.5% and 65% were applied for the options granted in 2012, volatility of 39.2% was applied for the options granted in 2013,
and volatility of 32.3% for the options granted in 2014 (based on the reporting date volatility). A dividend yield of 0% was
applied in all cases, as well as risk-free rates of respectively 1.75% and 1.21%, and 0.9% and 0.82% in 2012 as well as 0.71% in
2013 and 0.68% in 2014, and a standard 20% annual beneficiary turnover rate. No share options were issued in financial year
2015. The authorisation to issue options under the 2010 share option programme ended on 1 July 2015.
The vesting period for the first tranche ran until 24 November 2014, and the vesting period for the second tranche ran until 30
September 2015 Or 07 October 2015 respectively. The option rights from the first tranche expired on 24 November 2016 and
from the second tranche the option rights expired on 30 September 2017 or 07 October 2017 respectively, as the exercise
terms were not met.
The vesting period for the third tranche ran until 23 March 2016 or 11 May 2016 respectively, and the vesting period for the
fourth tranche ended on 02 September 2017. No options had been exercised from these tranches up to the reporting date.
No options from the fifth tranche could be exercised due to the vesting period.
A total of 141,750 options associated with the 2010 stock option programme were forfeited by employees leaving the company.
Biofrontera AG Annual Report 2017
71
By resolution of the Annual General Meeting on 28 August 2015, the Conditional Capital III planned for the servicing of options
under this programme was reduced to EUR 542,400.
In March 2018, the exercise prices were adjusted pursuant to section 11 of the options' terms and conditions. The exercise price
for the third tranche now amounts to EUR 3.02 and EUR 3.81 respectively, for the fourth tranche to EUR 3.093 and for the fifth
tranche to EUR 3.15.
The cost expensed in the reporting period amounted to EUR 42 thousand for 2017 (previous year EUR 62 thousand).
2015 share option programme
At the Annual General Meeting on 28 August 2015, the Management Board and Supervisory Board proposed a new share option
programme for employees to the Annual General Meeting, which approved the initiative. Accordingly, the Management Board
or, to the extent that the beneficiaries are Management Board members, the Supervisory Board, are entitled until 27 August
2020 to issue up to 1,814,984 subscription rights to up to EUR 1,814,984 of the company's ordinary registered shares, whose
exercise is tied to certain targets.
The programme has a total nominal volume of EUR 1,814,984 and a term of five years from the issue date, in other words, until
27 August 2020. For this, conditional capital amounting to EUR 1,814,984 was approved by means of the issuing of up to
1,814,984 registered no par value unit shares with a proportional amount of the share capital of EUR 1.00 per share, in
accordance with Section 192 (1) No. 3 of the German Stock Corporation Act (AktG). The conditional capital was registered on
18/09/2015 in the commercial register of the Cologne District Court, under commercial register sheet number 49717. Eligibility
for the 2015 share option programme was granted to members of the Management Board and employees of the company as
well as to members of management bodies and employees of affiliates of Biofrontera AG. The granting of options is made
without any payment being provided in return.
The conditions of the 2015 share option programme are to a large extent identical to those of the 2010 share option
programme, therefore, with respect to the 2015 share option programme, we refer to the explanations of the conditions of the
share option programme 2010 provided above, however 20 banking days are being used instead of 14 banking days.
The inclusion of a “comparison with a reference index” as performance target instead of “achievement of a minimum
reference price of EUR 5.00” as performance target is deemed to be a major difference in the conditions of the 2015 share
option programme compared to the 2010 share option programme. The fair value of each option of this share option
programme was calculated on the grant date of the first tranche on 18 April 2016 based on a Monte Carlo risk simulation at a
fair value of EUR 1.00/option. The fair value of each option of this share option programme was calculated on the grant date of
1 December 2016 based on a Monte Carlo risk simulation at a fair value of EUR 1.30/option. A volatility of the share price of
approximately 50.6% was used to calculate the fair value of the options granted in 2016 in the first tranche and a volatility of
approximately 49.0% for the second tranche (based on daily rates, annualised assuming 250 trading days per annum), a
dividend yield of 2.31% for the first tranche (based on daily rates, annualised assuming 250 trading days per annum) and
7.00% for the second tranche respectively (based on the Capital Asset Pricing Model) and a total risk adjusted interest rate of
5.92% for the first tranche and 13.26% for the second tranche respectively as well as an unchanged annual beneficiary
turnover rate of 12% for both tranches.
On 18 April 2016, 425,000 options (first tranche) were issued with an exercise price per share of EUR 2.49. On 1 December 2016,
a further 130,500 options (second tranche) were issued with an exercise price of EUR 3.28 each.
On 28 April 2017, a further 329,000 options (third tranche) were issued at an exercise price of EUR 4.02 each and on 28
November 2017 a further 300,500 options (fourth tranche) were issued at an exercise price of EUR 3.33 each. Due to the
vesting period, none of these options have yet been exercised or forfeited.
The cost expensed in the reporting period amounted to EUR 0.1 million (prior-year period: EUR 49 thousand).
A total of 41,500 options associated with the 2015 stock option programme were forfeited by employees leaving the company.
In March 2018, the exercise prices were adjusted pursuant to section 13 of the options' terms and conditions. The exercise
price for the first tranche now amounts to EUR 2.25, EUR 3.04 for the second tranche, EUR 3.78 for the third tranche and
EUR 3.09 for the fourth tranche.
72
Biofrontera AG Annual Report 2017
-2010 share option programme
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Expired during the period
Outstanding at the end of the period
Exercisable at the end of the period
Range of exercise prices for outstanding options
Weighted average of remaining contractual life
-2015 share option programme
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Expired during the period
Outstanding at the end of the period
Exercisable at the end of the period
Range of exercise prices for outstanding options
Weighted average of remaining contractual life
31.12.2017
439,500
-
4,500
-
70,650
364,350
-
31.12.2016
534,400
-
13,500
-
81,400
439,500
-
EUR 3.26 – 4.05
18 months
EUR 2.44 – 4.05
27 months
31.12.2017
31.12.2016
548,000
629,500
34,000
-
-
1,143,500
-
-
555,500
7,500
-
-
548,000
-
EUR 2.49 – 4.02
60 months
EUR 2.49 – 3.28
59 months
10. Financial liabilities
On 26 June 2009, Biofrontera announced the placement of a warrant bond with a term ending on 1 January 2018. As part of this
financing measure on the part of the company, a warrant bond was placed in 2009 ("Warrant Bond I"). The warrant bond has
a total nominal value of EUR 10 million, divided into up to 100,000 bonds with a nominal value of EUR 100.00. The redemption at
the end of the term is at 106% of par. The warrant bonds bear interest on the following scale:
- from 01.09.2009 to 30.12.2010 at an annual rate of 4%;
- from 31.12.2010 to 30.12.2011 at an annual rate of 6%;
- from 31.12.2011 to 31.12.2017 at an annual rate of 8%.
The accrual of interest on each warrant bond ends on the day before it is due for redemption. The interest payment is made on
the last business day of the calendar year, but not until 31 December 2010, in other words, the interest for 2009 does not
become due until then. An ordinary call on the bond by the bondholders is not permitted. Biofrontera has the right, upon
issuing of written notice to the bondholders of Warrant Bond I, to repay 106% of the nominal amount (plus any accrued
interest) at any time. Each holder of a partial bond is, in accordance with the bond and option terms, entitled to five
detachable option rights per bond, with each of these providing the irrevocable right to acquire a registered voting-entitled no
par value ordinary share in Biofrontera AG with a notional proportion of the share capital of EUR 1.00, at a warrant price of
EUR 5.00 each. The warrant right expires on 30 December 2017. The share resulting from the exercising of a warrant right is
dividend-entitled from the beginning of the financial year in which it originated from the exercising of the option right and
payment of the capital contribution. To provide financing for the warrant rights, conditional capital of the company amounting
to up to EUR 500,000 was approved at the Extraordinary General Meeting held on 17 March 2009.
Of these warrant bonds, partial bonds were issued with a total nominal value of EUR 4.9 million.
With the early call of this warrant bond, the principal repayment of EUR 4.9 million plus the premium of EUR 0.3 million and
resultant interest owing for the 1 January 2017 to 2 August 2017 period of EUR 0.2 million was disbursed on 3 August 2017
(previous year EUR 0.4 million). Offsetting this, the warrant bonds the company holds itself with a par value of EUR 1.5 million
plus the premium of EUR 90 thousand and the resultant interest receivables of EUR 71 thousand (previous year: EUR 0.1 million)
were credited.
The term of the 2016/2021 convertible bond begins on the date of its initial issue ("issue date") and ends on 31 December
2020.
Biofrontera AG Annual Report 2017
73
The individual bonds carry 6% annual interest on their par value from 1 January 2017 (inclusive). The interest payments are
payable annually subsequently on 1 January of each year, commencing on 1 January 2018.
The bonds can be converted into the company's ordinary no par value registered shares, each of which has a nominal share of
EUR 1.00 in the share capital. The shares are dividend-entitled from the year when the conversion right is exercised.
During the term, the holders of the bonds are entitled to convert all bonds into the company's shares. The initial conversion
price is staggered. From the start of the term until 31 December 2016, the initial conversion price amounts to EUR 3.00 per
share. From 1 January 2017 until 31 December 2017, the conversion price amounts to EUR 4.00 per share. From 1 January 2018,
the conversion price amounts to EUR 5.00 per share.
At the end of the term of the convertible bond, the company is entitled to deliver shares instead of repaying the bonds.
Moreover, the company is entitled to convert the bonds into shares at any time if the average price of the company shares
exceeds EUR 5.00 on one occasion. In both cases, the initial conversion price amounts to EUR 5.00.
As of 31 December 2017, bonds in a nominal amount of EUR 4.9 million were converted into the company's shares.
In March 2018, the conversion price was reduced to EUR 4.75 pursuant to section 12 of the bonds' terms and conditions.
The term of the 2017/2022 convertible bond begins on the date of its initial issue ("issue date") and ends on 31 December
2021.
The individual bonds carry 6% annual interest on their par value from 1 February 2017 (inclusive). The interest payments are
payable annually subsequently on 1 January of each year, commencing on 1 July 2017.
The bonds can be converted into the company's ordinary no par value registered shares, each of which has a nominal share of
EUR 1.00 in the share capital. The shares are dividend-entitled from the year when the conversion right is exercised.
During the term, the holders of the bonds are entitled to convert all bonds into the company's shares. The initial conversion
price is staggered. From the start of the term until 31 March 2017, the initial conversion price amounts to EUR 3.50 per share.
From 1 April 2017 until 31 December 2017, the conversion price amounts to EUR 4.00 per share. From 1 January 2018, the
conversion price amounts to EUR 5.00 per share.
At the end of the term of the convertible bond, the company is entitled to deliver shares instead of repaying the bonds.
As of 31 December 2017, bonds in a nominal amount of EUR 2.3 million were converted into the company's shares.
In March 2018, the conversion price was reduced to EUR 4.75 pursuant to section 11 of the bonds' terms and conditions.
74
Biofrontera AG Annual Report 2017
Loan from the European Investment Bank
The note is carried forward at amortised purchase cost applying the effective interest method. As of 31 December 2017, the
carrying amount of the note was EUR 9.1 million.
As a variable interest component and also as a separable financial instrument in the form of an embedded derivative, the
performance component is subsequently measured at fair value. The discounted interest payment and the fair value of the
performance component respectively amounted to EUR 0.6 million as of 31 December 2017.
The contractual interest and repayment obligations relating to warrant bonds, the convertible bonds and the EIB loan are
composed as follows on the balance sheet date:
EUR thousands
31.12.2017
Convertible bond 2016/2021:
Principal repayment
Interest payment
Convertible bond 2017/2022:
Principal repayment
Interest payment
EIB loan
Principal repayment
Interest payment
2018
2019
2020
2021
2022
Total
5
5
5
83
5
160
160
160
160
380
405
433
461
83
20
2,662
720
10,000
5,605
2,662
80
10,000
3,926
The position was as follows in the previous year:
EUR thousands
31.12.2016
Warrant bond 2009/2017:
Principal repayment
Interest payment
Warrant bond 2016/2021:
Principal repayment
Interest payment
2017
2018
2019
2020
2021
Total
5,226
394
11
11
11
11
5,226
394
190
55
190
11
11. Trade payables
The trade payables (EUR 1.1 million; previous EUR 2.1 million) decreased by EUR 1.0 million from the previous year.
12. Other provisions
Other provisions report the following changes:
Biofrontera Group
Bonuses for employees
Outstanding vacation
Outstanding invoices
Costs for financial
statements and auditing
Other provisions
Total provisions
EUR
thousands
01.01.2017
506
198
936
154
30
1,824
Utilisation
Released
Added
Translation
difference
current year
EUR
thousands
31.12.2017
484
187
710
140
5
1,526
0
0
45
14
0
59
1,162
263
775
143
12
2,356
(21)
(11)
(27)
0
0
(59)
1,162
263
929
143
38
2,535
Biofrontera AG Annual Report 2017
75
Other provisions concern various individually identifiable risks and contingent liabilities. Provisions classified as current are
expected to lead to an outflow of economic benefits prospectively within the subsequent financial year.
13. Other financial and other current liabilities
Payroll tax
Social security
Credit card payments
Wages and salaries
Other
31 December 2017
EUR thousands
31 December 2016
EUR thousands
184
29
4
89
16
323
114
14
28
57
35
249
14. Reporting on financial instruments
During the course of its operating activities, the Group is exposed to market price and credit risk, as well as liquidity risk,
which could have an effect on its financial position and performance.
Market price risk: Interest-rate risk is deemed minor as existing interest-rate modalities for the Biofrontera Group's relevant
financing facilities can generally be adapted to market conditions short- to medium-term. The performance component
represents one exception, although this is mitigated by a limit to 4% of the market price risk. No cash flow risk exists in
relation to fixed interest warrant bonds. Due to the fixing of interest, no disadvantageous changes can occur to the interest
payments. As the liabilities are not recognised at fair value but instead at amortised cost, there is also no fair value risk. The
Biofrontera Group was exposed to foreign currency risks on the balance sheet date, especially through the intragroup loan to
the subsidiary Biofrontera Inc.
Foreign currency risk: The Biofrontera Group was exposed to foreign currency risks on the balance sheet date, especially
through the intragroup loan to the subsidiary Biofrontera Inc. Trade payables denominated in foreign currency are of minor
importance. The trade receivables are generated from business expansion in the U.S. in a greater scope than in the past and
are regularly checked for potential default risk. The company does not conclude any special hedging transactions. Currency
exchange rate fluctuations are recognised in profit or loss.
The monitoring and management of liquidity is based on short-term and long-term corporate planning. Liquidity risks are
identified at an early stage, using simulations of various scenarios. Current liquidity is reported and monitored on a daily
basis.
As of 31 December 2017, Biofrontera held no financial positions that were exposed to interest rate risks.
We measured the USD 15 million intercompany loan existing as of 31 December 2017 at the reporting date rate of 1.20 USD/EUR.
If these loans remain at the same level over the entire 2018 financial year, a 5% change in the exchange rate would lead to a
EUR 0.6 million change in the result in the "other expenses and income" item in the income statement.
Credit risk: A credit risk arises for the Group if transaction partners cannot meet their obligations within the normal payment
deadlines. On the balance sheet, the maximum non-payment risk is represented by the carrying amount of the relevant
financial asset. The situation regarding receivables is monitored so that any possible non-payment risks can be identified at an
early stage and appropriate steps taken. In the 2017 financial year, no individual value adjustments were made for other
financial assets (prior-year period: EUR 0); in addition, no individual value adjustments were applied to trade receivables in the
2017 financial year (prior-year period: EUR 0).
Based on the input factors used at the valuation methods fair values are divided into different steps of the fair value
hierarchy:
Level 1: Fair value valuations using prices listed on active markets (not adjusted) for identical assets or liabilities.
Level 2: Fair value valuations using inputs for the asset or liability that are either directly observable (as prices) or indirectly
observable (derived from prices), but which do not constitute listed prices pursuant to Level 1.
76
Biofrontera AG Annual Report 2017
Level 3: Fair value valuations using inputs for the asset or liability that are not based on observable market data
(unobservable input data).
Biofrontera has financial instruments at levels 1, 2 and 3. No reclassifications between the individual fair value hierarchy levels
were implemented in the 2017 financial year. In the case of the financial liabilities, the non-current and current financial
liabilities belong to Level 1 (EUR 11.9 million; 31 December 2016: EUR 3.7 million) and Level 2 (EUR 80 thousand; 31 December 2016:
EUR 0.2 million) and Level 3 (performance component of the EIB loan) (EUR 0.6 million; 31 December 2016: EUR 0).
Biofrontera reports under other operating expenses value adjustments to trade receivables and miscellaneous financial
obligations allocable to the "loans and receivables" category. The losses from the currency translation derived mainly from
the USD/EUR translation of the intercompany USD loan extended by Biofrontera AG to Group company Biofrontera Inc. This
loan is eliminated as part of consolidation and is consequently not presented in the following tables. The net gains and losses
generally include specific value adjustments and currency conversion effects.
The financial assets and liabilities can be subdivided into measurement categories with the following carrying amounts, and
net gains and losses:
Biofrontera AG Annual Report 2017
77
Carrying amounts
Financial
assets on 31.12.2017
(EUR thousands)
Fair value
Loans and
receivables
Financial
instruments
measured at
fair value
through profit
or loss
Financial
assets
available-for-
sale
TOTAL
CARRYING
AMOUNTS
Net gains
(+) or
losses (-)
Financial assets
Liquid assets
Trade
accounts
receivable
11,083
1,561
Miscellaneous current
571
11,083
1,561
571
11,083
1,561
-
-
(1)
571
(13)
financial
receivables and
assets
TOTAL
13,215
13,215
-
-
13,215
(14)
Carrying amounts
Financial liabilities
on 31.12.2017 (EUR
thousands)
Fair value
Other
liabilities
Financial
instruments
measured at
fair value
through
profit or loss
Financial liabilities
171
171
1,084
1,084
TOTAL
CARRYING
AMOUNTS
Net gains
(+) or
losses (-)
171
-
1,084
(48)
20
20
20
-
12,355
11,803
552
12,355
32
13,629
13,077
552
-
-
13,629
(16)
Current
trade
accounts
payable
Other financial
Liabilities,
current
Other
Financial liabilities,
non-current
TOTAL
78
Biofrontera AG Annual Report 2017
Carrying amounts
Financial
assets on 31.12.2016 (EUR
thousands)
Fair value
Loans and
receivables
Financial
instruments
measured at
fair value
through profit
or loss
Financial
assets
available-
for-sale
TOTAL
CARRYING
AMOUNTS
Net gains
(+) or
losses (-)
Financial assets
Liquid assets
Trade
accounts
receivable
15,126
1,624
Miscellaneous current
670
15,126
1,624
670
15,126
1,624
-
79
-
670
-
financial
receivables and
assets
TOTAL
17,420
17,420
-
-
17,420
79
Carrying amounts
Financial liabilities
on 31.12.2016 (EUR
thousands)
Fair value
Other
liabilities
Financial
instruments
measured at
fair value
through profit
or loss
TOTAL
CARRYING
AMOUNTS
Net gains
(+) or
losses (-)
Financial liabilities,
274
274
current
Trade
accounts
payable
Other financial
Liabilities,
current
Other
Financial liabilities,
non-current
TOTAL
2,093
2,093
58
58
3,597
3,597
274
-
2,093
(73)
58
3,597
-
-
6,023
6,023
-
-
-
6,023
(73)
Liquidity risk: The refinancing of the Biofrontera Group companies is generally performed centrally by Biofrontera AG. A risk
exists in this regard that the liquidity reserves may be insufficient to fulfil the financial obligations on the due date. In order to
cover the liquidity requirements at 31 December 2017, cash and cash equivalents totalling EUR 11.1 million (31 December 2016:
Biofrontera AG Annual Report 2017
79
EUR 15.1 million) are available. See the relevant balance sheet notes on undiscounted payments from financial debt due in the
next years.
Notes to the consolidated statement of comprehensive income for the 2017
financial year
15. Sales revenue
The Biofrontera Group generated EUR 12.0 million of sales revenue in the 2017 financial year (previous year: EUR 6.1 million),
corresponding to 96% year-on-year growth. Revenues from the sale of products in Germany increased by 6% to
EUR 2.7 million (previous year EUR 2.5 million), while revenues generated in European countries outside Germany grew by 30%
to EUR 1.6 million (previous year EUR 1.3 million). In the U.S., revenues from the sale of products registered significant growth
of 447% to EUR 6.3 million (previous year: EUR 1.2 million). After receiving all individual state license required for business
operations in the U.S., Biofrontera took over management their product sales at the start of the second half of 2017. Sales had
previously been processed as part of a distribution agreement in form of a title model through a wholesaler. The development
collaboration and partnership agreement with Maruho generated revenue of EUR 1.4 million in 2017 (previous year:
EUR 1.2 million).
16. Cost of sales, gross profit
The gross profit on sales improved from EUR 4.5 million to EUR 10.3 million. The gross margin increased to 86%, compared to
73% in the same period in the previous year. The year-on-year gross margin improvement mainly reflects the higher revenue
portion from sales markets in Europe and the U.S. served directly by Biofrontera, where the margin generated remains 100%
with Biofrontera, by contrast with sales through licence partners. Moreover, manufacturing expenses to fulfil FDA
requirements in connection with the approval issued in 2016 were incurred in 2016, which were no longer incurred in 2017.
Accordingly, the cost of sales rose only slightly to EUR 1.7 million, thereby reaching 14% of sales revenue (previous year:
EUR 1.7 million, or 27%).
17. Development costs
Research and development costs amounted to EUR 4.2 million in 2017, as compared with EUR 4.6 million in the prior year. This
reduction in costs is primarily the result of a decrease in FDA fees to maintain the U.S. approval in 2017 as compared to prior
year.
18. Sales costs
Sales and marketing costs of EUR 16.9 million reflect a 93% increase compared with the previous year's period
(EUR 8.8 million). The sales and marketing costs include the costs of our own field sales team in Germany, Spain and in the U.S.,
as well as marketing expenses. This increase is mainly attributable to expenses for the further establishment and expansion of
sales structures, and the marked rise in the number of sales staff in the U.S.
19. Administrative costs
Administrative costs increased by EUR 0.2 million to EUR 3.1 million in 2017 (previous year EUR 2.9 million). Financing costs
shown under administrative costs include consultancy and placement fees in connection with support for the search of
investors, to the extent that they were not allocable to IPO costs. The rise in administrative costs is attributable not least to a
greater requirement for legal advice due to lawsuits brought by an individual shareholder.
20. Financial result
The financial result primarily relates to the interest expenses on the 2009/2017 warrant bond calculated applying the effective
interest method (EUR 0.3 million; previous year: EUR 0.5 million), the 2016/2021 and 2017/2022 convertible bonds placed in 2016
and 2017 (EUR 0.2 million; previous year: EUR 13 thousand) as well as the EIB loan made available in July 2017 (EUR 0.5 million;
previous year: EUR 0). The aforementioned interest expenses on the warrant bond 2009/2017 of EUR 0.3 million (previous year
EUR 0.5 million) include the opposite effect of EUR 0.2 million (previous year EUR 0.2 million) from the repurchase of part of
the warrant bond on 28 February 2014. In August 2017, the warrant bond was repaid early at par plus accrued interest.
21. Other expenses (income), net
80
Biofrontera AG Annual Report 2017
After having generated other income of EUR 2.5 million in 2016, primarily due to the repayment of the FDA submission fee of
EUR 2.1 million, other income in 2017 amounted to EUR 0.3 million. Other expenses rose by EUR 1.3 million to EUR 1.3 million in
2017. This change mainly reflects currency exchange rate losses on the intragroup USD loan.
22. Earnings per share (EPS)
Earnings per share are calculated on the basis of the net loss for the year of the Biofrontera Group and the average ordinary
shares in circulation in the financial year, in accordance with IAS 33.
Number of weighted ordinary shares in circulation (on average)
Net loss for the year in EUR (in thousands)
Basic/diluted earnings per share in EUR
31.12.2017
38,076,087
(16,102)
(0.42)
31.12.2016
29,742,634(cid:1)
(10,579)
(0.36)
23. Additional information about the consolidated statement of comprehensive income
The other income only includes conversion adjustments from the conversion of the foreign business entity into the Group’s
currency.
Cost of materials
The cost of materials included in the cost of sales amounted to EUR 1.5 million for 2017 (previous year EUR 1.2 million).
Depreciation, amortisation and impairment losses
Depreciation and amortisation on tangible and intangible assets of EUR 0.9 million in 2017 and of EUR 0.8 million in the
previous year is included in the following items in the statement of comprehensive income:
Research and development costs
General administrative costs
Cost of sales
Sales and marketing
Depreciation, amortisation and impairment losses
Personnel costs
Wages and salaries
Social security charges
Costs for pension schemes
Total
31.12.2017
EUR thousands
31.12.2016
EUR thousands
707
142
17
18
884
689
127
9
6
831
31.12.2017
EUR thousands
31.12.2016
EUR thousands
11,349
1,627
66
13,042
5,753
908
33
6,694
24. Staff
During 2017, we had on average 119 (previous year: 74) employees worldwide, of whom 106 (previous year: 60) were full-time.
21 (previous year: 16) of whom hold Ph.D. or M.D. degrees, 15 (previous year: 13) of whom were engaged directly or indirectly in
production, 12 (previous year: 7) of whom were engaged in research, clinical development and regulatory activities, 51
(previous year: 28) of whom were engaged in marketing and sales activities, and 41 (previous year: 26) of whom were engaged
in management, business development or marketing, finance, human resources or administrative support. Of our 119 (previous
year: 74) total employees, 69 (previous year: 56) worked in Germany, 44 (previous year: 12) worked in the U.S., and 6 (previous
year: 5) worked in Spain.
Biofrontera AG Annual Report 2017
81
25. Other information
Operating leases
The Group companies lease administrative and research facilities, as well as vehicles and equipment, under operating lease
contracts. The future minimum commitments from leases are as follows:
Operating lease committments
Leases for business premises
Leases for cars
Operating and business equipment
2017
kEUR
2016
kEUR
2017
kEUR
2016
kEUR
2017
kEUR
2016
kEUR
! 1 year
1 year to 5 years
> 5 years
516
395
21
520
274
23
1,780
390
16
1,870
375
37
1,188
1,620
-
-
-
-
Lease-related expenses for the reporting period amounted to EUR 516 thousand (previous year EUR 237 thousand).
In the USA, BF RhodoLED® lamps are also offered under leasing agreements. In the first six months, these contracts are
accounted for as operating leases. After six months, the customer has the option to either return or purchase the lamp. The
agreed purchase price can then be paid immediately in full or over a period of another 24 months. If payment is made for a
further 24 months, the contracts are accounted for as financing leases. In fiscal year 2017, we generated income of EUR 27
thousand from operating leases. Future lease payments in the next 12 months from existing operating leases at 31 December
2017 amount to approximately EUR 27 thousand. As of December 31, 2017 we generated no financing lease revenue.
26. Notes to the cash flow statement
The cash flow statement is presented in accordance IAS 7. The net loss for the year is adjusted for effects of non-cash
transactions, deferrals or accruals of past or future operational deposits or disbursements, and income and expense items
attributable to investment or financing activities.
In the consolidated cash flow statement, cash and cash equivalents include cash in hand, cheques, bank deposits and money
deposits with a maturity of up to three months. Current account liabilities are incorporated into the cash fund where
applicable.
The interest paid amounted to EUR 0.6 million (previous year: EUR 0.8 million) and results from the two interest payments for
the Warrant Bond I rendered in 2017. First, on 1 January 2017 for the 2016 financial year and, second, on 3 August 2017 as part of
the accrued interest for 2017 on the Warrant Bond I, which was called early. Moreover, in July 2017, the interest payment for
the first five months of the 2017/2022 convertible bond as well as the quarterly payment for the first interest component of
the EIB loan for the third quarter of 2017 was paid in October 2017.
Interest received amounted to EUR 6 thousand (previous year EUR 3 thousand), consisting of interest received for deposits
82
Biofrontera AG Annual Report 2017
Reconciliation of liabilities from financing activities
(in EUR thousands)
Non-current financial liabilities
Repayment of warrant bond 2009/17
Convertible bond 2016/21
Convertible bond 2017/22
EIB loan
Current financial liabilities
Interest on warrant bond 2009/17
Interest on convertible bond 2016/21
Interest on convertible bond 2017/22
Interest on EIB loan
Total financial liabilities
Non-cash changes
31.12.2016
Cash flow
Addition/
retirement
Fair value
change
31.12.2017
3,597
3,419
178
-
-
274
274
-
-
-
10,713
(3,636)
-
4,999
9,350
(598)
(436)
-
(66)
(96)
(1,922)
217
(99)
(2,469)
429
494
162
5
146
182
(32)
12,355
-
-
-
(32)
-
-
-
-
-
-
79
2,530
9,747
170
-
5
80
86
3,871
10,115
(1,428)
(32)
12,526
Biofrontera AG Annual Report 2017
83
27. Members of the Management Board
Prof. Hermann Lübbert was the Management Board Chairman (Chief Executive Officer/CEO) in the reporting period. The CEO
also holds a professorial chair at Bochum University in Germany. Prof. Lübbert was appointed to the Management Board from
27 March 2015 until 31 October 2020 by way of Supervisory Board resolution.
Mr. Thomas Schaffer is the Chief Financial Officer. Mr. Schaffer was appointed to the Management Board from 9 April 2015 until
30 November 2020 by way of Supervisory Board resolution.
Mr. Christoph Dünwald is the Management Board member responsible for the Sales and Marketing areas. With a Supervisory
Board resolution of 9 July 2015, Mr. Dünwald was appointed to the Management Board until 15 November 2017. With a
Supervisory Board resolution of 19 July 2017, the service contract with Christoph Dünwald and his appointment as a member of
the Management Board was extended until 30 November 2020.
The remuneration of the Management Board members consists of a fixed salary that is paid in twelve equal monthly
instalments. In addition, an annual, performance-based bonus exists for the Management board members, as well as a long-
term remuneration component consisting of participation in the company's share option programme. Company cars are also
available to the directors for business and private use.
The remuneration for members of the Management Board in the 1 January until 31 December 2017 period consisted of a salary
and a bonus as well as share options. The total remuneration for Management Board members in the reporting period,
including the value of share options at the time they were granted, amounted to EUR 1.3 million (previous year EUR 1.1 million).
This was allocated as follows:
Non-performance-based salary
component 2017
Non-performance-based salary
component 2016
Performance-based salary
component 2017
Performance-based salary
component 2016
Stock options (31 December
Fair value when granted (2017)
Stock options (31.12.2016)
Prof. Dr. Hermann Lübbert
Thomas Schaffer
Christoph Dünwald
EUR 366 thousand
EUR 241 thousand
EUR 242 thousand
EUR 363 thousand
EUR 213 thousand
EUR 236 thousand
EUR 76 thousand
EUR 67 thousand
EUR 48 thousand
EUR 72 thousand
EUR 63 thousand
EUR 6 thousand
236,850
125,000
90,000
EUR 299 thousand
EUR 145 thousand
EUR 112 thousand
196,850
85,000
50,000
Fair value when granted (2016)
EUR 227 thousand
EUR 83 thousand
EUR 50 thousand
thereof granted in 2017
thereof granted in 2016
70,000
80,000
40,000
50,000
40,000
50,000
All salaries/bonuses are classified as short-term employee benefits as defined in IAS 24.17 (a).
The Management Board members held the following supervisory board positions and positions on comparable domestic and
foreign boards during the reporting period:
Thomas Schaffer
Industrial Tracking Systems AG, Fürstenfeldbruck, Supervisory Board Chairman
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Biofrontera AG Annual Report 2017
28. Members of the Supervisory Board
As a result of the resolution passed by the Annual General Meeting held on 31 May 2016, the Supervisory Board has consisted of
the following members since 31 May 2016:
Dr. Ulrich Granzer
Jürgen Baumann
John Borer
Hansjörg Plaggemars
Kevin Weber
Supervisory Board Chairman, Owner and Managing Director of Ulrich Granzer
Regulatory Consulting & Services, resident in Munich, Germany
Deputy Supervisory Board Chairman, management consultant, resident in Monheim
Head of Investment Banking at The Benchmark Company LLC, New York, USA, resident
in Jersey City, NJ, USA
Management consultant, Value Consult, resident in Stuttgart
Principal of Skysis, LLC., Scottsdale, AZ, USA, resident in Scottsdale, AZ, USA
Mark Reeth relinquished his Supervisory Board mandate as of 31 October 2017.
Mark Reeth
Attorney, resident in Frederick, MD, USA
Based on a resolution of the Cologne District Court of 1 February 2018, the Supervisory Board includes the following member as
a representative of the shareholders:
Reinhard Eyring
Partner of Ashurst LLP law firm, Frankfurt/Main, resident in Kronberg/Taunus.
The Supervisory Board members held the following other supervisory board positions and positions on comparable domestic
and foreign boards during the reporting period:
Hansjörg Plaggemars
OOC CTV Verwaltungs GmbH, Managing Director
Stellar Diamonds plc, non-executive Director
Eurohaus Frankfurt AG, Management Board member
Youbisheng Green Paper AG, Supervisory Board Chairman
Ming Le Sports AG, Supervisory Board Chairman
Nordic SSW 1000 Verwaltungs AG, Supervisory Board Chairman
Balaton Agro Invest AG, Management Board member
Carus AG, Supervisory Board member
Deutsche Balaton Immobilien I AG, Supervisory Board member
Alpha Cleantec AG, Management Board member
Delphi Unternehmensberatung AG, Management Board member
Strawtec Group AG, Management Board member
S&O Agrar AG, Management Board member
Reinhard Eyring
DESTAG Deutsche Steinindustrie AG, Bensheim, Supervisory Board Chairman
Vanguard AG, Berlin, Supervisory Board Chairman
In the 2017 financial year, compensation paid to Supervisory Board members amounted to EUR 0.1 million (previous year
EUR 0.1 million). The compensation transactions are classified as short-term employee benefits as per IAS 24.17(a).
During the reporting period, the company availed itself of additional advisory services from Supervisory Board member Dr.
Ulrich Granzer. Dr. Granzer assisted the company with key issues relating to the preparation of the applications for approval
submitted to the supervisory authorities in Europe and the U.S. During the course of the 2017 financial year, advisory services
amounting to EUR 34 thousand (previous year EUR 10 thousand) were provided by Granzer Regulatory Consulting & Services.
Accounts payable to Granzer Regulatory Consulting & Services amounted to EUR 0 on 31 December 2017 (31 December 2016:
EUR 7 thousand). The amounts stated here do not include statutory VAT at the current rate of 19%. The underlying consultancy
contract was approved in consideration of the statutory provisions.
29. Related party disclosures
In July 2016, Biofrontera AG signed a research cooperation partnership (a collaboration and partnership agreement) with
Maruho Co., Ltd, as part of which possibilities to jointly develop pharmaceutical products based on Biofrontera's proprietary
nanoemulsion technology are to be researched. According to this agreement's provisions, Biofrontera, as part of research
services, will conduct the requisite work for the exploratory research of these product candidates. Maruho is bearing the
related costs.
Biofrontera AG Annual Report 2017
85
This development partnership generated revenue of EUR 1.4 million in 2017 (previous year: EUR 1.2 million). Receivables due
from Maruho amounted to EUR 0.1 million as of 31 December 2017 (31 December 2016: EUR 0.5 million).
In 2017, no further reportable transactions or relationships with related parties existed beyond the aforementioned facts and
circumstances stated in subsections 27 and 28. The Group of related persons and entities is limited to those referred to
therein.
In the context of the underlying holding structure, Biofrontera AG is responsible for the administrative and management tasks.
Biofrontera AG is also responsible for the financing of the currently still loss-making business areas, as it is a listed company
and consequently enjoys optimal access to the capital market.
The funds made available to the subsidiaries as loans bear interest at market rates and are, where necessary, furnished with a
subordination agreement.
In light of the close cooperation between the Group companies, internal offsetting is applied, which is reviewed and adjusted
to requirements on an annual basis.
30. Auditor's fees and services
The total fee invoiced by the auditor Warth & Klein Grant Thornton AG for the following financial years consists of:
Auditing services
[of which for the previous year]
2017
in EUR thousands
2016
in EUR thousands
360
[22]
360
239
[50]
239
Besides the statutory auditing of the separate annual and consolidated financial statements of Biofrontera AG, the auditing
services also include the auditors review of the condensed half-year financial statements and interim management report as
well as the audit of the 2015 and 2016 consolidated financial statements for the purposes of the NASDAQ listing in 2018.
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Biofrontera AG Annual Report 2017
31. Events after the reporting date
By order of the Cologne District Court 1 February 2018, Mr. Reinhold Eyring, partner of the Ashurst LLP legal practice in
Frankfurt, was appointed to be a member of the Supervisory Board. He is appointed until the next Ordinary Annual Gen Meeting
of Biofrontera AG.
Shares of Biofrontera have been listed on the NASDAQ Stock Exchange in the U.S. since 14 February 2018. The American
Depositary Shares (ADS) that are traded on NASDAQ each securitise the right to two no par value ordinary shares of
Biofrontera AG.
The company implemented the capital increase in connection with the NASDAQ listing. The company's share capital was
increased by EUR 6.0 million by way of a capital increase against cash capital contributions through issuing 6.0 million new
ordinary registered shares each with a proportional amount in the share capital of EUR 1.00 ("New Shares"). Statutory
subscription rights were granted to shareholders subject to a fractional amount. The New Shares also served as the basis to
create ADS that are publicly offered in the U.S. Each ADS securitises two of the company's ordinary shares. In the U.S., ADS
were offered to investors for purchase subject to the shareholders' subscription right to the New Shares. A total of 1.2 million
ADS were placed. The subscription price for the New Shares was set on 9 February 2018 at EUR 4.00 per New Share. The net
proceeds from the capital measures amounted to EUR 21.6 million.
In March 2018, the company announced the early repayment of the Convertible Bond 2016-21 as of 30 April 2018.
In March 2018, the exercise prices for the two convertible bonds were reduced by EUR 0.25 each to EUR 4.75, pursuant to the
bonds' terms and conditions.
On 5 March 2018, the European Commission issued approval for daylight therapy with Ameluz® to treat actinic keratosis and
field cancerisation.
In March 2018, DUSA Pharmaceuticals Inc filed a lawsuit against Biofrontera AG and all subsidiaries in the District Court of
Massachusetts alleging infringement of its patents No. 9,723,991 and No. 8,216,289 relating to the sale of our BF-RhodoLED® in
the United States. The Company is currently reviewing these claims, but expects only a minor economic risk from them.
!
No further events subject to mandatory reporting occurred after the balance sheet date.
Leverkusen, 25 April 2018
Prof. Dr. Hermann Lübbert
Chief Executive Officer
Thomas Schaffer
Chief Financial Officer
Christoph Dünwald
Chief Sales and Marketing Officer
Biofrontera AG Annual Report 2017
87
Independent Auditor’s Report
To Biofrontera AG
Report on the Audit of the Consolidated Financial
Statements and of the Group Management Report
Audit Opinions
We have audited the consolidated financial statements of Biofrontera AG, Leverkusen, and its
subsidiaries (the Group), which comprise the consolidated balance sheet as at 31 December 2017,
and the consolidated statement of comprehensive income, the consolidated statement of changes in
equity, the consolidated cash flow statement and the notes to the consolidated financial statements for
the financial year from 1 January 2017 to 31 December 2017 including a summary of significant
accounting policies. In addition, we have audited the group management report of Biofrontera AG
which has been combined with the management report (hereinafter: group management report) for the
financial year from 1 January 2017 to 31 December 2017. In accordance with the German legal
requirements, we have not audited the content of the Corporate Governance Declaration pursuant to
Section 289f HGB [Handelsgesetzbuch: German Commercial Code] and Section 315d HGB.
In our opinion, on the basis of the knowledge obtained in the audit,
the accompanying consolidated financial statements comply, in all material respects, with the IFRSs
as adopted by the EU, and the additional requirements of German commercial law pursuant to
Section 315e para. 1 HGB and, in compliance with these requirements, give a true and fair view of
the assets, liabilities, and financial position of the Group as at 31 December 2017 and of its
financial performance for the financial year from 1 January 2017 to 31 December 2017, and
the accompanying group management report as a whole provides an appropriate view of the Group’s
position. In all material respects, this group management report is consistent with the consolidated
financial statements, complies with German legal requirements and appropriately presents the
opportunities and risks of future development. Our audit opinion on the group management report
does not cover the content of the above listed Corporate Governance Declaration pursuant to
Section 289f HGB and Section 315d HGB.
Pursuant to Section 322 para. 3 sentence 1 HGB, we declare that our audit has not led to any
reservations relating to the legal compliance of the consolidated financial statements and of the group
management report.
Basis for the Audit Opinions
We conducted our audit of the consolidated financial statements and of the group management report
in accordance with Section 317 HGB and the EU Audit Regulation (No. 537/2014; referred to
subsequently as “EU Audit Regulation”) and in compliance with German Generally Accepted
Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of
Public Auditors in Germany] (IDW). Our responsibilities under those requirements and principles are
further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial
Statements and of the Group Management Report” section of our auditor’s report. We are
independent of the group entities in accordance with the requirements of European law and German
commercial and professional law, and we have fulfilled our other German professional responsibilities
in accordance with these requirements. In addition, in accordance with Article 10 (2) point (f) of the
EU Audit Regulation, we declare that we have not provided non-audit services prohibited under
Article 5 (1) of the EU Audit Regulation. We believe that the audit evidence we have obtained is
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Biofrontera AG Annual Report 2017
sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial
statements and on the group management report.
Key Audit Matters in the Audit of the Consolidated Financial Statements
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the consolidated financial statements for the financial year from 1 January 2017 to 31
December 2017. These matters were addressed in the context of our audit of the consolidated
financial statements as a whole, and in forming our opinion thereon, we do not provide a separate
audit opinion on these matters.
From our point of view the following matters were most significant during our audit:
! Accounting for a Loan from the European Investment Bank
" Revenue recognition from the sale of Ameluz® in the U.S.
# Non-recognition of deferred tax assets on loss carryforwards in Germany
Our presentation of the key audit matters has been structured as follows:
1 Financial statement risk
2 Audit approach
3 Reference to related disclosures
!! Accounting for a Loan from the European Investment Bank
11 Financial Statement Risk
In the consolidated financial statements of Biofrontera AG liabilities arising from a loan agreement with
the European Investment Bank (EIB) over EUR 20.0 million concluded in May 2017 are accounted for
under non-current financial liabilities as of 31 December 2017. The loan is guaranteed by the major
group companies, but otherwise unsecured, and is available in tranches within a two-year period. In
July 2017, the company drew down the first tranche of EUR 10.0 million. Two further tranches of
EUR 5.0 million each being accessible after contractually agreed milestones have been achieved.
Each tranche must be paid back within five years after it has been made available. The loan contains
three different interest components. A variable interest component, entailing quarterly interest
payments on the outstanding amounts based on 3-month EURIBOR plus a risk premium; a fixed
component at 6% per annum which is due at term-end; and a performance component which is due at
the term-end, and whose level is derived from the market capitalisation of Biofrontera AG but limited to
a 4% per annum interest rate. Due to the last-mentioned interest component, the EIB loan is a
compound financial instrument. For measurement purposes, the tranche drawn down was divided as
of date initial recognition into a performance component and a loan payable. Both elements are
considered liabilities. Within the subsequent measurement, the loan payable was measured at
amortised cost, while the performance component was measured at fair value as of the balance sheet
date, which is derived from the estimation as of the balance sheet date concerning the future market
capitalisation of Biofrontera AG as of date of repayment of the relevant tranche.
Due to the novelty of the nature of the financial instrument for Biofrontera AG, its volume and the
complexity of its recognition and measurement as well as its importance for the financial position and
financial performance of the Biofrontera group, this matter was of particular importance in our audit.
22 Audit Approach
As part of our audit of the accounting for the EIB loan, we identified material contract terms of the loan
agreement with EIB and conducted a critical analysis of the expert's report obtained by the
Management of Biofrontera AG concerning matters related to accounting and valuation issues under
IFRS. In this respect, at first we analysed the assessment of the accounting for the financial
Biofrontera AG Annual Report 2017
89
instrument as of date of initial recognition and the resulting valuation issues. We assessed the
mathematical correctness of the valuation model developed by the expert. We evaluated the
derivation of the material valuation parameters included in the valuation model – especially the
expected future market capitalisation as well as the effective interest rates – and developed own
estimates of sensitive valuation parameters, and compared them with the valuation parameters used
by the expert.
33 Reference to related Disclosures
The disclosures of Biofrontera AG concerning the accounting policies used for the EIB loan are
included in section “Summary of significant accounting policies – EIB loan with an embedded
derivative requiring separation” of the notes to the consolidated financial statements, the disclosures
concerning the valuation and presentation as of the balance sheet date are included in sections
“Notes to the consolidated balance sheet – 10. Financial liabilities” and “14. Reporting on financial
instruments” in the notes to the consolidated financial statements.
""
Revenue recognition from the sale of Ameluz® in the U.S.
11 Financial Statement Risk
In the consolidated financial statements of Biofrontera AG, revenues amounting to EUR 12.0 million
are recognised, including revenues from product sales in the U.S. in the amount of KEUR 6.3 million.
Revenues are recognised in accordance with IAS 18 if the risks and opportunities connected with
ownership are transferred to the customer. In the U.S., Ameluz®, a drug independently developed by
Biofrontera, is reimbursed by health insurers as a so-called “buy-and-bill drug” and consequently
marketed directly to physicians. In the U.S., revenues from the sale of products registered significant
growth by EUR 5.1 million to EUR 6.3 million (previous year EUR 1.2 million) in the reporting year.
Therefore, the increase of revenues from EUR 6.1 million (prior year) by EUR 5.9 million or
approximately 96.2 % to EUR 12.0 million is mainly due to the sales revenue trend in the U.S. After
having received all individual state licenses required for pharmaceutical distribution in the U.S.,
Biofrontera took over management of their product sales at the start of the second half of 2017, which
contributed to this development. Sales had previously been processed through a US wholesaler.
Due to the significant change in the sales channel used by Biofrontera Group in the U.S. in the
beginning of the second half of 2017, increasing the number of different contracts concerning the
transfer of risks and opportunities connected with ownership and the resulting complexity of revenue
recognition, there is a higher risk of incorrect accounting in revenue recognition from the sales of
products in the USA. Against this background and considering the importance of the financial
statement line item for the Biofrontera Group's financial performance, this matter was of particular
importance in our audit.
22 Audit Approach
As part of our audit of the revenue recognition from sales of products in the U.S. we assessed the
accounting principles used in the consolidated financial statements of Biofrontera AG for the revenue
recognition from product sales according to the criteria set up in IAS 18. We analysed the process for
revenue recognition from the sales of products in the U.S. implemented by the management of
Biofrontera Inc. by walking through individual transactions from the purchase order to the presentation
in the consolidated financial statements. We analysed the processing differences resulting from the
two different distribution channels in the financial year 2017, and assessed their impact on the process
of revenue recognition and on the resulting different risks of incorrect accounting. Based on the
revenues from the sale of products in the U.S. accounted for in the financial year 2017, we applied
audit sampling regarding the existence of a transaction as well as the appropriateness of the revenue
recognition. We also obtained confirmations of balances from customers. Furthermore, based on the
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Biofrontera AG Annual Report 2017
last transaction recorded in the financial year 2017 and the first transaction of the subsequent period
we evaluated the appropriateness of cut off of revenues from sales of products in the U.S.
33 Reference to related Disclosures
The disclosures of Biofrontera AG concerning revenue recognition are included in section “Summary
of significant accounting policies – Revenue recognition” of the notes to the consolidated financial
statements, the disclosures concerning the sales revenue recorded in the consolidated statement of
comprehensive income are included in section ”Additional information about the consolidated
statement of comprehensive income – 15. Sales revenue” of the notes to the consolidated financial
statements.
Non-recognition of deferred tax assets on loss carryforwards in
##
Germany
11 Financial Statement Risk
As of balance sheet date, the Management of Biofrontera AG assumes that Biofrontera AG has
corporation tax loss carryforwards amounting to EUR 119.7 million and the business tax loss
carryforwards amounting to EUR 108.0 million having an unlimited carryforward period under current
German law, resulting in deferred tax claims amounting to EUR 18.9 million from corporation tax
(including solidarity surcharge) and EUR 17.9 million from business tax based on the expected future
tax rate. Due to the existing uncertainties of the predictability regarding future taxable profits, referring
to IAS 12.34 Management of Biofrontera AG has not recognized these deferred tax claims in the
consolidated financial statements of Biofrontera AG.
The assessment of whether deferred tax assets from loss carryforwards in Germany can be
recognized, is mainly based on estimates and assumptions of the Management of Biofrontera AG and
therefore subject to a high estimation uncertainty. Against this background and considering the
importance of the recognition of deferred tax assets in the consolidated financial statements for the
presentation of Biofrontera Group's financial position and financial performance, this matter was of
particular importance in our audit.
22 Audit Approach
As part of our audit of the non-recognition of deferred tax assets on loss carryforwards in Germany,
we critically assessed the Managements estimates of the predictability of future taxable profits. In this
regard, we analysed the tax results achieved in the past and the planning for the financial year 2018
provided by the Management of Biofrontera AG, taking into account if the loss carryforwards are
resulting from events in the past that are unlikely to recur. Based on the insights obtained hereby, we
evaluated the Management’s assessment of the existing uncertainties of the predictability regarding
future taxable profits of Biofrontera AG.
33 Reference to related Disclosures
The disclosures of Biofrontera AG concerning the accounting policies with regard to deferred tax
assets and deferred tax liabilities are included in section ”Summary of significant accounting policies –
Income tax” of the notes to the consolidated financial statements, the disclosures concerning the
existing tax loss carryforwards are included in section “Notes to the consolidated balance sheet – 8.
Deferred income tax” of the notes to the consolidated financial statements.
Other Information
The Management is responsible for the other information. The other information includes:
Biofrontera AG Annual Report 2017
91
•• the Corporate Governance Report including the Corporate Governance Declaration pursuant to
Section 289f and Section 315d HGB
•• the Responsibility Statement pursuant to Section 297 para. 2 sentence 4 HGB regarding the
consolidated financial statements and the Responsibility Statement pursuant to Section 315 para. 1
sentence 5 HGB regarding the group management report
•• the remaining parts of the annual report, with the exception of the audited consolidated financial
statements and group management report and our auditor’s report.
Our audit opinions on the consolidated financial statements and on the group management report do
not cover the other information, and consequently we do not express an audit opinion or any other
form of assurance conclusion thereon.
In connection with our audit, our responsibility is to read the other information and, in so doing, to
consider whether the other information
•• is materially inconsistent with the consolidated financial statements, with the group management
report or our knowledge obtained in the audit, or
•• otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Management and the Supervisory Board for the
Consolidated Financial Statements and the Group Management Report
The Management is responsible for the preparation of the consolidated financial statements that
comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of
German commercial law pursuant to Section 315e para. 1 HGB and that the consolidated financial
statements, in compliance with these requirements, give a true and fair view of the assets, liabilities,
financial position and financial performance of the Group. In addition, the Management is responsible
for such internal control as they have determined necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Management is responsible for assessing the
Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as
applicable, matters related to going concern. In addition, they are responsible for financial reporting
based on the going concern basis of accounting unless there is an intention to liquidate the Group or
to cease operations, or there is no realistic alternative but to do so.
Furthermore, the Management is responsible for the preparation of the group management report that,
as a whole, provides an appropriate view of the Group’s position and is, in all material respects,
consistent with the consolidated financial statements, complies with German legal requirements, and
appropriately presents the opportunities and risks of future development. In addition, the Management
is responsible for such arrangements and measures (systems) as they have considered necessary to
enable the preparation of a group management report that is in accordance with the applicable
German legal requirements, and to be able to provide sufficient appropriate evidence for the
assertions in the group management report.
The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the
preparation of the consolidated financial statements and of the group management report.
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Biofrontera AG Annual Report 2017
Auditor’s Responsibilities for the Audit of the Consolidated Financial
Statements and of the Group Management Report
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and
whether the group management report as a whole provides an appropriate view of the Group’s
position and, in all material respects, is consistent with the consolidated financial statements and the
knowledge obtained in the audit, complies with the German legal requirements and appropriately
presents the opportunities and risks of future development, as well as to issue an auditor’s report that
includes our audit opinions on the consolidated financial statements and on the group management
report.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Section 317 HGB and the EU Audit Regulation and in compliance with German
Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der
Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these consolidated
financial statements and this group management report.
We exercise professional judgment and maintain professional skepticism throughout the audit. We
also:
Identify and assess the risks of material misstatement of the consolidated financial statements and of
the group management report, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our audit opinions. The risk of not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit of the consolidated financial
statements and of systems relevant to the audit of the group management report in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an audit opinion on the effectiveness of these systems.
Evaluate the appropriateness of accounting policies used by the Management and the
reasonableness of estimates made by the Management and related disclosures.
Conclude on the appropriateness of the Management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s
report to the related disclosures in the consolidated financial statements and in the group
management report or, if such disclosures are inadequate, to modify our respective audit opinions.
Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Group to cease to be able to continue as a
going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements present the
underlying transactions and events in a manner that the consolidated financial statements give a
true and fair view of the assets, liabilities, financial position and financial performance of the Group
in compliance with IFRSs as adopted by the EU and the additional requirements of German
commercial law pursuant to Section 315e para. 1 HGB.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express audit opinions on the consolidated financial
statements and on the group management report. We are responsible for the direction,
Biofrontera AG Annual Report 2017
93
supervision and performance of the group audit. We remain solely responsible for our audit
opinions.
Evaluate the consistency of the group management report with the consolidated financial statements,
its conformity with German law, and the view of the Group’s position it provides.
Perform audit procedures on the prospective information presented by the Management in the group
management report. On the basis of sufficient appropriate audit evidence we evaluate, in
particular, the significant assumptions used by the Management as a basis for the prospective
information, and evaluate the proper derivation of the prospective information from these
assumptions. We do not express a separate audit opinion on the prospective information and on
the assumptions used as a basis. There is a substantial unavoidable risk that future events will
differ materially from the prospective information.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with the
relevant independence requirements, and communicate with them all relationships and other matters
that may reasonably be thought to bear on our independence, and where applicable, the related
safeguards.
From the matters communicated with those charged with governance, we determine those matters
that were of most significance in the audit of the consolidated financial statements of the current
period and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter.
Other Legal and Regulatory Requirements
Further Information pursuant to Article 10 of the EU Audit Regulation
We were elected as group auditor by the annual general meeting on 24 May 2017. We were engaged
by the Supervisory Board on 4 January 2018. We have been the group auditor of Biofrontera AG
without interruption since the financial year 2007.
We declare that the audit opinions expressed in this auditor’s report are consistent with the additional
report to the audit committee pursuant to Article 11 of the EU Audit Regulation (long-form audit report).
German Public Auditor Responsible for the Engagement
The German Public Auditor responsible for the engagement is Prof. Dr. Thomas Senger.
Düsseldorf, 25 April 2018
Warth & Klein Grant Thornton AG
Wirtschaftsprüfungsgesellschaft
Dr. Jens W. Brune
Wirtschaftsprüfer
[German Public Auditor]
Prof. Dr. Thomas Senger
Wirtschaftsprüfer
[German Public Auditor]
94
Biofrontera AG Annual Report 2017
Published by
Biofrontera AG
Hemmelrather Weg 201
D-51377 Leverkusen
Telephone: + 49 (0) 214 87 63 2 0
+ 49 (0) 214 87 63 2 90
Fax:
Email:
info@biofrontera.com
www.biofrontera.com
Investor Relations
Thomas Schaffer
Anke zur Mühlen
Telephone: + 49 (0) 214 87 63 2 0
Email:
ir@biofrontera.com
Concept and Design
Instinctif Partners
www.instinctif.com
Graphics
Nadine Dreismann
www.dreismann.eu
Fotos
Biofrontera (title page, pages 4,5,7,8,9,10,11)
U. Granzer (page. 19)
Biofrontera AG
Hemmelrather Weg 201
D-51377 Leverkusen
Telephone: +49 (0) 214 87 63 2 0
Fax:
+ 49 (0) 214 87 63 2 90
Email: info@biofrontera.com
www.biofrontera.com