U.S. Markets closed

Edited Transcript of B8F.DE earnings conference call or presentation 27-Aug-19 12:00pm GMT

Q2 2019 Biofrontera AG Earnings Call

Leverkusen Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Biofrontera AG earnings conference call or presentation Tuesday, August 27, 2019 at 12:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Christoph Dünwald

Biofrontera AG - Chief Commercial Officer, Head of Sales & Marketing and Additional Member of Management Board

* Hermann Lübbert

Biofrontera AG - Co-Founder, Chairman of the Executive Board & CEO

* Pamela Keck

Biofrontera AG - Head of IR

* Thomas Schaffer

Biofrontera AG - CFO & Member of the Executive Board

================================================================================

Conference Call Participants

================================================================================

* Bruce David Jackson

The Benchmark Company, LLC, Research Division - Senior Healthcare Research Analyst

* Thomas Flaten

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Dear ladies and gentlemen, welcome to the conference call of Biofrontera AG. At our customers' request, this conference will be recorded. (Operator Instructions) May I now hand you over to Pamela Keck, Head of Investor Relations, who will lead you through this conference? Please go ahead.

--------------------------------------------------------------------------------

Pamela Keck, Biofrontera AG - Head of IR [2]

--------------------------------------------------------------------------------

Thank you. Good morning, and welcome to Biofrontera's earnings conference call for the first 6 months of 2019. Earlier this morning, we issued a press release announcing financial results for the 6 months ended June 30, 2019. We encourage everyone to read today's press release as well as the earnings report, both of which are available on Biofrontera's website at www.biofrontera.com.

Please note that certain of the information discussed on the call today is covered under the safe harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that during this call, Biofrontera's management will be making forward-looking statements. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. All risks and uncertainties are detailed in and are qualified by the cautionary statements contained in Biofrontera's press releases and SEC filings, including our annual report on Form 20-F and subsequent filings.

This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, today, August 27, 2019. Biofrontera undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

With that, I would now like to turn the call over to Hermann Lübbert, Biofrontera's CEO. Hermann, go ahead.

--------------------------------------------------------------------------------

Hermann Lübbert, Biofrontera AG - Co-Founder, Chairman of the Executive Board & CEO [3]

--------------------------------------------------------------------------------

Yes. Thank you, Pamela, and thank you very much, ladies and gentlemen, for taking the time today to participate in our call. With me today are Christoph Dünwald, our Chief Commercial Officer; and Thomas Schaffer, our Chief Financial Officer.

I will briefly summarize the business development, the successful integration of Cutanea and the clinical updates during the reporting period. Christoph Dünwald will then report on the current stages of our sales development, followed by Thomas Schaffer, who will present the financial results.

In the first half of 2019, we successfully expanded the sales and market potential of Ameluz in both the EU and the U.S. During this period, Biofrontera group achieved a 55% increase in revenue compared to the previous year period. Our CFO, Thomas Schaffer, will go into this in more detail in a moment.

Just one thing on France. We are satisfied with the overall result, and we will work hard to convert the opportunities offered to us into further market growth.

We are focusing on the global positioning and exploitation of the market potential of our highly innovative products. We concentrate, in particular, on further growing the sales and extending the indications of Ameluz to increase the market potential of PDT. The second priority is the expansion of our product pipeline since our research pipeline is strong enough on its own, and we focus on highly innovative products, which are very rarely offered for in-licensing. Expanding our portfolio for in-licensing product is not part of our core strategy. However, we do not rule out in-licensing in general provided that there are good opportunities for us on a case-by-case basis. One example of this is the recent acquisition of Cutanea Life Sciences in Philadelphia for Maruho and the associated exclusive license to sell a completely new antibiotic, namely, Xepi, in the United States.

The strategic partnership with our major shareholder Maruho, the largest Japanese dermatology company, is closely linked to our long-term strategy. Both companies are pursuing an international expansion strategy and plan to complement each other regionally. This led to the 100% acquisition of Cutanea, which was previously Maruho's U.S. business, allowing better use of synergies between both companies. Biofrontera and Maruho also have a research collaboration to develop products based on generic active ingredients and Biofrontera's nanoemulsion. And even more, a much larger cooperation for the further development of Ameluz for acne and possible licensing by Maruho for the East Asian market is in preparation.

Our long-term strategy sets the course for our continuing success. We have successfully completed the integration of Cutanea into our sales and marketing infrastructure in the U.S. With the 2 approved, highly innovative prescription drugs, Ameluz and Xepi, we are now exceptionally well positioned to become a leading specialty pharmaceutical company in dermatology. We see this strategic course, confirmed by the Annual General Meeting held on July 10. Our shareholders approved the resolutions proposed by the Management Board and the Supervisory Board with a large majority.

The shareholders present represented around 76% of the registered share capital, which is an extraordinarily high attendance rate for a publicly listed company in Germany. We recognize our shareholders great interest in the future of our company, for which we would like to take this opportunity to express our sincere appreciation.

As already mentioned, we were able to increase our revenue by about 55% in the first half of 2019. In Germany, for example, we grew significantly faster than our competitors. The approval of daylight therapy has contributed to considerable growth of the overall PDT market here, which has particularly benefited the sales of Ameluz. Our sales in the U.S. market, which accounts for 70% to 75% of our total revenue, had a particular influence on our business performance. The U.S. market also developed very positively in the first 6 months of this year with a growth of around 59%. This is good, but we had expected even more. Christoph Dünwald will explain the relevant influencing factors in more detail in a minute.

Despite the continuation of the dynamic sales growth, we are, therefore, slightly below our expectations and are slightly adjusting our forecast for the current financial year.

Allow me now to elaborate on the expanded market potential for Biofrontera resulting from the successful integration of Cutanea. Some Biofrontera employees have worked extremely hard over the past months to integrate Cutanea. The result of this is that today, we can look forward to a successfully expanded commercial product portfolio in the U.S. Cutanea has 2 FDA-approved prescription drugs, Xepi and Aktipak. Let me start by saying a few words about Aktipak's suspension of distribution, at least for the time being, which has, by no means, been our original intention.

We were confronted with unexpected quality problems in the production of Aktipak, which cannot be remedied in the short term and can only be remedied from today's perspective with major investments in the long term, which might not be justifiable in relation to the market potential of the product. As such, we have decided for now to discontinue marketing Aktipak.

The potential of the Cutanea acquisition, however, comes primarily from Xepi, with which Biofrontera is marketing the next major innovation in the U.S. dermatology market. It is the first new antibiotic in dermatology in about 10 years and the only drug in its class that has been shown to be effective against antibiotic-resistant bacteria such as MRSA and is expressly approved by the FDA for infections with such bacteria.

Every year, U.S. dermatologists issue around 1 million prescriptions for drugs in indications in which Xepi could be used. We are convinced that with Xepi, we have an innovative, promising product with considerable sales potential in our portfolio.

On the basis of the expanded product portfolio, we are intensifying research into the expansion of the approved indications. In the first quarter of this year, Biofrontera received positive results for another clinical Phase III trial with Ameluz. We tested the safety and efficacy of conventional photodynamic therapy with Ameluz in combination with our BF-RhodoLED red-light lamp for the treatment of mild-to-severe actinic keratoses on the extremities or the trunk and neck area. The Phase III study met all primarily and secondary endpoints and showed that Ameluz, with an overall average region healing rate of 86%, was significantly superior to the placebo rate of 33%.

If approved based on this data, Ameluz would be the only PDT drug that could be used to treat actinic keratoses on the extremities, trunk and neck. This would be another decisive competitive advantage over competing PDT drugs. While we thrive ahead with our Phase III study for the treatment of superficial basal cell carcinoma with Ameluz, we plan our first study for the treatment of moderate-to-severe acne. Also, with Xepi we are thinking of broader indications together with our licensor Ferrer.

I would now like to ask Christoph Dünwald to provide some color on our commercial developments in the U.S. and in Europe.

--------------------------------------------------------------------------------

Christoph Dünwald, Biofrontera AG - Chief Commercial Officer, Head of Sales & Marketing and Additional Member of Management Board [4]

--------------------------------------------------------------------------------

Thank you, Hermann, and good morning to you all. Ladies and gentlemen, looking at the first half of 2019, Biofrontera has succeeded in continuing its growth course in all important markets. In the reporting period, sales amounted to EUR 13.9 million. This is a new record driven primarily by sales in our core markets of the U.S., Germany and Spain. However, our reliable high growth is not linear, which is nothing unusual on building a new business. Although we have again grown very strongly in the United States, we are slightly below our expectations. Due to the great importance of the U.S. market, this resulted in a minor adjustment to our forecast. However, this does not change the underlying potential of our product, especially in the U.S. market.

In the following, I would like to give a brief overview of developments in the individual markets.

In the U.S., we are pushing ahead with selling our products. The market accounts for 70% to 75% of Biofrontera's total revenue. Sales growth in the United States for the reporting period was about 59%, This includes EUR 546,000 in product sales from Xepi and Aktipak. In the first 6 months, our sales, therefore, reached around EUR 10 million with Ameluz and the BF-RhodoLED in the U.S. This success resulted from the further expansion of our sales structure and from improvements in the reimbursement of PDT for dermatologists in the U.S. After securing the correct reimbursement of Ameluz in 2018, we were able to overcome another key hurdle for successful marketing in the U.S. The publication of our average selling price by the responsible authority, the Centers for Medicare & Medicaid Services, CMS, in January 2019.

The American sales team grew to over 40 employees in the reporting period and since July 2019 also included colleagues from the former Cutanea sales team. As an integrated sales force, the team promotes both, Ameluz and Xepi. The focus is naturally on the leading product, Ameluz, at the moment. Since its launch in October 2016, we have sold more than EUR 30 million worth of Ameluz in the U.S. and thus established the product in the market.

So far, we have primarily seen -- excuse me, so far, we have been able to win dermatologists for the product who were already familiar with the photodynamic therapy. However, we're also working hard to convert dermatologists with no previous experience with PDT.

Without a doubt, we continue to assess the potential of Ameluz in the world's largest pharmaceutical market as enormous. So far, cryotherapy has been the preferred treatment for actinic keratosis in the U.S. Last year, the reimbursement for the doctor's procedures to do PDT was increased and is now significantly higher than the reimbursement for cryotherapy. We are confident that this will be reflected in the number of PDT treatments done in the future. Currently, only about 3% of actinic keratosis patients treated in the U.S. are treated with PDT. Each percent treatment share, meaning, the share of actinic keratosis treatments in the U.S. that we gain with Ameluz is potentially worth more than EUR 30 million in sales.

With the acquisition of Cutanea in March 2019, we expanded our portfolio to include the 2 FDA-approved drugs, Xepi and Aktipak. For the reasons already mentioned by Professor Lübbert, we are not pursuing the commercialization of Aktipak at least for the time being. Instead, we are concentrating on Xepi in addition to Ameluz. Since it is a brand-new antibiotic, no antibiotic resistance against Xepi is known to date, a fact that is particularly important in the U.S. American doctors take the problem of increasing antibiotic resistance very seriously. However, Xepi was not introduced to the U.S. market by Cutanea until the end of 2018. We are currently in the launch phase and must first establish the business, including reimbursement and present Xepi to as many doctors as possible.

As with Ameluz, the patient benefit of Xepi is enormous. We now have 2 truly outstanding products in our portfolio, a fact that it is also highly motivating for our sales team.

Our European core markets are Germany, Spain and Great Britain, where we have our own sales force in place. In Denmark, Sweden, Norway, Austria, Switzerland, Liechtenstein and Israel, we rely on sales partnerships with distributors. The development of our sales and revenue in Europe is fully in line with our expectations.

Sales grew by 82% in Germany and by 12% in the rest of Europe in the first half of 2019. The approval of Ameluz in daylight therapy obtained last year once again gave us the opportunity this year to put PDT in a new light for dermatologists. The possibility of using Ameluz in the treatment of basal cell carcinoma and field cancerization will help us to convince more dermatologists of the benefits of PDT. The approval of this application enables us, among other things, to sell Ameluz to hospitals. This is particularly important in Great Britain and Spain where most dermatological treatments are carried out in hospitals.

In our home markets in Germany, we benefited in particular from the strong market growth triggered by the approval of daylight therapy. We are very pleased with the success in Germany. Our growth in prescription clearly leads the growth of our competitors this year and makes us the leading provider of PDT in Germany. We want to further improve this good position and invest in our marketing to further increase the benefit of Ameluz and photodynamic therapy for prescribing dermatologists. We expect to increase our market share even further, especially at the expense of topical creams.

As far as Spain is concerned, the growth in prescription for Ameluz there is also very pleasing. Our overall sales growth compared with the previous year is negatively influenced by a reduction in the reimbursement price. In order to secure the very important reimbursement in The Spanish National Healthcare System, we had to accept the 27% decrease of our price for Ameluz starting July 2018. Despite seemingly lower sales growth, our performance in the first half year is therefore fully on target.

In the United Kingdom, the focus of distribution was on the hospitals, in particular, on the administrative steps to include Ameluz in the respective hospital pharmacies. The first successes can already be seen in the turnover figures, although the U.K. as a whole has played only a minor role in our business to date.

Overall, we're very satisfied with the development in our own European sales organizations, and the sales trend -- and we are -- let me do that again because it's important. Overall, we are very, very satisfied with the development of our own European sales organization and the sales trend and are fully on schedule 2019 in Europe.

Our sales partners in several other European countries and in Israel play only a minor role in terms of sales. I would like to highlight the positive development of our business in Switzerland under the leadership of our sales partner, Louis Widmer. Here too, daylight approval has led to a sharp increase in prescriptions. In the U.S., we are working flat out to further expand sales. The aim is to have covered all U.S. sales territories for the important fourth quarter and train all new employees effectively so that we can take full advantage of the opportunities arising from the strong seasonal increase in PDT treatment at the end of the year.

For the future, we continue to expect excellent growth, which may however continue to be subject to fluctuations and seasonality. The launch of Xepi opens up new sales opportunities for us, which will quickly make Biofrontera better known in the U.S. markets. We have excellent employees and innovative products. On this basis, we will lead Biofrontera to great success and continue to aim for breakeven in the fourth quarter of this year.

With these words, I hand over to our CFO, Thomas Schaffer. Thomas, please.

--------------------------------------------------------------------------------

Thomas Schaffer, Biofrontera AG - CFO & Member of the Executive Board [5]

--------------------------------------------------------------------------------

Thank you, Christoph, and a warm welcome to all of you. I now like to give you an overview of the financial figures in the first half of 2019 and an outlook for the remainder of the year. I can already say that Biofrontera continues to develop well. Since 2016, sales have been rising steeply, and we are continuing our dynamic sales growth in the current financial year as well.

First of all, I would like to discuss the acquisition of Cutanea Life Sciences in order to explain the effects of the consolidation on our income statement. As previously reported, the agreement to acquire Cutanea did not involve any financial risks for Biofrontera. An immediate purchase price of USD 1 was agreed upon for the acquisition. The previous owner Maruho has been paying all of Cutanea's existing liabilities and has fully taken on the operating costs in the first 3 months after the acquisition. This also included the costs and the risk of the now completed restructuring period.

Maruho is providing up to USD 7.3 million to finance the marketing of the new acquired drugs, Xepi and Aktipak. Cutanea and its subsidiaries were fully consolidated at the time of acquisition on March 25, 2019. Sales of the new products as well as cost of sales and all operating costs incurred by Cutanea are reported in their respective lines of the income statement. From the date of the acquisition until June 30, 2019, the 2 products contributed approximately EUR 0.5 million to sales. The result from operating activities includes a total of approximately EUR 6 million of operating expenses for the companies of the Cutanea group, the majority of which is attributable to selling expenses.

Maruho assumes the costs by paying the cash and cash equivalents held at the time of acquisition or the costs are passed on to Maruho in accordance with the agreements of the Share Purchase Agreement. In total, the charges to Maruho are reported under other income. The effects of the Cutanea acquisition are, therefore, largely neutral in the earnings, but our operating result is negatively impacted and the corresponding adjustment is made in net income before taxes.

As a business combination in accordance with IFRS 3, we measured all Cutanea's assets and liabilities at their fair market value at the time of acquisition and accounted for them accordingly. A more detailed list can be found in the disclosures in the half year earnings report. The valuation resulted in a positive difference, so-called badwill of EUR 17.3 million, which we booked as a one-off item under other income and recognized in the income statement.

Let us now turn to the financial figures of the entire Biofrontera group. In the first half of 2019, we achieved a total revenue of around EUR 13.9 million compared to around EUR 9 million in the first half of 2018. This corresponds to an increase of 55%. The reason for this was again mainly the strong growth in the U.S. flanked by the dynamic growth in Germany. Our most important pillar by far, however, is and remains the U.S. market.

Sales in the U.S. improved in the reporting period by 59% to around EUR 10.2 million compared to EUR 6.4 million in the first half of 2018. This growth was due to the further expansion of our sales infrastructure and improvement in the reimbursement of PDT for dermatologists.

Sales in Germany amounted to around EUR 2.2 million in the first half of the year compared to EUR 1.2 million in the first half of 2018. This corresponds to an increase of 82%. Our sales in the other European countries improved in the reporting period by 12% to approximately EUR 1.4 million compared to the EUR 1.2 million in the same period in 2018. The increase in sales in Europe, including Germany, continues to be primarily attributable to the successful marketing of daylight PDT, which was approved in March 2018.

Gross profit and gross margin increased by EUR 4.1 million to approximately EUR 11.4 million compared to EUR 7.3 million in the first half of 2018. At 82%, the gross margin remained unchanged compared to the same period of the previous year.

Research and development costs remained largely stable at around EUR 2.3 million compared to EUR 2.2 million in the prior year period. This includes the costs for clinical studies, but also regulatory expenses such as fees for the granting, maintenance and expansion of our regulatory approvals. Also included are research and development costs of around EUR 0.4 million incurred by Cutanea.

General administrative expenses amounted to approximately EUR 7.8 million in the reporting period compared to EUR 4.1 million in the same period of last year. As a result, general administrative expenses increased by EUR 3.7 million. This includes around EUR 1.8 million in administrative expenses for Cutanea. The reason for the remaining difference was higher legal and consulting costs as well as higher administrative costs in the U.S.

Sales costs amounted to EUR 14.2 million. This corresponds to a significant increase over the EUR 8.3 million in the same period of 2018. This was due to 2 factors: first, the cost of the further development of our sales organization in the U.S.; and second, EUR 3.5 million in sales costs incurred by Cutanea. Our sales costs include the costs of our own sales force in Germany, Spain, the U.K. and the U.S. as well as any marketing expenses.

At around minus EUR 12.9 million, the results of operating activities for the first half of 2019 was EUR 5.6 million lower than in the prior year period, for which we reported minus EUR 7.3 million, mainly due to the first-time consolidation of Cutanea. The inclusion of Cutanea in the earnings is offset by corresponding cost reimbursement for Maruho, which are included in other income.

Our other income and expenses totaled around EUR 23.2 million in the reporting period. This includes 2 major components. On the one hand, the before-mentioned bad will of EUR 7.3 million as reported in connection with the Cutanea acquisition. This refers to the positive difference arising from the purchase price allocation between the asset and liability items measured at fair value. This item also includes the settlements of Maruho on the basis of the share purchase agreement in the amount of EUR 5.6 million. Expenses and income from currency translation are also included in this item.

As a result of the difference from the purchase price allocation of Cutanea, the so-called bad will recognized in the income statement, Biofrontera reported a positive total result of around EUR 8.6 million for the first half of 2019 for the first time. Without taking this special factor into account, however, we are still operating in negative territory.

Cash and cash equivalents amounted to around EUR 21.6 million as of June 30 compared to EUR 19.5 million as of December 31, 2018. This includes cash and cash equivalents of Cutanea amounting to EUR 5.8 million. Biofrontera, therefore, continues to be in an excellent financial position.

That was it for the financial performance part of the first 6 months in 2019. I would now like to conclude with the forecast for the 2019 financial year.

We expect sales growth in the second half of 2019 to be at a similar level to that of the first half at around 50%. Accordingly, we expect annual revenue to be slightly below the previous forecast of EUR 35 million to EUR 40 million. For the 2019 financial year, we forecast revenue of around EUR 32 million to EUR 35 million. The adjusted forecast is primarily attributable to the continued dynamic but slightly weaker growth in the United States. Sales from Cutanea products are not included. Taking Aktipak's marketing staff into account, we expect total sales of the new product of around EUR 1 million to EUR 1.5 million in 2019.

The Biofrontera group continues to expect operating costs in the 2019 financial year to be within the previously planned corridor. This does not include any operating costs incurred by Cutanea. As already mentioned above, these are reported as originated costs under research and development costs, sales costs and general and administrative costs. The operating costs relating to Cutanea are, however, neutral overall due to charges to Maruho, which are reported under other income. Biofrontera expects that Cutanea will incur a total of around EUR 8 million to EUR 10 million of operating costs in the 2019 financial year, which will be offset by payments from Maruho. Under these conditions, the Biofrontera group expects adjusted earnings before taxes of around minus EUR 10 million to minus EUR 13 million for the 2019 financial year.

Taking into account the difference from the purchase price allocation of Cutanea recognized in the income statement, we expect unadjusted earnings before income taxes of about plus EUR 4 million to plus EUR 7 million. The achievement of these results depends strongly on the sales growth. For the fourth quarter, we still expect to reach the operating breakeven point taking into account the charges to Maruho reported under other income.

At this point, I would like to hand over to Hermann Lübbert for some closing remarks.

--------------------------------------------------------------------------------

Hermann Lübbert, Biofrontera AG - Co-Founder, Chairman of the Executive Board & CEO [6]

--------------------------------------------------------------------------------

Thank you, Thomas. I will wrap up today's telephone conference by saying that we have again reached important milestones in the first half of 2019 that allow us to advance the global positioning of Biofrontera and further develop the company as a leading specialty pharma company in dermatology.

We successfully completed the integration of Cutanea, which forms the basis for accelerated growth. We were able to expand our product portfolio in the U.S. and strengthen our international competitiveness. With the 2 highly innovative approved prescription drugs, Ameluz and Xepi, we are excellently positioned for the future. We are now concentrating on further expanding the distribution of our products, particularly in the United States.

In addition, we will continue to develop our clinical programs. This includes the preparation of the planned expansion of the Ameluz approval to include actinic keratoses in the extremities, trunk and neck as well as the further development of our branded generics program with Maruho. While patient recruitment for our Phase III superficial basal cell carcinoma study in the United States is progressing, we have started to plan the first clinical trial in moderate-to-severe acne.

These building blocks lay the foundation for the long-term success of Biofrontera, which is ultimately based on exploiting the potential of our products. We are confident that we will continue to successfully implement our growth strategy. I thank all our employees and our shareholders for their continued support in developing Biofrontera into a multiproduct dermatology company.

And now I would like to open the line for questions. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And we've already received the first question. It is from Thomas Flaten of Lake Street Capital Markets.

--------------------------------------------------------------------------------

Thomas Flaten, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [2]

--------------------------------------------------------------------------------

Specific to the Ameluz sales in the U.S., being sequentially down second quarter over first quarter, can you comment a little bit on the reasons for the weakness in those sales and what it is that you're seeing in the market that would account for a significant rebound in the second half of the year?

--------------------------------------------------------------------------------

Christoph Dünwald, Biofrontera AG - Chief Commercial Officer, Head of Sales & Marketing and Additional Member of Management Board [3]

--------------------------------------------------------------------------------

Hermann, would you like me to go?

--------------------------------------------------------------------------------

Hermann Lübbert, Biofrontera AG - Co-Founder, Chairman of the Executive Board & CEO [4]

--------------------------------------------------------------------------------

Yes, go ahead.

--------------------------------------------------------------------------------

Christoph Dünwald, Biofrontera AG - Chief Commercial Officer, Head of Sales & Marketing and Additional Member of Management Board [5]

--------------------------------------------------------------------------------

Okay. So the second quarter in general for PDT is a slower quarter than the first one, and there's the certain seasonality in the PDT treatment. So a lot of dermatologists from the -- for historic reason and from other products do not treat certain conditions when the summer is there. And some patients actually don't want to stay out of daylight for 2 days. We had the same problem in Europe with this seasonality, but then of course now the daylight, it sounds, [would be heavily] around. So the historic highest quarter then of course is the last quarter of the year for PDT. So the fourth quarter is always the strongest and has so been for our competition as well in the past always in PDT treatment and also with conventional PDT in Europe. And there is few things that probably lead to the whole thing. People have paid their copayments, so their copayment is 0 at the end of the year. And of course, people rather stay inside when it is cold and rainy outside. So we hold and then of course we hire our people, train people so we can take full advantage of our reduced territory size, and we have more territories now manned than we had last year, so I do expect that we have a very, very good fourth quarter.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Well, then we go to the next question. It's from Bruce Jackson of Benchmark Company.

--------------------------------------------------------------------------------

Bruce David Jackson, The Benchmark Company, LLC, Research Division - Senior Healthcare Research Analyst [7]

--------------------------------------------------------------------------------

So to take a close look at the U.S. sales force integration, can you just remind us where you stand right now in terms of total reps, where you're planning to end up by the end of the year? And then if you could give us some background on the whole integration process. So if I understand it correctly, you had to realign the sales territories and then complete some cross-training for the new sales force. And if you could tell us when that took place. And was there any disruption in revenue because of that?

--------------------------------------------------------------------------------

Christoph Dünwald, Biofrontera AG - Chief Commercial Officer, Head of Sales & Marketing and Additional Member of Management Board [8]

--------------------------------------------------------------------------------

So we started the year at around 30 reps and then we had the opportunity to integrate Cutanea. We took the decision, as we explained in the first quarter call -- in the call that we had about the acquisition of Cutanea and mapped out territories news. So smaller territories, 2 products, higher frequency and mapped out 45 territories, of which we then said we're going to man 41. We interviewed everybody from Cutanea that was on the sales force, and we had our -- we made the people that we thought were the right fit offers to come to Biofrontera. Some accepted, some did not. But we had already realigned the sales force territory, so we started then immediately to recruit to fill these open positions. And then we trained everybody in June. So Cutanea sales force was continued in the second quarter until the closing date, and Biofrontera was -- in the second quarter was selling Ameluz. And then we integrated with the -- starting in July 1. We had only 1 sales force and everybody was trained in June to sell both products.

--------------------------------------------------------------------------------

Hermann Lübbert, Biofrontera AG - Co-Founder, Chairman of the Executive Board & CEO [9]

--------------------------------------------------------------------------------

Well, perhaps to add to this other aspects of the integration. As Christoph said, the sales force was integrated in the second quarter and then as of the third quarter, we had only one sales force selling both products. Now in the background, the NDAs for Aktipak and Xepi have been transferred to Biofrontera Bioscience in Germany, which is now responsible for handling the regulatory aspects of these 2 products. The Cutanea site in Philadelphia is still there, but there's only about 10 people on site right now. And the site will be completely resolved by the end of this year and by then everybody will be integrated to -- all functions will be integrated into the Biofrontera organization, most of the commercial functions into Biofrontera Inc.

--------------------------------------------------------------------------------

Bruce David Jackson, The Benchmark Company, LLC, Research Division - Senior Healthcare Research Analyst [10]

--------------------------------------------------------------------------------

Okay. Great. That's very helpful. And then one other Cutanea question. With the Aktipak issue, is this a manufacturing issue? And then when you're talking about the additional cost, is that for equipment? Or is it a -- something else?

--------------------------------------------------------------------------------

Hermann Lübbert, Biofrontera AG - Co-Founder, Chairman of the Executive Board & CEO [11]

--------------------------------------------------------------------------------

Yes, it's a manufacturing issue. There had been 2 batches produced, which could actually not be released because they didn't fulfill specification. And to improve the respective issues, this would be a major issue with the current manufacturer. Or alternatively, we would have to develop a new manufacturer, which again would take an extended period of time. And at least, currently, we came to the conclusion that this is financially not a good idea.

--------------------------------------------------------------------------------

Bruce David Jackson, The Benchmark Company, LLC, Research Division - Senior Healthcare Research Analyst [12]

--------------------------------------------------------------------------------

Okay. And then last question for me. You completed the clinical trial on Ameluz for the extremities. What's your anticipated filing date with the FDA?

--------------------------------------------------------------------------------

Hermann Lübbert, Biofrontera AG - Co-Founder, Chairman of the Executive Board & CEO [13]

--------------------------------------------------------------------------------

I cannot yet comment with respect to the FDA because we are currently in discussions with the FDA about that, and these discussions are still ongoing. We will, within the next couple of days, actually file with the European authorities.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

And now we've received a follow-up question of Thomas Flaten of Lake Street Capital Markets.

--------------------------------------------------------------------------------

Thomas Flaten, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [15]

--------------------------------------------------------------------------------

Just a follow up on that last question. In the half year report, there's a -- I think it states that FDA submission will be made in the third quarter of '19. Is that still your expectation based on your response to that last question?

--------------------------------------------------------------------------------

Hermann Lübbert, Biofrontera AG - Co-Founder, Chairman of the Executive Board & CEO [16]

--------------------------------------------------------------------------------

It is -- yes, it is the expectation, but before we have the answer of the FDA whether they agree to that, I cannot further comment on it.

--------------------------------------------------------------------------------

Thomas Flaten, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [17]

--------------------------------------------------------------------------------

Got it. And then with respect to development in basal cell carcinoma and acne, could you provide a little bit more timing or update specifically around the enrollment in BCC? I know originally the expectation had been that it'll be completed in the first half of next year. Is that still the plan?

--------------------------------------------------------------------------------

Hermann Lübbert, Biofrontera AG - Co-Founder, Chairman of the Executive Board & CEO [18]

--------------------------------------------------------------------------------

Yes, that's still the plan. Enrollment into the BCC trial is not easy because the FDA requests, as a primary endpoint, lesions that are actually dissected after treatment and then histologically analyzed and fully cleared. So basically, a patient would go through all the treatment protocol within the clinical study to then, by the end, have the entire region dissected and then histologically analyzed. So for the patient, that's what he could have had in the first place. So it's a major inconvenience for the patient to go through the protocol and then basically, by the end, have the same situation that he could have had in the first place. That is something that the FDA has required, and we are, of course, doing that, but it's difficult for our clinical centers to actually find the patients who agree to that.

--------------------------------------------------------------------------------

Thomas Flaten, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [19]

--------------------------------------------------------------------------------

And then one final follow-up probably for Christoph. You had mentioned in your comments that you have now begun focusing on non-PDT dermatology offices. Can you give a little bit of color on pushback that you're receiving or success stories or just anything to inform how that effort is going?

--------------------------------------------------------------------------------

Christoph Dünwald, Biofrontera AG - Chief Commercial Officer, Head of Sales & Marketing and Additional Member of Management Board [20]

--------------------------------------------------------------------------------

Yes. So we do believe that the right strategy for us is really broaden the base of the doctors that are offering PDT. And due to maybe their experiences they made in the past and everything, they do not offer PDT or have not done so. So this is probably a little bit slower than if you have a big PDT practice and people like your drug or like the formulation better that you can offer. So it is really why we have to develop these smaller offices. And it is time-consuming, and it's probably slower, but we do believe that, that, in the future, will really give us a bigger base for our business. But of course, they will not start with buying huge quantities. We have to explain the light and PDT. What is helping is actually the CPT codes that have been revised once we came to the market and PDT now is profitable -- is a profitable business for them. And so once they understand that they can offer actually the best treatment for the patient, but also make some money, they have good argument. So that is -- unfortunately, that is not overnight. It is one customer at a time, right?

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

Thank you. As there are no further questions, I would hand over to you.

--------------------------------------------------------------------------------

Hermann Lübbert, Biofrontera AG - Co-Founder, Chairman of the Executive Board & CEO [22]

--------------------------------------------------------------------------------

Yes. I would like to say thank you, again, for participating in our call and taking the time for Biofrontera. Thank you very much.

--------------------------------------------------------------------------------

Thomas Schaffer, Biofrontera AG - CFO & Member of the Executive Board [23]

--------------------------------------------------------------------------------

Thank you very much, everyone.

--------------------------------------------------------------------------------

Christoph Dünwald, Biofrontera AG - Chief Commercial Officer, Head of Sales & Marketing and Additional Member of Management Board [24]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.