Welcome to the Biofrontera Inc. Third Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Pamela Keck, Head of IR. Please go ahead..

Thank you, Matt. Good afternoon. And welcome to Biofrontera Inc. third quarter 2021 conference call. Please note that certain information discussed on the call today is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that Biofrontera's management will be making forward-looking statements.

And 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.

This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, November 30, 2021. Biofrontera undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

During today’s call there will also be reference to certain non-GAAP financial measures. Biofrontera release these measures provide you all information for investors, yet should not be considered as a substitute for GAAP, nor should they be viewed as a substitute for operating results determined in accordance with GAAP.

A reconciliation of non-GAAP to GAAP results is included in this morning’s press release. And with that I would like to turn the call over to Hermann Lübbert, Executive Chairman of Biofrontera Inc. Hermann, please go ahead..

Yes, thank you, Pamela. And good afternoon, everyone. Welcome to Biofrontera Inc.’s first quarterly conference call. I would like to start the call with a brief background on Biofrontera Inc. which became a publicly traded company just about one month ago. Biofrontera Inc. was founded in 2015 as the U.S.

commercial arm of the Germany-based, parent company, Biofrontera AG to provide Biofrontera Inc. with the financial resources necessary to expand its marketing and sales activities the parent company decided to allow an independent listing on Nasdaq.

Our business rests on long-lasting, exclusive licenses to market and sell two prescription drugs in the United States. Both drugs serve multi-billion-dollar accessible markets and the listing allows raising the resources required to build marketing and sales within Biofrontera Inc. such that we can address these huge markets effectively.

In addition, the listing on Nasdaq offers us the opportunity to flexibly exploit market opportunities or cover short term financial needs such as in the case of the recent $15 million private placement we announced yesterday. The future of the entire Biofrontera Group clearly lies in the U.S.

market as this is where our products face the greatest commercial potential. Significantly increasing marketing and sales efforts here is therefore the cornerstone for successful corporate growth. As some of you may know, I am the Founder of Biofrontera AG, the German parent company, and have been as CEO since inception.

After originally agreeing to extend my term of office on the Management Board of Biofrontera AG until December 31, 2022, I have decided to remain at the disposal of the Group for a further three years. However, I would like to devote these three years to where I see the greatest benefit for the entire group, the growth engine, Biofrontera Inc.

In view of the separation of the two Biofrontera companies, I feel I cannot effectively serve on both boards. Therefore, earlier this month I submitted my request for early retirement as CEO and member of the management board of the Supervisory Board of Biofrontera AG.

Once the Supervisory Board of Biofrontera AG has released me from my duties on the Board of Biofrontera AG, I will fully devote myself to my duties as Executive Chairman of Biofrontera Inc. Joining me today is Erica Monaco, Chief Executive Officer of Biofrontera Inc.

Erica will provide a more detailed overview of the business, our strategy and our third quarter financial results.

Erica has shown outstanding leadership and has been a key contributor to our success in the United States from the earlier stages, from the development of the business structure processes and partnerships required to operate in growth to the launch of our license products and our commercial success in the markets.

With that, I'll turn the call over to Erica..

First, expanding sales of our principal product in Ameluz in combination with the BF-RhodoLED for the treatment of AK on the face and scalp and positioning Ameluz as the leading PDT product by growing our sales and marketing infrastructure.

Second, expanding sales of that for treatment of impetigo by improving the market positioning of our licensed product. And third, leveraging the potential for future approvals and label extensions of our pipeline products through our existing license agreements.

Our market expansion strategy is based on bolstering awareness of our products through medical recognition, data driven sales strategies, and a robust and dynamic commercial infrastructure.

We intend to optimize our salesforce through more sales territories strengthening of our medical affairs and becoming a trusted partner in the medical communities through scientific data publication, KOL action, and industry support. Now, let me introduce you to our unlicensed products, starting with Ameluz.

As mentioned, our principal product is Ameluz. Prescription drug is approved for use in combination with our BF-RhodoLED lamp photodynamic therapy or PDT as we call it. For the lesion directed and field directed treatment of keratosis so a piece of mild-to-moderate severity on the face and scale.

Keratosis are superficial potentially precancerous skin lesion as chronic size exposure that may left untreated develop into potentially life-threatening skin cancers called squamous cell carcinoma, AK lesions typically appear on sun exposed areas, such as the face, bald, scalp, arms of the back of the hands.

If you're a hyperpigmented spots that are often elevated, flaky, and rough in texture. According to the Skin Cancer Foundation, actinic keratosis affects approximately 58 million people in the United States and if left untreated up to 1% of those AK lesions could develop a disclaimer cell carcinoma every year.

In 2020, an estimated 12.7 million treatments were performed for actinic keratosis. The most common treatment remains cryotherapy with an approximate market share of 86%. Topical drugs should the treatment of AKs had a market share of about 12% in 2020 followed by PDT treatments with a 2% share of the market.

Despite its market dominance, cryotherapy poses significant disadvantages as a treatment option for AKs as compared for AK, sorry, as a treatment option for AKs compared to PDT therapy. As such the opportunity to strategically target cryotherapy market share is a key focus in our commercial efforts.

We see the opportunity to expand the PDT market as a treatment for AK as particularly attractive in patients with more than 15 lesions. We believe there is a treatment guideline pressure towards field directed therapy, as opposed to single lesion therapy, such as with cryotherapy, which may also help further our cells of Ameluz.

Our second licensed prescription drug product is Xepi. Topical antibiotic was the treatment of impetigo, a common skin infection caused by bacteria. Currently no antibiotic resistance against that is known, and that has been specifically approved by the FDA for resistant strains, such as mucosa.

And the FDA label covers the use in adults and children two months and older. Impetigo is a highly contagious bacterial skin infection. It occurs most frequently in children ages two to five, the pupil of any age can be affected. Impetigo causes red sores and most often appear on the face, neck, arms and legs.

Anyone can contract impetigo and people can get it more than once. Although impetigo is a year-round disease, it occurs most often during the warmer weather months, there are more than three million cases of impetigo in the United States every year.

In 2020, more than 13 million prescriptions were written for drugs and indications would that be – can be effective. And one of our key advantages is that about 80% of patients with commercial insurance are likely covered with Xepi.

Xepi is distributed through specialty pharmacies and is generally covered by most commercial payers without pre-approval or similar requirements. We believe there is considerable market potential for Xepi in the coming years. Moving on to an update on our ongoing clinical studies.

Our clinical development program is designed to complement our commercial strategy by expanding the market positioning of our PDT product Ameluz providing more value to patients, broadening the total addressable market and offering more favorable treatment options.

Studies are performed by the Biofrontera Group and indirectly financed by us to the license and supply agreement by Ameluz is existing between our companies. We recently announced clinical site initiations for two studies.

These include seven sites for a Phase 2b study for the treatment of moderate-to-severe acne in adults with Ameluz as well as eight sites for Phase 1 study evaluating the safety of PDT with simultaneous application of 3 tubes of Ameluz. The acne study will enroll 126 adults with moderate-to-severe acne who will be treated with Ameluz PDT or placebo.

The efficacy of Ameluz PDT will be tested with the incubation durations of one and three hours compared with placebo. The primary endpoint is the change in number of inflammatory lesions and improvement in symptoms as assessed by the physicians conducting the study.

The second study will evaluate the safety and tolerability of Ameluz in the treatment of AK located on the face and scalp with PDT together with our new larger RhodoLED XL lamp. That study will enroll 100 patients with mild-to-severe AKs each patient will receive the content of three tubes of Ameluz for field directed treatment.

This study follows a maximum usage pharmacokinetic study completed in early 2021. As we announced in June, the results of the PK study were presented to the FDA.

In that meeting the FDA requested another safety study focusing on transient application sites effects before allowing the amendment of the product information to be changed to three tubes per treatment. Currently the product information limits the use to one tube of Ameluz per treatment.

Both studies are focused on optimizing market positioning and expanding market share for Ameluz and both studies have commenced with site initiations underway. We expect patient recruitment to begin before the end of the year.

In addition, we have an ongoing Phase 3 study in the United States to evaluate Ameluz in combination with PDT for the treatment of superficial basal cell carcinoma. We look forward to these studies concluding. And with that, I would like to conclude our business updates.

Thank you to our shareholders and to all who are taking the time to participate in this conference call. I would like to now open the line to questions..

[Operator Instructions] While we assemble our roster, please let me pass the call to Erica Monaco for some remarks..

Thanks, Matt. Yeah, while we're waiting for the first question, I would just like to mention that as we establish our authority in the medical dermatology community. We look forward to our clinical trial results being published and expanding our market presence through supporting medical conferences and meeting with physicians and invest alike.

This coming January Biofrontera will be participating at both the Winter Clinical Dermatology Conference and the Maui Derm Dermatologist Conference both in person meetings in Hawaii. We look forward to announcing more news about our participation there as we get closer to these conferences. Thank you. Okay, so thanks Matt.

We can – I'm ready for the questions now..

Thank you. Our first question will come from Bruce Jackson with The Benchmark Company. Please go ahead..

Hi, good afternoon. Thanks for taking my questions. If you could just start-off with maybe a housekeeping question on the share account. So, after the IPO we started 11.6.

Can you tell us what the base number of shares are right now? And then how many warrants are still outstanding?.

So settled as of – we're still in the mix of settling, but it should be summer around 12.245 I believe. There's still a bit of activity swirling today that we're not sure if it has settled..

Okay.

And then do you have a rough number for the outstanding number of warrants?.

I don't have that readily available, as I said, there have been a handful coming in live so we can certainly get back to you..

Okay.

And so, you mentioned in the press release that the share of Biofrontera AG is going to be around 52%, 53%, something like that in the press release?.

We think that with some of the warrants now exercised, this is a moving target and right now we; question is of course, does it go below 50%? And we don't know that yet..

Okay. Fair enough.

And then just to wrap up with the litigation expenses; is that all of litigation expense that's going to be in the Biofrontera income statement or is there anything left to recognized in the future?.

That is everything..

Okay. Perfect. All right. I'll hop back in queue..

[Operator Instructions] Our next question will come from Jonathan Aschoff with ROTH Capital Partners. Please go ahead..

Thank you. Hello and congrats guys on this has been a severe balance sheet fortification.

Can you tell us some specifics as you're willing to get about what you plan to do and spend to increase the sales effort from now to maybe year-round 2022?.

Jonathan, we cannot hear you? We heard you well when you started and then you sort of disappeared?.

Okay.

Can you hear me now?.

Yes..

Okay. So, can you tell me some specifics to whatever extent you can, about what you plan to do and how much you plan to spend to increase the sales effort in the U.S.

from here let's say to the end of next year?.

Sure. I don't know how specific I can be, because it is sort of a moving target based on the timing of the funds coming in. So, we are at – we're definitely looking to expand the sales force. We're at 32 heads right now and over time we want to get that above 50.

I don't know if we will expand as rapidly – perhaps mid-year, next year we will see a good chunk of that eaten away at. The idea is to demonstrate rapid growth and expansion, but the timing should be structured such that it doesn't impact our ongoing operations..

Okay.

And can you say much about the BCC trial timing or is the trial design just very, very difficult to make predictions with?.

The trial design is certainly a very difficult trial design because the FDA has requested the entire region of the skin where the BCC was to be dissected and then – and then sliced up and looked at by histology. So that leaves the patient with the scar.

And so, it's difficult to find patients who want to go through the process and then they have a scar anyway. This is why recruitment has been slow. We started patient recruitment, the first patient, I think, in the end of 2018. So, we are already three years into the study. But we do think that we will be completing patient recruitment next year..

Okay. That's helpful. So, guys, as per my model, I have your pro forma cash that I have about $36.7 million, that's the warrants, the private, as well as the IPO and the little bit you had at the end of the quarter. I mean, I've got that going much longer than 2022.

So, what am I missing is at least the next 12 months, just a lawyer statement or does it actually have any bearing to how long that cash might last?.

Say that again just the what's the specific question about the lawyer statement?.

I'm just saying to say it lasts at least the next 12 months, is that just some boilerplate legal statement, or do you clearly have cash that's going to last substantially more than the next 12 months?.

Yes. With the pipe investment that’s settled, that we announced yesterday and the warrants that have been exercised, we have enough funds to last the next 12 months. That's not a boilerplate..

Okay.

So, you would anticipate on spending that the cash on hand at roughly 36, some odd million dollars over the next 12 months?.

So, I don't know that we – as I said, this is a moving target. Our ultimate goal is to grow the business as rapidly as possible, but with the balancing act to make sure that our operating funds are sufficient. So, the growth strategy needs to be able to be supported by the funds. So, the timing of that, I don't want to commit to any specifics..

Okay. And well, that is it. Thank you very much..

Our next question is a follow-up from Bruce Jackson with the Benchmark Company. Please go ahead..

Hi, thanks for the follow-up. I wanted to talk about the salesforce just a little bit more.

So, once you get the new people on hired, how long does it take for them to become seasoned and fully productive?.

Yes, so that's a good question, actually. Minimum it takes extensive training over a couple of months. We like to have somebody fully functioning by the six-month mark. But to become a fully saturated rep in the marketplace, I think, we're still learning that.

As we grow the business, we really don't know the answer of what the true potential is of a fully seasoned rep. So, we hope to grow not only our new reps to a certain level, but our existing reps as well..

Okay.

And then, so as we're looking ahead to 2022 in terms of putting together the way that sales might ramp, should we be assuming that things start out kind of the current growth trajectory and then as the new sales people get added in, then we could see some acceleration at some point after that?.

I think that's a fair question. I would say yes. We have a really nice strategy to focus on our existing customer base plus expansion into the cryotherapy space as we discussed.

So, in terms of growth, it's not as critical that our people are trained, it's more critical that our strategy is aligned and how we target them with our existing salesforce versus our new should be similar. So, I would think the growth will be a little bit more linear than you are thinking..

Okay. Okay, great. Thank you very much..

Our next question will come from Thomas Flaten with Lake Street Capital Markets. Please go ahead..

Hey guys. Thanks for taking the question.

Just I was curious, given that Biofrontera AG is charged with the clinical development, what obligations do you have under your – or what obligations do they have under your license agreement for Ameluz to continue to fulfill those obligations, or do they have the power to pull the plug on any of those development projects at their discretion or is there some joint operating committee that runs those?.

So, I'll let Hermann comment as well since he is here with and can speak for both, but they are obligated to fulfil under the license and supply agreement because there is a beneficial need for our future success here.

And if they are to not produce under our expectations for this, we do have rights within the agreement to come in and take control of either relationships or processes as needed to ensure that these continue on..

Yes. So, if they don't – if they discontinue the clinical trials or don't start them, then Biofrontera Inc. can actually take over through the clinical trials and then simply subtract all the cost that Biofrontera Inc. has because of those trials from the transfer trails for Ameluz..

Great. And then just a mechanical question. So, the legal settlement announcement came out this week but you posted the charge for September 30.

Can you just explain the timing of the settlement and the accounting around that?.

Sure, yes. So, the settlement took place yesterday morning. But because we had not yet filed our Q3 earnings and this was a not known probable, estimatable, number, we needed to book it as a contingency at September 30. So that was just an accounting rule and requirement. But this settlement did take place yesterday..

Great, appreciate it. Thank you, guys..

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks..

Thank you, Matt. And thank you again, everyone for joining us this afternoon for our first quarterly conference call as a publicly traded U.S. company. I trust that we've shared our enthusiasm for the future of our product portfolio and Biofrontera’s position within the dermatology community.

We look forward to speaking with you all again, when we report our annual results in March. In the meantime, thank you and have a nice evening..

Thank you..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..