Biofrontera – Creating Added Value.
Annual Report 2018
Responsibility
Sustainable
strategy
Future
Appreciation
Content
Biofrontera AG Annual Report 2018
Key figures and highlights 2018
Biofrontera – Creating Added Value.
Letter to the shareholders
Investor Relations
Corporate Governance
Page 3
Page 4
Page 12
Page 14
Page 18
Report of the Supervisory Board of
Biofrontera AG for the 2018 financial year
Page 20
Combined management report for
parent company and Group as of 31
December 2018
Consolidated balance sheet as of 31
December 2018
Consolidated statement of comprehensive
income for the 2018 financial year
Page 25
Page 54
Page 56
Statement of changes in equity for 2018
Page 57
Consolidated cash flow statement for
the 2018 financial year
Notes to the consolidated financial
statements as of 31 December 2018
Auditor‘s Report
Page 58
Page 59
Page 93
Key figures and highlights 2018
Biofrontera AG is an international biopharmaceutical company
specializing in the development and commercialization of
dermatological medications and medical cosmetics.
The Leverkusen-based company with around 150 employees worldwide
develops and markets innovative products for healing, protecting and
caring for the skin. One of its most important products is Ameluz®, a
prescription-only medication for the treatment of non-melanoma skin
cancer and its precursors. Ameluz® has been marketed in the EU since
2012 and in the United States since May 2016.
In addition, the company distributes the dermocosmetic series
Belixos®, a modern active cosmetic product specially developed for
sensitive and irritated skin. Biofrontera is the first German foun-
der-managed pharmaceutical company to receive centralized
European and US approval for a medication it has developed itself.
The Biofrontera Group was founded in 1997 by today‘s CEO Prof.
Hermann Lübbert. Biofrontera AG is listed on the Frankfurt Stock
Exchange (Prime Standard) and on the US NASDAQ Capital Market.
Results and development 2018
Forecast 2019
EUR 21.1 million
compared to EUR 12.0 million in 2017
EUR -18.5 million
compared to EUR -13.9 million in 2017
EUR -19.3 million
compared to EUR -16.1 million in 2017
EUR
35 to 40
million
EUR
-7 to -9
million
EUR
-9 to -11
million
Sales
revenue
Results from
operations
Result before
income tax
Listing on the US-stock
exchange NASDAQ
in February 2018 in
connection with a
capital increase
Approval of Ameluz®
in combination with
daylight PDT by the
European Commission in
March 2018
Patient recruitment for
a phase III trial for
Ameluz® for the treatment
of superficial basal cell
carcinoma in the U.S.
in September 2018
Conduct of a phase III
trial for Ameluz® for the
treatment of actinic kerato-
ses on the extremities
and trunk/neck (successful
completion in early 2019)
Sustainable corporate strategy
Sustainability forms an integral part of Biofrontera‘s
business activities – after all, improving patients’ health is at
the heart of our business model. Only by consistently
implementing a long-term and clearly defined Group strategy,
we can live up to this claim.
In 2018, we successfully reached further milestones of our
corporate strategy and thus created further stakeholder
value.
We added value for patients by making our drug available for further
application in the form of daylight PDT. With our strategy we have also
come a step closer to our goal of making photodynamic therapy with
Ameluz® accessible to all patients with field cancerization and actinic
keratoses. As daylight PDT in Germany is reimbursed by public health
insurance, even more people have been able to enjoy access to this
highly effective treatment option since 2018.
We have also created added value for our customers – dermatologists
– by ensuring the long-term security of supply and quality of our drug.
We changed our manufacturer of the active ingredient and increased
our production batches from 7 kg to 35 kg in 2018. Both projects are
subject to high regulatory requirements by the EMA and FDA, on
which we worked intensively for two years. The scaling of the
manufacturing process also leads to an improvement of our gross
margin.
And, of course, we created added value for our investors by boosting
our commercial and financial potential through our own sales
structures and efficiency enhancement measures. In 2018, we further
expanded our sales activities in the USA. The strategic decision to
market Ameluz® with our own sales force in our largest market
enables us to respond quickly and efficiently to market conditions and
thereby achieve the greatest possible market penetration.
4
Biofrontera AG Annual Report 2018
2018 production batch upscaling
CORPORATE FINANCE: NASDAQ
LISTING
At the beginning of the year, we improved our
financial position through a capital increase in
conjunction with our listing on NASDAQ and
gained access to the world‘s largest and most
important capital market. However, the move to
NASDAQ was above all a major strategic step for
us: the listing enhances our visibility with our
customers – US dermatologists – strengthens our
credibility and thereby supports our sales and
marketing activities. In addition, all our sharehol-
ders benefit from the increased transparency
that goes hand in hand with stringent SEC
disclosure requirements. In the course of the
Nasdaq listing, the share price recorded a rapid
increase from EUR 4.29 on 10 January 2018
(Xetra closing price on the day prior to publication
of the intention to list) to EUR 6.25 on
19 February 2018 (Xetra closing price on the day
the new shares were entered in the company
register). Despite a share price correction
experienced during the course of the year, our
share price is stable at a level well above its
pre-listing price.
Development of the market capitalization of Biofrontera AG
EUR
159.5
million
MarketCap
31.12.2017
EUR
223.6
million
MarketCap
31.12.2018
Biofrontera AG Annual Report 2018
5
Responsibility
Doctors and patients should be able to trust Ameluz®, which
is why drug safety and quality management are our top
priorities. As a medium-sized company, we have to meet the
same high quality standards as a pharmaceutical giant.
Employee qualification is one of the pillars of a functioning
quality management system. New employees at Biofrontera are
familiarized with Standard Operating Procedures (SOPs) as part
of an extensive onboarding process. They receive training for
our quality management system, which is based on the
principles of good manufacturing practice (GMP), good clinical
practice (GCP) and good distribution practice (GDP).
The SOPs describe in detail the manufacturing and handling
procedures for our drug, as well as all quality-relevant
processes within the company, which are subject to strict
ethical and regulatory standards. Our Quality Assurance
Department uses an annual inspection plan to monitor all
processes in our own departments, as well as at our contract
manufacturers and contract research institutes, in both
internal and external audits, and provides the necessary
evidence for the respective authorities. Our documentation
systems help us identify deviations immediately and respond to
them in a controlled manner.
Ongoing improvement of the
quality management processes
SOPs: valid prescribed and
controlled workflows
444
343
2018
2017
6
Biofrontera AG Annual Report 2018
Legal framework
Authorities
• Onboarding
• Training
• Qualification
• Self-monitoring /
Audits
• Supplier
monitoring
• Risk management
• System of
standard operating
procedures
(SOP)
Quality management
at
Biofrontera
• Document
management
• Change
management
• Batch release
• Recalls
• Complaint
management
Market-specific
standards
Quality management 2018 / 2017
105
internal
training
45
external
training
76
internal
training
47
external
training
10
4
Audits
(9 internal +
1 external)
Audits
(2 internal +
2 external)
REGULATORY REQUIREMENTS: FALSIFIED MEDICINES DIRECTIVE
The Falsified Medicines Directive came into force in Europe on 9 February 2019. Since then, solely prescription medicinal
products that fulfil certain safety requirements may be distributed in the market. As a prescription drug now has to undergo an
authenticity check before being administered to the patient, each drug package requires its own serial number. Something that
sounds as straightforward as this is actually a very complex process. In order to ensure that each serial number is assigned only
once, a constant exchange of data with the contract manufacturer and suitable software for randomizing the serial numbers is
required. The serial numbers must be transferred to the national serialization databases to which pharmacies and wholesalers
are also connected. On delivery, the pharmacist scans the package and receives feedback from the system as to whether it is an
original or falsified product.
The implementation of the directive proved to be a great challenge for us. As the rules apply equally to all prescription drugs,
this means even more effort for a small company like us than for large pharmaceutical companies. As early as 2017, we started
the implementation with a team of several departments, including IT, Quality Management and Logistics, in order to meet all the
requirements of the new directive.
While we have largely established the system in Europe, we still have a lot of implementation work to do in the US. There, the
DSCSA Act will further tighten the regulatory requirements for medicine safety by 2021.
Biofrontera AG Annual Report 2018
7
Appreciation
Our highly qualified and dedicated employees are a key
factor for our success. We offer them a supportive
environment where they can work with confidence and
develop their skills.
Our employees‘ satisfaction plays a crucial role in our success
of retaining them long-term. For this reason, we offer our staff
a wide range of opportunities for professional and personal
development. In addition to internal and external training
measures within the various departments, and interdisciplinary
topics such as regulatory affairs and data protection, our
employees regularly attend conferences and seminars. In the
2018 financial year, our employees attended 13 professional
development events of the German Medicines Manufacturers‘
Association (BAH) where they were trained on topics such as
drug safety, the German Pharmaceutical Advertising Act and
changes in regulatory requirements.
We attach great importance to the compatibility of professional
development and personal life planning as well as the promotion
of equal opportunities within our company. For several years
now, we have been offering our employees a trust-based
working time model and, since 2019, a company-wide Mobile
Office Policy that enables employees to work flexibly. Part-time
and home office models enable smooth reintegration after
parental leave and make work and family life more compatible.
8
Biofrontera AG Annual Report 2018
EMPLOYEE DEVELOPMENT: SALES, REGULATORY AND CUSTOMER SERVICE STRUCTURE
In 2018, the number of our employees grew significantly from 123 to 157, an increase of 28%. The size of our workforce now
reflects the resources we need for the future challenges of our growing company. First and foremost, we have strengthened
our sales, regulatory and customer service departments. In May, we established a sales team in the UK and now sell Ameluz®
through our own sales force in four countries – following Germany, Spain and the USA.
In the regulatory area, we face new regulatory requirements with each indication expansion. As the approval holder, we are
obliged to meet the relevant requirements in every country in which Ameluz® is marketed. Those requirements range from
notifying the authorities about a change of address to making officially prescribed changes on the packaging or in the
product information, to indication extensions such as basal cell carcinoma or daylight-PDT. Our Regulatory Affairs team is
responsible for coordinating all these processes with regulators.
In the USA, we have invested in establishing structures to support doctors in billing
their services. Customer orientation and a high understanding of the needs of
dermatologists are crucial for their satisfaction and contribute significantly
to the success of Ameluz® in the USA. The good work of our account
managers in 2018 was honored with the prestigious silver Stevie®
Award for outstanding customer service in early 2019.
Expenses for training and education
in EUR per employee
2018
436
2017
511
400
450
500
550
Employees
157
123
60% 40%
41.7%
Women at
management level
2018
2017
Biofrontera AG Annual Report 2018
9
Future
We have accomplished a lot in the past. We are proud of
having achieved most of our goals, some of which were very
ambitious. However, we are looking to the future, as we aim
to fully leverage the great potential that lies in our drug
Ameluz® and in our nanoemulsion.
In recent years, we have gradually optimized strategic market
positioning of our product. The continuous development and
expansion of the application possibilities of our drug Ameluz® are
key for our future growth. The market for actinic keratoses alone is
estimated at over 2 million prescriptions per year in the EU and
over 12 million prescriptions per year in the USA. However, PDT
treatments currently account for only 5% of all prescriptions in the
EU and only 3% in the USA.
Our goal is to increase the attractiveness of PDT for physicians and
patients and thus, significantly boost our sales. For example, if
dermatologists in the USA were to treat just one percent of actinic
keratosis patients with Ameluz® instead of cryotherapy in the
future, this would represent additional sales of Ameluz® worth
more than USD 30 million.. With the new billing codes in the USA
and the introduction of daylight PDT in Europe, we have already
successfully reached important milestones on the road to
profitable growth.
However, the treatment options with PDT are not limited to light
skin cancer alone. Research suggests a positive effect on acne,
wound healing, warts and cervical cancer, for example. We believe
in the great future potential for Ameluz®, which we intend to
leverage.
10
Biofrontera AG Annual Report 2018
Nanoemulsion – the bearer of future
Great potential also lies in our proprietary and patented nanoemulsion technology.
It offers the possibility to stabilize various active substances and is consequently
perfectly suited as a basis for new drug formulations. As in the case of Ameluz®,
the unique improved skin penetration can lead to greater clinical efficacy.
FURTHER DEVELOPMENTS: TWO PHASE III TRIALS
In 2018, we launched two further Phase III trials, one of which we completed in the first quarter of 2019. The study was
conducted at six study sites in Germany evaluating the safety and efficacy of conventional PDT with Ameluz® and the
BF-RhodoLED® lamp for the treatment of actinic keratoses on the extremities as well as the trunk and neck The preliminary
results of the trial‘s primary endpoint demonstrate the superiority of Ameluz® with an average lesion healing rate of 86%
compared to 33% for placebo (p>0.0001). These results will be utilized for the filing of the indication extension with the
European Medicines Agency (EMA) and the US Food and Drug Administration (FDA), which Biofrontera plans to submit in the
third quarter of 2019.
The second Phase III trial is conducted at 12 clinical centers in the USA. Patient recruitment started in September 2018. The
study will investigate Ameluz® in combination with the BF-RhodoLED® lamp for superficial basal cell carcinoma. In Europe, we
have already received approval for this indication and we expect a further approval in the USA to significantly expand our
market opportunities. Doctors and patients in the USA would then also have a highly effective treatment option with good
cosmetic results for superficial basal cell carcinoma.
Biofrontera AG Annual Report 2018
11
Letter to the shareholders
Dear shareholders,
the year 2018 was marked by major operational successes, in particular the approval of daylight PDT in the EU, as well as the
approval of the European Medicines Agency (EMA) and the US Food and Drug Administration (FDA) of our new active ingredient
manufacturer as well as the production of larger manufacturing batches. In the USA, significant improvements were achieved in
the reimbursement of Ameluz®. We almost doubled our product revenues in 2018, with total revenues in excess of EUR 21 million,
representing 76% growth over the previous year. The listing of our shares on Nasdaq has significantly increased the visibility
and credibility of our company in the USA.
In the USA – our largest market accounting for over 70% of our revenues – our sales team and medical sales force have largely
reached their planned size and are fully functional. As a result of this and the growing awareness of our clinical data and
improved reimbursement, our revenues in this market grew by 136% in 2018 and we expect continued growth over the coming
years. We are currently conducting a Phase III trial of Ameluz® for the treatment of superficial basal cell carcinoma (BCC) to
further improve our medium-term growth opportunities in the US market. We started recruiting patients in September 2018 and
expect the first trial results in the first half of 2020. If successfully approved by the FDA, Ameluz® would be the only drug in the
USA to apply photodynamic therapy (PDT) to treat superficial BCC, with patients and physicians thereby also benefiting from an
efficient treatment option with excellent cosmetic results.
In Europe, too, we achieved a significant increase in revenues of 41% in 2018. The approval of Ameluz® in combination with
daylight PDT in March 2018 significantly improved the positioning of PDT for the treatment of actinic keratosis (AK). When used
with daylight PDT, Ameluz® is now reimbursed by statutory health insurance in Germany. In particular, we stimulated growth in
our largest sales market in the EU and increased our share of the PDT market to over 60%. Daylight PDT has a particularly
positive effect in the usually weak summer months, which was already evident in 2018.
We expect further impetus for Ameluz® from a Phase III trial that has already been completed to evaluate the efficacy of
Ameluz® - PDT in the treatment of actinic keratoses on the extremities, trunk and neck. The recently published results will be
used to extend the EMA and FDA approvals of Ameluz® to the treatment of actinic keratoses and field cancerizations throughout
the body.
At the beginning of 2018, our share was listed on Nasdaq, which has already brought significant benefits to our company. Listing
on a US stock exchange is particularly important in light of our presence in the pharmaceutical market in the USA. The reputation
of a Nasdaq-listed company with the stringent publication obligations of the SEC gives us solid credibility not only on the capital
market, but also among American dermatologists. In addition, the capital inflow has enabled us to expand our sales and
marketing activities and has taken our company an enormous strategic step forward. In the course of the Nasdaq listing, the
share price recorded a rapid increase from EUR 4.29 on 10 January 2018 (Xetra closing price on the day prior to publication of
the intention to list) to EUR 6.25 on 19 February 2018 (Xetra closing price on the day the new shares were entered in the company
register). Although a correction occurred in the course of the year, our share price is stable well above the pre-listing price.
In March 2018, we were informed of an intended acquisition offer by Deutsche Balaton AG to acquire up to just under 30% of the
shares of Biofrontera AG (according to German law, from 30% a mandatory offer must be made for the entire company). After
this offer was initially not approved by the German Federal Financial Supervisory Authority (BaFin), Deutsche Balaton Biotech
AG made a similar offer to the shareholders of Biofrontera AG in May 2018. In this context, demands were formulated by the
bidder which, in our view, would have severely disrupted Biofrontera's further successful development and growth. The
Management and Supervisory boards of Biofrontera AG explained this in detail in their statements. In this context, we would like
to thank our employees once again for their support and trust, having rejected the offer unanimously in their own statement. It
was precisely the efforts, passion and creativity of our staff that made the company's great success possible. We see great
growth potential in Biofrontera, which can be leveraged by a sustainable corporate strategy, and are therefore very grateful
that you as shareholders have also clearly confirmed our corporate management and strategy by rejecting the offer.
For more than ten years, we have been expanding and improving treatment options for non-melanoma skin cancer through our
research and development activities. We are now setting standards in photodynamic therapy and are continuously expanding
our range of Ameluz® therapies. As a result of our sales efforts over the past two years, we are now becoming increasingly
visible in the market as a young pharmaceutical company.
12
Biofrontera AG Annual Report 2018
We have already surmounted many hurdles: Milestones such as the granting of a specific reimbursement code for Ameluz® and
the improvement of PDT in medical billing compared to cryotherapy in the USA are examples of this. Where we market Ameluz®
ourselves, we have now established powerful sales structures that have enabled us to raise awareness of the Ameluz® brand
through increased market penetration.
Biofrontera pursues a clearly defined corporate strategy, which it has successfully implemented step by step over the past few
years. We will continue in the future to consistently follow the path we have set ourselves. We would like to thank you for
believing in Biofrontera, in our product Ameluz®, as well as in the people behind this company, and for placing your trust in us
to act in your interest and to sustainably increase the value of the company.
Kind regards
Prof. Dr. Hermann Lübbert
Christoph Dünwald
Thomas Schaffer
Management Board of Biofrontera AG
!
Biofrontera AG Annual Report 2018
Biofrontera AG Geschäftsbericht 2016
13
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 Stock Market.
Key data on shares, ADSs and other financial instruments
Key data of the registered shares (no par value)
Stock exchange
Other trading platforms
Transparency level
Shares in issue as of 31/12/2018
Share capital
ISIN
WKN (German Securities Identification Number)
Ticker symbol
Designated Sponsor
52-week high* (19/03/2018)
52-week low* (02/01/2018)
Market capitalization as of 31/12/2018
Average daily trading volume on XETRA (52 weeks as of 31/12/2018)
* Price data based on XETRA closing price
Frankfurt Stock Exchange
XETRA, Berlin, Düsseldorf, Munich, Stuttgart, Tradegate
Prime Standard
44,632,674
EUR 44,632,674
DE0006046113
604611
B8F
Lang & Schwarz Broker GmbH
EUR 7.19
EUR 4.16
EUR 223.6 million
89,448 shares per day
Key data of the ADS
Stock exchange
CUSIP
ADS ISIN
Ratio
Symbol
Custodian
Further trading platform
WKN (German Securities Identification Number)
Symbol
Key data for the 2017-2022 Convertible Bond!
Stock exchange
WKN (German Securities Identification Number)
ISIN
Term, final maturity date
Coupon
Par/denomination
Total volume
of which converted as of 31/12/2018
Initial conversion price
Conversion price from 01/04/2017
Conversion price from 01/01/2018
Nasdaq
09075G105
US09075G1058
1 ADS : 2 ORDs
BFRA
BNY Mellon
Stuttgart
A2JEEX
BFRA
Düsseldorf
A2BPDE
DE000A2BPDE6
5 years, 31 December 2021
6 %
EUR 100.00
EUR 4,999,000
EUR 2,403,700
EUR 3.50
EUR 4.00
EUR 5.00, since 03/03/2018 EUR 4.75
14
Biofrontera AG Annual Report 2018
Biofrontera share price performance
In 2018, the German equity market faced a difficult and highly volatile environment. After a positive start to the year, market
uncertainty increased significantly, especially during the second half of the year, leading to marked price losses. The turbulent
year-end phase was marked by concerns about the economy and interest rates as well as the budget dispute in the USA and
associated significant price losses accompanied by high volatility.
Moreover, the price of the Biofrontera share was considerably influenced by its corporate news flow. At the beginning of the
year, the share recorded a rapid increase of 62.3% within one month and reached its first high of EUR 6.41 on 1 February 2018.
This occurred against the backdrop of the announced listing on the US Nasdaq Stock Market and associated capital increase of
over 6,000,000 new shares as well as the promising news regarding daylight PDT, for which the Committee for Medicinal Products
for Human Use (CHMP) had issued a positive vote to the EMA regulator.
After sharp price fluctuations during the offer phase, driven above all by substantial price losses accompanied by rising volatility
on US stock exchanges – the Dow Jones index suffered a loss of more than 1,100 points on 6 February 2018, its highest daily loss
in its history in terms of points – the share commenced a further rally from 14 February 2018, its first trading day on Nasdaq.
Within one month, it reached its high for the year of EUR 7.19 on 13 March 2018. Among other factors, the share price benefited
from the European Commission's approval of the extended indication for daylight PDT at the beginning of March and the superior
efficacy of Ameluz® over the reference drug demonstrated during the follow-up period of the Phase III trial.
The share price subsequently consolidated before incurring price losses at the end of June. However, thanks to positive
corporate news, it recovered quickly to stand again at EUR 6.41 by 29 August 2018. In July 2018, for example, product sales
doubled in the first half of the year, and a five-year contract was signed with the US Department of Veterans Affairs in August.
In the fourth quarter, the share price performed in line with market conditions and was subject to wide fluctuations despite
encouraging corporate developments such as the very good results with daylight PDT in Europe, further progress in the potential
applications of Ameluz® through the completion and start of two patient recruitment for two Phase III trials, respectively, and a
forecast upgrade thanks to strong overall revenue growth. On 27 December 2018, the share reached its low for the second half
of the year and fell to EUR 4.88 per share. On the last trading day of the year the price recovered again slightly to end the year
at 5.01 EUR. The Biofrontera share thereby posted a respectable price appreciation of 20.7% compared to the end of the previous
year (EUR 4.15). Following the end of the financial year under review, the share price continued to outperform. In January, the
share broke through the EUR 6.00 mark again before subsequently consolidating just below this level.
Share price chart
Shareholder structure
The shareholder structure of Biofrontera AG as of 31 December 2018, based on the most recent mandatory disclosures, is as
follows:
Biofrontera AG Annual Report 2018
Biofrontera AG Geschäftsbericht 2016
15
15
20%
Maruho Co. Ltd*
Deutsche Balaton AG*
Free float
60%
20%
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.
Road shows and conferences offer 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 2018 financial year, including at capital market centers in the USA and many important European cities. Biofrontera
participated mainly at international conferences oriented to the healthcare sector in 2018, but was also represented at events
with a more specific focus.
Along with quarterly statements for the first and third quarters and the half-year financial report, Biofrontera informed
investors, analysts and further interested capital market participants at a total of 8 press releases and 39 IR 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 26 November 2018.
The Ordinary Annual General Meeting of Biofrontera AG was held on 11 July 2018 in Leverkusen. A total of 63 percent of the voting
capital of Biofrontera AG comprising 44,506,980 shares as of this date were represented there. The presence thereby improved
considerably compared with the previous year. In their presentations, the Management Board members emphasized the
company’s rapidly increasing sales and regulatory success in Europe and the USA as well as the company’s enhanced visibility
in the USA thanks to the IPO on Nasdaq. The shareholders approved all of the company's agenda items listed, including the
election of Mr. Eyring as a new member of the Supervisory Board, with a clear majority. All of the shareholders rejected the
supplementary motions previously submitted by Deutsche Balaton AG with a very large majority.
On 29 January 2018, Biofrontera approved a capital increase from the Authorized Capital created by the Annual General Meeting
on 24 May 2017. This capital increase was implemented in February 2018 in connection with a listing on the US Nasdaq Stock
Market. The company's share capital was increased by EUR 6,000,000 by way of a capital increase against cash capital
contributions through the issue of 6,000,000 new registered shares with a pro rata amount of the share capital of EUR 1.00 each
("New Shares"). The shareholders were granted statutory subscription rights, subject to the exclusion of fractional amounts.
The New Shares also served as the basis for the creation of ADSs publicly offered in the USA. Each ADS securitizes two ordinary
shares in the company. ADSs were offered for purchase to investors in the USA subject to shareholders' subscription rights to
the New Shares. A total of 1,300,483 ADSs were placed, including the full exercise of the over-allotment option. The subscription
price for the New Shares was set at EUR 4.00 per share on 9 February 2018. The net proceeds of the capital measure amounted
to EUR 21.6 million. Biofrontera's shares have been listed on the US Nasdaq Stock Market since 14 February 2018. All ordinary
shares of Biofrontera AG can be traded without restriction on German stock exchanges, and as ADS on Nasdaq.
In March 2018, the company announced the early repayment of its 2016/21 convertible bond as of 30 April 2018.
16
Biofrontera AG Annual Report 2018
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. Originally, it was available in tranches within a two-year period. At the
beginning of 2019, it has been extended for another year. In July 2017, the company drew down a first tranche of EUR 10.0 million,
with a further tranche of EUR 5 million being drawn down after the reporting date in February 2019. A further tranche of EUR 5.0
million can be drawn after certain milestones have been reached. Each tranche must be paid back within five years after it has
been made available.
Analyst coverage
The following analysts cover Biofrontera:
Broker
The Benchmark Company, LLC
Dawson James
Lake Street Capital Markets
sc-consult GmbH
Conferences
Date
Conference
Analyst
Bruce D. Jackson
Robert Wasserman
Thomas Flaten
Dipl. Kfm. Holger Steffen
8-11 January 2018
15 May 2018
13 September 2018
JP Morgan 36th Annual Healthcare Conference (San Francisco)
Spring Conference (Frankfurt)
Lake Street Capital Markets 2018 Best Ideas Growth (BIG) Conference (New York)
24-27 September 2018
Baader Investment Conference, Munich
1-3 October 2018
29-30 October 2018
26 November 2018
29 November 2018
4-6 December 2018
!
Cantor Fitzgerald 2018 Global Healthcare Conference (New York)
Dawson James Securities 4th Annual Small Cap Growth Stock Conference (Jupiter)
Equity Capital Forum (Frankfurt)
The Benchmark Company Discovery One-on-One Conference (Chicago)
11th Annual LD Micro Main Event (Bel-Air)
Biofrontera AG Annual Report 2018
Biofrontera AG Geschäftsbericht 2016
17
17
Corporate governance declaration pursuant to Sections 289f, 315d
HGB (corporate governance report) for the 2018 financial year
I. Disclosure pursuant to Sections 289 f (2) subsection 1, 315 d HGB (corporate
governance declaration)
The Management and Supervisory boards issued the following compliance statement in December 2018:
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 annual compliance statement in December 2017 as well as its amendment during the year in April
2018, 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 amount of the remuneration of the members of the Supervisory Board is regulated in the Articles of Association. The
Chairman receives twice and the Deputy Chairman one and a half times the remuneration to be paid to an ordinary member. 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.
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Biofrontera AG Annual Report 2018
Reporting (No. 7.1.2)
Financial reports, half-yearly reports and interim reports are published within the statutory periods.
Leverkusen, December 2018
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”.
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Biofrontera AG Annual Report 2018
Biofrontera AG Geschäftsbericht 2016
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19
Report of the Supervisory Board of Biofrontera AG for the 2018
financial year
Dear Shareholders
the 2018 financial year proved to be another very successful year for Biofrontera AG
and its subsidiaries. After 2017 was dominated by the expansion of our sales activities
in the USA, we exceeded the sales revenue level of EUR 20 million in the Group for the
first time in 2018. And we did this very dynamically: our sales revenue in the USA
increased by around 136% and in Europe by around 41%. In particular, business in the
USA, our most important sales market, recorded a very positive trend. In the
Supervisory Board's opinion, the employees of the Biofrontera Group and the
management deserve special recognition for this. As a small German company, they
have succeeded in establishing the company's own powerful and successful sales
organization in the USA within a relatively short time.
We also made further good progress in expanding indications for Ameluz®. In March
2018, the European Commission granted approval for Ameluz® in combination with
photodynamic daylight therapy (Daylight PDT), so that in the future Ameluz® can be
utilized without special lamps. The approval for Daylight PDT has significantly
increased the market potential for Ameluz® in Europe and improved the drug's reimbursement status in Germany.
In February 2018, Biofrontera AG reached a very special milestone: the listing on the US NASDAQ Stock Market with a simultaneous
successful capital increase. This has laid the financial foundation for the company's further successful development and growth.
Supervision and consultation
The Supervisory Board discharged the responsibilities incumbent upon it according to the law, the company's articles of
association, the German Corporate Governance Code (Code), and its rules of business procedure. 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 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. 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. 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 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 after discussion at meetings of the Supervisory Board or by means of decisions
taken by circulation or in telephone conferences.
Consultations and areas of focus
In fulfilling its responsibilities, the Supervisory Board held six meetings during the reporting year. It also passed resolutions
outside the scope of meetings.
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Biofrontera AG Annual Report 2018
In the telephone conference on 1 March 2018, the Management Board reported to the Supervisory Board on current sales trends
in individual markets. The Supervisory Board discussed and approved the corporate targets for 2018 and coordinated the further
planning process with the Management Board.
The meeting on 25 April 2018 concerned the financial statements. The auditor reported on the timing, structure and results of
the audit for the 2017 financial year. After discussing the separate financial statements for 2017, the consolidated financial
statements and the combined management report for the company and the Group, the Supervisory Board approved the auditor's
reports, 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. The financial statements of Biofrontera
Aktiengesellschaft for the 2017 financial year were adopted as a consequence. The Management Board reported on the
successful capital increase implemented in February 2018 and on the updated financial preview for 2018. The Management Board
also reported on current sales and market trends as well as on progress in the research and development area. The Supervisory
Board's Nomination Committee and Personnel Committee reported on the results of their meetings. A decision was taken to
change the composition of the Supervisory Board committees. In addition, a decision was taken to dissolve the R&D & Market
Access Committee, as the Supervisory Board was of the opinion that this committee was no longer required. Furthermore, the
Supervisory and Management boards discussed the announcements of a voluntary purchase offer with regard to shares of
Biofrontera AG, initially by Deutsche Balaton AG and subsequently by Deutsche Balaton Biotech AG (Deutsche Balaton AG,
Deutsche Balaton Biotech AG as well as parties acting jointly with them are hereinafter referred to as “Deutsche Balaton-Group”.
During the telephone conference on 4 July 2018, the Supervisory Board received reports on current developments in
reimbursement matters in the USA and on production issues.
At the meeting on 10 July 2018, the Management Board reported on the preliminary half-year results, current sales trends and
current developments in the areas of research, development and approvals. The legal dispute in the USA with competitor DUSA
Pharmaceuticals was also discussed. Furthermore, the Management Board reported on the legal disputes with the Deutsche
Balaton Group and the public tender offer of Deutsche Balaton Biotech AG for shares of Biofrontera AG.
In the telephone conference held on 25 September 2018, the Management Board initially reported on current business trends. A
focus here again was on sales development and sales activities as well as on the further development of the application scope
of Ameluz®. The legal disputes with DUSA Pharmaceuticals and the Deutsche Balaton Group were discussed.
At the meeting on 14 December 2018, the Management Board reported in detail on business trends during the first nine months
of 2018 and provided an outlook on the annual result for 2018. The Management Board also reported on current developments
in the areas of sales, research & development and regulatory affairs. The Supervisory Board also concerned itself with the budget
planning for 2019, which it approved. The corporate targets for 2019 were set. The legal disputes with DUSA Pharmaceuticals and
the Deutsche Balaton Group were discussed again. The declaration of compliance in accordance with Section 161 of the German
Stock Corporation Act (AktG) was adopted.
Supervisory Board committees
At present, the Supervisory Board has formed an Audit Committee, a Nomination Committee and a Personnel 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 2018.
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 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 following persons were members of the Audit Committee in the reporting period: Jürgen Baumann, John Borer and Hansjörg
Plaggemars. In March 2019, Mr. Plaggemars was dismissed by the court as a member of the Supervisory Board and thus also left
Biofrontera AG Annual Report 2018
Biofrontera AG Geschäftsbericht 2016
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from the Audit Committee (see below the section "Dismissal of a Supervisory Board member by the court"). Mr. Reinhold Eyring
was appointed as the third member of the Audit Committee on 28 March 2019. 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 25 April 2018.
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 on the Appropriateness of Management Board Remuneration (VorstAG), so the Personnel
Committee now performs only preparatory work. The following persons are currently members of the Personnel Committee:
Jürgen Baumann, John Borer and Dr. Ulrich Granzer. Mr. Baumann is the current chair. The committee met on 25 April 2018. The
topics discussed included the achievement of targets by members of the Management Board in 2017 and the issuance of options
to Management Board members.
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. The Nomination Committee is currently composed of the following members: John Borer, Dr. Ulrich
Granzer and Reinhard Eyring (since 25 April 2018). Dr. Granzer occupies the chair. Until 25 April 2018, Mr. Hansjörg Plaggemars
was a member of the Nomination Committee in place of Mr. Eyring. The committee met on 25 April 2018. A decision was taken to
propose to the 2018 Annual General Meeting that Mr. Eyring be elected to the Supervisory Board, having initially been court-
appointed to the Supervisory Board.
Individualized disclosure of the participation of Supervisory Board members in Supervisory Board and
committee meetings in the 2018 financial year
Supervisory Board members
Supervisory Board and committee meetings
Participation
Attendance
Jürgen Baumann
John Borer
Reinhard Eyring
Dr. Ulrich Granzer
Hansjörg Plaggemars
Kevin Weber
8
9
7
8
7
6
8
9
5
8
7
5
100%
100%
71%
100%
100%
83%
Mr. Weber was unable to attend the telephone conference on 1 March 2018. Due to a professional stay abroad, Mr. Eyring was
unable to attend the telephone conference scheduled for 4 July 2018 and the meeting on 10 July 2018.
Separate and consolidated financial statements for 2018
The audit firm Warth & Klein Grant Thornton AG, Düsseldorf, was appointed Group auditor for the 2018 financial year by the
Annual General Meeting on 11 July 2018 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 2018 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
jeopardize the company as a going concern.
The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS).
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Biofrontera AG Annual Report 2018
The financial statement documents were discussed in the Audit Committee on 25 April 2018 in the presence of the auditor. The
Audit Committee dealt in particular with the key audit matters described in the respective auditor's report (key audit matters),
including the audit procedures performed. At the subsequent meeting of the Supervisory Board to approve the financial
statements on the same day, the financial statement documents were discussed in detail 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 reported on the scope, focus and key findings of its audit, in particular
key audit matters and the audit procedures performed. The auditor was available to the Supervisory Board to answer questions
and provide further information. All questions posed by the Supervisory Board were answered in full by the Management Board
and the auditor. The auditor also provided information about its findings on internal controlling and risk management with
regard to the accounting process.
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.
Auditor responsible
Since the 2018 financial year, Mr. Michael Gottschalk 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 in the Supervisory Board
In accordance with the recommendation of the German Corporate Governance Code, any conflicts of interest that have arisen
and their treatment should be reported in the report of the Supervisory Board. Biofrontera AG has not declared any deviation in
this respect.
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 in early 2018. Mr.
Borer was not involved in coordination regarding the question of mandating The Benchmark Company, LLC, all of which occurred
in 2017. No events occurred in 2018 relating to The Benchmark Company, LLC, that could have created a conflict of interest.
Mr. Hansjörg Plaggemars was a member of the Management Board of DELPHI Unternehmensberatung (hereinafter “DELPHI”)
until 13 April 2018. DELPHI is a company of the Deutsche Balaton Group and holds a majority interest in Deutsche Balaton AG.
According to his own statements, Mr. Plaggemars achieved in 2018 and continues to generate a major part of his income from
activities for companies of the Deutsche Balaton Group. As described above, the Supervisory Board dealt with legal disputes
between Biofrontera AG on the one hand and the Deutsche Balaton Group on the other hand in the year under review. In addition,
the Supervisory Board discussed the announcements of Deutsche Balaton AG and Deutsche Balaton Biotech AG to make a
voluntary purchase offer for shares of Biofrontera AG. In the following the Supervisory Board dealt with the voluntary purchase
offer of Deutsche Balaton Biotech AG for shares of Biofrontera AG.
Mr. Plaggemars did not participate in sections of meetings of the Supervisory Board or telephone conferences in which legal
disputes with the Deutsche Balaton Group, as well as the acquisition offer and its announcements were discussed. Information
was exchanged and opinions formed in the Supervisory Board without his presence. The Supervisory Board did not pass any
resolutions with regard to the legal disputes with the Deutsche Balaton Group. Insofar as the Supervisory Board was required to
Biofrontera AG Annual Report 2018
Biofrontera AG Geschäftsbericht 2016
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submit comments on the acquisition offer of Deutsche Balaton Biotech AG and its amendment pursuant to § 27 WpÜG, Mr.
Plaggemars participated in the votes on the adoption of the comments in the following circulation procedure. However, it was
disclosed in the statements that Mr. Plaggemars was working for companies of the Deutsche Balaton Group at the time of the
adoption of the statements. In addition, the voting results of the resolutions adopted by the Supervisory Board were
communicated in the statements. As a result, every reader of the statements was in a position to appreciate the result of the
resolution in view of the contents communicated.
In the future, the Supervisory Board intends to proceed in such a way that members subject to a conflict of interest do not
participate in the exchange of information and consultations within the Supervisory Board. This applies in principle in the same
way to the participation in voting of the Supervisory Board.
Dismissal of a Supervisory Board member by the court
Pursuant to Section 103 (3) AktG, the competent local court must dismiss a member of the Supervisory Board at the request of
the Supervisory Board if there is an important reason in his person. In January 2019, the Supervisory Board filed an application
with the Cologne Local Court to dismiss Mr. Plaggemars as a member of the Supervisory Board of Biofrontera AG. The background
to this is that Mr. Plaggemars has submitted a written statement in proceedings pending before the Regional Court of Cologne
in which DELPHI applied for the appointment of a special auditor for Biofrontera AG pursuant to Section 142 (2) AktG. This legal
proceeding was initiated by DELPHI in January 2018, when Mr. Plaggemars was still a member of the Management Board of
DELPHI. The Supervisory Board would have been responsible for submitting a statement in the proceedings as a body pursuant
to Section 142 (5) AktG, but not an individual member, with the result that the submission of the statement violates the statutory
competence regulations. In the statement, Mr. Plaggemars also disclosed information which, in the opinion of the remaining
members of the Supervisory Board, is subject to the consulting secrecy of the Supervisory Board pursuant to Section 116 AktG
and of which DELPHI thus also gained knowledge. Following an application by the Supervisory Board, the Cologne Local Court
(Amtsgericht) dismissed Mr. Plaggemars as a member of the Supervisory Board of Biofrontera AG in accordance with § 103 (3)
AktG for cause. The resolution was issued on 22 March 2019 and came to the knowledge of the company on 26 March 2019. The
ruling for dismissal is effective immediately. However, an appeal can be filed within one month, which has been done. In the case
of a successful appeal, Mr. Plaggemars would be reinstated as a member of the Supervisory Board.
Further personnel changes on the Supervisory Board
Mr. Mark Reeth relinquished his mandate as a member of the Supervisory Board with effect as at 31 October 2017. In early 2018,
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 Annual General Meeting on 11 July 2018 subsequently
elected Mr. Reinhard Eyring to the Supervisory Board as Mr. Reeth's successor, subject to the proviso that his term of office end
at the conclusion of the Annual General Meeting that resolves on the formal approval of the actions of the Supervisory Board
for the financial year ending on 31 December 2020.
Once again, we would like to thank you, our shareholders, for your commitment and trust. Ultimately, the financial resources
you have made available have formed the basis for your company to develop so well, and to successfully position itself as a
specialist in the photodynamic therapy area.
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 2019
Dr. Ulrich Granzer
Chairman of the Supervisory Board
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Biofrontera AG Annual Report 2018
Combined management report for parent company and Group as of
31 December 2018
Basis of the Group
Group structure
As of 31 December 2018, the Biofrontera Group (hereinafter also referred to as "Biofrontera" or "Biofrontera Group") consists of
a parent company, Biofrontera AG, a branch office in Spain and five wholly owned subsidiaries, Biofrontera Bioscience GmbH,
Biofrontera Pharma GmbH, Biofrontera Development GmbH, Biofrontera Neuroscience GmbH and Biofrontera Inc. Biofrontera
Inc. is headquartered in Wakefield, Massachusetts, USA. All the other companies are based at the parent company's head office
in Leverkusen, Germany.
Business model
The public entity, Biofrontera AG, performs the function of a holding company within the group of companies. It is responsible
for Biofrontera’s management, strategic planning and internal control and monitoring, it also ensures the necessary financing
needs are met. Biofrontera Bioscience Gmbh undertakes the research and development tasks for the Group and is the holder of
patents and approvals for Ameluz®. Based on a license 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 the marketing of the
Biofrontera Group's approved products in the US.
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.
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 could be detached from the normal Biofrontera Group
financing.
Group strategy
The Biofrontera Group's strategic objective is to optimize the positioning and market potential of Ameluz® while becoming a
leading specialty pharmaceutical company in dermatology. Focus areas of activity currently include further expanding sales of
our products, as well as extending the approvals of Ameluz® to include further indications to enhance its brand potential.
Biofrontera has received centralized approval for a completely self-developed drug marketed under the Ameluz® brand. Since
the market launch in February 2012, Biofrontera has been deploying its own sales force to market Ameluz® among dermatologists
in Germany, as well as in Spain since March 2015. Ameluz® has been available in the United Kingdom for several years, but has
only been actively promoted by Biofrontera's own sales team since May 2018. This is due to the particularly important indication
extensions in this market to include field cancerization (2016), basal cell carcinoma (BCC) (2017) and daylight PDT for actinic
keratosis (2018). Licensing partners distribute the drug in several other European Union countries, as well as in Israel and
Switzerland.
A U.S. subsidiary, Biofrontera Inc., based in Wakefield, Massachusetts, has been set up in order to market in the USA. The U.S.
subsidiary has established all functions and obtained all licenses required for a sales and marketing company in the
pharmaceuticals and medical products sector. All further Biofrontera Group functions necessary for a pharmaceutical company,
such as regulatory approvals, production, IT, clinical trials etc. continue to be covered exclusively by the German companies
with worldwide responsibility.
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Products
Further milestones for a successful future for Biofrontera were achieved in 2018. In March 2018, the European Commission
approved the application of Ameluz® in combination with daylight PDT – an important application for the European market – and
has been actively marketing this product since April. In September 2018, this approval was also granted in Switzerland.
Although the potential of Ameluz® is far from being exhausted (Biofrontera is currently pursuing the development for basal cell
carcinoma in the USA, and the efficacy of PDT for some further indications has also already been shown), the company has
already succeeded in positioning the product excellently in the market in both Europe and the USA.
After two years, the USA has already become the most important market for Ameluz®. In 2018, around 70% of sales revenues
were generated in the USA, and this share will presumably increase further. For this reason, it is reasonable that Biofrontera
focuses increasingly on the USA market. Moreover, this factor partly accounts for the decision to also go public on a stock
exchange in our largest market, and thereby strengthen our profile and credibility among American customers and investors.
For this reason, Biofrontera listed the company's shares on the NASDAQ in February 2018.
As a consequence, 2018 once again proved to be a very decisive and successful time for Biofrontera, which was characterized
by further growth indicators. Against this backdrop and the associated challenges, the Biofrontera Group has also strengthened
its employee base. During the reporting period, the number of employees grew from 123 to 157, with 62 already being employed
in the USA.
Ameluz®
Ameluz® 78 mg/g Gel ("Love the Light" – development name: BF-200 ALA) received a first centralized European approval for the
treatment of mild and moderate actinic keratoses (AK) on the face and scalp in December 2011. Its significant superior effect
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 potentially
fatal spinal 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 pivotal Phase III 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, in 87% of patients treated with Ameluz® all keratoses were completely removed, and in terms of
the number of individual keratosis lesions as many as 96% were completely eradicated (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. 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 significantly inferior healing rate of 64%. With LED lamps, the
healing rates increased to 85% for Ameluz® and 68% for the competitor product. The side effect profile was very similar in both
products and was characterized by localized pain during 10-minute illumination and sunburn-like skin changes in the first days
after PDT.
As the approval in the USA requires a combination of 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. The ISO certification went through a regular renewal process in 2018. 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, keratoses were
completely eradicated from 91% of patients, 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).
Since this study was the very first Phase III study of PDT in which the drug was applied over a large area (field therapy), the
cosmetic result could be determined without considering the disappearance of the keratotic lesions. All 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 surface of the skin. Whereas twelve weeks after the last PDT, 63% of patients were already
free of such cosmetic damage, this percentage rose after a year to 72.2%. 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 PDT with Ameluz®, these rates initially fell to 42.6%, 29.6% and 29.6%, respectively,
and decreased over the course of a year to 24.1%, 11.1% and 18.5%, respectively. These results clearly show the long-lasting skin
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Biofrontera AG Annual Report 2018
rejuvenation effect achieved by using photodynamic therapy with Ameluz®. The skin repair processes triggered by the therapy
remain active for at least 12 months.
Based on the Phase III trial for field therapy, the European Commission, after a positive vote, approved Ameluz® for treatment
of field cancerization, 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 U.S. Food and Drug Administration (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 sensitization study,
which determines the potential of Ameluz® to trigger allergies, and the other was a maximal usage trial, which tests the
absorption in the blood of the active ingredient in Ameluz®, aminolaevulinic 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 treatable precancer 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 cancerization"). The latest statistics show that actinic keratosis is becoming a widespread disease, with up to
8 million people affected in Germany alone, with an upwards trend. Risk factors include, above all, significant exposure to
sunlight and UV radiation, as well as a higher age: in the over 60s, actinic keratoses should be detectable in more than 40%, and
from the age of 75 even in more than 50%. A total of even as many as 58 million individuals are estimated to suffer from 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 increasing seriousness of actinic keratosis
is illustrated by the recognition of actinic keratosis as an occupational disease in Germany in the summer of 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 using 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 the formation of scars 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 used in Germany. As the leading drug used by independent dermatologists in Germany in the PDT, Ameluz® can
and must see a significant increase in sales in the aforementioned sectors can and must.
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 analyzed 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 AK 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 even more attention from dermatologists over the next few years. This will be supported
by the indication expansion in 2017 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 tumors 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, achieves
excellent cosmetic results. In the pivotal Phase III trial, a total of 278 patients were treated. This trial was under the clinical
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Biofrontera AG Geschäftsbericht 2016
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27
management of Prof. Colin Morton (UK) and Prof. Markus Szeimies (Germany) and was conducted at 27 clinical trial centers 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 with a thickness of up to 2
mm were included in the trial. The trial 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.
Daylight-PDT enables reimbursement for PDT to patients with public health insurance in Germany, and to compete directly with
topical drugs that patients apply themselves. In order to obtain regulatory approval, actinic keratosis patients were treated with
Ameluz® in combination with daylight-PDT t compared to Metvix® as part of a Phase III clinical trial between June and September
2016. This comparative, randomized, observer-blind multicenter trial was conducted at seven trial centers in Spain and Germany
with a total of 52 patients. The clinical endpoint of the trial was the total healing rate for all lesions on each treatment side 12
weeks after treatment. The secondary clinical endpoints included determining medication safety and additional efficacy
parameters. The trial was jointly directed by Dr. Susana Puig, Research Director at the Biomedical Research Institute August Pi I
Sunyer 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 Deutschland. 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 cure rates for Ameluz® in relation to
Metvix®.
While the difference in the healing rates between the two products was only indicative after three months, statistically
significant differences were evident during the one-year follow-up period. Three months after the one-off treatment with
daylightPDT, 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 treatment with Ameluz® PDT and 31.6% with Metvix® PDT (p<0.01). The recurrence rates for
lesions that are more difficult 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). Ameluz® is thereby also significantly
superior to its European competitor in daylight-PDT.
In 2017, Biofrontera submitted an application for the approval of Ameluz® in combination with daylight-PDT and in March 2018
received approval from the European Commission to treat actinic keratosis and field cancerization with daylightPDT. Daylight-
PDT comprises a favorable and relatively pain-free alternative to the conventional 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 public healthcare insurance in Germany. It is anticipated that
the significantly superior efficacy one year after treatment compared with Metvix® will support better market penetration with
Ameluz®.
BF-RhodoLED®
BF-RhodoLED® is a lamp designed for PDT, and utilizes 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 is 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 where the final
assembly of the lamps has been done since July 2016. Consequently, from the point of view of the regulatory authorities, this
makes Biofrontera the responsible manufacturer.
Belixos®
Belixos® is a modern active cosmetic product specially developed for sensitive and irritated skin. Biofrontera's patented
biocolloid technology, which optimizes epidermal penetration, makes the products unique: pure herbal biocolloids combine with
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Biofrontera AG Annual Report 2018
medicinal plant extracts to form an extraordinary combination of active ingredients with a proven depth effect that combines
the best of 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.
Over the past two years, other specialist regenerative cosmetic products for skin problems have been developed. The typical
deep yellow color is the unmistakable 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,
moisturizing 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
USA
Biofrontera launched Ameluz® in the US market in October 2016. Marketing in the USA is being realized through the company's
wholly owned subsidiary, Biofrontera Inc., which was founded for this purpose in March 2015. All important key positions in the
USA were filled locally and the development of sales structures was continued in the year under review. By now our U.S. sales
team has grown to nearly forty employees. Our sales team is supported by six scientific consultants, our Market Access and
Managed Markets Team, as well as a Customer Service Team. Since its launch, we have sold more than EUR 20 million of Ameluz®
in the USA and thereby established the product in the market.
Germany and Europe
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 have to be defined before market launch,
which can be a very prolonged process. The drug is available in these countries at a pharmacy retail price of between EUR 150 and
approximately EUR 220 per 2g tube.
In Europe, Ameluz® and BF-RhodoLED® have been promoted by our own sales forces in Germany (since 2012), Spain (since 2015)
and the UK (since May 2018). In other European countries, sales are made with the help of licensing partners: Denmark, Sweden,
Norway, Austria, Switzerland, Liechtenstein and Israel. It was necessary to undergo an independent approval process in these
countries, which was conducted by the distribution partners in collaboration with Biofrontera. The contracts with the licensing
partners were concluded in such a way that Biofrontera has received no down payment, or only a modest down payment, and
the regional partners purchase Ameluz® from Biofrontera at a price that is linked to their respective sales price. Biofrontera's
share of the sales price varies considerably depending on the market conditions in each country, ranging from 35% to 55% of
net sales. Overall, however, marketing with Biofrontera's own sales teams has proved to be much more successful in recent
years, with the result that sales with distribution partners now account for only a small proportion of total sales.
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Research and development projects
All research and development activities of the Biofrontera Group are located in Biofrontera Bioscience GmbH, which is
responsible for clinical studies, as well as regulatory activities, such as the granting, maintenance and expansion of our
approvals. Responsibility for the project management of all development activities is assumed internally; monitoring, data
management and statistics are partially or completely outsourced. The number of employees at Biofrontera Bioscience GmbH
rose from 13 in 2017 to 18 in 2018.
Research collaboration
In July 2016, the company signed a research partnership with Maruho Co., Ltd, ("Maruho"), a Japanese company specializing in
dermatology, in which possibilities to jointly develop pharmaceutical products based on Biofrontera's proprietary nanoemulsion
technology were to be researched. Ameluz® was developed with a similar strategy. The nanoemulsion technology stabilized the
active substance and improved skin penetration, leading to greater clinical efficacy. As part of Phase 1 of the collaboration,
which was completed on 31 March 2018, Biofrontera and Maruho tested possible formulations for various other generic
compounds. Stable compounds were developed for some, but not all, substances and combinations that were tested. Maruho
paid all research and development costs incurred as part of Phase 1 of the partnership. The companies have agreed that the
newly developed intellectual property (IP) of Phase 1 shall be the joint ownership of Biofrontera and Maruho and the pre-existing
IP, including in particular Biofrontera's patented nanoemulsion, will remain the property of the respective companies. Although
Biofrontera can use the research results independently of Maruho, the reverse would only be possible with Maruho obtaining an
additional license agreement for the nanoemulsion technology from us.
Patent and trademark development
The company maintains four different company-owned patent families and one German utility model worldwide. In addition,
Biofrontera pursues patent families created in collaboration with Maruho under a partnership agreement that expired in March
2018. The Group's patents are held by Biofrontera Bioscience GmbH.
The patent families refer to our technologies related to our nanoemulsion, 5-aminolevulinic acid nanoemulsions, a patent for
migraine prophylaxis and a patent related to PDT:
Nanoemulsion
We have been issued composition of matter patents for our nanoemulsion technology in the EU (for France, Germany, Italy,
Spain, Switzerland, and the UK), Australia, Belarus, Canada, Chile, China, Hong Kong, India, Israel, Japan, Mexico, New Zealand,
Russia, South Africa, Singapore, and the Ukraine. Patent protection in these jurisdictions will expire on December 21, 2027. We
have filed patent applications, which are pending, in Brazil, Paraguay, the United Arab Emirates, Uruguay, and the U.S. Patent
applications in Paraguay and Uruguay were dropped in 2018.
Nanoemulsions with 5-aminolevulinic acid
We have been issued composition of matter patents for our technology relating to nanoemulsion of 5-aminolevulinic acid in
Australia, Canada, the EU (for Germany and Switzerland), Israel, and the U.S. Patent protection in these jurisdictions will expire
on November 12, 2019.
Protection for this patent family, which describes the combination of nanoemulsions with aminolaevulinic acid hydrochloride,
the active ingredient in Ameluz®, expires on 12 November 2019. Upon expiration of this patent family, we will not be able to rely
on the expired patents to prevent competitors from copying, making, or selling the active ingredient used in Ameluz®. The
additional patent application on the specific nanoemulsion developed for Ameluz® would extend the protection until December
21, 2027. This additional patent has been granted in many countries but has not yet been (and may never be) granted in the U.S.
However, we believe that the risk presented by future generic competition is mitigated by specific challenges in developing
generic topical dermatological products, including regulatory hurdles. As part of Biofrontera's patent strategy to further protect
Ameluz®, another patent application was already filed in 2018.
Migraine prophylaxis BF-1
We have been issued composition of matter patents for our technology relating to derivatives of 4-(Thio- or Seleno-xanthene-
9-ylidine)-Piperidine or Acridine and its use as a selective 5-HT2B receptor in Australia, Canada, China, the European Union (for
Denmark, France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland, Turkey, and the UK), India, Japan, Russia, South Africa,
South Korea, and the U.S. Patent protection in these jurisdictions will expire on October 23, 2022. These patents relate to our
developmental migraine prophylaxis product candidate BF-1. Since it will not be possible to bring these compounds to market
prior to the patent expiry date, we dropped the patent in 2018.
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Biofrontera AG Annual Report 2018
Instead, we have filed an international patent application regarding anti-migraine compounds and their use through the World
Intellectual Property Organization, and national phases have commenced in the EU and the U.S. The U.S. patent has been granted,
expiring in January 2034.
Photodynamic therapy
A new Patent Cooperation Treaty (PCT) application "Improved Photodynamic Therapy" was filed with the European Patent Office
(EPO) on 23 August 2018. The application was registered under the official file number PCT/EP2018/072823. All countries that
were members of the PCT on the filing date (including the USA) were listed in the application.
Utility model
In addition, we have applied for a (German) utility model for our technology for pharmaceutical and / or cosmetic compositions
for skin treatment. The utility model is valid for a maximum period of ten years after filing the application and expires on 9 April
2020.
Personnel matters
Management Board
The Management Board consists of Prof. Hermann Lübbert (Chief Executive Officer), Mr. Thomas Schaffer (Chief Financial Officer)
and Mr. Christoph Dünwald (Chief Commercial Officer).
Name
Nationality
Age
Position
Prof. Dr. Hermann Lübbert
Christoph Dünwald
Thomas Schaffer
German
German
German
63
51
56
Chair
Sales & Marketing
Finance
Date of first
appointment
2000
2016
2013
Term
31/10/2020
30/11/2020
30/11/2020
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-related bonus payment is provided for the members of the Management Board, which must
be linked to the long-term success of the company in accordance with the law on the appropriateness of Management Board
remuneration. A long-term compensation component also exists through participation in the company's stock option plan.
Employees
As of 31 December 2018, 157 employees worked for the Biofrontera Group (previous year: 123). Of these, 31 were employed at
Biofrontera AG (previous year: 23), 18 at Biofrontera Bioscience GmbH (previous year: 13) and 49 at Biofrontera Pharma GmbH
including the Spanish office (previous year: 39). No staff are employed at Biofrontera Development GmbH or Biofrontera
Neuroscience GmbH. Biofrontera Inc. employed a total of 62 staff (previous year: 48). The growth in the number of employees in
the Biofrontera Group is primarily attributable to the further expansion of sales and marketing activities.
In order to maintain a competitive edge in recruiting and retaining staff, the company must be able to offer compensation that
is both attractive and in line with the market. One component of this is share-based compensation as part of an employee stock
option plan.
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Supervisory Board
As a result of the resolution passed by the Annual General Meeting held on 31 May 2016, the Supervisory Board has been
comprised of the following members since 31 May 2016, with these members acting as representatives of the shareholders:
Name
Nationality
Age
Position
Dr. Ulrich Granzer
Jürgen Baumann
John Borer
Reinhard Eyring **)
Hansjörg Plaggemars *)
Kevin Weber
German
German
USA
German
USA
USA
58
64
61
60
48
60
Chair
Deputy Chair
Member
Member
Member
Member
Date of first
appointment
12/05/2006
24/05/2007
31/05/2016
07/02/2018
31/05/2016
31/05/2016
Term
2021
2021
2021
2021
2021
2021
* Hansjörg Plaggemars was removed from his position as a member of the Supervisory Board of Biofrontera AG by the Cologne District Court
on 22 March 2019.
** Mr. Reinhold Eyring was initially appointed to the Supervisory Board as Mark Reeth's successor on 7 February 2018 and subsequently
confirmed at the Annual General Meeting on 11 July 2018.
Internal controls
Biofrontera AG is managed by its Management Board. The Management Board is responsible for and supervises the operating
business. The Management Board receives and regularly reviews internal management reports to this end.
The key figures are calculated on a monthly basis, while the budget planning for the current financial year is revised and updated
quarterly. In addition, medium-term, comprehensive planning is prepared once a year. A detailed cost analysis is carried out on
an ongoing basis.
Key financial performance indicators
With regard to the company's operating performance, the key performance indicators are revenue, liquidity and, increasingly,
the result from operating activities.
As part of internal reporting, sales revenue, reported by region, is the key performance indicator. On a consolidated basis,
revenues include sales to wholesalers, as well as physicians and clinics, sales to our licensing partners, and revenue from
research contracts.
Due to the increase in sales revenues from EUR 12,025 thousand in 2017 to EUR 21,107 thousand in 2018, the result from operating
activities has been increasingly used as a relevant control parameter metric It measures the operating earning power of the
company independently of its financial structure and local taxation, allowing the indicator to be used for international
comparisons with other companies.
In addition, liquidity trends are utilized as an important key indicator and management metric. This is monitored on a daily basis.
Liquidity is defined as the sum of cash and cash equivalents held in bank accounts and is described as cash and cash equivalents.
Non-financial performance indicators
The number and qualifications of employees are the key non-financial performance indicators. This internal control system is
applied on a consolidated basis so the entire Group is managed according to one standard.
The employees of Biofrontera are an important success factor and consequently, represent a central control parameter. 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. We therefore measure the annual expenditure on training
and further education, as well as the number of training courses. Personnel costs are always monitored in line with the salary
level customary in the industry sector.
The maintenance and further development of our regulatory approvals is essential to secure and strengthen Biofrontera's
market positioning and is, among other things, reflected in research and development costs. As a consequence, both the
expansion of regulatory approvals for our drug and the number of external and internal audits are important non-financial
control parameters for the company.
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Biofrontera AG Annual Report 2018
Economic and business report for the 2018 financial year
Business performance
As in the previous financial year, Biofrontera again succeeded in almost doubling product revenues in 2018. This illustrates the
enormous potential that continues to arise for Ameluz® and our red-light LED lamp, BF-RhodoLED®. For the first time, we were
able to sell more than 100,000 tubes of our drug worldwide in one year.
A major focus of our work in 2018 in the U.S. was to ensure the successful and correct reimbursement of Ameluz®. As Ameluz® –
as a so-called "buy-and-bill" drug – is purchased directly by the physician, the reimbursement risk, as well as the additional work
entailed in the reimbursement without a special billing code remains with the physician. This initially reduced willingness to
stock up with larger volumes of the new drug. The individual reimbursement code (J-Code) for Ameluz® requested by Biofrontera
in January 2017 was granted after the normal application deadlines in January 2018. Biofrontera has thereby cleared another
hurdle for the regular reimbursement of Ameluz®. However, the responsible authorities and insurance companies need to update
their systems to ensure smooth reimbursement, which also takes time. In the third quarter, we temporarily had to deal with an
erroneous restriction on the reimbursement for Ameluz®. However, this restriction was corrected retroactively to 1 July 2018
through our intervention at the Center for Medicare and Medicaid Services (CMS). The last hurdle for a smooth reimbursement
of our drug was the publication of the average selling price. Although Biofrontera has reported this average price to the
responsible authority (CMS) every quarter since it was launched, it was published for the first time in January 2019. We
consequently assume that the main problems with reimbursement have finally been resolved.
Our customers benefited from the increase in reimbursement for the work performed by the physician in connection with PDT
treatment. This reimbursement, the so-called CPT codes, has been significantly increased and the physician-relevant codes now
exceed the reimbursement for cryotherapy, the treatment of choice for actinic keratoses in the USA. This improved
reimbursement will help us to better position PDT as a treatment method in the market.
After two years on the American market, we raised the price of Ameluz® in line with inflation for the first time on 1 October 2018.
The price increase was generally accepted by our customers, but led to some extraordinary stockpiling by some doctors and
consequently to increased sales in September 2018.
We estimate that the market share of Ameluz® in the U.S. - PDT drug segment is now about 18% (previous year: about 8%) and
expect to further increase our market share in the future.
In Germany, the largest European market for Ameluz®, the market share of Ameluz® in the segment of PDT drugs sold by German
public pharmacies, was approximately 66% in 2018, compared to approximately 59% in the previous year. With the introduction
of daylight-PDT, Ameluz® has once again established itself as a strong market leader in the PDT market compared to competing
products. We estimate that in the future daylight-PDT will gain further market share, which to date had been reserved for self-
applied topical creams. What is particularly interesting is that Ameluz® is finally reimbursed by the public health insurance funds
when prescribed for daylight-PDT. The number of patients who have access to treatment with Ameluz® multiplied in 2018.
Biofrontera has used this to reposition itself in the German dermatology market. We have invested in marketing & sales and
were able to increase prescriptions for Ameluz® in Germany by about 50% last year.
In Spain, too, the approval of daylight-PDT has led to significant growth. After an approval and reimbursement process lasting
almost 18 months, the Spanish authorities have also granted approval to market Ameluz® for basal cell carcinoma (BCC) (we
have been able to do this in Germany since the beginning of 2017). However, we had to accept a 27% reduction in our sales price
in Spain as of 1 July 2018. We now have to compensate for this margin decrease by boosting volumes and are optimistic that we
will be able to do so with our very efficient sales team.
Earnings before income tax for the Biofrontera Group amounted to EUR -19,269 thousand in the 2018 financial year after
EUR -16,102 thousand in the previous year. The revenue growth in 2018 did not yet have a positive effect on the business result,
in particular due to higher legal and consulting costs and the further expansion of the sales structure in the USA. In addition to
the successful expansion of the workforce, the focus in 2018 continued to be on employee training and development.
Biofrontera AG reports a net loss for the year of EUR -9,072 thousand (previous year: EUR -3,995 thousand) in its single-entity
financial statements under German commercial law (HGB). The higher net loss for the year is due in particular to the significant
increase in legal and consulting costs in connection with the patent litigation in the U.S.
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Biofrontera Group financial position and performance
As of 31 December 2018, the scope of consolidation of the Biofrontera Group has not changed compared to 31 December 2017. In
addition to Biofrontera AG, the consolidated financial statements as at 31 December 2018 include the subsidiaries Biofrontera
Bioscience GmbH, Biofrontera Pharma GmbH, Biofrontera Development GmbH, Biofrontera Neuroscience GmbH and Biofrontera
Inc.
Results of operations of the Biofrontera Group
in EUR thousands
Sales revenue
Gross profit on sales
Research and development costs
General administrative costs
Sales costs
Loss on operations
Interest expenses
Interest income
Other expenses
Other income
Loss before income tax
Income tax
Loss after income tax
Sales revenue
2018
21,107
16,656
(4,427)
(12,963)
(17,744)
(18,478)
(1,784)
24
(332)
1,301
(19,269)
10,391
(8,878)
2017
12,025
10,310
(4,225)
(3,097)
(16,922)
(13,934)
(1,133)
38
(1,333)
260
(16,102)
0
(16,102)
The Biofrontera Group generated total revenue of EUR 21,107 thousand in the 2018 reporting year, equivalent to an increase of
more than 76% compared to the previous year (previous year: EUR 12,025 thousand). Revenues from product sales almost
doubled compared to the previous year (EUR 20,938 thousand; previous year: EUR 10,602 thousand). Sales in the USA continued
to develop very positively in the 2018 financial year. US sales increased by 136%, or EUR 8,582 thousand, to a total of
EUR 14,894 thousand (previous year: EUR 6,312 thousand). This growth was driven by the further expansion of our sales
structures and improvements in the reimbursement of PDT for dermatologists in the USA. Sales revenues in Germany improved
by EUR 634 thousand, or 24%, year-over-year to reach EUR 3,307 thousand. In other European countries, sales revenue increased
by 69% to reach EUR 2,737 thousand (previous year: EUR 1,616 thousand). The sales revenue growth in Europe is especially due
to the introduction of the daylight-PDT, which was approved in March. Sales revenues from other regions amounted to
EUR 169 thousand (previous year: EUR 1,423 thousand), which were mainly based on revenue from the development partnership
with Maruho.
in EUR thousands
Sales revenue by region
169
14,984
2,737
3,307
2018
1,423
6,312
1,616
2,674
2017
Germany
Europe (excl. GER)
USA
Other regions
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Biofrontera AG Annual Report 2018
Gross profit on sales
In the 2018 reporting year, gross profit on sales increased by EUR 6,346 thousand, to reach EUR 16,656 thousand, compared with
EUR 10,310 thousand in the prior-year period. The gross margin fell from 86% in 2017 to 79% in 2018. The decrease in our gross
margin was due to the one-off costs included in cost of sales for the introduction of larger production lots and the reduction in
sales revenue from other regions.
in EUR thousands
Operating expenses
3,097
16,922
4,225
2017
12,963
17,744
4,228
2018
Research & development costs
Sales costs
General administrative costs
Research and development costs
Research and development costs were at the previous year's level and include costs for clinical studies, as well as expenses for
regulatory activities, such as the granting, maintenance and expansion of our approvals. Research and development costs
remained well below the original forecast of EUR 6 million to EUR 7 million for 2018. This is mainly due to lower costs for clinical
trials.
General administrative costs
General administrative costs amounted to EUR 12,963 thousand in the 2018 financial year and thereby increased by
EUR 9,866 thousand to EUR 12,963 thousand (previous year: EUR 3,097 thousand), which was in particular due to higher legal and
consulting costs. Additionally, the administrative expenses in the USA increased.
Sales and marketing costs
Sales and marketing costs totaled EUR 17,744 thousand in the 2018 financial year, thereby rising only slightly compared with the
previous year (EUR 16,922 thousand). Sales and marketing costs include the costs of our own sales teams in Germany, Spain, the
UK and the USA, as well as marketing expenses. The higher level of sales activities in the USA is reflected both in sales and
marketing costs, as well as administrative costs in the USA.
Loss on operations
Research and development costs, sales and marketing costs, and general administrative costs totaled EUR 35,134 thousand in
the 2018 financial year. This corresponds to an increase of TEUR 10,890 or 45% over the previous year of TEUR 24,244. As a result
of the unexpectedly high increase in general administrative costs – in particular due to high legal and consulting costs – the
result from operations of EUR -18,478 thousand (previous year: EUR -13,934 thousand) was below the level of the previous year
despite the significant increase in gross profit from sales.
Interest expenses
Interest expenses increased by EUR 651 thousand and amounted to EUR 1,784 thousand (previous year: EUR 1,133 thousand),
mainly due to interest expenses on the 2017/2022 convertible bonds placed in 2017 and the EIB loan granted in July 2017.
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35
Other income and expenses
This item mainly includes expenses and income from currency translation.
Income taxes
Income taxes of EUR 10,391 thousand were reported in the 2018 financial year (previous year: EUR 0 thousand), which are mainly
attributable to the initial recognition of deferred tax assets on tax loss carryforwards. These relate in particular to the deferred
tax assets on loss carryforwards for Biofrontera Pharma GmbH to be recognized for the first time as at 31 December 2018. The
subsidiary has already generated profits in the second half of 2018 due to the increased business volume and it can be assumed
that Biofrontera Pharma GmbH will continue to generate positive results in the future and thus use its tax loss carryforwards.
Net assets of the Biofrontera Group
in EUR thousands
Non-current assets
Current financial assets
Other current assets
Total assets
Equity
Non-current liabilities
Current financial liabilities
Other current liabilities
Total equity and liabilities
Non-current assets
31/12/2018
31/12/2017
11,546
23,642
3,945
39,133
16,356
15,007
2,000
5,770
39,133
1,394
13,215
5,238
19,847
3,381
12,355
1,810
2,301
19,847
The increase in non-current assets is mainly attributable to the first-time recognition of deferred tax assets on tax loss
carryforwards at Biofrontera Pharma GmbH in the amount of the expected positive earnings trend. Deferred tax assets amount
to EUR 10,400 thousand (previous year: EUR 0 thousand).
Current financial assets
The increase in current financial assets reflects liquidity of EUR 19,451 thousand (previous year: EUR 11,083 thousand). Trade
receivables amounted to EUR 3,397 thousand as of 31 December 2018, compared to EUR 1,561 thousand in the 2017 financial year.
The increase in the 2018 financial year is due to increased sales revenue from product sales.
Other current assets
Other current assets mainly include inventories amounting to EUR 3,177 thousand (previous year: EUR 3,733 thousand).
Equity
The Biofrontera Group has equity amounting to EUR 16,356 thousand based on IFRS accounting principles. Equity increased
particularly as a result of the issue of new shares in February 2018 with gross proceeds totaling EUR 24,000 thousand, as well
as allocations to capital reserves from the conversion of employee options in the amount of EUR 433 thousand and from the
exercise of conversion rights from the 2016/2021 and 2017/2022 convertible bonds in the amount of EUR 77 thousand.
Non-current liabilities
Non-current liabilities include financial liabilities of EUR 13,462 thousand (previous year: EUR 12,355 thousand) and the formation
of long-term provisions for legal costs of EUR 1,545 thousand (previous year: EUR 0 thousand), the current portion of which is
shown under other current liabilities. A total of EUR 3,184 thousand was accrued in 2018 for the litigation cost risk in connection
with the patent litigation in the USA. Of this amount, EUR 1,545 thousand is reported under non-current provisions and EUR 1,639
thousand under current provisions.
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Biofrontera AG Annual Report 2018
Current financial liabilities
At EUR 2,000 thousand (previous year: EUR 1,811 thousand), current financial liabilities are slightly above the level of the previous
year.
Other current liabilities
Other current liabilities amounted to EUR 5,770 thousand (previous year: EUR 2,301 thousand) and increased in particular due to
the above-mentioned formation of provisions for litigation costs in the 2018 financial year in the amount of EUR 1,639 thousand
(previous year: EUR 0 thousand).
Financial position of the Biofrontera Group
The company's capital management body regularly reviews the equity ratio of both the Biofrontera Group and the parent
company. The 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 Group's Management Board ensures that
all Group companies have sufficient equity and debt funding at their disposal.
in EUR thousands
Statement of cash flows
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Cash and cash equivalents
Non-current financial liabilities
Current financial debt
Net liquidity
2018
-13,434
-511
22,274
19,451
13,462
165
5,824
2017
-13,119
-375
9,451
11,083
12,355
170
-1,442
Net cash flow from operating activities amounted to EUR -13,434 thousand and thereby remained almost unchanged at the level
of the previous year.
Net cash flow from investing activities decreased by EUR 136 thousand to EUR -511 thousand.
Net cash flow from financing activities increased year-over-year to EUR 22,274 thousand (previous year: EUR 9,451 thousand), in
particular from proceeds from the issue of new shares with gross issue proceeds totaling EUR 24,000 thousand compared with
financial year 2017.
Cash and cash equivalents increased due to the proceeds from the capital increase in February 2018 and amounted to
EUR 19,451 thousand as of 31 December 2018 (previous year: EUR 11,083 thousand). From today's perspective, the company has
sufficient liquidity to implement Biofrontera’s strategy.
The non-current liabilities have a term until 2022 and consist of the 2017/2022 Convertible Bond and the loan from the European
Investment Bank.
The EIB loan is unsecured and guaranteed by our main subsidiaries. Originally, it was available in tranches within a two-year
period. At the beginning of 2019, it has been extended for another year. In July 2017, the company drew down a first tranche of
EUR 10 million, with a further tranche of EUR 5 million being drawn down after the reporting date in February 2019. A further
tranche of EUR 5 million can be drawn after certain milestones have been reached. 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 capitalization of Biofrontera AG but limited to a 4% per annum interest rate.
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Biofrontera AG financial position and performance
Results of operations of Biofrontera AG
in EUR thousands
Sales revenue
Other operating income
Cost of materials
Personnel costs
Depreciation and amortization
Other operating expenses
Other interest and similar income
Interest and similar expenses
Other taxes
Net loss for the year
2018
3,019
897
(2,899)
(3,028)
(31)
(8,030)
2,676
(1,676)
(1)
(9,073)
2017
2,598
45
(2,502)
(2,429)
-36
(2,761)
2,282
(1,191)
(1)
(3,995)
The revenues reported in the single-entity financial statements under German commercial law mainly comprise revenues from
services provided within the Biofrontera Group. In line with the higher revenues, the costs of purchased services increased.
As part of the further development of business activities, additional employees were hired and resulted in higher personnel
expenses in the reporting period.
The increase in operating expenses by EUR 5,269 thousand is mainly due to higher legal and consulting costs. The increase in
interest and similar income is due to the continued granting of loans to Group companies. Interest expenses increased in
particular due to the loan provided by the EIB.
Net assets of Biofrontera AG
in EUR thousands
Non-current assets
Receivables due from affiliated companies
Cash and balances with banks
Other assets
Total assets
Equity
Provisions
Bonds
Liabilities to banks
Other liabilities
Total equity and liabilities
31 December 2018
31 December 2017
32,270
80,605
16,147
367
129,389
110,408
4,732
2,595
10,990
664
129,389
32,283
67,838
8,113
426
108,661
94,491
744
2,745
10,380
301
108,661
As in the previous year, non-current assets relate almost exclusively to interests held in affiliated companies.
Receivables from affiliated companies increased due to the further availability of funds to subsidiaries.
Cash on hand and bank balances increased due to the capital increase in February 2018 from EUR 8,113 thousand to EUR 16,147
thousand. For further details on the financial position, please refer to the presentation of the consolidated financial position.
Biofrontera AG has equity of EUR 110,408 thousand as of 31 December 2018 on the basis of accounting policies pursuant to the
German Commercial Code (HGB) (previous year: EUR 94,491 thousand).
The increase in provisions is mainly due to the formation of provisions for legal costs in the amount of EUR 3,489 thousand
(previous year: EUR 0 thousand).
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Biofrontera AG Annual Report 2018
The bonds include the 2017/22 Convertible Bond. The decrease results from the exercised conversions and the early repayment
of the 2016/21 Convertible Bond.
The increase in liabilities to banks results from the interest payable at maturity on the loan provided by the EIB.
Assessment of the financial position
As a result of the cash inflows from the capital increase carried out in February 2018 and the inflow of a further tranche of
EUR 5.0 million from the EIB loan, the company has sufficient funds at its disposal to continue financing its business activities.
Comparison of actual and forecast business performance
The Biofrontera Group showed a solid financial performance in the reporting year 2018. Detailed comparisons of projected
targets and actual results are shown in the table below:
Key figures
Group sales revenue
Research and development costs
General administrative costs
Sales and marketing costs
Loss before income tax
Loss after income tax
Forecast 2018
Revised
Forecast 2018
Target achievement
as of 31/12/2018
EUR 16 to 20 million
EUR 19 to 22 million
EUR 6 to 7 million
EUR 7 to 8 million
EUR 18 to 20 million
EUR -15 to -16 million
EUR -15 to -16 million
EUR -8 to -10 million
EUR 21 million
EUR 4 million
EUR 13 million
EUR 18 million
EUR -19 million
EUR -9 million
Assessment of the course of business by the Management Board
The 2018 financial year was an exceptionally successful year for Biofrontera. In particular, the strong sales revenue growth in
the USA contributed to the strong performance. The approval extension to daylight-PDT in the EU had a positive effect on sales
growth in Europe. As a result, we not only achieved the originally forecast revenue target for 2018, but also significantly exceeded
it with more than EUR 21 million.
Research and development costs remained well below the original forecast. This is mainly due to lower costs for clinical trials.
General administrative expenses were higher than forecast. This is due to rising costs for legal advice in connection with the
lawsuits filed by Deutsche Balaton and, above all, legal disputes with our competitor Dusa Pharmaceuticals Inc. in the U.S.
In 2018, Biofrontera continued to invest in marketing and sales activities in the EU and the U.S. and hired additional employees
as planned, with employee growth significantly slower than in the previous year. Sales and marketing costs in the 2018 financial
year were in line with our guidance.
In an ad hoc announcement dated 10 October 2018, the company announced a revised forecast for sales revenue and the net
result for 2018. The adjustment took into account a charge against earnings from the recognition of provisions for future legal
costs, which includes the estimated costs for legal disputes with Dusa Pharmaceuticals Inc. and the Deutsche Balaton Group, in
each case until a ruling in the next instance.
An improvement in the consolidated net result derives from the deferred tax assets on loss carryforwards of Biofrontera Pharma
GmbH to be reported for the first time as of 31 December 2018. The subsidiary has already generated profits in the second half
of 2018 thanks to the increased business volume and it can be assumed that Biofrontera Pharma GmbH will continue to generate
positive results in the future, and thereby be able to utilize its tax loss carryforwards. At EUR -9 million, the consolidated net
result was in line with the revised forecast.
The lower than expected result in Biofrontera AG's single-entity financial statements under German commercial law (HGB) is
mainly due to the increased costs for legal advice.
!
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39
Outlook and forecast
Framework conditions
Health expenditure worldwide will continue to grow. People are living to an increasingly advanced age thanks to improved
medical care, with the proportion of the ageing population thereby steadily increasing. In addition, lifestyle and old age diseases
– mostly chronic diseases – are playing an increasing role, many of them also due to lifestyle changes. The sharp increase in the
occurrence of sun-induced non-melanoma skin cancer, as well as the associated medical treatment and prophylaxis are
consequences of this. With PDT, the company considers itself to be excellently positioned in both Europe and the USA.
The sales structure in the U.S. subsidiary is largely complete. The elimination of reimbursement problems for physicians in the
USA, our most important market, and the receipt of the regulatory approval for Ameluz® in combination with daylight-PDT in the
EU, should exert a positive impact on business performance in the 2019 financial year. Biofrontera will continue to be present at
the most important American dermatology conferences and will aim for broad-based reporting about white skin cancer and
Ameluz® among physicians and the general public. In Europe, we expect a significant growth spurt from the growing acceptance
of daylight- PDT.
In addition, the agreed or currently negotiated cooperation projects with Maruho Co. Ltd. in Japan will offer the company both
economic and strategic advantages.
The table below summarizes the company's guidance for the 2019 financial year without taking the acquisition of Cutanea Life
Sciences, Inc. into consideration:
Key figures
Group sales revenue
Research and development costs
General administrative costs
Sales and marketing costs
Loss on operations
Loss before income tax
Forecast of key financial figures
Forecast 2019
EUR 35 to 40 million
EUR 5 to 7 million
EUR 10 to 12 million
EUR 20 to 22 million
EUR -7 to -9 million
EUR -9 to -11 million
For the 2019 financial year, the company expects revenue from product sales to be in the range between EUR 35 million and
EUR 40 million. Despite the positive trend in overall conditions, it remains very difficult to plan sales revenue growth, thereby
leading to a considerable fluctuation range in achievable sales revenues.
Under the aforementioned conditions, the Biofrontera Group will achieve a result before income tax of approximately EUR -
7 million to EUR -9 million and a consolidated net result of around EUR -9 million to EUR -11 million in 2019. The achievement of
this result depends significantly on sales revenue trends. During the course of the year, we expect to reach the operating break-
even point in the fourth quarter.
From today's perspective, the Biofrontera has sufficient liquidity to implement its strategy, even taking into account the further
utilization of a further tranche of the EIB loan amounting to EUR 5.0 million at the beginning of 2019.
Biofrontera expects a further slight increase in the number of employees in 2019 in order to continue the appropriate
acceleration and support of the company's growth.
For the individual financial statements of Biofrontera AG, we continue to expect a net loss for the year in 2019, which, however,
will be significantly lower than in 2018.
Planned regulatory progress
Patient recruitment for the Phase III trial to obtain U.S. regulatory approval for the BCC indication began in September 2018. We
expect recruitment to be completed during the first half of 2020. The Phase III trial for actinic keratoses of the trunk and
extremities was completed in the first quarter of 2019. Initial results and an application for approval extension are expected
during the course of the year.
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Biofrontera AG Annual Report 2018
Forecast of further key financial figures
Biofrontera will also continue to invest in the expansion of Ameluz's indications. In addition, as in the past, considerable costs
will be incurred for maintaining the existing approvals. In total, Biofrontera expects research and development costs of
approximately EUR 5 million to EUR 7 million.
Sales and marketing costs represent by far the largest operative cost block. We expect another slight increase in such costs in
2019, principally because of the staff hired during the course of last year. The related costs will be expensed on a full-year basis
in 2019. 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 be between EUR 20 million and EUR 22 million.
Administrative costs will remain largely unchanged compared to 2018 and will be between approximately EUR 9 million and
EUR 11 million.
Cooperation with Maruho and acquisition of Cutanea Life Sciences, Inc.
Sales and development costs of less than EUR 1.0 million are expected from the research cooperation with Maruho agreed in
March 2019.
This forecast does not include any effects of the Cutanea Life Sciences, Inc. (“Cutanea”) acquisition on the balance sheet or
income statement. However, it is assumed that in 2019 this will not lead to any negative changes in the result from operating
activities and also no negative effects on the Biofrontera Group's liquidity position. The sale of the new products Aktipak® and
XepiTM is expected to generate sales revenue in the mid-single digit million range, which are not included in the aforementioned
forecast. Additional marketing costs incurred in 2019 for the commercialization of the products acquired as part of the Cutanea
acquisition will be pre-financed by Maruho and will consequently not affect total sales costs in 2019.
!
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41
Risk and opportunity report
Each industry has its own specific characteristics that give rise to specific risks. The health industry, in particular, is in a state
of constant change, with the ensuing risks and opportunities being shaped by a wide variety of influences.
As an internationally biopharmaceutical company, the Biofrontera Group is exposed to a large number of risks arising from its
business activities, which can have a significant impact on the achievement of the targets. Deviations from the plan are to be
understood as opportunities (positive deviations) and risks (negative deviations).
Risk management system
Biofrontera's management deploys a comprehensive risk management system to counter risks within the Biofrontera Group.
The risk 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 of companies.
The Biofrontera Group's primary objective is to achieve sustainable and long-term growth while continuously increasing the
company's value. 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, organizational 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 2018 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 license
holders with regard to the manufacture and sale of drugs, medical devices and cosmetics.
The Biofrontera Group's risk management system is integrated into its 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 organized both locally and centrally. The Management Board exercises overall responsibility
in this regard. The coordinated subsystems are the specialist departments' responsibility. Opportunities and risks are regularly
identified and evaluated at all hierarchical levels. All Biofrontera Group management staff are involved in Group-wide risk policy
and associated reporting. This includes the Management Board, the companies' managing directors, and process and project
managers.
The Risk Management Team headed by the Chief Executive Officer is responsible for the centrally organized risk management
system. It coordinates the individual management bodies and ensures they receive their information continuously and promptly.
The 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 and evaluate information relevant to risk management at all levels.
The Risk Management Officer, who is also a member of the Risk Management Team, is the first point of contact Group-wide. If
unexpected risks arise, he/she immediately initiates the necessary steps to counteract them. The Risk Management Officer is
responsible for developing the risk management system, and for ensuring that it is properly documented. Furthermore, the Risk
Management Officer sets uniform standards and ensures that similar types of risk management processes are implemented
throughout the Biofrontera Group. Regular analysis of key business performance indicators helps to ensure that any possible
discrepancies from expected performance levels in terms of potential opportunities and risks can be identified and assessed at
an early stage, allowing necessary measures to be adopted in a reasonable time. The relevant control variables and business
processes are monitored as a whole. Risk planning and identification in this area are performed in collaboration with the relevant
unit managers.
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Biofrontera AG Annual Report 2018
Accounting risk management system and internal control system
The Group financial accounting process at Biofrontera AG aims to ensure that the figures and information provided in external
accounting instruments (bookkeeping, components of the separate and consolidated 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 include detailed internal control measures integrated into the financial
accounting process. In connection with the growing business activities, the internal accounting control system is subject to an
ongoing monitoring and improvement process.
The internal control system aims to identify, assess and manage all the risks that could prevent the proper preparation of the
separate and consolidated financial statements. Any risks identified must be assessed with regard to their influence on the
separate and consolidated 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 internal control system covers all the areas that are essential for the separate
and consolidated financial statements and all the processes relevant to the preparation of the financial statements.
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.
Risks and opportunities relating to future business development and growth
The business strategy of Biofrontera AG is based to a large extent on establishing the current products, in particular the drug
Ameluz®, on the relevant sales markets in the long term. In order to exploit market potential, it is necessary to obtain and expand
the existing approvals in the USA and Europe. In addition, the aim is to broaden the product pipeline. The protection of our
intellectual property is to be secured by a suitable patent strategy. The prerequisite for achieving these targets is ensuring
sustained profitability and sufficient liquidity.
Risks may arise from deviations from targets in the form of negative developments, the insufficient realization of targeted and
already recognized opportunities or potentials, or the failure to take advantage of new opportunities. Biofrontera's risk
management takes this into account through continuous analysis of relevant influencing factors.
Liquidity, profitability and access to capital markets
Liquidity risks may arise from the company's current loss-making situation and uncertainties regarding future business trends,
or may consist in not being able to exploit market potential in accordance with Biofrontera's business strategy due to insufficient
liquidity.
In this connection, the company's continued existence could depend on the injection of further funds by current shareholders
or other investors. Access to the capital market and the acceptance of investors are consequently of great importance for the
company, which could also in future be dependent on the further injection of necessary equity capital by the capital market.
The Biofrontera Group may not be able to meet existing or future payment obligations due to insufficient availability of cash
and cash equivalents. To date, the Biofrontera Group has been able to meet its payment obligations at all times and has always
succeeded in providing the necessary financing for its business operations through equity or debt funding. The company
currently has sufficient liquidity available due to the issuance of subordinated convertible bonds in January 2017, the drawdown
of several tranches totaling EUR 15 million from the European Investment Bank loan, as well as especially due to the proceeds
from the capital increase completed in February 2018.
However, the risk still exists that Biofrontera's profitability cannot be achieved or cannot be achieved sustainably, and that its
self-financing potential would consequently prove insufficient. On the basis of its previous, invariably successful experience
with capital measures, the Management Board assumes that it can continue to secure the liquidity it requires for its business
activities. Should – contrary to expectations – these valid estimates not be realized, a going concern risk would ensue.
Biofrontera balances this risk with a long-term capital market strategy. In addition, potential risks are regularly identified and
assessed as part of our short-, medium- and long-term liquidity planning in order to be able to take any necessary measures in
good time to achieve our targets. To ensure payment security, liquid funds are kept 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.
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43
On 25 March 2019, Biofrontera Inc., through its wholly owned subsidiary Biofrontera Newderm LLC, USA entered into an
agreement with Maruho for the acquisition of all shares in Cutanea Life Sciences, Inc. Our acquisition of Cutanea Life Sciences,
Inc. may not be successful, which could adversely affect our ability to develop and commercialize products and product
candidates, impact our cash position, increase our expense and present significant distractions to our management. We mitigate
this risk by monitoring monitoring the integration of Cutanea Life Sciences, Inc.
Regulatory Approvals
Restrictions on existing approvals in Europe and the USA would call the company's ability to market its products into question.
In addition, the risk exists that strategically relevant extensions to approvals could not be approved, could be delayed or only
approved to a limited extent, thereby impairing the company's competitiveness vis-à-vis its competitors.
The company compensates for such risks through consistent compliance with regulatory requirements and an effective quality
management system.
Development
The company is also exposed to risks in connection with product development processes or the expansion of indications. 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. Due to lack of success in individual study phases, for example in study design, patient recruitment, possible
quality defects or documentation of study results, studies can prove more cost-intensive than planned, can be delayed or even
come to a complete standstill. It is possible that none, or only some, of the funds invested will be recouped in sales revenue.
The company tries to counterbalance these 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 Supervisory Board members' professional expertise.
The project control system represents the entire development process in detail right up to approval, making it possible to
analyze the effects that even small changes or delays – with clinical trials, for example – can have on the development process
and on its costs. This makes it possible to precisely observe the risk associated with individual projects and take the steps
necessary to minimize the development risk.
Product portfolio
The company currently has only one approved drug, Ameluz®, which it markets in Europe and the USA. A risk exists that Ameluz®
may not be established sufficiently or sustainably on the market.
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.
Competitive disadvantages over its competitors are also possible due to advantages with regard to the indication spectrum of
competing products.
A further risk is that the company's own product pipeline cannot be broadened and that successor or supplementary products
cannot be made ready for market launch.
Biofrontera counters these risks by permanently observing the market with regard to the activities of known competitors or the
entry of new competitors and leads the way in the market for its products and development activities in order to broaden the
indication base. In addition, cooperation opportunities for expanding the product portfolio are being evaluated.
Patent protection
The company may be subject to patent protection risks. 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. If a patent expires or cannot be successfully defended, increased competition is usually to be expected. A
lack of patents can jeopardize the market position of the company's products and facilitate the market entry of competitors. In
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Biofrontera AG Annual Report 2018
order to avoid these risks, Biofrontera's patent portfolio is continuously reviewed and its patent strategy adjusted. Further
information on individual patents can be found in the section on patent and trademark development.
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.
Further information on patent litigation is provided separately in the "Litigation" section.
Products and product stewardship
As an international biopharmaceutical company, Biofrontera is subject to the highest requirements and associated risks in the
quality and safety areas. 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. Despite extensive studies, the possibility exists of previously unknown and unexpected side effects from
Biofrontera products. The company may be exposed to a cost risk due to product safety deficiencies if, for example, our products
are recalled voluntarily or as a result of legal or regulatory action. Possible payments of damages associated with the
aforementioned risks could exert a considerable negative effect on the company's financial results. These risks are offset by
established pharmacovigilance processes in the company and ensure that potential side effects or other product-related
problems are quickly identified. As no previously unknown drug side effects have appeared, we consider it highly improbable
that risks of this kind will arise.
Both regulatory requirements and standards applied beyond them are guaranteed by a wide variety of processes integrated
into the company. The company's product-related risks are countered with a functioning quality management system.
Biofrontera's focus on Good Manufacturing Practice (GMP) guidelines and Standard Operation Procedures (SOPs), which are
mandatory in the pharmaceutical industry, ensures the quality and safety requirements for products and processes. Regular
internal audits of standards at suppliers and subcontractors contribute in this context. Regular checks and inspections are also
carried out by regulators.
Sales markets
Biofrontera operates in regulated competitive markets. The company's sales and revenue targets could be jeopardized by sales
and revenue-related measures taken by competitors with respect to the indications treated with their products, pricing strategy
or marketing strategy, as well as by new products introduced by competitors. If sales targets are not met, this could also have
a negative impact on the company's results and liquidity targets.
Reorientations in the respective healthcare systems and changes in the reimbursement behavior of drug reimbursors as well as
market barriers in the relevant markets may result in the risk of insufficient or unsustainable market penetration. Ameluz's
competitive position may also be adversely affected by product characteristics that are not optimally perceived in the respective
market in comparison with competing products.
To avoid these risks, Biofrontera's sales and marketing organization carries out intensive market observation and regular
market analyses. The marketing instruments deployed and communication with our customers are subject to constant further
development in order to identify opportunities and risks and to strengthen the company's competitive position.
Purchasing & production
As a pharmaceutical manufacturer, the company is exposed to various risks in connection with the procurement and production
of its products. Biofrontera is dependent on suppliers for its production, whose exchange would entail lengthy regulatory
approval processes. Difficulties regarding procurement prices, quality, delivery reliability or quantity at or with these suppliers
may affect the company's revenue and results targets. By establishing alternative suppliers, changing production sizes and
actively managing contracts and inventories, Biofrontera seeks to minimize these dependencies and ensure the supply of the
required goods and services.
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. Using our own audit and monitoring
system, Biofrontera regularly ensures that the manufacturing conditions at its most important suppliers meet the required
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standard. This enables us to avoid such risks and damages. We have also established our own production facilities for in-house
production quality control of the BF-RhodoLED® lamp to reduce our dependence on suppliers in this area, too.
Currency risks
As a result of the company's internationalization, the company is exposed to currency risks in its sales and procurement markets.
The development of exchange rates can have both a positive and a negative impact on the company's financial results.
The valuation of financial instruments may also involve risks related to currency exchange rate, which are described in more
detail in the chapter on reporting on the financial instruments deployed by Biofrontera.
The development of financial markets is continuously monitored in order to identify potential opportunities and risks and to be
able to respond accordingly.
External influences and global risks
The increasing integration of the global economy through globalization and digitalization can exert a negative impact on the
achievement of Biofrontera's goals in the context of macroeconomic developments. In addition, political developments can
influence the structures relevant for Biofrontera in the respective healthcare sector.
On 23 June 2016, the electorate in the United Kingdom voted in favor of leaving the European Union, commonly referred to as
Brexit. On 29 March 2017, the country formally notified the European Union of its intention to withdraw from the European Union.
Since the regulatory framework for pharmaceutical products in the United Kingdom covering quality, safety and efficacy of
pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products
is derived from European Union directives and regulations, Brexit could impact the future regulatory regime which applies to
products and the approval of product candidates in the United Kingdom. It remains to be seen how, if at all, Brexit will impact
regulatory requirements for products in the United Kingdom. Due to the insignificant amount of revenues from product sales in
the United Kingdom, the Company considers this risk to be very low.
These risks cannot be influenced by Biofrontera. In the past, however, the monitoring processes and standards implemented in
the company have enabled Biofrontera to adapt external effects or risks appropriately and successfully.
Business strategy
Due to changing framework conditions, the strategy chosen by the company to guarantee its sales, growth and profitability
targets may not be sufficiently effective in the future. As part of the risk management process, management uses ongoing
analyses to counteract current and potentially future influencing variables or developments in order to initiate suitable
measures if necessary.
Staff
The recruitment of qualified and dedicated staff is a key prerequisite for the company's success. A high staff turnover rate could
jeopardize the achievement of corporate goals and the safeguarding of the company's know-how. In order to counter these
risks, motivate employees and retain key personnel, the company offers competitive compensation, participation in option
programs and extensive training and professional development opportunities for employees. Furthermore, the Group pursues a
diversity-orientated personnel policy in order to leverage the labor 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 and data protection
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 authorization concept. The
measures adopted by the company have always proven adequate to date, so such risk is to be regarded as low.
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Biofrontera AG Annual Report 2018
As a pharmaceutical company, Biofrontera is exposed to additional risks in the area of data protection. A large volume of
personal data is generated, particularly in the area of clinical trials and drug safety reports, and must be protected in particular
under the new Basic Data Protection Regulation (EU-DSGVO). Violations or violations of these regulations may result in severe
penalties against the company. Biofrontera counteracts these risks with continuous data protection processes and the
implementation of legal guidelines.
Law and compliance
The Biofrontera Group may be subjected 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. Risks may also arise in
connection with publication and information obligations on the capital market. 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 disadvantages and these may harm the company's reputation and ultimately have a negative effect on
the company's success and performance.
Further information on litigation is provided separately in the "Litigation" section.
Opportunities
In addition to identifying risks, the Biofrontera Group's risk management system also includes opportunities that are to be seen
as positive deviations from corporate planning.
Opportunities include the expansion of Ameluz®' indications for BCC in the USA and acne, the exploitation of market potential,
and the research collaboration with Maruho in preparation for the clinical development of Tacrolimus in Biofrontera's
nanoemulsion.
On 19 March 2019, Biofrontera signed an agreement to continue the expired research collaboration with Maruho regarding
branded generics. As part of the newly agreed project phase Biofrontera will prepare the formulation of one of the four active
ingredients in Biofrontera's nanoemulsion jointly tested during a previous project phase (Phase 1) for clinical trials. The
agreement does not cover clinical testing possibly carried out during a subsequent project phase, which will be the subject of
an additional agreement to be concluded between the parties in due course, depending on the results of the new project phase.
Previously existing intellectual property (IP), in particular Biofrontera's nanoemulsion technology, shall remain the property of
the respective owner. New IP and results of the new project phase, including project documentation, shall be shared equally by
the parties. According to the current budget, the new project phase will require up to EUR 1.1 million in research costs, which are
to be borne exclusively by Maruho. Should the costs exceed the currently budgeted amount to be borne by Maruho, the parties
have agreed to consult on the next steps and the issue of how to bear the costs.
Further, at the time of publication of the annual report, Maruho and Biofrontera are negotiating a cooperation on the research
and development of further indications for Ameluz® for the treatment of acne. On 19 March 2019, Maruho and Biofrontera signed
a (non-binding) term sheet in this regard. Currently, a proof of concept trial and maximal use pharmacokinetic-trial are planned,
the costs of which will be borne by Maruho in an amount yet to be specified. These trials will possibly be followed by additional
clinical trials required for US market approval of further indications. Under the term sheet, it is also envisaged that Biofrontera
will grant Maruho a license for marketing Ameluz® in parts of Asia and Oceania, the terms and conditions of which have yet to
be negotiated.
Additionally, the company sees further opportunities through the acquisition of Cutanea Life Sciences, Inc. The opportunities
consist of advantages to compete more effectively insofar as Cutanea's products and expertise supplement Biofrontera's
existing core business. The expansion of the U.S. product portfolio with two FDA-approved drugs represented an opportunity to
accelerate the company's growth.
On 25 March 2019, Biofrontera Inc., through its wholly owned subsidiary Biofrontera Newderm LLC, USA ("Biofrontera"), which
was founded on 20 March 2019, entered into an agreement with Maruho for the acquisition of all shares in Cutanea Life Sciences,
Inc., USA ("Cutanea"). Cutanea has been marketing AKTIPAK®, a prescription gel for the treatment of acne, as well as XepiTM, a
prescription cream for the treatment of impetigo, since November 2018. The objective of the acquisition of Cutanea by Bio-
frontera is to effectively exploit the sales potential of AKTIPAK® and XepiTM in the USA in order to strengthen Biofrontera's US
market presence. Biofrontera acquired Cutanea for an initial purchase price of USD 1.00. Maruho will provide up to USD 7.3 million
in start-up financing for Cutanea's restructured business activities (start-up costs). A purchase price equal to the start-up costs
actually incurred must be paid to Maruho by 2023. Subsequently, the profits from the sale of Cutanea products will be shared
equally between Maruho and Biofrontera until 2030. Maruho has also agreed to assume all operating costs that may be incurred
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during the first three months after completion of the transaction. Maruho will also indemnify Biofron-tera and Cutanea against
all liabilities relating to or resulting from the period prior to the transaction.
Overall opportunity and risk situation at Biofrontera
The Management Board of the Biofrontera Group considers the overall risks to be controllable and does not consider the
continued existence of the company to be jeopardized. The Management Board trusts the effectiveness of the risk management
system with regard to the positive and negative changes in the environment and the requirements of current business. The
assessment is based on various factors, which are summarized below:
!
!!
!!
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•!
The Management Board of the Biofrontera Group considers the company to be well positioned to take advantage of
opportunities, as well as to successfully manage any adverse events that may occur.
To date, the Group has been able to meet its payment obligations at all times. Thanks to the capital increase carried
out in the year under review in the course of the U.S. IPO, the provision of a further tranche of the EIB in February 2019
and the higher sales revenue growth, the liquidity position improved significantly compared to previous years.
Having already received regulatory approval for BCC in Europe in 2017, we further strengthened our market position
in the EU with the approval of Ameluz® in combination with daylight-PDT in the year under review. We hope to see a
further increase in the market potential of Ameluz® from our recently completed study for the treatment of actinic
keratoses on the extremities, trunk and neck with photodynamic therapy. To further enhance our growth opportunities
in the U.S. market, we are currently conducting a study on the treatment of superficial basal cell carcinoma (BCC) with
Ameluz® in combination with our red-light lamp BF-RhodoLED® in the U.S., for which we started recruiting patients in
September 2018.
In the year under review, the sales organization in the U.S. was further expanded. Thanks to this and by improving the
reimbursement options for PDT with Ameluz®, market penetration was significantly improved. This enabled us to make
better leverage our opportunities in the past financial year and continue to achieve strong growth in our sales revenue
and reputation.
Biofrontera considers itself well positioned with regard to the legal disputes described in the following chapter.
Provisions were made in the year under review for future legal costs, which include the estimated costs for legal
disputes with Dusa Pharmaceuticals Inc. and the Deutsche Balaton Group until a ruling is issued in the next instance.
Litigation
In March 2018, DUSA Pharmaceuticals Inc. (“DUSA”) brought a lawsuit against Biofrontera AG and its subsidiaries before the
District Court of Massachusetts due to alleged infringement of its patents No. 9,723,991 and No. 8,216,289 by sales of BF-
RhodoLED® in the USA. In July 2018, DUSA amended its complaint to add claims of trade secret misappropriation, tortious
interference with contractual relations, and deceptive and unfair trade practices.
Biofrontera believes that these claims lack merit and intend to defend against them vigorously, the company cannot guarantee
that we will be successful.
The court largely denied a motion by DUSA for a preliminary injunction, but did order Biofrontera not to use any documents, or
documents derived from documents, that originated at DUSA. Although the court made a preliminary finding that DUSA is
reasonably likely to prevail on its non-patent claims, the court’s ruling is not final and Biofrontera continues to vigorously
contest DUSA’s allegations. In addition, Biofrontera submitted petitions for inter partes review to the Patent Trial and Appeal
Board (PTAB) seeking to have the patents declared invalid. The PTAB issued decisions on February 26, 2019, finding a reasonable
likelihood of success on invalidity arguments for some claims, but nonetheless denying institution of the review petitions
because the PTAB disagreed on the remainder of claims.
We may incur significant costs in defending these claims. In addition to internal human resources, we also mandate U.S. lawyers
to defend the claims. The costs incurred by Biofrontera as a result would not be reimbursed by the plaintiff in the event of a
positive outcome of the proceedings, due to the characteristics of the U.S. legal system.
In July 2018, Biofrontera Inc. brought a lawsuit against DUSA Pharmaceuticals Inc. in California Superior Court. Biofrontera’s
complaint alleges that DUSA engaged in unfair competition by providing excessive product samples to physicians and by using
its distributor to inflate product prices. Biofrontera’s complaint also alleges that DUSA engaged in tortious interference by
making statements to third parties regarding the off-label use of its products. The court has allowed Biofrontera’s tortious
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interference claims to proceed to discovery. Biofrontera has filed an amended complaint with additional allegations for its
sampling and pricing claims. DUSA has moved to dismiss Biofrontera’s amended complaint, and DUSA’s motion remains pending.
On June 11, 2018, Biofrontera filed a complaint in the United States District Court for the Southern District of New York against
Deutsche Balaton AG, Wilhelm Konrad Thomas Zours, Delphi Unternehmensberatung AG, VV Beteiligungen AG, ABC Beteiligungen
AG, Deutsche Balaton Biotech AG, and Axxion S.A., alleging violations of federal securities law and state common law in
connection with actions taken by the defendants during a tender offer for Biofrontera’s shares that were designed to defame
Biofrontera and negatively impact its share price. On October 1, 2018, Axxion was voluntarily dismissed from the litigation. On
December 6, 2018, the remaining defendants filed a motion to dismiss. The motion to dismiss was fully briefed on February 11,
2019, and remains pending. Deutsche Balaton AG, Wilhelm Konrad Thomas Zours and Delphi Unternehmensberatung AG are
among our major shareholders—see “Item 7—Major Shareholders and Related Party Transactions” for more information on their
shareholdings.
In June 2017, the company was served with a claim for rescission and nullity brought by the shareholder Deutsche Balaton AG,
in which it sued for the nullity of certain resolutions of the Annual General Meeting on May 24, 2017. The claim was dismissed by
the Regional Court of Cologne in December 2017. In response to Deutsche Balaton AG's appeal, the Cologne Higher Regional Court
upheld the claim in November 2018. The Cologne Higher Regional Court did not allow the Federal Supreme Court to review the
ruling. As the Company considers the judgment of the Cologne Higher Regional Court to be incorrect, it has filed an appeal for
non-admission with the Federal Supreme Court. A decision of the Federal Court of Justice has not yet been issued.
Deutsche Balaton AG has filed an application for a special audit with the Regional Court of Cologne to investigate the contractual
situation with Maruho Co. Ltd., Japan and related matters. The special audit request was already rejected by the Cologne Regional
Court in November 2017 without hearing the company. Deutsche Balaton AG has filed an appeal against this. The appeal has been
submitted to the Cologne Higher Regional Court for decision. Delphi Unternehmensberatung AG, which indirectly holds the
majority of the shares of Deutsche Balaton AG, filed an identical application for a special audit with the Cologne Regional Court
in January 2018. These proceedings were suspended until the Cologne Higher Regional Court will have ruled on the appeal by
Deutsche Balaton AG. Delphi Unternehmensberatung AG had already filed a request for a special audit with the same content at
the company's Annual General Meeting on May 24, 2017, which was rejected. The company considers the allegations made in the
special audit motions to be insubstantial; from the company's point of view, they serve solely to discredit the Executive Board
and Supervisory Board of Biofrontera AG.
Deutsche Balaton AG has further brought a claim for rescission and nullity against the negative resolutions of the Annual General
Meeting of 11 July 2018 regarding the proposed resolutions under agenda item 8 (conducting a special audit on the circumstances
of the cooperation with the (indirect) major shareholder Maruho Co. Ltd. and its affiliated companies), agenda item 9 (decision
on the assertion of claims for damages against the members of the Management Board Prof. Dr. Lübbert and Schaffer as well as
against Maruho Deutschland GmbH and Maruho Co. Ltd. pursuant to Section 147 (1) AktG as well as the appointment of a Special
Representative for the assertion of these claims pursuant to Section 147 (2) AktG), Agenda Item 10 (conducting of a special audit
on the circumstances of the capital increase at the beginning of 2018 and the associated US listing) and Agenda Item 11 (Decision
on the assertion of compensation claims against the Management Board members Prof. Dr. Lübbert and Schaffer, against the
Supervisory Board member Dr. John Borer as well as against Maruho Deutschland GmbH and Maruho Co., Ltd pursuant to Section
147 (1) AktG and the appointment of a Special Representative for the assertion of these claims pursuant to Section 147 (2) AktG
due to the circumstances of the capital increase in February 2018 (including the US listing and the US share placement). With
regard to the above-mentioned agenda items 8 to 11, Deutsche Balaton AG also filed a positive claim for a resolution to declare
that it is to be recognized that the Annual General Meeting adopted the resolutions in accordance with the resolution proposals
published for this purpose. Furthermore, under agenda item 4 (Elections to the Supervisory Board), a positive action for
resolution was filed with the motion to declare that Mr. Mark Sippel had been elected to the Supervisory Board as successor to
Mr. Mark Reeth with effect from the end of the Annual General Meeting on July 11, 2018. An action for rescission and nullity was
filed against the resolution to reject the election of Mr. Sippel adopted at the Annual General Meeting. Deutsche Balaton AG
withdrew the claims with regard to the latter two matters in dispute.
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Remuneration report
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-related bonus payment is planned for the members of the Management Board, which must
be linked to the long-term success of the company in accordance with the law on the appropriateness of Management Board
remuneration. A long-term compensation component also exists through participation in the company's stock option plan.
The total remuneration paid to members of the Management Board in the 2018 financial year and the total accumulated number
of stock options issued to the Management Board were as follows as of 31 December 2018:
Prof. Dr. Hermann Lübbert
Thomas Schaffer
Christoph Dünwald
Non-performance-based salary component 2018
EUR 366 thousand
EUR 241 thousand
EUR 264 thousand
Non-performance-based salary component 2017
EUR 366 thousand
EUR 241 thousand
EUR 242 thousand
Performance-based salary component 2018
Performance-based salary component 2017
EUR 80 thousand
EUR 70 thousand
EUR 50 thousand
EUR 76 thousand
EUR 67 thousand
EUR 48 thousand
Income from the exercise of stock options 2018
EUR 94 thousand
EUR 83 thousand
Income from the exercise of stock options 2017
Stock options (31/12/2018)
Fair value when granted (2018)
Stock options (31 December 2017)
Fair value when granted (2017)
thereof granted 2018
thereof granted 2017
-
276,850
-
140,000
-
-
140,000
EUR 423 thousand
EUR 230 thousand
EUR 230 thousand
236,850
125,000
90,000
EUR 299 thousand
EUR 145 thousand
EUR 112 thousand
80,000
70,000
50,000
40,000
50,000
40,000
Company cars are also available to the members of the Management Board 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 less than 70%,
the bonus payment is reduced straight-line. No bonus is to be paid, 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 event of premature termination of a member of the Management Board’s duties without good cause 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 the event of a takeover offer within the meaning of the German Securities Acquisition and
Takeover Act (WpÜG), all members of the Management Board are entitled to severance payments amounting to three years'
salary.
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 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
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Biofrontera AG Annual Report 2018
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. In fiscal year 2018, 80,000 options were granted to the Chairman of the
Management Board and 50,000 options each to the other members of the Management Board.
Options granted in the 2010 financial year forfeited in November 2016 and options granted in the 2100 financial year forfeited
in September 2017.
!
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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 USA, shares of Biofrontera AG are traded as American Depositary
Shares (ADS) on the U.S. Nasdaq Stock Exchange under the ticker symbol BFRA. One ADS securitizes the right to two ordinary
shares of Biofrontera AG.
Shareholders
The detailed presentation of the positions held by the shareholders as of 31 December 2018 on the basis of the mandatory
disclosures by the shareholders can be found in the notes to the consolidated financial statements under item 9. Equity and in
the notes to the individual financial statements of Biofrontera AG under item III. Information on the balance sheet and income
statement under item 5. Subscribed capital, capital reserve, authorized capital.
Share capital
The detailed presentation of share capital as at 31 December 2018 is provided in the notes to the consolidated financial
statements under item 9. Equity and in the notes to the individual financial statements of Biofrontera AG under item III.
Information on the balance sheet and income statement under item 5. Subscribed capital, capital reserve, authorized capital.
Authorized capital
The company's share capital was conditionally increased by up to EUR 4,116,855 by the issuing of up to 4,116,855 new ordinary
registered no par value shares (Authorized 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 authorization of the Annual General Meeting held on 28 August 2015. The conditional
capital increase is to be implemented only in the event that financial instruments are issued based on the authorization of the
Annual General Meeting held on 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 authorized 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 authorized 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 company's share capital is conditionally increased by EUR 346,900 by the issuing of up to 346,900 no par value registered
shares (Authorized 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 authorization of the Annual General Meeting held on 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 authorization of the Annual General Meeting held on 28 August 2015. The conditional capital
increase is to be 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 authorized 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.
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Biofrontera AG Annual Report 2018
Corporate governance declaration pursuant to Sections 289f and 315d HGB
including the statement on the German Corporate Governance Code required
by Section 161 AktG.
Pursuant to Sections 289f and 315d HGB, listed stock corporations are required to issue a declaration relating to their corporate
governance. This must either be included in the combined management and 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 2019
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 statements give a true and fair view of the Group's financial position, cash flows and results of operations, and that
the combined management report for both the company and the Group 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 2019
Biofrontera AG !
[Signed] Prof. Dr. Hermann Lübbert
[signed] Thomas Schaffer
[signed] Christoph Dünwald
!
Biofrontera AG Annual Report 2018
Biofrontera AG Geschäftsbericht 2016
53
53
Consolidated financial statements as of 31 December 2018
Consolidated balance sheet as of 31 December 2018
Assets
in EUR thousands
Non-current assets
Tangible assets
Intangible assets
Deferred taxes
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
Total inventories
Income tax reimbursement claims
Other assets
Total other current assets
Total current assets
Total assets
31 December 2018
31 December 2017
(1)
(1)
(8)
(3)
(4)
(7)
(2)
(6)
(5)
794
352
10,400
11,546
3,397
794
19,451
23,642
1,098
320
1,759
3,177
53
715
3,945
27,587
39,133
746
648
-
1,394
1,561
571
11,083
13,215
1,516
485
1,732
3,733
52
1,454
5,239
18,454
19,848
The accompanying notes are an integral part of these consolidated financial statements.
!
54
Biofrontera AG Annual Report 2018
31 December 2018
31 December 2017
Equity and liabilities
in EUR thousands
Equity
Subscribed capital
Capital reserve
Capital reserve from foreign currency conversion
Loss carried forward
Loss for the period
Total equity
Non-current liabilities
Non-current financial debt
Other non-current provisions
Total non-current liabilities
Current liabilities
Current financial liabilities
Trade payables
Current financial debt
Other financial liabilities
Total current financial liabilities
Other current liabilities
Other provisions
Other current liabilities
Total other current liabilities
Total current liabilities
Total equity and liabilities
(9)
(10)
(12)
(11)
(10)
(12)
(13)
44,632
117,109
(2)
(136,505)
(8,878)
16,356
13,462
1,545
15,007
1,806
165
29
2,000
2,891
2,879
5,770
7,770
39,133
The accompanying notes are an integral part of these consolidated financial statements.
!
Biofrontera AG Annual Report 2018
Biofrontera AG Geschäftsbericht 2016
38,417
100,769
700
(120,403)
(16,102)
3,381
12,355
-
12,355
1,621
170
20
1,811
562
1,739
2,301
4,112
19,848
55
55
Consolidated statement of comprehensive income for the financial years 2018 and 2017
in EUR thousands
Sales revenue
Cost of sales
Gross profit from sales
Operating expenses
Research and development costs
General administrative costs
Sales costs
Loss from operations
Interest expenses
Effective interest expenses
Interest income
Other expenses
Other income
Loss before income tax
Income tax
Loss for the period
(15)
(16)
(17)
(19)
(18)
(20)
(20)
(20)
(21)
(21)
(22)
Expenses and income not included in
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
Basic/diluted earnings per share
(23)
2018
21,107
(4,451)
16,656
(4,427)
(12,963)
(17,744)
(18,478)
(1,614)
(170)
24
(332)
1,301
(19,269)
10,391
(8,878)
(702)
(702)
(9,580)
(0,20)
2017
12,025
(1,715)
10,310
(4,225)
(3,097)
(16,922)
(13,934)
(1,048)
(85)
38
(1,333)
260
(16,102)
-
(16,102)
854
854
(15,248)
(0,42)
The accompanying notes are an integral part of these consolidated financial statements.
56
Biofrontera AG Annual Report 2018
Consolidated statement of changes in equity for the financial years 2018 and 2017
(in EUR thousands except for share information)
Ordinary shares
Subscribed
capital
Balance as of 1 January 2017
Conversion from convertible bond 2016/2021
Conversion from convertible bond 2017/2022
Foreign currency conversion adjustment
Increase in capital reserve from the stock option program
Loss for the period
Balance as of 31 December 2017
Capital Increase
Costs of equity procurement
Conversion from convertible bond 2016/2021
Conversion from convertible bond 2017/2022
Conversion of stock options from the stock option program
Foreign currency conversion adjustment
Increase in capital reserve from the stock option program
Loss for the period
Balance as of 31 December 2018
37,722,433
37,722
26,700
667,695
-
-
-
38,416,828
6,000,000
-
6,874
13,472
195,500
-
-
-
27
668
-
-
-
38,417
6,000
-
7
13
195
-
-
-
The accompanying notes are an integral part of these consolidated financial statements.
44,632,674
44,632
117,109
Capital
reserve
98,677
74
1,837
-
181
-
100,769
18,000
(2,432)
26
51
433
-
262
-
Capital from
foreign currency
conversion
adjustments (OCI)
(154)
-
-
854
-
-
700
-
-
-
-
-
(702)
-
-
(2)
Accumulated
loss
(120,403)
-
-
-
-
(16,102)
(136,505)
-
-
-
-
-
-
-
(8,878)
(145,383)
Total
15,842
101
2,505
854
181
(16,102)
3,381
24,000
(2,432)
33
64
628
(702)
262
(8,878)
16,356
Consolidated cash flow statement for the financial years 2018 and 2017
in EUR thousands
Cashflows from operations
Loss before income tax
Adjustments to reconcile loss before income tax to cash flow into operations
01.01.-31.12.2018
01.01.-31.12.2017
(19,269)
(16,102)
Income tax
Financial result
Depreciation
Other non-current provisions
Losses from disposal of assets
Non-cash (income) and expenses
Changes in operating assets and liabilities
Trade receivables
Other assets and income tax assets
Inventories
Trade payables
Provisions
Other liabilities
(9)
1,784
754
1,545
5
(328)
(1,836)
(149)
368
185
2,366
1,150
-
1,094
884
-
-
1,080
63
173
(86)
(1,010)
711
74
Net cash flow used in operational activities
(13,434)
(13,119)
Cash flow 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
Cashflows from financing activities
Proceeds from the issue of shares
Costs of equity procurement
Proceeds from issuing convertible bonds 2017/2022
Proceeds from exercise of employee stock options
Proceeds from drawing down EIB loans
Cash outflow for EIB loan procurement costs
Interest paid
Repayment of warrant bond 2009/2017
Proceeds from repayment of option bonds 2009/2017
Repayment of convertible bond 2016/2021
Net cash flows provided by financing activities
Net increase/(decrease) in cash and cash equivalents
Changes from exchange rate differences
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
(513)
-
2
(511)
24,000
(1,768)
-
628
-
-
(536)
-
-
(50)
22,274
8,329
39
11,083
19,451
(397)
6
16
(375)
-
(664)
4,999
-
10,000
(650)
(598)
(5,226)
1,590
-
9,451
(4,043)
-
15,126
11,083
(27)
The accompanying notes are an integral part of these consolidated financial statements.!
58
Biofrontera AG Annual Report 2018
Notes to the consolidated financial statements as of 31 December
2018
Information about the company
Biofrontera AG (www.biofrontera.com), registered in the commercial register of Cologne District Court, Department B under No.
49717, together with 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,
as well as the Spanish branch operation Biofrontera Pharma GmbH sucursal en España based in Cornellá de Llobregat, and
Biofrontera Inc., which is based in Wakefield, Massachusetts, U.S., research, develop and market dermatological products.
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 2018 to 31 December 2018 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.
Biofrontera AG is the parent company, which prepares consolidated financial statements for the group companies.
The consolidated financial statements as at 31 December 2018 are presented in euros (EUR) or thousands of euros. Rounding
differences can arise in the tables due to commercial rounding.
On 25 April 2019, the Management Board approved the consolidated financial statements for the financial year ending 31
December 2018 for publication and forwarding to the Supervisory Board.
Changes in accounting standards
The accounting policies applied are consistent with those applied on 31 December 2017, with the exception of the new and revised
standards and interpretations described below that were applied for the first time starting with the 2018 financial year.
Standard
Description
Amendment to IFRS 2
Classification and Measurement of Share-based
Payment Transactions
Mandatory application
for Biofrontera
Effects
1 January 2018
No effects
Amendment to IFRS 4
Applying IFRS 9 Financial Instruments with IFRS 4
Insurance Contracts
1 January 2018
No effects
IFRS 9
IFRS 15
Financial Instruments
Revenue from Contracts with Customers
Amendment to IFRS 15
Effective date of IFRS 15
Amendment to IFRS 15
Clarifications to IFRS 15
Amendment to IAS 40
Transfers of Investment Property
IFRIC 22
Foreign Currency Transactions and Advance
Consideration
Annual Improvements to
IFRSs
Annual Improvements to IFRSs
Cycle 2014-2016 (IFRS 1 and IAS 28)
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
See below
See below
See below
See below
No effects
No effects
1 January 2018
No effects
!
Biofrontera AG Annual Report 2018
Biofrontera AG Annual Report 2016
59
59
First-time application of IFRS 9
For the 2018 financial year, Biofrontera applied the new standard IFRS 9 "Financial Instruments" for the first time. The standard
replaces the previous provisions of IAS 39 on the recognition and measurement of financial instruments. The impact of the new
regulations on Biofrontera is as follows:
!!
!!
!!
Biofrontera holds financial assets mainly in the form of cash, cash equivalents and trade receivables. The assets
were allocated to the "Loans and receivables" category under IAS 39. Under the new categorization rules, they are
categorized as "held at amortized cost". The new impairment model for debt instruments, which applies to trade
receivables in the form of the simplified approach, leads in some cases to earlier recognition of impairments. At
Biofrontera, this did not result in any changes to the valuation as of 1 January 2018 compared with 2017.
In the case of financial liabilities, which primarily consist of bank borrowings and bond liabilities, as well as trade
payables, the first-time application of the new standard has no effect on recognition and measurement. This applies
in particular to the EIB loan, which for accounting purposes continues to be split between the original loan liability
and the performance component embedded as a derivative.
The new rules of IFRS 9 on hedge accounting are of no significance for Biofrontera, as the company has not
designated any hedging relationships.
Biofrontera has made use of the option to simplify the first-time application of IFRS 9. Accordingly, the financial instruments
held as of 31 December 2017 were reclassified with effect from 1 January 2018 as shown below. No effects arose for the valuation
methods applied and the carrying amounts.
Reconciliation of the carrying amounts of financial assets
Financial assets
in EUR thousands
Cash and cash equivalents
Trade receivables
Other financial assets
IAS 39 as at 31.12.2017
IFRS 9 as at 01/01/2018
Carrying
amount
11,083
1,561
571
Measurement
category
Remeasureme
nt adjustment
LaR
LaR
LaR
0
0
0
Carrying
amount
11,083
1,561
571
Measurement
category
AC
AC
AC
LaR: Loans and Receivables (financial assets measured at amortized cost)
AC: Amortized Cost (hold - financial assets measured at amortized cost)
Reconciliation of impairments relating to financial assets
Biofrontera calculates the credit risk of trade receivables as the probability-weighted amount of the expected shortfall in
payments compared to the contractual payment claims. In addition to individual factors, the basis for estimating expected credit
losses is the general experience of collecting receivables in the past. The company adjusts the fixed allowance rates derived
from them, based on the extent of aged receivables, in the event of significant changes in the economic environment. Based on
the experience of Biofrontera in the past, no value adjustment for expected credit losses as at 1 January 2018 had to be
recognized.
As of 1 January 2018, Biofrontera waived the recognition of valuation allowances for expected credit losses for reasons of
materiality. Due to the consistently good creditworthiness of Biofrontera's customers and the relatively short term of the
receivables, the default risk is low in absolute terms. Historically, outstanding receivables have been received within the agreed
upon payment terms.
!
60
Biofrontera AG Annual Report 2018
Reconciliation of the carrying amounts of financial liabilities
Financial liabilities
in EUR thousands
Trade payables
Financial liabilities
Other financial liabilities
Financial liabilities
IAS 39 as at 31.12.2017
Carrying
amount
Measurement
category
Remeasureme
nt adjustment
IFRS 9 as at 01/01/2018
Carrying
amount
Measurement
category
1,621
11,973
20
552
FLAC
FLAC
FLAC
FVTPL
0
0
0
0
1,621
11,993
20
552
AC
AC
AC
FVTPL
Financial liabilities at amortized cost (other liabilities at amortized cost)
Amortized cost (financial liabilities measured at amortized cost)
FLAC
AC:
FVTPL: Fair value through profit or loss (financial liabilities at fair value through profit or loss)
First-time adoption of IFRS 15 Revenue from Contracts with Customers
Since the 2018 financial year, the timing and amount of revenues to be reported in the consolidated income statement have
been determined in accordance with IFRS 15 "Revenue from Contracts with Customers". Revenue recognition follows a five-step
process. After assessing whether a contract with a customer exists (step 1), a decision has to be taken as to whether the
agreement should be split into separate performance obligations, which should be assessed separately for the purposes of
recognizing revenue (step 2). In this case, the total consideration expected by the entity must be determined (step 3) and
allocated appropriately to the identified benefit performance (step 4). Revenue is recognized when and to the extent that the
performance obligations have been performed. To this end, upon transfer of control to the customer of the agreed goods or
services is when revenue is to be recognized.
Control is expressed in the ability to direct the use of goods and services and to appropriate the benefits associated with them.
It can be transferred to the customer at a certain point in time or over a period of time. The performance obligations assumed
by Biofrontera in customer contracts are fulfilled almost without exception by the transfer of goods and consequently at a
certain point in time.
Biofrontera applied the new revenue recognition standard for the first time on 1 January 2018 using the modified retrospective
method. For this purpose, customer contracts not yet fully performed as of 1 January 2018 were treated as if IFRS 15 had been
applied to them from the outset. Changes to existing contracts or other matters, which would have required a different revenue
recognition compared to the principles applied so far, did not exist. . Accordingly, the transition to the new revenue recognition
rules did not result in any adjustment to retained earnings. The comparative information for the previous year has not been
adjusted. The new standard also had no impact on Biofrontera's consolidated balance sheet and consolidated income statement
in the 2018 financial year.
IFRS 15 may lead to changes in the presentation of financial information in the balance sheet. Contract assets are to be
recognized if the due date of the consideration for a fulfilled performance obligation is not only dependent on the passage of
time. Payments by customers for goods or services still to be transferred and unconditional obligations by customers to make
payments before the transfer of goods or services result in the recognition of a contractual liability. As of 1 January 2018, no
contract assets or contract liabilities required recognition. Accordingly, revenues for the 2018 financial year do not include any
amounts recognized as contract liabilities on the first-time adoption date. Revenues from performance obligations fulfilled in
previous financial years were also recognized to only an insignificant extent.
Apart from expanded disclosure requirements, the first-time adoption of IFRS 15 resulted in no effects.
!
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Biofrontera AG Annual Report 2016
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61
Future changes in accounting standards
Biofrontera has not implemented early adoption or does not intend to implement early adoption of the following standards,
interpretations and amendments to the set of regulations approved by the IASB:
Standard
Description
Mandatory application
for Biofrontera
Expected effects
Amendment to IFRS 3*
Definition of a Business
Amendment to IFRS 9
Early repayment regulations with negative
compensation
IFRS 16
Leases
1 January 2020
1 January 2019
1 January 2019
Amendment to IAS 19
Plan Amendment, Curtailment or Settlement
1 January 2019
Amendment to IAS 28
Investments in Associates and Joint Ventures
1 January 2019
No effects
No effects
See below
No effects
No effects
IFRIC 23
Uncertainties over Income Tax Treatments
1 January 2019
No effects
Annual Improvements
to IFRSs
Annual Improvements to IFRSs
Cycle 2015-2017
1 January 2019
No effects
Amendment to IAS 1,
IAS 8*
Amendments to
References to the
Conceptual Framework*
Definition of Material
1 January 2020
No effects
References to the Conceptual Framework
1 January 2020
No effects
IFRS 17*
Insurance Contracts
1 January 2021
No effects
* Adoption by the EU still pending
IFRS 16 Leases
For financial years beginning on or after 1 January 2019, IFRS 16 requires the application of a new lease standard. Contrary to
the previous accounting guidance, it provides for lessees to recognize on the balance sheet the rights of use and lease liabilities
resulting from leases. The previous distinction between operating leases, which are generally off-balance sheet, and finance
leases, which are reflected in the balance sheet, is therefore no longer applicable. The lease liability to be carried as a liability
is calculated as the present value of the expected future payments to be made to the lessee. They are updated using the effective
interest method. The right to use the underlying asset to be recognized in return is to be recognized at cost at the inception of
the lease. In addition to the leasing payments, any initial direct costs of the lessee and disposal costs are included in the
calculation. Incentive payments granted by the lessor are to be deducted. The capitalized right of use must be amortized and
tested for impairment if indications of impairment exist. The new accounting guidance for lessors is consistent to the previous
accounting guidance. Finally, changes have been made to the disclosure of leases and to the reporting in the notes to the
financial statements.
The leasing contracts concluded by Biofrontera as lessee mainly relate to buildings and vehicles used for operational and
administrative purposes. The company will apply the new accounting standard under the modified retrospective method to
leases with a remaining term of more than one year as of 1 January 2019. Leases of lesser value are excluded.
The carrying amounts of the rights of use and lease liabilities to be recognized are carried forward as if the new standard had
already been applied in the past. Future lease payments are to be discounted at the imputed interest rate of the lessor or, if not
available, at the marginal borrowing rate on the date of first application. Differences between the carrying amounts of the lease
rights to be recognized for the first time and the lease liabilities change the Group's reserves, taking deferred taxes into account.
The previous year's figures have not been adjusted.
Biofrontera has decided to make use of the expedients available of IFRS 16.6 for expenses from leasing relationships with a
remaining term of no more than one year and from leasing relationships with a low value, and to immediately expense monthly
leasing instalments, in other words, applying the same accounting treatment as with IAS 17.
62
Biofrontera AG Annual Report 2018
According to current estimates, management expects the transition to the new lease accounting to lead to the following
changes in the consolidated balance sheet
!!
!!
!!
an increase in non-current assets due to the capitalization of rights of use in the amount of EUR 2,335 thousand;
an increase in balance sheet liabilities due to the recognition of leasing liabilities in the amount of
EUR 2,302 thousand;
a decrease in the loss carried forward in the amount of EUR 26 thousand.
The actual impact could result in a higher or lower value.
Effects on the consolidated income statement are expected in the form of higher depreciation (an expected increase of EUR 262
thousand) and higher interest expenses (an expected increase of EUR 25 thousand). Offsetting this, leasing expenses recorded
under other operating expenses will be reduced.
The above information does not take into account leases that take effect or are concluded after 1 January 2019.
Biofrontera will not report the rights of use and leasing liabilities separately on the balance sheet, but will include them in line
items containing comparable assets and liabilities.
The exercise of the contractual option under the operating lease agreements for lamps (BF-RhodoLED® PDT lamp) was only
exercised to a minor extent. Therefore, the first-time application of the new leasing standard will not have any material impact
on Biofrontera as a lessor.
Basis of consolidation
The consolidated financial statements for the financial year ending 31 December 2018 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:
1.!
Biofrontera Bioscience GmbH, Leverkusen, Germany, with a direct interest of 100%
2.! Biofrontera Pharma GmbH, Leverkusen, Germany, with a direct interest of 100%
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 statements
(or HBII pursuant to IFRS) of these companies prepared for 31 December 2018 pursuant to uniform principles. The consolidated
financial statements as of 31 December 2018 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.
Reclassification of prior year figures
Deferred liabilities, which had been disclosed as of December 31, 2017 in the balance sheet under the line item “Other provisions”
have been reclassified as of December 31, 2018 to the balance sheet line items “Trade payables” and “Other current liabilities”,
respectively. As their underlying positions have a significantly lower degree of estimation uncertainty than the provisions
disclosed as of December 31, 2018, this reclassified presentations provides a reliable and more relevant information (IAS 8.14
(b)). The previous year's figures were reclassified to conform to the current year presentation. As a result, the line item “Other
provisions” now being presented as of December 31, 2017 was reduced by a total amount of EUR 1,973 thousand, while the line
items “Trade payables” increased by EUR 537 thousand and “Other current liability” by EUR 1,436 thousand, respectively.
Biofrontera AG Annual Report 2018
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63
Translation of amounts in foreign currencies
The consolidated financial statements as of 31 December 2018 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 recognized 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 (2018: 1.1445 USD/EUR, previous
year 1.2022 USD/EUR). Income and expense items are translated applying the average exchange rates applicable to the relevant
period (2018: 1.1818 USD/EUR, prior year: 1.1301 USD/EUR). 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 (EUR -702 thousand, previous year EUR 854 thousand).
Transactions realized 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 resulting from
such translation are recognized
in the amount of EUR 650 thousand (previous year:
EUR -1,291 thousand).
income statement
in the
Application of estimates
The preparation of the consolidated financial statements for 31 December 2018 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 of application for assumptions, estimates and the exercise of discretion are the measurement of provisions,
stock options, convertible bonds, EIB loans and income taxes and the determination of the useful lives of non-current assets.
Estimates are also made as part of fair value measurement pursuant to IFRS 13. 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 notes to the consolidated financial
statements.
Tangible assets
Pursuant to IAS 16, tangible assets are recognized 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 3 years, straight-line
Fixtures and equipment 4 years, straight-line
Office and laboratory facilities 10 years, straight-line
Laboratory devices 13 years, straight-line
Since 1 January 2018, low value assets with purchase costs of between EUR 250 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 recognized at cost less amortization applied straight-line over a three-year useful life.
Purchased intangible assets consist of licenses and other rights. They are recognized at cost less accumulated amortization.
These intangible assets are capitalized as assets and generally amortized straight-line over an estimated useful life of between
4 and 20 years.
Intangible assets under development relate to the further development of the BF-RhodoLED®. Furthermore, no development
costs are capitalized, as the requirements for the recognition of internally generated intangible assets are not met.
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Biofrontera AG Annual Report 2018
No intangible assets exist with indefinite useful lives.
Borrowing costs are not recognized as part of the purchase cost of the acquired assets but are instead expensed in the period
in which they arise, as the Group has no material qualifying assets in the meaning of IAS 23.5.
Impairment of financial assets
Biofrontera calculates the credit risk of trade receivables as the probability-weighted amount of the expected shortfall in
payments compared to the contractual payment claims. In addition to individual factors, the basis for estimating expected credit
losses is the general experience of collecting receivables in the past. The company adjusts the fixed allowance rates derived
from them, based on the extent of aged receivables, in the event of significant changes in the economic environment.
Impairment of assets
The company tests non-current tangible and intangible assets for impairment when indications exist that the carrying amount
of an asset exceeds its recoverable amount. A possible impairment loss on assets held for use is determined by comparing its
carrying amount with the future cash flows expected to be generated by the asset. An impairment loss to be recognized is
measured by Biofrontera at the amount by which the carrying amount of the asset exceeds its recoverable amount.
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). These financial liabilities were allocated to the
category "Financial liabilities measured at amortized cost". The financial liabilities of the performance component measured at
fair value are allocated to the category "Financial liabilities at fair value through profit or loss". 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
receivables and liabilities are classified to the "Hold" category. The financial liabilities are measured applying the effective
interest method.
Inventories
Raw materials and supplies, as well as finished and unfinished goods, are recognized at the lower of cost or net realizable value.
Borrowing costs are not capitalized. 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 realizable 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 recognized 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 amortized cost.
Trade payables
Trade payables, as well as liabilities from current accounts and other liabilities are recognized 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 capitalized as a personnel expense over the retention period. Obligations relating to cash-settled share-based
Biofrontera AG Annual Report 2018
Biofrontera AG Annual Report 2016
65
65
payment transactions are recognized 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 recognized over the
vesting period. The fair value of both cash-settled and equity-settled share-based payment transactions is generally determined
using a generally accepted valuation model.
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 recognized 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 distinction is made as part of subsequent recognition of the convertible bond: The debt component is subsequently
measured at amortized 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. Originally, it was available in tranches within a two-year period. At the
beginning of 2019, it has been extended for another year. In July 2017, the company drew down a first tranche of EUR 10.0 million,
with a further tranche of EUR 5 million being drawn down after the reporting date in February 2019. A further tranche of
EUR 5.0 million can be drawn after certain milestones have been reached. 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 capitalization of Biofrontera AG but limited to a 4% per annum interest rate.
The loan is carried forward at amortized 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 capitalization
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 capitalization. This is discounted to the measurement cut-off date applying a market interest rate.
Income tax
In accordance with IAS 12, Biofrontera recognizes deferred taxes for valuation differences between IFRS valuation and tax law
valuation. Deferred tax liabilities are generally recognized for all taxable temporary differences – claims from deferred taxes
are only recognized to the extent that it is probable that taxable profits will be available to utilize 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 not probable
that sufficient taxable profit will be available against which the deferred tax claim can be at least partially utilized. Previously
unrecognized deferred income tax assets are reassessed on each balance sheet date and are recognized to the extent that it is
probable from a current perspective that sufficient future taxable profit will be available to realize 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.
66
Biofrontera AG Annual Report 2018
Revenue recognition
The company recognizes as revenue all income from product sales and the granting of licenses. The completed customer
contracts contain only one performance obligation each. The company is entitled to a fixed consideration for the products sold
and licenses granted. To the extent that obligations to take back expired goods have been agreed with customers, Biofrontera
only recognizes revenue to the extent that it is highly probable that it will be possible to realize this amount, taking into account
the proportion of products to be taken back as based on historical experience. The timing and amount of the revenues to be
reported in the consolidated income statement are determined by the extent to which Biofrontera transfers control of the
products to be supplied or the rights to be granted to the customers.
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. Revenue is recognized when
the products are delivered to the respective customers. Additionally, in 2018 sales revenue was achieved through passing costs
on to Maruho Co. Ltd as part of the development partnership that has been agreed.
In the case of direct sales of BF-RhodoLED®, the delivered products and services on which amounts are owed are settled only
after complete installation has taken place. The installation service represents a pure ancillary service, as for legal reasons the
lamp may only be used by the customer once it has been installed. 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 distributed through Amazon and pharmaceutical wholesalers. Revenue from Amazon sales is
recognized after transfer of control and payment by the customer. For sales to pharmaceutical wholesalers, revenue is
recognized upon transfer of control. Based on experience, return rights granted with the sale through Amazon are exercised by
customers only in very few cases.
Revenues are recognized less revenue-based trade taxes and sales deductions. Expected sales deductions, for example rebates
and discounts, are recognized based on estimated values at revenue recognition. Payment terms for Ameluz® include short-
term payment terms with a possibility for sales rebates.
Cost of sales
The cost of sales includes material costs for sold products, payments to third parties for services directly attributable to revenue
generation and product manufacturing, 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 recognized as "intangible assets" under certain conditions. Research costs are
recognized as costs as they are incurred. Development costs are capitalized 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
capitalizing 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.
Intangible assets under development relate to the further development of BF-RhodoLED®, as this will generate future economic
benefits.
!
Biofrontera AG Annual Report 2018
Biofrontera AG Annual Report 2016
67
67
Notes to the consolidated balance sheet
1.! Intangible and tangible assets
The additions to intangible assets and to tangible assets in the reporting period arise mainly from the purchase of software
(EUR 5 thousand; previous year: EUR 15 thousand), right-of-use assets connected with the prototype of the PDT lamp
(EUR 10 thousand; previous year: EUR 90 thousand), from the capitalization of the costs of developing a new prototype of the
PDT lab (EUR 258 thousand; previous year: EUR 9 thousand), as well as further laboratory devices (EUR 115 thousand; previous
year: EUR 194 thousand) and other fixtures and equipment (EUR 125 thousand; previous year: EUR 83 thousand). The asset
disposals with acquisition/manufacturing costs totaling EUR 5,336 thousand (previous year: EUR 16 thousand) result mainly from
intangible assets and relate in particular to the now fully depreciated right of use for the active ingredient ALA (aminolaevulinic
acid) in the amount of EUR 5,068 thousand and the scrapping and discarding of tangible assets that are no longer usable in the
amount of EUR 255 thousand (previous year: EUR 0 thousand).
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Biofrontera AG Annual Report 2018
Consolidated statement of changes in non-current assets in 2018
in EUR thousands
Cost
Accumulated depreciation and amortization
Carrying amounts
!!
1 Jan. 18
Currency
translation
Additions Transfers Disposals
31 Dec. 18
1 Jan. 18
Currency
translation
Additions Disposals
31 Dec. 18
31 Dec. 18
1 Jan. 18
!!
I.
Tangible assets
Operating and business equipment
II.
Intangible assets
1. Software and licenses
2. Right-of-use assets
3. Intangible assets under development
230
4,104
3,343
4,089
458
6,188
-
6,646
10,735
5
-
-
-
-
5
240
5
10
258
273
513
-
-
17
(9)
5,088
9
-
-
-
5,105
5,335
446
1,100
267
1,814
5,918
428
5,570
-
5,998
9,341
1
-
-
-
-
1
194
229
3,309
795
746
16
545
-
561
755
17
5,080
-
5,097
5,326
427
1,035
-
1,462
4,771
21
66
267
352
30
618
-
648
1,147
1,394
Consolidated statement of changes in non-current assets in 2017
in EUR thousands
Cost
Accumulated depreciation and amortization
Carrying amounts
!!
I.
!!
Tangible assets
Operating and business equipment
II.
Intangible assets
1. Software and licenses
2. Right-of-use assets
1 Jan. 17
Currency
Translation
Additions
Transfers Disposals
31 Dec. 17
1 Jan. 17
Currency
translation
Additions Disposals
31 Dec. 17
31 Dec. 17
1 Jan. 17
3,834
444
6,089
6,533
10,367
(7)
(1)
-
(1)
(8)
278
15
99
113
392
-
-
-
-
-
16
4,089
3,189
(2)
167
-
-
-
458
6,188
6,646
304
4,977
5,281
-
-
-
16
10,735
8,470
(2)
124
593
717
884
11
-
-
-
11
3,343
746
645
428
5,570
5,998
9,341
30
618
648
1,394
140
1,112
1,252
1,897
2.! Inventories
Inventories as of balance sheet date are EUR 3,177 thousand (previous year: EUR 3,732 thousand). Inventories are comprised of
finished products, work in progress, and raw materials and supplies at the sales companies.
In 2018, inventories were written down by EUR 187 thousand (previous year: EUR 0 thousand).
3.! Trade receivables
Trade receivables are mainly attributable to the sale of Ameluz®, the PDT lamp BF-RhodoLED® and the medical cosmetics
product Belixos®. 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 significantly aged as of 31
December 2018. For 31 December 2017, no value adjustments were recognized as in the previous year.
4.! Other financial assets
The other financial assets comprise mainly prepayments rendered for studies (EUR 614 thousand; previous year:
EUR 446 thousand) and the depositing of collateral, mainly for credit cards and leased vehicles (EUR 164 thousand; previous year:
EUR 96 thousand). As in the previous year, no individual value adjustments were applied during the reporting year.
5.! Other assets
Other assets mainly comprise of prepaid expenses (EUR 664 thousand; previous year: EUR 1,393 thousand). In the previous year,
this item also included the deferred costs for equity procurement measures offset against capital reserves in connection with
the IPO on the NASDAQ Capital Market on 14 February 2018.
As in the previous year, no individual value adjustments were applied during the reporting year.
6.! Income tax reimbursement claims
These consist of claims for tax refunds relating to withheld capital gains tax, plus the Solidarity Surcharge (EUR 53 thousand;
previous year: EUR 52 thousand).
7.! Cash and cash equivalents
Cash and cash equivalents relate to cash in hand, checks, bank deposits and money deposits with a term of up to three months
at the time of acquisition amounting to a total of EUR 19,451 thousand (previous year: EUR 11,083 thousand). The carrying
amounts of the cash and cash equivalents correspond to their fair value, due to the short-term nature of these investments.
8.! Deferred income tax
In the 2018 financial year, deferred taxes in the amount of EUR 10,486 thousand were capitalized for the first time on loss
carryforwards to the extent that these can probably be offset against future taxable earnings. This is based on a planning period
of five years. These relate to the deferred tax assets on losses carried forward for Biofrontera Pharma GmbH to be recognized
for the first time as of 31 December 2018. The subsidiary has already generated profits in the second half of 2018 thanks to the
increased business volume and it can be assumed that Biofrontera Pharma GmbH will continue to generate positive results in
the future and thereby utilize its tax loss carryforwards.
Further loss carryforwards within Biofrontera AG amounting to EUR 188 thousand were capitalized to the extent that they are
offset by deferred tax liabilities in the same amount.
!
70
Biofrontera AG Annual Report 2018
The following table shows changes in the Group's existing deferred tax assets deriving, as a matter of principle, from tax loss
carryforwards:
in EUR thousands
Corporation tax including Solidarity
Surcharge
Business tax
U.S. corporation tax
Total
31.12.2018
Loss carried
forward
131,928
118,548
14,452
Deferred
tax assets
20,884
19,703
3,613
44,200
31.12.2017
Loss carried
forward
119,725
107,962
8,026
Deferred
tax assets
18,947
17,949
2,007
38,903
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 up to 31 December 2017, and from 1 January 2018 they can
be deducted indefinitely.
Deferred taxes on losses carried forward are capitalized to the extent that they can probably be offset against future profits or
to the same extent are offset by deferred tax liabilities. Due to the lack of predictability regarding future taxable profits
regarding the remaining deferred tax assets deriving, as a matter of principle, from loss carryforwards (EUR 33,526 thousand;
previous year EUR 38,903 thousand) and deferred tax assets of EUR 782 thousand (previous year EUR 321 thousand) were not
recognized on the balance sheet, in accordance with IAS 12.34.
in EUR thousands
Loss carryforwards
Non-current assets
- Intangible assets
- Tangible assets
- Financial assets
Current assets
-Receivables and other assets
Non-current liabilities
- Provisions
Current liabilities
-Provisions
-Liabilities and other
Total
Netting of deferred tax assets and liabilities
As recognized on balance sheet
!
Biofrontera AG Annual Report 2018
Biofrontera AG Annual Report 2016
31.12.2018
31.12.2017
Deferred tax
assets
10,674
Deferred tax
liabilities
-
Deferred tax
assets
-
Deferred tax
liabilities
-
-
-
-
59
-
-
-
10,733
(333)
10,400
(87)
-
-
-
(82)
(152)
(12)
(333)
333
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
71
71
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:
in EUR thousands
Consolidated earnings before tax
Expected income tax reimbursement at the tax rate of the parent company
Differences arising from different tax rates
Adjustment of deferred taxes due to tax rates
- from temporary differences
- from loss carryforwards
Tax increases due to non-deductible expenses
Changes in unrecognized deferred tax assets
- from active temporary differences
- from loss carryforwards
Other effects
Income taxes as per statement of comprehensive income
9.! Equity
Share capital
31.12.2018
31.12.2017
(19,269)
6,252
(685)
-
-
(100)
(895)
5343
475
10,390
(16,102)
5,226
586
(121)
(1,014)
(646)
(194)
(4,161)
323
-
The fully paid in share capital of the parent company, Biofrontera AG, amounted to EUR 44,632,674 on 31 December 2018. It was
divided into 44,632,674 registered shares with a nominal value of EUR 1.00 each. On 31 December 2018, the share capital amounted
to EUR 38,416,828.
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 securitizes the right to two ordinary shares of
Biofrontera AG.
As part of a subscription rights offer to all existing shareholders and a simultaneous public offering to investors in the U.S., a
total of 6,000,000 new shares with a notional nominal value of EUR 1.00 per share were offered and successfully placed at a
subscription price of EUR 4.00 per share. The subscription price per ADS amounted to USD 9.88.
!
72
Biofrontera AG Annual Report 2018
The numbers of shares held by the shareholders on 31 December 2018, based on the most recent mandatory disclosures, are as
follows:
Maruho Deutschland 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
Deutsche Balaton Biotech AG
Prisma Equity AG
Liechtensteinische Landesbank AG (LLB), Vienna, Austria
(previously: Semper Constantia Invest GmbH)
Universal-Investment-Gesellschaft mbH, Frankfurt am Main, Germany
The share of voting rights is attributed to Universal-Investment GmbH through the
company FEHO Vemögensverwaltungsgesellschaft.
Free float
Total
31.12.2018
31.12.2017
8,891,843
7,631,586
8,935,384
3,400,907
-
-
1,165,212
799,463
26,805,447
44,632,674
25,419,660
38,416,828
In the event of the company achieving an annual surplus, the Management and Supervisory boards are authorized 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.
Authorized capital
The authorized capital consisted of three share capital amounts.
The conditional increase in the share capital (Authorized Capital I) of EUR 6,434,646 was approved on 28 August 2015, of which
is EUR 4,116,855 available as at 31 December 2018. Authorized Capital I serves to secure the granting of option rights and the
agreement of option obligations in accordance with the bond terms and conditions.
The conditional increase in the share capital (Authorized Capital III) of EUR 542,400 was approved on 28 February 2015, of which
is EUR 346,900 available as of 31 December 2018, and serves exclusively to fulfill option rights granted on 1 July 2015 on the basis
of the AGM of 2 July 2010.
The conditional increase in the share capital (Authorized Capital V) of EUR 1,814,984 approved on 28 February 2015 serves
exclusively to fulfil option rights granted on 27 August 2020 on the basis of the annual general Meeting (“AGM”) on 28 August
2015.
Convertible bond 2016/2021
In November 2016, 49,990 subordinated convertible 2016/2021 bonds were issued in a total nominal amount of EUR 4,999,000
("convertible bond"). Shareholders were granted indirect subscription rights to the bonds. Shareholders were granted statutory
subscription rights in a 607:1 ratio at an issue price of EUR 100.00 per bond.
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. In the 2018 financial year, further bonds in a nominal amount of EUR 32,700 (previous year:
EUR 106,800 thousand) 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.
Biofrontera AG Annual Report 2018
Biofrontera AG Annual Report 2016
73
73
On 30 April 2018, the 2016/2021 Convertible Bond was repaid early in the amount of EUR 50,300, plus accrued interest.
Convertible bond 2017/2022
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.
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 bonds carry 6% annual 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 2018, bonds in a nominal amount of EUR 2,403,700 were converted into the company's shares.
The conditional increase in the share capital (Authorized Capital I) of EUR 6,434,646 was approved on 28 August 2015, of which
is EUR 4,116,855 still available as at 31 December 2018.
2010 share option program
At the AGM on 2 July 2010, the Management and Supervisory boards proposed a share option program for employees to the AGM,
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 program 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 839,500 was 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 program 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 shall amount 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 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:
74
Biofrontera AG Annual Report 2018
!!
!!
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
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 in line 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 5th banking day prior to the expiration of the option rights of the respective
expiration day (exclusively).
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 recognize 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 program 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 recognized 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 authorization to
issue options under the 2010 share option program 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 7 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 and 7 October 2017, respectively, as the exercise conditions were
not met.
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Biofrontera AG Annual Report 2016
75
75
The vesting period for the third tranche ran until 23 March 2016 and 11 May 2016 respectively. On 5 March 2018, 40,000 options
were converted after fulfilment of the exercise conditions. A further 32,500 options were converted on 2 May 2018. The remaining
19,000 options from this tranche expired on 3 May 2018.
The vesting period for the fourth tranche ended on 2 September 2017. A total of 65,500 options had been exorcised from these
tranches up to the reporting date.
The vesting period for the fifth tranche ended on 2 April 2018. Of these, 57,500 options had been converted by the balance sheet
date.
A total of 153,750 (previous year: 141,750) options were forfeited by employees leaving the company. As of 31 December 2018,
137,850 (previous year: 364,350) option rights were exercisable.
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 6 thousand (previous year: EUR 42 thousand).
2010 share option program
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
31.12.2018
364,350
-
19,000
195,500
12,000
137,850
137,850
31.12.2017
439,500
-
4,500
-
70,650
364,350
-
EUR 3.093 - 3.15
12 months
EUR 3.26 - 4.05
18 months
The Authorized Capital III for servicing options from this program amounts to EUR 346,900.
In addition, the share capital was increased by EUR 195,500.00, divided into 195,500 registered shares, from the conversion of
options from the 2010 employee stock option plan during the 2018 financial year.
2015 share option program
At the AGM on 28 August 2015, the Management Board and Supervisory Board proposed a new share option program 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 program 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 September 2015 in
the commercial register of the Cologne District Court, under commercial register sheet number 49717. Eligibility for the 2015
share option program 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 program are to a large extent identical to those of the 2010 share option program,
therefore, with respect to the 2015 share option program, we refer to the explanations of the conditions of the share option
program 2010 provided above, however 20 banking days are being used instead of 14 banking days.
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Biofrontera AG Annual Report 2018
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 program
compared to the 2010 share option program. The fair value of each option of this share option program 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 a stock option under this option program was determined at the grant date of 1 December 2016 on the basis of a Monte
Carlo risk simulation with a fair value of EUR 1.30/stock option, at the grant date of 28 April 2017 on the basis of a Monte Carlo
risk simulation with a fair value of EUR 1.50/stock option, and at the grant date of 28 November 2016 on the basis of a Monte
Carlo risk simulation with a fair value of EUR 1.48/stock option, and at the grant date 7 May 2018 on the basis of a Monte Carlo
risk simulation with a fair value of EUR 2.35/share option. When measuring the fair value of the options granted in 2016, the
volatility of the share price in the 1st tranche was 50.6%, in the 2nd tranche 49.0%, in the 3rd tranche 47%, in the 4th tranche
46%, and in the 5th tranche of 47%. The first tranche is based on daily prices and annualized on the assumption of 250 trading
days per year, the second tranche is based on daily prices and annualized on the assumption of 250 trading days per year and
the third tranche is based on daily prices and annualized on the assumption of 250 trading days per year, and 7.00% for the 2nd
tranche, 7.5% for the 3rd tranche, 7.6% for the 4th tranche and the 5th tranche (based on the Capital Asset Pricing Model (CAPM))
and a total risk-adjusted interest rate of 5.92% for the 1st tranche and 13.26% for the 2nd tranche, 13.94% for the third tranche,
14.05% for the fourth tranche and 14.03% for the fifth tranche, as well as an annual turnover of the beneficiaries of 12% and 9%
respectively is assumed for both tranches in the case of the fifth tranche.
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 option rights (2nd tranche) were issued at an exercise price of EUR 3.28 each. On 28 April 2017, a further 329,000
options (3rd tranche) were issued at an exercise price of EUR 4.02 each and a further 300,500 options (4th tranche) at an
exercise price of EUR 3.33 each. On 7 May 2018, 180,000 options were issued with an exercise price of EUR 5.73 each (5th tranche).
A total of 113,000 options were forfeited by employees leaving the company. Due to the vesting period, no options have yet been
exercised or forfeited. The cost expensed in the reporting period amounted to EUR 257 thousand (prior-year period:
EUR 139 thousand).
In March 2018, the exercise prices were adjusted pursuant to section 13 of the options' terms and conditions. The exercise price
now amounts for the first tranche to EUR 2.25, for the second tranche to EUR 3.04, for the third tranche to EUR 3.78 and for the
fourth tranche to EUR 3.09.
2015 share option program
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
Capital reserves
31 December 2018
31 December 2017
1,143,500
180,000
69,500
-
-
1,254,000
-
EUR 2.25 - 5.73
50 months
548,000
629,500
34,000
-
-
1,143,500
-
EUR 2.49 - 4.02
60 months
The capital reserves shown on the balance sheet comprise the capital reserve as well as the reserves from currency translation
and the loss carried forward. The statement of changes in equity provides further information about the development of equity.
In accordance with IAS 32.37, equity procurement costs in connection with capital increases are deducted from the capital
reserve in an amount of EUR 2,432 thousand for the year ended 31. December 2018.
Capital management
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
Biofrontera AG Annual Report 2018
Biofrontera AG Annual Report 2016
77
77
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.
10.!Financial liabilities
The contractual interest and repayment obligations relating to convertible bonds and the EIB loan are composed on the balance
sheet date as follows:
in EUR thousands
31.12.2018
Convertible bond 2017/2022:
Principal repayment
Interest payment
EIB loan
Principal repayment
Interest payment
in EUR thousands
Convertible bond 2016/2021:
Principal repayment
Interest payment
Convertible bond 2017/2022:
Principal repayment
Interest payment
EIB loan
Principal repayment
Interest payment
Convertible bond 2016/21
2019
2020
2021
2022
156
405
156
156
433
461
2,595
78
10,000
5,039
Total
2,595
546
10,000
6,338
2018
2019
2020
2021
2022
Total
31.12.2017
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
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 term of the 2016/2021 convertible bond begins on the date of its initial issue ("issue date") and ends
on 31 December 2020.
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 fair value of the convertible bond
was calculated as part of the initial valuation using an interest rate of 7.9%.
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 initial 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 30/04/2018, bonds in a nominal amount of EUR 4,948,700.00 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.
On 30 April 2018, the 2016/2021 Convertible Bond was repaid early as only a small volume of approximately EUR 50 thousand was
still outstanding, including accrued interest.
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Biofrontera AG Annual Report 2018
Convertible bond 2017/22
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 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 01 February 2017 (inclusive). The interest payments are
payable semi-annually subsequently on 1 January of each year, commencing on 1 July 2017. The fair value of the convertible
bond was calculated as part of the initial valuation using an interest rate of 7.6%.
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 01 April 2017 until 31 December 2017, the initial conversion price amounts to EUR 4.00 per share. From 1 January 2018, the
initial conversion price amounts to EUR 5.00 per share. In March 2018, the conversion price was reduced to EUR 4.75 pursuant
to section 11 of the bonds' terms and conditions.
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 2018, bonds in a nominal amount of EUR 2,403,700 were converted into the company's shares.
Loan agreement with the European Investment Bank
The liability component of the financial instrument is subsequently measured at amortized cost applying the effective interest
method. As of 31 December 2018, the carrying amount of the liability component on this basis was EUR 9,887 thousand (previous
year: EUR 9,138 thousand).
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. As of 31 December 2018, the discounted interest payment or
fair value of the performance component amounted to EUR 1,080 thousand (previous year: EUR 522 thousand).
11.! Trade payables
The trade payables (EUR 1,805 thousand; previous year: EUR 1,620 thousand) increased by EUR 185 thousand from the previous
year. This item includes liabilities to be accrued for the first time in the amount of EUR 479 thousand (previous year:
EUR 360 thousand), which were reported under other provisions in the previous year. The previous year's amount was
reclassified accordingly to conform to the current year presentation.
12.!Other provisions
Current and non-current other provisions report the following changes:
Other current provisions
in EUR thousands
Outstanding invoices
Costs for financial statements
and auditing
Provisions for litigation costs,
current
Other provisions
Total current provisions
01.01.2018
Utilization
Released
Added
Translation
difference
31.12.2018
393
143
-
26
562
262
141
-
-
403
34
2
-
-
36
840
224
1,696
1
2,761
7
-
-
-
7
944
224
1,696
27
2,891
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Biofrontera AG Annual Report 2016
79
79
Other non-current provisions
EUR thousands
Provisions for litigation costs,
non-current
Other non-current provisions
01.01.2018
Utilized
Released
Added
Translation
difference
31.12.2018
-
-
-
-
-
-
1,545
1,545
-
-
1,545
1,545
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 and the non-current
provisions prospectively within 2 years.
To conform to the current year presentation, the liabilities deferred in the previous year (EUR 1,973 thousand) are no longer
recognized under provisions and instead under the respective liabilities.
The companies included in the consolidated financial statements of Biofrontera AG are exposed to several threatened or pending
legal proceedings, the outcome of which either cannot be determined or cannot be predicted due to the uncertainty associated
with such legal proceedings. The claims asserted against Biofrontera were not carried as liabilities, as the Management Board
asserts that claims cannot be estimated or probable to be incurred.
In 2018, a total of EUR 3,241 thousand was accrued for costs to defend against litigation in connection with pending proceedings
in the U.S. and Germany.
In March 2018, DUSA Pharmaceuticals Inc. (“DUSA”) filed a lawsuit in the District Court of Massachusetts against Biofrontera AG
and its subsidiaries alleging infringement of its patents No. 9,723,991 and No. 8,216,289 by the sale of BF-RhodoLED® in the U.S..
In July 2018, DUSA amended its lawsuit to add claims for misappropriation of trade secrets, unauthorized interference in
contractual relationships, and misleading and unfair commercial practices.
Although Biofrontera believes that these claims are unjustified and intend to defend them vigorously, Biofrontera cannot
guarantee that we will succeed.
The court largely rejected DUSA's application for an injunction, but ordered Biofrontera not to use documents or documents
derived from other documents originating from DUSA. Although the court has made a preliminary determination that DUSA is
reasonably likely to prevail over its non-patent claims, the court's ruling is not final and Biofrontera continues to vigorously
challenge DUSA's allegations. In addition, Biofrontera filed motions for inter partes review with the Patent Trial and Appeal Board
(PTAB) to invalidate the patents. On 26 February 2019, the PTAB issued decisions stating that some of the claims had a sufficient
chance of success on nullity arguments, but nevertheless rejected the filing of the review applications as the PTAB disagreed
with the remaining claims.
We may incur significant costs in defending these claims. In addition to internal human resources, we also mandate U.S. lawyers
to defend the claims. The costs incurred by Biofrontera as a result would not be reimbursed by the plaintiff in the event of a
positive outcome of the proceedings, due to the characteristics of the U.S. legal system.
!
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Biofrontera AG Annual Report 2018
13.!Other current liabilities
Other current liabilities
(in EUR thousands)
Other financial liabilities
Payroll tax
Social security
Wages and salaries
Other
Total
Other current liabilities
Accrual for employee bonuses
Accrual for outstanding vacation
Other accruals
Accrual for outstanding invoices
Total
Total other current liabilities
31 December 2018
31 December 2017
267
13
141
9
430
2,099
315
14
21
2,449
2,879
184
29
89
16
303
1,162
263
0
11
1,448
1,739
14.!Reporting on financial instruments
The financial assets and liabilities can be subdivided into measurement categories with the following carrying amounts, and net
gains and losses:
Financial assets
(in EUR thousands)
Category: Held
Cash and cash equivalents
Trade receivables
Other financial assets
Financial receivables and assets
Fair value
as of
31.12.2018
Carrying
amount as
of
31.12.2018
Fair value
as of
31.12.2017
Carrying
amount as
of
31.12.2017
Net gains (+)
or
losses (-)
31.12.2018
Net gains (+)
or
losses (-)
31.12.2017
!
!
!
!
!
19,451
3,397
794
19,451
3,397
794
11,083
1,561
571
11,083
1,561
571
(10)
1
-
(9)
0
(1)
(13)
(14)
Total
23,642
23,642
13,215
13,215
Financial liabilities
(EUR thousands)
Fair value
as of
31.12.2018
Carrying
amount as
of
31.12.2018
Fair value as
of 31.12.2017
Carrying
amount as
of 31.12.2017
Net gains (+)
or
losses (-)
31.12.2018
Net gains (+)
or
losses (-)
31.12.2017
Financial liabilities at amortized cost
!
!
!
!
!
Financial liabilities, current
Trade payables
Other current financial liabilities
Financial liabilities, non-current
Total
Financial liabilities at fair value
through profit or loss
Financial liabilities, non-current
Total
165
1,805
29
12,382
14,382
165
1,805
29
12,382
14,382
170
1,621
20
11,803
13,614
170
1,621
20
11,803
13,614
1,080
15,462
1,080
15,462
552
14,166
552
14,166
-
(13)
-
-
(13)
528
515
0
(48)
0
32
(16)
(32)
(16)
Under other operating expenses, Biofrontera reports value adjustments to trade receivables and miscellaneous financial
obligations allocable to the "loans and receivables" category.
The net gains and losses generally include currency translation effects.
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Biofrontera AG Annual Report 2016
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81
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.
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 level 3. No reclassifications between the individual fair value hierarchy levels were
implemented in the 2018 financial year. In the case of financial liabilities, non-current financial liabilities belong to level 3
(performance component of the EIB loan) (EUR 1.1 million, 31 December 2017: EUR 0.6 million).
Principles of risk management
As part 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-term 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 recognized at fair value but instead at amortized cost, there is also no fair value risk. The Biofrontera
Group was exposed to foreign currency risks on the balance sheet date, especially as a result of the intragroup loan to the
subsidiary Biofrontera Inc.
As of 31 December 2018, Biofrontera held no financial positions that were exposed to interest rate risks.
Foreign currency risk: The Biofrontera Group was exposed to foreign currency risks on the balance sheet date, especially as a
result of the intragroup loan to the subsidiary Biofrontera Inc. Trade receivables arise to a greater extent than in the past due
to the expansion of business in the U.S. and are regularly reviewed for a potential default risk. Trade payables denominated in
foreign currency are of minor importance. The company does not conclude any special hedging transactions. Currency exchange
rate fluctuations are recognized in profit or loss.
The balance of financial assets and liabilities in foreign currencies amounts to EUR 27.0 million (previous year: EUR 13.1 million)
A 5% change in the value of financial assets and financial liabilities in foreign currency would result in a change of EUR 1.4 million
(previous year: EUR 0.7 million) in the income statement item "Other expenses and income".
Credit risk: A credit risk arises for the Group if transaction partners cannot meet their obligations by 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 2018 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 2018
financial year (prior-year period: EUR 0). Cash and cash equivalents are invested with banks and insurance companies with
sufficient deposit protection.
Liquidity risk refers to the inability to meet existing or future payment obligations on time. To ensure solvency at all times and
to avoid financial bottlenecks, Biofrontera has established a central liquidity management system that monitors liquidity
requirements in the short, medium and long term. The refinancing of all Group companies is generally performed centrally by
Biofrontera AG.
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.
Biofrontera maintains a liquidity reserve, the amount of which is regularly reviewed and adjusted if necessary, in order to be
able to meet all payment obligations throughout the Group when due. In February 2019, the company drew on a further tranche
of EUR 5 million from the EIB loan. A further tranche of EUR 5 million can be drawn after certain milestones have been reached.
Each tranche must be paid back within five years after it has been made available.
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Biofrontera AG Annual Report 2018
As a result of this loan and other successful capital measures, the company currently has sufficient liquidity at its disposal.
Depending on business trends, in particular on the success in tapping the market potential of the Ameluz® product, the company
could be dependent in the medium term on the injection of additional equity or debt from outside sources until a sustainable
financing from the operating cash flow is ensured.
See the relevant balance sheet notes on undiscounted payments from financial debt due in the next years.
All other financial liabilities are current and are expected to be settled within one year.
Notes to the consolidated statement of comprehensive income for the 2018
financial year
15.!Sales revenue
Sales revenue
(in EUR thousands)
Germany
Europe
U.S.
Other regions
Total
Product
revenue
3,307
2,737
14,894
-
20,938
01.01.-31.12.2018
Development
revenues
-
-
-
129
129
Other
-
-
-
40
40
Product
revenue
01.01.-31.12.2017
Development
revenues
2,674
1,616
6,312
-
10,602
-
-
-
1,423
1,423
Other
-
-
-
-
-
Revenue from product revenues generated in the U.S. includes revenue from finance and operating lease agreements concerning
the BF-RhodoLED® lamps.
In the 2018 financial year, we generated EUR 94 thousand of income from operating leases (previous year: EUR 0 thousand). We
generated income of EUR 240 thousand from finance leases (previous year: EUR 0 thousand).
16.!Cost of sales, gross profit
The cost of materials included in the cost of sales amounted to EUR 3,636 thousand for the 2018 financial year (previous year:
EUR 1,498 thousand).
The gross profit on sales increased by EUR 6,534 thousand in the 2018 reporting year, to reach EUR 16,656 thousand, compared
with EUR 10,310 thousand in the prior-year period.
17.!Research and development costs
Research and development costs amounted to EUR 4,427 thousand (previous year: EUR 4,225 thousand) and include costs for
clinical studies as well as expenses for regulatory activities, i.e. the granting, maintenance and expansion of our approvals.
18.!Sales and marketing costs
Sales and marketing costs amounted to EUR 17,744 thousand in the 2018 financial year (previous year: EUR 16,922 thousand).
Sales and marketing costs include costs for our own sales force in Germany, Spain, the UK and the U.S., as well as marketing
expenses.
19.!General administrative costs
General administrative costs amounted to EUR 12,963 thousand in the 2018 financial year and thus increased by a total of
EUR 9,866 thousand compared to the previous year,
legal and consulting costs
(EUR 6,230 thousand; previous year: EUR 183 thousand). Administrative costs also include financing costs of EUR 496 thousand
(previous year: EUR 583 thousand).
in particular due to
increased
Biofrontera AG Annual Report 2018
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83
83
20.!Interest expenses and income
The financial result essentially comprises ongoing interest expenses calculated using the effective interest method of the
convertible bonds 2016/2021 and 2017/2011 placed in 2016 and 2017 (EUR 191 thousand; previous year: EUR 189 thousand) and the
EIB loan made available in July 2017 (EUR 1,593 thousand; previous year: EUR 826 thousand).
21.!Other expenses (income), net
Other expenses reduced by EUR 1,000 thousand to EUR 332 thousand in the 2018 financial year. By contrast, other income
increased by EUR 1,042 thousand (EUR 1,302 thousand; previous year: EUR 260 thousand). These changes mainly include
expenses and income from currency translation on loans granted by the parent company to the U.S. subsidiary Biofrontera Inc.
in US dollars.
22.!Deferred income tax
As of the balance sheet date, deferred tax assets were capitalized for the first time due to the corporation tax and trade tax loss
carryforwards that can currently be carried forward in Germany and the planned future tax profits of Biofrontera Pharma GmbH.
Income from deferred tax amounts to EUR 10,400 thousand (previous year: EUR 0 thousand). An amount of EUR 9 thousand from
current income taxes was recognized (previous year: EUR 0 thousand).
23.!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 thousands
Basic/diluted earnings per share in EUR
31.12.2018
43,695,794
(8,878)
(0.20)
31.12.2017
38,076,087!
(16,102)
(0.42)
24.!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.
Depreciation and amortization expense
Depreciation and amortization of EUR 754 thousand in the 2018 financial year and of EUR 884 thousand in the previous year: is
included in the following items in the statement of comprehensive income:
in EUR thousands
Research and development costs
General administrative costs
Cost of sales
Sales and marketing
Depreciation and amortization expense
Personnel costs
in EUR thousands
Wages and salaries
Social security charges
Costs for pension schemes
Total
31.12.2018
31.12.2017
595
109
15
34
754
707
142
17
18
884
31.12.2018
31.12.2017
14,252
1,973
191
16,416
11,349
1,627
66
13,042
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Biofrontera AG Annual Report 2018
25.!Staff
In 2018 (2017), the Biofrontera Group had an average of 141 (119) employees worldwide, of whom 122 (106) were full-time
employees, 29 (21) of our employees hold an academic degree, 13 (15) of our employees were directly or indirectly involved in
production, 4 (2) employees in research and development, 12 (10) employees were involved in clinical and regulatory tasks,
another 70 (51) employees were involved in marketing and sales, and 42 (41) of our employees were involved in management,
business development, finance, human resources and administration. Of our 141 (119) employees, 75 (69) work in Germany, 56
(44) in the United States, 7 (6) in Spain and 3 in the United Kingdom, compared to 119 employees as of 31 December 2017, 74
employees as of 31 December 2016, 52 employees as of 31 December 2015 and 40 employees as of 31 December 2014. None of our
employees are subject to collective wage bargaining. We regard our relationship with our employees as good.
26.!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:
in EUR thousands
2018
2017
2018
2017
2018
2017
Operating lease commitments
Building
Vehicle leases
Operating and office equipment
≤ 1 year
1 year to 5 years
> 5 years
629
420
14
516
395
21
2,798
342
46
1,780
390
16
1,196
1,188
-
-
-
-
Lease-related expenses for the reporting period amounted to EUR 597 thousand (previous year: EUR 516 thousand).
In the U.S., 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 lessee has the option to either return or purchase the device. 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 the 2018 financial year, we generated EUR 94 thousand of income from
operating leases (previous year: EUR 0 thousand). We generated income of EUR 240 thousand from finance leases (previous
year: EUR 0 thousand). The expected future lease income as of 31 December 2018 is as follows:
in EUR thousands
2018
2017
2018
2017
2018
2017
≤ 1 year
1 year to 5 years
> 5 years
Operating lease income
Operating lease payments
Finance lease income
Finance lease interest income
Finance lease payments
15
19
121
38
-
-
-
11
72
-
-
-
-
-
-
-
-
-
27.!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, checks, bank deposits and money
deposits with a maturity of up to three months. Current account liabilities are incorporated into the cash fund where applicable.
Interest paid out amounted to EUR 536 thousand (previous year: EUR 598 thousand). Taxes paid amounted to EUR 9 thousand
(previous year: EUR 0 thousand). Interest received amounted to EUR 24 thousand (previous year: EUR 38 thousand).
Biofrontera AG Annual Report 2018
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85
The changes are comprised as follows:
in EUR thousands
31.12.2017
Cash flow
Non-cash changes
Addition/
retirement
Fair value
change
31.12.2018
Convertible bond 2016/2021
Convertible bond 2017/2022
EIB loan
Non-current financial liabilities
Interest: Convertible Bond 2016/2021,
/
Interest: Convertible Bond 2017/2022,
Interest: EIB loan
Current financial liabilities
Total financial liabilities
79
2,530
9,746
12,355
5
80
86
170
12,525
(50)
-
-
(50)
(6)
(158)
(371)
(535)
(585)
(29)
(35)
693
629
1
156
373
530
1,159
-
-
528
528
-
-
-
-
-
2,495
10,967
13,462
-
78
87
165
528
13,627
28.!Members of the 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).
Name
Nationality
Age
Position
Professor Dr. Hermann Lübbert
Thomas Schaffer
Christoph Dünwald
German
German
German
63
56
51
Chair
Finance
Sales & Marketing
Term
31/10/2020
30/11/2020
30/11/2020
Prof. Dr. rer. nat. Hermann Lübbert, CEO
Prof. Dr. rer. nat. Hermann Lübbert is the Management Board Chairman (Chief Executive Officer) of Biofrontera AG and Managing
Director of Biofrontera Bioscience GmbH and of Biofrontera Pharma GmbH. He studied biology in his native city of Cologne, where
he also received his doctorate in 1984.
After eight years in academic research at Cologne University and at the California Institute of Technology (U.S.), he obtained his
postdoctoral qualification in 1994 from the Eidgenössische Technische Hochschule (ETH) Zürich. Since 1998, he has led the Chair
for Animal Physiology at Ruhr University Bochum. During ten years at Sandoz and Novartis Pharma AG, Professor Lübbert
acquired experience in managing a globally active research organization. He founded Biofrontera in 1997, and has since managed
the company.
Thomas Schaffer, CFO
Thomas Schaffer started his career in various positions in the finance and controlling area at Siemens Semiconductor. He was
Vice President and CFO in the Security & Chipcard ICs area at Siemens.
He was then Managing Director and CFO at Infineon Ventures GmbH for a four-year period and continued his career as Vice
President and CFO of the Specialty DRAM Division of Qimonda AG, where he also assumed the Managing Director role at Qimonda
Solar GmbH. He added to his significant international experience with appointments as CFO at Heptagon Oy, Finland/Switzerland,
and Ubidyne Inc., Delaware, U.S.. Mr. Schaffer has been CFO of Biofrontera AG since June 2013.
Christoph Dünwald, CCO
Christoph Dünwald started his career at Bayer AG, where he held various positions in marketing (U.S. and Spain) and in strategic
business management in Germany and Southeast Asia over a 15-year period.
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Biofrontera AG Annual Report 2018
In his last position at Bayer, he managed the Bayer Healthcare Diagnostics Division in Belgium and Luxembourg as General
Manager. After two years as International Sales and Marketing Director in Spain and England for Corporación Dermoestética SA,
he moved to become Senior Commercial Director at U.S. pharmaceuticals group Allergan in 2008. From 2009 until 2015, he
managed its Medical Business Unit in Spain and Portugal.
Mr. Dünwald has been responsible for marketing and sales as well as for the further development of the US business at
Biofrontera since 2016.
Management Board compensation
Professor Dr. Hermann Lübbert
Thomas Schaffer
Christoph Dünwald
Non-performance-based salary component 2018
EUR 366 thousand
EUR 241 thousand
EUR 264 thousand
Non-performance-based salary component 2017
EUR 366 thousand
EUR 241 thousand
EUR 242 thousand
Performance-based salary component 2018
Performance-based salary component 2017
EUR 80 thousand
EUR 70 thousand
EUR 50 thousand
EUR 76 thousand
EUR 67 thousand
EUR 48 thousand
Income from the exercise of stock options 2018
EUR 94 thousand
EUR 83 thousand
Income from exercise of stock options 2017
Stock options (31.12.2018)
Fair value when granted (2018)
Stock options (31.12.2017)
Fair value when granted (2017)
Thereof granted in 2018
Thereof granted in 2017
-
276,850
-
140,000
-
-
140,000
EUR 423 thousand
EUR 230 thousand
EUR 230 thousand
236,850
125,000
90,000
EUR 299 thousand
EUR 145 thousand
EUR 112 thousand
80,000
70,000
50,000
40,000
50,000
40,000
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, Germany, Chairman of the Supervisory Board
!
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87
29.!Members of the Supervisory Board
Name
Dr. Ulrich Granzer
Nationality
German
Age
58
Position
Chair
Data first
appointment
12.05.2006
Term until
2021
Curriculum vitae:
Jürgen Baumann
Curriculum vitae
Dr. Ulrich Granzer, Supervisory Board Chairman, is a founder and owner of Granzer Regulatory Consulting
& Services, and has been a Supervisory Board member since 2006. Previously, he was Head of Regulatory
Affairs at GlaxoSmithKline, and Global Regulatory Centers BASF Pharma and VP Global Regulatory Affairs
at Bayer Pharma. He is a proven expert in the drug approval area.
He studied pharmaceuticals at Phillips University Marburg before receiving his doctorate from Tübingen
U i
Deputy Chair
24.05.2007
2021
it
German
64
Mr. Jürgen Baumann, Deputy Supervisory Board Chairman, is an independent management consultant
and has been Supervisory Board Chairman since 2007. He has held various management positions,
including on the Management Board of Schwarz Pharma AG, where he was responsible for sales and
marketing in Europe.
Mr. Baumann studied economic sciences at Wuppertal University.
John Borer
U.S.
61
Member
31.05.2016
2021
Curriculum vitae
Dr. John Borer is Senior Managing Director and Head of Investment Banking at The Benchmark Company,
LLC. He was previously CEO and Head of Investment Banking at Rodman & Renshaw and held
management positions at Pacific Business Credit as well as at Barclays American Business Credit. His law
doctorate was awarded by the Loyola Law School in Los Angeles.
Reinhard Eyring
German
60
Member
07.02.2018
2021
Curriculum vitae
Reinhard Eyring is a partner and Head of Germany at Ashhurst LLP. Previously he was a partner at
Schürmann & Partner for 11 years.
Mr. Eyring studied law at the University of Freiburg and subsequently worked as a trainee at the Regional
Court of Frankfurt am Main.
Hansjörg Plaggemars*
U.S.
48
Member
31.05.2016
2021
Curriculum vitae
Mr. Hansjörg Plaggemars is an independent management consultant (Value Consult) as well as a
Management Board member of various companies as part of projects, including at Delphi
Unternehmensberatung AG and Strawtec Group AG. Until the end of May 2017, he was a member of the
Management Board of Deutsche Balaton AG and previously managing director and CFO at CoCreate
Software GmbH, KAMPA AG, Unister Holdings and Müller Holdings. Mr. Plaggemars is also a member of the
supervisory boards of Ming Le Sports AG, Deutsche Balaton Immobilien I AG, Carus AG and Youbisheng
Green Paper AG.
He studied business management at Bamberg University.
Kevin Weber
USA
60
Member
31.05.2016
2021
Curriculum vitae
Mr. Kevin Weber is Managing Director at Skysis, LLC. He was previously CEO at Paraffin International Inc.,
and has extensive experience in marketing as well as worldwide marketing strategies. He previously held
senior roles at Depomed, Hyperion Therapeutics and Medicis Pharmaceuticals. Kevin Weber is also a
member of the Boards of Directors of the American Academy of Pain Medicine Foundation and of the
American Chronic Pain Association.
He holds a degree in management and marketing from Western Michigan University.
* Hansjörg Plaggemars was removed from his position as a member of the Supervisory Board of Biofrontera AG by the Cologne District Court
on 22 March 2019.
!
88
Biofrontera AG Annual Report 2018
Supervisory board compensation
in EUR thousands
Dr. Ulrich Granzer
Jürgen Baumann
John Borer
Reinhard Eyring
Hansjörg Plaggemars
Mark Reeth
Kevin Weber
Total
Compensation 2018
Compensation 2017
30
23
15
14
15
-
15
112
30
23
15
0
15
12
15
110
The Supervisory Board members held the following other supervisory board positions and positions on comparable domestic
and foreign boards during the reporting period:
Name
Company
Board
Position
Hansjörg Plaggemars
Ming Le Sports AG1,2
Nordic SSW 1000 Verwaltungs AG1
Carus AG1
Deutsche Balaton Immobilien I AG1
Alpha Cleantec AG1
Balaton Agro Invest AG1
MARNA Beteiligungen AG1,2
S&O Agrar AG i.I.1,2
Snowbird AG i.I1,2
Strawtec Group AG1
Youbisheng Green Paper AG1,2
OOC CTV Verwaltungs GmbH1
Supervisory Board
Chair
Chair
Supervisory Board
Supervisory Board Deputy Chair
Supervisory Board Member
Management Board sole representation authorization
Management Board sole representation authorization
Management Board sole representation authorization
Management Board sole representation authorization
Management Board sole representation authorization
Management Board sole representation authorization
Management Board sole representation authorization
Management Board sole representation authorization
Reinhard Eyring
DESTAG Deutsche Steinindustrie AG
Supervisory Board
Chair
Whereby footnote 1 means: "Group mandate" and footnote 2 means that the company is listed on the stock market.
In the 2018 financial year, compensation paid to Supervisory Board members amounted to EUR 112 thousand (previous year
EUR 110 thousand). The compensation transactions are classified as short-term employee benefits as per IAS 24.17(a).
30.!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. The partnership ended on 31 March 2018.
This development partnership generated revenue of EUR 129 thousand
in the 2018 financial year (previous year:
EUR 1,423 thousand). Receivables due from Maruho amounted to EUR 0 thousand as of 31 December 2018 (31 December 2017:
EUR 124 thousand).
The Benchmark Company, LLC, served as an underwriter in the initial public offering on the Nasdaq Exchange and, in that
capacity, received underwriting discounts in the amount of EUR 257 thousand, as well as a non-accountable expense allowance
of EUR 102 thousand. John Borer, who is a member of our supervisory board, serves as Senior Managing Director and Head of
Investment Banking at The Benchmark Company, LLC.
Biofrontera AG Annual Report 2018
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89
During 2017, our company availed itself of additional advisory services from supervisory board member Dr. Ulrich Granzer and
his consulting company Granzer Regulatory Consulting & Services, which is owned and controlled by Dr. Granzer. These services
went beyond the scope of normal supervisory board activities. Dr. Granzer assisted our 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 fiscal
year ending December 31, 2018, no advisory services were provided by Granzer Regulatory Consulting & Services. There are no
accounts payable to Granzer Regulatory Consulting & Services on December 31, 2018 (December 31, 2017: ¤0). The amounts stated
here do not include statutory value added tax at the current rate of 19%.
In the 2018 financial year, there were no further reportable transactions or relationships with related parties beyond those
described above or in sections 28 and 29, which the members of the Management Board and the Supervisory Board. 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.
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.
31.!Auditor's fees and services
The total fee invoiced by the auditor Warth & Klein Grant Thornton AG for the following financial years consist of:
in EUR thousands
Auditing services
[of which for the previous year]
Other assurance services
2018
580
[221]
85
665
2017
360
[22]
0
360
Besides the statutory auditing of the separate annual and consolidated financial statements of Biofrontera AG, the auditing
services also include the auditor's review of the condensed half-year financial statements and interim management report, as
well as the audits of the consolidated financial statements according to PCAOB standards.
Other assurance services included the audit of the revenue guidance and issuance of the comfort letter.
32.!Events after the reporting date
On 8 January 2019, Biofrontera announced that the US Food and Drug Administration (FDA) and previously also the European
Medicines Agency (EMA) had approved an increase in the batch size for the production of Ameluz® from the previous 7 kg to 35
kg. The approval of five times the batch size will ensure a secure supply of Ameluz® to meet the growing demand in all regions.
On 20 March 2019, Biofrontera announced positive preliminary results for the primary endpoint of the Phase III clinical trial on
the safety and efficacy of conventional photodynamic therapy (PDT) with Ameluz® and the BF-RhodoLED® lamp for the treatment
of actinic keratoses (AK) on the extremities or trunk/neck. The preliminary results of the primary endpoint of the trial
demonstrate the superiority of Ameluz® with an average lesion healing rate of 86% compared to 33% for placebo (p>0.0001).
These results are expected to form the basis for applications to the European Medicines Agency (EMA) and the US Food and Drug
Administration (FDA) for an extension of Biofrontera's regulatory filings during the third quarter of 2019.
EIB loan
On 4 February 2019, Biofrontera drew down another tranche of EUR 5 million from the EIB loan. Originally, the loan was available
in tranches within a two-year period until July 2019. At the beginning of 2019, it has been extended for another year, which makes
the last tranche available until May 2020.
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Biofrontera AG Annual Report 2018
Research cooperation with Maruho
On 19 March 2019, the company signed an agreement to continue its research collaboration with Maruho Co., Ltd., Osaka, Japan
("Maruho") in the field of branded generics. In the new project phase, Biofrontera will prepare the formulation of one of four
compounds in Biofrontera's nanoemulsion for clinical trials that were jointly investigated in an earlier project phase (Phase 1).
In addition, on 19 March 2019, the company signed a non-binding key term sheet on a collaboration to research and develop
further indications of Ameluz® for the treatment of moderate to severe acne, as well as the negotiation of Maruho's license to
market Ameluz® in parts of Asia and Oceania.
Changes in the composition of the Supervisory Board
By order of the Cologne District Court dated 22 March 2019, Mr. Hansjörg Plaggemars was dismissed as a member of the
Supervisory Board of Biofrontera AG pursuant to Section 103 (3) of the German Stock Corporation Act (AktG) for good cause. The
ruling was issued on 22 March 2019 and came to the company's attention on 26 March 2019. The ruling regarding the removal
from office is effective immediately. However, an appeal may be lodged within one month, which has been done. In the event of
a successful appeal, Mr. Plaggemars would reassume his position as a member of the Supervisory Board.
Acquisition of Cutanea Life Sciences, Inc.
On 25 March 2019, Biofrontera Inc., through its wholly owned subsidiary Biofrontera Newderm LLC, U.S. ("Biofrontera"), which
was founded on 20 March 2019, entered into an agreement with Maruho for the acquisition of all shares in Cutanea Life Sciences,
Inc., U.S. ("Cutanea"). Cutanea has been marketing AKTIPAK®, a prescription gel for the treatment of acne, as well as XepiTM, a
prescription cream for the treatment of impetigo, since November 2018.
The objective of the acquisition of Cutanea by Biofrontera is to effectively exploit the sales potential of AKTIPAK® and XepiTM in
the U.S. in order to strengthen Biofrontera's U.S. market presence.
Biofrontera acquired Cutanea for an initial purchase price of USD 1.00. Maruho will provide up to USD 7.3 million in start-up
financing for Cutanea's restructured business activities (start-up costs). A purchase price equal to the start-up costs actually
incurred must be paid to Maruho by 2023.
Subsequently, the profits from the sale of Cutanea products will be shared equally between Maruho and Biofrontera until 2030.
Maruho has also agreed to assume all operating costs that may be incurred during the first three months after completion of
the transaction. Maruho will also indemnify Biofrontera and Cutanea against all liabilities relating to or resulting from the period
prior to the transaction.
Publication of voluntary tender offer by Maruho Deutschland GmbH
On 1 April 1 2019, Maruho Deutschland GmbH, a 100% subsidiary of Maruho Co., Ltd. (together "Maruho"), has published a
notification pursuant to Section 10 WpÜG on Maruho has decided to offer to the shareholders of Biofrontera AG, by way of a
voluntary public tender offer in the form of a partial offer, to acquire a total of up to 4,322,530 no-par value registered shares
of Biofrontera AG against payment of EUR 6.60 per share in cash. The management board of Biofrontera AG values Maruho as a
strategically oriented long-term partner. Biofrontera AG and Maruho have been working together closely and trustfully for many
years. Maruho is not only one of the largest single shareholders of Biofrontera, but also a reliable partner in various research
and development collaborations. Further, last week Biofrontera has acquired Maruho's U.S. business through the acquisition of
Cutanea Life Sciences, Inc. The management board of Biofrontera AG regards Maruho's interest in an increase in its shareholding
as an affirmation of the path it has taken to make Biofrontera a leading specialist in dermatology.
On 15 April 2019, Maruho published the notification pursuant to Section 14 (3) Clause 1 No. 2 WpÜG, as well as the offer document
for the voluntary public tender offer in the form of a partial offer (cash offer) to the shareholders of Biofrontera AG to acquire
a total of up to 4,322,530 no-par value registered shares of Biofrontera AG.
On 10 April 2019, we were requested by Deutsche Balaton AG pursuant to Section 122 (1) AktG to convene an extraordinary
shareholders' meeting to discuss Maruho’s voluntary public tender offer. The extraordinary shareholder’s meeting will be held
on 15 May 2019.
!
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91
No further events subject to mandatory reporting occurred after the balance sheet date.
Leverkusen, 25 April 2019
Prof. Dr. Hermann Lübbert
Chief Executive Officer
!
Thomas Schaffer
Chief Financial Officer
Christoph Dünwald
Chief Sales and Marketing Officer
92
Biofrontera AG Annual Report 2018
Independent Auditor’s Report
"#!$%#&'#()*'+!,-.!/*0*'123*(!
Report on the Audit of the Consolidated Financial Statements and of the
Combined Management Report
Audit Opinions
We have audited the consolidated financial statements of Biofrontera AG, Leverkusen, and its subsidiary (the Group), which
comprise the consolidated balance sheet as at 31 December 2018, and the consolidated statement of comprehensive income, the
consolidated statement of changes in equity and the consolidated cash flow statement for the financial year from 1 January 2018
to 31 December 2018, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In addition, we have audited the group management report which is combined with the management report (referred to
subsequently as “combined management report”) of Biofrontera AG for the financial year from 1 January 2018 to
31 December 2018. In accordance with the German legal requirements, we have not audited the content of the Corporate
Governance Declaration pursuant to Section 289f and Section 315d HGB [Handelsgesetzbuch: German Commercial Code]
(Corporate Governance Report) which is referred to in the combined management report.
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 paragraph 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 2018 and of its financial performance for the financial year from 1 January 2018 to
31 December 2018, and
the accompanying combined management report as a whole provides an appropriate view of the Group’s position.
In all material respects, this combined 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 combined management report does not cover the content of the above
mentioned Corporate Governance Declaration pursuant to Section 289f and Section 315d HGB.
Pursuant to section 322 paragraph 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 combined management report.
Basis for the Audit Opinions
We conducted our audit of the consolidated financial statements and of the combined 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 Combined
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 sufficient and appropriate to provide a basis for our audit opinions on
the consolidated financial statements and on the combined 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 2018 to 31 December 2018. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole, and in forming our audit opinion thereon; we do not
provide a separate audit opinion on these matters.
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In the following we present the key audit matters in our view: Our presentation of the key audit matters has been structured as
follows:
!! 1 Financial Statement Risk
!! 2 Audit approach
!! 3 Reference to related disclosures
Capitalization of tax loss carryforwards
1 Financial Statement Risk
In the consolidated balance sheet as of 31 December 2018 of Biofrontera AG, a balance from deferred tax assets in the amount
of kEUR 10,733 and deferred tax liabilities amounting to kEUR 333 are recognised under the line item "Deferred taxes".
Of the deferred tax assets, an amount of kEUR 10,486 as at 31 December 2018 relates to tax loss carryforwards of Biofrontera
Pharma GmbH capitalised for the first time by the company, which has already generated profits in the second half of 2018 and
the executive directors assume that Biofrontera Pharma GmbH will continue to generate positive results in the future and thus
use its tax loss carryforwards.
Further deferred tax claims in Germany and in the USA were recognised in the consolidated financial statements only in the
amount of the existing deferred tax liabilities, with reference of the executive directors of Biofrontera Pharma GmbH to IAS 12.34
due to the lack of predictability regarding future taxable profits, and therefore total deferred tax assets in the total amount of
kEUR 33,526 were not recognised.
Whether the deferred tax assets from the loss carryforwards are eligible for capitalisation largely depends on assessments and
assumptions of the executive directors of Biofrontera AG and is therefore subject to high estimation uncertainty. In
consideration of the foregoing and of the importance of the recognition of deferred tax assets in the consolidated financial
statements for the presentation of the assets, liabilities and financial position of the Biofrontera Group, this matter was of
particular significance in our audit.
2 Audit Approach
As part of our audit of the capitalisation or the omitted capitalisation of deferred tax assets from loss carryforwards we critically
assessed the judgement of the executive directors relating to the predictability of future taxable profits of the relevant taxable
entities. For this purpose we first analysed the taxable income history as well as the planning for the financial year 2019
submitted by the executive directors of Biofrontera AG and assessed whether the loss carryforwards are resulting from events
in the past which are unlikely to recur. For Biofrontera Pharma GmbH we furthermore evaluated the assessment of the executive
directors of Biofrontera AG that the positive earnings development of Biofrontera Pharma GmbH in 2018 and in the planning
period is expected to be sustainable. In this context we reconciled the taxable income planning of Biofrontera Pharma GmbH
with planning of the Biofrontera Group for the financial year 2019 as adopted by the executive directors of Biofrontera AG and
approved by the Supervisory Board, and we reconciled the forward projection planning with current and expected conditions in
the relevant markets and our understanding of economic environment of the Biofrontera Group. On the basis of the information
obtained in this process, we finally evaluated the assessment of the executive directors with regard to evidence leading to the
capitalisation of the loss carryforwards at Biofrontera Pharma GmbH and recalculated the tax loss carryforwards as well as
deferred tax assets. Furthermore, we evaluated the assessment of the executive directors with regard to the existing
uncertainties in relation to the predictability of future taxable profits of the other Biofrontera Group entities.
3 Reference to related Disclosures
The disclosures of Biofrontera AG relating to accounting policies with regard to deferred taxes are shown in the "Summary of
significant accounting policies" section of the notes to the consolidated financial statements and the disclosures relating to
existing loss carryforwards in the "Notes to the consolidated financial statements – 8. Deferred income tax" section of the notes
to the consolidated financial statements.
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Evaluation of provisions for litigation costs
1 Financial Statement Risk
The consolidated financial statements as at 31 December 2018 shows provisions for litigation costs in the amount of kEUR 3,241
under the balance sheet item "Other provisions". It includes provisions in the amount of kEUR 3,191 for estimated litigation costs
of Biofrontera AG in connection with a lawsuit filed by DUSA Pharmaceuticals Inc. in the District Court of Massachusetts against
Biofrontera AG and its subsidiaries alleging infringement of its patents by the sale of BF-RhodoLED® in the U.S.
Biofrontera believes that these claims are unjustified and intends to defend them.
Biofrontera may incur significant costs in defending these claims, as in addition to internal human resources they also mandated
U.S. lawyers to defend the claims. The costs incurred by Biofrontera as a result would not be reimbursed by the plaintiff in the
event of a positive outcome of the proceedings, due to the characteristics of the U.S. legal system, and therefore a provision
was accrued as at 31 December 2018.
The evaluation of the provisions for litigation costs is based on the assessments and assumptions of the executive directors of
Biofrontera AG on the costs of the litigation and the length of the proceedings in court and is therefore subject to high estimation
uncertainty. Against this background, this matter was of particular significance in our audit.
2 Audit Approach
As part of our audit we assessed, among other things, the process established by the Company to ensure the recognition, the
estimate of the costs of the proceedings, and the accounting presentation of the legal dispute. Additionally, we assessed the
appropriateness of material assumptions relating to the recognition and measurement of the provisions recognised for
litigation. For this purpose we inspected the underlying documents of the legal dispute and evaluated the directly obtained legal
counsel’s confirmation. Furthermore, we conducted inquiries of one executive director to obtain an understanding of the current
development and the rationale on which the relevant estimates are based. Additionally, a written statement concerning the
underlying significant assumptions for the accounting of the provision was obtained from the Company. Within our audit we also
assessed the respective disclosures in the notes to the consolidated financial statements.
3 Reference to related Disclosures
The disclosures of Biofrontera AG relating to accounting policies with regard to provisions and estimates used are shown in the
"Summary of significant accounting policies" section of the notes to the consolidated financial statements and the disclosures
relating to provisions in the "Notes to the consolidated financial statements – 12. Other provisions" section of the notes to the
consolidated financial statements.
!!""##$$%%&&''(())**%%++,,""--**((&&&&
The executive directors are responsible for the other information. The other information comprises
!!
!!
!!
the Corporate Governance Declaration pursuant to Section 289f and Section 315d HGB (Corporate Governance
Report),
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
combined management report and
the remaining parts of the annual report with the exception of the audited consolidated financial statements, the
audited parts of the combined management report and our auditor’s report.
Our audit opinions on the consolidated financial statements and on the combined 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 group audit, our responsibility is to read the other information and, in so doing, to consider whether the
other information
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!!
!!
is materially inconsistent with the consolidated financial statements, the audited parts of the combined
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 Executive Directors and the Supervisory Board for the
Consolidated Financial Statements and the Combined Management Report
The executive directors are 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
paragraph 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 executive directors are
responsible for such internal control 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 executive directors are 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 executive directors are responsible for the preparation of the combined 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 executive directors are responsible for such arrangements and measures (systems) as they have
considered necessary to enable the preparation of a combined 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 combined
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 combined management report.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of
the Combined 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 combined 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 combined 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 combined
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 combined
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.
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!!
!!
!!
!!
!!
!!
!!
Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of
arrangements and measures (systems) relevant to the audit of the combined 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 executive directors and the reasonableness of
estimates made by the executive directors and related disclosures.
Conclude on the appropriateness of the executive directors’ 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 combined 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 paragraph 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 combined
management report. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinions.
Evaluate the consistency of the combined 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 executive directors in the combined
management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant
assumptions used by the executive directors 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 11 July 2018. We were engaged by the supervisory board on
9 October 2018. We have been the group auditor of Biofrontera AG, Leverkusen, 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 supervisory
board pursuant to Article 11 of the EU Audit Regulation (long-form audit report).
!
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German Public Auditor Responsible for the Engagement
The German Public Auditor responsible for the engagement is Michael Gottschalk.
Düsseldorf, 25 April 2019
Warth & Klein Grant Thornton AG Wirtschaftsprüfungsgesellschaft
Prof. Dr. Thomas Senger
Michael Gottschalk
Wirtschaftsprüfer
[German Public Auditor]
Wirtschaftsprüfer
[German Public Auditor]
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Biofrontera AG Annual Report 2018
Published by
Biofrontera AG
Hemmelrather Weg 201
D-51377 Leverkusen
Telefon: + 49 (0) 214 87 63 2 0!
+ 49 (0) 214 87 63 2 90!
Fax:
E-mail:
info@biofrontera.com!
www.biofrontera.com
Investor Relations
Thomas Schaffer
Pamela Keck
Telefon: + 49 (0) 214 87 63 2 92!
E-mail:
ir@biofrontera.com!
Concept and Design
Instinctif Partners
www.instinctif.com
Photos
Shutterstock, Oatawa | Shutterstock, Monster Ztudio | Adobe Stock, ©fizkes | Shutterstock, Oatawa (Title, from left to right)
Shutterstock, Oatawa (p. 4, bottom)
Shutterstock, Artur. B (p. 5, top)
Shutterstock, Monster Ztudio (p. 6, bottom)
Adobe Stock, ©fizkes (p. 8, bottom)
Shutterstock, Alless (p. 9, bottom)
Shutterstock, Oatawa (p. 10, bottom)
Biofrontera:
2019 Stevie Winner (p. 9, top)
Nanoemulsion (p. 11, top)
U. Granzer (p. 20)
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Biofrontera AG
Hemmelrather Weg 201
D-51377 Leverkusen
Telefon: + 49 (0) 214 87 63 2 0!
Fax: + 49 (0) 214 87 63 2 90!
E-mail:
www.biofrontera.com
info@biofrontera.com!