Deep in dermatology
Biofrontera AG
Annual report 2020
Content
Biofrontera AG Annual Report 2020
Key figures 2020
Ameluz® - markets and growth potential
Letter to shareholders
Investor relations report
Corporate governance declaration
Report of the supervisory board of Biofrontera AG for the 2020 financial year
Combined management report for parent company and Group as of 31 December 2020
Consolidated financial statements as of December 31, 2020
Consolidated statement of comprehensive income for the fiscal year 2020
Consolidated statement of changes in equity for the fiscal year 2020
Consolidated cash flow statement for the fiscal year 2020
Notes to the consolidated financial statements as of December 31, 2020
Auditor‘s Report
Responsibility statement
I
II
VIII
X
XIII
XIV
1
39
41
42
43
44
Z1
A1
Key figures 2020
Results and development 2020
Sales revenues
EUR 30.3 million
Loss from
operations
Loss before
income tax
compared to EUR 31.3 million in 2019
EUR 7.6 million
compared to EUR 23.4 million in 2019
EUR 12.7 million
compared to EUR 4.8 million in 2019
Non-finacial key performance indicators
Employees
174
149
63%
64%
37%
36%
2020
2019
2020
2019
Quality management
Standard operating procedures
2020
70
2019
591
495
2020
2019
Women at management level
Trainings and audits/inspections
External
trainings
SOPs
19
Audits/
inspections
9
6
Internal
inspections
70
60
2020
2019
2020
70
2019
54%
46%
Expenses for training and education
per employee
EUR 202
2020
2019
EUR 666
Biofrontera AG Annual Report 2020
119
I
The Opportunity
for Ameluz®-PDT
Biofrontera’s position and market potential
1 in 3 cancer diagnoses worldwide
can be attributed to skin cancer1
Ameluz®-PDT describes is a light activated prescription drug for the
lesion-directed and field-directed photodynamic therapy of mild to moderate
actinic keratoses2, premalignant lesions of the skin that can potentially
develop into skin cancer if left untreated.3
This unique therapy is well positioned for expansion.
1Zink, Hautarzt. 2017 Nov;68(11):919-928
2Ameluz SmPC (02/2021)
3www.awmf.org/leitlinien/detail/ll/032-022OL.html
Biofrontera AG Annual Report 2020
II
ACTINIC KERATOSIS (AK)
Most common precancerous
skin condition4
More prevalent in men, fair-skinned
individuals, and those over age 403
Since AK is caused by chronic sun damage, those with a history of tanning are more
at risk, but even casual sun exposure can lead to AK when accumulated over time.5
UV LIGHT
Treating AK
Early and effective treatment is reasonable to
reduce the risk of AK progression to skin cancer.
One study found that approximately
10% of AK lesions progressed to
squamous cell carcinoma, the second
most common skin cancer, within an
average of two years.6
AK treatment costs account for about
3.75% of total skin disease medical cost.7
Actinic keratosis
Squamous cell carcinoma
Treatment options include:
Cryotherapy/surgical
procedures
Topicals
Photodynamic therapy (PDT):
combination of prescription
medication with illumination
3www.awmf.org/leitlinien/detail/ll/032-022OL.html; 4Pinkus & Mehregan, Clin Plast Surg. 1980 Jul;7(3):289-300;
5Werner et al., J Eur Acad Dermatol Venereol. 2015 Nov;29(11):2069-79
6Fuchs & Marmur, Dermatol Surg. 2007 Sep; 33(9):1099-101; 7Lim et al. 2017 J Am AcadDermatol 2017; 76 (5): 958-972
Biofrontera AG Annual Report 2020
III
The potential for
Ameluz®-PDT
Surgical procedures and cryotherapy for AK
treatment are projected to lose market share.
There’s a need for therapies that
don’t physically destroy skin tissue
or cause permanent scars.
Additionally, surgery and
cryotherapy lack a field-directed
approach to treat AK lesions that
aren’t visible on the epidermis.3
Ameluz® has successfully increased market share
in Germany and is poised for additional success
in Biofrontera’s major market, the U.S.
AMELUZ®-PDT HAS AN EFFICACY RATING OF MORE
THAN 90% TOTAL CLEARANCE IN CLINICAL TRIALS.8
Strategic market
expansion has made
Ameluz® a leader in
PDT in Biofrontera’s
domestic market
Germany.
Ameluz®-dPDT (daylight PDT) is a
more favorable option for European
dermatologists and their patients than
conventional PDT treatment.
Reimbursed & now available
for all patients
Simple application
Less painful9
3www.awmf.org/leitlinien/detail/ll/032-022OL.html; 8Reinhold et al., Br J Dermatol. 2016 Oct;175(4):696-705
9Dirschka et al., J Eur Acad Dermatol Venereol. 2019 Feb;33(2):288-297
Biofrontera AG Annual Report 2020
IV
~1.7M AK patients treated annually10
Currently
2.2M
affected Germans
2.7%
of total population
German AK market by treatment option
5.9%
6.6%
7.1%
2018
2019
2020
94.1%
93.4%
92.9%
PDT
Topicals
Revenue potential
Share of Ameluz® in German PDT market
2020
2019
2018
62.3%
57.0%
51.7%
37.7%
43.0%
48.3%
Ameluz®
Other PDT products
Potential market share
10Schäfer et al., J Eur Acad Dermatol Venereol. 2014 Mar;28(3):309-13.
Biofrontera AG Annual Report 2020
V
The U.S. has a tremendous market
opportunity for Ameluz®-PDT
~13M AK patients treated annually
AK currently affects
an estimated 58M Americans
U.S. AK market by treatment option
2.0%
2.1%
1.8%
10.0%
10.1%
11.9%
2018
2019
2020
88.0%
87.8%
86.3%
PDT
Topicals
Cryotherapy
Revenue potential
Share of Ameluz® in U.S. PDT market
2020
24.5%
2019
22.6%
2018
16.8%
75.5%
77.4%
83.2%
Ameluz®
Other PDT products
Potential market share
Biofrontera AG Annual Report 2020
VI
Our pipeline-in-a-product approach
Biofrontera follows a development strategy to
optimize the U.S. market potential of Ameluz®.
BENEFITS OF A BROADER LABEL:
Differentiation from other
therapeutic options/competitors
Greater overall awareness
in the market
OUR GOAL IS TO OPTIMIZE THE AMELUZ® MARKET POTENTIAL BY
SEEKING THE FOLLOWING LABEL EXPANSIONS IN THE U.S.
2H 2021
2H 2021
2022/23
• LABEL EXPANSION •
• PRODUCT DEVELOPMENT •
• LABEL EXPANSION •
Anticipated approval for
the use of up to 3 tubes
in one treatment
Anticipated approval
of larger PDT-lamp:
BF-RhodoLED® XL
Anticipated approval
for the treatment of AK
in the periphery
2022/23
TBD
2025/26
• LABEL EXPANSION •
• LABEL EXPANSION •
• LABEL EXPANSION •
Indication:
Superficial basal cell
carcinoma
Indication:
Squamous cell carcinoma
(SCC) in situ
Indications:
• severe acne
• wound healing
Broader label for non-melanoma skin cancer for Ameluz®
New indications
Biofrontera AG Annual Report 2020
VII
Letter to the Shareholders
Dear shareholders,
A challenging year lies behind us all. The impact of the global pandemic on society, politics and the world economy was immense
and as such also had a significant impact on Biofrontera's business performance. We were able to respond promptly and flexibly to
the crisis at our company sites by implementing a series of effective countermeasures. Protecting the health of our employees and
business partners was our top priority. At the same time, we preserved the company's cash position by immediately introducing
cost-saving measures and thus managed to navigate safely through the crisis without losing sight of our long-term strategic goals.
Clinical development processes are cost-intensive, complex and lengthy and require long-term strategic preparation, especially if
they are to be initiated in a way that preserves cash. Despite the growing importance of Xepi® for the future, we continue to be a
"pipeline in a product" company with our flagship product Ameluz® . This means that, as a product matures, it is necessary to plan
precisely which indication expansions are feasible and financially viable in order to achieve the desired result, namely the best
possible support for sales while expanding market share.
In Germany, this strategy has already led to clear successes. In particular, through the introduction of daylight PDT (photodynamic
therapy), we have solidified our market leadership within the PDT sector in our home market and expanded the overall share of PDT
among the available therapy options available for treatment of actinic keratosis. For years, sales in Germany have been showing an
upward trend, even in the challenging year of 2020, without a slump. Ameluz®, which was launched in 2012 as a lesion-directed
product for the treatment of actinic keratoses (AK) on the face and scalp with conventional PDT, has matured over the past 9 years
into a product that is approved for the treatment of actinic keratoses, field cancerization, and superficial basal cell carcinoma that
can be applied efficiently. The strategically important approval extension for the treatment with Ameluz® in combination with
daylight PDT in Europe in 2018 finally led the product away from the reimbursement issue associated with conventional PDT. The
label expansion of Ameluz® for the treatment of AK on the entire body in March 2020 has set Ameluz® even further apart from its
competitor products. Now Ameluz® PDT is also on a par with topical medications in Germany in terms of handling and
reimbursement, and the outstanding therapeutic results are convincing more and more physicians. The rise in German sales
revenues in 2020, a year full of uncertainties and restrictions, by around 11% to EUR 5.1 million very clearly shows how well Ameluz®
has now established itself on the market.
Surely we would have wished for one or the other progress earlier, but we have to remember that Biofrontera is a specialty
pharmaceutical company that operates in a highly regulated market segment with limited financial flexibility by international
standards. Human resources and financial constraints mean that development times can be delayed and studies are started later
than desired. The difficult last 14 months should not, however, result in the company's chosen business strategy and development
being abandoned due to uncontrollable external influences. Growth is the only way to create the corporate value that our
shareholders desire. You have explicitly expressed your support for this growth strategy through your votes at the Annual General
Meeting 2020.
This is particularly true for the USA. In our largest market, we have to use the same discipline to align our product with market
requirements and patient needs as we do in Europe. The actinic keratosis market there is immense and the stronger the market
positioning of our product, the faster the expansion can take place at the expense of the competitor product as well as the
predominantly utilized treatment option of cryotherapy. After initially gaining a fairly rapid foothold in the U.S., we are now entering
a slower growth phase. This also represents a certain analogy to our home market, where we reached a plateau after a successful
launch and only then, driven by relevant approval extensions of Ameluz, we entered another strong growth phase. The strengthening
of the independence of our subsidiary Biofrontera Inc. along with the resolution of the initial reimbursement challenges were the
drivers for the first growth phase. Our ongoing clinical development process that is running in the background, the development of
the larger PDT lamp and, concurrently, the reimbursement of up to three tubes of Ameluz® during one treatment are future-oriented
enablers for the next growth phase.
In the U.S., treatment of AK with PDT is a therapy that requires an in-office setting. Being in the doctor's office during the application,
occlusion time of the drug and the illumination of the treated areas challenged both doctors' offices and patients during coronavirus
conditions. Due to the pandemic, many patients still shy away from the doctor's office and thus from PDT treatment. This has led to
a decline in sales not only of Ameluz® PDT but also, to an even greater extent, of our direct competitor product. The annual
stockpiling of Ameluz® in December due to the anticipated price increase was also less pronounced this year. As a result, we suffered
a decline in sales of Ameluz® of around 29% in the USA in the year under review. It is not yet possible to estimate whether there
Biofrontera AG Annual Report 2020
VIII
will be any catch-up effects in the coming months. However, the nature of the disease and its chronic course suggest that patients
in the USA will again be increasingly visiting doctors' offices this year to undergo PDT.
Furthermore, the licensing agreement with Maruho Co., Ltd. in April of last year is another building block in the longer-term strategy
of our corporate development. This means that the potential of Ameluz® can be tapped in other areas in addition to the already
established markets of Europe and the USA, without Biofrontera having to bear the risk and costs of development and approval
itself. The one-time payment of EUR 6 million made to Biofrontera in connection with the exclusive licensing agreement has provided
us with an important cushion with respect to our cash position during the pandemic.
During the second half of the year, we were able to successfully place the offering of the mandatory convertible bond in August
2020. This brought additional liquidity into the company, so that we did not have to further reduce our cost-intensive but extremely
important marketing expenses in the second half of the year, despite the lower sales. The significant oversubscription of the
mandatory convertible as well as the capital increase successfully placed in February of this year shows both how attractive
Biofrontera is to the capital market and the great potential that new investors recognize in Biofrontera.
Overall, we succeeded in navigating Biofrontera well through challenging times. Once again, I would like to express my sincere thanks
to my colleagues for their tireless efforts, adaptability and strong team spirit.
Biofrontera set out early on with a great deal of courage, passion and responsibility to become an innovative player in dermatology.
We are consistently pursuing this path and I would be delighted if you would continue to accompany us so that together we can
make our company an indispensable supplier of innovative therapeutic solutions in dermatology.
Sincerely,
Prof. Dr. Hermann Lübbert
Ludwig Lutter
Biofrontera AG Annual Report 2020
IX
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 American
Depositary Shares (ADS) on the US Nasdaq Stock Market.
Key data on our financial instruments
Key data: ordinary shares (no par value)
Stock exchange
Additional trading platforms
Tier
Shares issued as of Dec 31, 2020
Share capital as of Dec 31, 2020
ISIN
WKN (German securities identification code)
Ticker symbol
Designated Sponsor
52-week high* (Aug 17, 2020)
52-week low* (Mar 20, .2020)
Market cap as of Dec 31, 2020
Avg. daily trading volume XETRA (Jan 2 to Dec 30, 2020)
*based on XETRA closing price
Key data: American Depositary Shares (ADS)
Stock exchange
CUSIP
ADS ISIN
Ratio
Symbol
Depositary
Additional trading platform
WKN (German securities identification code)
Ticker symbol
Key data: Convertible bond 2017/2022
Stock exchange
WKN
ISIN
Date of maturity
Coupon
Nominal amount per bond
Total nominal amount
of which converted by Dec 31, 2020
Initial conversion price
Conversion price since March 2021
Frankfurt Stock Exchange
XETRA, Berlin, Düsseldorf, Munich, Stuttgart, Tradegate
Prime Standard
47,747,515
EUR 47,747,515
DE0006046113
604611
B8F
ICF Bank AG
EUR 5.44
EUR 2.42
EUR 141 million
41,493 shares
NASDAQ
09075G105
US09075G1058
1 ADS:2 ORDs (one ADS represents two ordinary shares)
BFRA
BNY Mellon
Stuttgart
A2JEEX
BFRA
Düsseldorf
A2BPDE
DE000A2BPDE6
December 31, 2021
6 %
EUR 100.00
EUR 4,999,000
EUR 2,030,800
EUR 3.50
EUR 4.716
Biofrontera AG Annual Report 2020
X
Share price performance
During the first half of the year, the stock markets were severely shaken by the COVID-19 pandemic, and in mid-March there were
sharp declines in share prices in all sectors. After the crash, however, the stock markets recovered. By fall, the indices were already
back at the previous year's level and recorded significant gains towards the end of the year. The performance of the Biofrontera
share was similarly strongly influenced by the pandemic. In March 2020, the share price plummeted due to the global spread of the
coronavirus crisis, reaching a low of EUR 2.28 on March 23, 2020. By mid-August, the share price then began a significant recovery,
reaching its high for the year of EUR 5.67 on August 14, 2020. This substantial upward trend was due, among other things, to a rise
in the price of ADSs on the Nasdaq. Due to an ongoing capital measure, the two financial instruments were decoupled, causing the
price of the ordinary shares and the price of the ADSs to diverge significantly. On Nasdaq, ADSs traded at volumes many times higher
than the number of shares outstanding. The enormous demand for ADSs during this period had a longer-lasting positive effect on
the share price after the decoupling of the financial instruments was lifted once the subscription period was over. In the second half
of the year, the share price then showed a decline again, leveling off at EUR 3.00. As of December 30, 2020, the stock was trading
steadily around at EUR 3.05.
Shareholder structure
The shareholder structure* of Biofrontera AG as of December 31, 2020, based on the mandatory disclosures, is as follows:
42%
28%
30%
Maruho Co. Ltd
Deutsche Balaton - Goup
Free float
*percentages are rounded
Biofrontera AG Annual Report 2020
XI
Annual general meeting 2020
The annual general meeting of Biofrontera took place on May 28, 2020. Pursuant to Section 1 of the COVID-19 Act, the Management
Board, with the consent of the Supervisory Board, had decided to hold the annual general meeting as a virtual annual general
meeting.
76.31% of the registered share capital of Biofrontera AG was represented, thus the attendance was approximately at the previous
year's level. The shareholders approved the proposed resolutions 2 to 6 with a simple majority, the proposed resolution 7 for the
creation of a new authorized capital, which required a three-quarters majority, as well as all supplementary requests of the Deutsche
Balaton-Group did not receive the required majorities and were rejected by the annual general meeting. No vote was required on
agenda items 1 and 10.
Capital raise 2020
For the purpose of securing liquidity in the short term, a resolution was passed at the end of July 2020 to issue a 1.0% qualified
subordinated mandatory convertible bond 2020/2021 with a nominal amount of EUR 3.00 each and a total nominal amount of up to
EUR 7.9 million. In mid-August, the issue was successfully placed and the Company received gross proceeds of EUR 7.9 million. In
November, the Company exercised the right of mandatory conversion, whereby the mandatory convertible bond was converted into
shares.
A capital measure initially announced in March 2020, also planned as a mandatory convertible bond issue, was called off due to the
sudden economic downturn caused by the COVID- 19 pandemic.
Analyst coverage
The following analysts cover Biofrontera:
Institution
The Benchmark Company, LLC
Lake Street Capital Markets
Analyst
Bruce D. Jackson
Thomas Flaten
sc-consult GmbH
Dipl. Kfm. Holger Steffen
Rating
Buy
Buy
Buy
Conferences
Due to the COVID 19 pandemic, participation in conferences and the associated travel activities have been completely suspended
since mid-March. Consequently, representatives of Biofrontera AG only attended the following capital market conferences in the
reporting period, most of which were held virtually:
Date
January 13-17, 2020
September 17, 2020
September 25, 2020
November 16-17, 2020
Conference
JP Morgan 38th Annual Healthcare Conference
Lake Street Capital Markets 2020 Best Ideas Growth (BIG) Conference
Baader Investment Conference
Deutsches Eigenkapitalforum
Biofrontera AG Annual Report 2020
XII
Declaration of Biofrontera AG on Corporate Governance pursuant to
sections 289f, 315d of the German Commercial Code (Corporate
Governance Report) for the 2020 financial year
I. Declaration of the Management Board and the Supervisory Board of
Biofrontera AG (Company) on 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 Board and Supervisory Board of Biofrontera
AG are obliged to declare annually that the recommendations of the "Government Commission on the German Corporate Governance
Code" ("Code") published by the Federal Ministry of Justice in the official section of the electronic Federal Gazette have been and
are being complied with, or which recommendations have not been or are not being applied and why not ("Compliance Statement").
The Management Board and the Supervisory Board issue the following Compliance Statement:
Biofrontera AG has complied with the recommendations of the Code in the version cited therein, taking into account the exceptions
therein, since issuing its annual Statement of Compliance in December 2019. The Management Board and the Supervisory Board
further declare that the recommendations of the Code are complied with, subject to the following exceptions (the numbers listed
below are those of the Code as amended on December 16, 2019):
Reporting (F. 2)
Financial reports, half-year reports and interim reports are published within the statutory deadlines and no earlier due to
organizational circumstances.
Leverkusen, December 2020
Prof. Dr. Hermann Lübbert
CEO
Thomas Schaffer
CFO
Dr. Ulrich Granzer
Chairman of the Supervisory Board
II. Corporate governance report
The current corporate governance report is available on the Company’s website at www.biofrontera.com in the section “Investors”,
sub-section “Corporate Governance”.
Biofrontera AG Annual Report 2020
XIII
Report of the Supervisory Board of Biofrontera AG for the 2020
financial year
Dear shareholders,
The 2020 financial year was dominated by the COVID-19 pandemic, which had a significant impact on Biofrontera Group's business.
Following a healthy sales performance as well as positive regulatory and clinical developments at the beginning of the first quarter
of 2020, we were confronted with a sharp decline in sales across all markets from March 2020 onwards as a result of the pandemic.
As a result, Biofrontera Group was forced to implement company-wide cost reduction measures.
Although the situation improved in the further course of the year, we had to cope with a decline in revenue from product sales of
around 29%, particularly in the USA, our main market. However, there were also some bright spots, with product sales in Germany
increasing by 11% despite the challenging environment in general.
Overall, taking into account a one-time payment of EUR 6 million from Maruho Co., Ltd. under the license agreement concluded in
April 2020, it was possible to keep Biofrontera Group's sales nearly stable. Although this falls short of the original expectations for
the 2020 financial year, it nevertheless also shows that we were able to successfully steer Biofrontera Group through this unique
global crisis.
For this, we would like to express our gratitude and appreciation to the employees and management of Biofrontera Group, especially
insofar as they were directly affected by cost-cutting measures or voluntarily waived their salaries.
Monitoring 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 (Deutscher Corporate Governance Kodex) and its rules of business procedure. The
Supervisory Board's activities included monitoring and consulting with the Management Board concerning the management of the
company and the Group. In the year under review, the Supervisory Board monitored the activities of the Management Board and
engaged in discussions with it on forward-looking business decisions and planning.
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 formal
meetings. Based on the Management Board's written and verbal reports, the Supervisory Board was able to comprehensively discuss
business developments and the state of the Company. Furthermore, there was a regular exchange of information and ideas between
the Chief Executive Officer and the Chairman of the Supervisory Board. Particularly with regard to decisions of fundamental
importance to the Company, the Supervisory Board was involved. The Supervisory Board also reviewed the legality, propriety and
expediency of measures proposed by the Company's Management Board, as well as the economic feasibility of such measures.
Deviations in business performance from the plans were explained and discussed with the Supervisory Board by the Management
Board. 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.
Where Management Board decisions required the approval of the Supervisory Board, or where the Management Board requested
approval for measures, the Supervisory Board was informed in advance with the relevant information and documents for the
decision. Approval was then granted following discussion at Supervisory Board meetings or by means of decisions taken by written
correspondence or in telephone or video conferences held regularly by both the full Supervisory Board as well as the committees.
In fulfilling its duties, the Supervisory Board and its committees may draw on resources of the Company it deems appropriate and
may also engage external consultants as appropriate. The latter was done in the context of the license agreement concluded with
Maruho for the distribution of Ameluz in East Asia and Oceania, for which the Supervisory Board selected an external subject matter
expert and commissioned him to provide an independent opinion on the adequacy of the compensation.
At its meetings, the Supervisory Board also held regular discussions without the Management Board being present.
Biofrontera AG Annual Report 2020
XIV
Consultation and areas of focus
In performing its duties, the Supervisory Board held seven meetings in the year under review. Due to the COVID-19 pandemic, these
were held by phone or video conference to safeguard health, but also due to travel restrictions.
The Supervisory Board also passed resolutions outside formal meetings.
At the meeting held on March 27, 2020, the Management Board reported on the measures it had initiated with regard to the spreading
COVID 19 pandemic and the response taken by governments. These corporate decisions included the introduction of short-time work
in Germany and other countries and, unfortunately, also layoffs.
At the meeting held on April 8, 2020, the Management Board once again reported on the measures it had initiated with regard to the
expanding COVID 19 pandemic and the governments' responses, as well as on the impact of the COVID 19 pandemic on business
activities and clinical trials. In addition, the impact on the financial position was presented and possibilities for additional financing
were discussed.
At the meeting on April 20, 2020, the auditor reported on the timing, structure and results of the audit for fiscal 2019. After discussing
the 2019 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 review, 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 to discuss the 2019 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 2020 financial year were thus adopted. The Management Board also reported on the current sales and development of the
market against the backdrop of the COVID 19 pandemic. This concerned in particular the challenging sales environment in the USA,
the measures taken to reduce costs, as well as the financial situation and the proposal to the upcoming Annual General Meeting to
resolve a capital increase. The agenda for the Annual General Meeting on May 28, 2020 was approved by the Supervisory Board. The
Management Board's plan to hold a virtual Annual General Meeting was approved.
At the May 26, 2020 meeting, the measures initiated by the Management Board with regard to the COVID-19 pandemic and the
countermeasures taken by governments were again discussed. Business continued to be significantly impacted, particularly in the
USA. Against this background, the financial and liquidity situation was discussed.
At the meeting on September 01, 2020, the Management Board reported on the ongoing clinical trials and on the status of the newly
developed BF-RhodoLED® XL lamp. In addition, the business development and the financial and liquidity situation were presented as
well as the new marketing strategy for the US market. In addition, an overview of the ongoing legal proceedings was given.
At the November 02, 2020 meeting, the Management Board and Supervisory Board discussed the status of the mediation process
agreed with Mr. Wilhelm K. T. Zours and with Deutsche Balaton AG and potential options for settling the disputes with the
aforementioned.
At the meeting on December 09, 2020, the Management Board and Supervisory Board discussed current business developments and
the Management Board provided an overview of the revenue, earnings and financial situation. The budget for 2021 and corporate
targets for 2021 were discussed and approved. The Management Board reported on the status of the planned implementation of the
ordinary capital increase resolved by the Annual General Meeting on May 28, 2020, and on the status of ongoing legal proceedings.
Activities other than regular meetings
In addition to meetings, the Supervisory Board adopted resolutions by written circulation on, among other things, the conclusion of
the license agreement with Maruho Co., Ltd. and the issuance of a qualified subordinated mandatory convertible bond with the
granting of statutory subscription rights.
Supervisory Board Committees
Currently, the Supervisory Board has established an Audit Committee, a Nominating Committee, as well as a Personnel Committee.
The Supervisory Board appoints one Supervisory Board member to chair each committee.
Biofrontera AG Annual Report 2020
XIV
The Chairman of the Supervisory Board or the Vice Chairman shall also chair the committees that deal with Management Board
agreements and prepare the Supervisory Board meetings. The Chairman of the Supervisory Board should not chair the Audit
Committee. These requirements were taken into account in the appointments. The committee chair(wo)men report to the
Supervisory Board on the work of the committees.
Audit Committee
The Audit Committee is concerned in particular with monitoring the financial reporting process, the effectiveness of the internal
control system, the risk management system and the internal auditing system, as well as the audit of the financial statements, here
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 within
the meaning of Section 264d of the German Commercial Code, i.e. also in the case of Biofrontera Aktiengesellschaft, the proposal of
the Supervisory Board for the election of the auditor shall be based on the recommendation of the Audit Committee. In the case of
companies within the meaning of Section 264d of the German Commercial Code, at least one member of the Supervisory Board must
also have expertise in the fields of accounting or auditing and be a member of the Audit Committee.
The Audit Committee comprised the following members in the reporting year: Mr. Jürgen Baumann, Mr. John Borer and Prof. Dr.
Franca Ruhwedel. Prof. Dr. Ruhwedel is Chairwoman of the Audit Committee.
The committee met twice in the reporting year, namely with the auditor in preparation for the Supervisory Board's discussion of the
financial statements on April 20, 2020 and November 19, 2020.
In addition to the regular meetings, the Chairwoman of the Audit Committee was in regular contact with the CFO of Biofrontera and
with the auditors. She coordinated the audit planning and the focus of the audit with the auditor and was informed about the progress
of the audit in regular virtual meetings.
Personnel Committee
The Personnel Committee prepares Supervisory Board decisions on the appointment and dismissal of Management Board members.
Unlike in the past, the full Supervisory Board is now responsible for compensation decisions as a result of the changes introduced
by the German Act on the Appropriateness of Management Board Compensation (VorstAG) which means the Personnel Committee is
now only involved in preparatory work.
The Personnel Committee currently comprises the following members: Mr. Jürgen Baumann, Mr. John Borer and Dr. Ulrich Granzer.
Mr. Baumann is currently Chairman.
The committee met on April 20, 2020, and dealt with the target achievement of the members of the Management Board in 2019 as
well as the issuance of options to members of the Management Board. In addition, in several conference calls in June 2020 the
Personnel Committee discussed the extension or restructuring of service contracts for members of the Management Board. In
November and December 2020, the committee also addressed succession planning for the Management Board and in particular the
search for a Chief Financial Officer to succeed Mr. Schaffer.
Nominating Committee
In addition to the Chairman, the Nominating Committee comprises two further members of the Supervisory Board who are to be
elected. The task of the Nominating Committee is to propose suitable candidates to the Supervisory Board for recommendation to
the Annual General Meeting. In doing so, the Nominating Committee takes into account the balance and diversity of expertise, skills
and experience of all members of the Supervisory Board and prepares candidate profiles. In addition, the Nominating Committee
shall make proposals to the Supervisory Board and communicate the results of a regular assessment of the expertise, skills and
experience of both the individual members as well as the Supervisory Board as a whole. The Nominating Committee consulted by
telephone during the reporting period.
The current members of the Nominating Committee are as follows: Mr. John Borer, Dr. Ulrich Granzer and Mr. Reinhard Eyring. Dr.
Ulrich Granzer is currently Chairman of the Nominating Committee.
Biofrontera AG Annual Report 2020
XV
Disclosure of the participation of individual Supervisory Board members in
Supervisory Board and committee meetings in the 2020 financial year
Supervisory Board member
Jürgen Baumann
John Borer
Reinhard Eyring
Dr. Ulrich Granzer
Prof. Dr. Franca Ruhwedel
Kevin Weber
Supervisory Board
meetings/participation
Attendance
Committee meetings/
participation
Attendance
7/7
7/7
7/7
7/7
7/7
7/6
100%
100%
100%
100%
100%
85,7%
3/3
3/3
1/1
2/2
100%
100%
100%
100%
Annual and consolidated financial statements 2020
Warth & Klein Grant Thornton AG Wirtschaftsprüfungsgesellschaft, Düsseldorf, (auditors) was appointed auditor and group auditor
for the 2020 financial year by the Annual General Meeting on May 28, 2020 and was subsequently commissioned accordingly by the
independence was obtained. Warth & Klein Grant Thornton AG
Supervisory Board. The auditors’ declaration of
Wirtschaftsprüfungsgesellschaft audited the annual and consolidated financial statements of Biofrontera Aktiengesellschaft
prepared by the Management Board and the combined management report for the 2020 financial year and issued the unconditional
audit opinions. The auditor also found that the Management Board has set up an appropriate information and monitoring system,
the design and operation of which are suitable for the early identification of developments that could jeopardize the going concern
of the Company.
The consolidated financial statements were prepared on the basis of International Financial Reporting Standards (IFRS).
On April 12, 2021, the audit committee discussed the financial statement documents in the presence of the independent auditor. The
Audit Committee dealt in particular with the key audit matters described in the respective audit opinion, including the audit
procedures performed. At the subsequent Supervisory Board meeting on the same day at which the financial statements were
approved, the documents relating to the financial statements were discussed in detail in the presence of and following a report by
the independent auditors. All Supervisory Board members received the financial statement documents and the auditors' reports in
good time before the financial statement meeting and dealt with these documents in detail. The annual financial statements and
consolidated financial statements were discussed in detail with the Management Board at the financial statements meeting. The
auditors reported on the scope, focus and main findings of their audit, addressing in particular the key audit matters and the audit
procedures performed. The auditors were available to the Supervisory Board to answer questions and provide further information.
All questions from the Supervisory Board were answered in full by the Management Board and the auditors. The auditors also
provided information on their findings regarding internal controls and risk management in relation to the financial reporting
process.
The Supervisory Board took note of and approved the audit reports, the annual financial statements, the consolidated financial
statements and the combined management report. After discussing the annual financial statements, the consolidated financial
statements and the combined management report, the Supervisory Board approved the auditors’ reports and the results of the
audit, raised no objections following the final results of its own review, and approved the annual and consolidated financial
statements. The annual financial statements of Biofrontera Aktiengesellschaft are thus adopted.
The report of the Supervisory Board was adopted at the Audit Committee meeting on April 12, 2021.
Independent auditor and auditor in charge
Warth & Klein Grant Thornton AG Wirtschaftsprüfungsgesellschaft, Düsseldorf, has been the independent auditor for Biofrontera AG
and the Group since 2007. Mr. Michael Gottschalk has been the auditor in charge of the mandate for Biofrontera AG since fiscal year
2018 for the audit of the financial statements.
Biofrontera AG Annual Report 2020
XVI
Corporate Governance and compliance statement pursuant to Section 161 of the
German Stock Corporation Act (AktG)
Further information on corporate governance is provided in the Annual Report and at www.biofrontera.com in the section
"Investors" / "Corporate Governance" as well as in the Corporate Governance Statement. Details of the Supervisory Board's
objectives regarding its composition and the status of implementation are also disclosed there.
Training and continuing education activities
The Company supports the members of the Supervisory Board to an appropriate extent in their induction into office and in training
and continuing education programs. For ongoing training and continuing education, the Company provides Supervisory Board
members with access to a portal of a third-party provider (Arbeitskreis deutscher Aufsichtsrat e.V. (AdAR)) and covers the costs.
Opportunities to attend congresses and expert events are also offered via this portal.
Conflicts of interest
Each member of the Supervisory Board is obliged to act in the best interests of the Company. In making decisions, they may neither
act in their own personal interests nor exploit business opportunities available to the company for their own benefit without a
resolution of the Supervisory Board. The Rules of Procedure of the Supervisory Board stipulate that each member of the Supervisory
Board must disclose conflicts of interest to the Supervisory Board. This applies in particular to conflicts of interest that may arise
as a result of a consultation or position with customers, suppliers, lenders or other business partners. Material and permanent
conflicts of interest on the part of a Supervisory Board member shall result in the termination of his or her mandate.
No such conflicts of interest arose in the year under review.
Changes to the Supervisory Board
There were no changes to the Supervisory Board during the year under review.
Changes to the Management Board
At the end of January 2020, Mr. Christoph Dünwald resigned from the Management Board. Mr. Dünwald and Biofrontera AG have
agreed that Mr. Dünwald's Management Board contract, which was due to expire on November 30, 2020, should not be extended. Mr.
Dünwald resigned from his position as a member of the Management Board by mutual agreement in the course of a reorganization
at the end of January 2020.
Effective March 1, 2021, Mr. Ludwig Lutter was appointed as the new Chief Financial Officer (CFO) of Biofrontera AG. As the successor
to Thomas Schaffer, he is responsible for Finance, Administration, Controlling and Human Resources within the Company. Thomas
Schaffer has left the Company by best mutual agreement as of February 28, 2021, in order to devote himself to new personal
commitments outside the Company. The change in the finance department is part of the succession planning already announced by
the Supervisory Board and Management Board.
Biofrontera AG expresses its appreciation to Mr. Dünwald and Mr. Schaffer for their many years of successful commitment.
In closing, 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 employees of Biofrontera Aktiengesellschaft and
Biofrontera Group for their high level of commitment and for their outstanding performance in the past year.
Leverkusen, April 12, 2021
Dr. Ulrich Granzer
Vorsitzender des Aufsichtsrats
Biofrontera AG Annual Report 2020
XVII
Consolidated management and group management report for the
fiscal year 2020
Basis of the Group
Group structure
As of December 31, 2020, the Biofrontera Group (hereinafter also called "Biofrontera", "Biofrontera Group", “Group” or the
“Company”) consists of a parent company, Biofrontera AG and 5 (December 31, 2019: 5) wholly owned subsidiaries. The parent
company’s head office is located 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 2019. While Biofrontera Inc. has assumed all commercial
activities, Biofrontera Bioscience GmbH took 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®.
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 (without patent protection since 2009) for the treatment of severe chronic urticaria is owned by Biofrontera
Development GmbH, the product BF-1 (patent protection until 2034) for the prophylactic treatment of migraine 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 Xepi®.
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 and
Switzerland is carried out through licensing partnerships.
Biofrontera AG Annual Report 2020
1
Our US-subsidiary, Biofrontera Inc., was setup in order to commercialize Ameluz® in the USA. The US subsidiary has established all
functions and obtained all licenses required for a sales company in the pharmaceutical and medical device 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.
To strengthen its commercial activities, the Biofrontera Group reorganized its sales structure in January 2020. Following the
reorganization of the US subsidiary Biofrontera Inc., the sales organization in Europe was also restructured. Today, Biofrontera's
global sales organization is based on two pillars: sales and marketing in the US, Biofrontera's largest market, and the combined
management of all sales organizations in Europe.
Products
Ameluz® and BF-RhodoLED®
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). The product information authorized by the European Medicines Agency (EMA)
expressly states the significant superiority of Ameluz® in the removal of keratosis compared to the direct competitor product, both
in conventional light treatment with a special lamp and in application with ordinary daylight.
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 March 2020, the European Commission granted a label extension for Ameluz® to cover the treatment of mild and moderate actinic
keratoses by photodynamic therapy with Ameluz® not only on the head, but also on the extremities and trunk/neck. The extension
of the approval by the European Commission followed a positive vote by the European Medicines Agency EMA and is based on the
results of a Phase III study involving 50 patients. The patients were treated with Ameluz® on one randomized side of the body and
placebo on the other side. If lesions remained on both sides of the body, PDT was repeated three months later. The results for the
primary regulatory endpoint show that Ameluz® was highly significantly superior (p<0.0001) to placebo based on a mean total lesion
clearance rate of 86% versus 33%. The high significance superiority of Ameluz® was also demonstrated for all secondary
parameters studied. In this study, the average lesion recurrence rate 12 months after Ameluz® treatment was 14.1% compared to
27.4% after placebo. These results in treating AK on all areas of the body further confirm the excellent efficacy of PDT with Ameluz®.
The Company expects that this label extension will also further strengthen the market position of Ameluz® in Europe.
In May 2016, Biofrontera received the marketing approval for Ameluz® in the USA. The approved indication is "lesion and field
directed PDT in combination with the BF-RhodoLED® lamp of mild and moderate actinic keratoses on the face and scalp". As the
approval in the USA includes a combination of drug and lamp according to FDA guidelines, Biofrontera has developed its own PDT
lamp, the BF-RhodoLED®. In order to meet the strict requirements of the FDA for the production of a Class III medical device,
production of the lamp was transferred to Biofrontera Pharma GmbH in 2016 as part of the FDA approval process and is now carried
Biofrontera AG Annual Report 2020 2
out at the Company's headquarters in Leverkusen. This makes Biofrontera the responsible manufacturer from the perspective of
the regulatory authorities. In the EU, this lamp has already been CE-certified in 2012, which also required ISO 9001 and ISO 13485
certifications for the entire company. The ISO certification was renewed in 2019 at regular intervals.
The medical device BF-RhodoLED® is a lamp with LEDs emitting light with a wavelength of about 635 nm. Light at this wavelength,
which is optimal for illumination in PDT with ALA or methyl ALA containing drugs, emits red light, but is still below the warming
infrared range. The BF-RhodoLED® combines a controlled and constant light output in the desired wavelength with easy and clear
operation and energy efficiency. In the European version, light energy and fan power can be changed during PDT treatment to
respond to treatment-related pain. No other lamp on the market offers comparable performance and flexibility. The BF-RhodoLED®
is available throughout the EU as well as in the USA.
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. Xepi® (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. The approved indication is impetigo, a common skin infection. Xepi® has an excellent
safety profile that even allows for use on infants from the age of two months. To date, no antibiotic resistance to Xepi® is known
and it has been specifically approved by the FDA for the treatment of antibiotic-resistant bacteria.
The drug Xepi® in-licensed by Biofrontera is protected by two patent families in the USA and other countries. With regard to the USA,
patent protection applies to the composition of Xepi® until January 29, 2032 and for the approved treatment of impetigo until
December 15, 2029. Thus, approval of generic drugs is not expected before 2032.
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® Liquid 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.
Sales and marketing
At the start of 2020, the Company completed organizational restructuring measures. Following the reorganization of the operational
management of its subsidiary Biofrontera Inc. (published January 5, 2020), Biofrontera also announced an organizational
restructuring of its sales organization in Europe. As a result of the 2020 changes, Biofrontera's global sales organization now stands
on two pillars: sales and marketing in the U.S., Biofrontera's largest market, and unified management of all sales organizations in
Europe.
USA
In the USA, Ameluz® was launched by Biofrontera in October 2016. The distribution of Ameluz® in the USA is handled by the subsidiary
Biofrontera Inc. which was founded in March 2015. All key positions in the USA were filled locally and the development of distribution
structures was further advanced in the reporting period. Our US sales and marketing team currently consists of around forty
employees. The sales force is supported by our Scientific Advisory team, our Market Access and our Customer Service Team. Since
its launch, we have sold Ameluz® worth well over EUR 50 million in the United States, thus establishing the product in the market.
In March 2019, Biofrontera acquired all shares of Cutanea Life Sciences, Inc. and was thus able to expand its sales 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. This process involves reference pricing and re-imports, that might result in low prices in
Biofrontera AG Annual Report 2020 3
individual EU countries, which in return can have a negative impact on the entire EU market. This is one of the reasons why the drug
is only available in certain EU countries. In these countries the drug is available at pharmacy retail prices ranging from EUR 150 to
approximately EUR 220 per 2g tube. In Spain, the price was reduced to EUR 75 by decree of the Ministry, against which the Company
filed an administrative complaint.
In Europe, Ameluz® and BF-RhodoLED® are marketed in Germany (since 2012), Spain (since 2015) and Great Britain (since May 2018)
by our own sales force whereby Germany is by far the largest European market for Ameluz®. In other EU countries and in Switzerland,
the products are distributed with the help of distribution partners. In Switzerland, independent approval procedures were required,
which were carried out by our local marketing partner in collaboration with Biofrontera. The contracts with distribution partners
were concluded in such a way that Biofrontera 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 somewhat, but averages 50% of net sales. Overall, however, marketing through Biofrontera's own
sales force has proven to be much more successful in recent years, so that sales to distribution partners now only account for a
small percentage of total sales. In this context, the licensing agreements with Perrigo Israel for the commercialization of Ameluz®
and BF-RhodoLED® in Israel and Desitin Arzneimittel GmbH for the commercialization of Ameluz® and BF-RhodoLED® in Scandinavia
were terminated by mutual agreement during the reporting period.
In December 2020, the Biofrontera Group was able to cover sales in Scandinavia through an exclusive license and supply agreement
for the marketing of Ameluz® and BF-RhodoLED® with Galenica AB, Malmö, Sweden. Sales of the products in the Scandinavian region
are expected to commence in the second half of 2021.
In March 2020, Biofrontera announced that it had signed a non-binding term sheet for an exclusive license and supply agreement
with medac GmbH Sp. z o.o., Warsaw, the Polish branch of medac Gesellschaft für klinische Spezialpräparate mbH, for the
commercialization of Ameluz® and BF-RhodoLED® in Poland. The Company expects the final agreement to be concluded in 2021.
Other regions
In April 2020, Biofrontera signed an exclusive license and supply agreement with Maruho Co, Ltd, Osaka, Japan (Maruho) for the
development and commercialization of Ameluz® for all indications in East Asia and Oceania. The agreement has a term of 15 years
from the start of distribution in the countries covered by the agreement.
Under the agreement, Maruho will receive exclusive development and marketing rights, including permission to sublicense Ameluz®
in Japan, China, Korea, India, Pakistan, Vietnam, the Philippines, Australia, New Zealand and surrounding countries and islands
(Territory). Maruho is entitled, with the consent of Biofrontera, to conduct its own research and development under the terms and
conditions of the licensing agreement. Maruho will grant the Company a free and unlimited license for all results of such research
and development activities performed by Maruho for commercialization outside the Territory. Under the terms of the license
agreement, Biofrontera will supply Ameluz® to Maruho at cost plus 25%, while Maruho has the obligation to make commercially
reasonable efforts to develop, register and market Ameluz® in all countries within the Territory.
Under the agreement, Maruho has made a one-time payment of EUR 6 million to Biofrontera AG. Further future payments will be due
upon achievement of certain regulatory and commercial milestones. Maruho will also pay royalties of initially 6% of net sales in the
countries of the Territory, which may increase to 12% depending on sales volume and will decrease in case of the introduction of
generic products in these countries.
Market overview
Actinic keratosis
Non-melanoma skin cancer and its precursor actinic keratosis (AK), is the main market for our flagship prescription drug Ameluz®.
Actinic keratoses are superficial potentially pre-cancerous skin lesions caused by chronic sun exposure that may, if left untreated,
develop into a form of potentially life-threatening skin cancer called squamous cell carcinoma. Actinic keratoses typically appear
on sun-exposed areas, such as the face, bald scalp, arms or the back of the hands, and are often elevated, flaky, and rough in texture,
and appear on the skin as hyperpigmented spots.
These skin lesions occur not only isolated, but in many cases also over a large area. Such an area of the skin is called field
cancerization. In this case, visible and not yet visible skin damage can be in direct proximity to each other on the affected skin areas.
In about one in ten patients with AK, a malignant form of non-melanoma skin cancer (squamous cell carcinoma) can develop from a
skin lesion or in its vicinity. Even AK that are not yet visible already carry a high risk of transitioning into squamous cell carcinoma.
Biofrontera AG Annual Report 2020
4
Lifetime dose of UV radiation plays an important role in the development of AK. Over many years, UV radiation damages the skin
cells, which then mutate and proliferate, which can lead to abnormal keratinization (hyperkeratosis). This is why AK occurs most
frequently in older people: in Germany, for example, more than 11 out of every 100 people between the ages of 60 and 70 are affected.
Men are more frequently affected than women, since it is not uncommon for men to work outdoors and thus be exposed to the sun,
usually without protection. Particularly at risk are, for example, farmers and forestry workers, roofers, carpenters, gardeners and
lifeguards. In addition to age and gender, other factors can promote the development of AK. These include a fair skin type, severe
sunburns, or treatment with medications that weaken the immune system.
Therapy options for the treatment of actinic keratosis
Because actinic keratosis can develop into squamous cell carcinomas, actinic keratosis is classified by The European Academy of
Dermatology and Venereology and other international treatment guidelines as a tumor that requires treatment. In order to minimize
the risk of developing cancer, AK must be detected and treated early.
Actinic keratoses are treated using a wide range of methods. The traditional methods of treating actinic keratoses are cryotherapy
(or the deep freezing of skin with liquid nitrogen); simple curettage; self-administered prescription topical medications (usually
creams, gels, or solutions containing active ingredients that must be applied to the damaged areas of the skin, usually regularly
over an extended period of time); and combining a drug with photodynamic therapy (PDT). When deciding on the treatment option,
the physician takes into account the disease progression to date, the extent of the existing skin damage, and the patient's condition
(age, possible existing concomitant diseases, medications to be taken).
The international treatment guidelines list photodynamic therapy as the "gold standard" for the treatment of actinic keratoses,
especially for patients with large areas of actinic keratoses. In this process, a gel containing the active ingredient, such as
Biofrontera’s Ameluz®, is first applied to the affected areas of skin. The active ingredient is preferentially absorbed by cells with
high metabolic activity, such as cancer cells and their precursors, and converted into its light-activatable form. As a result, they
become more light-sensitive and are destroyed within a few hours by targeted illumination, while healthy skin cells remain
unharmed. The dead cells are broken down and the skin renews itself. Usually, no scarring remains and the appearance of the skin
visibly improves over the next weeks and months. There are two forms of PDT: one using an artificial light source (conventional PDT)
and one using natural/simulated daylight (daylight PDT). Compared to conventional PDT with red light or another suitable light
source, the treatment time for daylight PDT is shorter at about two and a half hours and the treatment is associated with less pain.
Market overview and competitive landscape in Germany
Germany is Biofrontera's single largest European sales market. In Germany, around 1.7 million people annually are treated by
dermatologists for AK, which represents around 2 to 3% of the total population. However, the number of people suffering from the
disease is probably higher. In 2020, a total of 814,410 prescriptions were issued for the treatment of AK (previous year: 831,073). Self-
applied topicals such as prescription creams and gels containing active ingredients were used most widely, taking a market share
of 92.9%, followed by PDT (the combination of a topically applied drug with light therapy) at 7.1% (previous year: 93.4% and 6.6%,
respectively). Due to the impact of the coronavirus crisis and the market exit of a widely used topical drug at the beginning of 2020,
the overall AK market declined by 2% in 2020. However, PDT treatments were able to slightly increase market share in the process,
mainly due to the growth in sales of Ameluz®.
Although the total number of cryotherapy or simple curettage treatments for actinic keratosis in Europe is not publicly accessible,
we assume that only a small number of patients with actinic keratosis are treated with cryotherapy or simple curettage treatments.
Although the total number of cryotherapy or simple curettage treatments for actinic keratosis in Europe is not publicly accessible,
we assume that only a small number of patients with actinic keratosis are treated with cryotherapy or simple curettage treatments.
In Germany, the largest European market for Ameluz®, our market share in the PDT drug segment was approximately 62.3% in 2020,
compared to approximately 57.0% in the previous year. The continued uptake of daylight PDT has allowed Ameluz® to prove itself
as a strong leader in the PDT market against competing products. We estimate that daylight PDT will continue to capture additional
market share previously reserved for self-applied topical creams. The fact that Ameluz® is reimbursed by statutory health insurers
when prescribed for daylight PDT is particularly interesting. Thus, the number of patients who have access to treatment with
Ameluz® has multiplied, which is also reflected in an increase in prescriptions for Ameluz® in Germany of around 17% in 2020.
Actinic keratosis has been recognized as an occupational disease by the Federal Ministry of Labor and Social Affairs in Germany
since 2013. As a result of such recognition, occupational insurance associations in Germany must cover, for the duration of the
patients’ lives, the treatment costs of patients who have worked predominantly outdoors for extended periods of time and who meet
Biofrontera AG Annual Report 2020
5
certain other criteria. In Germany since March 2016, photodynamic therapy has been included as an approved treatment option for
occupational actinic keratosis, which means it can be reimbursed by the government.
Market overview and competitive situation in the USA
The United States represents the most important pharmaceutical market in the world and is also Biofrontera's major sales market.
According to the Skin Cancer Foundation, actinic keratosis affects approximately 58 million people in the USA. In 2020, a total of 12.7
million treatments for actinic keratosis were performed. The US market for actinic keratosis treatment differs significantly from the
European market. In the United States, the most common treatment for actinic keratosis remains cryotherapy, with approximately
11 million procedures performed per year in 2020 and an 86.3% market share. Topical drugs for the treatment of AK took a market
share of about 11.9% in the reporting year, followed by PDT drugs at 1.8%. Simple curettage is generally not used to treat actinic
keratosis in the US. As in Germany, the overall market, i.e. the number of total AK treatments, declined in 2020 due to the coronavirus
crisis. In the USA, we saw a decline of 17% compared to the previous year (15. 1 million treatments). Rising infection rates and the
associated official recommendation by the American Academy of Dermatology to provide patients with remote diagnosis and
treatment whenever possible led to significantly declining patient numbers and widespread, albeit temporary, closures of physicians'
offices.
In 2020, the market share within the PDT drug segment in our largest sales market for Ameluz® was 24.5%, compared to
approximately 22.6% in the previous year. We were thus able to improve our market positioning vis-à-vis the competing PDT product
despite the corona crisis. Our goal is to continue to improve the market positioning of Ameluz® to become the leading PDT drug for
the treatment of AK in the United States. In addition, we believe there is an opportunity to expand the PDT market as a therapy for
the treatment of actinic keratosis as a first-line option compared to cryotherapy, particularly in patients with more than 15 lesions.
Market overview for topical antibiotics in the USA
As described in the "Products" section, the acquisition of Cutanea Life Sciences, Inc. in March 2019 enabled the Company to expand
its U.S. portfolio with the addition of the drug Xepi®, which was already approved by the FDA and launched in the U.S. market. The
approved indication is impetigo, a common skin infection primarily in children. Xepi® has an excellent safety profile, even allowing
its use in infants as young as two months of age. To date, there is no known antibiotic resistance to Xepi® and it has been specifically
approved by the FDA for the treatment of antibiotic-resistant bacteria.
The U.S. market for topical antibiotics is dominated by generic products containing the active ingredient mupirucin. American
dermatologists write about one million prescriptions annually for drugs in indications where Xepi® may be effective. Rising
resistance to known antibiotics is a problem taken very seriously by American physicians. Although sales from Xepi® are still low,
we are confident that Xepi® is an innovative, promising product with great market potential in our portfolio. Xepi® is the next
innovation for the American dermatology market.
Personnel matters
Management Board
As of December 31, 2020, the Management Board consisted of Prof. Dr. Hermann Lübbert (Chairman and CEO) and Mr. Thomas
Schaffer* (CFO).
Name
Prof. Dr. Hermann Lübbert
Thomas Schaffer*
Nationality
German
German
Age
65
58
Position
Date of first
appointment
Term
Chairman and CEO
CFO
2000
2013
December 31, 2022
February 28, 2021
*Mr. Thomas Schaffer resigned from his position as Chief Financial Officer effective February 28, 2021. Effective March 1, 2021, Mr.
Ludwig Lutter was appointed new Chief Financial Officer of Biofrontera AG. Mr. Dünwald resigned from his position as Chief
Commercial Officer at the end of January 2020.
Employees
As of December 31, 2020, the Biofrontera Group had 149 employees (previous year: 174) who were distributed as follows:
Biofrontera AG Annual Report 2020 6
Total number of employees
Full-time
With academic degree
By business segments
Production
Research and development
Clinical and regulatory tasks
Marketing and sales
Quality management
Management, business development, finance, HR and administration
By countries
Germany
USA
Spain
United Kingdom
December 31, 2020
December 31, 2019
149
127
22
149
16
5
16
60
7
45
149
81
56
9
3
174
147
27
174
15
6
16
73
9
55
174
89
73
9
3
In order to remain attractive as an employer in the competition for employees in the future, the Company must continue to be in a
position to offer attractive compensation benefits and employment conditions in line with the market. This includes, among other
things, the share- or securities-based compensation under our employee option program and the compensation from our stock
appreciation rights program.
Supervisory Board
In 2020, 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
Prof. Dr. Franca Ruhwedel
Kevin Weber
German
German
USA
German
German
USA
60
66
63
62
48
63
Chairman
Vice Chair
Member
Member
Member
Member
Date of first
appointment
May 12, 2006
May 24, 2007
May 31, 2016
February 7, 2018
July 10, 2019
May 31, 2016
Term
2021
2021
2021
2021
2021
2021
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 development of the new red-light lamp BF-RhodoLED®
XL is the responsibility of Biofrontera Pharma GmbH. Research and development costs for both Ameluz®, the approved drug, and
the other research and development projects, with the exception of the further development of the new BF-RhodoLED® XL red light
lamp, are recognized as expenses in the period in which they are incurred. In the year under review, 21 people were employed in
research and development as well as regulatory affairs (previous year: 22).
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. During the reporting period, the agreement on this phase of the research collaboration expired as planned and is
currently not being continued. Biofrontera has a right to use all research results.
Biofrontera AG Annual Report 2020
7
Phase II trial for the treatment of mild to severe acne
With regard to the possible label extension of Ameluz® for acne in the USA, Biofrontera has prepared a corresponding development
plan for the indication extension and received feedback from the US Food and Drug Administration (FDA) on the design of the
necessary clinical trials. The study program is expected to start with a Phase IIb trial in the second half of 2021.
Phase III trial 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).
Based on the data for the European label extension, Biofrontera has also held discussions with the FDA about expanding the label
for Ameluz® in the USA to include the treatment of AK in the extremities and trunk/neck. The FDA proposed an additional clinical
trial to approve the label extension of Ameluz® to include additional body regions. The study protocol will be coordinated with the
FDA prior to the start of the clinical trial. Patient recruitment is expected to start prior to the end of 2021.
Phase I trial / pharmacokinetics study with Ameluz®-PDT
In October 2020, the Company was able to complete the phase I pharmacokinetics study (PK study), which tested the safety of
photodynamic therapy (PDT) with simultaneous use of three tubes of Ameluz® on larger or multiple areas. Subsequently, the study
data were analyzed, the study report was written and incorporated into the registration dossier (NDA). In February 2021, the Company
announced that it had submitted an application to the FDA to amend the product information, which currently limits use to one tube
of Ameluz® per treatment.
The maximum use PK study included 32 patients with actinic keratoses on larger or multiple areas who received PDT treatment with
a total of three tubes of Ameluz® on either the face/scalp or extremities/torso/neck. Ameluz® was applied in accordance with the
currently approved treatment protocol, except that 60 cm2 of skin area was treated with three tubes of the drug. Illumination was
performed after 3 hours of occlusion time, using either one or two BF-RhodoLED® lamps simultaneously, depending on the number
and location of the treatment area(s). The study was conducted at a specialized Phase I dermatology facility in Texas/USA.
The objective of the study was to investigate the amount of the active ingredient that enters the blood after three complete tubes
of Ameluz® have been applied to the skin, in order to evaluate safety in this regard. In addition, other parameters relating to the
safety of patients undergoing this treatment were investigated. These results will enable Biofrontera as well as the regulatory
authority to assess whether simultaneous treatment with three tubes could result in risks for patients.
Development of the BF-RhodoLED® XL lamp
The future use of the BF-RhodoLED® XL will allow the application of Ameluz® on larger areas as well as the simultaneous illumination
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. Following delays in the Company's first production batch of the lamp due to supply
delays of parts caused by the coronavirus crisis, the application for approval was submitted to the FDA in March 2021.
Phase III trial 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. Patient recruitment is expected to be
completed at the beginning of 2022. Following successful FDA approval, Ameluz® would be the only drug in the United States for the
treatment of superficial BCC with PDT.
Biofrontera AG Annual Report 2020
8
Patent development
The Company maintains five different company-owned patent families worldwide. The Group's patents are held by Biofrontera
Bioscience GmbH.
The patent families refer to our technologies related to our nanoemulsion, photodynamic therapy (PDT) and migraine prophylaxis.
Nanoemulsion
issued patents
for our nanoemulsion technology
We have been
Italy, Spain,
Switzerland/Liechtenstein, and the UK), Australia, Belarus, Canada, Chile, China, Hong Kong, Israel, Japan, Mexico, New Zealand,
Russian Federation, South Africa, Singapore, and the Ukraine. Patent protection in these jurisdictions will expire on
December 21, 2027. Patent applications have been filed and are pending in the United States. Patent applications in the United Arab
Emirates were discontinued in 2020.
(for France, Germany,
in Europe
On November 12, 2019 protection for the patent family describing the combination of nanoemulsions with aminolevulinic acid
hydrochloride, the active ingredient in Ameluz®, expired. However, Ameluz® continues to be protected by the nanoemulsion
technology patent family, which continues until December 2027, although the corresponding patent application in the USA is still
pending. This patent has not yet been and possibly may never be granted in the US and thus will 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).
Photodynamic therapy
A new international patent application " Photodynamic therapy comprising two light exposures at different wave lengths" was filed
with the European Patent Office (EPO) on August 23, 2018. All countries that were members of the PCT (Patent Cooperation Treaty)
on the filing date (including the USA) were designated in the application. The international publication of the application was
published on February 27, 2020. Entry into the regional/national phase is initiated for the EU, USA, Japan, Australia, China, Hong Kong,
New Zealand and Singapore.
Another international patent application titled "Illumination for photodynamic therapy" was filed with the EPO on June 5, 2019. Again,
all states which were contracting states of the PCT at the date of filing of the PCT application were designated in the application.
On November 17, 2020, the national phase was initiated in the US. On December 10, 2020, the international application was published.
Additionally, another new patent application “Illumination device for photodynamic therapy, method for treating a skin disease and
method for operating an illumination device” was filed in the US on October 15, 2020.
Migraine prophylaxis BF-1
An international patent application regarding anti-migraine compounds and their use was submitted the EPA, the European Patent
Office. Patents were granted to the Group in Europe (nationalized for Germany, Spain, France, United Kingdom, Italy) and the United
States. Patent protection expires on January 31, 2034.
Xepi®
The drug product Xepi®, 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 Xepi® 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.
Biofrontera AG Annual Report 2020 9
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.
Key financial performance indicators
Until and including 2020, the key financial performance indicators for the Group's operating performance were revenue and liquidity
as well as the result from operating activities.
In the context of internal reporting, the Group's sales revenues are the key performance indicator, which are reported by region and
by product. On a consolidated basis, revenue includes sales to wholesalers as well as to physicians and hospitals, sales to our
licensing partners, and revenue from research contracts.
In addition, liquidity trends are used as a key performance and management metric for the Group as well as for Biofrontera AG.
These are monitored on a daily basis. Liquidity is defined as the sum of cash and cash balances in bank accounts and is described
as cash and cash equivalents.
Starting in fiscal year 2021, EBITDA and EBIT will be introduced as key performance indicators in our reporting. Both have become
established internationally as key performance indicators and will replace the previously reported result from operating activities.
Group EBITDA includes earnings before interest, taxes, depreciation of tangible assets and amortization of intangible assets. EBIT
includes earnings before interest and taxes. These key performance indicators are suitable for describing and comparing operating
performance, as they do not include non-operating fluctuation variables such as valuation adjustments and amortization of acquired
assets.
The key financial performance indicators are calculated as follows:
Result from operating activities
+ Depreciation and amortization
+ /- Other expenses and income
EBITDA
- Depreciation and amortization
EBIT
+/- Interest expense and interest income
Earnings before income taxes
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.
Biofrontera AG Annual Report 2020
10
Economic and business report for the fiscal year 2020
Business performance
The year under review 2020 was characterized by the impact of the coronavirus pandemic. In the reporting period from January 1
to December 31, 2020, Biofrontera was directly affected by the global coronavirus crisis starting in mid-March and as a result suffered
from reduced sales especially in the USA. However, the down payment by the Japanese company Maruho Co., Ltd. (Maruho), the fully
placed convertible bond 2020/2021 in August 2020, as well as cost reduction measures introduced at an early stage of the pandemic,
the Company was able to successfully mitigate the negative impact on the revenue side.
Key figures in accordance with IFRS
in EUR thousands
Results of operations
Sales revenue
Gross profit on sales
Profit/loss on operations
EBITDA
EBIT
Profit/loss before income tax
Profit/loss for the period
in EUR thousands
Net assets
Total assets
Non-current assets
Cash and cash equivalents
Other current assets
Non-current liabilites
Current liabilities
Equity
Number of employees
Biofrontera Shares
Number of shares outstanding
Share price (Xetra closing price in EUR)
Commercialization of Ameluz® in the USA
2020
2019
30,346
100,00%
26,810
(7,611)
88,35%
(25,08)%
(4,696)
(15,47)%
(10,029)
(33,05)%
(12,697)
(13,023)
(41,84)%
(42,92)%
31,265
26,390
100,00%
84,41%
(23,377)
(74,77)%
964
(2,192)
(4,777)
(7.358)
3,08%
(7,01)%
(15,25)%
(23,54)%
December 31, 2020
December 31, 2019
56,391
30,264
16,546
9,580
40,730
8,286
7,375
58,363
35,873
11,119
11,372
36,830
11,579
9,955
December 31, 2020
December 31, 2019
149
174
47,747,515
3.05
44,849,365
4.60
Revenues generated from sales in the U.S.A. were EUR 16.6 million, compared to EUR 23.3 million in 2019, representing a decrease of
29% year-on-year. Revenues include EUR 0.3 million from product sales of Xepi® (previous year: EUR 0.6 million).
As reported above, Biofrontera was directly affected by the global coronavirus crisis from mid-March 2020. From that point on, rising
infection rates and the official recommendation of the American Academy of Dermatology to provide patients with remote diagnosis
and treatment whenever possible led to significantly declining patient numbers and extensive, albeit temporary, practice closures.
In the wake of this, our U.S. sales in particular declined sharply. As a result, Biofrontera Inc. the wholly owned subsidiary in the U.S.A.,
initiated extensive cost-cutting measures, including headcount reductions. After sales of our products initially fell to almost zero in
April 2020, we observed a slow recovery of our U.S. business again in the summer and later the first signs of stabilization in line with
the usual seasonality. In many parts of the U.S., doctors' offices reopened during the second half of the year, at least in part, and
patients showed increasing willingness to undergo treatment for actinic keratosis. In the fourth quarter of 2020, we again saw a
Biofrontera AG Annual Report 2020 11
seasonally strong increase in sales, but overall sales in this quarter also remained below the level of the previous year, in part due
to the so-called second wave of coronavirus infections.
Commercialization of Ameluz® in Europe
Revenue from product sales in Germany increased by approximately 11% to EUR 5.1 million in fiscal 2020 compared to EUR 4.6 million
in 2019, despite Corona-related restrictions. In the rest of Europe, the pandemic led to a decline in sales, with product sales of EUR
2.1 million compared to EUR 2.6 million in the prior-year period.
In Germany, our sales team successfully leveraged an approval extension granted in March 2020 to include the treatment of actinic
keratoses on the body and extremities, as well as recent study results, even during the crisis, promoting the benefits of Ameluz® to
dermatologists. In this context, the advantages of daylight PDT, which could be performed in good weather without immediate
contact with doctors, became particularly evident during the summer months. In Spain, we saw very positive sales development at
the beginning of the year prior to the outbreak of the pandemic, after which business declined sharply due to the strict lockdown
regulations there. In the United Kingdom, sales remained at a low level for almost the entire year due to the pandemic.
Sales generated by distribution partners in other European countries contributed only a small share to total sales.
Regional expansion of the commercialization of Ameluz®
On March 13, 2020, the Company announced that it had signed a non-binding term sheet for an exclusive license agreement with
medac GmbH Sp. z o.o., Warsaw, the Polish subsidiary of medac Gesellschaft für klinische Spezialpräparate mbH, for the
commercialization of Ameluz® and BF-RhodoLED® in Poland. The term sheet contains terms and conditions regarding the amount
of the one-time license fee of about EUR 200,000, the expected term of 5 years, the transfer price for Ameluz® and BF-RhodoLED®
as well as the local regulatory responsibilities in Poland.
On April 20, 2020, Biofrontera concluded an exclusive license and supply agreement with Maruho Co, Ltd, Osaka, Japan (Maruho) for
the development and commercialization of Ameluz® for all indications in East Asia and Oceania. The agreement has a term of 15
years from the start of sales in the countries covered by the agreement. This partnership gives us the opportunity to generate long-
term revenues at low cost and low business risk in markets that we are unlikely to be able to serve with our own resources. We will
continue to focus on the USA and Europe, which are already well established and key markets for us. As part of the licensing
agreement, Maruho has made a one-time payment of EUR 6.0 million to Biofrontera AG. In addition, further future payments are
dependent on the achievement of certain regulatory and sales milestones as well as royalties on sales.
On December 7, 2020, the Company announced that its wholly owned subsidiary Biofrontera Pharma GmbH and Galenica AB, Malmö,
Sweden, signed an exclusive license and supply agreement for the marketing of both Ameluz® and BF-RhodoLED® in Sweden,
Norway, Denmark, Finland and Iceland. According to the agreement, Galenica AB of Malmö, Sweden, receives exclusive distribution
rights for the Nordic regions, whereby Biofrontera will supply Ameluz® to Galenica at a transfer price of 50% of the expected net
revenues. Furthermore, Biofrontera will be responsible for the marketing authorization as well as manufacturing and quality control,
while Galenica will handle all aspects of commercialization, local registration and reimbursement in the Scandinavian countries. Both
companies will collaborate on regulatory compliance regarding drug safety (pharmacovigilance). After the amicable termination of
the agreement between Biofrontera and the former distribution partner for some of these regions, Galenica is now working towards
the reintroduction of the products in Denmark, Sweden and Norway and their initial launch in Finland and Iceland by the middle of
next year. In addition, Galenica has a right of first refusal for commercialization in the Baltic States.
Consequences of the COVID-19 pandemic
As a result of the coronavirus crisis, the number of treatments declined, leading to a sharp drop in sales, particularly in our most
important sales market, the United States. On March 20, 2020, i.e. shortly after the pandemic spread of the virus became known, the
Company therefore announced that it would take comprehensive cost-cutting and cost-control measures on a precautionary basis.
As such, short-time work was introduced for all employees in Germany until the end of July 2020. Similar measures were
implemented for the subsidiaries in Spain and the UK. The US subsidiary Biofrontera Inc. had also introduced significant cost-cutting
measures. As described above, the headcount there was significantly reduced and a furlough program was introduced, under which
all employees were required to take temporary unpaid leave. In addition, the members of the Supervisory Board as well as the
Management Board of Biofrontera AG and the management of Biofrontera Inc. voluntarily waived part of their salaries. In addition,
costs for training and continuing education, among other things, were reduced in the year under review.
Biofrontera AG Annual Report 2020 12
While these cost reduction measures were in effect, the Company was able to ensure full compliance with all legal requirements
from a medical and capital markets perspective at all times as well as comply with all continuous disclosure obligations.
Due to the COVID-19 crisis, the continued challenging business environment has impacted the valuation of some of the Company's
assets and liabilities. During the crisis, the sales strategy in the U.S. market has focused on our flagship product Ameluz® and the
targeted re-launch to improve the positioning of our in-licensed product Xepi® had to be delayed. The reduced sales of Xepi® led to
a reassessment of the medium-term business and earnings prospects for Xepi® and thus to an impairment of the Xepi® license in
the first quarter of 2020. To a minor extent, inventories were written down as of December 31, 2020 due to an anticipated expiration
of shelf life. Beyond this, no significant risks have arisen in relation to financial instruments, particularly regarding unusual
receivables.
Reorganization of the sales structure and the US business
In January, following the reorganization of the US subsidiary Biofrontera Inc., we also restructured the sales and marketing structure
in Europe. In the course of this restructuring, Christoph Dünwald resigned from his position as Chief Commercial Officer (CCO) in
order to devote himself to new tasks. Biofrontera's worldwide sales organization now stands on two pillars: sales and marketing in
the USA, Biofrontera's largest market, and the joint management of all sales organizations in Europe.
Regulatory and clinical progress
Based on a positive assessment by 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 label extension for Ameluz® on March 10, 2020, which now
also covers 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 comparative study on daylight PDT with Ameluz® and Metvix® were
included in the product information (SmPC). Ameluz® showed significantly lower recurrence rates after 12 months at 19.5%
compared to Metvix® at 31.2%.
Based on a positive assessment by 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 label extension for Ameluz® on March 10, 2020, which now
also covers 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 comparative study on daylight PDT with Ameluz® and Metvix® were
included in the product information (SmPC). Ameluz® showed significantly lower recurrence rates after 12 months at 19.5%
compared to Metvix® at 31.2%.
In October 2020, the clinical phase of the pharmacokinetics study (PK study) in the USA, which had been underway since the
beginning of the reporting year, was concluded with the so-called "last subject last visit". The PK study tested the safety of
photodynamic therapy (PDT) for the treatment of actinic keratoses on larger or multiple areas with the simultaneous use of up to
three tubes of Ameluz®. This represents a prerequisite for the treatment of larger body surfaces with multiple tubes of Ameluz® ,
as well as for the alignment of reimbursement modalities vis-à-vis competing products, and thus an increase in the competitiveness
of Ameluz® in all our markets, particularly in the USA. The study report was submitted to the FDA in February 2021 with the objective
of removing a restriction in the product information to the use of only one tube per treatment.
In addition, we were able to bring the development of the new BF-RhodoLED® XL lamp, which enables Ameluz® to be used on larger
surfaces, to near completion. However, due to pandemic-related delays in the supply of parts for the production of the first
production batch, it was not possible to submit the approval application to the FDA until March 2021.
In 2020, we also continued to pursue patient recruitment for the Phase III trial for the treatment of basal cell carcinoma (BCC) with
Ameluz® in the USA.
Despite the COVID-19 pandemic and the associated measures, the Company was able to maintain full compliance with all regulatory
requirements in the year under review. Although there were fewer (internal and external) employee training activities, we met the
high-quality standards for ensuring drug quality with a higher number of audits and inspections in our quality management system
compared with the previous year.
Biofrontera AG Annual Report 2020
13
Subscription offers for mandatory convertible bonds
On February 26, 2020, the Management Board, with the approval of the Supervisory Board, resolved to issue up to 1,600,000 units of
the 0.5% qualified subordinated mandatory convertible bond 2020/2024 and up to 1,600,000 units of the 1.00% qualified
subordinated mandatory convertible bond 2020/2026. In March 2020, the subscription offer was withdrawn and not implemented
due to the disruptions on the capital markets caused by the coronavirus crisis.
To ensure short-term liquidity, Biofrontera issued a 1.0% qualified subordinated mandatory convertible bond 2020/21 in August. The
bond issue was fully placed with gross proceeds of EUR 7.9 million. On November 12, 2020, the Company announced that it would
exercise its right of mandatory conversion pursuant to Section 8 (2) of the bond terms and conditions, which was then implemented
in the year under review.
Exchange rate differences
As a result of the internationalization of the Company, the Company is exposed to currency risks in its sales and procurement
markets. The exchange rate development in 2020 had a negative impact on the financial result.
The development of the USD exchange rate in the 2020 financial year resulted in losses from currency translation adjustments
totaling EUR 3,601 thousand (previous year: income of EUR 324 thousand).
Evaluation of the business performance of the Biofrontera Group
Comparison of actual and forecast business performance
Due to the coronavirus pandemic and the resulting planning uncertainty, the Company's forecasting ability was severely impaired
in the previous year. In April 2020, Biofrontera had assumed that the effects would lead to a noticeable decline in sales compared
to earlier planning or even compared to the 2019 financial year. With the expected reduced sales, Biofrontera assumed that the
profitability of the Group as well as the cash position of Biofrontera AG and the Group in the 2020 financial year would also be
negatively impacted, as the shortfall in sales may not be fully offset by cost reduction measures. Steps to secure liquidity and
strengthen cash flow had high priority.
Evaluation of the business performance by the Management Board
In total, the Group generated sales of more than EUR 30 million in the 2020 financial year. As forecast, the COVID 19 pandemic led to
a significant slump in commercial activities from mid-March 2020 onwards. This led to lower product sales, especially in our largest
sales market, the USA. In 2020, we recorded a 29% year-on-year decline in sales in this market. The decline in US sales was partially
offset by cost reductions and the positive sales performance in Germany, where sales increased by a pleasing 11% year-on-year. The
existing approval extension for daylight PDT in particular had a positive impact on sales development here.
Additionally, the Group received a one-time payment (down payment) of EUR 6 million from Maruho. As a result, the Group's total
revenue was only slightly below the prior-year result.
Group EBITDA (loss) decreased to EUR (4,696) thousand in the 2020 financial year (previous year: earnings of EUR 964 thousand).
This still includes the one-off effects from the receipt of the down payment from Maruho in 2020 in the amount of EUR 6,000
thousand) and from the badwill of EUR 14,812 thousand resulting from the acquisition of Cutanea in the previous year. Adjusted for
these effects, the development of EBITDA is as follows:
in EUR thousands
EBITDA
One-off effects
2020
(4,697)
(6,000)
2019
964
(14,812)
At EUR 5,333 thousand, depreciation and amortization in the 2020 financial year was higher than the previous year's amount of EUR
3,156 thousand, resulting from the unscheduled write-down due to the Xepi® impairment in the amount of EUR 2,001 thousand.
Accordingly, EBIT (loss) in the reporting year amounts to EUR (10,029) thousand compared to EUR (2,192) thousand in the prior year.
Biofrontera AG Annual Report 2020
14
Biofrontera reports consolidated earnings (loss) before income taxes of EUR (12,697) thousand (previous year: loss of EUR 4,777
thousand). In the single-entity financial statements, a net loss of EUR 3,196 thousand is reported, compared to a loss of EUR 2,034
thousand in 2019.
Due to the fully placed convertible bond 2020/2021 in August 2020 and the down payment received from Maruho, the negative impact
of the COVID-19 pandemic on the financial position was compensated. In addition, the cost reduction measures introduced
successfully mitigated the negative impact on the sales side. Although the overall business performance of the Biofrontera Group
in the 2020 fell short of initial expectations, we were able to overcome the coronavirus crisis comparatively well. As a result, and
also due to the capital measure resolved in May 2020 and successfully implemented in February 2021, Biofrontera is financially well-
equipped for the future.
Biofrontera Group financial position and performance
Results of operations of the Biofrontera Group
The results of operations as of December 31, 2020 are as follows:
in EUR thousands
Sales revenue
Gross profit on sales
Research and development costs
General administrative costs
Sales and marketing costs
Loss from operations
Other expenses and income
EBIT
Interest result
Loss before income tax
Loss after income tax
Sales revenue
2020
30,346
26,810
(4,789)
(9,150)
(20,482)
(7,611)
(2,418)
(10,029)
(2,668)
(12,697)
(13,023)
2019
31,265
26,390
(4,636)
(16,275)
(28,856)
(23,377)
21,184
(2,192)
(2,584)
(4,777)
(7,358)
The Biofrontera Group generated total revenues of EUR 30,346 thousand in 2020, a decrease of 3% compared to the amount
generated last year (previous year: EUR 31,265 thousand). Revenues from product sales decreased by almost 22% year-on-year to
EUR 23,853 thousand (previous year: EUR 30,579 thousand). The greatest impact of the coronavirus pandemic was felt in the USA,
where sales fell by 29% to a total of EUR 16,589 thousand (previous year: EUR 23,343 thousand). This includes EUR 279 thousand in
sales of the new product Xepi® (previous year: EUR 566 thousand).
Sales in Germany improved by 11% year-on-year to EUR 5,159 thousand (previous year: EUR 4,633 thousand). In other European
countries, total sales decreased by 19% to EUR 2,104 thousand (previous year: EUR 2,603 thousand). Revenues from other regions
amounted to EUR 6,493 thousand (previous year: EUR 686 thousand) and include EUR 6,000 thousand in revenue from a down
payment from Maruho.
Biofrontera AG Annual Report 2020
15
Gross profit on sale
Gross profit increased only slightly by EUR 420 thousand in 2020 to EUR 26,810 thousand compared to EUR 26,390 thousand in the
prior-year period. The gross margin improved from 84% in 2019 to 88% in fiscal year 2020 due to the down payment of EUR 6,000
thousand.
Research and development costs
In the year under review, research and development costs of EUR 4,789 thousand were slightly above the previous year's level of
EUR 4,636 thousand. They include costs for clinical trials as well as regulatory expenses, i.e., for the granting, maintenance, and
extension of our regulatory approvals.
General and administrative costs
General and administrative costs amounted to EUR 9,150 thousand in 2020 (previous year: EUR 16,275 thousand) and thus decreased
by a total of EUR 7,125 thousand compared to the previous year. This was mainly due to the cost-saving measures introduced in
response to the COVID-19 pandemic and lower legal and consulting expenses in the amount of EUR 1,976 thousand (previous year:
EUR 6,929 thousand).
Sales and marketing costs
In fiscal year 2020, sales and marketing expenses amounted to EUR 20,482 thousand, a significant reduction of EUR 8,374 thousand
compared to the previous year of EUR 28,856 thousand. In this context, the effects of the cost-saving measures that were
implemented are offset by the non-cash impairment of the Xepi® license in the amount of EUR 2,001 thousand. Sales and marketing
costs include the expenses for our sales forces in Germany, Spain, the United Kingdom, and the United States, as well as marketing
expenses.
Result of operations
Loss from operating activities improved by EUR 15,766 thousand compared with the previous year loss in the amount of EUR 23,377
thousand to a loss of EUR 7,611 thousand, mainly as a result of the cost-saving measures implemented in the reporting period and
the effects of the first-time consolidation of Cutanea included in the previous year's figure.
Interest result
Interest expenses amounted to EUR 3,079 thousand (previous year: EUR 2,712 thousand) and mainly comprise interest expenses for
the EIB loan in the amount of EUR 1,765 thousand (previous year: EUR 1,716 thousand) as well as the fair value change of the purchase
price liability for Cutanea in the amount of EUR 750 thousand (previous year: EUR 650 thousand).
Other income and expenses
Other expenses and income totaled EUR (2,418) thousand in the reporting period (previous year: EUR 21,184 thousand), with the
previous year's amount including non-recurring effects from the acquisition of Cutanea Life Sciences, Inc. amounting to EUR 21,027
thousand. In addition, expenses and income from currency translation amounting to EUR (3,601) thousand (previous year: EUR 324
thousand) are reflected here.
Income taxes
This item includes actual income taxes of EUR 56 thousand (previous year: income of EUR 26 thousand) and deferred tax expense of
EUR 269 thousand (previous year: EUR 256 thousand) from the utilization of tax loss carryforwards at Biofrontera Pharma GmbH. In
the previous year, deferred income tax expense was also recognized from the reduction in the trade tax assessment rate of the city
of Leverkusen in the amount of EUR 2,350 thousand.
Net assets of the Biofrontera Group
Net assets
in EUR thousands
Non-current assets
Current financial assets
Other current assets
Biofrontera AG Annual Report 2020
December 31, 2020
December 31, 2019
30,264
20,579
5,547
35,872
17,227
5,264
16
in EUR thousands
Total assets
Equity
Non-current liabilities
Current financial liabilities
Other current liabilities
Total equity and liabilities
Non-current assets
December 31, 2020
December 31, 2019
56,391
7,375
40,730
2,852
5,434
56,391
58,363
9,955
36,830
5,507
6,071
58,363
The non-current assets as of December 31, 2020 in the amount of EUR 30,264 thousand (previous year: EUR 35,872 thousand) include
the recognized deferred tax assets on tax loss carryforwards at Biofrontera Pharma GmbH in the amount of EUR 7,525 thousand,
tangible assets in the amount of EUR 5,051 thousand (previous year: EUR 5,230 thousand) and intangible assets of EUR 17,688
thousand (previous year: EUR 22,848 thousand). This includes the acquired Xepi® license in the amount of EUR 16,720 thousand
(previous year: EUR 22,078 thousand). The valuation of the balance sheet item was assessed by means of an impairment test, which
also took into account the current market situation influenced by the COVID 19 pandemic and the resulting shifts in the timing of the
market penetration of Xepi®. As a result, this led to a non-cash impairment loss of EUR 2,001 thousand.
Current financial assets
Current financial assets amounted to a total of EUR 20,579 thousand as of December 31, 2020 (previous year: EUR 17,227 thousand).
This includes cash and cash equivalents of EUR 16,546 thousand (previous year: EUR 11,119 thousand), trade receivables of EUR 3,501
thousand (previous year: EUR 5,031 thousand) and other current financial assets of EUR 531 thousand (previous year: EUR 1,077
thousand).
Other current assets
Other current assets mainly comprise inventories. This increased to EUR 4,673 thousand (previous year: EUR 4,065 thousand) due to
higher inventories of raw materials and supplies as a result of the initial provisioning of an additional contract manufacturer.
Impairment losses of EUR 414 thousand (previous year: EUR 24 thousand) were recognized in the reporting year due to an expected
expiry of the shelf life of inventories.
Equity
The Group reports equity of EUR 7,375 thousand in accordance with IFRS accounting principles (previous year: EUR 9,955 thousand).
The equity ratio decreased slightly from 17% to 13%.
Non-current liabilities
Non-current liabilities include financial liabilities of EUR 22,736 thousand (previous year: EUR 22,110 thousand) and other non-current
financial liabilities in the amount of EUR 17,994 thousand (previous year: EUR 14,720 thousand). This includes in particular the
purchase price liability for Cutanea Life Sciences, Inc. in the amount of EUR 17,811 thousand (previous year: EUR 14,720 thousand).
The increase in the purchase price liability measured at fair value is due in particular to the provision of further start-up costs by
Maruho in the amount of EUR 3,547 thousand.
Non-current financial liabilities include the EIB loan incl. performance component totaling EUR 18,076 thousand (previous year: EUR
17,146 thousand), the unconverted shares of the convertible bond 2017/2022 in the amount of EUR 2,003 thousand (previous year:
EUR 1,977 thousand), and liabilities from leases to recognized in accordance with IFRS 16 in the amount of EUR 2,657 thousand
(previous year: EUR 2,987 thousand).
Current financial liabilities
Current financial liabilities include in particular trade payables of EUR 1,623 thousand (previous year: EUR 4,196 thousand) as well as
current liabilities from leases of EUR 1,057 thousand (previous year: EUR 1,038 thousand).
Other current liabilities
Other current liabilities amounted to EUR 5,434 thousand (previous year: EUR 6,071 thousand) and include in particular accruals of
EUR 3,042 thousand (previous year: EUR 3,495 thousand) and other deferred liabilities of EUR 2,392 thousand (previous year: EUR
2,565 thousand).
Biofrontera AG Annual Report 2020
17
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.
in EUR thousands
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Cash and cash equivalents
Non-current financial liabilities
Current financial debt
Net liquidity
2020
(2,849)
2,873
5,948
16,546
22,736
1,139
(7,328)
2019
(32,894)
21,053
3,455
11,119
22,110
1,212
(12,203)
Net cash flow from operating activities of EUR (2,849) thousand (previous year: EUR (32,894) thousand) decreased mainly due to the
effects from the acquisition and restructuring of Cutanea included in the previous year's figure.
Net cash flow from investing activities decreased by EUR 18,180 thousand from EUR 21,053 thousand to EUR 2,873 thousand in the
2020 financial year. The previous year's figure includes EUR 22,814 thousand in liquidity taken over as part of the Cutanea acquisition
as well as start-up costs from Maruho. Investments in property, plant and equipment and intangible assets amounted to EUR 774
thousand (previous year: EUR 1,854 thousand).
The increased net cash flow from financing activities amounted to EUR 5,948 thousand (previous year: EUR 3,455 thousand) and
mainly includes the proceeds from the mandatory convertible bond 2020/2021. In the previous year, cash inflows resulted from the
further utilization of a tranche of the EIB loan (EUR 5,000 thousand). At EUR 2,145 thousand, cash outflows for lease payments and
interest paid were slightly higher than in the previous year at EUR 1,847 thousand.
The financial liabilities from the 2017/2022 convertible bond and the EIB loan have different maturities up to a maximum of 2024.
The 2017/2022 convertible bond of EUR 2,003 thousand and the first EIB tranche of EUR 12,474 thousand mature in 2022. The second
EIB tranche in the amount of EUR 5,591 thousand matures in 2024. Annual purchase price payments for the Cutanea acquisition are
expected from 2022 until 2030, depending on future profits from the sale of Xepi®.
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 in the Group amount to EUR 16,546 thousand as of December 31, 2020 (previous year: EUR 11,119 thousand).
From the present perspective, also due to the capital measure carried out in February 2021, Biofrontera AG and the Biofrontera
Group have sufficient liquidity available to implement the Group strategy.
Biofrontera AG Annual Report 2020
18
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
Other taxes
Net loss
2020
4,220
1,409
(3,008)
(23)
(8,142)
3,943
(1,594)
(1)
(3,196)
2019
7,919
498
(3,395)
(29)
(8,474)
3,435
(1,987)
(1)
(2,034)
The sales revenues reported in the single-entity financial statements are prepared in accordance with German commercial law and
include revenues from intragroup services and from the remuneration for initiating and concluding the license agreement with
Maruho Co, Ltd. to the subsidiary Biofrontera Pharma GmbH. The prior-year amount also included income from intercompany
charges, which will be reported under other operating income in 2020.
In the wake of the COVID-9 pandemic, short-time work was introduced for all employees, resulting in lower personnel costs.
Other operating expenses decreased in particular due to the decrease in costs for legal advice by EUR 3,612 thousand to EUR 1,071
thousand. On the other hand, significant exchange losses of EUR 3,636 thousand (previous year: EUR 49 thousand) were incurred in
connection with the loan granted to the subsidiary Biofrontera Inc.
The increase in interest and similar income is due to the further granting of loans to Group companies. Interest expenses decreased
in particular due to lower interest expenses on the loan provided by the EIB.
The net loss for the year amounts to EUR 3,196 thousand (previous year: loss of EUR 2,034 thousand).
Net assets of Biofrontera AG
in EUR thousands
Non-current assets
Receivables due from affiliated companies
Unternehmen
Cash and cash balances with banks
Other assets
Total assets
Equity
Provisions
Bonds
Liabilities to banks
Other liabilities
Total equity and liabilities
December 31, 2020
December 31, 2019
70,690
59,000
9,201
187
139,078
115,200
3,572
2,031
17,722
553
139,078
32,262
97,165
3,926
285
133,638
109,604
4,026
2,031
16,900
1,077
133,638
As in the previous year, non-current assets relate almost exclusively to shares held in affiliated companies. The addition of shares
in affiliated companies in the amount of EUR 38,425 thousand and the associated reduction in receivables from affiliated companies
result from the conversion of the loan granted between Biofrontera AG and the US subsidiary Biofrontera Inc. into equity.
Biofrontera AG Annual Report 2020
19
Cash on hand and bank balances increased from EUR 3,926 thousand in the previous year to EUR 9,201 thousand in 2020. For further
details on the financial position, please refer to the presentation of the consolidated financial position.
As of December 31, 2020, Biofrontera AG holds equity of EUR 115,200 thousand in accordance with commercial law (previous year:
EUR 109,604 thousand). In particular, the issue and conversion of the mandatory convertible bond 2020/2021 increased equity by
EUR 7,915 thousand.
Provisions mainly include provisions for litigation costs in the amount of EUR 1,979 thousand (previous year: EUR 2,523 thousand)
and provisions for the performance component of the EIB loan in the amount of EUR 768 thousand (previous year: EUR 838 thousand).
The bonds include the convertible bond 2017/22. Liabilities to banks increased by EUR 823 thousand, in particular due to interest
payable at maturity on the loan provided by the EIB.
Assessment of the financial position of Biofrontera AG and the Group
In the single-entity financial statements of Biofrontera AG, liquidity amounts to EUR 9,201 thousand, compared to EUR 3,926 thousand
in the previous year. The Group's liquidity increased by EUR 5,427 thousand to EUR 16,546 thousand in the 2020 financial year. Key
factors influencing liquidity in the 2020 were the successful capital increase in August 2020 and the one-off payment received from
Maruho. Together with the cost-saving measures introduced in 2020, liquidity developed positively in 2020.
Taking into account the capital measure carried out in February 2021 with gross proceeds of EUR 24,667 thousand, the Biofrontera
Group currently has sufficient liquidity to continue to finance business operations for at least 12 months.
Biofrontera AG Annual Report 2020 20
Outlook
Business environment
We expect the global economy to grow again in 2021 following the recession in the previous year. However, the first months of the
year are likely to be dominated by the containment of the COVID-19 pandemic. With the anticipated distribution of effective vaccines
among the population, we expect the situation to improve starting in the second half of 2021. In this context, the recovery of the
economy will continue to depend heavily on the course of the pandemic and the measures taken by governments to contain it.
The German government's (Federal Ministry for Economic Affairs and Energy) Annual Economic Report 2021, published on February
2, 2021, indicates a 5.0% decline in German gross domestic product (GDP) in 2020, due to the impact of the COVID-19 pandemic. To
date, both the German government and the German Council of Economic Experts have assumed a significant recovery in economic
activity in 2021, with GDP rising by 3.0% and 3.7%, respectively. However, both the German government and the Council of Economic
Experts conceded that the German economy would not reach its pre-crisis level seen in the fourth quarter of 2019 before the middle
or beginning of 2022.
According to a February 1, 2021 release from the U.S. Congressional Budget Office (CBO), U.S. gross domestic product fell 3.5% in
2020 due to the pandemic. For the current year, it is expected that vaccination will cause a sharp decline in the number of infections.
In its new economic forecast, which covers the period from 2021 to 2031, the CBO therefore projects that the positive economic trend
that began in mid-2020 will continue, with GDP expected to return to pre-pandemic levels by mid-2021. For 2021, CBO projects that
GDP will increase by 4.6%.
Our key markets, the U.S. and Germany, experienced fewer actinic keratosis treatments in 2020. We saw a 17% decline in the AK
market in the U.S. and a 2% decline in Germany. While the option for daylight PDT in Germany continued to establish PDT treatment
as a "contact-free" treatment for patients, the PDT market in the U.S. completely collapsed at the onset of the pandemic. As
previously reported by us, due to the pandemic-related restrictions as well as the treatment recommendation (telehealth) of the
American Academy of Dermatology (AAD), our largest sales market has still not been able to recover to pre-crisis levels.
Guidance
The Biofrontera Group provides the following guidance for the full year 2021, which reflects the Group's assessment regarding the
timing and speed of recovery from the pandemic. We expect that due to the vaccination programs, the pandemic will slowly subside
in our key sales markets, resulting in a growth momentum in the second half of 2021.
Forecast of key financial indicators
The Group expects revenue from product sales of EUR 25 to 32 million in fiscal year 2021. Our sales and thus business activities
largely depend on the further infection trend and the associated easing of containment measures.
Particularly in the U.S.A., our primary sales market for our flagship product Ameluz®, we expect demand to remain subdued as fewer
face-to-face patient visits to physicians continue to occur, resulting in fewer prescriptions and lower demand for drugs that must
be administered in a physician's office. Treatment of skin diseases in a physician's office has generally been less attractive to
patients during the ongoing pandemic. As Ameluz® is sold directly to physicians in the U.S., the impact of restrictions on travel as
well as on visits to doctors' offices, also factors into our sales team's work. For our second product in the U.S. portfolio, Xepi®, we
are planning a re-launch in the dermatology market to increase awareness and accelerate the use and prescribing of the drug by
dermatologists. However, due to the strong market penetration of generic topical antibiotics, we continue to expect relatively low
sales in the 2021 re-launch phase.
In Germany, our key European sales market, we expect to continue the steady expansion of the PDT market by gaining market share.
Daylight PDT approved in Europe is expected to remain a growth driver in 2021. In Europe, we expect first sales from the licensing
agreement with Galenica AB in Scandinavia starting in the second half of the year.
We also anticipate that the FDA's amendment to the product information for Ameluz® in the USA to allow the simultaneous use of
three tubes will be issued before the end of the year. Biofrontera also expects approval of the larger BF-RhodoLED® XL lamp in the
U.S. by year-end (see " Planned regulatory progress" section below) as well as plans for extensive marketing activities to support
product sales across the U.S. portfolio. While it is difficult to quantify the outcome of the marketing activities, they do lead us to
expect increased growth momentum in the second half of the year. However, as mentioned earlier, this is heavily dependent on the
course of the pandemic. Consequently, there is still considerable uncertainty with regard to the sales revenues that may be
Biofrontera AG Annual Report 2020
21
generated in 2021. Furthermore, following the successful completion of the capital increase in February 2021, we are increasing our
R&D activities (see "Planned regulatory progress" section below).
As described in the section "Internal controls," EBITDA and EBIT will be introduced as key performance indicators in our reporting
starting in 2021. Both have become established internationally as target metrics and will replace the previously reported key
performance indicator result from operating activities.
Group EBITDA includes earnings before interest, taxes, depreciation of tangible assets and amortization of intangible assets. EBIT
includes earnings before interest and taxes. These key performance indicators are suitable for describing and comparing operating
performance, as non-operating fluctuation variables, for example valuation adjustments and amortization of acquired assets, are
not included here.
Based on the above assumptions, the Biofrontera Group expects EBITDA (loss) to be between EUR (11) million and EUR (14) million and
EBIT (loss) between EUR (13) million and EUR (16) million in 2021.
From today's perspective, both the Group and Biofrontera AG have sufficient liquidity available for the coming 12 months, given the
earnings expectations as well as a level of cash and cash equivalents of EUR 16.5 million for the Group as of December 31, 2020.
Taking into account the capital increase carried out in February 2021 and the expected earnings development in 2021, the level of
liquidity at the end of the year is expected to be significantly above the 2020 level.
For the single-entity financial statements of Biofrontera AG, we continue to expect a loss in 2021, which will, however, be slightly
lower than in 2020.
Forecast of other key performance indicators
To adequately continue to drive and support the Company's growth, Biofrontera expects a slight increase in headcount in 2021,
following a reduction in headcount in 2020 to a total of 149 as of December 31, 2020, from 174 as of December 31, 2019, due to
pandemic-related cost saving measures. Based on the slight increase in headcount as well as the necessary easing of cost saving
measures, we expect annual training and development expenses as well as the number of training sessions to increase in 2021
compared to 2020.
The maintenance and further development of our approvals are essential for securing and strengthening Biofrontera's market
position and as such are reflected in our quality management, among other things. Accordingly, the number of external and internal
audits, for instance, are important non-financial performance indicators for the Company. We expect the number of audits in 2021
to be higher compared to the number in 2020.
Planned regulatory progress
We are currently conducting a phase III- 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. Patient recruitment is expected to be completed in the beginning of 2022.
Based on the March 2020 approval for the European label extension, Biofrontera has also held discussions with the FDA about
expanding the label for Ameluz® in the USA to include the treatment of AK on the extremities and trunk/neck. The FDA expects
additional clinical trials in order to approve the label extension of Ameluz® to include additional body regions. The study protocol
will be coordinated with the FDA prior to the start of the clinical trials. Patient recruitment is expected to start prior to the end of
2021.
Following consultation with the FDA, Biofrontera initiated a phase I pharmacokinetics study (PK study) to test the safety of PDT using
three tubes of Ameluz®. This will ensure reimbursement of multiple tubes for the treatment of larger body regions in the periphery
in the USA in the future. The Company was able to complete this study in October 2020. After analyzing the study data and preparing
the study report, the results and safety argumentation were incorporated into the registration dossier (NDA). In February 2021, the
Company announced the submission of an application to the FDA to amend the product information, which currently limits use to
one tube of Ameluz® per treatment. We expect feedback regarding the change to the product information by the end of the year.
Biofrontera AG Annual Report 2020 22
To complement this progress with an optimized illumination source, Biofrontera has developed a new lamp, the BF-RhodoLED® XL,
which can be used to illuminate larger areas of skin. After the Company experienced delays in manufacturing the initial batch due
to delays in the supply of parts caused by the coronavirus crisis, the application for approval was submitted to the FDA in March
2021. We expect the approval process to take until the end of 2021.
With regard to the possible label extension of Ameluz® for acne in the USA, 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. The study program
is expected to start with a Phase IIb trial in the second half of 2021.
Biofrontera AG Annual Report 2020 23
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 Group'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. Biofrontera's existing risk management structures are continuously being 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 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.
Biofrontera AG Annual Report 2020 24
Accounting risk management system and internal controls
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 as well as the
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 risks that may have an impact on its net assets, financial position and
results of operations.
Market risk
In general, Biofrontera's market risk consists of foreign currency and changes in interest rates.
•
•
Foreign currency risk: As of the balance sheet date, the Biofrontera Group was exposed to foreign currency risks, in
particular as a result of the intercompany loan granted to the subsidiary Biofrontera Inc. Trade receivables arise to a
greater extent than in the past due to the business expansion in the USA and are regularly reviewed with regard to a
potential default risk. Trade payables denominated in foreign currencies are insignificant. The Company does not enter
into any specific currency hedging transactions. Exchange rate fluctuations are recognized in profit or loss.
Interest rate risk: Interest rate risks exist for the purchase price liability for Cutanea to Maruho and the performance
component of the EIB loan. Otherwise, the interest rate risk is considered negligible, as the existing interest rate modalities
for the relevant financing of the Biofrontera Group can generally be adjusted to market conditions in the short to medium
term. For the performance component, a limit of 4% mitigates the market price risk.
Purchase price risk
The purchase price risk relates to the earn-out agreement in connection with the acquisition of Cutanea. For instance, 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. Reduced sales of Xepi® may thus lead to a different assessment of the medium-term business and earnings outlook for
Xepi® and subsequently to a revaluation of the balance sheet value of the earn-out agreement.
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. Biofrontera's
financial instruments bear minimal risk of default.
Liquidity risk
Liquidity risk refers to the inability to meet existing or future payment obligations as they become due. To ensure the ability to pay
at all times and to avoid financial shortages, Biofrontera has established a central cash management system that monitors liquidity
requirements in the short, medium and long term. Refinancing for all Group companies is mainly provided by Biofrontera AG.
Biofrontera AG Annual Report 2020 25
Liquidity is monitored and managed on the basis of short- and long-term corporate planning. Liquidity risks are identified at an early
stage by simulating various scenarios. Current cash and cash equivalents are recorded and monitored on a daily basis.
For further information, please refer to the section "Liquidity, profitability and capital markets access".
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 exist in a slower than
projected market penetration of Xepi®.
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, COVID-19 has become a global pandemic. As a result of the measures implemented by
governments worldwide, Biofrontera's business operations are directly affected. In particular, demand for Biofrontera's products in
the U.S. has declined significantly due to different priorities for medical treatments that have emerged during the COVID-19 pandemic,
delaying actinic keratosis treatment for most patients along with diagnosis. If the COVID-19 pandemic persists, we could experience
adverse effects that could severely impact our business, operations, sales and marketing, and clinical trials. The immediate and
indirect effects of the pandemic may ultimately have a corresponding negative impact on the Company's cash position as the
pandemic continues. In addition, the success of the Company's financing measures could be compromised.
To this end, in 2020, the Company had successfully implemented 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. If necessary, these could be implemented again.
For further information on the risks related to the ongoing COVID-19 pandemic, please refer to the section "Liquidity, profitability
and capital markets access".
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 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
Biofrontera AG Annual Report 2020
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Liquidity, profitability and capital markets access
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.
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. As a result of the drawdown of
several tranches totaling EUR 15 million from the European Investment Bank loan, the down payment of EUR 6 million received under
the license agreement with Maruho concluded in April 2020, as well as the issuance of the convertible bond in August 2020, the
Company has had sufficient liquidity at its disposal throughout the year under review. Therefore, and also due to the capital measure
carried out in February 2021, the Group is well positioned for the future.
However, should the worldwide COVID-19 pandemic continue to last, it could lead to a drastic decline in liquidity of the Biofrontera
Group due to significantly reduced sales, despite possible cost reduction measures and might require further financing via the
capital market. However, the Management Board currently assumes that despite the current crisis, appropriate capital measures
could be implemented successfully.
Law and compliance
The Biofrontera Group may be subjected to litigation or legal proceedings in the future. In particular, this includes risks arising from
product liability, antitrust law, competition law, patent law, tax law and environmental protection. Risks may also arise in connection
with publication and information obligations on the capital market. Inquiries and investigations on grounds of possible infringements
of statutory or regulatory provisions may result in criminal and civil sanctions, including considerable fines or other financial
disadvantages and these may harm the Company's reputation and ultimately have a negative effect on the Company's success and
performance or our access to the capital market.
In the trial of DUSA Pharmaceuticals, Inc. (DUSA) filed in March 2018 with the District Court of Massachusetts against the Biofrontera
Group, in October the further proceedings were referred to the decision by a jury. A trial date has not yet been set. The lawsuit
includes the alleged infringement of DUSA Patents No. 9,723,991 and No. 8,216,289 through the sale of BF-RhodoLED® in the USA,
claims based on unauthorized use of alleged trade secrets as well as tortious interference with contractual relations and deceptive
and unfair trade practices. DUSA has asserted considerable claims for damages in these proceedings. However, the Company
considers these to be unfounded and unsubstantiated.
Further information on litigation is provided separately in the "Litigation" section.
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 clinical development period, which is 6 to 10
years on average. Due to lack of success in individual study phases, for example in study design, patient recruitment, possible quality
defects or documentation of study results, studies can prove more cost-intensive than planned, can be delayed or even come to a
complete standstill. It is possible that none, or only some, of the funds invested will be recouped in sales revenue.
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27
The Company tries to mitigate 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® and Xepi®. While Ameluz® is being marketed in
some European countries as well as the USA, Xepi® is only being sold by the Company in 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 Xepi® 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 contribution to mitigating this risk.
Patent protection
The Company may be subject to patent protection risks. If our products are marketed successfully, the resulting 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 filed in recent years to protect the use of the
combination of Ameluz® and BF-RhodoLED®. However, these patents have not yet been granted.
Further information on patent development is provided in the section "Patent development”. Further information on patent litigation
is provided separately in the "Litigation" section.
Products and product stewardship
As an international biopharmaceutical company, Biofrontera is subject to the highest requirements and associated risks in the
quality and safety areas. Biofrontera assesses potential environmental and health risks associated with a product along the entire
value chain. This includes every stage from research and development to disposal, including production, marketing and customer
use. Despite extensive studies, the possibility exists of previously unknown and unexpected side effects from Biofrontera products.
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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 earnings and cash flow targets as well as impairments on already produced product inventories
or the Xepi® license.
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.
Procurement and production
As a pharmaceutical manufacturer, the Company is exposed to various risks in connection with the procurement and production of
its products. Biofrontera relies on individual manufacturers or suppliers for the production of its finished products as well as raw
materials, 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.
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-
Biofrontera AG Annual Report 2020
29
orientated personnel policy in order to leverage the labor market's full potential. To date, Biofrontera has 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 mitigate this risk, such as an authorization concept. However, while we have IT security measures and
disaster recovery plans in place, they may prove to be inadequate or ineffective. Our IT systems may be vulnerable to cyberattacks,
unauthorized access, computer viruses, system failures, human error, natural disasters, fire, power failure, communication
disruptions or acts of sabotage. 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 person-
related 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 coverage
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 coverage.
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.
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 identifies opportunities in the expansion of the indications for its products, particularly in the approval expansion of
Ameluz® in our key sales markets, especially in the USA, in order to expand and exploit market potential. At the time of publication
of this annual report, for example, a phase III trial is in preparation for the approval expansion of Ameluz® for the treatment of AK
also on the extremities and trunk/neck, as well as a phase IIb trial for the approval expansion of Ameluz® for moderate to severe
acne in the USA. In order to ensure future reimbursement of multiple tubes in the USA for the treatment of larger body areas in the
periphery, Biofrontera submitted an application to the FDA in February 2021 to amend the product information, which currently limits
use to one tube of Ameluz® per treatment. To accompany this progress with an optimized light source, the Group has also completed
the development of a larger BF-RhodoLED® XL lamp and submitted the corresponding application for approval to the FDA. In order
to further increase our growth opportunities in the US market in the medium term, we are also currently conducting a clinical trial
for the treatment of superficial basal cell carcinoma (BCC) with Ameluz® in combination with our BF-RhodoLED® lamp in the US.
Upon successful FDA approval, Ameluz® would be the only drug in the US for the treatment of superficial BCC with PDT. There is also
an opportunity for portfolio expansion in the medium and long term through the development of new products based on our
nanoemulsion technology.
In addition, we see further long-term revenue opportunities in the form of milestone and royalty payments from the license and
supply agreement concluded with Maruho in April 2020 for the commercialization of Ameluz® in East Asia and Oceania.
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Overall opportunity and risk situation at Biofrontera
The Biofrontera Management Board believes that the current COVID-19 crisis still 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 2021.
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.
▪ To date, the Group has been able to meet its payment obligations at all times. The cash position is currently adequate due
to the EIB loans, the received down payment of EUR 6 million under the license agreement with Maruho concluded in April
2020, as well as the capital increases successfully completed in August 2020 and February 2021. As a result, at present there
is no longer a potential threat to the Company's going-concern status.
According to current estimates, capital requirements should therefore be covered up to the operating break-even point.
However, the Company will have payment obligations, among other things from the repayment of the EIB loan in 2022 and
2024. For the settlement of the liability due in 2024 and also for the unlikely but possible negative outcome of the DUSA
Pharmaceuticals Inc. lawsuit, which could lead to a further payment obligation, the Company will have to make accruals in
the next 24 months, as the gross proceeds of the capital measure completed in February 2021 were lower than expected.
This was due to the lower than expected stock market price of the Biofrontera share to which the subscription price of the
shares to be issued in the capital measure was linked.
▪ 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 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 U.S., Biofrontera is also working diligently to improve reimbursement arrangements, as well as to expand approval to
include the treatment of actinic keratoses to extremities, as well as trunk and neck. In order to ensure future reimbursement
of multiple tubes for the treatment of larger body areas in the periphery, Biofrontera has submitted an application for a
change in the product information to the FDA.
▪ To further strengthen its competitive position, Biofrontera has completed the development of the new lamp "BF-RhodoLED®
XL", which will allow Ameluz® to be used on larger surfaces, and has submitted the application for approval to the FDA. With
the market launch of this new medical device, the Group 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 –
once the pandemic has subsided - 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 Xepi®, 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 long term corporate growth and strengthening of the US-market presence.
▪ Biofrontera considers itself well positioned with regard to the legal disputes. Provisions are in place 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.
Biofrontera AG Annual Report 2020 31
Litigation
DUSA v. Biofrontera
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.
Biofrontera Group’s responses to the patent claims include that it does not infringe the DUSA patents and that the patents are
invalid. With regard to the non-patent claims, Biofrontera Group’s responses include that the information does not constitute trade
secrets and that Biofrontera Group’s actions do not constitute any violation of trade practices. With regard to DUSA’s claims for
damages, Biofrontera Group’s responses include that DUSA has not proven it is entitled to lost profits or unjust enrichment.
Submission of expert reports and related discovery regarding these claims finished in early December 2019. The parties filed motions
for summary judgment and motions to exclude certain expert testimony closing on February 18, 2020. The Court issued decisions
on the motions on October 9, 2020, sending most issues to trial.
The Court has tentatively scheduled a jury trial starting in late November 2021. The Issuer expects the trial to proceed through
December 2021. The Issuer believes that these claims lack merit and Biofrontera Group intends to defend against them vigorously;
however, Biofrontera Group cannot guarantee that it will be successful. The Court largely denied a motion by DUSA for a preliminary
injunction, but did order Biofrontera Group not to use any documents, or documents derived from documents, that originated at
DUSA.
In addition, Biofrontera Group 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.
Biofrontera may incur considerable expenses from defending its legal position, as it has hired attorneys in the U.S. in addition to
internal resources for defense. Due to the practices of the U.S. legal system, the costs incurred by Biofrontera would not be
reimbursed by the plaintiff even if Biofrontera were to achieve a positive outcome of the proceedings.
Biofrontera v. DUSA
In 2018, Biofrontera Inc. brought a lawsuit against DUSA in California Superior Court. Biofrontera Group’s complaint alleges that DUSA
engaged in unfair competition by providing excessive product samples to physicians and by using its distributor Foundation Care to
inflate product prices. After filing the lawsuit, DUSA stopped distributing its pharmaceutical products through this distributor
(Foundation Care), which was a key objective of Biofrontera when this lawsuit was filed. Biofrontera Group’s complaint also alleges
that DUSA engaged in tortious interference by making statements to third parties regarding the off-label use of its products. The
court has allowed Biofrontera Group’s tortious interference claims to proceed to discovery. Given the unprecedented and unforeseen
economic circumstances caused by the spread of COVID-19, Biofrontera has reevaluated its litigation strategy. Because Biofrontera
was successful in stopping DUSA from using Foundation Care, it decided at this time to stop prosecuting the case against DUSA in
California state court and dismissed those claims.
Biofrontera v. Deutsche Balaton et. al.
On June 11, 2018, Biofrontera Group 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 AG’s shares that were designed to defame Biofrontera
Group 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 Group 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 Group’s U.S. federal securities law claims to move forward. The court also
Biofrontera AG Annual Report 2020
32
ordered that the parties conduct jurisdictional discovery in connection with all of the remaining claims and submit supplemental
briefing on Biofrontera Group’s common law claims. On June 10, 2020, at the parties’ request, the court stayed the litigation until
November 10, 2020, so that the parties could mediate the issues raised in the complaint as well as certain other disputes. In order
to have sufficient time for the complex negotiations, the parties mutually agreed to extend the original deadline of November 11,
2020 until the end of February 2021. Subsequently, a further extension until August 31, 2021 was agreed. Deutsche Balaton AG, Wilhelm
Konrad Thomas Zours and DELPHI Unternehmensberatung AG are among our shareholders.
In June 2017, the Company was served with legal action for rescission and annulment by the shareholder Deutsche Balaton AG,
claiming the invalidity of certain resolutions of the annual general meeting of May 24, 2017. The claim was dismissed by the Cologne
Regional Court in December 2017. Following an appeal by Deutsche Balaton AG, the Cologne Higher Regional Court granted the appeal
in November 2018. In its ruling of September 22, 2020, the Federal Supreme Court of Germany overturned the judgment of the
Cologne Higher Regional Court and referred the case back to the Cologne Higher Regional Court for a new hearing and decision.
Deutsche Balaton AG has further brought a claim for rescission and annulment 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 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 July 1, 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 lawsuit 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 general 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 general meeting. The lawsuit is currently
pending at Cologne Regional Court under file number 82 O 75/19.
Biofrontera AG Annual Report 2020
33
A legal action for rescission and annulment was brought by ABC Beteiligungen AG, Heidelberg, against resolutions of the annual
general meeting of Biofrontera AG on May 28, 2020. The action for rescission and nullification is directed against the resolutions
under agenda items 6 (resolution on the increase of share capital against cash contributions with the granting of an indirect
subscription right), 9 (removal of a Supervisory Board member and election of a new Supervisory Board member), 11 (Resolution on
the performance of a special audit on the circumstances of the lawsuit filed in the USA by the Company against Deutsche Balaton
AG and other defendants), 12 (Resolution on the performance of a special audit on the circumstances of the withdrawal of the
subscription offer for mandatory convertible bonds) and 13 (Resolution on the authorization to issue mandatory convertible bonds
and the creation of conditional capital with a corresponding amendment to the Articles of Association). With regard to agenda items
9, 11, 12 and 13, a positive action for the adoption of a resolution was also filed, according to which it should be recognized that the
annual general meeting adopted the resolutions in accordance with the resolution proposals published in this regard in the
supplementary request of Deutsche Balaton AG. The lawsuit is pending before the Cologne Regional Court under file number 82 O
53/20.With regard to agenda item 6 (resolution on the increase in capital stock against cash contributions with granting of an indirect
subscription right), an application for release was filed with the Cologne Higher Regional Court on October 20, 2020. The Cologne
Higher Regional Court granted the application for release on January 7, 2021. Subsequently, ABC Beteiligungen AG and the Company
declared the legal action for rescission and annulment to be settled to that extent.
Biofrontera v. Automattic Inc.
Biofrontera AG has applied for and obtained various preliminary 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 has
published false and defamatory allegations about Biofrontera AG and its management in a blog. Automattic Inc. has appealed the
obtained preliminary injunctions. The Hamburg Regional Court has now ruled on this appeal by Automattic Inc. in oral proceedings
and confirmed the injunctions obtained almost without exception. Automattic Inc. appealed against these rulings of the Regional
Court. These appeal proceedings are currently pending before the Hanseatic Higher Regional Court.
Biofrontera AG Annual Report 2020
34
Compensation report
The remuneration of the members of the Management Board consist of fixed compensation paid in twelve equal monthly
installments. In addition, an annual performance-related bonus payment is provided for the Management Board members, which
must be linked to the long-term performance of the Company in accordance with the German Act on the Appropriateness of
Management Board Compensation. Furthermore, a long-term compensation component is in place through participation in the
Company's stock option program and stock appreciation rights (SAR) program.
The total Management Board compensation in fiscal 2020 as well as the total number of stock options issued to the members of the
Management Board as of December 31, 2020 are as follows:
Prof. Dr. Hermann Lübbert
Thomas Schaffer
Christoph Dünwald
CEO
CFO
CCO
Term
Feb 1, 1998
incumbent
June 1, 2013 Feb 28, 2021 Nov 16, 2015
in EUR thousands (unless otherwise indicated)
2020
2019
2020
2019
2020
Jan 31,
2020
2019
Fixed component of compensation
Compensation in kind
Total fixed compensation
Short-term incentive (variable, STI)
Long-term incentive (variable, LTI), thereof from
Stock options (maturity May 13, 2025)
Fair value of options granted
Income from exercising stock options
Stock Appreciation Rights (SARs) (maturity May 3, 2030)
Fair value of SARs
Income from exercising SARs
Total LTI
Total performance-based compensation
Total compensation
Number of stock options (Dec 31)
Number of stock options granted
Fair value when granted
Number of SARs (Dec 31)
Number of SARs granted
Fair value when granted
322
9
331
-
-
86
290
-
376
376
707
350
16
366
167
37
149
-
-
186
353
719
244
13
257
-
-
54
218
-
271,5
271,5
257
12
269
154
25
-
-
-
25
179
23
1
24
50
-
72
-
-
72
122
275
16
291
140
25
-
-
-
25
165
529
448
146
456
164,495
244,495
100,000
150,000
-
-
14,495
414
-
-
10,000
255
200,000
200,000
290
-
-
-
150,000
150,000
218
-
-
-
-
-
-
-
-
-
150,000
10,000
255
-
-
-
After his departure from the Management Board, Mr. Christoph Dünwald received remuneration as a former executive member in
the amount of EUR 137 thousand for the period from February to November.
The fixed component of Prof. Dr. Lübbert's compensation amounts to 47% (previous year: 51%) and that of Mr. Schaffer to around
49% (previous year: 60%) of total compensation. The fixed compensation of Mr. Dünwald amounts to approximately 16% (previous
year: 64%).
The Management Board members are also provided with company cars for private use. In addition, the Company contributes to the
costs of private health, pension and long-term care insurance up to the maximum amount of the respective employer's contribution
limit, insofar as corresponding insurance policies actually exist and corresponding costs are incurred. The existing service
Biofrontera AG Annual Report 2020
35
agreements provide that - depending on the achievement of defined targets - an annual bonus is to be granted. If targets are
exceeded, the maximum amount of the annual bonus is limited (cap). If targets are missed by up to 70%, the bonus payment is
reduced on a straight-line basis; if targets are missed by more, the bonus payment is not paid at all. The assessment factors (2019:
revenue (30%), earnings after tax (20%), achievement of break-even in Q4-2019 (20%), completion of patient recruitment in the BCC
study (20%), completion of the clinical phase of the peripheral study (10%)) are mutually agreed at the end of each fiscal year for
the following fiscal year in a performance target agreement. The aforementioned performance criteria set for 2019 were not
achieved and thus no bonus payment was granted in fiscal year 2020.
Severance payments in the event of premature termination of a Management Board member's contract without serious cause are
limited to a total of two annual salaries, but not more than the total compensation entitlement for the remaining term of the contract
at the time of departure ("severance payment cap").
The maximum compensation of the Management Board members from the fixed and one-year performance-related compensation
(bonus) amounts to EUR 520 thousand for Prof. Dr. Lübbert and EUR 390 thousand for Thomas Schaffer. With regard to the maximum
compensation under the multi-year variable compensation, we refer to the following explanations on the stock option program and
SAR program.
In order to further increase the long-term incentive effect of the variable compensation and consequently its focus on sustainable
corporate development, the members of the Management Board have committed themselves to holding ordinary shares in the
Company as private assets for stock options granted under the 2015 stock option program. This commitment is for a period of three
years beginning one month after the issue date of the options ("blocked shares"). The amount of the personal commitment varies
for the individual Management Board members. If restricted shares are sold prematurely, which must be reported to the Chairman
of the Supervisory Board without delay, the Company may demand the retransfer of a corresponding number of stock options free
of charge within one month of notification of the sale, whereby the options granted last are always to be retransferred (last in first
out). A retransfer is not possible if the Management Board member can demonstrate that the sale of the restricted shares was
necessary to meet urgent financial obligations. The range of exercise prices for outstanding options is between EUR 2.25 and EUR
6.708, the range of fair value of outstanding options is between EUR 1.00 and EUR 2.55. After expiry of the respective vesting period,
the option rights may be exercised up to the end of six years after the respective issue date (exclusive).
As a long-term performance component, members of the Management Board are granted stock appreciation rights ("SARs") under
their service agreements, starting in the 2020 financial year (long-term incentive, "LTI"). An annual target amount of 150% of the
STI ("short-term incentive") target amount ("LTI target amount") has been agreed. The number of SARs granted each year is equal
to the LTI target amount divided by the economic value of the SARs at the time they are granted. SARs subject to vesting
requirements may not be exercised if and to the extent that the gross proceeds from all exercised SARs granted to the Management
Board Chairman would exceed the gross fixed compensation actually received by the Management Board member since the first
grant of SARs by more than 300% without this limit.
To the extent that terms and conditions of the SAR program provide for a personal investment, it is agreed, in deviation from any
SAR terms and conditions, that the personal investment must be made without fail within six months of the exercise date in the
amount of 25% of the payout amount (gross) and that the acquired shares in the Company may not be sold for at least four years
after the granting of the SARs.
For the purpose of further increasing the long-term incentive effect of the variable compensation and thus its focus on sustainable
corporate development, members of the Management Board undertake to acquire up to 100,000 shares in the Company and to hold
them until the end of their service agreement (share ownership guideline). However, the total acquisition cost (including incidental
acquisition costs) to be borne by the Management Board member is limited per fiscal year to an amount equivalent to 25% of the
target achievement bonus granted to him for the previous fiscal year.
Management Board members are required to invest 25% of the target achievement bonus received in the previous year in shares
until the total acquisition of 100,000 shares per member of the Management Board has been reached.
Lock-up periods in respect of acquired shares of the Company imposed on the Chair of the Management Board in connection with
the above sections shall end when the Company announces, after the Chair of the Management Board has left the Company, that
the listing of the shares on the regulated market in Germany will be terminated.
Furthermore, the Supervisory Board may, at its discretion, grant the member of the Management Board a special bonus in certain
exceptional and justified cases, but not exceeding an amount of EUR 50,000 (gross) per fiscal year.
Biofrontera AG Annual Report 2020
36
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.
Shareholder structure
The detailed presentation of the positions held by the shareholders as of December 31, 2020 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 "5 Subscribed capital, capital reserve, conditional capital".
Share capital and existing capital
The detailed presentation of share capital as of December 31, 2020, 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 "5 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.
Biofrontera AG Annual Report 2020
37
Corporate governance declaration pursuant to sections 289f and 315d
HGB including the statement pursuant to 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 12, 2021
Biofrontera AG
Prof. Dr. Hermann Lübbert
CEO and Chairman
Ludwig Lutter
CFO
Biofrontera AG Annual Report 2020
38
Consolidated financial statements as of December 31, 2020
Consolidated balance sheet as of December 31, 2020
Assets
in EUR thousands
Non-current assets
Tangible assets
Intangible assets
Deferred tax
Total non-current assets
Current assets
Financial assets
Trade receivables
Other financial assets
Cash and cash equivalents
Total financial assets
Other assets
Inventories
Income tax
Other assets
Total other assets
Total current assets
Total assets
December 31, 2020
December 31, 2019
(1)
(1)
(8)
(3)
(4)
(7)
(2)
(6)
(5)
5,051
17,688
7,525
30,264
3,501
531
16,546
20,579
4,673
5
869
5,547
26,126
56,391
5,231
22,848
7,794
35,873
5,031
1,077
11,119
17,227
4,065
4
1,195
5,264
22,491
58,363
Biofrontera AG Annual Report 2020
39
Equity and liabilities
in EUR thousands
Equity
Subscribed capital
Capital reserve
Capital reserve from foreign currency conversion adjustments
Loss carried forward
Loss for the period
Total equity
Non-current liabilities
Financial debt
Other financial liabilities
Total non-current liabilities
Current liabilities
Financial liabilities
Trade payables
Current financial debt
Other financial liabilities
Total financial liabilities
Other liabilities
Income Tax
Other provisions
Other liabilities
Total other liabilities
Total current liabilities
Total equity and liabilities
December 31, 2020
December 31, 2019
(9)
(10)
(11)
(12)
(10)
(11)
(6)
(13)
(14)
47,748
123,493
1,866
(152,709)
(13,023)
7,375
22,736
17,994
40,730
1,623
1,139
90
2,852
0
3,042
2,392
5,434
8,286
56,391
44,849
118,103
(289)
(145,351)
(7,358)
9,955
22,110
14,721
36,830
4,196
1,212
99
5,508
11
3,495
2,565
6,071
11,579
58,363
Biofrontera AG Annual Report 2020
40
Consolidated statement of comprehensive income for the fiscal year 2020
in EUR thousands
Sales revenue
Cost of sales
Gross profit from sales
Operating expenses
Research and development costs
General administrative costs
Sales costs
Result from operations
Effective interest expenses
Interest expenses
Interest Income
Other Expenses
Other Income
Other income from the PPA (Badwill)
Profit/loss before income tax
Income tax
Profit/loss for the period
(16)
(17)
(18)
(19)
(20)
(21)
(21)
(21)
(22)
(22)
(22)
(23)
2020
30,346
(3,536)
26,810
2019
31,265
(4,875)
26,390
(4,789)
(9,150)
(20,482)
(4,636)
(16,275)
(28,856)
(7,611)
(23,377)
(546)
(2,534)
411
(3,836)
1,417
-
(12,697)
(326)
(13,023)
(245)
(2,466)
127
(799)
7,171
(14,812)
(4,777)
(2,581)
(7,358)
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
2,155
(286)
Total profit/loss for the period
Basic/diluted earnings per share
(10,868)
(7,644)
(24)
(0.24)
(0.16)
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.
Biofrontera AG Annual Report 2020
41
Consolidated statement of changes in equity for the fiscal year 2020
Balance as of December 31, 2018
First time application of IFRS 16
Balance as of January 01, 2019
Loss for the period
Foreign currency conversion
Total loss for the period
Conversion from convertible bond 2017/2022
Conversion of stock options from the stock option program
Cost of equity procurement
Increase in capital reserve from the stock option program
Ordinary
shares
Subscribed
capital
Capital
reserve
Reserve from
foreign currency
conversion
adjustment (OCI)
Loss carried forward
Loss for the period
Total
Number of shares
44,632,674
in EUR thousands
44,633
in EUR thousands
117,109
in EUR thousands
(2)
in EUR thousands
(145,384)
in EUR thousands
16,356
-
44,632,674
-
44,633
-
-
-
118,841
97,850
-
-
-
-
-
119
98
-
-
-
117,109
-
-
-
429
207
(2)
360
-
(2)
-
(286)
(286)
-
-
-
-
33
(145,351)
(7,358)
-
(7,358)
-
-
-
-
Balance as of December 31, 2019
(9)
44.849.365
44,849
118,103
(289)
(152,709)
Reserve from
foreign currency
conversion
adjustments (OCI)
in EUR thousands
Loss carried forward
Loss for the period
in EUR thousands
in EUR thousands
Balance as of December 31, 2019
Loss for the period
Foreign currency conversion
Total loss for the period
Conversion from convertible bond 2020/2021
Conversion of stock options from the stock option program
Cost of equity procurement
Increase in capital reserve from the stock option program
Ordinary shares
Subscribed
capital
Capital
reserve
number
in EUR thousands
in EUR thousands
(9)
44,849,365
44,849
118,103
-
-
-
2,638,150
260,000
-
-
-
-
-
2,638
260
-
-
-
-
-
5,179
325
(407)
293
(288)
-
2,155
2,155
-
-
-
-
(152,709)
(13,023)
-
(13,023)
-
-
-
-
Balance as of December 31, 2020
(9)
47,747,515
47,748
123,493
1,867
(165,732)
Biofrontera AG Annual Report 2020
33
16,389
(7,358)
(286)
(7,645)
548
305
(2)
360
9,955
Total
9,955
(13,023)
2,155
(10,868)
7,817
585
(407)
293
7,375
42
Consolidated cash flow statement for the fiscal year 2020
in EUR thousands
Cashflows from operations
Loss before income tax
Adjustments to reconcile loss before income tax to cash flow into operations
2020
2019
(12,697)
(4,777)
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 (incl. cash and start-up costs)
Proceeds from sale of intangible and tangible assets
Net cash flow from 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
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
(28)
(57)
2,669
5,333
-
(85)
3,771
1,514
871
(1,023)
(2,573)
(563)
(9)
(2,849)
(774)
3,547
100
2,873
7,914
(406)
-
585
(1,363)
(782)
5,948
5,972
(545)
11,119
16,546
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
Biofrontera AG Annual Report 2020
43
Notes to the consolidated financial statements as of December 31,
2020
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.
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, 2020 to December 31, 2020 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.
Biofrontera AG is the parent company, which prepares consolidated financial statements for the group companies.
The consolidated financial statements as of December 31, 2020 are presented in euros (EUR) or thousands of euros. Rounding
differences can arise in the tables due to commercial rounding.
On April 12, 2021, the Management Board approved the consolidated financial statements for the financial year ending December 31,
2020 for publication and forwarding to the Supervisory Board.
Special events in the 2020 financial year
Impact of the COVID-19 pandemic
The reporting year 2020 was defined by the impact of the coronavirus pandemic. In the reporting period from January 1 to December
31, 2020, Biofrontera was directly affected by the global coronavirus crisis from mid-March and had to accept lower sales figures as
a result, especially in the USA. Due to the down payment of the Japanese Maruho Co., Ltd. (Maruho), the fully placed convertible bond
2020/2021 in August 2020, and cost-saving measures introduced at an early stage, the Company was able to successfully counteract
the negative effects on the sales side.
The coronavirus crisis has led to a declining number of treatments and thus to sharp declines in sales, particularly in our most
important sales market, the United States. On March 20, 2020, i.e. shortly after the pandemic spread of the virus became known, the
Company therefore announced that it would take comprehensive preventive measures to reduce and control costs.
While these cost reduction measures were in place, the Company was able to ensure full compliance with all medical and capital
regulatory requirements without interruption, as well as meeting all disclosure obligations at all times.
The continued difficult business outlook due to the COVID-19 crisis has affected the valuation of certain assets and liabilities of the
Company. During the crisis, the sales strategy in the U.S. market has focused on our flagship product Ameluz® and the envisioned
re-launch to better position our in-licensed product Xepi® had to be delayed. The reduced sales of Xepi® have led to a reassessment
of the medium-term business and earnings prospects for Xepi® and thus to an impairment of the Xepi® license in the first quarter
of 2020. To a minor extent, inventories were written down as of December 31, 2020 due to an expected expiration of shelf life. Beyond
this, no significant risks have arisen in relation to financial instruments, in particular no unusual bad debt events.
Subscription offers for mandatory convertible bonds
Biofrontera AG Annual Report 2020
44
The issuance of up to 1,600,000 units of a 0.5% qualified subordinated mandatory convertible bond 2020/2024 and the issuance of
up to 1,600,000 units of a 1.00% qualified subordinated mandatory convertible bond 2020/2026, which were resolved on February
26, 2020, were withdrawn in March 2020 due to the turmoil on the capital markets caused by the coronavirus crisis and were not
executed.
To ensure liquidity in the short term, Biofrontera issued a 1.0% qualified subordinated mandatory convertible bond 2020/2021 in
August 2020. The issuance was fully placed with gross proceeds of EUR 7.9 million. On November 12, 2020, the Company announced
that it would exercise its right to mandatory conversion in accordance with section 8 (2) of the bond terms and conditions, which
was subsequently implemented in the reporting year.
Taking into account the capital measure carried out in February 2021 with gross issue proceeds of EUR 24.7 million, the Biofrontera
Group currently has sufficient liquidity to continue financing its business operations for at least 12 months.
Changes in accounting standards
The accounting policies applied are consistent with those applied on December 31, 2019, with the exception of the new and revised
standards and interpretations described below that were applied for the first time starting with the 2020 financial year.
Standard
Description
Mandatory application
Expected effects
Amendment to IAS 1
“Presentation of financial statements”
January 1, 2020
No effects
Amendment to IAS 8
“Accounting policies, changes in accounting
estimates and errors" "Definition of material"
January 1, 2020
No effects
Amendment to IFRS 3
"Business combinations"
January 1, 2020
No effects
Amendment to IFRS 9
"Financial instruments"
January 1, 2020
No effects
Amendment to IFRS 7
"Financial instruments: Disclosures"
January 1, 2020
No effects
Amendment to IAS 39
“Financial instruments: Recognition and
measurement"
January 1, 2020
No effects
Amendment to IFRS 16
“Leases"
June 1, 2020
No effects
Amendments to
References to the
Conceptual Framework
References to the Conceptual Framework
January 1, 2020
No effects
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” References to the
Conceptual Framework
January 1, 2022*
No effects
Amendment to IFRS 17*
Insurance contracts
January 1, 2023*
No effects
Amendment to IFRS 4 and
IFRS 9
IFRS 4 "Insurance contracts" : postponement of the
application of IFRS 9
January 1, 2021
No effects
Biofrontera AG Annual Report 2020
45
Standard
Description
Mandatory application
Expected effects
Amendment to IFRS
4,7,9,16 and IAS 39
IFRS 9 "Financial instruments", IFRS 4 "insurance
contracts" IFRS 7 "Financial instruments:
Disclosures", IFRS 16 "Leases", IAS 39 "Financial
instruments: Recognition and measurement" Interest
rate benchmark reform (phase 2)
January 1, 2021
No effects
Amendment to IAS 16
"Property, plant and equipment": Revenues before
the intended use
January 1, 2022*
No effects
Amendment to IAS 1
Amendment to IAS 37
Amendment to IAS 8
"Presentation of financial statements” Classification
of liabilities as current or non-current; disclosure of
accounting policies
"Provisions, contingent liabilities and contingent
assets": Adverse contracts - costs of contract
fulfillment
"Accounting Policies, Changes in Accounting
Estimates and Errors”: Definition of accounting
estimates
January 1, 2023*
No effects
January 1, 2022*
No effects
January 1, 2022*
No effects
Annual Improvements to
IFRSs
Annual improvements to IFRSs
Cycle 2018-2020
January 1, 2022*
No effects
* Adoption by the EU still pending
Basis of consolidation
The consolidated financial statements for the financial year ending December 31, 2020 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.
2.
3.
4.
5.
Biofrontera Bioscience GmbH, Leverkusen, Germany, with a direct interest of 100%
Biofrontera Pharma GmbH, Leverkusen, Germany, with a direct interest of 100%
Biofrontera Development GmbH, Leverkusen, Germany, with a direct interest of 100%
Biofrontera Neuroscience GmbH, Leverkusen, Germany, with a direct interest of 100%
Biofrontera Inc., Woburn, Massachusetts, U.S., with a direct interest of 100%
The basis for the consolidation of the companies included in the consolidated financial statements are the financial statements (or
HBII pursuant to IFRS) of these companies prepared for December 31, 2020 pursuant to uniform principles. The consolidated financial
statements as of December 31, 2020 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.
Intercompany results were eliminated.
Translation of amounts in foreign currencies
The consolidated financial statements as of December 31, 2020 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.
Biofrontera AG Annual Report 2020
46
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 (2020: 1.2230 USD/EUR, previous year 1.1227
USD/EUR). Income and expense items are translated applying the average exchange rates applicable to the relevant period (2020:
1.1410 USD/EUR, previous year: 1.1194 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 (2020: EUR 2,155 thousand, previous year: EUR (286) 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 as a loss in the amount of EUR (3,601) thousand (previous year: gain of EUR 324
thousand).
Application of estimates
The preparation of the consolidated financial statements for December 31, 2020 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.
Main areas of application for significant assumptions, estimates and the exercise of discretion arise for the following matters:
•
•
•
Fair value measurement under IFRS 13 in relation to the determination of the fair value of the purchase price liability for
Cutanea.
According to the earn-out agreement of the purchase agreement for the acquisition of the shares in Cutanea Life Sciences,
Inc. the profits from the sale of the Cutanea products will be split equally between Maruho and Biofrontera until 2030. The
expected annual purchase price payments will be due depending on future profits generated from the sale of Xepi®. In
determining the future purchase price payments, management has to make assumptions and estimates about the future
expected profits from the sale of Xepi® as well as a determination of the cost of capital.
Assessment of the recoverability of non-current assets
Biofrontera is required to assess external and internal sources of information for non-current assets that are subject to
amortization, based on which possible indications of impairment or reversal of impairment can be identified. When
assessing whether there are indications of impairment or a reversal of impairment losses and - if such indications exist -
when determining the fair values required in this case as part of an impairment test, management must make assumptions
and estimates about the expected future cash flows from the use of the non-current assets and a determination of the
cost of capital.
Income taxes
Biofrontera is required to calculate the expected current income tax for each group company, as well as to assess
temporary differences arising from the different treatment of certain balance sheet items between the IFRS consolidated
financial statements and the financial statements prepared for tax purposes. Where temporary differences exist, these
generally result in the recognition of deferred tax assets and liabilities in the consolidated financial statements.
Management must make assumptions and estimates when calculating actual and deferred taxes. The recognition of
deferred tax assets of Biofrontera AG is subject to higher requirements due to the loss history. Deferred tax assets are
only recognized if it can be substantiated that taxable profits will be generated in the future and that it is then probable
that the deferred tax item to be capitalized can be offset against future taxable profits. In order to assess the probability
of the future utilization of deferred tax assets, various factors have to be taken into account, such as the earnings situation
in the past and operational planning. If actual results differ from these estimates, or if these estimates have to be adjusted
in future periods, this could have an adverse effect on the Group's net assets, financial position and results of operations.
If there is a change in the assessment of the recoverability of deferred tax assets, the recognized deferred tax assets - in
accordance with the original recognition - are to be written down through profit or loss or recognized directly in equity,
or impaired deferred tax assets are to be recognized through profit or loss or directly in equity.
•
Provisions for litigation risks
Provisions are recognized for pending legal proceedings on the basis of current estimates. The outcome of the legal
proceedings cannot be determined or is subject to uncertainties. In assessing the risks arising from litigation, management
Biofrontera AG Annual Report 2020
47
must make assumptions and estimates as to whether and to what extent provisions for litigation risks should be
recognized. Actual claims arising from legal proceedings may therefore differ from the amounts accrued.
•
•
Estimates in connection with financial instruments
Estimates are made to determine fair values in connection with the measurement of the performance component of the
EIB loans and the liabilities from the stock appreciation program. The determination requires management to make
assumptions regarding the valuation models used as well as a determination of the cost of capital.
Development costs
At Biofrontera, research and development costs include expenses for clinical trials as well as for the granting, maintenance
and extension of approvals. For the approved drug Ameluz® as well as for the other research and development projects,
with the exception of the further development of the new BF-RhodoLED® XL red light lamp, research and development
costs are recognized as expenses in the period in which they are incurred. In the opinion of management, the criteria
prescribed by IAS 38.57 for the recognition of development costs as assets are not met due to the uncertainties associated
with the development of new products by the Biofrontera Group until approval in the target markets has been obtained
and it is probable that future economic benefits will flow to the Company.
The BF-RhodoLED® XL red light lamp is a further development of the existing lamp, from which Biofrontera expects a
future economic benefit.
Estimates are based on experience and other assumptions that are believed to be reasonable under the circumstances. They are
reviewed on an ongoing basis, but may differ from actual values.
Changes in previous estimates due to the impact of the COVID-19 pandemic have occurred with regard to the valuation of the Xepi®
license, the purchase price payment from the earn-out agreement with Maruho and the EIB loan.
The expected income from the sale of Xepi® and, consequently, the expected annual purchase price payments were reestimated as
of March 30, 2020, due to the current market situation influenced by the COVID-19 pandemic and resulting time shifts in the market
penetration of Xepi®. This resulted in an impairment of the Xepi® license and a reduction of the nominal amount of the expected
purchase price payment. As a result of the significant decrease in market capitalization in 2020, there was a reduction in the
performance component of the EIB loan recognized in income.
The carrying amounts of the items affected by estimates can be found in the respective explanations of the items in the notes to
the consolidated financial statements.
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
Other Fixtures and equipment 4 years, straight-line
Office and laboratory facilities 10 years, straight-line
Laboratory devices 13 years, straight-line
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.
Biofrontera AG Annual Report 2020
48
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 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. Customary purchases and sales of financial assets are generally recognized on the settlement date.
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.
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.
Biofrontera AG Annual Report 2020
49
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. BF-RhodoLED®, which are
carried for sales activities in the Company's own inventory are recognized at a fixed value.
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".
The valuation of the purchase price liability from the earn-out agreement was based on term-specific cost of capital rates ranging
from 8.27% to 8.74% (previous year: from 9.39% to 9.53%).
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.
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
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 tranches received is calculated based on a notional 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
2.93% (previous year: 12.33%) for the 2017 EIB loan and 3.26% (previous year: 10.63%) for the 2019 EIB loan. The overall valuation
effect on the performance component resulting from the change in interest rates is immaterial.
Biofrontera AG Annual Report 2020
50
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.
Stock options
Stock 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.
Stock Appreciation Rights
The obligations under Biofrontera's stock appreciation rights program are cash-settled share-based payments that are recognized
at fair value. Changes in fair value during the term are recognized in profit or loss. The fair value is determined using internationally
recognized valuation techniques.
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.
The recognition of deferred tax assets is subject to higher requirements due to the loss history. Deferred tax assets are only
recognized if there are substantial indications that future taxable profits will be generated and that the deferred tax item to be
recognized can be expected to be offset against future taxable profits.
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.
Biofrontera AG Annual Report 2020
51
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.
Down payments received by Biofrontera for the conclusion of license agreements granting customers a right of use are realized on
a point-in-time basis.
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.
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 the criteria of IAS 38.57 are fulfilled depending on the possible
outcome of development activities.
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 the recognition criteria of IAS 38.57 are fulfilled.
Biofrontera AG Annual Report 2020
52
Notes to the consolidated balance sheet
1. Intangible and tangible assets
In the 2020 financial year, impairment losses on tangible assets were recognized in the amount of EUR 0 thousand (previous year:
EUR 527 thousand) and on intangible assets in the amount of EUR 2,001 thousand (previous year: EUR 0 thousand). The impairment
losses on property, plant and equipment in the previous year were included in the cost of sales, and those on intangible assets are
also included in the cost of sales.
The cost of short-term and low-value leases amounts to EUR 374 thousand (previous year: EUR 386 thousand). The income from a
sublease agreement amounts to EUR 33 thousand (previous year: EUR 34 thousand).
Intangible assets include the marketing license for Xepi® acquired as part of the acquisition of Cutanea Life Sciences, Inc. on March
25, 2019 in the amount of EUR 16,720 thousand. The acquisition costs of the license amounted to EUR 23,604 thousand translated at
the acquisition date and will be amortized over a useful life of 139 months corresponding to the term of the license agreement.
Biofrontera uses external and internal sources of information to evaluate at each reporting date whether there are any indications
of impairment or a reversal of impairment.
As of March 31, 2020, an impairment loss of EUR 2,001 thousand was recognized on the value in use of EUR 21,981 thousand on the
license. Within the framework of the impairment in fiscal year 2020, term-specific cost of capital rates in the range of 8.87% to
9.07% were used. A change in the expected profits from the sale of Xepi® of +5% (-5%) would result in a change in the impairment
of EUR 1,151 thousand; an increase or decrease in the weighted average cost of capital of 1% would result in a decrease in the
impairment of EUR 1,550 thousand and an increase in the impairment of EUR 1,696 thousand, respectively.
Due to the COVID-19 pandemic, the planned re-launch to better position Xepi was prevented. The resulting reduced sales of Xepi®
have led to a reassessment of the medium-term business and earnings outlook. As of December 31, 2020, Biofrontera has not
identified any indication for impairment or reversal of impairment.
Tangible and intangible assets are composed as follows:
Biofrontera AG Annual Report 2020
53
Statement of changes in non-current assets for 2020
in EUR thousands
Purchase and production cost
Accumulated depreciation and amortization
Carrying amounts
Jan. 01,2020
Currency
translation
Additions
Disposals
Dec. 31,2020 Jan. 01,2020
Currency
translation
Additions
Disposals
Dec. 31,2020 Dec. 31,2020 Jan. 01, 2020
Tangible assets and leases
Operating and business equipment
Right-of-use leasing properties
Right-of-use leasing tangible assets
Intangible assets
Software and licenses
Right-of-use assets
Intangible assets under development
3,647
3,560
1,612
8,819
206
24,474
715
25,395
34,214
(46)
-
-
(46)
(2)
(2,138)
-
(2,140)
(2,185)
548
653
166
1,367
25
-
201
226
1,593
(191)
-
-
(191)
(1)
-
-
(1)
(193)
3,958
4,213
1,778
9,949
227
22,336
916
23,480
33,429
(2,492)
(505)
(592)
(3,589)
(190)
(2,356)
-
(2,546)
(6,135)
18
-
-
18
2
582
-
584
601
(276)
(722)
(505)
(1,503)
(14)
(3,816)
-
(3,830)
(5,333)
176
-
-
176
1
-
-
1
177
(2,574)
(1,227)
(1,098)
(4,898)
(201)
(5,590)
-
(5,791)
(10,689)
1,385
2,986
681
5,051
27
16,746
916
17,689
22,740
1,155
3,055
1,020
5,230
16
22,118
715
22,849
28,079
Biofrontera AG Annual Report 2020 54
Statement of changes in non-current assets for 2019
in EUR thousands
Purchase and production cost
Accumulated depreciation and amortization
Carrying amounts
Jan 01, 2019
Currency
translation
Additions
Change of
consolidation
group
Disposals
Dec. 31, 2019 Jan. 01, 2019
Currency
translation
Additions
Disposals
Dec. 31, 2019 Dec. 31, 2019 Jan. 01, 2019
Tangible assets and leases
Operating and business equipment
Right-of-use leasing properties
Right-of-use leasing tangible assets
Intangible assets
Software and licenses
Right-of-use-assets
Intangible asset under development
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
4,691
1,340
-
-
1,340
-
23,604
-
23,604
24,944
(3,093)
-
-
(3,093)
(260)
(254)
-
(514)
(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)
(1,579)
(21)
(1,556)
-
(1,577)
(3,156)
1,300
-
-
1,300
258
230
-
488
1,788
(2,492)
(505)
(592)
(3,589)
(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
19
66
267
352
3,482
Biofrontera AG Annual Report 2020
55
2. Inventories
in EUR thousands
Raw materials
Unfinished goods
Finished goods and products
Total
December 31, 2020
December 31, 2019
1,557
390
2,727
4,673
893
201
2,971
4,065
In 2020, inventories were written down by EUR 414 thousand (previous year: EUR 24 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 of EUR 145 thousand (previous year: EUR 89 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 36 thousand (previous year: EUR 43 thousand). 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 100 thousand (previous year: EUR 178 thousand) are attributable to finance leases for PDT-lamps.
4. Other financial assets
Other financial assets comprise mainly prepayments rendered for studies (EUR 220 thousand; previous year: EUR 359 thousand) and
the depositing of collateral, mainly for leasing property, credit cards and leasing vehicles in the amount of EUR 267 thousand
(previous year: EUR 300 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 817 thousand; previous year: EUR 1,113 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 of EUR 5 thousand (previous year: EUR 4 thousand). Income tax liabilities relate to current income tax liabilities for fiscal
year 2020 in the amount of EUR 0 thousand (previous year: 11 thousand).
7. Cash and cash equivalents
Cash and cash equivalents relate to cash in hand, cheques, bank deposits and money deposits with a term of up to three months at
the time of acquisition amounting to a total of EUR 16,546 thousand (previous year: EUR 11,119 thousand).
8. Deferred income tax
Deferred tax assets amount to EUR 7,525 thousand (previous year: EUR 7,794 thousand) and relate to the deferred tax assets on
losses carried forward for Biofrontera Pharma GmbH.
The reduction in deferred tax assets results from the use of the tax loss carryforwards of Biofrontera Pharma GmbH in the amount
of EUR 269 thousand (previous year: EUR 256 thousand). In the previous year, there was also a reduction in the trade tax rate of the
city of Leverkusen with effect of January 1, 2020 in the amount of EUR 2,350 thousand.
The subsidiary Biofrontera Pharma GmbH has generated profits in the fiscal years 2019 and 2020 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.
Biofrontera AG Annual Report 2020
56
Further deferred income tax on loss carryforwards incurred at Biofrontera AG in the amount of EUR 74 thousand (previous year: EUR
153 thousand) and at Biofrontera Inc. in the amount of EUR 0 (previous year: 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:
in EUR thousands
Corporation tax including Solidarity Surcharge
Business tax
U.S. corporation tax
Total
December 31, 2020
December 31, 2019
Loss carried
forward
Deferred
tax assets
Loss carried
forward
Deferred
tax assets
134,606
118,599
32,172
21,301
10,377
8,365
40,044
135,415
120,692
23,616
21,436
10,561
6,140
38,137
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 in the amount of EUR 8,595 thousand, and indefinitely when
occurred from January 1, 2018 in the amount of EUR 23,577 thousand (previous year: EUR 15,021 thousand).
in EUR thousands
Loss carried forward
Non-current assets
- Intangible assets
- Tangible assets
Current assets
- Receivables and other assets
Non-current and current financial liabilities
Current liabilities
- Liabilities and other
Total
Netting of deferred tax assets and liabilities
As recognized on balance sheet
December 31, 2020
December 31, 2019
Deferred tax
assets
Deferred tax
liabilities
Deferred tax
assets
Deferred tax
liabilities
7,824
789
-
15
812
-
9,440
(1,915)
7,525
-
8,568
-
(656)
(980)
-
-
(279)
(1,915)
1,915
-
-
-
43
859
-
9,470
(1,676)
7,794
(620)
(1,002)
-
-
(54)
(1,676)
1,676
-
Deferred taxes on losses carried forward are capitalized to the extent that there is substantial evidence that it is probable that
future taxable profit will be available against which the loss carryforwards can be utilized or if there is an equivalent level of deferred
tax liabilities. Due to the lack of predictability regarding future taxable profits with consideration of the loss history, the remaining
deferred tax assets deriving from loss carryforwards in the amount of EUR 32,220 thousand (previous year: EUR 29,569 thousand)
and deferred tax assets in the amount of EUR 1,812 thousand (previous year: EUR 2,000 thousand) were not recognized on the balance
sheet, in accordance with IAS 12.34.
The following provides a reconciliation between expected and actual reported income tax expense, with the output value being
based on the income tax rate of 24,575% (previous year: 32,45%) currently applicable to the Biofrontera Group.
in EUR thousands
Consolidated loss before tax
Expected income tax reimbursement
December 31, 2020
December 31, 2019
(12,697)
3,120
(4,777)
1,550
Biofrontera AG Annual Report 2020 57
in EUR thousands
Differences arising from different tax rates
Effects of changes in trade 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
Tax-free income (badwill)
Other effects
Income taxes as per statement of comprehensive income
9. Equity
Share capital
December 31, 2020
December 31, 2019
146
-
-
(982)
188
(2,627)
-
(170)
(325)
(839)
16
(2,350)
(538)
(1,217)
(4,251)
4,807
241
(2,581)
The fully paid in share capital of the parent company, Biofrontera AG, amounted to EUR 47,747,515 on December 31, 2020. It was
divided into 47,747,515 registered shares with a nominal value of EUR 1.00 each. On December 31, 2019, the share capital amounted
to EUR 44,849,365.
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, 2020, 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:
December 31, 2020 December 31, 2019
13,399,965
13,047,754
DELPHI Unternehmensberatung AG
VV Beteiligungen AG
Deutsche Balaton AG
Deutsche Balaton Biotech AG
Prisma Equity AG
Sparta AG
ABC Beteiligungen AG
AEE Ahaus-Enscheder AG
MARNA Beteiligungen AG
Youbisheng Green Paper AG
Strawtec Group AG
•
•
•
•
•
•
•
•
•
•
•
Free float
Total
14,218,773
13,300,694
20,128,777
47,747,515
18,500,917
44,849,365
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
Biofrontera AG Annual Report 2020 58
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 is 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 1,359,864 available as at December 31, 2020. 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, 2020, and serves exclusively to fulfill option rights (2010 share option program) granted
on July 1, 2015 on the basis of the annual general meeting (“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. of which is EUR
1,554,984 available as at December 31, 2020 and serves exclusively to fulfill option rights (2015 share option program) granted until
August 27, 2020 on the basis of the 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 and is due for repayment on
January 01, 2022.
As of December 31, 2020, bonds in a nominal amount of EUR 2,030,800 were converted into the Company's shares. In 2020, no bonds
were converted (previous year: nominal amount EUR 564,500; 118,841 shares).
Convertible bond 2020/2021
In August 2020, Biofrontera issued a qualified subordinated mandatory convertible bond 2020/2021 from Conditional Capital I. The
bond was divided into 2,638,150 bearer bonds with a nominal value of EUR 3.00 each ("bonds"). The term of the bonds began on
August 20, 2020 and ends on December 20, 2021. However, in accordance with section 8 (2) of the terms and conditions of the bonds,
the Company is entitled to make a mandatory conversion at any time for an unlimited period after the price of the Company's shares
has exceeded EUR 4.50 ("mandatory conversion trigger price").
On November 12, 2020, Biofrontera decided to exercise the right to mandatory conversion in accordance with §8 (2) of the bond
terms and conditions.
Accordingly, shares with a nominal value of EUR 2,638,150.00 Biofrontera AG were converted from the mandatory convertible bond
2020/2021. In this context, EUR 5,179 thousand was allocated to the capital reserve. With the early exercise of the conversion option
by Biofrontera, the debt portion outstanding at the conversion date in the amount of EUR 98 thousand was recognized in profit or
loss. The capital procurement costs incurred in the amount of EUR 378 thousand were deducted from the capital reserve.
2010 stock option program
The exercise period for the last tranche of the 2010 stock option program ended on April 02, 2020. The options still exercisable as
of December 31, 2019 (23,000 options) expired in the reporting period.
Biofrontera AG Annual Report 2020 59
2015 stock 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 AGM, 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. 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.
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 20 banking days after the date of the AGM (exclusive),
b) on the 6th and subsequent 20 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 or
Biofrontera AG Annual Report 2020
60
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 stock 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).
Number of options issued
Date of issue
Exercise price
Adjusted exercise price March 2018
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
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
425,000
130,500
329,000
300,500
180,000
333,485
18.04.2016
01.12.2016
28.04.2017
28.11.2017
07.05.2018
14.05.2019
EUR 2.49
EUR 2.25
EUR 3.28
EUR 3.04
EUR 4.02
EUR 3.78
EUR 3.33
EUR 3.09
EUR 5.73
EUR 6.708
-
-
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
46.00%
0%
7,60%
14.05%
12%
EUR 2.35
EUR 2.55
47.00%
47.30%
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 stock 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 during the period
December 31, 2020
December 31, 2019
1,496,985
-
215,500
260,000
-
1,021,485
-
EUR 2.25 – 6.708
35 months
EUR 293,000
1,252,000
333,485
88,500
-
-
1,496,985
-
EUR 2.25 - 6.708
44 months
EUR 360,000
Due to the non-fulfillment of the exercise conditions, no options were exercisable as of December 31, 2020.
Capital reserves
The capital reserves shown on the balance sheet comprise the capital reserve, the reserves from currency translation, the loss
carried forward and the result of the period. 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 407 thousand (previous year: EUR 2 thousand) for the year ended December 31, 2020.
Biofrontera AG Annual Report 2020 61
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 financial liabilities
December 31, 2020
December 31, 2019
2,003
12,484
5,591
2,657
22,736
1,057
82
1,139
1,977
11,845
5,301
2,987
22,110
1,038
174
1,212
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, 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
in EUR thousands
Convertible bond 2017/2022:
Principal repayment
Interest payment
EIB loan 2017
Principal repayment
Interest payment
EIB loan 2019
122
461
204
1,138
148
2,031
61
10,000
4,354
214
577
85
2,031
183
10,000
4,815
5,000
2,519
3,407
331
227
603
59
5,000
1,874
630
33
459
6
2020
2021
2022
2023
2024
2025
Total
December 31, 2019
122
122
433
461
2,031
61
10,000
4,949
2,031
305
10,000
5,843
Biofrontera AG Annual Report 2020 62
Principal repayment
Interest payment
Leasing liabilities
Principal repayment
Interest payment
194
204
1,033
146
1,098
114
214
484
64
227
503
44
5,000
2,058
523
24
5,000
2,897
4,025
396
384
4
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, 2020, the carrying amount of the liability component on this basis was EUR 16,901 thousand (previous
year: EUR 15,684 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, 2020, the discounted interest payment or fair
value of the performance component amounted to EUR 1,174 thousand (previous year: EUR 1,462 thousand). The undiscounted interest
payment of the performance component amounts to EUR 1,244 thousand (previous year: EUR 2,023 thousand).
For further details, please refer to the section on significant accounting policies.
Leasing liabilities
The carrying amount of the current and non-current leasing liabilities amounts to EUR 3,715 thousand (previous year: EUR 4,025
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
Non-current other financial liabilities
Purchase price liability (earn-out and start-up costs)
Liability from SAR program
Total non-current other financial liabilities
Current financial liabilities
December 31, 2020
December 31, 2019
17,811
183
17,994
90
14,720
-
14,720
99
Purchase price liability (earn-out and start-up costs)
The purchase price liability was discounted based on the expected annual purchase price payments. The expected annual purchase
price payments will be due from 2022 to 2030 depending on future profits generated from the sale of Xepi®. The expected profits
from the sale of Xepi® and, consequently, the expected annual purchase price payments have been revaluated in 2020 due to the
current market situation influenced by the COVID 19 pandemic and the resulting postponement of the market penetration of Xepi®.
In total, excluding the repayment of start-up costs, this results in a purchase price liability of nominally USD 26.4 million / EUR 21.6
million (previous year USD 28.9 million / EUR 25.8 million). The start-up costs received in the nominal amount of USD 7.3 million (EUR
6.0 million) are to be repaid in approximately equal parts in 2022 and 2023.
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
affiliated companies as well as to employees of the Company and affiliated companies (hereinafter collectively referred to as
Biofrontera AG Annual Report 2020 63
"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)
b)
c)
d)
The vesting period for 15 % of the SARs granted on an issue date is one year after the issue date;
The vesting period for an additional 25% of the SARs granted on an issue date is two years after the issue date;
The vesting period for an additional 25% of the SARs granted on an issue date is three years after the issue date;
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).
SAR program 2019
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
Fair value at the end of the period
Cost during the period
December 31, 2020
755,750
28,000
-
-
727,750
-
EUR 183,000
EUR 183,000
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
temporis amounts are recognized ratably as personnel expense over the vesting period until the end of the blocking period and are
reported under other financial liabilities.
12. Trade payables
As of December 31, 2020, trade payables amounted to EUR 1,623 thousand (previous year: EUR 4,196 thousand).
Biofrontera AG Annual Report 2020
64
13. Other provisions
in EUR thousands
01.01.2020
Utilized
Released
Added
Outstanding invoices
Auditing costs
Provision for litigation costs
Other provisions
Total
393
323
2,305
474
3,495
(339)
(314)
(672)
(357)
(1,682)
(17)
(8)
0
(83)
(109)
274
501
307
286
1,368
Translation
difference
31.12.2020
0
(1)
0
(30)
(31)
311
501
1,940
290
3,042
Other provisions relate to various identifiable individual risks and uncertain obligations. The provisions classified as current are
expected to result in an outflow of economic benefits within the subsequent financial year.
The companies included in the consolidated financial statements of Biofrontera AG are exposed to several anticipated 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 in connection with the patent litigation have not been recognized
as liabilities, as the Executive Board continues to believe that the claims are unjustified.
Provisions were recognized in the reporting year for future litigation costs, which include the estimated costs for legal disputes with
DUSA Pharmaceuticals, Inc. and the Deutsche Balaton Group in each case until a decision is reached in the next instance. We assume
that the lawsuits of DUSA Pharmaceuticals, Inc. in particular are unjustified, but we cannot guarantee that we will be successful in
court with them.
For the pending proceedings in the USA and Germany, there are provisions for litigation costs totaling EUR 1,940 thousand in 2020
(previous year: EUR 2,305 thousand). In the 2020 financial year, further amounts of EUR 306 thousand (previous year: EUR 1,035
thousand) were added.
14. Other current liabilities
in EUR thousands
Accrual for employee bonuses
Accrual for outstanding vacation
Payroll tax
Wages and salaries
Social security
Other
Total
15. Reporting on financial instruments
December 31, 20200
December 31, 2019
1,350
372
395
196
37
41
2,392
1,731
403
135
212
21
63
2,565
Financial assets
in EUR thousands
Category: Held
Cash and cash equivalents
Trade receivables
Other financial assets
Fair value
as of
Carrying
amount
as of
Fair value
as of
Carrying
amount
as of
Dec 31, 2020
Dec 31, 2020
Dec 31, 2019
Dec 31, 2019
Net gains
or
(losses)
Dec31, 2020
Net gains
or
(losses)
Dec 31, 2019
16,546
3,501
531
16,546
3,501
531
11,119
5,031
1,077
11,119
5,031
1,077
(125)
(53)
-
(178)
(15)
(33)
-
(48)
Total
20,579
20,579
17,227
17,227
Financial liabilities
Biofrontera AG Annual Report 2020 65
in EUR thousands
Financial liabilities at amortized cost
Financial liabilities, current
Trade payables
Other financial liabilities
Financial liabilities, non-current
Total
Fair value
as of
Carrying
amount
as of
Fair value
as of
Carrying
amount
as of
Net gains
or
(losses)
Net gains
or
(losses)
Dec 31, 2020 Dec 31, 2020 Dec 31, 2019 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019
1,139
1,623
90
21,561
1,139
1,623
90
21,561
1,212
4,196
99
20,647
1,212
4,196
99
20,647
24,413
24,413
26,155
26,155
-
53
-
-
53
-
(2)
-
-
(2)
Financial liabilities at fair value through profit or loss
Financial liabilities, non-current
Other financial liabilities, non-current
Total
1,174
17,994
19,169
1,174
17,994
19,169
1,462
14,721
16,183
1,462
14,721
16,183
288
(750)
(462)
(82)
(650)
(732)
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).
Biofrontera has level 3 financial instruments. These relate to the performance component of the EIB loan (EUR 1,174 thousand;
previous year: EUR 1,462 thousand) included under non-current financial liabilities and the purchase price liability arising in 2019
from the acquisition of Cutanea (EUR 17,811 thousand; previous year: EUR 14,720 thousand). No reclassifications were made between
the individual levels of the fair value category during the 2020 fiscal year.
For further details, please refer to the disclosures in the general accounting policies and the notes to the statement of financial
position and statement of comprehensive income (Notes 10 and 11). The gains and losses included in the statement of net income
are presented in interest income and interest expense.
Principles on risk management
In the ordinary course of business, the Group is exposed to risks that may have an impact on its net assets, financial position and
results of operations.
In general, Biofrontera's market risk consists of foreign currency and changes in interest rates.
•
Foreign currency risk: As of the balance sheet date, the Biofrontera Group was exposed to foreign currency risks, in
particular as a result of the intercompany loan granted to the subsidiary Biofrontera Inc. Trade receivables arise to a
greater extent than in the past due to the business expansion in the USA and are regularly reviewed with regard to a
potential default risk. Trade payables denominated in foreign currencies are insignificant. The Company does not enter
into any specific currency hedging transactions. Exchange rate fluctuations are recognized in profit or loss.
Financial assets and liabilities in foreign currencies amount to EUR 7.8 million (previous year: EUR 29.1 million). An exchange
rate-related change in the value of financial assets and financial liabilities denominated in foreign currencies of +5%
Biofrontera AG Annual Report 2020 66
would result in a change in earnings of EUR 0.4 million (previous year: EUR 1.5 million) in the income statement item "Other
income and expenses".
•
Interest rate risk: Interest rate risks exist for the purchase price liability for Cutanea to Maruho and the performance
component of the EIB loan. Otherwise, the interest rate risk is considered negligible, as the existing interest rate modalities
for the relevant financing of the Biofrontera Group can generally be adjusted to market conditions in the short to medium
term. For the performance component, a limit of 4% mitigates the market price risk. An interest rate-related change in
the value of the purchase price liability of 1% would result in a change in interest expense of EUR 1.0 million (previous
year: EUR 1.0 million).
The purchase price risk relates to the earn-out agreement in connection with the acquisition of Cutanea. For instance, 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. Reduced sales of Xepi® may thus lead to a different assessment of the medium-term business and earnings outlook for
Xepi® and subsequently to a revaluation of the balance sheet value of the earn-out agreement. A change in the expected gains from
the sale of Xepi® of +5% (-5%) would result in a change in the purchase price liability of EUR +0.8 million (EUR -0.8 million).
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. Biofrontera's
financial instruments bear minimal risk of default. No specific bad debt allowances were recognized on trade receivables in fiscal
year 2020 (previous year: EUR 43 thousand). Cash and cash equivalents assets are invested with banks and insurance companies
with adequate deposit protection. All financial assets are due in the short term. As in the previous year, there are no material overdue
financial assets.
Liquidity risk refers to the inability to meet existing or future payment obligations as they become due. To ensure the ability to pay
at all times and to avoid financial shortages, Biofrontera has established a central cash management system that monitors liquidity
requirements in the short, medium and long term. Refinancing for all Group companies is mainly provided by Biofrontera AG.
Liquidity is monitored and managed on the basis of short- and long-term corporate planning. Liquidity risks are identified at an early
stage by simulating various scenarios. Current cash and cash equivalents are recorded and monitored on a daily basis.
For information on the (undiscounted) payments from financial debt due in the next few years and other financial liabilities, please
refer to the corresponding notes on this balance sheet item. All other financial liabilities are current and are expected to be settled
within one year.
Biofrontera AG Annual Report 2020
67
Notes to the consolidated statement of comprehensive income
16. Sales revenue
2020
2019
in EUR thousands
Product
revenues
Development
revenues
Licensing
revenues
Product
revenue
Development
revenues
Licensing
revenues
Germany
Europe
U.S.
Other regions
Total
5,159
2,104
16,589
-
23,853
-
-
-
493
493
-
-
-
6,000
6,000
4,633
2,603
23,343
-
30,579
-
-
-
686
686
-
-
-
-
-
Licensing revenues include EUR 6,000 thousand in down payments received from Maruho under the license agreement.
Revenue from product sales generated in the U.S. includes revenue from finance and operating lease agreements concerning the
BF-RhodoLED® lamps.
In the 2020 financial year, we generated EUR 75 thousand of income from operating leases (previous year: EUR 72 thousand). We
generated income of EUR 91 thousand from finance leases (previous year: EUR 126 thousand).
17. Cost of sales, gross profit
The cost of materials included in the cost of sales amounted to EUR 2,927 thousand for the 2020 financial year (previous year:
EUR 3,827 thousand).
The gross profit on sales increased slightly by EUR 420 thousand in the 2020 reporting year, to reach EUR 26,810 thousand, compared
with EUR 26,390 thousand in the prior-year period.
18. Research and development costs
Research and development costs amounted to EUR 4,789 thousand (previous year: EUR 4,636 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. General administrative costs
General administrative costs amounted to EUR 9,150 thousand in the 2020 financial year (previous year: EUR 16,275 thousand) and
thus decreased by a total of EUR 7,125 thousand compared to the previous year, in particular due to the cost-cutting measures
introduced as a result of the COVID-19 pandemic Legal and consulting costs amounted to EUR 1,976 thousand (previous year:
EUR 6,929 thousand).
20. Sales and marketing costs
Sales and marketing costs amounted to EUR 20,482 thousand in the 2020 financial year (previous year: EUR 28,856 thousand). Sales
and marketing costs include costs for our own sales force in Germany, Spain, the UK and the U.S., marketing expenses as well as the
depreciation of the Xepi® license amounting to EUR 3,802 thousand (previous year: EUR 1,533 thousand).
21. Interest expenses and income
in EUR thousands
Convertible bond 2017/2022
EIB loan 2017
EIB loan 2019
Purchase price liability (earn-out and start-up costs)
2020
Effective interest
expenses
2020
Interest
espenses
2019
Effective interest
expenses
2019
Interest
expenses
26
269
33
-
122
975
488
750
32
202
11
-
136
1.046
457
650
Biofrontera AG Annual Report 2020 68
in EUR thousands
Leasing
Other
Total
2020
Effective interest
expenses
2020
Interest
espenses
2019
Effective interest
expenses
2019
Interest
expenses
-
218
546
179
20
2.534
-
-
124
53
245
2.466
Interest income amounted to EUR 411 thousand (previous year: EUR 127 thousand) and resulted mainly from the fair value valuation
of the performance component of the EIB loan in the amount of EUR 288 thousand (previous year: EUR 0 thousand) and from the
recognition in the income statement of the debt component upon early conversion of the mandatory convertible bond 2020/2021 in
the amount of EUR 98 thousand.
22. Other expenses and income
Other expenses and income totaled EUR (2,418) thousand in the fiscal year 2020 (previous year: income of EUR 21,184 thousand), with
the previous year's figure including non-recurring effects from the acquisition of Cutanea Life Sciences Inc. amounting to EUR 21,027
thousand. In addition, the items include expenses and income from currency translation amounting to EUR (3,601) thousand (previous
year: income of EUR 324 thousand).
23. Income tax
in EUR thousands
Deferred taxes
Actual income taxes
Total income taxes
2020
(269)
(56)
(325)
2019
(2,606)
25
(2,581)
The deferred tax expense results from the use of the tax loss carryforwards of Biofrontera Pharma GmbH of EUR 269 thousand
(previous year: EUR 256 thousand) and, in the previous year, also from changes in tax rates.
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
Basic/diluted earnings per share in EUR
December 31, 2020
December 31, 2019
54,179,685
(13,023,030)
(0.24)
44,690,009
(7,358,285)
(0.16)
As part of the capital increase in February 2021, Biofrontera issued 8,969,870 new ordinary shares with subscription rights from
January 1, 2020. After registration of the capital increase in the commercial register, the number of shares outstanding increased
to 56,717,385. The capital increase has therefore been included in the calculation of the weighted average number of ordinary shares
outstanding.
In principle, there are dilutive instruments. However, due to the loss situation, the diluted EPS corresponds to the undiluted EPS.
At the balance sheet date, there are options to convert the convertible bond into shares and stock options. Based on the conversion
price of EUR 4.74 (previous year EUR 4.75), 428,710 shares (previous year: 427,536 options) and 1,019,485 stock options (previous
year: 1,519,985) can be exercised.
25. Additional information to 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.
Biofrontera AG Annual Report 2020
69
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
Cost for pension schemes
Total
26. Staff
2020
37
1,352
91
3,854
5,333
2020
14,067
2,016
257
16,340
2019
72
383
17
2,684
3,156
2019
19,894
2,958
391
23,243
In 2020, the Biofrontera Group had an average of 157 salaried employees (previous year: 180).
27. Other information
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 2020, the Company generated income of EUR 75
thousand (previous year: EUR 71 thousand) from operating lease agreements. Income of EUR 91 thousand (previous year: EUR 126
thousand) was generated from finance lease agreements.
Notes to the consolidated cash flow statement
28. Composition and change
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 782 thousand (previous year: EUR 664 thousand). Taxes paid amounted to EUR 57 thousand
(previous year: EUR 36 thousand). Interest received amounted to EUR 26 thousand (previous year: EUR 127 thousand).
The changes are comprised as follows:
in EUR thousands
Convertible bond 2017/2022
EIB loan 2017
Changes in financial liabilities
January 1,
2020
Cash
effective
Addition/
retirement
Fair value
change
December 31,
2020
1,977
11,845
-
-
26
879
-
(240)
2,003
12,484
Biofrontera AG Annual Report 2020 70
in EUR thousands
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
Changes in financial liabilities
January 1,
2020
Cash
effective
Addition/
retirement
Fair value
change
December 31,
2020
5,301
61
84
29
4,025
23,322
-
(122)
(456)
(184)
(1,363)
(2,125)
338
122
365
183
1,053
2,965
(48)
-
-
-
-
(288)
5,591
61
(8)
28
3,715
23,874
The mandatory convertible bond 2020/2021 issued and converted in 2020 resulted in cash interest expenses of EUR 20 thousand.
Other explanatory notes
29. Members of the Management Board
The Executive Board in 2020 consisted of Prof. Dr. Hermann Lübbert, biologist, (Chairman), Mr. Thomas Schaffer, businessman, (Chief
Financial Officer, until February 28, 2021, and Mr. Christoph Dünwald, businessman, (Chief Commercial Officer, until January 31, 2020).
Mr. Ludwig Lutter, businessman, was appointed to the Executive Board with effect from March 1, 2021.
Management Board compensation
in EUR thousands
Short-term benefits
Performance-based compensation
Total compensation
2020
662
508
1,170
2019
1,387
87
1,474
After leaving the Management Board, Mr. Christoph Dünwald received short-term remuneration due as a former board member in
the amount of EUR 137 thousand for the period from February to November.
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
60
Position
Date of first appointment
Term until
Chair
May 12, 2006
2021
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 Glaxo, and VP 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.
Biofrontera AG Annual Report 2020 71
Name
Jürgen Baumann
Curriculum vitae
Nationality
German
Age
66
Position
Date of first appointment
Term until
Deputy Chair
May 24, 2007
2021
Mr. Jürgen Baumann, Deputy Supervisory Board Chairman, is an independent management consultant. 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.
63
Member
May 31, .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
62
Member
February 7, .2018
2021
Curriculum vitae
Reinhard Eyring is a partner and Head of Germany at Ashurst LLP. He studied law at the University of
Freiburg/Breisgau. Prior to joining Ashurst in 2000, Mr. Eyring was a partner at another internationally active
law firm. From 2008 until 2015 he was a member of Ashurst's international board. He has had seats on the
supervisory board of various German companies.
Prof. Dr. Franca Ruhwedel
German 48 Member July 10, 2019 2021
Curriculum vitae
Franca Ruhwedel is Professor of Finance & Accounting at the Rhein-Waal University of Applied Sciences in
Kamp-Lintfort. At the same time, she has many years of experience as a supervisory board member and
member of audit committees. After a banking apprenticeship and studies in Münster, she completed her
doctorate in Bochum and then worked in the Mergers & Acquisitions department of the thyssenkrupp Group.
She has been a university professor since 2007; her research focuses on the capital market and corporate
governance.
Kevin Weber
USA
63
Member
May 31, 2016
2021
Curriculum vitae
Mr. Kevin Weber is a principal at Skysis, LLC. He was previously CEO at Paraffin International Inc., and has
extensive experience in pharmaceutical marketing as well as worldwide commercialization strategies. He
previously held senior roles at Depomed, Hyperion Therapeutics and Medicis Pharmaceuticals.He holds a
degree in management and marketing from Western Michigan University.
Supervisory Board compensation
in EUR thousands
Dr. Ulrich Granzer
Jürgen Baumann
John Borer
Reinhard Eyring
Hansjörg Plaggemars
Prof. Dr. Franca Ruhwedel
Kevin Weber
Total
The payments are short-term payments within the meaning of IAS 24.17 (a).
2020
35
23
15
19
-
21
15
128
2019
30
23
15
15
3
7
15
108
Biofrontera AG Annual Report 2020 72
The Supervisory Board members held the following other supervisory board positions and positions on comparable domestic and
foreign boards during the reporting period:
Name
Reinhard Eyring
Company
Board
Position
DESTAG Deutsche Steinindustrie AG
Supervisory Board
Chair
Prof. Dr. Franca Ruhwedel
NATIONAL-BANK AG, Essen
VTG AG, Hamburg
Supervisory Board
Supervisory Board
Member
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
Revenue from research collaborations
Revenue from license agreements
Income from the reimbursement of costs by Maruho
Income from subleases
Accounts receivables
Purchase price liability Cutanea (earn-out and start-up costs)
Other liabilties
December 31, 2020
December 31, 2019
493
6,000
659
33
-
17,811
-
686
-
6,215
34
149
14,720
72
Under the earn-out agreement with Maruho in connection with the acquisition of Cutanea Life Sciences, Inc. in March 2019, profits
from the sale of Cutanea products will be shared equally between Maruho and Biofrontera until 2030. For further details, please
refer to the presentation under Note 11 "Other financial liabilities". Furthermore, Maruho had agreed to provide an amount of up to
USD 7.3 million as start-up financing for Cutanea's redesigned business activities ("Start-up Costs"). The outstanding Start-Up Costs
were drawn down in full in fiscal 2020 and are repayable to Maruho by 2023. Furthermore, Maruho reimbursed restructuring costs
resulting from pre-contract obligations in the current fiscal year.
In April 2020, Biofrontera entered into an exclusive license agreement with Maruho Co, Ltd, Osaka, Japan (Maruho) for the
development and commercialization of Ameluz® for all indications in East Asia and Oceania. The agreement has a term of 15 years
from the start of sales in the countries covered by the agreement. Under the agreement, Maruho receives exclusive development
and marketing rights, including permission to sublicense Ameluz® in Japan, China, Korea, India, Pakistan, Vietnam, the Philippines,
Australia, New Zealand, and surrounding countries and islands (territory of applicability). Maruho is entitled, with Biofrontera's
consent, to conduct its own research and development under the license agreement. Maruho will grant to Biofrontera a royalty-free
and perpetual license to any results of such research and development conducted by Maruho for commercialization outside the
Territory. Under the License Agreement, Biofrontera will supply Ameluz® to Maruho at cost plus 25%, while Maruho has an obligation
to use commercially reasonable efforts to develop, register and commercialize Ameluz® in all countries in the Applicable Territory.
Under the license agreement, Maruho has made a one-time payment of EUR 6 million to Biofrontera AG. Further future payments will
be due upon the achievement of certain regulatory and sales milestones. Maruho will also pay royalties of initially 6% of net sales
in the countries of the scope, which may increase to 12% depending on sales volumes and will decrease in the event of generic
launches in these countries.
The agreement concluded on March 19, 2019 to continue the research collaboration with Maruho in the field of branded generics
expired as planned during the reporting period and is currently not being continued. Under this agreement, Biofrontera has prepared
the formulation of one of four compounds investigated in an earlier project phase (phase 1) in Biofrontera's nanoemulsion for entry
into the clinical phase, and Biofrontera has a right to use all research results.
Biofrontera AG Annual Report 2020
73
During 2020, we received no additional advisory services from supervisory board member Dr. Ulrich Granzer. In the previous year
Dr. Granzer assisted the 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, 2020, advisory services in the amount of
EUR 0 were provided by Granzer Regulatory Consulting & Services (previous year: 1 thousand). 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 2020 financial year, there were no further reportable transactions or relationships with related parties beyond those described
above or in sections 29 and 30.
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 2020 financial years consist of:
in EUR thousands
Auditing services
[of which for the previous year]
Other audit services
2020
530
[54]
-
530
2019
571
[102]
-
571
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.
As in the previous year, no other audit services were provided.
33. Subsequent events
Change in the composition of the Management Board
On February 2, 2021, the Company announced a change in the composition of the Company's Management Board. Effective March 1,
2021, Mr. Ludwig Lutter was appointed as the new Chief Financial Officer (CFO) of Biofrontera AG. He takes over from Thomas Schaffer
and is responsible for Finance, Administration, Controlling and Human Resources within the Company. Thomas Schaffer left the
Company on February 28, 2021, in order to devote himself to new personal endeavors outside the Company. The change in the finance
department was made as part of the succession planning by the Supervisory Board and the Management Board already announced
in summer 2020.
Biofrontera AG Annual Report 2020 74
Successful completion of the capital increase resolved on May 28, 2020
On February 26, 2021, the Company announced the successful completion of the capital increase resolved by the annual general
meeting on May 28, 2020. In total, the Company issued 8,969,870 new ordinary shares, bringing their total number to 56,717,385 after
registration in the Commercial Register.
The capital measure was fully placed, with the Company raising total gross funds of approximately EUR 24.7 million.
No other subsequent events subject to mandatory reporting occurred after the balance sheet date.
Leverkusen, April 12, 2021
Prof. Dr. Hermann Lübbert
CEO and Chairman
Ludwig Lutter
CFO
Biofrontera AG Annual Report 2020
75
The independent auditor’s report reproduced below also includes a “Report on the Assurance in Accordance with
Section 317 Paragraph 3b HGB on the Electronic Reproduction of the Annual Financial Statements and the Manage-
ment Report Prepared for Publication Purposes” (“ESEF Report”). The subject matter of the ESEF Report (ESEF docu-
ments to be audited) is not attached. The audited ESEF documents can be viewed in or retrieved from the German
Federal Gazette [Bundesanzeiger].
INDEPENDENT AUDITOR'S REPORT
To Biofrontera AG, Leverkusen
Report on the Audit of the Consolidated Financial Statements and the
Combined Management Report
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 2020, 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 2020 to 31 December 2020, 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 2020 to 31 December 2020. 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 our 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, liabili-
ties, and financial position of the Group as at 31 December 2020 and of its financial performance for the
financial year from 1 January 2020 to 31 December 2020, 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 opportuni-
ties 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 sec-
tion 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 accord-
ance with section 317 HGB and the EU Audit Regulation (No. 537/2014, referred to subsequently as “EU Audit Regula-
tion”) 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
INDEPENDENT AUDITOR'S REPORT - Biorontera AG 2020
Z1
Financial Statements and of the Combined Management Report” section of our auditor’s report. We are independent
of the group entities in accordance with the requirements of European law and German commercial and professional
law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. In
addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided
non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial
statements and on the combined management report.
Key Audit Matters in the Audit of the Consolidated Financial Statements
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
consolidated financial statements for the financial year from 1 January 2020 to 31 December 2020. These matters
were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our
audit opinion thereon, we do not provide a separate audit opinion on these matters.
Our presentation of the key audit matters has been structured as follows:
Financial Statement Risk
Audit Approach
Reference to Related Disclosures
Evaluation of the financial liabilities from the variable purchase price for shares in Cutanea Life Sci-
ences acquired in 2019 and the recoverability of the Xepi license
Financial Statement Risk
In the consolidated balance sheet of Biofrontera AG as at 31 December 2020, the item other long-term financial
obligations includes the financial liability measured at fair value from the variable purchase price of EUR 17,811 thou-
sand for the shares in Cutanea Life Sciences acquired in 2019. The book value of the Xepi license, reported under
intangible fixed assets, amounts to EUR 16,720 thousand as at 31 December 2020, after an impairment loss of EUR
2,001 thousand recognized as of 31 March 2020.
The measurement of the fair value of the purchase price liability and the assessment of the recoverability of the
Xepi license is based on material assumptions and estimates by the executive directors. Particular risks relating to
the measurement of the purchase price liability and the recoverability of the Xepi license are arising from the sub-
jective discretionary assumptions of the executive directors regarding the future profits from the Xepi product sales.
In consideration of the foregoing, the measurement of the financial liability and the recoverability of the Xepi license
on the balance-sheet date was of particular importance.
Audit Approach
Our audit procedures included, without limitation, the audit of management process to determine the fair value of
the purchase price liability, the audit of the completeness, accuracy and relevance of the underlying data used in
the models and the evaluation of the appropriateness of the assumptions used, including revenue from Xepi sales,
the applied discount rates and other factors. Furthermore, we evaluated the assessment by management whether
there were indications for a repeated verification of the recoverable amount of the Xepi license as at the balance
sheet date.
INDEPENDENT AUDITOR'S REPORT - Biorontera AG 2020
Z2
Our audit procedures also included the design and implementation of the relevant controls in relation to the meas-
urement of the financial liability referred to above including controls of the development of the assumptions used
by management to estimate the expected profits from the Xepi product sales and the assessment whether there
were indications for a verification of the recoverable amount of the Xepi license in particular.
We evaluated the appropriateness of the assumptions by management in relation to the profits from the Xepi product
sales, in particular, whether the assumptions used were appropriate to the subject in consideration of the particu-
larities of introducing a new product in the market and whether the assumptions coincide with the findings obtained
in the other fields of audit. We also evaluated the appropriateness of the assumptions in relation to the existence of
indications for a verification of the recoverable amount of the Xepi license as at the balance sheet date.
We evaluated the competence, capability and objectivity of the external expert engaged by Biofrontera AG to deter-
mine the discount rates. In consultation with our internal valuation experts, we furthermore evaluated the determi-
nation of the discount rates in connection with the measurement of the financial liability, on the basis of which the
executive directors of Biofrontera AG derived their fair value estimates, and compared them with the relevant book
values, and verified the information on the underlying estimates of the measurement of the financial liability and
the information on the verification of the recoverable amount.
Reference to Related Disclosures
The information relating to the measurement of the financial liability and the variable purchase price resulting from
the earn out agreement and to the verification of the recoverable amount are included in the "Summary of significant
accounting policies" section, “Use of estimate” subsection of the notes to the consolidated financial statements, and
the notes to the consolidated balance sheet in sections “1. Fixed assets, intangible fixed assets” and “11. Other finan-
cial liabilities”.
Other information
The executive directors and the supervisory board are responsible for the statement under section 161 Stock Corpo-
rations Act [Aktiengesetz - AktG], which is part of the Corporate Governance Declaration included in the management
report. Save as aforesaid, the executive directors are responsible for the other information provided. The other
information comprises
•
•
•
the Corporate Governance Declaration pursuant to section 289f and section 315d HGB (Corporate Govern-
ance Report),
the Responsibility Statement pursuant to section 264 para. 2 sentence 3 HGB and pursuant to section 289
para. 1 sentence 5 HGB,
but not the notes to the consolidated financial statements, not the information in the combined manage-
ment report, whose content is unaudited, and not 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 conclu-
sion thereon.
In connection with our group audit, our responsibility is to read the other information referred to above, and, in so
doing, to consider whether the other information
INDEPENDENT AUDITOR'S REPORT - Biorontera AG 2020
Z3
•
•
is materially inconsistent with the consolidated financial statements, the audited information in the com-
bined 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 Consoli-
dated 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 neces-
sary 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 ac-
counting 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 oppor-
tunities 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 require-
ments 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 Finan-
INDEPENDENT AUDITOR'S REPORT - Biorontera AG 2020
Z4
cial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstate-
ment. 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 consol-
idated financial statements and this combined management report.
We exercise professional judgment and maintain professional skepticism throughout the audit. We also:
•
•
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the consolidated financial statements and of the
combined management report, whether due to fraud or error, design and perform audit procedures respon-
sive 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 reasonable-
ness 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 con-
ditions 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 com-
bined 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
INDEPENDENT AUDITOR'S REPORT - Biorontera AG 2020
Z5
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 independ-
ence 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 dis-
closure about the matter.
Other Legal and Regulatory Requirements
Report on the Assurance in Accordance with Section 317 Paragraph 3b HGB on the Elec-
tronic Reproduction of the Annual Financial Statements and the Management Report Pre-
pared for Publication Purposes
Audit opinion
We have performed assurance work in accordance with section 317 paragraph 3b HGB to obtain reasonable assurance
about whether the reproduction of the annual financial statements and the management report (hereinafter the
“ESEF documents”) contained in the attached electronic file biofronteraag-2020-12-31.zip, with a hash-value
C582E43C23FCC8C2FE8601E0B8D22B95B8F93DC231 B424BD61B5B 5110AB7CB06 and prepared for publication pur-
poses complies in all material respects with the requirements of section 328 paragraph 1 HGB for the electronic
reporting format (“ESEF format”). In accordance with German legal requirements, this assurance only extends to the
conversion of the information contained in the annual financial statements and the management report into the
ESEF format and therefore relates neither to the information contained within this reproduction nor to any other
information contained in the above-mentioned electronic file.
In our opinion, the reproduction of the annual financial statements and the management report contained in the
above-mentioned attached electronic file and prepared for publication purposes complies in all material respects
with the requirements of section 328 paragraph 1 HGB for the electronic reporting format. We do not express any
opinion on the information contained in this reproduction nor on any other information contained in the above-
mentioned file beyond this reasonable assurance opinion and our audit opinion on the accompanying annual finan-
cial statements and the accompanying management report for the financial year from 1 January 2020 to 31 December
2020 contained in the “Report on the Audit of the Annual Financial Statements and of the Management Report”
above.
Basis for the Reasonable Assurance Opinion
We conducted our assurance work on the reproduction of the annual financial statements and the management
report contained in the above-mentioned attached electronic file in accordance with section 317 paragraph 3b HGB
and the Exposure Draft of IDW Assurance Standard “Assurance in Accordance with section 317 Paragraph 3b HGB on
the Electronic Reproduction of Financial Statements and Management Reports Prepared for Publication Purposes”
INDEPENDENT AUDITOR'S REPORT - Biorontera AG 2020
Z6
(ED IDW AsS 410). Accordingly, our responsibilities are further described below in the “Auditor’s Responsibilities for
the Assurance Work on the ESEF Documents” section. Our audit firm has applied the IDW Standard on Quality Man-
agement 1 “Requirements for Quality Management in the Audit Firm” (IDW QS 1).
Responsibilities of the Executive Directors and the Supervisory Board for the ESEF Documents
The executive directors of the company are responsible for the preparation of the ESEF documents including the
electronic reproduction of the annual financial statements and the management report in accordance with section
328 paragraph 1 sentence 4 no. 1 HGB.
In addition, the executive directors of the company are responsible for such internal control as they have considered
necessary to enable the preparation of ESEF documents that are free from material intentional or unintentional non-
compliance with the requirements of section 328 paragraph 1 HGB for the electronic reporting format.
The executive directors of the company are also responsible for the submission of the ESEF documents together with
the auditor's report and the attached audited annual financial statements and audited management report as well
as other documents to be published to the operator of the Federal Gazette.
The supervisory board is responsible for overseeing the preparation of the ESEF documents as part of the financial
reporting process.
Auditor's Responsibilities for the Assurance Work on the ESEF Documents
Our objective is to obtain reasonable assurance that the ESEF documents are free from material intentional or unin-
tentional non-compliance with the requirements of section 328 paragraph 1 HGB. We exercise professional judgment
and maintain professional skepticism throughout the assurance work. We also:
•
•
•
•
•
Identify and assess the risks of material intentional or unintentional non-compliance with the requirements
of section 328 paragraph 1 HGB, design and perform assurance procedures responsive to those risks, and
obtain assurance evidence that is sufficient and appropriate to provide a basis for our assurance opinion.
Obtain an understanding of internal control relevant to the assurance on the ESEF documents in order to
design assurance procedures that are appropriate in the circumstances, but not for the purpose of express-
ing an assurance opinion on the effectiveness of these controls.
Evaluate the technical validity of the ESEF documents, i.e., whether the electronic file containing the ESEF
documents meets the requirements of the Delegated Regulation (EU) 2019/815 on the technical specification
for this electronic file.
Evaluate whether the ESEF documents enables a XHTML reproduction with content equivalent to the audited
annual financial statements and to the audited management report.
Evaluate whether the mark-up of the ESEF document with XBRL technology (iXBRL) enables an appropriate
and complete machine-readable XBRL copy of the XHTML reproduction.
Further Information pursuant to Article 10 of the EU Audit Regulation
We were elected as group auditor by the annual general meeting on 28 May 2020. We were engaged by the supervi-
sory board on 29 October 2020. We have been the group auditor of Biofrontera AG, Leverkusen, without interruption
since the financial year 2007.
INDEPENDENT AUDITOR'S REPORT - Biorontera AG 2020
Z7
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, 12 April 2021
Warth & Klein Grant Thornton AG
Wirtschaftsprüfungsgesellschaft
Eckhard Lewe
Michael Gottschalk
Wirtschaftsprüfer
[German Public Auditor]
Wirtschaftsprüfer
[German Public Auditor]
INDEPENDENT AUDITOR'S REPORT - Biorontera AG 2020
Z8
Responsibility statement
Responsibility statement pursuant to section 297 (2) sentence 4 HGB and
section 315 (1) sentence 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 12, 2021
Biofrontera AG
Prof. Dr. Hermann Lübbert
Ludwig Lutter
Biofrontera AG Annual Report 2020
76
Biofrontera AG
Hemmelrather Weg 201
51377 Leverkusen, Germany
Telephone: + 49 (0) 214 87 63 2 0
Fax: + 49 (0) 214 87 63 2 90
E-mail: info@biofrontera.com
www.biofrontera.com