2
EUR 31.3 million
compared to EUR 21.1 million in 2018
EUR - 23.4 million
compared to EUR -18,5 million in 2018
EUR - 4.8 million
compared to EUR -19,3 Mio. million in 2018
Letter to the shareholders
Dear shareholders,
We look back on a particularly eventful and challenging year. In 2019, we completed the first acquisition in the history of
Biofrontera since its listing on the stock exchange. This gave us the opportunity to focus our company more intensely on the US
market and in the field of dermatology. With the two highly innovative drugs now available to us, and especially with our know-
how and innovative strength in photodynamic therapy, we aim to become the world's leading company in this field.
The current situation around the coronavirus pandemic has a particularly far-reaching impact on Biofrontera's current business
activities, but even more so on the business development this year and possibly next year. We have reacted promptly to the
restrictions to contain the pandemic and have also decided on comprehensive measures to reduce costs. Demand for Ameluz®
will be significantly reduced for an as yet unforeseeable period of time, particularly due to the dramatic development in the
USA. However, because most of our revenue is generated in the USA, the developments there are crucial for the future of
Biofrontera. The measures to reduce costs include the introduction of short-time work for all German employees and a similar
arrangement for the subsidiaries in Spain and Great Britain. Significant cost reductions have also been initiated in the USA,
where the number of employees has been cut considerably and a mandatory furlough program with unpaid vacation days for
all US employees has been introduced. It goes without saying that both members of the Management Board as well as the
executive management of our US subsidiary are also waiving a substantial portion of their salaries. In such an exceptional
situation, we can once again see how extremely adaptable and motivated our employees have been in their response to the
restrictions. We have no doubt that we will be able to bring Biofrontera back up to full strength in the shortest possible time and
in the meantime keep all the necessary processes running.
The current exceptional social and economic situation overshadowed last year's financial year, one that you as shareholders
and we at Biofrontera have certainly experienced as a tumultuous but also very successful year, even though we admittedly did
not meet our initial revenue forecast.
From an operational point of view, we were able to increase our worldwide sales by almost 50% in 2019, however, following a
weak third quarter in the USA, we had to revise our annual forecast. Around 70% of our total sales were already generated in
the USA, the world's largest pharmaceutical market, which is why this weaker than expected sales performance there was
initially very clearly reflected in the overall result. This was offset by exceptionally good sales in the fourth quarter. This was by
far the best quarter in the company's history, so that we were able to close the year in the USA with a remarkable sales growth
of 57%. In order to further improve our commercial activities in the USA, we strengthened our US subsidiary, Biofrontera Inc.
through a restructuring. We expect this to further increase our sales power and competitiveness.
The European approval for the Ameluz®-Daylight PDT has led to a very pleasing growth also in our home market Germany. In
Germany we were able to increase sales by approximately 40%. Even patients with public health insurance now have access to
our highly efficient skin cancer therapy, and we are convinced that Ameluz®-PDT will have a major impact on the prevention of
non-melanoma skin cancer in the long term.
In Spain, increased sales compensated for a massive price reduction demanded by the Spanish authorities, and we also see
continued growth in the UK. Nevertheless, overall European business, excluding Germany, remained flat due to reduced orders
from our distribution partners.
A further milestone was reached in the approval of Ameluz®. The Phase III study on the efficacy of Ameluz® for the treatment of
the extremities, trunk and neck once again attested to our drug's superior efficacy. This allowed us to submit an application for
label expansion to the European Medicines Agency (EMA) in September 2019. Following a "positive opinion" from the EMA in
January, the European Commission granted approval in March 2020. At the same time, the European Commission allowed the
description of the superiority of Ameluz® over competing products in daylight PDT in the official product information. This
extension of approval is another element that significantly strengthens Ameluz® therapy in its application and ultimately in its
importance for the treatment and prevention of non-melanoma skin cancer.
Additional important commercialization measures, such as the implementation of the anti-counterfeiting guideline or the
optimization of production costs by increasing batch sizes, were also successfully completed in 2019.
We successfully closed the acquisition of Cutanea Life Sciences Inc. after intensive restructuring efforts. As a consequence,
XepiTM, one of the most interesting and innovative new dermatology products, will now complement our product portfolio in the
USA. Despite a considerably higher price compared to competing drugs, we successfully placed the product on the
Biofrontera AG Annual Report 2019
9
reimbursement lists of major U.S. insurance companies during the course of the year, which means that about half of the U.S.
population can now already benefit from reimbursement of the drug if required.
We also made progress on the research and development of other product. For example, in March 2019 we concluded an
agreement with our major shareholder Maruho to continue a research cooperation in the area of branded generics. Within the
framework of the agreed project phase, Biofrontera is preparing the formulation of one of four active ingredients in Biofrontera's
nanoemulsion for clinical trials, which were jointly investigated in an earlier project phase. It is a great opportunity for
Biofrontera to build up a pipeline that allows us to expand our product portfolio in the long term. Product development is lengthy,
costly and associated with high risks. As such, it makes sense to minimize the financial risk by working with a partner so we can
get involved in such projects early on.
Despite all our successes, the share price performance in 2019 was disappointing overall. The Biofrontera share price opened on
January 2, 2019, at EUR 5.29 and closed at EUR 4.60 on December 31, 2019, thus recording a price decline of 13% over the past
financial year. The strategic progress and economic development of the company was therefore not reflected in the share price
performance. The competing tender offers from our two major shareholders in the middle of the year caused considerable price
volatility and significant unease among the shareholder base. This overshadowed the operational progress we were able to
make in 2019.
The development of a pharmaceutical company is based on a clear strategic plan that spans several years. Processes that have
to be initiated for this purpose only contribute to operational success after years due to often long development and approval
procedures. Nevertheless, such a path must be taken and constantly maintained in order to establish such a company on the
market in the long term. Smaller companies, such as Biofrontera, have to prioritize, which means that a company's development
cannot be characterized by exponential growth year after year. The management of Biofrontera is taking this path, sees the
extraordinary development opportunities of Biofrontera and, with your support, would like to continue to align the company for
the future and ensure its success.
The continued, in our view completely unfounded and selfish accusations against the Management Board and Supervisory Board
from the Deutsche Balaton Group are harmful to our company. The accusations discourage other investors and have a negative
impact on the share price. Although an easing of the situation would be more than desirable and should be in the interest of all
shareholders, offers of talks by the Management Board have repeatedly been rejected by the Deutsche Balaton Group. Precisely
for this reason, we would like to thank you, dear shareholders, for the support you have given us - the management and the
company in its current strategic orientation - at the two extraordinary shareholders' meetings called by the Deutsche Balaton
Group last year.
We would like to express our deepest gratitude to our employees at all locations, who in 2019, in a difficult environment,
continued to put all their skills and passion for Biofrontera into action. They share our vision of a profitable, highly innovative
and independently growing Biofrontera into a leading pharmaceutical company in dermatology, and are committed daily to the
further development of the company far beyond the ordinary. All of us together, employees, Management Board, Supervisory
Board and shareholders are proud of the company we have created! There are few examples of such a company in Europe and
worldwide.
We also have ambitious goals for 2020 and will continue to do everything in our power to live up to the trust of our customers,
employees and, in particular, our shareholders.
Kind regards,
Prof. Dr. Hermann Lübbert
Thomas Schaffer
Management Board of Biofrontera AG
10
Biofrontera AG Annual Report 2019
Investor Relations
The shares of Biofrontera AG, Leverkusen, have been traded in the Prime Standard segment of the Frankfurt Stock Exchange
since June 3, 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 issued as of 31/12/2019
Share capital
ISIN
WKN (German Securities Identification Number)
Ticker symbol
Designated Sponsor
52-week high* (16/06/2019)
52-week low* (19/11/2019)
Market capitalization as of 31/12/2019
Average daily trading volume on XETRA (52 weeks as of 31/12/2019)
* Price data based on XETRA closing price
Frankfurt Stock Exchange
XETRA, Berlin, Düsseldorf, Munich, Stuttgart, Tradegate
Prime Standard
44,849,365
EUR 44,849,365
DE0006046113
604611
B8F
Lang & Schwarz Broker GmbH
EUR 8.07
EUR 4.02
EUR 206,307,079
55,336 shares/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 31/12/2019
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, December 31, 2021
6 %
EUR 100.00
EUR 4,999,000
EUR 2,968,200
EUR 3.50
EUR 4.00
EUR 5.00, since 03/03/2018 EUR 4.75
Biofrontera AG Annual Report 2019
11
Biofrontera share price performance
The share price performance of the Biofrontera was influenced by individual company news, and particularly by two competing
tender offers by the two major shareholders Deutsche Balaton AG and Maruho Deutschland GmbH. At the beginning of the year,
following the announcement of the preliminary sales figures for 2018, the share price recorded a short-term increase, which,
however, subsided again by mid-March. Following the publication of the continuation of the research cooperation with Maruho
along with the acquisition of Cutanea Life Sciences Inc. in the USA, the share price increased steadily and reached a high of
around EUR 6.30 in April following the announcement of the tender offer by Maruho. With the increase in the offer price by
Maruho to EUR 7.20 and the competing tender offer by the Deutsche Balaton Group at the end of May, the share price again
climbed significantly and reached its all year high in mid-June at EUR 8.07.
Following the completion of the tender offers, the share price declined again and was initially at the level prior to the submission
of said offers. After the third-quarter sales figures were published and the downward revision of the forecast, the share price
dropped to its annual low of EUR 4.02. At the end of the year, the share price recovered and settled around EUR 4.60.
The average daily trading volume of 55 thousand shares in 2019 was significantly below the volume of 89 thousand shares/day
traded in 2018.
Share price chart
Shareholder structure
The shareholder structure of Biofrontera AG as of 31 December 2019, based on the most recent mandatory disclosures, is as
follows:
40%
30%
Maruho Co. Ltd
Deutsche Balaton Group
Free float
30%
12
Biofrontera AG Annual Report 2019
Investor relations work
Biofrontera's investor relations work focuses on the continuous communication with investors about relevant company
developments as well as a regular positive dialogue with investors.
Roadshows and conferences offer management the opportunity for comprehensive and personal discussions with institutional
investors and analysts. In fiscal year 2019, such meetings were held on many days in capital market centers in the USA and major
European cities, among other places. Here Biofrontera is building on long-standing contacts that are regularly informed about
the company's progress.
In addition to the reports on the first and third quarters as well as the half-year financial report, Biofrontera provided information
to investors, analysts and other interested capital market participants through 6 ad hoc (material news releases) and 31 press
releases. In telephone conferences, the Management Board commented on the disclosed consolidated results and provided
updates on significant developments and business activities. As in previous years, the annual analyst conference was held as
part of the German Equity Forum in Frankfurt on November 25, 2019.
In 2019 Biofrontera held one annual general meeting and two extraordinary shareholders' meetings. The Annual General Meeting
of Biofrontera AG was held on July 10, 2019 in Leverkusen. A total of 75.88 percent of the share capital of Biofrontera AG with
voting rights at that time, which comprised 44,632,674 shares, was represented there. The shareholders approved the
resolutions proposed by the Management Board and Supervisory Board by a large majority. All requests for supplementary
proposals and countermotions of the Deutsche Balaton Group were rejected by the shareholders' meeting with a clear majority.
Prof. Dr. Franca Ruhwedel was newly appointed to the Supervisory Board.
Both extraordinary shareholders' meetings were held at the request of the Deutsche Balaton Group. In May 2019, the
shareholders' meeting only served to discuss the two tender offers available at that time. Therefore, no agenda items were put
to vote. At the second extraordinary shareholders' meeting in December 2019, the proposed resolutions of the Deutsche Balaton
Group were rejected by the shareholders' meeting with a large majority. Thus, as was already the case at the Annual General
Meeting, a large majority of the shareholders again followed the recommendations of the management on all agenda items.
Although the shareholders also voted by a clear majority for the additional resolution proposal of the management to establish
an authorized capital, the three-quarters majority required by the German Stock Corporation Act was not achieved for this item.
Analyst coverage
The following analysts cover Biofrontera:
Institution
The Benchmark Company, LLC
Lake Street Capital Markets
sc-consult GmbH
Analyst
Bruce D. Jackson
Thomas Flaten
Dipl. Kfm. Holger Steffen
Conferences
Date
January 1-10, 2019
April 11, 2019
June 19, 2019
June 20, 2019
September 12, 2019
September 27, 2019
November 21, 2019
November 25, 2019
December 12, 2019
December 10-12, 2019
Conference
JP Morgan 37th Annual Healthcare Conference (San Francisco)
Solventis Aktienforum 2019 (Frankfurt)
Raymond James Life Sciences and MedTech Conference (New York City)
JMP Securities 2019 Life Science Conference (New York City)
Lake Street Capital Markets 2018 Best Ideas Growth (BIG) Conference (New York City)
Baader Investment Conference (Munich)
Jefferies Healthcare Conference (London)
Deutsches Eigenkapitalforum (Frankfurt)
The Benchmark Company Discovery One on One Conference (New York City)
12th Annual LD Micro Main Event (Bel-Air)
Biofrontera AG Annual Report 2019
Biofrontera AG Geschäftsbericht 2016
13
13
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 February 7, 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.
14
Biofrontera AG Annual Report 2019
Reporting (No. 7.1.2)
Financial reports, half-yearly reports and interim reports are published within the statutory periods.
Leverkusen, December 2019
Prof. Dr. Hermann Lübbert
Thomas Schaffer
Christoph Dünwald
Dr. Ulrich Granzer
Management Board of Biofrontera AG
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”.
Biofrontera AG Annual Report 2019
Biofrontera AG Geschäftsbericht 2016
15
15
Report of the Supervisory Board of Biofrontera AG for the 2019
financial year
Dear Shareholders,
With the 2019 financial year completed, another successful year lies behind us.
Revenue of the Biofrontera Group amounted to 31.3 million euros. This corresponds
to a sales growth of around 48% compared to the previous year, with pure product
sales increasing by approximately 46%. In Q4 2019, the Biofrontera Group achieved
the highest quarterly sales in its corporate history. The growth was once again driven
by the significant growth of the US-business, as well as the sales growth in Germany
and Spain due to the expanding acceptance of PDT with daylight. Even though the
Biofrontera Group had set itself the goal of even greater growth in the 2019 fiscal
year, what has been achieved is nevertheless a great success.
All employees of the Biofrontera Group together with the management should be
given thanks and recognition for this.
Further progress was also made with regard to the targeted indication extensions for
Ameluz®. In August 2019, an application was submitted to the European Medicines Agency (EMA) for the label extension of
Ameluz® for the treatment of mild and moderate actinic keratoses on the extremities and trunk/neck with photodynamic therapy.
In March 2020, the label extension was approved by the European Commission. In the USA, Biofrontera is also working on the
approval for the treatment of actinic keratoses on the extremities and trunk/neck. Additionally, Biofrontera is working toward
US-approval of Ameluz® for the treatment of superficial basal cell carcinoma (BCC). Patient recruitment for the required study
has been underway since September 2018, with results expected in 2021. Following a successful FDA approval, Ameluz® would be
the only drug in the USA for the treatment of superficial BCC with photodynamic therapy.
In March 2019, all shares in Cutanea Life Sciences, Inc., USA, were acquired from Maruho Co, Ltd., Japan, in order to further
strengthen the position of the Biofrontera Group in the US market by adding XepiTM, an additional innovative product in the field
of dermatology.
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 about the company's current performance by the Management Board, both during and outside of
meetings. 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.
16
Biofrontera AG Annual Report 2019
Consultations and areas of focus
In fulfilling its responsibilities, the Supervisory Board held four meetings during the reporting year. It also passed resolutions
outside the scope of meetings.
At the meeting on April 25, 2019, the auditor reported on the timing, structure and results of the audit for the 2018 financial year.
Following the discussion of the 2018 annual financial statements, the consolidated financial statements and the combined
management report, the Supervisory Board approved the auditor's reports, raised no objections following the final results of its
own examination and approved the annual and consolidated financial statements. It thus followed the recommendation of its
Audit Committee, which had previously held a meeting in the presence of the auditor and had discussed the 2018 annual financial
statements, the consolidated financial statements and the combined management report as well as the audit reports. The annual
financial statements of Biofrontera Aktiengesellschaft for the 2018 financial year were thereby ratified. The Management Board
also reported on the current sales and market development and on the progress in research and development. In addition, the
Management Board reported on the ongoing reorganization of Cutanea Life Sciences Inc. The Supervisory Board discussed the
statement to be made in accordance with Section 27 of the German Securities Acquisition and Takeover Act (WpÜG) regarding
the voluntary public tender offer in the form of a partial offer by Maruho Deutschland GmbH. The Extraordinary General Meeting
to be convened at the request of a shareholder for May 15, 2019, and the agenda for the Annual General Meeting on July 10, 2019,
were also discussed. The Personnel Committee of the Supervisory Board reported on the results of its meeting.
At the meeting on July 11, 2019, the Management Board reported on the current sales performance and the latest developments
in the area of research, development and approval. The financial situation was discussed. The ongoing reorganization at Cutanea
Life Sciences Inc. and the status of the products there were also discussed. The competing voluntary public takeover offers by
Maruho Deutschland GmbH on the one hand and Deutsche Balaton Biotech AG together with DELPHI Unternehmensberatung AG
on the other hand were also discussed, as well as the supplementary statement still to be submitted in accordance with Section
27 WpÜG.
In the telephone conference meeting held on September 19, 2019, the Management Board reported on the current business
development. The reasons assumed for the weaker than planned business development in the USA were also discussed. The
market development of Xepi™, one of the drugs acquired together with Cutanea Life Sciences, Inc. was also discussed. The
Management Board reported on changes in the area of research and development, particularly with regard to the planned
expansion of indications. In addition, the Management Board reported on the ongoing legal disputes, in particular those with
DUSA Pharmaceuticals Inc. In addition, the organizational structure in the USA and possible changes were discussed.
The Management Board reported on the current business development in the telephone conference meeting held on November
26, 2019. In particular, the reasons for lowering the forecast as well as the financial situation were discussed. The Management
Board reported that, in order to strengthen the competitive position in the USA, it is striving to improve the reimbursement
modalities for Ameluz® and to extend the label to the treatment of actinic keratoses on the extremities as well as the trunk and
neck. The budget for 2020 and corporate goals for 2020 were discussed in detail and approved.
Activities conducted outside of meetings
In March 2019, the Supervisory Board intensively discussed the acquisition of Cutanea Life Sciences, Inc. and approved it. In
addition, the Supervisory Board approved the statements to be submitted in accordance with section 27 of the WpÜG on the
acquisition offers of Maruho Deutschland GmbH on the one hand and Deutsche Balaton Biotech AG together with DELPHI
Unternehmensberatung AG on the other.
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.
Biofrontera AG Annual Report 2019
Biofrontera AG Geschäftsbericht 2016
17
17
Audit Committee
The Audit Committee deals in particular with the monitoring of the accounting process, the effectiveness of the internal control
system, the risk management system and the internal audit system as well as the audit of the financial statements, in particular
the selection and independence of the auditor and the additional services provided by the auditor. The Audit Committee may
make recommendations or proposals to ensure the integrity of the financial reporting process. In the case of companies as
defined in Section 264d HGB, in other words including Biofrontera AG, 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 (until March 22, 2019). Reinhard Eyring (from March 28, 2019 to July 11, 2019) and Prof. Dr. Franca Ruhwedel (since
July 11, 2019).
Prof. Dr. Ruhwedel is the current chair, until July 11, 2019, Jürgen Baumann chaired the committee.
The committee met twice during the reporting year: with the auditor in order to prepare for the Supervisory Board's financial
statements meeting on April 25, 2019 and on November 26, 2019. In addition, the committee chairwoman, who was newly elected
in July, met with the responsible auditor twice in the second half of the year to coordinate the audit of the half-year and annual
financial statements together with the CFO.
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 April 25, 2019. The
topics discussed included the achievement of targets by members of the Management Board in 2018 and the issuance of options
to the 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. Dr. Granzer is the current chair.
In the reporting period, the Supervisory Board prepared the resolution proposal to the Annual General Meeting to elect Prof. Dr.
Franca Ruhwedel, residing in Duisburg, Professor of Finance and Accounting at Rhine-Waal University of Applied Sciences, Kamp-
Lintfort, to the Supervisory Board, with the condition that her term of office expires at the end of the Annual General Meeting
that resolves on the discharge for the fiscal year ending December 31, 2020.
18
Biofrontera AG Annual Report 2019
Individualized disclosure of the participation of Supervisory Board members in
Supervisory Board and committee meetings in the 2019 financial year
Supervisory Board members
Supervisory Board and committee meetings
Participation
Attendance
Jürgen Baumann
John Borer
Reinhard Eyring
Dr. Ulrich Granzer
Prof. Dr. Franca Ruhwedel
Kevin Weber
7
7
5
5
4
4
7
6
5
5
4
4
100%
86%
100%
100%
100%
100%
Mr. Borer was unable to attend one committee meeting.
Separate and consolidated financial statements for 2019
The audit firm Warth & Klein Grant Thornton AG, Düsseldorf, was appointed Group auditor for the 2019 financial year by the
Annual General Meeting held on July 10, 2019 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 2019 financial year, and issued unconditional audit certificates.
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).
The financial statement documents were discussed in the Audit Committee on April 20, 2020 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 as well as the audit reports drawn
up by the auditor in a timely manner ahead of 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 financial reporting 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 audit committee meeting on April 20, 2020.
Auditor in charge
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.
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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.
Changes to the Supervisory Board
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 March 22, 2019 and came to the knowledge of the company on March 26, 2019. The
ruling for dismissal is effective immediately. An appeal brought by Mr. Plaggemars before the Cologne Higher Regional Court
was rejected.
The Annual General Meeting held on July 10, 2019 elected Prof. Dr. Franca Ruhwedel, residing in Duisburg, Professor of Finance
and Accounting at Rhine-Waal University of Applied Sciences, Kamp-Lintfort, to the Supervisory Board, with the condition that
her term of office ends at the end of the Annual General Meeting that resolves on the formal discharge for the fiscal year ending
December, 31, 2020. Since then, the Supervisory Board has again had the six members provided for in the Articles of Association.
Changes to the Management Board
Mr. Christoph Dünwald resigned from the Management Board at the end of January 2020. Mr. Dünwald and Biofrontera AG have
agreed that Mr. Dünwald's management contract, which runs until November 30, 2020, should not be extended. Mr. Dünwald
resigned from his position as member of the Executive Board by mutual agreement at the end of January 2020 in the course of
an organizational restructuring. Biofrontera AG would like to thank Mr. Dünwald for his many years of commitment and in
particular for the excellent work in building up the sales force in the USA.
Finally, we would like to thank you, dear shareholders, once again for your commitment and trust!
The Supervisory Board would also like to thank the Management Board and the employees of Biofrontera Aktiengesellschaft and
the Biofrontera Group for their high degree of commitment and for their outstanding performance in the past fiscal year.
Leverkusen, April 20, 2019
Dr. Ulrich Granzer
Chairman of the Supervisory Board
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Biofrontera AG Annual Report 2019
Consolidated management and group management report for the
fiscal year 2019
Basis of the Group
Group structure
As of December 31, 2019, the Biofrontera Group (hereinafter also called "Biofrontera" or "Biofrontera Group") consists of a parent
company, Biofrontera AG and 5 (previous year: 5) wholly owned subsidiaries. The parent company’s head office is in Leverkusen
Germany.
Effective March 25, 2019, all shares in Cutanea Life Sciences, Inc. and its subsidiaries Dermarc LLC and Dermapex LLC were
acquired through the newly founded US company Biofrontera Newderm LLC. The companies of Cutanea Life Sciences, Inc. as well
as Biofrontera Newderm LLC were merged with Biofrontera Inc. at the end of the year. While Biofrontera Inc. assumes all
commercial activities, Biofrontera Bioscience GmbH takes over all regulatory tasks.
Biofrontera Bioscience GmbH, Biofrontera Pharma GmbH, Biofrontera Development GmbH and Biofrontera Neuroscience GmbH
are located at the parent company's headquarters in Leverkusen, Germany. Biofrontera Inc.’s headquarters are in Woburn,
Massachussetts, USA.
Business model
The public entity, Biofrontera AG, assumes the holding function within the group of companies. It is responsible for the
management, strategic planning, internal control and risk management and ensures the necessary financing needs are met.
Biofrontera Bioscience GmbH carries out research and development tasks as well as all regulatory functions for the Biofrontera
Group and holds the patents and approvals for Ameluz®. According to a license agreement with Biofrontera Bioscience GmbH,
Biofrontera Pharma GmbH, which is also the holder of the CE certificate of BF-RhodoLED®, bears the responsibility for the
production, further licensing and marketing of Biofrontera Group’s approved products. Biofrontera Inc. is responsible for the
marketing of all Biofrontera Group products in the USA, including the in-licensed drug Xepi™. The marketing and sales of Aktipak®
was suspended in August 2019 until further notice due to unsolvable quality deficiencies of the batches that had been produced
by a contract manufacturer on behalf of Cutanea.
Production of Ameluz® for all markets served by Biofrontera is carried out by a contract manufacturer in Switzerland. The PDT
lamp is manufactured at Biofrontera's headquarters in Leverkusen, Germany. The production of Xepi™ is the responsibility of
the licensor Ferrer Internacional S.A., which supplies Biofrontera with the finished product.
Biofrontera Development GmbH and Biofrontera Neuroscience GmbH were founded in December 2012 and are additional wholly
owned subsidiaries of Biofrontera AG. These two companies are intended for the development of pipeline products that are not
part of Biofrontera's core business and therefore currently cannot be sufficiently financed within the normal business activities.
The product BF-derm1 for the treatment of severe chronic urticaria is owned by Biofrontera Development GmbH, the product BF-
1 for the prophylactic treatment of migraine (without patent protection since 2009) by Biofrontera Neuroscience GmbH. Both
products are currently not being pursued any further, as the corporate strategy focuses on the further development and
marketing of Ameluz® and Xepi™. By outsourcing the development projects, a structure has been created which allows to
separate the financing of the development of these two products from the general financing of the Biofrontera Group.
Group strategy
The strategic goal of the Biofrontera Group is to optimize the global positioning and market potential of our products Ameluz ®
and Xepi™, and in doing so to develop the company into a leading innovative specialty pharma company in dermatology.
Activities are currently focused on the continued sales growth of our products and the development of further market potential
through label extensions of Ameluz® as well as broader distribution of XepiTM.
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Biofrontera has received a centralized approval for its own self-developed drug, which is marketed under the brand name
Ameluz®. Since the market launch in February 2012, Biofrontera has been selling Ameluz® with its own sales force to
dermatologists in Germany and since March 2015 also in Spain. Ameluz® has been available in the UK for several years, but has
only been actively promoted by Biofrontera's own sales force since May 2018. Distribution in several other countries of the
European Union as well as in Israel and Switzerland is carried out through licensing partnerships.
A US subsidiary, Biofrontera Inc., was setup in order to market Ameluz® in the USA. The US subsidiary has established all functions
and obtained all licenses required for a sales company in the pharmaceuticals and medical devices sector. Departments
supporting sales, such as Finance, Customer Service, Market Access, Medical Affairs, Compliance, Quality Assurance, Logistics,
etc. were established locally. Other group functions necessary for a pharmaceutical company, such as management of regulatory
approvals, interaction with regulatory authorities, patents, manufacturing, IT, regulatory relevant clinical trials, etc. continue to
be provided exclusively by the German companies of the Biofrontera Group with worldwide responsibility.
Products
Ameluz®
In December 2011, Ameluz® 78 mg/g gel (Spanish for "love the light", development name BF-200 ALA) received its first centralized
European approval for the treatment of mild and moderate actinic keratoses (AK) on the face and scalp. it's significant superior
effect in combination with an LED lamp compared to the direct competitor product Metvix® for AK was proven during phase III
development. Actinic keratoses are superficial forms of skin cancer with a risk of spreading to deeper skin layers and thus
developing into potentially fatal squamous cell carcinoma. The combination of Ameluz® with light treatment is an innovative
form of treatment that is classified as photodynamic therapy (PDT).
Based on the Phase III field trial for field therapy, the European Commission also approved Ameluz® for the treatment of field
cancerization following a positive vote by the EMA. In addition to its high efficacy in the removal of actinic keratoses, the results
relating to the improvement of skin appearance were included in the official product information in the EU.
In May 2016, Biofrontera received approval for Ameluz® in the USA. The approved indication concerns the "lesion and field
directed PDT of mild and moderate actinic keratoses on the face and scalp". As approval in the USA requires a combination of
drug and lamp, Biofrontera has developed its own PDT lamp, the BF-RhodoLED®, and has obtained CE certification in the EU, which
also required the entire company to be certified according to ISO 13485. The ISO certification was renewed regularly in 2019.
The overall advantages of Ameluz® in terms of efficacy, handling, user-friendliness and skin rejuvenation 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 in the years to come. Contributing to this is also the label
extension to include basal cell carcinoma in 2017.
In 2017, Biofrontera submitted an application for approval for daylight PDT with Ameluz® and was granted approval by the
European Commission in March 2018. The label extension now includes the treatment of actinic keratoses and field cancerization
with daylight PDT. Daylight PDT is a cost-effective and painless alternative to traditional PDT treatment with a special lamp. The
topically applied drug is activated by natural or artificial daylight. As daylight PDT does not require the treatment to be carried
out in a doctor's office, it competes directly with self-applied topical drugs, which are used much more widely in Europe. As a
result, Ameluz® is also reimbursed by the statutory health insurers in Germany for use with daylight PDT, whereas use of the
drug with conventional PDT is generally not reimbursed. The results of the follow-up phase of the clinical comparison study on
daylight PDT with Ameluz® and Metvix® were included in the product information (SmPC) in March 2020. It is expected that the
significantly superior efficacy compared to Metvix® one year after treatment will further enhance the market positioning of
Ameluz®.
In fall 2019, the company submitted the application for label extension to the European Medicines Agency (EMA) to include the
treatment of mild and moderate AK on the extremities and trunk/neck with conventional PDT using Ameluz® and the BF-
RhodoLED®. Following the positive vote of the EMA in February 2020, the European Commission formally approved the label
extension for Ameluz® in March 2020.
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Biofrontera AG Annual Report 2019
Based on these results, Biofrontera has also started discussions with the US Food and Drug Administration (FDA) about a
corresponding extension of the approval for Ameluz® in the USA. The FDA provided positive feedback and proposed an additional
clinical trial to approve the label extension for Ameluz® to additional body regions. Patient recruitment is scheduled to start in
the second half of 2020. Within this context, Biofrontera, following consultation with the FDA, has also initiated a
pharmacokinetics study (PK study), in which the safety of PDT is tested using three tubes of Ameluz®. According to the program
schedule, patient recruitment will take 3-5 months and the Phase I study is expected to be completed in the third quarter of
2020.
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. In order to distribute the lamp in the USA, the final assembly of the PDT lamp was moved to Biofrontera's headquarters in
Leverkusen where it has been produced by Biofrontera since 2016. This makes Biofrontera the responsible manufacturer from
the perspective of the authorities.
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
medicinal plant extracts to form an extraordinary combination of active ingredients with a proven depth effect. The belixos®
series includes the following products: belixos® Cream, belixos® Liquid, belixos® Gel and belixos® Protect.
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.
Xepi™
The acquisition of Cutanea Life Sciences, Inc. in March 2019 has enabled Biofrontera to market a FDA-approved drug that has
been introduced in the US market. XepiTM (ozenoxacin cream, 1%) is a non-fluorinated quinolone that not only inhibits bacterial
growth but also kills the bacteria directly. This results in an unusually fast effect of this new medication. It is the first new topical
antibiotic to enter the American market in 10 years. To date, no antibiotic resistance to Xepi TM is known and it has been
specifically approved by the FDA for the treatment of antibiotic-resistant bacteria. The approved indication is impetigo, a
common skin infection in children with staphylococci and streptococci. XepiTM has an excellent safety profile that even allows
for use on infants from the age of two months.
Xepi™ is the next innovation for the American dermatology market to be commercialized by Biofrontera. Increasing resistance
to known antibiotics is a concern that is taken very seriously by American doctors. We are convinced that with Xepi™ our portfolio
now includes an innovative, promising product with a great million market potential.
The drug XepiTM in-licensed by Biofrontera is protected by two patent families in the USA and other countries. With regard to the
USA, patent protection applies for the composition of XepiTM until January 29, 2032 and for the approved treatment of impetigo
until December 15, 2029.
Aktipak®
The second product approved in the USA, which Biofrontera added to its product portfolio through the acquisition of Cutanea
Life Sciences, Inc., is called Aktipak® (BPO/Erythromycin Gel, 3%/5%) and is a convenient combination product of two known
active ingredients for the treatment of acne. Due to unresolved quality problems in the production of Aktipak® at the contract
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manufacturer commissioned by Cutanea in the past and the comparatively lower market opportunities, Biofrontera decided in
August 2019 not to pursue its activities with this product for the time being.
Sales and markets
The company underwent organizational restructuring at the beginning of 2020, and after the reorganization of the operational
leadership of its subsidiary Biofrontera Inc. (published on January 5, 2020), Biofrontera also announced an organizational
restructuring of the sales organization in Europe (published on January 31, 2020).
Under the new structure, Biofrontera's worldwide sales organization now stands on two pillars: sales and marketing in the USA,
Biofrontera's largest market, and a unified management of all sales activities in Europe.
USA
Biofrontera launched Ameluz® in the USA in October 2016. The distribution of Ameluz® in the U.S. is handled by its subsidiary
Biofrontera Inc. founded in March 2015. Since then, our U.S. sales team has grown to over forty employees. Our sales force is
supported by four scientific consultants, our Market Access and Managed Markets Team as well as a Customer Service Team. In
March 2019, Biofrontera acquired all shares of Cutanea Life Sciences, Inc. thereby expanding its portfolio in the USA with the
FDA-approved drug Xepi™.
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, the price and reimbursement status have to be determined before market
launch, which can be a lengthy process. In these countries the drug is available at pharmacy retail prices ranging from 150 EUR
to approximately 220 EUR per 2g tube.
In Europe, Ameluz® and BF-RhodoLED® have been marketed in Germany (since 2012), Spain (since 2015) and the United Kingdom
(since May 2018) by a dedicated sales force. In other European countries, the products are distributed through distribution
partners: Denmark, Sweden, Norway, Austria, Switzerland and Liechtenstein as well as Israel. Independent approval procedures
were required in Switzerland and Israel, which were carried out by our local marketing partners in cooperation with Biofrontera.
The licensing agreements with distributors were structured in such a way that Biofrontera has received no or only a moderate
down payment and the regional partners buy Ameluz® from Biofrontera at a price that is linked to their own sales price.
Depending on the market conditions of a country, Biofrontera's share of the sales price varies significantly and ranges between
35% and 55% of net sales. Overall, however, marketing through Biofrontera's own sales forces has proven to be much more
successful in recent years, so that sales through distribution partners now account for only a small proportion of total sales.
Personnel matters
Management Board
As at December 31, 2019, the Management Board was comprised 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
64
52
57
Chair
Sales & Marketing
Finance
Date of first
appointment
2000
2016
2013
Term
Oct. 31, 2020
Nov. 30, 2020
Nov. 30, 2020
* On January 31, 2020, Mr. Christoph Dünwald resigned from his position as Chief Commercial Officer (CCO).
Employees
As of December 31, 2019, 174 (previous year: 157) employees were working in the Biofrontera Group, distributed as follows:
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Biofrontera AG Annual Report 2019
Company
Biofrontera AG
Biofrontera Bioscience GmbH
Biofrontera Pharma GmbH*
Biofrontera Inc.
* includes the subsidiaries in Spain and the UK
Employees
as of December 31, 2019
Employees
as of December 31, 2018
30
19
52
73
28
18
49
62
Biofrontera Development GmbH and Biofrontera Neuroscience GmbH do not employ any staff.
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.
Supervisory Board
In 2019, the Supervisory Board comprised the following members as representatives of the shareholders:
Name
Nationality
Age
Position
Dr. Ulrich Granzer
Jürgen Baumann
John Borer
Reinhard Eyring
Hansjörg Plaggemars *)
Prof. Dr. Franca Ruhrwedel
Kevin Weber
German
German
USA
German
USA
German
USA
60
66
63
62
50
47
61
Chair
Deputy Chair
Member
Member
Member
Member
Member
Date of first
appointment
May 12, 2006
May 24, 2007
May 31, 2016
February 2, 2018
Term
2021
2021
2021
2021
May 31, 2016
until Mar 22, 2019
July 10, 2019
May 31, 2016
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 March 22, 2019. Pursuant to a decision of the Local Court of Cologne on March 22, 2019, Mr. Hansjörg Plaggemars was dismissed
as a member of the Supervisory Board of Biofrontera AG in accordance with Section 103 (3) of the German Stock Corporation Act for good
cause. The resolution was issued on March 22, 2019 and came to the attention of the Company on March 26, 2019. The dismissal resolution
is effective immediately. However, it was possible to lodge an appeal within one month, which was granted. The appeal was rejected by
Cologne Local Court on April 30, 2019 and the proceedings were referred to the Higher Regional Court for further decision. The Cologne
Higher Regional Court finally dismissed the appeal on 29 August 2019. The Annual General Meeting on 10 July 2019 elected Prof. Dr. Franca
Ruhwedel, Professor of Finance and Accounting at Rhine-Waal University of Applied Sciences, Kamp-Lintfort, resident in Duisburg, to the
Supervisory Board as successor to Mr. Plaggemars.
Research and development projects
All research and development activities of the Biofrontera Group regarding the nanoemulsion and Ameluz® are carried out by
Biofrontera Bioscience GmbH, which is responsible for clinical studies as well as for the granting, maintenance and expansion of
our approvals. Responsibility for the project management of all development activities is assumed internally; individual tasks
such as data management and statistics are partially or completely outsourced. The number of employees at Biofrontera
Bioscience GmbH increased from 18 in 2018 to 19 in the reporting year. The development of the new red-light lamp BF-RhodoLED®
XL is the responsibility of Biofrontera Pharma GmbH, which employed 52 people in 2019 (previous year: 49).
Research cooperation with Maruho Co., Ltd.
On March 19, 2019, the Company signed an agreement to continue its research collaboration with Maruho Co., Ltd. of Osaka,
Japan (Maruho) for the development of branded generics. As part of the new project phase, Biofrontera has prepared the
formulation of one of four active ingredients investigated in an earlier project phase (phase 1) using Biofrontera's nanoemulsion
for entry into the clinical phase.
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In addition, on March 3, 2020 the company and Maruho signed a binding term sheet for a future licensing agreement for Ameluz®
in East Asia and Oceania. With respect to the potential label extension of Ameluz® for acne, Biofrontera has prepared a
corresponding development plan for the indication extension and received feedback from the FDA on the design of the necessary
clinical trials. This will allow the study program to start in 2020.
Phase III study for the treatment of actinic keratoses on the extremities or trunk/neck
Based on the positive assessment of the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines
Agency (EMA) in February 2020, the European Commission granted the formal extension of approval in March 2020. The extended
approval of Ameluz® now also includes the treatment of mild and moderate actinic keratoses (AK) on the extremities and
trunk/neck with photodynamic therapy (PDT).
As a prerequisite for the label extension of Ameluz® to include the treatment of mild and moderate AKs on the extremities as
well as trunk/neck with conventional PDT using Ameluz® and the BF-RhodoLED® lamp, Biofrontera carried out a phase III study
with 50 patients. The multi-center, randomized, double-blind, intra-individual study was conducted in six study centers in
Germany, with each patient showing four to ten clinically confirmed AK lesions in comparable areas on the right and left side of
the extremities and/or trunk/neck. The final investigation of the primary endpoint was conducted three months after the last
PDT. The results for the primary regulatory endpoint published in a press release by Biofrontera on March 20, 2019 showed that
Ameluz® was significantly superior (p<0.0001) to placebo based on an average total lesion clearance rate of 86% compared to
33%. Significant superiority of Ameluz® was also demonstrated for all secondary parameters. In this study, the average lesion
recurrence rate after 12 months of Ameluz® treatment was 14.1% compared to 27.4% after placebo.
Based on these results, Biofrontera has also started discussions with the US Food and Drug Administration (FDA) about an
expanded approval of Ameluz® in the USA, to include the treatment of AK on the extremities and trunk/neck. The FDA provided
positive feedback and proposed an additional clinical trial to include additional body regions into the label of the Ameluz ®. The
study protocol is currently being developed according to FDA guidance, with patient recruitment expected to start in the second
half of 2020.
Following consultation with the FDA, Biofrontera has also initiated a pharmacokinetics study (PK study) to test the safety of PDT
using three tubes of Ameluz® at the same time. The aim of this phase I study is to obtain pharmacokinetic profiles following an
Ameluz® PDT in patients with AK in an extended treatment area in the face/head or peripheral area. In addition, safety and
tolerability for the patient during and after treatment will be investigated. Patient recruitment is expected to take 3-5 months
and the Phase I study should be completed in the third quarter of 2020.
Development of the BF-RhodoLED® XL
The reporting period marked the main development phase of the new lamp BF-RhodoLED® XL. The future use of the BF-RhodoLED®
XL will allow the application of Ameluz® on larger areas as well as the simultaneous exposure of several interspersed lesions.
Furthermore, the BF-RhodoLED® XL will offer a significantly improved user experience with highly customizable settings.
Combined with a modern and high-quality design, we expect strong customer acceptance, especially in the USA, and thus an
increase in Ameluz® sales. The company expects to submit the application for approval to the FDA during the second half of
2020.
Phase III study for the treatment of superficial basal cell carcinoma (BCC) with Ameluz® in combination
with our red-light lamp BF-RhodoLED® in the USA
To further increase our growth potential in the US market in the medium term, we are currently conducting a clinical trial in the
USA for the treatment of superficial basal cell carcinoma (BCC) with Ameluz® in combination with our BF-RhodoLED® lamp. We
have been working intensively on patient recruitment since September 2018. However, due to the extremely demanding study
protocol mandated by the FDA, the recruitment process will likely take a considerable amount of time. Following successful FDA
approval, Ameluz® would be the only drug in the United States for the treatment of superficial BCC with PDT.
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Biofrontera AG Annual Report 2019
Patent and trademark development
The company maintains three 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, 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 pending in the United Arab Emirates and the USA. The patent in India and the patent application
in Brazil were discontinued in 2019.
On November 12, 2019, protection for the patent family, describing the combination of nanoemulsions with aminolaevulinic acid
hydrochloride, the active ingredient in Ameluz®, expired. However, Ameluz® continues to be protected by the nanoemulsion
technology patent family, which also continues until December 2027, although the corresponding patent application in the USA
is still pending. This patent has not yet been and may never be granted in the US and thus would not provide patent protection
for Ameluz® in this market. 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®, additional patent applications have been submitted (see below).
Migraine prophylaxis BF-1
An international patent application regarding anti-migraine compounds and their use was submitted to the World Intellectual
Property Organization. While the U.S. patent has been granted, expiring in January 2034, the EU patent assessment is ongoing.
Photodynamic therapy
A new Patent Cooperation Treaty (PCT) application "Improved Photodynamic Therapy" was filed with the European Patent Office
(EPO) on August 23, 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.
Another international patent application titled "Illumination for photodynamic therapy" was filed with the EPO on June 5, 2019.
This application was registered under the official file number PCT/EP2019/064642. Again, all states which were contracting states
of the PCT at the date of filing of the PCT application were listed in the application.
Xepi™
The drug XepiTM, in-licensed by Biofrontera, is protected by two patent families in the USA as well as other countries. As far as
the USA is concerned, patent protection exists for the composition of XepiTM until January 29, 2032 and for the treatment of
impetigo, for which it is approved, until December 15, 2029 (for more information see section "Products").
Internal controls
Biofrontera AG is managed by its Management Board. The Management Board is responsible for and supervises the operational
business. To this end, the Management Board regularly receives and reviews internal management reports.
Key performance indicators are compiled on a monthly basis, while the budget planning for the current financial year is revised
and updated quarterly. In addition, medium-term planning is prepared once a year. An in-depth cost analysis is performed on an
ongoing basis.
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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, revenue is the key performance indicator, which is reported by region and product. On a
consolidated basis, revenues include sales to wholesalers, doctors and hospitals, sales to our licensing partners and revenues
from research contracts.
Profit from operating activities measures the operating profitability of the Company independently of the financial structure
and local taxation, which allows the performance indicator to be used for international comparison with other companies.
In addition, liquidity trends are utilized as an important key indicator and management metric and is monitored on a daily basis.
Liquidity is defined as the sum of cash and cash held in bank account and is described as cash and cash equivalents.
Non-financial performance indicators
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
maintenance of our regulatory approvals and the expansion of our labels as well as the number of external and internal audits
are important non-financial control parameters for the company.
The employees of Biofrontera are an important success factor and therefore also represent a central control parameter. With
respect to personnel, particular emphasis is placed on the qualifications and the necessary know-how of the employees in order
to achieve the set goals in the operational and administrative areas. We therefore measure the annual expenditure on training
and professional development as well as the number of training activities. Personnel costs are always assessed in line with the
salary levels customary in the industry.
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Biofrontera AG Annual Report 2019
Economic and business report for the fiscal year 2019
Business performance
In the 2019 financial year, Biofrontera continued to significantly increase product sales. However, with consolidated revenues of
31.3 million euros and an increase in sales of around 48%, growth was below our initial expectations. As a result, we had to adjust
our annual forecast during the year from originally EUR 35 to 40 million to EUR 28 to 31 million. In Germany, our revenues
increased by around 40% to EUR 4.6 million, while in the USA revenues from product sales amounted to EUR 23.3 million, up
around 57% from the previous year. In Spain, due to the growth in sales volume, a slight increase in sales was recorded despite
a 27% price reduction imposed by the government. In the UK, improvements were achieved in particular in access to the major
hospitals.
The most important growth driver continues to be our US business, where we already generate around 75% of total sales. Here,
growth resulted primarily from further expansion of our sales and distribution infrastructure and improved reimbursement for
the work performed by dermatologists using PDT. In 2019, the reimbursement, which is based on so-called CPT codes, was
increased again, improving the positioning of PDT as a treatment option. Due to the typical seasonal nature of the business, the
growth momentum in our most important market had slowed somewhat over the summer. Still, we were able to generate record
sales in the fourth quarter of 2019 making it the best quarter in the company's history.
An estimated 40 million Americans develop actinic keratoses every year. We anticipate that the market share of Ameluz® within
the PDT segment in the US will continue to grow steadily.
We expect a further sustained growth acceleration in the USA once two existing competitive disadvantages of Ameluz® relative
to the competitor product are eliminated: Initially, our current approval only allows the reimbursement of one tube per
application. Biofrontera is working diligently on improving the reimbursement modalities, as well as on extending the label to
include the treatment of actinic keratoses on the extremities, trunk and neck. For the latter, Biofrontera will soon initiate another
clinical trial in the USA with the aim of obtaining a corresponding extension of the approval. In order to ensure the
reimbursement of several tubes for the treatment of larger body regions in the periphery, Biofrontera is currently planning a
pharmacokinetics study to prove the safety of the treatment with three tubes of Ameluz®. The study is expected to be completed
in the second half of 2020.
To overcome the second competitive disadvantage - our in comparison to the competitor's product small PDT lamp BF-
RhodoLED® - Biofrontera is currently developing the new lamp "BF-RhodoLED® XL", which will allow the use of Ameluz® on larger
areas. We expect the market launch of this new medical product to further boost sales of Ameluz®. The application for approval
by the FDA is expected to be submitted in the second half of 2020.
To further increase our growth opportunities in the U.S. market in the future, we are working on expanding the U.S. label for
Ameluz® to include superficial basal cell carcinoma (BCC). Since September 2018, we have been working intensively on patient
recruitment for the Phase III study already underway; we expect the study results in 2021. Following successful FDA approval,
Ameluz® would be the only PDT-drug available in the United States for the treatment of superficial BCC.
We also believe that the agreement with the U.S. Department of Veterans Affairs (VA) will provide further long-term business
opportunities for us. With many young doctors being trained in VA hospitals and being able to experience Ameluz®- PDT, we will
be able to use this platform to educate a new group of opinion leaders and innovation drivers in dermatology about the
advantages of PDT in combination with Ameluz®. Despite the currently still very low business volume, the VA market remains a
strategically important market.
Through the acquisition of Cutanea Life Sciences, Inc. (Cutanea) in March 2019, Biofrontera was able to expand the product
portfolio in the USA with the FDA-approved drug XepiTM. XepiTM is the first topical antibiotic in the USA that has been approved
by the FDA in about 10 years. The approval also includes the treatment of infections with antibiotic-resistant bacterial strains
such as MRSA and is expressly approved by the FDA for infections with such bacteria. In total, around 10 million prescriptions
for drugs in indications where XepiTM may be effective are issued annually in the USA, a significant proportion of which are by
dermatologists. We therefore see very considerable growth potential for XepiTM. The integration of Cutanea was completed by
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29
the end of the 2019 financial year. While the great market potential of Xepi™ will continue to be exploited and the marketing
strategy further optimized, Ameluz® will remain our most important product in the near future.
In Germany, the largest European market for Ameluz®, the market share of Ameluz® within the PDT drug segment was
approximately 57% in 2019, compared to approximately 52% in the previous year. As a result of the further establishment of
daylight PDT, Ameluz® continued to prove itself as a strong leader in the PDT market compared to its competitors' products. We
estimate that daylight PDT will continue to capture additional market share that was previously reserved for self-applied topical
creams. It is particularly interesting to note that Ameluz® is reimbursed by the public health insurance companies when
prescribed for daylight PDT. Consequently, the number of patients who have access to treatment with Ameluz® has multiplied.
This is also reflected in an approximately 27% increase in prescriptions of Ameluz® in Germany last year.
Sales growth also increased steadily in Spain. Back in July 2018, we had to accept a significant price reduction of 27% in order
to maintain reimbursement for Ameluz® in the Spanish national health system. However, a rapidly growing number of Ameluz®
prescriptions, i.e. the number of tubes sold, more than compensated for the price reduction and enabled us to achieve sales
growth of about 10%.
In the United Kingdom, distribution is currently focused on hospitals, especially on the administrative steps required to add
Ameluz® to the lists of approved drugs in the respective hospital pharmacies, the so-called formularies. In some major hospitals,
Ameluz® is now rated as the first choice of PDT drug for the treatment of AK and BCC ahead of the competitor product. These
successes are already beginning to translate into sales figures. Overall, however, the UK still plays a minor role as a source of
revenue.
In other European countries, sales have decreased slightly overall due to declining shipments to license partners.
Based on the positive results of the phase III – trial on the safety and efficacy of Ameluz® in combination with Biofrontera's red
light lamp BF-RhodoLED® for the treatment of actinic keratoses on the extremities as well as the trunk and neck, the application
for label expansion for Ameluz® was submitted to the EMA in fall 2019. Following the positive opinion of the Committee for
Medicinal Products for Human Use (CHMP) of the EMA on February 3, 2020, the European Commission formally granted the
extension of the approval on March 10, 2020. In addition, the results of the follow-up phase of the clinical study comparing
daylight PDT with Ameluz® and Metvix® were included in the product information (SmPC). Substantially lower recurrence rates
of Ameluz® compared to the competing products Metvix® and Luxerm® once again confirm the superiority of our drug. The
company expects further sales growth in Europe as a result of the label expansion.
We were also able to make further progress in the research cooperation with Maruho Co. Ltd. for the further development of
branded generics based on our nanoemulsion technology. All necessary studies and manufacturing steps for entry into the
clinical phase have been initiated. Branded generics represent a sensible addition to our product portfolio in the future. With
Maruho we have found a long-term and reliable partner for the development of such products.
The Biofrontera Group's earnings before taxes in the 2019 fiscal year amounted to -4.8 million euros, compared to -19.3 million
euros in the previous year.
In the HGB individual financial statements, Biofrontera AG shows a net loss for the year of 2.0 million EUR (previous year: loss of
9.1 million EUR).
Biofrontera Group financial position and performance
As of December 31, 2019, the scope of consolidation of the Biofrontera Group include Biofrontera AG, as well as the subsidiaries
Biofrontera Bioscience GmbH, Biofrontera Pharma GmbH, Biofrontera Development GmbH, Biofrontera Neuroscience GmbH and
Biofrontera Inc. Cutanea Life Sciences, Inc. and its subsidiaries Dermarc LLC and Dermapex LLC were fully consolidated at the
time of acquisition on March 25, 2019. By the end of the financial year, the companies of Cutanea Life Sciences, Inc. as well as
Biofrontera Newderm Inc. were merged into Biofrontera Inc.
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Biofrontera AG Annual Report 2019
Results of operations of the Biofrontera Group
in EUR thousands
Sales revenue
Gross profit on sales
Research and development costs
General administrative costs
Sales and marketing costs
Loss from operations
Interest expenses and income
Other expenses
Other income due to PPA (badwill)
Other income
Loss before income tax
Income tax
Loss after income tax
2019
31,265
26,390
(4,636)
(16,275)
(28,856)
(23,377)
(2,584)
(799)
14,812
7,171
(4,777)
(2,581)
(7,358)
2018
21,107
16,656
(4,427)
(12,963)
(17,744)
(18,478)
(1,760)
(332)
-
1.301
(19,269)
10,391
(8,878)
Impact of the Cutanea consolidation on the results of operations
Since the acquisition of Cutanea, revenues from Xepi™ and Aktipak® amount to EUR 822 thousand in the financial year 2019.
The operating loss derived from Cutanea amounts to EUR 8,669 thousand. This is offset by income from the reimbursement of
costs from Maruho for the restructuring carried out in the amount of EUR 6,215 thousand, which is reported under other income.
Sales revenue
In the 2019 reporting year, the Biofrontera Group achieved total sales of EUR 31,265 thousand, an increase of 48% compared to
the previous year (previous year: EUR 21,107 thousand). Revenues from product sales increased by almost 46% to EUR 30,579
thousand compared to the previous year (previous year: EUR 20,938 thousand). Sales in the USA continued to develop positively
in the 2019 financial year, but still fell short of our expectations. Sales there increased by 57% to a total of EUR 23,343 thousand
(previous year: EUR 14,894 thousand). This includes sales of EUR 822 thousand from XepiTM and Aktipak®. The growth was due to
the continued expansion of our sales structures and improvements in the reimbursement of PDT for dermatologists in the USA.
Sales in Germany improved by 40% to EUR 4,633 thousand (previous year: EUR 3,307 thousand). The increase in sales in Germany
is mainly due to the introduction of daylight PDT approved in March 2018. In other European countries, total sales declined
slightly by 5% to EUR 2,603 thousand (previous year: EUR 2,737 thousand), which is primarily due to declining deliveries to
license partners. Revenues from other regions mainly relate to revenues from research cooperations and amounted to EUR 686
thousand (previous year: EUR 169 thousand).
Biofrontera AG Annual Report 2019
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31
31
169
2,737
3,307
14,894
2018
686
2,603
4,633
23,343
2019
USA
Germany
Europe (excl. GER)
Other regions
in EUR thousands
Gross profit on sales
In the 2019 reporting year, gross profit on sales increased by EUR 9,734 thousand, to reach EUR 26,390 thousand, compared with
EUR 16,656 thousand in the prior-year period. The gross margin improved from 79% in 2018 to 84% in 2019.
in EUR thousands
17,744
12,963
4,427
2018
28,856
16,275
4,636
2019
Research & development costs
General administrative costs
Sales and marketing costs
Research and development costs
Research and development costs of EUR 4,636 thousand in the reporting period were slightly above the previous year's level
(EUR 4,427 thousand) and include the costs of clinical studies, but also the costs of regulatory affairs, i.e. the granting,
maintenance and expansion of our approvals.
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Biofrontera AG Annual Report 2019
General administrative costs
General and administrative expenses amounted to EUR 16,275 thousand in the 2019 financial year (previous year: EUR 12,963
thousand) and thus increased by a total of EUR 3,312 thousand compared with the previous year, in particular due to the initial
consolidation of Cutanea. Legal and consulting costs increased to EUR 6,929 thousand (previous year: EUR 6,230 thousand).
Sales and marketing costs
Sales and marketing costs totaled EUR 28,856 thousand in the 2019 financial year, a significant increase over the previous year
(EUR 17,744 thousand). This was due to the costs for the further expansion of our US sales organization as well as sales costs
incurred at Cutanea (EUR 5,906 thousand). Sales costs include the costs for our own sales force in Germany, Spain, Great Britain
and the USA as well as marketing expenses.
Loss on operations
The loss from operating activities of EUR 23,377 thousand fell by EUR 4,899 thousand compared with the previous year (EUR
18,478 thousand), primarily due to the first-time consolidation of Cutanea. Of this amount, EUR 8,669 thousand is attributable to
Cutanea, which is offset by cost reimbursements from Maruho of EUR 6,215 thousand included in other income. The loss on
operations includes the costs of the restructuring of Cutanea and the costs of setting up sales of Xepi™.
Interest expenses
Interest expenses totaled EUR 2,711 thousand (previous year: EUR 1,784 thousand) and mainly comprise higher interest expenses
for the EIB loan, which was increased by a further tranche in February 2019, and the fair value adjustment to the purchase price
liability for Cutanea in the amount of EUR 650 thousand. Interest income in the 2019 reporting period amounted to EUR 127
thousand (previous year: EUR 24 thousand).
Other income and expenses
Other expenses and income totaled EUR 21,184 thousand in the reporting period (previous year: EUR 969 thousand). This includes
the negative difference arising from the purchase price allocation of the asset and liability items carried at fair market value in
the amount of EUR 14,812 thousand. This item also includes cost reimbursements from Maruho of EUR 6,215 thousand based on
the Share Purchase Agreement.
Income taxes
The income tax expense results primarily from the use of the tax loss carryforwards of Biofrontera Pharma GmbH (EUR 256,000)
and due to the reduction in the municipal business tax rate of the city of Leverkusen with effect from January 1, 2020 (EUR
2,350,000). In the previous year, income from the first-time capitalization of deferred taxes on loss carryforwards was reported.
Net assets of the Biofrontera Group
The acquisition of Cutanea is reflected in particular in the higher non-current assets (XepiTM license) and the purchase price
liabilities reported under non-current liabilities. The net assets position as of December 31, 2019 is as follows:
in EUR thousands
Non-current assets
Current financial assets
Other current assets
Total assets
Equity
Biofrontera AG Annual Report 2019
Biofrontera AG Geschäftsbericht 2016
31/12/2019
31/12/2018
35,872
17,227
5,264
58,363
9,955
11,546
23,642
3,945
39,133
16,356
33
33
in EUR thousands
Non-current liabilities
Current financial liabilities
Other current liabilities
Total equity and liabilities
Non-current assets
31/12/2019
31/12/2018
36,830
5,507
6,071
58,363
15,007
2,000
5,770
39,133
The non-current assets as of December 31, 2019 in the total amount of EUR 35,872 thousand (December 31, 2018: EUR 11,546
thousand) include deferred taxes on tax loss carryforwards of Biofrontera Pharma GmbH totaling EUR 7,794 thousand, tangible
assets of EUR 5,230 thousand and the acquired Xepi™ license valued at EUR 22,078 thousand.
Current financial assets
Current financial assets amounted to EUR 17,227 thousand as of December 31, 2019 (December 31, 2018: EUR 23,642 thousand).
This includes cash and cash equivalents of EUR 11,119 thousand (December 31, 2018: EUR 19,451 thousand), trade receivables of
EUR 5,031 thousand (December 31, 2018: EUR 3,397 thousand) and other current financial assets in the amount of EUR 1,077
thousand (December 31, 2018: EUR 794 thousand).
Other current assets
Other current assets mainly include inventories, which amounted to EUR 4,065 thousand (December 31, 2018: EUR 3,177 thousand).
Equity
The Biofrontera Group has equity amounting to EUR 9,955 thousand based on IFRS accounting principles (previous year: EUR
16,356 thousand). The equity ratio fell from 42% to 17%, in particular due to the increased balance sheet total as a result of the
Cutanea acquisition.
Non-current liabilities
Non-current liabilities increased primarily due to the recognized purchase price liability from the Cutanea acquisition (EUR 14,720
thousand), a further tranche of the EIB loan (EUR 5,301 thousand) as well as liabilities from finance leases (EUR 2,987 thousand).
Current financial liabilities
Current financial liabilities include mainly trade payables in the amount of EUR 4,196 thousand (31.12.2018: EUR 1,806 thousand)
and increased due to legal and consulting fees, among other things.
Other current liabilities
Other current liabilities amounted to EUR 6,071 thousand (December 31, 2018: EUR 5,770 thousand) and relate in particular to
other provisions and other current liabilities, which are almost unchanged with the previous year.
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 liquidity at their disposal.
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Biofrontera AG Annual Report 2019
in EUR thousands
Statement of cash flows
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Liquidity/Cash and cash equivalents
Non-current financial liabilities
Current financial debt
Net liquidity
2019
2018
(32,894)
21,053
3,455
11,119
22,110
1,212
(12,203)
(13,434)
(511)
22,274
19,451
13,462
165
5,824
The net cash flow from operating activities, which decreased by EUR 19,460 thousand to EUR -32,894 thousand, resulted almost
exclusively from the restructuring of Cutanea. Adjusted for the effects of EUR 22,814 thousand financed by Maruho, the net cash
flow from operating activities would have been EUR -10,080 thousand.
The net cash flow from investing activities of EUR 21,053 thousand includes EUR 22,814 thousand in cash and cash equivalents
taken over as part of the acquisition and start-up costs from Maruho, which were used to finance the restructuring and to set
up sales activities of XepiTM.
The net cash flow from financing activities amounted to EUR 3,455 thousand (previous year: EUR 22,274 thousand) and includes
the drawdown of the further tranche of the EIB loan (EUR 5,000 thousand) and, in particular, lease payments (EUR 1,183 thousand).
The previous year's net cash flow from financing activities resulted primarily from payments received from the issue of new
shares with gross issue proceeds totaling EUR 24,000 thousand.
The financial liabilities from the convertible bond 2017/2022 and the EIB loan have different maturities up to a maximum of 2024.
The convertible bond 2017/2022 (EUR 1,977 thousand) and the first EIB tranche (EUR 11,845 thousand) will mature in 2022. The
second EIB tranche (EUR 5,301 thousand) is due in 2024, and annual purchase price payments for the acquisition of Cutanea are
expected from 2022 to 2030 depending on future profits from the sale of XepiTM.
The EIB loan is unsecured and guaranteed by our major subsidiaries. The loan has three different interest components. A variable
interest component, which provides for quarterly interest payments on the outstanding amounts based on the 3-month EURIBOR
rate plus a risk premium, a fixed component of 6% p.a., which is due at the end of the term, and a so-called performance
component, which is also due at the end of the term and which depends on the market capitalization of Biofrontera AG, but is
capped at an interest rate of 4% p.a.
Cash and cash equivalents
Cash and cash equivalents totaled EUR 11,119 thousand as of December 31, 2019 (December 31, 2018: EUR 19,451 thousand).
Biofrontera AG financial position and performance
Results of operations of Biofrontera AG
in EUR thousands
Sales revenue
Other operating income
Personnel costs
Depreciation and amortization
Other operating expenses*
Other interest and similar income
Interest and similar expenses
Biofrontera AG Annual Report 2019
Biofrontera AG Geschäftsbericht 2016
2019
7,919
498
(3,395)
(29)
(8,474)
3,435
(1,987)
2018
3,019
897
(3,028)
(31)
(10,929)
2,676
(1,676)
35
35
in EUR thousands
Other taxes
Net loss for the year
2019
(1)
(2,034)
2018
(1)
(9,073)
* There will be no reclassification of other operating expenses to cost of materials in 2019. To improve comparability, the
previous year's figure has been adjusted in the presentation of the results of operations.
The increase in sales revenues reported in the single-entity financial statements prepared in accordance with German
commercial law (HGB) is the result of higher revenues from services and costs passed on within the Group.
As part of the further development of business activities, additional employees were hired and resulted in higher payroll
expenses in the year under review.
Operating expenses decreased, in particular due to lower financing costs at Biofrontera AG. 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 EIB
loan.
The net loss for the year decreased to EUR 2,034 thousand due to the increased sales and simultaneously lower operating
expenses.
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 2019
31 December 2018
32,262
97,165
3,926
285
133,638
109,604
4,026
2,031
16,900
1,077
133,638
32,270
80,605
16,147
367
129,389
110,408
4,732
2,595
10,990
664
129,389
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 decreased from EUR 16,147 thousand in the previous year to EUR 3,926 thousand in 2019. For
further details on the financial position, please refer to the presentation of the consolidated financial position.
As of December 31, 2019, Biofrontera AG has equity in accordance with the German commercial law of EUR 109,604 thousand
(previous year: EUR 110,408 thousand).
The provisions essentially include provisions for litigation costs of EUR 2,523 thousand (previous year: EUR 3,489 thousand) and
provisions for the performance component of the EIB loan (EIB) of EUR 838 thousand (previous year: EUR 467 thousand).
The bonds include the 2017/22 convertible bond. The increase in liabilities to banks is due to the interest payable at the end of
the term on the loan provided by the EIB as well as another drawdown on the EIB loan in the amount of EUR 5,000 thousand.
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Biofrontera AG Annual Report 2019
Assessment of the financial position
In the single-entity financial statements of Biofrontera AG, liquidity amounts to EUR 3,926 thousand compared to EUR 16,147
thousand in the previous year. The reduction is mainly due to the continued transfer of funds to subsidiaries. In 2019, the liquidity
of the Group decreased by EUR 8,332 thousand to EUR 11,119 thousand. The decrease is due to the operating losses.
With regard to the future development of the financial position and the associated risks threatening the going concern status,
we refer to the disclosures in the Risk and Opportunity Report in the section on liquidity, profitability, capital market access and
risks to the going concern status.
Comparison of actual and forecast business performance
The financial performance of the Biofrontera Group in 2019 was below expectations. 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 from operating activities
Loss before income tax
Forecast 2019
(without Cutanea)
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
Revised
Forecast 2019
EUR 28 to 31 million
EUR 4 to 6 million
Target achievement
as of 31/12/2019
including Cutanea
EUR 31.3 million
EUR 4.6 million
EUR 16.3 million
EUR 28.9 million
EUR 23.4 million
EUR 4.8 million
Assessment of the business performance by the Management Board
As in past financial years, Biofrontera has again succeeded in increasing product sales in 2019. However, with an increase in
sales of around 48%, growth was below our initial expectations, so that we had to adjust our annual forecast during the year
from EUR 35 to 40 million to EUR 28 to 31 million. However, due to a strong 4th quarter, we were able to slightly exceed the most
recent forecast.
All in all, we have achieved revenues of over EUR 31 million. This is primarily due to the continued dynamic growth in our top-
selling market, the USA. The EU label extension to include daylight PDT had a positive effect on sales growth in Europe.
At EUR 4.6 million, research and development costs remained slightly below the original forecast. This is mainly due to lower
costs for clinical studies, such as the phase III study for the label extension to BCC in the USA as a result of slower patient
recruitment.
At EUR 16.3 million, general administrative expenses were significantly higher than forecast. Expenses include the budgeted
increase in administrative costs, particularly in the USA due to the expanded business activities, as well as administrative costs
of Cutanea Life Sciences, Inc.
At just under EUR 29 million, sales and marketing costs in fiscal year 2019 were well above guidance. As planned, Biofrontera
continued to invest in marketing and sales activities in the USA in 2019. The increased expenses are due to the restructuring of
Cutanea and the development of sales for XepiTM.
The operating loss of EUR 23 million is lower than forecast, mainly due to the first-time consolidation of Cutanea and lower than
expected sales. However, this result is offset by cost reimbursements from Maruho reported as other income.
At just under EUR -4.8 million, earnings before taxes are in line with the most recent forecast. This includes positive effects from
the difference between the values of the asset and liability positions of Cutanea (badwill) determined as part of the purchase
price allocation for the first-time consolidation of Cutanea Life Sciences Inc in the amount of EUR 14,812 thousand.
Biofrontera AG Annual Report 2019
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37
Outlook
Business environment and forecast
The coronavirus pandemic, which is continuing to worsen around the world, is causing massive disruptions in global supply
chains, consumer markets and the economy as a whole. Developments in the wake of the pandemic are both very dynamic and
severely limit predictability.
The IFO Institute explains: "A precise prediction of the economic costs of the corona crisis is almost impossible at this point in
time, given the high level of uncertainty about the continuing spread of the virus and, in particular, the measures taken by
governments to contain the pandemic. Moreover, there is no historical experience of comparable events from which probable
crisis patterns could be derived. Finally, very few economic indicators are currently available that would allow an assessment
of the macroeconomic impact of the corona crisis. The corona pandemic has rendered all previously made forecasts obsolete.”
It is currently impossible to predict how the economy will develop worldwide, in Europe and in Germany. Central banks and
governments have announced extensive plans of action. However, it is certain that the outbreak of the corona virus has had a
significant impact on the prospects of the global economy.
The special opinion report of the German Council of Economic Experts published on March 30, 2020, describes three scenarios
for economic development in the years 2020 and 2021. They differ in how long and to what extent the restrictive health policy
measures will continue and how quickly a recovery will take place afterwards. In all three scenarios, the spread of the
coronavirus puts an abrupt end to the emerging economic recovery, so that a recession in Germany in the first half of 2020 will
be unavoidable. In the base scenario, the German Council of Economic Experts expects average annual decrease in gross
domestic product (GDP) of 2.8 % in 2020. In 2021, GDP could increase by 3.7 %. In the base scenario, which according to current
information is the most likely scenario, the economic situation will return to normal over the summer. The risk scenario with a
course in the form of a more pronounced V would occur, for example, in the event of large-scale production shutdowns or longer-
lasting health policy measures. Due to the more severe slump in the first half of the year, this scenario would result in GDP
decrease of 5.4 % in 2020. In 2021, catch-up effects could ensure that GDP grows by 4.9%, to which the high statistical overhang
would contribute in particular. The risk scenario in the form of a long U could occur if health policy measures continue beyond
the summer and the economic recovery does not materialize until 2021. The policy measures taken may then not be sufficient
to prevent profound damage to the economic structure. Worsening financing conditions and entrenched uncertainty could also
slow down investment and lead to a reluctance to spend on the part of households. In such a scenario, GDP decrease in 2020
would be 4.5 %. In 2021, economic output would grow more slowly at 1.0 %.
In a publication on March 27, 2020, Deloitte describes the possible impact of the COVID-19 crisis on the development of the US
economy. In two scenarios, Deloitte assumes that the spread of the disease will recede at the beginning of May and that the US
population can return to normal activities in late spring and summer 2020. In the third, the most unlikely scenario, the COVID-19
crisis will continue to affect economic activity for over a year. In the most likely scenario, once the disease is under control,
economic recovery is expected to begin by the end of 2020. An aggressive monetary and fiscal policy helps to get the recovery
underway, similar to the economic recovery in other countries. GDP growth falls to a negative 8.3 % in 2020, but starts to recover
in 2021 and rises rapidly in 2022 and 2023 before settling at a long-term level of 1.6 %. The second scenario assumes a financial
crisis and deep recession, as the COVID-19 outbreak affects both the supply and the demand side of the economy. The economy
shrinks to GDP growth of -15.6% in 2020, rapid and substantial fiscal and monetary policy interventions create enough demand
to lift the economy out of recession by mid-2021 and a strong recovery occurs in 2022, when GDP could grow by 12.5%. In the
third possible scenario of the impact on the US economy, Deloitte predicts GDP growth of -11.0% in 2020 and high unemployment
in the range of -0.4% in 2021. Growth then rises to at least 3% or more by 2023 and remains high for another year due to pent-
up demand for high-priced consumer goods combined with very conservative monetary and fiscal policies.
Chronic diseases such as actinic keratosis are currently not the main focus of medical attention. As it is currently impossible to
foresee how long and how strongly the pandemic will affect the economy, no reliable estimate or more precise quantification
of the specific implications for sales and earnings can be made for the 2020 financial year. For this reason, Biofrontera's ability
to forecast is significantly impaired at this time. In its initial budget for the 2020 financial year, the Group had assumed a 25%
increase in revenue compared to the previous year, and operating costs at approximately the same level as in the previous year.
However, the effects of the coronavirus pandemic may lead to a significant deviation from previous projections and to a
noticeable decline in sales compared to previous plans and possibly even compared to the previous fiscal year. The anticipated
reduced revenue will also have a negative impact on the profitability of the Group and the liquidity of Biofrontera AG as well as
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the Group in the 2020 financial year, as the lack of revenue may not be fully offset by cost reduction measures. At the same
time, the cost reduction measures already initiated and published on March 20, 2020 will continue. These measures include in
particular the introduction of short-time work in Germany and comparable measures in Spain and the UK, the reduction of the
workforce in the USA by almost 20% and mandatory unpaid leave for all employees in the USA. Steps to secure liquidity and
strengthen cash flow are given high priority.
Under the license agreement concluded with Maruho in April 2020, a one-time payment in the amount of EUR 6.0 million from
Maruho is to be received in the short term.
Long-term, structural growth drivers - including the reimbursement framework in the USA, the label expansions for Ameluz®
and, in Europe, the increasing acceptance of daylight PDT - remain intact. In fact, it is likely that they will accelerate once the
coronavirus crisis is overcome.
Planned regulatory progress
Patient recruitment for the phase III trial to extend the US approval to include BCC has already started in September 2018. Due
to the demanding study protocol imposed by the FDA, patient recruitment is proceeding slowly, prompting us to take various
measures in the past financial year to accelerate recruitment. Nevertheless, we do not expect the study results until 2021.
Following the recent label extension for Ameluz® in the EU, Biofrontera has also agreed with the US regulatory authority FDA on
a corresponding extension of the approval for Ameluz® in the USA, with the aim of obtaining approval for the treatment of AK
on the extremities and trunk/neck. The FDA provided positive feedback and requested additional clinical trials to approve the
label extension of Ameluz® for additional body regions.
Following consultation with the FDA, Biofrontera has initiated a pharmacokinetics study (PK study) in the USA in order to ensure
the reimbursement of several tubes of Ameluz® for the treatment of larger body regions in the periphery. The aim of this phase
I study is to obtain pharmacokinetic profiles following an Ameluz® PDT in patients with actinic keratosis in an extended treatment
area in the face/head or peripheral area. In addition, safety and tolerability for the patient during and after treatment will be
evaluated. Patient recruitment was planned to take 3-5 months and the phase-I trial is expected to be completed in the third
quarter of 2020. It is still unclear whether this timeline can be met due to the corona crisis.
To support this progress with an optimized light source, Biofrontera is developing a new lamp, the BF-RhodoLED® XL, which can
be used to illuminate larger areas of skin. The company plans to submit the approval applications in the second half of 2020.
In addition, on March 3, 2020, the company signed a binding term sheet for a research and development collaboration to expand
the indications of Ameluz® to include the treatment of moderate to severe acne, as well as negotiations for a marketing license
for Ameluz® in parts of Asia and Oceania by Maruho. With respect to the possible label extension of Ameluz® for acne, Biofrontera
has prepared a corresponding development plan and has received feedback from the FDA on the design of the necessary clinical
trials to allow the study program to start in 2020.
However, due to the corona crisis, there are considerable uncertainties whether all planned measures and activities can be
implemented as planned.
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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 2019 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 as well as the audit committee are
involved in Group-wide risk monitoring 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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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.
Risk reporting concerning financial instruments
In the ordinary course of business, the Group is exposed to currency and credit risks that may have an impact on its net assets,
financial position and results of operations.
Market risk
The current uncertain business outlook due to the COVID-19 pandemic may also affect the future valuation of certain assets and
liabilities of the company. Lower sales of XepiTM may lead to a different evaluation of the medium-term sales and earnings
prospects for XepiTM and consequently to a revaluation of the value of the XepiTM license on the balance sheet. The purchase
price liability to Maruho for future profits from the sale of Xepi™ is subject to market risk (earn-out) and depends on the amount
of profits generated.
Furthermore, in the event of a prolonged decline in business activity, the shelf life of already produced Ameluz® tubes may
expire and inventories may have to be destroyed.
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.
Interest rate risks
Biofrontera is subject to interest rate risks, which are deemed to be low, as the existing interest rate modalities for the respective
financings of the Biofrontera Group can usually be adjusted to market conditions in the short to medium term. The performance
component of the EIB loan is calculated based on the change in the market capitalization of the company, capped at 4%.
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Credit risk
The Group incurs a credit risk if transaction partners are unable to meet their obligations within the ordinary payment periods.
The maximum default risk on the balance sheet is represented by the book value of the respective financial asset. The
development of receivables is monitored in order to identify possible default risks at an early stage and initiate appropriate
measures.
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.
The acquisition of Cutanea Life Sciences, Inc. in March 2019 has enabled Biofrontera to market a FDA-approved drug that has
been introduced in the US market. Xepi™ is the next innovation for the American dermatology market to be commercialized by
Biofrontera. Increasing resistance to known antibiotics is a concern that is taken very seriously by American doctors. We are
convinced that with Xepi™ our portfolio now includes an innovative, promising product with a large market potential.
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.
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 in our
markets can influence the structures relevant for Biofrontera in the respective healthcare sector.
In addition to effects on individual markets, global crises may arise that could significantly affect Biofrontera.
Since the beginning of 2020, for instance, the novel coronavirus (COVID-19) has become a global pandemic. As a result of the
measures implemented by governments around the world, Biofrontera's business operations is directly affected. In particular,
there is a risk of a temporary and significant decline in demand for Biofrontera's products worldwide. The upkeep of business
processes may also be impeded by lower revenue, and if employees of the company or key suppliers contract an infection with
COVID-19.
The direct and indirect effects of the pandemic can have a negative impact on the company's liquidity position as the pandemic
develops. In addition, the success of required capital measures by the company could be jeopardized.
To this end, the company has taken immediate steps to mitigate these risks and to safeguard business processes by
implementing comprehensive cost reductions, emergency plans to maintain central processes and activities to protect
employees.
With regard to the risks that may threaten the going concern status, we refer to the disclosures in the Risk and Opportunity
Report, section Liquidity, profitability, capital market access and risks to the going concern status.
On February 1, 2020, the United Kingdom has left 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, this 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, the UK’s exit of the EU will impact regulatory requirements for products
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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.
Liquidity, profitability, capital markets access and risks to the going concern status
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.
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 group-wide liquidity planning in order to be able to take any necessary
measures in good time to achieve our targets.
In this connection, the company's going concern status 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 is
currently sufficiently financed due to the drawdown of several tranches totaling EUR 15 million from the European Investment
Bank loan as well as the one-time down payment in the amount of EUR 6 million from the licensing agreement with Maruho
signed in April 2020. The planned capital measure for March 2020 with a maximum total of up to EUR 16 million had to be cancelled
due to the turmoil on the capital markets as a result of the Corona crisis.
In order to finance its business operations for a further 12 months and beyond, Biofrontera is dependent on an additional
capital measure of at least EUR 5 million by no later than the end of the 2020 financial year. The Management Board expects,
based on the assumption that the general economic conditions will normalize and based on the consistently successful track
record with capital measures to date, that the required liquidity for the business can be ensured in the future. However, should
this no longer be possible due to a continuing crisis caused by the COVID 19 pandemic, this would pose a threat to the going
concern status of the Biofrontera Group.
Should the worldwide COVID-19 pandemic last longer than expected, it could lead to a drastic decline in liquidity of the Biofrontera
Group due to significantly reduced sales, despite the cost reduction measures that have been introduced, and also render further
access to financing on the capital market impossible. However, the Management Board currently assumes that following the end
of the current crisis, it will once again be possible to successfully implement appropriate capital measures.
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.
Research and 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
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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’s product portfolio currently contains two approved drugs, Ameluz®, which it markets in Europe and the USA and
Xepi™, which is limited to the US market and is still in its launch phase. A risk exists that neither Ameluz® nor Xepi™ may not be
established sufficiently or sustainably on the market. The consolidated financial statements are subject to the risk of impairment
for the acquired XepiTM license in the event that it is not sufficiently or sustainably established on the market.
Disadvantages over our competitors are also possible due to advantages regarding the indication spectrum of competing
products. Additional label expansions, for example, are initiated in order to gain competitive advantages.
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. In 2019, the
integration of Xepi™ in the product portfolio has already made a significant contribution to mitigating this risk.
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 time gap 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 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.
On November 12, 2019, protection for the patent family, describing the combination of nanoemulsions with aminolaevulinic acid
hydrochloride, the active ingredient in Ameluz®, expired. However, Ameluz® continues to be protected by the nanoemulsion
technology patent family, which also continues until December 2027, although the corresponding patent application in the USA
is still pending. This patent has not yet been and may never be granted in the US and thus would not provide patent protection
for Ameluz® in this market. 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®, additional patent applications have been submitted
Further information on patent litigation is provided separately in the "Litigation" section.
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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 side effects of our drugs 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.
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 as well as impairments of intangible assets.
Changes in the respective healthcare systems and changes in the reimbursement behavior of payors as well as market barriers
in the relevant markets may result in the risk of insufficient or unsustainable market penetration. The competitive position of
our products may also be adversely affected by product characteristics that are not optimally perceived in the respective market
in comparison with competing products. In addition, our products compete with other therapies. In the case of PDT with Ameluz®,
we compete with treatments such as simple curettage and, particularly in the United States, cryotherapy, which do not require
the use of a drug but have achieved significant market acceptance.
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 and 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
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.
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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. However,
this assessment could change significantly in the case of a change of control.
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.
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.
Insurance cover
The company may be subject to the risk of insufficient insurance coverage for the continuation of business operations in the
event of damage, for events affecting the company's assets or claims for damages due to product defects as well as actions by
the company and its employees. Biofrontera mitigates these risks as part of its risk analysis with regular reviews of the adequacy
of the relevant insurance cover.
Taxes
The future use of the tax loss carryforwards accrued to date in the consolidated group of companies may not be realized or may
not be optimized due to the organizational structure of the company. To this end, Biofrontera carries out regular analyses to
make appropriate adjustments, if necessary.
However, the company cannot influence the risk of limited use of the tax loss carryforwards due to changes in tax law or as a
result of a tax-relevant change in the shareholder structure.
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
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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.
The company sees opportunities in the expansion of its products' regulatory approvals, especially in the label extension for
Ameluz® in our all markets, especially in the USA, to expand and exploit market potential. In addition, there is a medium and
long-term opportunity to expand the portfolio by developing new products based on our nanoemulsion technology.
On March 19, 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.
In addition, at the time of publication of the annual report, Maruho and Biofrontera are in negotiations about a cooperation in
the research and development regarding the use of Ameluz® for the treatment of acne. Maruho and Biofrontera initially signed
a non-binding term sheet on March 19, 2019. A corresponding development plan for the indication expansion was prepared and,
in consultation with the FDA, the design of the necessary clinical studies was determined. On March 3, 2020 a binding term sheet
was signed regarding a license agreement for the marketing of Ameluz® in East Asia and Oceania. In April 2020, the licensing
agreement was signed by both parties and Maruho made the one-time down payment in the amount of EUR 6.0 million to
Biofrontera.
Overall opportunity and risk situation at Biofrontera
The Biofrontera Management Board believes that the current COVID 19 crisis significantly impairs the ability of Biofrontera AG
to provide reliable guidance at this time. We currently assume that the general economic conditions will normalize again during
the second half of 2020 and that the planned capital measure can be executed.
However, the Management Board considers the overall risks that are not related to the current crisis to be manageable. The
Management Board trusts the effectiveness of the risk management system with regard to the positive and negative changes
of the business environment and the requirements of its current business. The assessment is based on various factors, which
are summarized below:
▪
▪
Since March 2020, the company has been directly affected by the global COVID-19 crisis. The company has taken
immediate steps to safeguard its business processes through comprehensive cost reductions, emergency plans to
maintain central processes and measures to protect its employees. The full impact on the future performance of the
business remains unknown at the time of publication of the 2019 Annual Report.
To date, the Group has been able to meet its payment obligations at all times. The company's current level of liquidity
is sufficient due to the drawdown of the second tranche of the EIB loan in February 2019 as well as the receipt of the
EUR 6.0 million down payment form Maruho as part of the licensing agreement signed in April 2020. A further capital
increase, scheduled for March 2020, was cancelled until further notice due to the corona crisis. There is no guarantee
that Biofrontera will be able to carry out any such capital measure at a later date. Should this no longer be possible
Biofrontera AG Annual Report 2019
Biofrontera AG Geschäftsbericht 2016
47
47
due to an ongoing crisis caused by the COVID 19 pandemic, this would pose a threat to the going-concern status of the
Biofrontera Group,
▪ With the approval of daylight PDT with Ameluz® in the EU in 2018, Biofrontera's market position was further
strengthened. We hope to further increase the market potential of Ameluz® from the recently obtained EU label
expansion for photodynamic therapy of actinic keratoses on the extremities as well as the trunk and neck.
▪
▪
▪
▪
▪
▪
To further increase our growth opportunities in the U.S. market, we are currently conducting a study for the treatment
of superficial basal cell carcinoma (BCC) with Ameluz® in combination with our red-light lamp BF-RhodoLED®, for which
we started patient recruitment in September 2018.
In the United States, the company is also working diligently to improve reimbursement modalities and to expand the
approval to include the treatment of actinic keratoses on the extremities, trunk and neck. For the latter, Biofrontera
will soon conduct a further clinical trial in the USA in order to obtain a respective label extension. To ensure the
reimbursement of several tubes for the treatment of larger body regions in the periphery, Biofrontera is currently
planning a pharmacokinetics study in which the safety of the treatment with three tubes of Ameluz® will be tested.
To further strengthen its competitive position, Biofrontera is working on the development of the new lamp "BF-
RhodoLED® XL", which will allow the application of Ameluz® on larger areas. With the market launch of this new medical
product, the company expects a further increase in sales of Ameluz®, especially in the US market.
As a result of the restructuring of the US subsidiary Biofrontera Inc. at the beginning of 2020 with local operational
management as well as the reorganization of the European sales structure under unified management, the company
sees an opportunity for future increased sales growth both in the USA and in Europe.
Biofrontera sees further opportunities in the expansion of the US-product portfolio with the FDA-approved drug XepiTM,
which was launched in November 2018 and complements the company’s existing core business. It was added as part
of Biofrontera's acquisition of Cutanea Life Sciences, Inc. The expansion of the US product portfolio represents an
opportunity for continued company growth and strengthening of the US-market presence.
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.
While we assume that the claims of DUSA Pharmaceuticals, Inc. in particular are unjustified, we are unable to guarantee
a successful outcome in court.
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 U.S. 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. For these claims, DUSA has asserted damages for profits
allegedly lost by DUSA or alleged unjust enrichment for profits gained by Biofrontera from sales of the BF-RhodoLED® and
Ameluz® in the United States.
Submission of expert reports and related discovery regarding these claims finished in early December 2019. The parties have
filed motions for summary judgment and motions to exclude certain expert testimony, with briefing closing on February 18,
2020. Through these expert reports and motions, our responses to the patent claims include that we do not infringe the DUSA
patents and that the patents are invalid. With regard to the non-patent claims, our responses include that the information does
not constitute trade secrets and that Biofrontera’s actions do not constitute any violation of trade practices. With regard to
DUSA’s claims for damages, our responses include that DUSA has not proven it is entitled to lost profits or unjust enrichment.
We believe the court likely will next set a hearing date and issue a decision on the motions, and will then set a schedule for the
case to proceed to trial if necessary. Although as of the date of this annual report, no dates have been assigned, we expect the
48
Biofrontera AG Annual Report 2019
case to proceed through 2020 or 2021. We believe that these claims lack merit and intend to defend against them vigorously;
however, we 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.
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 have incurred, and expect to continue to incur, significant expenses in defending these claims, and we expect to have to
divert significant employee resources, including management resources, to defend the claims.
In July 2018, Biofrontera Inc. brought a lawsuit against DUSA 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. Though the court has dismissed Biofrontera’s claims related to DUSA’s
sampling and pricing practices, the court has allowed Biofrontera’s tortious interference claims to proceed to discovery.
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 U.S. 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. On July 8, 2019, prior to the court issuing a decision on the motion to dismiss, Biofrontera amended its complaint to include
additional allegations regarding the defendants’ tender offer that was the subject of the original complaint and allegations
regarding a subsequent tender offer made by certain of the defendants in 2019, including that defendants have committed
continuing and new violations of U.S. federal securities law. On August 19, 2019, defendants moved to dismiss the amended
complaint. The motion was fully briefed on November 8, 2019. On March 27, 2020, the court issued a ruling granting in part and
denying in part defendants’ motion to dismiss, permitting certain of Biofrontera’s U.S. federal securities law claims to move
forward. The court also ordered that the parties conduct jurisdictional discovery in connection with all of the remaining claims
and submit supplemental briefing on Biofrontera’s common law claims.. Deutsche Balaton AG, Wilhelm Konrad Thomas Zours and
Delphi Unternehmensberatung AG are among our major shareholders.
Deutsche Balaton AG had filed in 2017 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 rejected by the Cologne
Regional Court in November 2017. Deutsche Balaton AG filed an appeal against the rejection, which was dismissed by the Cologne
Higher Regional Court by order on July 31, 2019. 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 had ruled on the appeal by Deutsche Balaton AG.
Meanwhile DELPHI Unternehmensberatung AG has withdrawn its application. Both legal proceedings were thus terminated in
favour of Biofrontera AG. annual general meeting
Deutsche Balaton AG has further brought a claim for rescission and nullity against the negative resolutions of the Annual General
Meeting of July 11, 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
Biofrontera AG Annual Report 2019
Biofrontera AG Geschäftsbericht 2016
49
49
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.
DELPHI Unternehmensberatung AG, Heidelberg, filed an action for rescission and annulment against resolutions of the
annual general meeting of Biofrontera AG on 10 July 2019.
The complaint is filed against the election of Prof. Dr. Franca Ruhwedel to the supervisory board and against the resolution of
the annual general meeting not to elect Wilhelm K.T. Zours to the supervisory board (agenda
item 4 of the
annual general meeting). In addition, a positive action for a resolution was filed, according to which the court is to declare that
Mr. Wilhelm K.T. Zours was elected to the supervisory board.
The action is also directed against the rejecting resolutions of the annual general meeting under the Agenda item 7 (Resolution
to conduct a special audit regarding the circumstances of the acquisition of Cutanea Life Sciences, lnc. from Maruho), 8
(Resolution to conduct a special audit regarding the circumstances of the cooperation agreement dated March 19, 2019 with the
(indirect) major shareholder Maruho Co. Ltd. regarding branded generics and regarding the extension of indications and
distribution of Ameluz®), 9 (Resolution on the assertion of claims for damages against the Management Board members Prof.
Dr. Lübbert and Schaffer and the appointment of a Special Representative to assert these claims in accordance with section 147
(2) AktG), 10 (Dismissal of the supervisory board member Dr. Ulrich Granzer, election of a new supervisory board member and
election of a substitute member for the newly elected supervisory board member), 11 (Dismissal of the supervisory board
member Dr. John Borer, election of a new supervisory board member and election of a substitute member for the newly elected
supervisory board member) 12 (Amendment of Article 13 of the Articles of Association (resignation from the supervisory board
/ dismissal from office)), 13 (Resolution on the assertion of claims for damages against the Management Board members Prof.
Dr. Lübbert and Schaffer and against Maruho Deutschland GmbH and Maruho Co. Ltd. in accordance with section 147 (1) of the
AktG and the appointment of a Special Representative for the assertion of these claims in accordance with section 147 (2) of the
AktG) and 14 (Cancellation of the resolution passed under agenda item 6 of the annual general meeting held on 24 May 2017
(creation of authorised capital in the amount of EUR 4,000,000 with the option to exclude shareholders' subscription rights),
creation of new authorised capital 2019 and amendment of the Articles of Association).
With regard to agenda items 7 to 14, the complaint was also filed for a positive decision by the court, according to which it should
be stated that the Annual Shareholders' Meeting adopted the resolutions in accordance with the resolution proposals of
Deutsche Balaton AG, partly in the form of countermotions to these proposals submitted at the Annual Shareholders' Meeting.
The lawsuit is currently pending at Cologne Regional Court under file number 82 O 75/19.
Biofrontera AG has applied for and received various injunctions against Automattic Inc, San Francisco, USA, at the Hamburg
Regional Court. Automattic Inc. is the operator of the portal WordPress.com, on which a (so far) unknown person publishes a
blog with false and defamatory allegations about Biofrontera AG and its management. Corresponding lawsuits against
Automattic Inc. are being prepared.
A shareholder has claimed against Biofrontera AG that on the occasion of the capital increase conducted in April 2016, fewer
shares were allocated to him than in his opinion should have been allocated. The shareholder is claiming alleged damages of
EUR 48,500. The claim has so far only been asserted out of court. A claim to the competent court has not yet been filed.
Biofrontera AG considers the demand to be without merit.
50
Biofrontera AG Annual Report 2019
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 2019 financial year and the total accumulated number
of stock options issued to the Management Board as of December 31, 2019 were as follows:
in Euro thousands unless otherwise indicated
Prof. Dr. Hermann Lübbert
Thomas Schaffer
Christoph Dünwald
Non-performance-based salary component 2019
Compensation in kind 2019
Retirement benefit expenses 2019
Non-performance-based salary component 2018
Compensation in kind 2018
Retirement benefit expenses 2018
Performance-based salary component 2019
Performance-based salary component 2018
Fair value of stock options granted 2019
Fair value of stock options granted 2018
Income from the exercise of stock options 2019
Income from the exercise of stock options 2018
Number of stock options (Dec 31, 2019)
Fair value when granted (2019)
Number of stock options (Dec 31, 2018)
Fair value when granted (2018)
thereof granted 2019 (number of stock options)
thereof granted 2018 (number of stock options)
350
16
-
350
16
-
167
80
37
188
149
94
244,495
414
276,850
423
14,495
80,000
257
12
-
230
11
-
154
70
25
117
-
83
150,000
255
140,000
230
10,000
50,000
275
16
-
250
14
-
140
50
25
117
-
-
150,000
255
140,000
230
10,000
50,000
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. At
the end of each fiscal year, the performance measurements for the following fiscal year are mutually agreed upon in a
performance 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 members of the Management Board 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.
Biofrontera AG Annual Report 2019
Biofrontera AG Geschäftsbericht 2016
51
51
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 December 31, 2018 on the basis of the mandatory
disclosures by the shareholders can be found in the notes to the consolidated financial statements under 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 6 Subscribed capital, capital reserve, conditional capital.
Share capital and existing capital
The detailed presentation of share capital as of December 31, 2019, is included in the notes to the consolidated financial
statements under 9 Equity and in the notes to the single-entity financial statements of Biofrontera AG under III Information on
the balance sheet and income statement under 6 Subscribed capital, capital reserves, conditional capital.
Articles of association
The Articles of Association of Biofrontera comply with the applicable statutory requirements. There are no stipulations beyond
Sections 84, 85 and Sections 133, 179 of the German Stock Corporation Act regarding the appointment and dismissal of members
of the Management Board.
52
Biofrontera AG Annual Report 2019
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, April 20, 2020
Biofrontera AG
Prof. Dr. Hermann Lübbert
Chief Executive Officer
Thomas Schaffer
Chief Financial Officer
Biofrontera AG Annual Report 2019
Biofrontera AG Geschäftsbericht 2016
53
53
Consolidated financial statements as of December 31, 2019
Consolidated balance sheet as of December 31, 2019
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
Income tax reimbursement claims
Other assets
Total other current assets
Total current assets
Total assets
December 31, 2019
December 31, 2018
(1)
(1)
(8)
(3)
(4)
(7)
(2)
(6)
(5)
5,230
22,848
7,794
35,872
5,031
1,077
11,119
17,227
4,065
4
1,195
5,264
22,491
58,363
794
352
10,400
11,546
3,397
794
19,451
23,642
3,177
53
715
3,945
27,587
39,133
The accompanying notes are an integral part of these consolidated financial statements.
54
Biofrontera AG Annual Report 2019
December 31, 2019
December 31, 2018
Equity and liabilities
in EUR thousands
Equity
Subscribed capital
Capital reserve
Capital reserve from foreign currency conversion
ustments
Loss carried forward
Loss for the period
Total equity
Non-current liabilities
Financial debt
Other provisions
Other financial liabilities
Total non-current liabilities
Current liabilities
Current financial liabilities
Trade payables
Current financial debt
Other financial liabilities
Total current financial liabilities
Other current liabilities
Income tax
Other provisions
Other current liabilities
Total other current liabilities
Total current liabilities
Total equity and liabilities
(9)
(10)
(13)
(11)
(12)
(10)
(11)
(6)
(13)
(14)
44,849
118,103
(288)
(145,351)
(7,358)
9,955
22,110
-
14,720
36,830
4,196
1,212
99
5,507
11
3,495
2.565
6,071
11,578
58,363
The accompanying notes are an integral part of these consolidated financial statements.
Biofrontera AG Annual Report 2019
Biofrontera AG Geschäftsbericht 2016
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
55
55
Consolidated statement of comprehensive income for the fiscal year 2019
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
Other income from the PPA (Badwill)
Loss before income tax
Income tax
Loss for the period
(16)
(17)
(18)
(19)
(20)
(21)
(21)
(21)
(22)
(22)
(22)
(23)
Expenses and income not included in
profit/loss
Items which may in future be regrouped into the
profit and loss statement under certain
conditions.
Translation differences resulting from the
conversion of foreign business operations
Other income total
Total loss for the period
Basic/diluted earnings per share
(24)
2019
31,265
(4,875)
26,390
(4,636)
(16,275)
(28,856)
(23,377)
(2,466)
(245)
127
(799)
7,171
14,812
(4,777)
(2.581)
(7,358)
(286)
(286)
(7,644)
(0,16)
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)
The accompanying notes are an integral part of these consolidated financial statements.
Both the net result for the year and the consolidated result are fully attributable to the shareholders of Biofrontera AG.
56
Biofrontera AG Annual Report 2019
Consolidated statement of changes in equity for the fiscal year 2019
(in EUR thousands except for share information)
Ordinary shares
Subscribed
capital
Balance as of January 1, 2018
Loss for the period
Foreign currency conversion
Consolidated result
Capital Increase
Conversion from convertible bond 2016/2021
Conversion from convertible bond 2017/2022
Conversion of stock options from the stock option program
Costs of equity procurement
Increase in capital reserve from the stock option program
(9)
(9)
Balance as of December 31, 2018
Balance as of December 31, 2018
First-time application of IFRS 16
Balance as of January 1, 2019
Loss for the period
Foreign currency conversion
Consolidated result
Conversion from convertible bond 2017/2022
Conversion of stock options from the stock option program
Costs of equity procurement
Increase in capital reserve from the stock option program
38,416,828
38,417
-
-
-
6,000,000
6,874
13,472
195,500
-
-
44,632,674
44,632,674
-
44,632,674
-
-
-
118,841
97,850
-
-
-
-
-
6,000
7
13
195
-
-
44,632
44,632
-
44,632
-
-
-
119
98
-
-
Capital
reserve
100,769
-
-
-
18,000
26
51
433
(2,432)
262
117,109
117,109
-
117,109
-
-
-
429
207
(2)
360
Capital from
foreign currency
conversion
adjustments (OCI)
700
-
(702)
(702)
-
-
-
-
-
-
(2)
(2)
0
(2)
-
(286)
(286)
-
-
-
-
Accumulated
loss
(136,505)
(8,878)
-
(8,878)
-
-
-
-
-
-
(145,383)
(145,383)
32
(145,351)
(7,358)
-
(7,358)
-
-
-
-
Balance as of December 31, 2019
(9)
44,849,365
44,849
118,103
(288)
(152,709)
The accompanying notes are an integral part of these consolidated financial statements.
Total
3,381
(8,878)
(702)
(9,580)
24,000
33
64
628
(2,432)
262
16,356
16,356
32
16,388
(7,358)
(286)
(7,644)
548
305
(2)
360
9,955
57
Biofrontera AG Annual Report 2019
Consolidated cash flow statement for the fiscal year 2019
in EUR thousands
Cashflows from operations
Loss before income tax
Adjustments to reconcile loss before income tax to cash flow into operations
01.01.-31.12.2019
01.01.-31.12.2018
(4,777)
(19,269)
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
Net cash flow used in operational activities
Cash flow from investment activities
Purchase of intangible and tangible assets
Business combination Cutanea
Proceeds from sale of intangible and tangible assets
Net cash flow from (used in) investment activities
Cashflows from financing activities
Proceeds from the issue of shares
Costs of equity procurement
Proceeds from draw down of EIB loan
Proceeds from exercise of employee stock options
Leasing payments
Interest paid
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
(27)
The accompanying notes are an integral part of these consolidated financial statements.
36
2,658
3,156
(1,545)
386
(15,334)
(673)
3,044
(148)
596
710
(21,003)
(32,894)
(1,854)
22,814
93
21,053
-
(3)
5,000
305
(1,183)
(664)
-
3,455
(8,386)
54
19,451
11,119
(9)
1,784
754
1,545
5
(328)
(1,836)
(149)
368
185
2,366
1,150
(13,434)
(513)
-
2
(511)
24,000
(1,768)
-
628
-
(536)
(50)
22,274
8,329
39
11,083
19,451
58
Biofrontera AG Annual Report 2019
Notes to the consolidated financial statements as of December 31,
2019
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 Woburn, Massachusetts, U.S., research, develop and market dermatological products. At year-
end, the companies of Cutanea Life Sciences, Inc. acquired in 2019 as well as Biofrontera Newderm Inc. were merged with
Biofrontera Inc.
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 January 1, 2019 to December 31, 2019 have
been prepared in accordance with the International Financial Reporting Standards (IFRS) of the International Accounting
Standards Board (IASB) and the interpretations of the International Financial Reporting Standards Interpretations Committee
(IFRS IC), which are endorsed by the European Union (EU) and applicable on the balance sheet date. In addition, statutory
provisions pursuant to Section 315a (1) of the German Commercial Code (HGB) have been complied with.
The consolidated financial statements are prepared on a going concern basis. With regard to material uncertainties in connection
with the going concern status, we refer to Note 33 Subsequent events.
Biofrontera AG is the parent company, which prepares consolidated financial statements for the group companies.
The consolidated financial statements as at December 31, 2019 are presented in euros (EUR) or thousands of euros. Rounding
differences can arise in the tables due to commercial rounding.
On April 20, 2020, the Management Board approved the consolidated financial statements for the financial year ending 31
December 2019 for publication and forwarding to the Supervisory Board.
Changes in accounting standards
The accounting policies applied are consistent with those applied on December 31, 2018, with the exception of the new and
revised standards and interpretations described below that were applied for the first time starting with the 2019 financial year.
Standard
Description
Mandatory application
Expected effects
IFRS 16
“Leases”
January 1, 2019
See below
Amendment to IFRS 9
“Financial instruments”
Early repayment regulations with negative
compensation
January 1, 2019
No effects
IFRIC 23
Uncertainty over income tax treatments
January 1, 2019
No effects
Amendment to IAS 19
“Employee benefits”
Plan Amendments, curtailments or settlements
January 1, 2019
No effects
Amendment to IAS 28
“Holdings in associated companies and joint
ventures”
Long term holdings in associated companies and
joint ventures
January 1, 2019
No effects
Biofrontera AG Annual Report 2019
59
Standard
Description
Mandatory application
Expected effects
Annual Improvements
to IFRSs
Annual improvements to IFRSs
Cycle 2015-2017
January 1, 2019
No effects
First-time application of IFRS 16
Biofrontera has applied the new standard IFRS 16 "Leases" for the first time for the 2019 financial year.
For financial years beginning on or after January 1, 2019, IFRS 16 requires the application of a new lease standard. Contrary to
the previous regulation, 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 on-balance sheet, is therefore no longer applicable. The leasing liability to be carried as a liability is calculated as the net
present value of the highly probable payments to be made to the lessee. They are carried forward using the so-called effective
interest method. The right of use of the underlying asset to be recognized in return is to be recognized at cost at the beginning
of the lease. In addition to the lease payments, any initial direct costs of the lessee and dismantling costs are included in the
calculation. Incentive payments made by the lessor are deducted. The activated right of use is to be depreciated on a straight-
line basis and tested for impairment if there is any indication of impairment.
The new regulations for lessors essentially correspond to the previous regulations.
The leasing contracts concluded by Biofrontera as lessee mainly relate to buildings and motor vehicles used for operational and
administrative purposes. The company has applied the new accounting standard under the modified retrospective method to
leases with a remaining term of more than one year as of January 1, 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 simplification 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.
Biofrontera will not show the rights of use and leasing liabilities separately on its balance sheet, but rather include them in items
that contain comparable assets and liabilities.
The first-time application of IFRS 16 had no material effect on the calculation of the basic earnings per share.
The marginal interest rate on the date of first-time application was 1.53% for buildings, 1.85% for motor vehicles (Germany) and
5.20% (USA). There were no onerous leases as of January 1, 2019. The first-time application of IFRS 16 had the following effects:
Leasing
in EUR thousands
Tangible assets
Loss carried forward
Non-current financial liabilities
Current financial liabilities
31.12.2018
carrying amount
Amendment
IFRS 16
01.01.2019
carrying amount
794
(145,383)
13,462
165
2,335
32
1,698
606
3.129
(145,350)
15,160
771
60
Biofrontera AG Annual Report 2019
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
Expected effects
Amendment to IFRS 3*
“Business combinations”: Definition of a business
January 1, 2020
No effects
Amendment to IFRS 9
Amendment to IAS 1
"Financial instruments", IFRS 7 "Financial
instruments: Disclosures" and IAS 39 "Financial
instruments: Recognition and valuation": Interest
Rate Benchmark Reform
"Presentation of financial statements” and IAS 8
"Accounting policies, changes in accounting
estimates and errors": definition of "material"
Amendment to IAS 1,
IAS 8*
"Presentation of financial statements”:
classification of liabilities as current or non-
current
January 1, 2020
No effects
January 1, 2020
No effects
January 1, 2022
No effects
Amendments to
References to the
Conceptual Framework*
References to the Conceptual Framework
January 1, 2020
No effects
IFRS 17*
Insurance Contracts
January 1, 2021
No effects
* Adoption by the EU still pending
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. The shareholdings are unchanged from
the previous year:
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., Woburn, Massachusetts, U.S., with a direct interest of 100%
The following companies are included in the consolidated financial statements as of December 31, 2019. These were merged with
Biofrontera Inc. in 2019:
6. Biofrontera Newderm LLC, Woburn, Massachusetts, USA, with a direct shareholding of 100% (founded March 21, 2019;
merged on December 31, 2019)
7.
Cutanea Life Sciences, Inc., Wayne, Pennsylvania, USA, with a direct shareholding of 100% (acquisition date March 25,
2019; merged on December 30, 2019)
8. Dermarc LLC, Wayne, Pennsylvania, USA, with a direct shareholding of 100% (acquisition date March 25, 2019; merged
on December 27, 2019)
Biofrontera AG Annual Report 2019
Biofrontera AG Annual Report 2016
61
61
9.
Dermapex LLC, Wayne, Pennsylvania, USA, with a direct shareholding of 100% (acquisition date March 25, 2019; merged
on December 27, 2019)
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 December 31, 2019 pursuant to uniform principles. The consolidated
financial statements as of December 31, 2019 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 intercompany receivables and liabilities as well as income and expenses were eliminated in the course of consolidation.
Interim results were eliminated
Business combinations
Cutanea Life Sciences, Inc.
On March 25, 2019, Biofrontera Inc. entered into an agreement with Maruho to acquire 100% of the shares of Cutanea Life
Sciences, Inc., USA including its subsidiaries Dermark LLC and Dermapex LLC (together "Cutanea") through its wholly owned
subsidiary Biofrontera Newderm LLC, USA, ("Biofrontera"), newly founded on March 21, 2019. Cutanea has been marketing
Aktipak®, a prescription gel for the treatment of acne, as well as Xepi™, a prescription cream for the treatment of impetigo, since
November 2018. Due to technical difficulties in the manufacturing process of Aktipak®, sales of the drug were discontinued in
summer 2019.
The acquisition of Cutanea Life Sciences, Inc. in March 2019 has enabled Biofrontera to market a FDA-approved drug that has
already been introduced in the US market. We are convinced that with Xepi™ our portfolio now includes an innovative, promising
product with a large market potential.
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 redesigned business activities (start-up costs). An additional part of the purchase price equal to the
start-up costs actually paid is to be paid back to Maruho by 2023.
As part of the earn-out agreement with Maruho, 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 running costs that may be incurred during the first
three months after completion of the transaction. Maruho also indemnifies Biofrontera and Cutanea against all liabilities relating
to or resulting from the pre-contractual period. In addition, Maruho assumed all Cutanea restructuring costs that incurred in the
period up to three months after the acquisition.
According to the purchase agreement, the acquisition date is March 25, 2019. As a consequence, the acquisition was made with
economic effect from that date. As of the same date, Biofrontera gained control over the acquired companies, which means that
Cutanea will be fully consolidated in the consolidated financial statements of Biofrontera in accordance with IFRS 3 with effect
from March 25, 2019.
Estimates related to the acquisition of Cutanea Life Sciences, Inc. on March 25, 2019
The fair values of the assets and liabilities (in accordance with IFRS 3) on the acquisition date March 25, 2019 are as follows:
in EUR thousands
Non-current assets
Property, plant and equipment
Intangible assets
Total non-current assets
March 25, 2019
1,340
23,604
24,944
62
Biofrontera AG Annual Report 2019
in EUR thousands
Current assets
Trade receivables
Cash and cash equivalents
Inventories
Other assets
Total other current assets
Total assets
Non-current liabilities
Financial liabilities
Current liabilities
Trade payables
Other current liabilities
Total current liabilities
Total equity and liabilities
Net assets
Purchase price (earn out)
Badwill
March 25, 2019
1,004
20,231
763
3,758
25,756
50,700
495
1,795
22,110
23,905
24,400
26,300
11,488
14,812
The badwill, i.e. the difference between the assets and liabilities of Cutanea at the time of acquisition and the carrying amounts
of the assets and liabilities of Cutanea at the time of acquisition, is offset by future expenses for reorganizing the business
activities of Cutanea and establishing the distribution of XepiTM. The seller (Maruho) hopes that the successful marketing of
Cutanea products by Biofrontera and the associated share of profit will bring economic advantages over continuing this business
on its own.
Based on the assumption that Maruho would fully finance the start-up costs, the purchase price increases to EUR 17,325 thousand
as of April 1, 2019. No contingent liabilities were identified.
The following assets and liabilities were measured at fair value as part of the purchase price allocation. The assumptions for the
valuation of the intangible assets are as follows:
Assets and liabilities identified
at acquisition date
Fair value in
EUR thousands
Valuation method
Operating life
Cost of capital
Intangible assets
Xepi™ marketing license
23,604
Acquisition method
139 months
9.1 %
The results of operations of Cutanea Life Sciences, Inc. including all subsidiaries is as follows:
in EUR thousands
Sales revenue
Cost of sales
Gross profit on sales
Research and development costs
General administrative costs
Sales costs
Loss on operations
Biofrontera AG Annual Report 2019
Biofrontera AG Annual Report 2016
March 25 – December 31, 2019
822
(1,148)
(326)
(103)
(2,334)
(5,906)
(8,669)
63
63
in EUR thousands
Interest expenses
Interest income
Other expenses
Other income due to reimbursement by Maruho
Other income
Loss before income tax
Income tax
Loss after income tax
March 25 – December 31, 2019
(16)
85
(1,996)
6,215
108
(4,273)
65
(4,208)
If the acquisition had taken place on January 1, 2019, the contribution to sales would have been EUR 1,635 thousand. The loss of
Cutanea could not be determined.
The transaction costs included in current expenses amount to EUR 297 thousand.
Due to the integration of Cutanea's activities into Biofrontera Inc., the existing deferred tax assets at Cutanea were not
capitalized, as these probably cannot be offset against future profits.
Translation of amounts in foreign currencies
The consolidated financial statements as of December 31, 2019 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 (2019: 1.1227 USD/EUR, previous
year 1.1445 USD/EUR). Income and expense items are translated applying the average exchange rates applicable to the relevant
period (2019: 1.1194 USD/EUR, previous year: 1.1818 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 (2019: EUR -286 thousand, previous year: EUR -702 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 income statement in the amount of EUR 324 thousand (previous year: EUR 650 thousand).
Application of estimates
The preparation of the consolidated financial statements for December 31, 2019 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 scope for discretion lie in the fair value
measurements in accordance with IFRS 13, in particular the determination of the fair values of assets and liabilities as part of
the purchase price allocation (PPA). In addition, estimates are made in the context of the measurement of provisions, leases in
accordance with IFRS 16, stock options, EIB loans and income taxes as well as in determining the useful lives of non-current
assets. Estimates are based on historical experience and other assumptions that are considered appropriate under the given
circumstances. These are reviewed on an ongoing basis, but may differ from the actual values.
The carrying amounts of items affected by estimates are presented in the respective notes to the consolidated financial
statements.
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Biofrontera AG Annual Report 2019
Tangible assets and leases
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 January 1, 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.
Biofrontera is a lessee mainly for buildings and vehicles used for operational and administrative purposes. The leasing liability
to be carried as a liability is calculated as the present value of the payments that are highly likely to be made to the lessee. They
are updated using the so-called effective interest method. The right of use of the underlying asset to be recognized in return is
measured at cost at the beginning of the lease. In addition to the lease payments, any initial direct costs of the lessee and
dismantling costs are included in the calculation. Incentive payments made by the lessor are deducted. The activated right of
use is to be depreciated on a scheduled basis and tested for impairment if there is any indication of impairment.
The main useful lives of leases are determined by the term of the agreement and are as follows
▪ Motor vehicles 3 years, straight-line
▪
Buildings 6 years, linear
Future lease payments are to be discounted at the lessor's imputed interest rate or, if this is not available, at the marginal
interest rate on the date of first application.
For expenses from leases with a remaining term of no more than one year and from leases with a low value, Biofrontera has
decided to make use of the simplification of IFRS 16.6 and to treat the monthly leasing instalments unchanged compared with
the accounting according to IAS 17 immediately as income.
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 12 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.
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 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
Biofrontera AG Annual Report 2019
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65
65
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 assets
Financial assets are recognized as assets in the event that Biofrontera has a contractual right to receive cash or other financial
assets from another party. Financial assets are allocated to the category "Held" and are valued at amortized cost. Non-interest-
bearing or low-interest receivables are recognized at cash value.
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.
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 valued at amortized cost.
Non-financial assets
Non-financial assets are valued at cost.
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.
Financial liabilities
Financial liabilities include original liabilities, with the exception of the embedded derivative that was separated from the EIB
loan (the so-called performance component). Original liabilities are recognized if there is a contractual obligation to transfer
cash or other assets to another party. The initial recognition of original financial liability is at fair value. In subsequent valuations
of financial liabilities valued at amortized cost, any discounts between the amount received and the repayment amount are
spread over the term using the effective interest method.
The financial liabilities of the performance component measured at fair value and the purchase price liability (earn-out) included
in other financial liabilities are allocated to the category "Financial liabilities at fair value through profit or loss".
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.
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Biofrontera AG Annual Report 2019
Convertible bonds
The convertible bond is a so-called compound financial instrument, which must be divided into the components debt (bond) and
equity (conversion right) on initial recognition. The liability component (bond) must be recognized at its fair value at the time
the contract is concluded. The fair value is determined by discounting the contractually agreed future payments at an interest
rate customary for a comparable bond without conversion right. In this context, the default risk of the issuer must also be taken
into account. The equity component (conversion right) is calculated as the difference between the proceeds of the issue and
the present value of the liability (equity derivative, residual value method).
In subsequent accounting for the convertible bond, a distinction is made as follows: The liability component is subsequently
valued at amortized cost using the effective interest method. The equity component is not subject to subsequent valuation.
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. 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 (the so-called notional equity proportion). This is discounted to the valuation date applying a
market interest rate of 12.33% for the 2017 EIB loan and 10.63% for the 2019 EIB loan.
Non-financial liabilities
Non-financial liabilities are carried at the repayment amount.
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
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.
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67
67
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.
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.
Xepi™ is sold directly to specialty pharmacies in the USA. Sales are recognized net of sales deductions when ownership and
control are transferred to the customer. Sales deductions include expected returns, discounts and incentives such as payments
made under patient assistance programs. These rebates are estimated at the time of sale based on the amounts incurred or
expected to be received for the related sales.
Revenue is recognized when the products are delivered to the respective customers.
In addition, Biofrontera generates sales revenues within the framework of the research and development cooperation with
Maruho Co Ltd. Revenue is recognized over a specific period of time.
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.
68
Biofrontera AG Annual Report 2019
Revenue is recognized net of sales-related taxes and sales deductions. For expected sales deductions, such as rebates and
discounts, estimated amounts are taken into account accordingly at the time of revenue recognition. The payment terms for
Ameluz® include short-term payment terms with the possibility of cash discounts.
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.
Research and development costs relating to the drug 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.
Notes to the consolidated balance sheet
1. Intangible and tangible assets
In the 2019 financial year, impairment losses on tangible assets were recognized in the amount of EUR 527 thousand (previous
year: EUR 0).
The cost of short-term and low-value leases amounts to EUR 386 thousand. The income from a sublease agreement amounts to
EUR 34 thousand.
Tangible and intangible assets are composed as follows:
Biofrontera AG Annual Report 2019
Biofrontera AG Annual Report 2016
69
69
Consolidated statement of changes in non-current assets in 2019
in EUR thousands
Purchase and production cost
Accumulated depreciation and amortization
Carrying amounts
I.
Tangible assets and leases
1. Operating and business equipment
2. Right-of-use leasing properties
3. Right-of-use leasing tangible assets
II.
Intangible assets
1. Software and licenses
2. Right-of-use assets
3. Intangible assets under development
Jan 1,
2019
Currency
translation
Additions Change of
consolida
tion
group
Disposals
Dec 31,
2019
Jan 1,
2019
Currency
translation
Additions Disposals
Dec 31,
2019
Dec 31,
2019
Jan 1,
2019
4,104
1,768
567
6,439
446
1,101
267
1,814
8,253
2
-
-
2
-
(69)
-
(69)
(67)
1,294
1,792
1,045
4,131
20
92
448
560
1,340
3,093
-
-
-
-
1,340
3,093
-
23,604
-
23,604
260
254
-
514
4,691
24,944
3,607
3,647
3,560
1,612
8,819
206
24,474
715
25,395
34,214
3,309
-
-
3,309
427
1,035
-
1,462
4,771
1
-
-
1
-
(5)
-
(5)
(4)
482
505
592
1,300
2,492
-
-
505
592
1,579
1,300
3,589
21
1,556
-
1,577
3,156
258
230
-
488
1,788
190
2,356
-
2,546
6,135
1,155
3,055
1,020
5,230
16
22,118
715
22,849
28,079
795
1,768
567
3,130
21
66
267
352
3,482
The opening balance of leasing use rights is due entirely to the first-time application of IFRS 16 and amounts to EUR 2,335 thousand.
Consolidated statement of changes in non-current assets in 2018
in EUR thousands
Purchase and production 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
3. Intangible assets under development
Jan 1,
2018
4,089
458
6,188
-
6,646
10,735
Currency
translation
Additions Transfers Disposals
Dec 31,
2018
Jan 1,
2018
Currency
translation
Additions Disposals
Dec 31,
2018
Dec 31,
2018
Jan 1,
2018
230
4,104
3,343
5
-
-
-
-
5
240
5
10
258
273
513
-
-
17
(9)
5,088
9
-
-
-
5,105
5,335
446
1,101
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
70
Biofrontera AG Annual Report 2019
2. Inventories
in EUR thousands
Raw materials
Unfinished goods
Finished goods and products
December 31, 2019
December 31, 2018
893
201
2,971
4,065
1,098
320
1,759
3,177
In 2019, inventories were written down by EUR 24 thousand (previous year: EUR 187 thousand).
The finished goods and products include PDT lamps that are made available to doctors for a fee within the framework of a 6-
month evaluation phase (EUR 89 thousand; previous year: EUR 75 thousand).
3. Trade receivables
Trade receivables are mainly attributable to the sale of Ameluz®, the PDT lamp BF-RhodoLED®, Xepi™ and the medical cosmetics
product Belixos®. It is expected that all trade receivables will be settled within twelve months of the balance sheet date.
Allowances for doubtful accounts were made in the amount of EUR 43 thousand (previous year: TEUR 0). As in the previous year,
there were no outstanding receivables on the balance sheet closing date that were not value-adjusted.
Of the receivables, EUR 178 thousand (previous year: EUR 187 thousand) are attributable to finance leases for PDT-lamps.
4. Other financial assets
Other financial assets comprise mainly prepayments rendered for studies (EUR 359 thousand; previous year: EUR 614 thousand)
and the depositing of collateral, mainly for leasing property, credit cards and leasing vehicles (EUR 300 thousand; previous year:
EUR 164 thousand). As in the previous year, no individual value impairments were applied during the reporting year.
5. Other assets
Other assets mainly comprise of accruals and deferrals (EUR 1,113 thousand; previous year: EUR 664 thousand).
As in the previous year, no individual value impairments were applied during the reporting year.
6. Income tax
Income tax reimbursement claims consist of claims for tax refunds relating to withheld capital gains tax, plus the Solidarity
Surcharge (EUR 4 thousand; previous year: EUR 53 thousand). Income tax liabilities relate to current income tax liabilities for
fiscal year 2019 (EUR 11 thousand; previous year: 0).
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 11,119 thousand (previous year: EUR 19,451 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
Deferred tax assets amount to EUR 7,794 thousand (previous year: EUR 10,400 thousand). 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
Biofrontera AG Annual Report 2019
Biofrontera AG Annual Report 2016
71
71
deferred tax assets on losses carried forward for Biofrontera Pharma GmbH to be recognized for the first time as of December
31, 2018.
The reduction in deferred tax assets results from the use of the tax loss carryforwards of Biofrontera Pharma GmbH (EUR 256
thousand) and the reduction in the trade tax rate of the city of Leverkusen with effect of January 1, 2020 (EUR 2,350 thousand).
The subsidiary Biofrontera Pharma GmbH has generated profits in 2019 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 deferred income tax on loss carryforwards incurred at Biofrontera AG in the amount of EUR 153 thousand and at
Biofrontera Inc. in the amount of EUR 533 thousand were capitalized to the extent that they are offset by deferred tax liabilities
in the same amount.
The following table explains the generally existing deferred tax assets from tax loss carryforwards that have developed within
the Group:
December 31, 2019
December 31, 2018
in EUR thousands
Corporation tax including Solidarity
Surcharge
Business tax
U.S. corporation tax
Total
Loss carried
forward
135,415
120,692
23,616
Deferred
tax assets
21,436
10,561
6,140
38,137
Loss carried
forward
131,928
118,548
14,452
Deferred
tax assets
20,884
19,703
3,613
44,200
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 when occurred until December 31, 2017 (EUR 8,595 thousand), and indefinitely when occurred
from January 1, 2018 (EUR 15,021 thousand).
in EUR thousands
Loss carried forward
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
December 31, 2019
December 31, 2018
Deferred tax
assets
8,568
Deferred tax
liabilities
-
Deferred tax
assets
10,674
Deferred tax
liabilities
-
-
-
-
43
-
859
-
9,470
(1,676)
7,794
(620)
(1,002)
-
-
(54)
-
-
(1,676)
1,676
-
-
-
-
59
-
-
-
10,733
(333)
10,400
(87)
-
-
-
(82)
(152)
(12)
(333)
333
-
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, the
remaining deferred tax assets deriving from loss carryforwards in the amount of EUR 29,569 thousand (previous year: EUR 33,526
thousand) and deferred tax assets in the amount of EUR 2,000 thousand (previous year EUR 782 thousand) were not recognized
on the balance sheet, in accordance with IAS 12.34.
72
Biofrontera AG Annual Report 2019
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. The expected income tax rate of
the parent company will amount to 24.6% with effect from January 1, 2020 due to the reduction of the trade tax multiplier:
in EUR thousands
Consolidated loss 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
Taxfree income (badwill)
Other effects
Income taxes as per statement of comprehensive income
9. Equity
Share capital
December 31, 2019
December 31, 2018
(4,777)
1,550
(839)
16
(2,350)
(29)
(2,472)
(538)
(1,217)
(4,251)
4,807
241
(2,581)
3
(2,060)
(19,269)
6,252
(685)
-
-
(100)
(895)
5,343
-
475
10,390
The fully paid in share capital of the parent company, Biofrontera AG, amounted to EUR 44,849,365 on December 31, 2019. It was
divided into 44,849,365 registered shares with a nominal value of EUR 1.00 each. On December 31, 2018, the share capital
amounted to EUR 44,632,674.
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 June 3, 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 February 14, 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.
The numbers of shares held by the shareholders on December 31, 2019, 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
Sparta AG
ABC Beteiligungen AG
December 31, 2019
December 31, 2018
13,047,754
8,891,843
13,300,694
8,935,384
Biofrontera AG Annual Report 2019
Biofrontera AG Annual Report 2016
73
73
AEE Ahaus-Enscheder AG
MARNA Beteiligungen AG
Youbisheng Green Paper AG
Strawtec Group AG
•
•
•
•
Free float
Total
December 31, 2019
December 31, 2018
18,500,917
44,849,365
26,805,447
44,632,674
Only those shareholders are listed who are subject to reporting requirements under the German Securities Trading Act (WpHG)
and the Securities and Exchange Commission (SEC) and have made a corresponding notification. This includes all shareholders
who hold at least 3% of the outstanding shares or voting rights. The number of shares listed here refers to the last notification
of the respective shareholders, since then they may have changed their holdings within the respective notification thresholds
without informing the company.
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/conditional capital
The company had no authorized capital as of the reporting date.
The conditional capital consisted of three share capital amounts.
The conditional increase in the share capital (Conditional Capital I) of EUR 6,434,646 was approved on August 28, 2015, of which
is EUR 3,998,014 available as at December 31, 2019. Conditional 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 (Conditional Capital III) of EUR 542,400 was approved on February 28, 2015, of which
is EUR 249,050 available as of December 31, 2019, and serves exclusively to fulfill option rights granted on July 1, 2015 on the
basis of the AGM of July 2, 2010.
The conditional increase in the share capital (Conditional Capital V) of EUR 1,814,984 approved on February 28, 2015 serves
exclusively to fulfill option rights granted until August 27, 2020 on the basis of the annual general Meeting (“AGM”) on August
28, 2015.
Convertible bond 2017/2022
On December 23, 2016, the company's Management Board approved the issue of a convertible bond, which was placed in full in
an amount of EUR 5.0 million in January 2017. The individual bonds will bear interest of 6% per year from February 1, 2017 on
their nominal amount. The interest is payable semi-annually in arrears on January 1 of each year, for the first time on July 1,
2017. The fair value of the convertible bond was calculated on the basis of an interest rate of 7.6% in the initial valuation. The
term of the 2017/2022 convertible bond begins on the day of its initial issue ("issue date") and ends on December 31, 2021.
As of December 31, 2019, bonds in a nominal amount of EUR 2,030,800 were converted into the company's shares. In 2019 bonds
with a nominal amount of EUR 564,500 (previous year: EUR 66,500) were converted into 118,841 shares (previous year: 13,472).
2010 share option program
At the AGM on July 2, 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.
74
Biofrontera AG Annual Report 2019
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
November 24, 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 July 30, 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.
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:
▪
▪
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). For 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
Biofrontera AG Annual Report 2019
Biofrontera AG Annual Report 2016
75
75
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).
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
Number of options issued
106,400
96,400
65,000
51,500
179,500
159,350
Date of issue
Exercise price
Adjusted exercise price March 2018
24.11.2010
30.09.2011
23.03.2012
11.05.2012
02.09.2013
02.04.2014
07.10.2011
EUR 1.91
EUR 2.48
-
-
EUR 3.30
EUR 3.02
EUR 4.09
EUR 3.373
EUR 3.43
EUR 3.81
EUR 3.093
EUR 3.15
End of vesting period
24.11.2014
30.09.2015
23.03.2016
11.05.2016
02.09.2017
02.04.2018
07.10.2015
11.05.2016
End of exercise window
24.11.2016
30.09.2017
23.03.2018
11.05.2018
02.09.2019
02.04.2020
Fair value per option
Share price volatility
Dividend yield
Risk-free interest rate
Fluctuation rate
07.10.2017
EUR 0.57
EUR 1.24
EUR 1.60
EUR 2.06
EUR 1.07
EUR 0.83
45.78%
51.30%
53.50%
65.00%
39.20%
32.30%
0%
1.75%
20%
0%
1.21%
20%
0%
0.9%
20%
0%
0.82%
20%
0%
0.71%
20%
0%
0.68%
20%
The fair value of one of the stock options in this option program is determined on a binominal model. The pro rata amounts are
recognized over the vesting period up to the end of the vesting period on a pro rata basis as personnel expenses and an increase
in capital reserves.
2010 share option program
Number of options issued
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
Cost
December 31, 2019
December 31, 2018
658,150
137,850
-
17,000
97,850
-
23,000
23,000
3.15 EUR
3 months
-
658,150
364,350
-
19,000
195,500
12,000
137,850
137,850
EUR 3.093 - 3.15
12 months
EUR 6,000
The Conditional Capital III for servicing options from this program amounts to EUR 249,050.
During the 2019 financial year, the share capital was increased by EUR 97,850 divided into 97,850 registered shares, from the
conversion of options from the 2010 employee stock option plan.
76
Biofrontera AG Annual Report 2019
2015 share option program
At the AGM on August 28, 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 August 27, 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 value of EUR 1,814,984 and a term of five years from the issue date, in other words, until August
27, 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 September 18, 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.
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
Number of options issued
425,000
130,500
329,000
300,500
180,000
333,485
Date of issue
Exercise price
18.04.2016
01.12.2016
28.04.2017
28.11.2017
07.05.2018
14.05.2019
EUR 2.49
EUR 3.28
EUR 4.02
EUR 3.33
EUR 5.73
EUR 6.708
Adjusted exercise price March 2018
EUR 2.25
EUR 3.04
EUR 3.78
EUR 3.09
-
-
End of vesting period
End of exercise window
Fair value per option
Share price volatility
Dividend yield
Share price yield
Risk-based interest rate
Fluctuation rate
18.04.2020
01.12.2020
28.04.2021
28.11.2021
07.05.2022
14.05.2023
18.04.2022
01.12.2022
28.04.2023
28.11.2023
07.05.2024
14.05.2025
EUR 1.00
50.59%
0%
2,31%
5.92%
12%
EUR 1.30
49.00%
0%
7,00%
13.26%
12%
EUR 1.56
47.00%
0%
7,50%
13.94%
12%
EUR 1.48
EUR 2.35
EUR 2.55
46.00%
47.00%
47.30%
0%
7,60%
14.05%
12%
0%
7,60%
14.03%
9%
0%
7,60%
13.35%
9%
The fair value of a stock option under this option program is determined on the basis of a Monte Carlo risk simulation. The pro
rata amounts are recognized ratably over the vesting period as personnel expenses and an increase in the capital reserves.
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
Cost
Biofrontera AG Annual Report 2019
Biofrontera AG Annual Report 2016
December 31, 2019
December 31, 2018
1,252,000
333,485
88,500
-
-
1,496,985
-
EUR 2.25 – 6.708
44 months
EUR 360,000
1,143,500
180,000
71,500
-
-
1,252,000
-
EUR 2.25 - 5.73
50 months
EUR 257,000
77
77
Capital reserves
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 thousand (previous year: EUR 2,432 thousand) for the year ended December 31, 2019.
Capital management
The Group’s equity calculated in accordance with IFRS is managed as capital. The Company's capital management regularly
reviews the Group's level of liquidity and equity. Objective is to ensure that the Group's financing is adequate within the
expectations of the capital market and to ensure creditworthiness with respect to national and international business partners
to secure the Group's business operations for at least 12 months. The Company's Management Board ensures that all Group
companies have sufficient capital available in the form of equity and debt.
10. Financial liabilities
in EUR thousands
Non-current financial liabilities
Convertible bond 2017/2022
EIB loan 2017
EIB loan 2019
Leasing liabilities
Total non-current financial liabilities
Current financial liabilities
Leasing liabilities
Other current liabilities
Total current liabilities
December 31, 2019
December 31, 2018
1,977
11,845
5,301
2,987
22,110
1,038
174
1,212
2,495
10,967
0
0
13,462
0
165
165
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
December 31, 2019
2020
2021
2022
2023
2024
2025
Total
Convertible bond 2017/2022:
Principal repayment
Interest payment
EIB loan 2017
Principal repayment
Interest payment
EIB loan 2019
Principal repayment
Interest payment
Leasing liabilities
Principal repayment
Interest payment
122
122
433
461
194
204
1,033
146
1,098
114
2,031
61
10,000
4,949
214
484
64
2,031
305
10,000
5,843
5,000
2,897
4,025
396
227
503
44
5,000
2,058
523
24
384
4
78
Biofrontera AG Annual Report 2019
in EUR thousands
December 31, 2018
Convertible bond 2017/2022:
Principal repayment
Interest payment
EIB loan
Principal repayment
Interest payment
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
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 December 31, 2019, the carrying amount of the liability component on this basis was EUR 15,684 thousand (previous
year: EUR 9,887 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 December 31, 2018, the discounted interest payment or
fair value of the performance component amounted to EUR 1,462 thousand (previous year: EUR 1,080 thousand).
For further details, please refer to the section on significant accounting policies.
Leasing liabilities
As a result of the first-time application of IFRS 16, in the 2019 financial year, the contracts entered into by Biofrontera as a lessee
will be applied according to the modified retrospective method to leases that have a remaining term of more than one year on
January 1, 2019.
The carrying amount of the current and non-current leasing liabilities amounts to EUR 4,025 thousand (January 1, 2019: EUR
2,302 thousand). Future lease payments are discounted at the lessor's imputed interest rate or, if this is not available, at the
marginal borrowing rate.
For further details, please refer to the section on significant accounting policies.
11. Other financial liabilities
in EUR thousands
December 31, 2019
December 31, 2018
Purchase price liability (earn-out and start-up costs)
Current financial liabilities
14,720
99
0
29
The purchase price liability was discounted at a market interest rate of 9% based on the expected annual purchase price
payments. The expected annual purchase price payments are due from 2022 to 2030 depending on future profits from sales of
XepiTM. In total, without repayment of the start-up costs, the nominal repayment amount in this period is USD 28.9 million / EUR
25.8 million. The start-up costs of USD 2.9 million (EUR 2.5 million) received to date are repayable by 2022.
For further details, please refer to the section on business combinations.
12. Trade payables
As of December 31, 2019, trade payables amounted to EUR 4,196 thousand (previous year: EUR 1,806 thousand).
13. Other provisions
Current and non-current other provisions of the Biofrontera Group show the following changes:
Biofrontera AG Annual Report 2019
Biofrontera AG Annual Report 2016
79
79
Other current provisions
in EUR thousands
Outstanding invoices
Auditing costs
Provisions for litigation costs
Other provisions
Total current provisions
01.01.2019
Utilization
Released
Added
Translation
difference
31.12.2019
944
224
1,696
27
2,891
746
224
426
0
1,396
105
0
0
0
105
292
323
1,035
447
2,097
8
0
0
0
8
393
323
2,305
474
3,495
Other non-current provisions
EUR thousands
01.01.2019
Utilized
Released
Added
Provisions for litigation costs
Other non-current provisions
1,545
1,545
1,545
1,545
-
-
Translation
difference
31.12.2019
-
-
-
-
-
The additions in the amount of EUR 447 thousand to other provisions include additions of EUR 291 thousand due to extensions
to the scope of consolidation (Cutanea).
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.
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.
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. While we assume that
the claims of DUSA Pharmaceuticals, Inc. in particular are unjustified, we are unable to guarantee a successful outcome in court.
In 2019, a total of EUR 2,305 thousand (previous year: EUR 3,241 thousand) was accrued for costs to defend against litigation in
connection with pending proceedings in the U.S. and Germany. Due to the increased legal consulting costs, further amounts of
EUR 1,035 thousand were added.
14. Other current liabilities
Other current liabilities
(in EUR thousands)
Accrual for employee bonuses
Accrual for outstanding vacation
Payroll tax
Wages and salaries
Social security
Other
Total other current liabilities
December 31, 2019
December 31, 2018
1.731
403
135
212
21
63
2,565
2,099
315
267
141
13
44
2,879
Stock appreciation rights program 2019
In April 2019, the Executive Board, with the approval of the Supervisory Board, established a stock appreciation rights plan under
which the Company grants virtual options ("stock appreciation rights" or "SARs") entitling the "beneficiary" to receive cash
payments in accordance with the specific terms of the SAR plan. However, SARs do not confer any right to subscribe to shares
of the Company. SARs may be issued to members of the Management Board of the Company, to members of the management of
80
Biofrontera AG Annual Report 2019
affiliated companies as well as to employees of the Company and affiliated companies (hereinafter collectively referred to as
"beneficiaries"). The exact number of beneficiaries and the number of SARs to be granted to them are determined by the
Company's Management Board. To the extent that members of the Management Board are to receive SARs, the Supervisory
Board alone is responsible for determining and deciding on the issue of the SARs. In accordance with the SAR Plan, a maximum
of 4,000,000 SARs may be issued until March 31, 2024, of which a maximum of 1,600,000 SARs may be granted to members of
the Management Board and a maximum of 2,400,000 SARs to other beneficiaries. The SAR Plan sets the dates for the payment
of cash in connection with the SARs, unless there are legally binding regulations that conflict with the payout for the beneficiary.
In addition, the eligible party must meet certain conditions for the grant of SARs and must enter into a written contract ("SAR
Agreement") with the Company prior to exercise and delivery. Finally, SARs are subject to regulations on vesting periods, expiry
and forfeiture. In particular, the SARs may be exercised for the first time after a "vesting period" has expired:
a) The vesting period for 15 % of the SARs granted on an issue date is one year after the issue date;
b) The vesting period for an additional 25% of the SARs granted on an issue date is two years after the issue date;
c)
The vesting period for an additional 25% of the SARs granted on an issue date is three years after the issue date;
d) The vesting period for the remaining 35% of the SARs granted at an issue date is four years after the issue date.
After expiry of the respective vesting period, SARs may be exercised until six years after the respective issue date, unless
mandatory legal provisions stipulate otherwise in individual cases. If the SARs have not been exercised by that date, they expire
without replacement. The beneficiary has no claim to payment if the SARs are not exercised on time and no further compensation
will be granted.
SARs may only be exercised as long as their holder is in an ongoing employment or service relationship with the Company or
with an affiliated company or as a member of the Company's Management Board.
SARs may only be exercised if the reference price at the beginning of the respective exercise window exceeds the issue price
by at least 20%. Furthermore, the reference price must be at least as high as the MSCI World Health Care Index TR or a
comparable successor index in the time between the last trading day before the issue date and the 5th trading day before the
beginning of the respective exercise window.
Upon effective exercise of the SARs, the Company is obligated, subject to certain adjustments, to make a payment (gross) for
each SAR exercised as follows: reference rate - base amount = payout amount per SAR (gross)
To date, no rights have been issued under the Stock Appreciation Rights Program 2019.
15. 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
Total
Fair value
as of
31.12.2019
Carrying
amount as
of
31.12.2019
Fair value
as of
31.12.2018
Carrying
amount as
of
31.12.2018
Net gains (+)
or
losses (-)
31.12.2019
Net gains (+)
or
losses (-)
31.12.2018
11,119
5,031
1,077
17,227
11,119
5,031
1,077
17,227
19,451
3,397
794
23,642
19,451
3,397
794
23,642
(15)
(33)
-
(48)
(10)
1
-
(9)
Biofrontera AG Annual Report 2019
Biofrontera AG Annual Report 2016
81
81
Financial liabilities
in EUR thousands
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
Other financial liabilities, non-
current
Fair value
as of
31.12.2019
Carrying
amount as
of
31.12.2019
Fair value
as of
31.12.2018
Carrying
amount as
of 31.12.2018
Net gains (+)
or
losses (-)
31.12.2019
Net gains (+)
or
losses (-)
31.12.2018
1,212
4,196
99
20,648
26,155
1,212
4,196
99
20,648
26,155
165
1,805
29
12,382
14,382
165
1,805
29
12,382
14,382
-
(2)
-
-
(2)
-
(13)
-
-
(13)
1,462
14,720
1,462
14,720
1,080
-
1,080
-
(82)
(650)
(528)
-
Total
16,182
16,182
1,080
1,080
(732)
(528)
Under other operating expenses, Biofrontera reports value adjustments to trade receivables and miscellaneous financial
obligations allocable to the "held" category.
The net gains and losses generally include currency translation effects as well as impairments and write-ups. Fair value changes
of liabilities recognized at fair value are included in interest expense. Interest income is not included in net income.
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).
These relate to the performance component of the EIB loan (EUR 1.5 million; December 31, 2018: EUR 1.1 million) included under
non-current financial liabilities and the purchase price liability arising in 2019 from the acquisition of Cutanea (EUR 14.7 million).
No reclassifications were made between the individual levels of the fair value category during the 2019 fiscal year.
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: Biofrontera's exposure to market risks consists of foreign exchange and interest rate risks. The risk of interest
rate changes is regarded as low as the existing interest rate modalities for the relevant financing of the Biofrontera Group can
usually be adapted to market conditions in the short to medium term. Exceptions are the performance component, although this
is mitigated by a limit to 4% of the market price risk as well as the purchase price liability from the acquisition of Cutanea (earn-
out). An interest rate-related change in the value of the purchase price liability by 1 % would result in a change in interest
expense of EUR 1 million (previous year: 0)
Cash flow risk: There is no cash flow risk for the fixed-interest option bonds. The fixed interest rate means that no
disadvantageous changes in interest payments can occur. As the liabilities are not carried at fair value but at amortized cost,
there is also no fair value risk. A change of +5 % (-5 %) in the expected profits from the sale of the Cutanea products would
result in a change of EUR +0.9 million (EUR -0.6 million) for the purchase price liability.
82
Biofrontera AG Annual Report 2019
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 29,1 million (previous year: EUR 27.0 million).
A 5% change in the value of financial assets and financial liabilities in foreign currency would result in a change of EUR 1.5 million
(previous year: EUR 1.4 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 2019 financial year, individual value adjustments in the amount of EUR 43 thousand (previous year: 0) were applied to
trade receivables. Cash and cash equivalents are invested with banks and insurance companies with sufficient deposit
protection.
Liquidity risk: 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.
At present, the company is sufficiently financed. However, the cost-cutting measures introduced may not be sufficient to
continue operations for 12 months and beyond. So far, the company has always succeeded in securing financing for the company
through additional capital measures.
With regard to material uncertainties in connection with the going concern status, we refer to Note 33 Subsequent events.
With regard to the (undiscounted) payments from financial liabilities due in the next few years, reference is made to the
corresponding notes on this item on the balance sheet.
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 fiscal
year 2019
16. Sales revenue
01.01.-31.12.2019
01.01.-31.12.2018
Sales revenue
(in EUR thousands)
Product
revenue
Development
revenues
Other
Product
revenue
Development
revenues
Germany
Europe
U.S.
Other regions
Total
4,633
2,603
23,343
-
30,579
-
-
-
686
686
-
-
-
-
-
3,307
2,737
14,894
-
20,938
-
-
-
129
129
Biofrontera AG Annual Report 2019
Biofrontera AG Annual Report 2016
Other
-
-
-
40
40
83
83
Revenue from product revenues generated in the U.S. includes revenue from finance and operating lease agreements concerning
the BF-RhodoLED® lamps.
In the 2019 financial year, we generated EUR 72 thousand of income from operating leases (previous year: EUR 94 thousand). We
generated income of EUR 126 thousand from finance leases (previous year: EUR 240 thousand).
17. Cost of sales, gross profit
The cost of materials included in the cost of sales amounted to EUR 3,827 thousand for the 2019 financial year (previous year:
EUR 3,636 thousand).
The gross profit on sales increased by EUR 9,734 thousand in the 2019 reporting year, to reach EUR 26,390 thousand, compared
with EUR 16,656 thousand in the prior-year period.
18. Research and development costs
Research and development costs amounted to EUR 4,636 thousand (previous year: EUR 4,427 thousand) and include costs for
clinical studies as well as expenses for regulatory activities, i.e. the granting, maintenance and expansion of our approvals.
19. Sales and marketing costs
Sales and marketing costs amounted to EUR 28,856 thousand in the 2019 financial year (previous year: EUR 17,744 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. The increase in sales costs is due to the further expansion of the sales organization in the USA as well as sales-related
costs incurred at Cutanea.
20. General administrative costs
General administrative costs amounted to EUR 16,275 thousand in the 2019 financial year (previous year: EUR 12,963 thousand)
and thus increased by a total of EUR 3,312 thousand compared to the previous year, in particular due to the Cutanea acquisition.
Legal and consulting costs amounted to EUR 6,929 thousand (previous year: EUR 6,230 thousand).
21. Interest expenses and income
Interest income mainly results from investments of cash and cash equivalents of EUR 124 thousand (previous year: EUR 24
thousand).
in EUR thousands
Convertible bond 2017/22
EIB loan 2017
EIB loan 2019
Cutanea purchase price liability
Leasing
Other
2019
Interest expense
from compounding
2019
Interest expense
and the like
2018
Interest expense
from compounding
2018
Interest expense
and the like
32
202
11
-
-
-
245
136
1,046
457
650
124
53
2,466
30
140
-
-
-
-
170
156
1,458
-
-
-
-
1,614
22. Other expenses and income
Other income mainly includes the negative difference (bad will) of EUR 14,812 thousand arising from the purchase price allocation
and other income from the assumption of costs by Maruho EUR 6,215 thousand. In addition, the items include expenses and
income from currency translations in the amount of EUR 324 thousand (previous year: EUR 650 thousand).
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Biofrontera AG Annual Report 2019
23. Income tax
in EUR thousands
Deferred taxes
Actual income taxes
Income tax
2019
(2,606)
25
(2,581)
2018
10,400
(9)
10,391
The expense from deferred taxes results from the use of the tax loss carryforwards of Biofrontera Pharma GmbH (EUR 256
thousand) and from the reduction in the municipal trade tax rate of the city of Leverkusen with effect from January 1, 2020 (EUR
2,350 thousand).
24. 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
December 31, 2019
December 31, 2018
44,690,009
(7,358)
(0.16)
43,695,794
(8,878)
(0.20)
The instruments are generally diluted. Due to the loss situation, the basic EPS corresponds to the diluted EPS.
25. Additional information about the consolidated statement of comprehensive income
Other comprehensive income only includes exchange differences from the conversion of foreign currency from our foreign
operations into the Group currency.
Depreciation and amortization expense
The amortization of intangible assets and depreciation of tangible assets are included in the following items of 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
Biofrontera AG Annual Report 2019
Biofrontera AG Annual Report 2016
2019
72
383
17
2.684
3.156
2019
19,894
2,958
391
23,243
2018
595
109
15
34
754
2018
14,252
1,973
191
16,416
85
85
26. Staff
Total employees (average)
Full-time
With academic degree
By business segments
Production
Research & Development
Clinical and regulatory tasks
Marketing and sales
Quality management
Management, business development, finance, HR and administration
By countries
Germany
USA
Spain
United Kingdom
27. Other information
2019
180
154
30
16
5
16
73
9
58
89
80
8
3
2018
141
122
29
13
4
12
70
7
35
75
56
7
3
In the USA, BF-RhodoLED® lamps are also available under leasing agreements. These agreements are accounted for as operating
leases in the first six months. After six months, the customer has the option of either returning the lamp or purchasing it. The
agreed purchase price can then be paid immediately in full or over an additional 24 months. If payment is made over an additional
24 months, the agreements are accounted for as financing leases. In financial year 2019, the company generated income of EUR
71 thousand (previous year: EUR 94 thousand) from operating lease agreements. Income of EUR 126 thousand (previous year:
EUR 240 thousand) was generated from finance lease agreements. The future expected leasing income as of December 31, 2019
is as follows:
in EUR thousands
2019
2018
2019
2018
2019
2018
≤ 1 year
1 year to 5 years
> 5 years
Finance lease BF-RhodoLED®
interest income
Finance lease BF-RhodoLED® sales
24
160
19
121
9
57
11
72
0
0
0
0
28. 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 664 thousand (previous year: EUR 536 thousand). Taxes paid amounted to EUR 36 thousand
(previous year: EUR 9 thousand). Interest received amounted to EUR 127 thousand (previous year: EUR 24 thousand).
The changes are comprised as follows:
86
Biofrontera AG Annual Report 2019
in EUR thousands
Convertible bond 2017/2022
EIB loan 2017
EIB loan 2019
Interest convertible Bond 2017/2022,
Convertible Bond 2017/22
Interest EIB loan 2017
Interest EIB loan 2019
Leasing liabilities
Total financial liabilities
January 1, 2019
Cash flow
Addition/
retirement
Fair value
change
December 31,
2019
Non-cash changes
2,495
10,967
-
78
87
-
2,303
15,930
-
-
5,000
(153)
(372)
(139)
(1,183)
3,153
-518
810
287
136
369
168
2,905
4,157
-
68
14
-
-
-
-
82
1,977
11,845
5,301
61
84
29
4,025
23,322
29. Members of the Management Board
In 2019, the Management Board consisted of Prof. Dr. Hermann Lübbert (Chief Executive Officer), Mr. Thomas Schaffer (Chief
Financial Officer) and Mr. Christoph Dünwald (Chief Commercial Officer).
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.
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. He resigned as Chief Commercial Officer (CCO) on January 31, 2020.
Biofrontera AG Annual Report 2019
Biofrontera AG Annual Report 2016
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87
Management Board compensation
in EUR thousands
Short-term benefits
Performance-based compensation
Total compensation
2019
1,387
87
1,474
2018
1,071
422
1,493
Further information on individualized compensation of the Management Board can be found in the "Compensation Report" in
the Management Report.
The Management Board members held the following supervisory board positions and positions on comparable domestic and
foreign boards during the reporting period:
Name
Company
Board
Position
Thomas Schaffer
Industrial Tracking Systems AG, Fürstenfeldbruck
Supervisory Board
Chair
30. Members of the Supervisory Board
Name
Dr. Ulrich Granzer
Nationality
German
Age
59
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
University.
German
65
Deputy Chair
24.05.2007
2021
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.
62
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
61
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.
49
Member
31.05.2016
2021
88
Biofrontera AG Annual Report 2019
Name
Nationality
Age
Position
Data first
appointment
Term until
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.
Prof. Dr. Franca Ruhwedel*
German 47 Member 10.07.2019 2021
Curriculum vitae
Prof. Dr. Ruhwedel is currently Professor of Finance and Accounting at the Rhine-Waal University of Applied
Sciences in Kamp-Lintfort. Previously, she was held the position of Professor of Accounting and Controlling
at the FOM University in Essen. During her professional career she has held positions as project manager
in the areas of M&A and corporate development at thyssenkrupp AG and tyssenkrupp Steel AG. After her
training as a banker at Commerzbank AG and her studies of business administration, Ms. Ruhwedel
obtained her doctorate at the Ruhr University of Bochum.
Kevin Weber
USA
61
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.
* By order of the Cologne District Court dated March 22, 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 March 22,
2019 and came to the company's attention on March 26, 2019. The ruling regarding the removal from office was effective immediately. However,
an appeal was filed and subsequently was rejected by the Cologne District Court on April 30, 2019 and the case was referred to the Higher
Regional Court for a further ruling. The Higher Regional Court of Cologne dismissed the appeal on August 29, 2019 finally dismissed the appeal.
The Annual General Meeting on July 10, 2019 elected Prof. Dr. Franca Ruhwedel, Professor of Finance and Accounting at the Rhein-Waal
University of Applied Sciences, Kamp-Lintfort, Duisburg, to the Supervisory Board as successor to Mr. Plaggemars.
Supervisory board compensation
in EUR thousands
Dr. Ulrich Granzer
Jürgen Baumann
John Borer
Reinhard Eyring
Hansjörg Plaggemars
Prof. Dr. Franca Ruhwedel
Kevin Weber
Total
Compensation 2019
Compensation 2018
30
23
15
15
3
7
15
108
30
23
15
14
15
-
15
112
The payments are short-term payments within the meaning of IAS 24.17 (a).
The Supervisory Board members held the following other supervisory board positions and positions on comparable domestic
and foreign boards during the reporting period:
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89
Name
Reinhard Eyring
Company
Board
Position
DESTAG Deutsche Steinindustrie AG
Supervisory Board
Chair
Prof. Dr. Franca Ruhwedel
NATIONAL-BANK AG, Essen
VTG AG, Hamburg
Management Board Member
Management Board Member
31. Related party disclosures
As a result of the acquisition of Cutanea, the research and development cooperation as well as a sublease agreement, the
following relationships with the Maruho Group are in place:
in EUR thousands
December 31, 2019
December 31, 2018
Revenue from research collaborations
Income from the reimbursement of costs by Maruho
Income from subleases
Accounts receivables
Receivables from start-up costs
Purchase price liability Cutanea (earn-out and start-up costs)
Other liabilties
686
6.215
34
149
3.646
15.487
72
129
-
34
-
-
-
-
With regard to the acquisition of Cutanea, we refer to the disclosures on business combinations.
On March 19, 2019, the Company signed an agreement to continue its research collaboration with Maruho Co., Ltd. of Osaka,
Japan ("Maruho") in the field of branded generics. Under the new project phase, Biofrontera will prepare the formulation of one
of four active ingredients in Biofrontera's nanoemulsion for clinical trials, which were jointly researched in an earlier project
phase (phase 1). According to current planning, research costs of up to EUR 1.1 million will be incurred in the new project phase,
which will be fully borne by Maruho.
During 2019, our company received additional advisory services from supervisory board member Dr. Ulrich Granzer. Dr. Granzer
assisted our company with key issues relating to the preparation of the applications for approval submitted to the regulatory
authorities in Europe and the U.S. During the fiscal year ending December 31, 2019, advisory services in the amount of EUR 1
thousand were provided by Granzer Regulatory Consulting & Services (previous year: 0). The amounts stated here do not include
statutory value added tax at the current rate of 19%. The underlying consultancy agreement was approved with due
consideration of the applicable legal and regulatory framework.
In the 2019 financial year, there were no further reportable transactions or relationships with related parties beyond those
described above or in sections 28 and 29.
The group of related parties is limited to the group of persons and companies mentioned there. The group of key management
personnel is limited to the Management Board and Supervisory Board.
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.
Due to the close cooperation between the Group companies, intercompany billing is applied, which is adjusted annually according
to requirements.
32. Auditor's fees and services
The total fee invoiced by the auditor Warth & Klein Grant Thornton AG for the 2019 financial years consist of:
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Biofrontera AG Annual Report 2019
in EUR thousands
Auditing services
[of which for the previous year]
Other audit services
2019
571
[102]
-
571
2018
580
[221]
85
665
The auditing services includes, in addition to the mandatory audit of the annual and consolidated financial statements of
Biofrontera AG, the review of the condensed interim financial statements and interim management report, as well as the audit
of the consolidated financial statements according to PCAOB standards.
Other audit services in the previous year related to the audit of the profit forecast and the issue of a comfort letter.
33. Subsequent events
Strengthening of the commercial focus through reorganization of the US business
On January 6, 2020, the company announced a new organizational structure of its US-subsidiary Biofrontera Inc. to strengthen
its commercial activities in the USA.
Since then, the operating business in the USA is managed by Christopher Pearson as Chief Commercial Officer USA and Erica
Monaco as Chief Financial Officer USA. Chris Pearson is responsible for Sales, Marketing and Market Access. Erica Monaco is
responsible for Finance & Operations, Human Resources, Legal and Compliance. Organizationally, Biofrontera Inc. is now
managed by a 4-member Board of Directors, consisting of Prof. Hermann Lübbert (Chairman) and Thomas Schaffer as non-
executive board members, Chris Pearson and Erica Monaco as executive board members.
Organizational restructuring of Biofrontera and resignation of Chief Commercial Officer Christoph
Dünwald
On January 31, 2020, the company announced that - following the operational reorganization of the company's US-subsidiary
Biofrontera Inc. - it has reorganized its European sales structure. As part of the restructuring of Biofrontera, Christoph Dünwald,
Chief Commercial Officer (CCO), has resigned from his position to pursue new challenges.
As a result of the restructuring, Biofrontera's worldwide sales organization now stands on two pillars: Sales and marketing in
the USA, Biofrontera's largest market, and a uniform management of all sales organizations in Europe. Dr. Matthias Naumann,
who has been successfully working for the company since 2016 as Sales Manager Germany, has assumed the management of
the sales organization in Europe. As Head of Sales and Marketing Europe, Mr. Naumann now manages the sales and marketing
activities comprehensively across Europe.
Approval for Ameluz® label extension for the treatment of actinic keratosis on extremities and
trunk/neck by the European Commission
Based on the positive assessment of the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines
Agency (EMA) on February 3, 2020, the European Commission granted the formal extension of approval on March 10, 2020. The
extended approval of Ameluz® now also includes the treatment of mild and moderate actinic keratoses (AK) on the extremities
and trunk/neck with photodynamic therapy (PDT).
In addition, the results of the follow-up phase of the clinical study comparing daylight PDT with Ameluz® and Metvix® were
included in the product information (SmPC). With a recurrence rate of 19.5%, Ameluz® showed significantly lower recurrence
rates after 12 months than Metvix® with 31.2%.
Subscription offers for mandatory convertible bonds
On February 26, 2020, the Management Board resolved to issue up to 1,600,000 of the 0.5% qualified subordinated mandatory
convertible bonds 2020/2024 ("Bonds 2020/2024") with a nominal value of EUR 5.00 each and a total nominal value of up to EUR
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91
8,000,000 as well as up to 1,600,000 of the 1.00 % qualified subordinated mandatory convertible bonds 2020/2026 ("Bonds
2020/2026") with a nominal value of EUR 5.00 each and a total nominal value of up to EUR 8,000,000.
As capital market conditions had changed as a result of the coronavirus crisis, the Management Board had resolved on March
12, 2020 to extend the subscription period for the Bonds 2020/2024 and for the Bonds 2020/2026 until March 31, 2020.
On March 23, 2020, the Management Board resolved not to offer the Bonds 2020/2024 and the Bonds 2020/2026 based on the
previously determined conditions due to further substantially changed conditions since March 12, 2020 as a result of the
coronavirus crisis. Both the subscription offers for the Bonds 2020/2024 and the subscription offer for the Bonds 2020/2026
were therefore withdrawn and will not be completed.
Non-binding term sheet for licensing agreement for Ameluz® in Poland with medac GmbH Sp. z o.o.
On March 13, 2020, the company signed a non-binding term sheet for an exclusive license agreement with medac GmbH Sp. z
o.o., the Polish branch of medac Gesellschaft für klinische Spezialpräparate mbH, for the marketing of Ameluz® and BF-
RhodoLED® in Poland.
The term sheet contains terms and conditions regarding the amount of the one-time upfront payment of around EUR 200,0000,
the term of approximately 5 years, the transfer price for Ameluz® and BF-RhodoLED® as well as local regulatory responsibilities
in Poland.
Licensing agreement for Ameluz® with Maruho Co., Ltd.
On March 3, 2020, the company entered into a binding term sheet (“Binding Term Sheet”) with Maruho Co, Ltd, Osaka, Japan,
which sets out the main terms of a future license agreement for East Asia and Oceania. The Agreement has a term of 15 years
from the start of distribution in each country covered under the Agreement. The agreement has a term of 15 years from the
start of distribution in each country covered under the agreement.
Under the terms of the agreement, Maruho will obtain exclusive development and commercialization rights including the right
to sublicense Ameluz® East Asia and Oceania
Maruho is, with the consent of Biofrontera, entitled to carry out its own research and development within the scope of the
license. Maruho will grant to Biofrontera a free and unlimited license for the results of such research and development activities
for commercialization outside the territory.
Under the terms of the agreement, Biofrontera will supply Ameluz® to Maruho at cost plus 25%, while Maruho has an obligation
to use commercially reasonable efforts to develop, approve and market Ameluz® in East Asia and Oceania.
Upon signing of the licensing agreement in April 2020, Maruho will make an upfront payment to Biofrontera AG in the amount of
EUR 6 million plus additional future payments subject to achievement of certain regulatory and sales milestones. Maruho will
also make royalty payments at an initial rate of 6% of net sales in the countries of the territory, which will increase depending
on sales volume and will be reduced should generic products become available in the respective countries.
Effects of the COVID-19 pandemic
The coronavirus pandemic, which is continuing to worsen around the world, is causing massive disruptions in global supply
chains, consumer markets and the economy as a whole. As a result of the measures implemented by governments around the
world, Biofrontera's business operations is directly affected. In particular, there is a risk of a temporary and significant decline
in demand for Biofrontera's products worldwide.
On March 20, 2020, the company announced that is has adopted comprehensive measures to reduce costs during the global
COVID-19 pandemic. As such, Biofrontera has implemented short-time work for all employees in Germany. Similar measures were
implemented at its subsidiaries in Spain and the UK. Biofrontera Inc., the US-based wholly owned subsidiary, also initiated
substantial cost cutting measures by significantly reducing its workforce and implementing a mandatory furlough program,
under which all employees will be required to take temporary periods of unpaid time off. In addition, the members of the
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Biofrontera AG Annual Report 2019
Management Board of Biofrontera AG as well as the management of Biofrontera Inc. are voluntarily waiving a substantial portion
of their salaries until further notice.
While these cost-cutting measures are in place, the company ensures full medical and financial regulatory compliance and
continuous disclosure of its business is maintained at all time.
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 is
sufficiently financed due to the drawdown of several tranches totaling EUR 15 million from the European Investment Bank loan
as well as the one-time down payment in the amount of EUR 6 million from the licensing agreement with Maruho signed in April
2020. The planned capital measure for March 2020 with a maximum total of up to EUR 16 million had to be cancelled due to the
turmoil on the capital markets as a result of the Corona crisis.
In order to finance its business operations for a further 12 months and beyond, Biofrontera is dependent on an additional
capital measure of at least EUR 5 million by no later than the end of the 2020 financial year. The Management Board expects,
based on the assumption that the general economic conditions will normalize and based on the consistently successful track
record with capital measures to date, that the required liquidity for the business can be ensured in the future. However, should
this no longer be possible due to a continuing crisis caused by the COVID 19 pandemic, this would pose a threat to the going
concern status of the Biofrontera Group.
Should the worldwide COVID-19 pandemic last longer than expected, it could lead to a drastic decline in liquidity of the Biofrontera
Group due to significantly reduced sales, despite the cost reduction measures that have been introduced, and also render further
access to financing on the capital market impossible. However, the Management Board currently assumes that following the end
of the current crisis, it will once again be possible to successfully implement appropriate capital measures.
The current uncertain business outlook due to the COVID-19 pandemic may also affect the future valuation of certain assets and
liabilities of the company. Lower sales of XepiTM may lead to a different evaluation of the medium-term sales and earnings
prospects for XepiTM and consequently to a revaluation of the value of the XepiTM license on the balance sheet. The purchase
price liability to Maruho for future profits from the sale of Xepi™ is subject to market risk (earn-out) and depends on the amount
of profits generated. Furthermore, in the event of a prolonged decline in business activity, the shelf life of already produced
Ameluz® tubes may expire and inventories may have to be destroyed.
No subsequent events subject to mandatory reporting occurred after the balance sheet date.
Leverkusen, April 20, 2020
Prof. Dr. Hermann Lübbert
Chief Executive Officer
Thomas Schaffer
Chief Financial Officer
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Independent Auditor’s Report
To Biofrontera AG, Leverkusen
Report on the Audit of the Consolidated Financial Statements and 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 2019, 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 2019 to 31 December 2019, 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 2019 to 31 December 2019. 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] 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 2019 and of its financial performance for the financial year from 1 January 2019 to 31
December 2019, 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.
Material uncertainty related to going concern
We draw attention to the comments in section 33 "Subsequent events" of the notes to the consolidated financial statements
and to the "Liquidity, profitability, capital markets access and risks to the going concern status" subsection in the "Risk and
opportunity report" section of the combined management report. There the executive directors of Biofrontera AG describe that
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Biofrontera AG Annual Report 2019
a planned capital measure for March 2020 with a maximum total of up to EUR 16 million had to be cancelled due to the turmoil
on the capital markets as a result of the Corona crisis and that in order to finance its business operations for a further 12 months
and beyond, Biofrontera is dependent on a capital measure of at least EUR 5 million by no later than the end of the 2020 financial
year. The executive directors expect, based on the assumption that the general economic conditions will normalize and based
on the consistently successful track record with capital measures to date, that the required liquidity for the business can be
ensured in the future, however, attention is drawn to the fact that should this no longer be possible due to a continuing crisis
caused by the COVID 19 pandemic, this would pose a threat to the going concern status of the Biofrontera Group. Should the
worldwide COVID-19 pandemic last longer than expected, it could lead to a drastic decline in liquidity of the Biofrontera Group
due to significantly reduced sales, despite the cost reduction measures that have been introduced, and also render further
access to financing on the capital market impossible.
As stated in the quoted sections of the notes to the consolidated financial statements and the combined management report,
these events or conditions indicate that material uncertainty exists that may cast significant doubt on the group’s ability to
continue as a going concern and that represents a going concern risk within the meaning of Section 322 para. 2 sentence 3 HGB.
As part of our audit we have assessed whether the executive directors' use of the going concern basis of accounting in the
preparation of the consolidated financial statements and the disclosure of material uncertainty related to going concern in the
consolidated financial statements and in the combined management report are appropriate in the circumstances. For this
purpose, we assessed in particular the liquidity planning prepared by the executive directors of Biofrontera AG on the basis of
the adopted budget of the Biofrontera Group for the financial year 2020 in consideration of the effects of the COVID-19 crisis
which the executive directors expect on the business activities and the liquidity of the Biofrontera Group. In this context we
determined whether the assumptions underlying the liquidity planning are sufficiently supported and assessed the reliability of
the underlying data.
Our audit opinions are not modified in respect of this matter.
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 2019 to 31 December 2019. 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, and we do not provide
a separate audit opinion on these matters.
In addition to the matter described in the "Material uncertainty related to going concern" section we determined the matters
described below as key audit matters to be included in our Auditor's Report:
1)
Evaluation of the Xepi license obtained in connection with the acquisition of Cutanea Life Sciences and the financial
liabilities from the variable purchase price from the earn out agreement.
2) Capitalisation of tax loss carryforwards.
Our presentation of the key audit matters has been structured as follows:
1)
Financial Statement Risk
2) Audit Approach
3) Reference to Related Disclosures
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Evaluation of the Xepi license obtained in connection with the acquisition of Cutanea Life
Sciences and the financial liabilities from the variable purchase price resulting from the
earn out agreement
1)
Financial Statement Risk
On 25 March 2019, Biofrontera Inc. entered into an agreement with Maruho Co., Ltd, Japan ("Maruho") to acquire 100% of the
shares of Cutanea Life Sciences, Inc., Wayne/USA, including its subsidiaries Dermark LLC, Wayne/USA, and Dermapex LLC,
Wayne/USA, (together "Cutanea") through its newly founded subsidiary Biofrontera Newderm LLC, Woburn/USA. In connection
with the acquisition of the shares in Cutanea, in particular a license was acquired as an asset, which has enabled Biofrontera to
market Xepi, a prescription cream for the treatment of impetigo ("Xepi license").
Biofrontera acquired Cutanea at an initial purchase price of US dollar 1.00 Additionally, an earn-out agreement was entered into,
according to which the profits from the sale of the Xepi license will be shared equally between Maruho and Biofrontera until
2030.
The amount of the Xepi license recognised in the consolidated balance sheet in connection with the purchase price allocation
at the time of acquisition is kEUR 23,604. The recognised financial liability from the variable purchase price at the time of
acquisition amounted to kEUR 11,488.
The evaluation of the obtained Xepi license as well as of the financial liabilities from the variable purchase price resulting form
the earn out is based on discretionary assumptions of the executive directors and is therefore subject to high estimation
uncertainty. Particular risks for the financial statements are also attributable to the assumption-based measurement methods
used to determine the fair values. Against this background and considering the importance of the acquisition for the Biofrontera
Group's financial performance, the adequate recognition in the balance sheet of the acquisition completed in the financial year
was of particular importance in our audit.
2) Audit Approach
As part of the evaluation of the Xepi license and the purchase price liability, we first evaluated the competence, capability and
objectivity of the external expert engaged by Biofrontera AG to carry out the evaluation. We reconciled the amount of the Xepi
license and of the foregoing financial liability recognised in the consolidated balance sheet with the valuation report of the
external expert. With the involvement of our internal valuation experts we evaluated the appropriateness of the valuation
methods employed by the expert engaged by Biofrontera AG in the consideration of the Xepi license and the aforementioned
financial liability in the context of the general accounting policies and assessed the content of the applied measurement
assumptions and parameters. For this purpose we analysed the methodological approach used for determining the fair value of
the Xepi license and the financial liability from the earn out agreement. We assessed the consistency and reliability of the
underlying planning assumptions and the appropriateness of the resulting cash flows on which the determination of the fair
value of the Xepi license and of the purchase price liability was based. For this purpose, we checked the planning calculations
for their arithmetical correctness and assessed the planned future revenue and resulting cash flows from the sale of the Xepi
medicine and the expected conditional purchase price payments, among other things, on the basis of interviews with the
executive directors and of the external experts engaged to prepare the purchase price allocation. In the calculation of the fair
value of the Xepi license and of the present value of the purchase price liability, we recalculated the used capital costs and
compared their underlying parameters with publicly available information.
3) Reference to Related Disclosures
The disclosures relating to the valuation of the Xepi license and the financial liabilities from the variable purchase price resulting
from the earn out agreement are shown in the notes to the consolidated financial statements in the " Basis of consolidation"
section.
Capitalisation of tax loss carryforwards
1)
Financial Statement Risk
In the consolidated balance sheet as of 31 December 2019 of Biofrontera AG, a balance from deferred tax assets in the amount
of kEUR 9,470 and deferred taxes amounting to kEUR 1,676 are recognised under the line item "Deferred taxes".
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Of the deferred tax assets, an amount of kEUR 7,883 relates to capitalised tax loss carryforwards of Biofrontera Pharma GmbH.
It generated profits in 2019, and the executive directors of Biofrontera AG assume in their planning, based on knowledge as of
the balance sheet date, 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 amount of kEUR
29,569 were not recognised.
Whether the deferred tax assets from the loss carryforwards of Biofrontera Pharma GmbH 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 these 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 importance in our audit.
2) Audit Approach
As part of our audit of the capitalisation and of the non-recognition of deferred tax assets on the foregoing loss carryforwards
we critically assessed the executive directors' estimates of the predictability of future taxable profits of the relevant taxable
entities. For this purpose we evaluated the assessment of the executive directors of Biofrontera AG that the positive earnings
development of Biofrontera Pharma GmbH in 2019 and in the planning period is expected to be sustainable. In this context we
reconciled the planning of Biofrontera Pharma GmbH with the budget for the financial year 2020 as adopted by the executive
directors of Biofrontera AG and approved by the Supervisory Board, and we reconciled the medium-term planning until 2022 and
the forward projection planning with our understanding of the economic environment of the Biofrontera Group, with budgets
and planning being based on knowledge existing or to be expected on the balance sheet date. On the basis of the information
obtained in this process, we finally evaluated the assessment of the executive directors to continue to capitalise the loss
carryforwards at Biofrontera Pharma GmbH and recalculated the tax loss carryforwards as well as deferred tax assets. We
checked the arithmetical correctness of the recognised 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 balance sheet – 8. Deferred income tax" section of the notes to the
consolidated financial statements.
Other information
The executive directors or, respectively, the supervisory board 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 and pursuant to Section 315 para. 1
sentence 5 HGB, and
the remaining parts of the 2019 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.
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In connection with our group audit, our responsibility is to read the other information and, in so doing, to consider whether the
other information
▪
is materially inconsistent with the consolidated financial statements, 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 as they have determined necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the 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 Group Management Report
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and whether the 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.
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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.
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.
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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 10 July 2019. We were engaged by the audit committee of
the supervisory board on 20 November 2019. 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).
German Public Auditor Responsible for the Engagement
The German Public Auditor responsible for the engagement is Michael Gottschalk.
Düsseldorf, 20 April 2020
Warth & Klein Grant Thornton AG
Wirtschaftsprüfungsgesellschaft
Prof. Dr. Thomas Senger
Wirtschaftsprüfer
[German Public Auditor]
Michael Gottschalk
Wirtschaftsprüfer
[German Public Auditor]
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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 assets, financial position and results of operations of the Group and
that the combined management and group management report presents the course of business, including the business results
and the position of the Biofrontera Group and Biofrontera AG, in such a way that a true and fair view is given and that the main
opportunities and risks of the expected future development of the Biofrontera Group and Biofrontera AG are described.
Leverkusen, April 20, 2020
Biofrontera AG
Prof. Dr. Hermann Lübbert
Thomas Schaffer
Biofrontera AG Annual Report 2019
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10
Biofrontera AG
Hemmelrather Weg 201
D-51377 Leverkuse
Telefon: + 49 (0) 214 87 63 2 0
Fax: + 49 (0) 214 87 63 2 90
E-mail:
info@biofrontera.com
www.biofrontera.com