UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO

RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of February 2021

 

Commission File Number: 001-38396

 

BIOFRONTERA AG

(Registrant’s name / Translation of registrant’s name into English)

 

Hemmelrather Weg 201, D-51377 Leverkusen Germany

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F [X] Form:40-F [  ]

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): N/A

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): N/A

 

 

 

 

 

 

Exhibit 3.1 of this report on Form 6-K shall be deemed to be incorporated by reference in the registration statements of Biofrontera AG on Form S-8 (No. 333-251751) and Form F-3 (No. 333-236021) (including any prospectuses forming a part of such registration statement) and to be a part thereof from the date on which this report is filed, in each case to the extent not superseded by documents or reports subsequently filed or furnished to the U.S. Securities and Exchange Commission.

 

EXHIBITS

 

Exhibit Number   Description
     
3.1   Articles of Association of Biofrontera AG
99.1   Six month financial statements
99.2   Business Developments; Operating and Financial Review and Prospects
99.3   Share Loan Agreement dated February 4, 2021, between Maruho Deutschland GmbH and Quirin Privatbank AG
99.4*   License Agreement dated April 20, 2020, between Biofrontera AG and Maruho Co. Ltd.
99.5   Employment Agreement – Ludwig Lutter (English Translation)
101.INS   XBRL Instance File
101.SCH   XBRL Schema File
101.CAL   XBRL Calculation File
101.DEF   XBRL Definition File
101.LAB   XBRL Labels File
101.PRE   XBRL Presentation File

 

*Certain confidential portions of this exhibit have been omitted because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed. 

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  BIOFRONTERA AG
     
  By: /s/ Hermann Lübbert
  Name: Hermann Lübbert
  Title: Chief Executive Officer
     
  By: /s/ Thomas Schaffer
  Name: Thomas Schaffer
  Title: Chief Financial Officer

 

Date: February 8, 2021

 

 

 

Exhibit 3.1

 

Certificate
Pursuant to § 181 Para. 1 Sentence 2 of the German Stock Corporation Act (AktG)

 

I hereby certify that the wording presented below of the Articles of Association of

 

Biofrontera AG

with its Head Office in Leverkusen

 

contains the provisions of the Articles of Association amended by resolution of the Supervisory Board of 30 November 2020, and that the provisions of the Articles of Association not amended by the Supervisory Board resolution of 30 November 2020 match the complete wording of these provisions of the Articles of Association most recently submitted to the Commercial Register.

 

By viewing the Register files, I have satisfactorily ascertained the complete wording of the Articles of Association most recently submitted to the Commercial Register.

 

Leverkusen, 02 December 2020

 

[Signature]

 

[Stamp: Dr Thilo Weimer  
Notary in Leverkusen]  

 

 
 

 

ARTICLES OF ASSOCIATION

 

Of

 

Biofrontera AG

 

I. General Provisions

 

§ 1

Company Name

The Company’s name is:

                                              Biofrontera AG

 

§ 2

Head Office

The Company’s Head Office is located in Leverkusen.

 

§ 3

Purpose of the Company

 

(1) The Company’s purpose is to research, develop and sell pharmaceuticals, and to assume the status of a holding company, i.e. to acquire and manage companies or stakes in companies.
   
(2) The Company can perform all transactions suitable for promoting the Company’s purpose, either directly or indirectly.
   
(3) The Company can establish branches and hold stakes in companies of the same or a similar kind, both domestically and abroad. It can unite companies in which it holds stakes under its single management, or it can restrict itself to managing its own stakes. It can outsource or transfer some or all of its operations to associated companies.

 

§ 4

Financial Year

The financial year is the calendar year.

 

§ 5

Duration of the Company

The company is established for an indefinite period.

 

 
 

 

§ 6

Announcements and Information

 

(1) The Company’s announcements are published in the German Electronic Federal Gazette, unless otherwise required by law.
   
(2)  Information can also be sent electronically to the holders of approved Company securities. In this context, approved securities are those that are approved domestically for trading on an organised market, within the meaning of § 2 Para. 5 of the German Securities Trading Act.

 

II. Share Capital and Shares

 

§ 7

Share Capital

 

(1) The Company’s share capital amounts to EUR 47,747,515 (in words: forty-seven million seven hundred and forty seven thousand five hundred and fifteen euros) and is divided into 47,747,515 individual shares (share capital).
   
(2) The share capital is conditionally increased by up to EUR 1,359,864, through the issue of 1,359,864 new registered no-par-value ordinary shares (individual shares) (Conditional Capital I). The conditional capital increase serves (i) to ensure that, in accordance with the bond conditions, option rights are granted and option obligations are agreed and/or (ii) to ensure that, in accordance with the bond conditions, conversion rights and obligations are fulfilled, where these are in each case issued, agreed or guaranteed by the Company or via its direct or indirect majority holdings (associated companies) on the basis of the authorisation of the General Meeting of Shareholders of 28th August 2015, in the period up to 27th August 2020.
   
  The conditional capital increase must be implemented only in the event of the issue of financial instruments on the basis of the authorisation of the General Meeting of Shareholders of 28th August 2015 and only if the holders and/or creditors of the financial instruments issued by the Company make use of their option or conversion rights or fulfil their option or conversion obligations. The new shares entitle their holders to dividends of Company profits from the beginning of the financial year in which they are issued.
   
  The Management Board is authorised, subject to the approval of the Supervisory Board, to make further stipulations regarding the implementation of the conditional capital increase. The Supervisory Board is authorised to amend § 7 of the Articles of Association according to each use of conditional capital and after all option or conversion periods have expired.

 

 
 

 

(3)
   
  (a) [cancelled]

 

(4) In the event of a capital increase, the way in which the profit dividends of the new shares are regulated may deviate from § 60 of the German Stock Corporation Act.
   
(5) [cancelled]
   
(6) The Company’s share capital is conditionally increased by EUR 249,050, through the issue of up to 249,050 no-par-value registered shares (individual shares) (Conditional Capital III). The conditional capital increase serves exclusively to fulfil options granted until 1st July 2015 pursuant to the authorisation by resolution of the General Meeting of Shareholders of 2nd July 2010. The conditional capital increase will be implemented only if the holders of the options issued exercise their right to purchase shares in the Company, and if the Company does not grant its own shares or pay a cash settlement in order to fulfil the options. The new shares entitle their holders to dividends from Company profits from the beginning of the financial year in which they are created as a result of the exercise of options.
   
(7) [cancelled]
   
(8) The Company’s share capital is conditionally increased by [up to] EUR 1,559,984.00, through the issue of up to 1,559,984 no-par-value registered shares (individual shares) (Conditional Capital V). The conditional capital increase serves exclusively to fulfil option rights granted until 27th August 2020 on the basis of the authorisation of the General Meeting of Shareholders of 28th August 2015. The conditional capital increase will be implemented only if the holders of the options issued exercise their right to purchase shares in the Company, and if the Company does not grant its own shares or pay a cash settlement in order to fulfil the options. The new shares entitle their holders to dividends from Company profits from the beginning of the financial year in which they are created as a result of the exercise of options. The Supervisory Board is authorised to amend § 7 of the Articles of Association according to each use of the conditional capital and after all option or conversion periods have expired.

 

 
 

 

§ 8

Shares

 

  (1) The shares are registered shares.
     
  (2) Any right for shareholders to securitise their stakes or individual shares is excluded. The form and content of the share certificates is specified by the Management Board, subject to the approval of the Supervisory Board. The Company can securitise multiple individual shares in the same share certificates (global shares, global certificates). The same applies to dividend warrants and renewal certificates, as well as bonds, interest coupons and renewal certificates.
   
  (3) If a capital increase resolution does not contain any provision as to whether or not the new shares are bearer shares or registered shares, they are registered shares.

 

III. Management Board

 

§ 9

Composition of the Management Board, and General Management

 

  (1) The Management Board consists of one or several individuals. The number of members of the Management Board is determined by the Supervisory Board.
     
  (2) The members of the Management Board are appointed and dismissed by the Supervisory Board. The Supervisory Board can appoint a member of the Management Board as the Chairperson or Speaker of the Management Board and another member as the Deputy Chairperson.
     
  (3) The Management Board establishes its own Rules of Procedure, unless the Supervisory Board issues Rules of Procedure for the Management Board.

 

§ 10

Representation

 

If several members of the Management Board are appointed, the Company can be represented jointly by two members of the Management Board, or by one member of the Management Board in conjunction with a proxy. If only one member of the Management Board is appointed, s/he represents the Company alone. The Supervisory Board can authorise one, several or all members of the Management Board to represent the Company alone. The Supervisory Board can exempt members of the Management Board, either generally or in individual cases, from the prohibition on multiple representation pursuant to § 181 2nd Alt. BGB (Second Alternative German Civil Code); § 112 AktG (German Stock Corporation Act) is not affected.

 

§ 11

General Management

 

The Management Board carries out the Company’s business in accordance with the law, the Articles of Association and the Rules of Procedure.

 

 
 

 

IV. Supervisory Board

 

§ 12

Composition and Term of Office of the Supervisory Board

 

  (1) The Supervisory Board consists of six members.
     
  (2) The members of the Supervisory Board are elected by the General Meeting of Shareholders. The members of the Supervisory Board are elected for a term lasting until the end of the General Meeting of Shareholders which resolves on whether or not to discharge them for the fourth financial year after the beginning of their term of office, provided that the General Meeting of Shareholders does not stipulate a shorter term of office at the time of the election. The financial year in which their term of office begins is not included. It is permissible for members to be re-elected several times.
     
  (3) At the same time as electing members of the Supervisory Board, the General Meeting of Shareholders can also elect substitute members who will become members of the Supervisory Board – in a way to be determined at the time of the election – in the event that existing members of the Supervisory Board leave their posts before the end of their term of office.
     
  (4) If a member elected by the General Meeting of Shareholders quits the Supervisory Board before the end of his/her term of office, a new election must be held for the vacant post at the next General Meeting of Shareholders, unless a substitute member has already been promoted to this post. The term of office of the newly-elected member or the promoted substitute member is the same as the remaining term of office of the departed member of the Supervisory Board.

 

§ 13

Resignation/Dismissal from the Supervisory Board

 

Each member of the Supervisory Board can resign from his/her post by addressing a written notification to this effect to the Management Board, subject to one month’s notice to the end of the month. The right to resign from his/her post for good cause is not affected. The dismissal of a member of the Supervisory Board elected by the shareholders must have the approval of a majority of at least three quarters of votes cast.

 

 
 

 

§ 14

Chairperson and Rules of Procedure of the Supervisory Board

 

  (1) From among its members, the Supervisory Board elects a Chairperson and a Deputy Chairperson. The election follows each General Meeting of Shareholders in which members of the Supervisory Board to be elected by the General Meeting of Shareholders have been elected by the shareholders, in a meeting that is held without being specially convened. A member requires only a simple majority in order to be elected. In the event of a tie, the outcome is decided by the drawing of lots.
     
  (2) If the Chairperson or Deputy Chairperson of the Supervisory Board quits his/her post before the end of his/her term of office, the Supervisory Board will elect a successor at its next meeting. If the Chairperson of the Supervisory Board quits prematurely, the Deputy Chairperson will convene the Supervisory Board.
     
  (3) The Supervisory Board establishes its own Rules of Procedure.

 

§ 15

Convening the Supervisory Board

 

  (1) The Supervisory Board must hold two meetings each calendar year. It also holds additional meetings if required by law or advisable on commercial grounds.
     
  (2) The meetings of the Supervisory Board are convened in writing with at least 14 days’ notice by the Chairperson or, if s/he is prevented from doing so, by his/her Deputy. The date on which the invitation is sent and that of the meeting itself are not included in the notice period. In an emergency, the notice period can be reduced as appropriate, and the meeting can be convened verbally or by telephone. The meetings of the Supervisory Board take place at the Company’s Head Office or at another location agreed by all the members of the Supervisory Board. The items on the agenda must be included with the invitation.

 

§ 16

Resolutions of the Supervisory Board

 

  (1) Resolutions of the Supervisory Board are generally passed in meetings. They can also be passed without convening a meeting, and votes can also be cast verbally, in writing, by telephone, by fax, electronically or by video conference, if the Chairperson of the Supervisory Board prescribes this procedure, and fewer than three members of the Supervisory Board immediately object to it.

 

 
 

 

 

  (2) Resolutions of the Supervisory Board require a majority of votes cast, unless otherwise required by law. In the event of a tie, there will be a second vote on the same proposed resolution, and if this second vote results in a tie, the Chairperson will have two votes.
     
  (3) Minutes must be kept of the resolutions of the Supervisory Board. The minutes must be signed by the Chairperson of the Supervisory Board. The minutes must include the place and date of the meeting, its participants, the items on the agenda, the resolutions of the Supervisory Board (including the Chairperson’s statement concerning the result of the resolution) and the significant contents of the negotiations. The minutes must be forwarded immediately to all members of the Supervisory Board.
  (4) Declarations of intent by the Supervisory Board are issued by the Chairperson in the name of the Supervisory Board. The Chairperson, but not every member, is authorised to accept declarations for the Supervisory Board.
     
  (5) The Supervisory Board is able to pass resolutions provided that at least three members of the Supervisory Board participate in passing the resolution. A member is deemed to have participated in passing the resolution even if s/he abstains from voting. Absent members of the Supervisory Board can also participate in passing the resolution if they arrange for other members of the Supervisory Board to submit written votes on their behalf.
     
  (6) The Supervisory Board can resolve to make amendments to the Articles of Association that affect only the wording.

 

§ 17

Committees of the Supervisory Board

 

The Supervisory Board can invite experts and other providers of information to its meetings. It can transfer individual responsibilities within its remit to committees or individuals from among its members, provided that this does not contravene any legal provisions.

 

 
 

 

§ 18

Remuneration of the Supervisory Board

 

  (1) Each member of the Supervisory Board receives a fixed annual salary component of € 20,000. The Chairperson receives twice, and his/her Deputy receives one-and-a-half times of such remuneration.
     
  (2) The members of the Supervisory Board receive the following additional remuneration for their work in committees of the Supervisory Board:
     
    a. Each member of the Audit Committee receives EUR 3,000, the Chairman of the Audit Committee receives twice this amount.
       
    b. Each member of another committee receives EUR 2,000, the chairman of another committee receives twice this amount. Membership of the nomination committee is not taken into account.
       
      Committee activities are considered for a maximum of two committees. If this number is exceeded, the two highest remunerated memberships are decisive.
       
  (3) Supervisory Board members who only belong to the Supervisory Board or a committee for part of the financial year or who hold the chair or deputy chair of the Supervisory Board or the chair of a committee shall receive remuneration pro rata temporis.
     
  (4) In addition, the members of the Supervisory Board shall receive an attendance fee of EUR 1,000 for each attendance at a meeting of the Supervisory Board or its committees. Participation in telephone and video conferences or participation in a meeting by means of a telephone and video conference shall be remunerated accordingly. For several meetings - whether of the Supervisory Board or of committees - which take place on one calendar day, attendance fees are paid only once in total.
     
  (5) Furthermore, the members of the Supervisory Board, with the exception of the Chairman and his Deputy, shall receive remuneration of EUR 4,000 for chairing a General Meeting
     
  (6) The remuneration shall be paid at the end of each quarter.
     
  (7) The Company reimburses the Supervisory Board members for expenses incurred in the performance of their duties, including any value added tax (VAT) payable on remuneration and reimbursement of expenses.
     
  (8) The Company includes the performance of the duties of the members of the Supervisory Board in the coverage of a pecuniary loss liability insurance policy taken out by the Company.

 

 
 

 

V. General Meeting of Shareholders

 

§ 19

Venue of the General Meeting of Shareholders

 

The General Meeting of Shareholders takes place at the Company’s Head Office, a German town or city with more than 100,000 inhabitants, or a German stock exchange.

 

§ 20

Convening the General Meeting of Shareholders, and Participation Entitlement

 

  (1) The General Meeting of Shareholders is convened by the Management Board, provided that no other persons are authorised to do so by law. Unless the law permits a shorter notice period, the General Meeting of Shareholders must be convened at least 30 days before it is to be held. The date of the convocation and the date of the General Meeting of Shareholders are not included in the notice period. The notice period for convening the General Meeting of Shareholders is extended by the number of days in the registration period (§ 20 Paragraph 2).
     
  (2) The only shareholders entitled to participate in the General Meeting of Shareholders and exercise their voting rights are those recorded in the Share Register who registered in good time. The registration must reach the Company, at the address designated for this purpose in the convocation, at least six days before the Meeting; but, in derogation from this, the convocation may stipulate a shorter period, to be measured in days, of up to three days (registration period). The date of receipt and the date of the General Meeting of Shareholders are not included. The Management Board may make stipulations regarding the form of registration in the convocation – in particular, as to whether registration must be submitted in writing, by fax, in text form or in an (electronic) way to be specified by the Company.
     
  (3) The General Meeting of Shareholders, which must decide whether or not to discharge the Management Board and the Supervisory Board, decide upon the appropriation of earnings, and – if necessary – decide whether or not to approve the annual financial statements, takes place within the first eight months of each financial year.

 

 
 

 

§ 21

Procedure of the General Meeting of Shareholders

 

  (1) The Chairperson of the Supervisory Board, his/her Deputy (if s/he is prevented from doing so), or another member appointed by the Supervisory Board chairs the General Meeting of Shareholders. In the event that no member of the Supervisory Board chairs the General Meeting of Shareholders, the latter will elect its own chairperson.
     
  (2) The chairperson of the General Meeting of Shareholders can decide that the items on the agenda will be discussed in a different order from that indicated in the agenda. S/he also specifies the type and form of voting.
     
  (3) The chairperson of the General Meeting of Shareholders is entitled to set reasonable time limits for the shareholders’ rights to speak and ask questions; in particular, s/he can set a reasonable timetable for the meeting as a whole, for discussions of individual items on the agenda, and for individual speeches and questions.
     
  (4) The members of the Management Board and of the Supervisory Board should be present in person at the General Meeting of Shareholders. Members of the Supervisory Board who are prevented from attending in person for compelling reasons can also participate via video or audio link.
     
  (5) The chairperson of the General Meeting of Shareholders is authorised to permit the video and audio transmission of all or part of the General Meeting of Shareholders in a way to be determined by him/her.

 

§ 22

Passing Resolutions

 

  (1) Each share grants its holder one vote in the General Meeting of Shareholders.
     
  (2) Resolutions of the General Meeting of Shareholders require a simple majority of votes cast in order to be passed, provided that nothing to the contrary is required by the Articles of Association or by law. If, in addition to the simple majority of votes cast, the law prescribes a majority of the share capital represented when the resolution is passed, a simple majority of the share capital represented is sufficient, insofar as this is permitted by law; this applies, in particular, to resolutions pursuant to § 103 AktG (German Stock Corporation Act) (dismissal of members of the Supervisory Board), § 179 AktG (changes to the Articles of Association), § 182 AktG (share capital increase in return for contributions), § 207 AktG (share capital increase using Company resources) and § 221 AktG (in particular, the issue of convertible bonds and income bonds).

 

 
 

 

§ 23

Exercise of Voting Rights by Representatives

 

A shareholder’s voting rights may be exercised by representative proxy. For a proxy to exercise voting rights, a corresponding proxy authorisation must be issued. This proxy authorisation may be issued at any time in writing or by fax; any other forms provided by law for issuing a proxy authorisation, revoking the latter or proving to the Company that authorisation has been granted, in particular, facilitation measures that are compulsory under the law, are not restricted by the Articles of Association. Legal provisions apply to the issue of proxy authorisations to credit institutions, shareholder associations or other persons equated with the latter pursuant to § 135 AktG (German Stock Corporation Act).

 

VI. Financial Reporting and Use of the Annual Surplus

 

§ 24

Financial Reporting

 

The Management Board must compile the annual financial statements (balance sheet, profit and loss account and notes to the financial statements) and the management report, as well as the consolidated financial statements and group management report, and submit them to the Supervisory Board and the auditor within the statutory deadlines. Likewise, the Management Board must submit a proposal for the use of the retained profit to the Supervisory Board. §§ 298 Para. 3 and 315 Para. 3 of the German Commercial Code (HGB) are not affected.

 

§ 25

Use of the Annual Surplus

 

  (1) When the annual financial statements are approved, the Management Board and the Supervisory Board are authorised to place in other reserves either some or all of the annual surplus that remains after deduction of the sums to be placed in the statutory reserve and of losses carried forward. The placement of more than half the annual surplus is not permitted if the other reserves would exceed half the share capital after this placement.
     
  (2) Shareholders’ dividends are calculated in proportion to the size of their share of the share capital.

 

VII. Concluding Provisions

 

§ 26

Expenses relating to foundation and change of form

 

  (1) The Company is the result of the change of legal form of Biofrontera Pharmaceuticals GmbH, which had its Head Office in Leverkusen.
     
  (2) The Company bears the expenses incurred by its change of legal form into a public limited company (Aktiengesellschaft), and by its foundation, up to the sum of EUR 15,000.00.

 

 

 

 

Exhibit 99.1

 

Condensed interim consolidated financial statements as of June 30, 2020

 

Consolidated balance sheet as of June 30, 2020

 

Assets

 

in EUR thousands   June 30, 2020     December 31, 2019  
Non-current assets                
Tangible assets     5,559       5,230  
Intangible assets     20,065       22,848  
Deferred taxes     7,475       7,794  
Total non-current assets     33,099       35,872  
                 
Current assets                
Current financial assets                
Trade receivables     2,191       5,031  
Other financial assets     773       1,077  
Cash and cash equivalents     10,550       11,119  
Total current financial assets     13,514       17,227  
                 
Other current assets                
Inventories     4,384       4,065  
Income tax reimbursement claims     5       4  
Other assets     961       1,195  
Total other current assets     5,350       5,264  
                 
Total current assets     18,864       22,491  
Total assets     51,963       58,363  

 

Biofrontera AG Half-year financial report as of June 30, 2020
 

 

Equity and liabilities

 

in EUR thousands   June 30, 2020     December 31, 2019  
Equity                
Subscribed capital     44,849       44,849  
Capital reserve     118,291       118,103  
Capital reserve from foreign currency conversion adjustments     (123 )     (288 )
Loss carried forward     (152,709 )     (145,351 )
Loss for the period     (5,571 )     (7,358 )
Total equity     4,737       9,955  
                 
Non-current liabilities                
Financial debt     22,305       22,110  
Other financial liabilities     16,956       14,720  
Total non-current liabilities     39,261       36,830  
                 
Current liabilities                
Current financial liabilities                
Trade payables     2,240       4,196  
Current financial debt     1,291       1,212  
Other financial liabilities     74       99  
Total current financial liabilities     3,605       5,507  
                 
Other current liabilities                
Income tax     26       11  
Other provisions     2,862       3,495  
Other current liabilities     1,472       2,565  
Total other current liabilities     4,360       6,071  
                 
Total current liabilities     7,965       11,578  
Total equity and liabilities     51,963       58,363  

 

Biofrontera AG Half-year financial report as of June 30, 2020
 

 

Consolidated statement of comprehensive income for the first six months of the fiscal years 2020 and 2019

 

in EUR thousands   6M 2020     6M 2019  
Sales revenue     16,116       13,904  
Cost of sales     (1,491 )     (2,483 )
Gross profit from sales     14,625       11,421  
                 
Operating expenses                
Research and development costs     (2,389 )     (2,322 )
General administrative costs     (4,412 )     (7,768 )
Sales costs     (12,151 )     (14,195 )
                 
Loss from operations     (4,327 )     (12,864 )
                 
Interest expenses     (439 )     (1,057 )
Effective interest expenses     (807 )     (497 )
Interest income     531       209  
Other expenses     (301 )     (188 )
Other income     110       6,101  
Other income from the PPA (Badwill)           17,323  
                 
Loss before income tax     (5,233 )     9,027  
Income tax     (338 )     (26 )
Loss for the period     (5,571 )     9,001  
                 
Expenses and income not included in profit/loss                
Items which may in future be regrouped into the profit and loss statement under certain conditions.                
Translation differences resulting from the conversion of foreign business operations     165       (444 )
Other income total     165       (444 )
                 
Total loss for the period     (5,406 )     8,557  
                 
Basic earnings per share in EUR     (0.12 )     0.20  
Diluted earnings per share in EUR     (0.12 )     0.20  

 

Both the result after income taxes and the total result are fully attributable to the shareholders of Biofrontera AG.

 

Biofrontera AG Half-year financial report as of June 30, 2020
 

 

Consolidated statement of changes in equity for the first six months of the fiscal year 2020 and fiscal year 2019

 

    Number of ordinary shares     Subscribed capital EUR thousands     Capital reserve EUR thousands     Capital from foreign currency conversion adjustments (OCI) EUR thousands     Accumulated loss EUR thousands     Total EUR thousand  
Balance as of January 1, 2019     44,632,674       44,632       117,109       (2 )     (145,383 )     16,356  
Income for the period                             9,001       9,001  
Foreign currency conversion                       (444 )           (444 )
Consolidated result                       (444 )     9,001       8,557  
First-time application of IFRS 16                             33       33  
Conversion of stock options from the stock option program     5,500       6       11                   17  
Increase in capital reserve from the stock option program                 166                   166  
Balance as of June 30, 2019     44,638,174       44,638       117,286       (446 )     (136,349 )     25,129  
Loss for the period                             (16,360 )     (16,360 )
Foreign currency conversion                       158             158  
Consolidated result                       158       (16,360 )     (16,202 )
Conversion from convertible bond 2017/2022     118,841       119       429                   548  
Conversion of stock options from the stock option program     92,350       92       196                   288  
Costs of equity procurement                 (2 )                 (2 )
Increase in capital reserve from the stock option program                 194                   194  
Balance as of December 31, 2019     44,849,365       44,849       118,103       (288 )     (152,709 )     9,955  
                                                 
Balance as of January 1, 2020     44,849,365       44,849       118,103       (288 )     (152,709 )     9,955  
Loss for the period                             (5,571 )     (5,571 )
Foreign currency conversion                       165             165  
Consolidated result                       165       (5,571 )     (5,406 )
Increase in capital reserve from the stock option program                 188                   188  
Balance as of June 30, 2020     44,849,365       44,849       118,291       (123 )     (158,280 )     4,737  

 

Biofrontera AG Half-year financial report as of June 30, 2020
 

 

Consolidated cash flow statements for the first six months of the fiscal years 2020 and 2019

 

in EUR thousands   6M 2020     6M 2019  
Cash flows from operations                
Income (loss) before income tax     (5,233 )     9,027  
Adjustments to reconcile loss before income tax to cash flow into operations                
Income tax     (19 )     (26 )
Financial result     731       1,377  
Depreciation     3,822       1,121  
Non-current provisions and liabilities           (503 )
Losses from disposal of assets     (13 )      
Non-cash (income) and expenses     (117 )     (18,028 )
Changes in operating assets and liabilities                
Trade receivables     2,840       979  
Other assets and income tax assets     537       (3,036 )
Inventories     (319 )     (560 )
Trade payables     (1,956 )     195  
Provisions     (416 )     (159 )
Other liabilities     (1,103 )     (12,260 )
Net cash flow used in operational activities     (1,246 )     (21,873 )
                 
Cash flows from investment activities                
Purchase of intangible and tangible assets     (527 )     (513 )
Business combinations (including cash and cash equivalents)     2,264       20,231  
Proceeds from sale of intangible and tangible assets     27        
Net cash flow from investment activities     1,764       19,718  
                 
Cash flows from financing activities                
Proceeds from draw down of EIB loan           5,000  
Proceeds from exercise of employee stock options           17  
Leasing payments     (744 )     (392 )
Interest paid     (335 )     (347 )
Net cash flows from (used in) financing activities     (1,079 )     4,278  
                 
Net increase/(decrease) in cash and cash equivalents     (561 )     2,123  
Changes from exchange rate differences     (8 )     5  
Cash and cash equivalents at the beginning of the period     11,119       19,451  
Cash and cash equivalents at the end of the period     10,550       21,579  

 

Biofrontera AG Half-year financial report as of June 30, 2020
 

 

Select explanatory notes to the interim consolidated financial statements as of June 30, 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 interim financial statements

 

The interim consolidated financial statements are prepared on a going concern basis. If the improvement of the COVID-19 pandemic - particularly in the USA - and the associated sales recovery fail to materialize or are even less pronounced, the financing requirement would increase and would have to be implemented sooner, even taking into account the expected lower cost burden. However, if coverage of this further financing requirement is not possible in a timely manner, this would result in a threat to the going concern status of the Biofrontera Group. For further details regarding this significant uncertainty in connection with the going concern, we refer to the risk report of the interim group management report.

 

The condensed consolidated interim financial statements of Biofrontera AG as of June 30, 2020 were 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) for “Interim Financial Reporting” according to IAS 34, as they are adopted by the IASB. Accordingly, they do not contain all the information and disclosures required for consolidated financial statements and should therefore be read in conjunction with the consolidated financial statements for the year ended December 31, 2019.

 

On August 26, 2020, the Management Board approved the half-year financial report of Biofrontera AG for publication.

 

Due to commercial rounding, rounding differences in the tables can arise.

 

The interim report as of June 30, 2020 does not contain separate segment reporting, as the activities of the Biofrontera Group are limited to one business segment as defined by IFRS 8. The entire operating activity is focused on the sale of dermatological products, in particular Ameluz® including the complementary products BF-RhodoLED® (PDT-lamp) and Belixos® as well as Xepi®, and is therefore uniformly monitored and controlled internally.

 

Changes in accounting standards

 

For the preparation of the condensed consolidated interim financial statements, the same accounting policies have been applied as for the consolidated financial statements as of December 31, 2019. The new IFRS rules to be applied for the first time as of January 1, 2020 have no material effect on the interim consolidated financial statements.

 

The preparation of the interim consolidated financial statements requires the Management Board to make estimates and assumptions that affect the application of accounting policies in the Group and the presentation of assets and liabilities, income and expenses. The actual amounts may differ from these estimates.

 

Changes to previous estimates due to the impact of the COVID-19 pandemic have occurred with respect to the valuation of the Xepi®license, the purchase price payment from the Maruho earn-out agreement and the EIB loan.

 

The expected proceeds from the sale of Xepi® and the related 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 the resulting delays 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 decline in market capitalization in the first half of 2019, there was a reduction in the performance component of the EIB loan in the first half of 2020 which was recognized in income.

 

Biofrontera AG Half-year financial report as of June 30, 2020
 

 

Basis of consolidation

 

The financial statements as of June 30, 2020 include the financial statements of the parent company, Biofrontera AG, and the subsidiaries in which the parent company holds a direct majority of the voting rights. The companies listed below were included in the consolidated financial statements:

 

  1. Biofrontera Bioscience GmbH, Leverkusen, Germany, with a direct interest of 100%
  2. Biofrontera Pharma GmbH, Leverkusen, Germany, with a direct interest of 100%
  3. Biofrontera Development GmbH, Leverkusen, Germany, with a direct interest of 100%
  4. Biofrontera Neuroscience GmbH, Leverkusen, Germany, with a direct interest of 100%
  5. Biofrontera Inc., Woburn, Massachusetts, USA, with a direct interest of 100%

 

The basis for the consolidation of the companies included in the consolidated financial statements were the interim financial statements of these companies as of June 30, 2020, prepared in accordance with uniform principles (or “Handelsbilanz II” according to IFRS). The financial statements as of June 30, 2020 were prepared on the basis of uniform accounting and valuation principles (IFRS).

 

The subsidiaries are fully consolidated from the date of acquisition. The date of acquisition is the date on which the parent company gained control of these subsidiaries. Subsidiaries are included in the consolidated financial statements until such time as the parent company no longer controls these companies.

 

All intercompany receivables and liabilities as well as income and expenses were eliminated in the course of consolidation. Interim results were eliminated.

 

Significant events in the first six months of 2020

 

The performance of Biofrontera AG in the first half of 2020 was mixed. At the beginning of the year, we were initially able to record a good sales development as well as positive regulatory and clinical developments. We also successfully restructured the global sales and marketing structure. Since mid-March we have had to accept declining sales figures, particularly in the USA, due to the dynamic development of the COVID-19 pandemic. This forced us to implement company-wide cost reduction measures.

 

The Biofrontera Group achieved total sales of EUR 16.1 million for the period from January 1 to June 30, 2020, which represents an increase of 16% compared to sales of EUR 13.9 million in the same period of the previous year. Total revenues include a one-time payment of EUR 6.0 million, which the company received from Maruho Co., Ltd. under the license agreement signed on April 20, 2020. The Group generated revenues from product sales of EUR 9.7 million, a decrease of 30% compared to the first six months of 2019. Overall, revenues in the first half of 2020 and particularly in the second quarter were strongly affected by the effects of the global coronavirus crisis. However, a recovery in sales is expected for the second half of the year.

 

As already explained, the coronavirus crisis has led to a decreasing number of treatments and thus to a sharp drop in sales in our most important market, the USA. On March 20, 2020, the Company announced that it would take comprehensive measures to reduce and control costs during the COVID-19 pandemic.

 

Consequently, Biofrontera had introduced short-time work for all employees in Germany until the end of July 2020. Similar measures were implemented for the subsidiaries in Spain and the UK. Biofrontera Inc, the wholly owned subsidiary in the USA, has also initiated significant cost reduction measures. There, the number of employees was significantly reduced and a furlough program was implemented, under which all employees were obliged to take temporary unpaid leave. In addition, the members of the Management Board of Biofrontera AG and the management of Biofrontera Inc. voluntarily decided to forgo a substantial portion of their salaries.

 

While these cost reduction measures were in effect, the Company was able to ensure full compliance with all regulatory requirements in both medical and financial respects, and to meet all disclosure requirements at all times.

 

The continued uncertain business outlook due to the COVID-19 crisis has had an impact on the valuation of certain assets and liabilities of the Company. Reduced sales of Xepi® have resulted in a different assessment of the medium-term business and profit outlook for Xepi® and, consequently, in a re-evaluation of both the balance sheet value of the Xepi®-license and the purchase price liability to Maruho in the first quarter of 2020.

 

Biofrontera AG Half-year financial report as of June 30, 2020
 

 

Notes to the consolidated balance sheet and consolidated statement of comprehensive income

 

Sales revenue

 

    January 1 – June 30, 2020     January 1 – June 30, 2019  
Sales revenue (in EUR thousands)   Product revenue     Development revenues     Other     Product revenue     Development revenues     Other  
Germany     2,364                   2,154              
Europe     965                   1,357              
U.S.     6,347                   10,231              
Other regions           441       6,000             162        
Total     9,676       441       6,000       13,742       162        

 

Revenue from product revenues generated in the U.S. includes revenue from finance and operating lease agreements concerning the BF-RhodoLED® lamps.

 

In the first six months of 2020, we generated EUR 31 thousand of income from operating leases (previous year period: EUR 41 thousand). We generated income of EUR 75 thousand from finance leases (previous year period: EUR 19 thousand).

 

Personnel costs

 

in EUR thousands   June 30, 2020     June 30, 2019  
Wages and salaries     6,529       10,641  
Social security charges     1,148       1,593  
Costs for pension schemes     161       253  
Total     7,838       12,487  

 

In the reporting period, Biofrontera Group received subsidies for short-time work in the amount of EUR 599 thousand.

 

Intangible assets

 

The value of the balance sheet recognition for the Xepi® license was reviewed as of March 31, 2020 by means of an impairment test, which also takes the current market situation influenced by the COVID-19 pandemic and the resulting delays in the market penetration of Xepi™ into account. As a result, this led to a non-cash impairment of EUR 2,001 thousand, which is reported in sales costs.

 

In determining the utility value as of March 31, 2020, the expected cash flows within the remaining term of the license agreement of 10 years and 7 months were discounted. The cash flows were discounted on the basis of a market interest rate of 9% (previous year 9%).

 

Trade receivables

 

Trade receivables are mainly attributable to the sale of Ameluz®, the PDT-lamp BF-RhodoLED®, Xepi® and the medical cosmetic product Belixos®. It is expected that all trade receivables will be settled within twelve months of the balance sheet date.

 

Value adjustments for doubtful accounts were made in the amount of EUR 53 thousand (previous year: EUR 43 thousand). As in the previous year, there were no overdue, non-adjusted receivables in significant amounts on the reporting date.

 

Biofrontera AG Half-year financial report as of June 30, 2020
 

 

Of the receivables, EUR 160 thousand (previous year: EUR 153 thousand) relate to finance leases for PDT-lamps.

 

Inventories

 

in EUR thousands   June 30, 2020     December 31, 2019  
Inventories                
Raw materials     1,021       893  
Unfinished goods     362       201  
Finished goods and products     3,001       2,971  
Total     4,384       4,065  

 

During the reporting period, impairment losses on inventories were recognized in the amount of EUR 5 thousand (previous year: EUR 24 thousand).

 

Deferred taxes

 

As of June 30, 2020, the company reported deferred taxes on losses carried forward in the amount of EUR 7,475 thousand (previous year: EUR 7,794 thousand). These are capitalized to the extent that they are likely to be offset against future tax profits. This is based on a planning period of five years. These relate to the deferred tax assets to be recognized on loss carry-forwards for Biofrontera Pharma GmbH, which were reduced in the first half of the year due to the utilization of the positive tax result. For the entire year 2020 and also in the future, it can still be assumed that Biofrontera Pharma GmbH will generate positive results and thus use its tax loss carryforwards.

 

Financial liabilities

 

in EUR thousands   June 30, 2020     December 31, 2019  
Non-current financial liabilities                
Convertible bond 2017/2022     1,989       1,977  
EIB loan 2017 tranche     11,869       11,845  
EIB loan 2019 tranche     5,355       5,301  
Leasing liabilities     3,092       2,987  
Total non-current financial liabilities     22,305       22,110  
                 
Total current liabilities     1,291       1,212  

 

Other financial liabilities

 

in EUR thousands   June 30, 2020     December 31, 2019  
Purchase price liability (earn-out and start-up costs)     16,956       14,720  
Current financial liabilities     74       99  

 

Reporting on financial instruments

 

The financial instruments held by the Biofrontera Group on the balance sheet date primarily consist of cash and cash equivalents, trade payables and receivables, other non-current financial liabilities as well as financial debt. Biofrontera does not deploy any financial derivatives, apart from the derivative embedded within the EIB loan (so-called performance component).

 

Biofrontera AG Half-year financial report as of June 30, 2020
 

 

Financial assets

 

in EUR thousands  

Fair Value
as of

June 30, 2020

   

Carrying amount as of

June 30, 2020

    Fair Value
as of
Dec. 31, 2019
    Carrying amount as of Dec. 31, 2019  
Financial assets at amortized cost                                
Cash and cash equivalents     10,550       10,550       11,119       11,119  
Trade receivables     2,191       2,191       5,031       5,031  
Other financial assets     773       773       1,077       1,077  
Total     13,514       13,514       17,227       17,227  

 

Financial liabilities

 

in EUR thousands  

Fair Value
as of

June 30, 2020

   

Carrying amount as of

June 30, 2020

    Fair Value
as of
Dec. 31, 2019
    Carrying amount as of Dec. 31, 2019  
Financial liabilities at amortized cost                                
Current financial liabilities     1,291       1,291       1,212       1,212  
Trade payables     2,240       2,240       4,196       4,196  
Other current financial liabilities     74       74       99       99  
Non-current financial liabilities     21,359       21,359       20,648       20,648  
Total     24,964       24,964       26,155       26,155  
Financial liabilities at fair value recognized in profit or loss                                
Non-current financial liabilities     946       946       1,462       1,462  
Other non-current financial liabilities     16,956       16,956       14,720       14,720  
Total     17,902       17,902       16,182       16,182  

 

The financial assets are still allocated to “financial assets at amortized cost”. The carrying amounts correspond to the fair values.

 

The performance component (financial instrument at level 3 of the fair value hierarchy) as a further variable interest component and embedded derivative requiring separation is subsequently measured at fair value on each balance sheet date and is allocated to the category “financial liabilities at fair value recognized in profit or loss”. To simplify matters, the market capitalization at the end of the term is initially determined on the basis of the market capitalization on the respective valuation date, which is based on the 90 trade days preceding the measurement cut-off date. The performance-based interest payment for the first tranche is calculated based on a notional 0.64% (EIB 2017 tranche) or 0.20% (EIB 2019 tranche) participation rate in the market capitalization (Notional Equity Proportion). This is discounted to the measurement cut-off date applying a market interest rate.

 

As of June 30, 2020, the discounted interest payment (carrying amount) or fair value of the performance component of the 2017 tranche of the EIB loan was EUR 744 thousand (previous year: EUR 1,148 thousand) and of the 2019 tranche of the EIB loan EUR 202 thousand (previous year: EUR 314 thousand). The net profits on the performance component amounted to EUR 516 thousand (previous year period: loss of EUR 252 thousand).

 

The purchase price liability of EUR 16,956 thousand (previous year: EUR 14,720 thousand) reported under non-current financial liabilities was discounted at a market interest rate of 9% based on the expected annual purchase price payments. The expected annual purchase price payments were re-estimated as of March 31, 2020 due to the current market situation influenced by the COVID-19 pandemic and the resulting delays in the market penetration of Xepi®. Accordingly, the purchase price payments will be due from 2022 to 2030 depending on future profits generated from the sale of Xepi®. The total purchase price in this period, excluding repayment of start-up costs, amounts to a nominal USD 26.8 million / EUR 23.3 million (previous year: USD 28.9 million / EUR 25.8 million). The start-up costs received to date in the amount of USD 5.4 million / EUR 4.8 million (previous year: USD 2.9 million / EUR 2.5 million) are repayable by 2022.

 

The net losses on the purchase price liability amounted to EUR 16 thousand (previous year: EUR 162 thousand) and are lower due to the re-evaluation, in particular the adjusted estimate of the purchase price liability.

 

Biofrontera AG Half-year financial report as of June 30, 2020
 

 

The fair values of the performance component of the EIB loan would be EUR 95 thousand higher or lower in the event of a 10% increase or decrease respectively in market capitalization. The fair value of the purchase price liability would be EUR 655 thousand higher or lower in the event of an 5% increase or decrease in cash flows respectively and EUR 914 thousand lower or EUR 851 thousand higher in the event of 1% an increase or decrease respectively in the weighted average cost of capital.

 

Other financial liabilities continue to be allocated to the category “Financial liabilities at amortized cost”. The carrying amounts correspond to the fair values.

 

Provisions

 

The companies included in the consolidated financial statements of Biofrontera AG face several threatened or pending legal proceedings, the outcome of which is either not determinable or cannot be predicted due to the uncertainty associated with such legal proceedings. No provisions were made for the claims asserted against Biofrontera, as the Management Board does not believe that such claims are enforceable.

 

For pending proceedings in the USA and Germany, provisions for legal costs totalling EUR 2,051 thousand (previous year: EUR 2,183 thousand) exist. EUR 471 thousand were utilized in the first half of 2020. Based on a current estimate of the outstanding litigation costs, no further amounts were accrued.

 

Biofrontera assumes that the lawsuits are unjustified and will defend itself vigorously against the claims, but cannot guarantee that this will be successful.

 

Biofrontera may incur further significant costs in the future from the defense of its case, as in addition to internal resources, lawyers in the USA have been mandated to defend the case. The costs arising from this for Biofrontera would not be reimbursed by the plaintiff even in the event of a positive outcome of the proceedings, due to the practices of the US legal system.

 

Related party disclosures

 

Maruho Co., Ltd.

 

As a result of the research cooperation, licensing agreement and the acquisition of Cutanea, the following relationships exist with the Maruho Group:

 

 

in EUR thousands

 

 

June 30, 2020

    December 31, 2019  
Revenue from research collaborations and licensing agreement     6,441       686  
Income from the reimbursement of restructuring expenses           6,215  
Rental income     20       34  
Receivables from research cooperation     48       149  
Liability from the Share Purchase Agreement (earn out and start-up costs)     16,956       14,720  
Other liabilities           72  

 

Under the purchase agreement with Maruho, the company can still draw down funds from start-up costs of a nominal USD 1.9 million / EUR 1.7 million (previous year USD 4.4 million / EUR 3.9 million).

 

Subsequent events

 

Renewal of Management Board appointment

 

On July 23, 2020, the Supervisory Board of Biofrontera AG announced that the appointments as well as the service contracts of both Management Board members were each extended for another 2 years until December 31, 2022.

 

Mandatory convertible bond 2020/2021

 

On July 27, 2020, the Management Board resolved, with the approval of the Supervisory Board, to issue up to 2,638,150 bonds of a 1.0%-qualified subordinated mandatory convertible bond 2020/2021 with a nominal value of EUR 3.00 each and a total nominal value of up to EUR 7,914,450 to cover short-term liquidity requirements.

 

On August 18, 2020, the company announced that the mandatory convertible bond 2020/2021 had been placed in full. The gross proceeds from the issue amount to EUR 7,914 thousands.

 

Biofrontera AG Half-year financial report as of June 30, 2020

 

Exhibit 99.2

 

BUSINESS DEVELOPMENTS

 

Clinical updates

 

Ameluz® for Treatment on Large or Multiple Surfaces

 

In October 2020, we completed the clinical phase of the pharmacokinetics study in the United States of Ameluz®. The study had been ongoing since the beginning of 2020 with a temporary interruption due to the effect of restrictions put in place by various state and local governmental authorities in the United States to combat the COVID-19 pandemic. The study evaluated the safety of photodynamic therapy for the treatment of actinic keratosis (AK) on large or multiple surfaces using up to three tubes of Ameluz® at a time. We expect to submit the final study report to the U.S. Food and Drug Administration, or FDA, during the first quarter of 2021.

 

BF-RhodoLED® XL Lamp

 

We have also been working diligently to complete the development and the application for approval of the new BF-RhodoLED® XL lamp, which would enable the application of Ameluz® on larger areas. Due to delays in getting supplies for the first manufacturing batch caused by the COVID-19 pandemic, we expect the dossier for marketing approval to be submitted to the FDA in the first quarter of 2021.

 

Label extension for AK on extremities and trunk/neck

 

In fall 2019, we submitted the application for label extension to the European Medicines Agency (EMA) to include the treatment of mild and moderate AK on the extremities and trunk/neck with conventional photodynamic therapy (PDT) using Ameluz® and the BF-RhodoLED®. Following the positive vote of the EMA in February 2020, the European Commission formally approved the label extension for Ameluz® in March 2020.

 

Based on the data for the European label extension, we have also held discussions with the FDA about expanding the label for Ameluz® in the United States to include the treatment of AK in the extremities and trunk/neck. The FDA proposed an additional clinical trial before it would consider approving a label extension of Ameluz® to include additional body regions. We are currently developing the study protocol according to FDA guidelines, and expect patient recruitment to start in the second half of 2021, if funds are available.

 

Label extension for acne

 

With regard to the possible label extension of Ameluz® for acne in the United States, we prepared a corresponding development plan for the indication extension and early in 2020, received feedback from the FDA on the design of the necessary clinical trials, and plan to commence the study program in the second half of 2021 as soon as the funds are available to launch the study program.

 

Ameluz® for treatment of basal cell carcinoma

 

We are continuing to pursue patient recruitment in the phase III study for the treatment of basal cell carcinoma with Ameluz® in the United States.

 

Patent updates

 

We submitted an international patent application regarding anti-migraine compounds to the World Intellectual Property Organization in 2013. A patent in the United States was granted in 2017, expiring in January 2034. The European Patent Office announced on May 13, 2020, that the examining division intends to grant a European patent. The European patent was issued on October 14, 2020.

 

We filed a U.S. patent application on October 15, 2020 regarding an illumination device for photodynamic therapy, a method for treating a skin disease and method for operating an illumination device.

 

1
 

 

License Agreement with Maruho

 

In April 2020, we signed a license agreement with Maruho Co. Ltd, Japan (“Maruho”), the parent of Maruho Deutschland GmbH, a major shareholder of ours, granting Maruho’s affiliate exclusive rights to use certain of our proprietary information, patents and trademarks for the purpose of further research and development, marketing and commercialization of Ameluz® for all indications in East Asia and Oceania. Maruho is entitled, with our consent, to conduct its own research and development under the terms and conditions of the license agreement. Maruho will grant us a free and unlimited license for all results of such research and development activities performed by Maruho for commercialization outside East Asia and Oceania.

 

Under the terms of the license agreement, we 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 East Asia and Oceania. We believe that this arrangement will give us the opportunity to generate long-term revenue in markets that we will not be able to serve with our own resources in the foreseeable future at a relatively low cost and with low business risk. We will continue to focus on the United States and Europe, which are the most significant and already established markets for us. The license agreement has an initial term of 15 years from the commencement of sales and includes milestone payments, royalties on sales and provides for the upfront payment of €6 million to us by Maruho, which we received and which, along with the mandatory convertible bond offering discussed below, helped us maintain a sufficient level of liquidity to sustain business operations during the COVID-19 pandemic. 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 within East Asia and Oceania, which may increase to 12% depending on sales volume and will decrease in case of the introduction of generic products in these countries.

 

License Agreement with Galenica AB

 

In December 2020, Biofrontera Pharma GmbH and Galenica AB (Galenica) signed an exclusive license and supply agreement for the marketing of both Ameluz® and BF-RhodoLED® in Sweden, Norway, Denmark, Finland and Iceland. Galenica AB is entitled to exclusive distribution rights for the Nordic countries. We will supply Ameluz® to Galenica at a transfer price of 50% of the expected net revenues. Furthermore, we 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 Nordic countries.

 

Galenica is now working towards the reintroduction of these products in Denmark, Sweden and Norway and their initial launch in Finland and Iceland by the middle of 2021. In addition, Galenica has a right of first refusal for commercialization in the Baltic States.

 

Mandatory Convertible Bond Offering

 

In August 2020, we issued the 1.0% qualified subordinated mandatory convertible bond 2020/21 to provide us with liquidity during the COVID-19 pandemic. The bond issue was fully subscribed generating gross proceeds of €7.9 million. Under the terms and conditions of the convertible bonds, each of the convertible bonds can be converted into our no-par ordinary registered shares with a notional interest in the share capital of €1.00 per share and a right to dividends from the year of the share issue. We had the right to convert the convertible bonds into ordinary shares at any time if the trigger price for our ordinary shares of €4.50 had been met.

 

In November 2020, the trigger price was met and we exercised our right to convert all the bonds that had been issued and 2,638,150 of our ordinary shares were issued from our Contingent Capital I. In December 2020, our share capital was increased by €2,638,150 to €47,747,515 as a result of the conversion of convertible bonds.

 

Litigation Update

 

The following information updates the disclosures in “Legal Proceedings” of Item 8.A of our annual report on Form 20-F for the fiscal year ended December 31, 2019.

 

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DUSA Litigation

 

DUSA v. Biofrontera AG

 

In March 2018, DUSA Pharmaceuticals, Inc., or DUSA, brought a lawsuit against us and our 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 United States. 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 us from sales of the BF-RhodoLED® and Ameluz® in the United States.

 

Our 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, our responses include that the information does not constitute trade secrets and that our actions do not constitute any violation of trade practices. With regard to DUSA’s claims for damages, our responses include that DUSA has not proven it is entitled to lost profits or unjust enrichment. 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. We expect the trial to proceed through December 2021. We believe that these claims lack merit and intend to defend against them vigorously; however, we cannot guarantee that we will be successful. The Court largely denied a motion by DUSA for a preliminary injunction, but did order us not to use any documents, or documents derived from documents, that originated at DUSA.

 

In addition, we 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.

 

DUSA has asserted claims for damages in these proceedings. However, we consider these claims to be unfounded and unsubstantiated.

 

Biofrontera Inc. v. DUSA

 

In July 2018, Biofrontera Inc. brought a lawsuit against DUSA in California Superior Court. Our complaint alleged that DUSA engaged in unfair competition by providing excessive product samples to physicians and by using its distributor Foundation Care to inflate product prices. Our complaint also alleged that DUSA engaged in tortious interference by making statements to third parties regarding the off-label use of its products. Though the court has dismissed our claims related to DUSA’s sampling and pricing practices, the court allowed our tortious interference claims to proceed to discovery.

 

Given the unprecedented and unforeseen economic circumstances caused by the spread of COVID-19, we have reevaluated our litigation strategy. Given that DUSA has ceased using Foundation Care, we decided at this time to stop prosecuting the case against DUSA in California state court and dismissed those claims.

 

Deutsche Balaton Litigation

 

Biofrontera AG v. Deutsche Balaton AG et al.

 

On June 11, 2018, we 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 our ordinary shares that were designed to defame us and negatively impact our 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, we amended the 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 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 our U.S. federal securities law claims to move forward. The court also ordered that the parties conduct jurisdictional discovery in connection with all of the remaining claims and submit supplemental briefing on our 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 amended 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 the stay from November 10, 2020 until the end of February 2021.

 

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Deutsche Balaton AG v. Biofrontera AG

 

In June 2017, our company was served with a claim for rescission and nullification by our company’s significant shareholder Deutsche Balaton AG, in which it sued for nullification of certain resolutions of our Annual General Meeting held on May 24, 2017. The lawsuit was dismissed by Cologne Regional Court in December 2017. On appeal by Deutsche Balaton AG, the Cologne Higher Regional Court granted the action in November 2018. The Cologne Higher Regional Court did not allow a review of the judgment by the Federal Supreme Court in its ruling. Since our company considered the judgment of the Cologne Higher Regional Court to be incorrect, we filed an appeal against the decision with the Federal Supreme Court, which was granted in May 2020. With regard to the creation of authorized capital approved at that meeting, we filed an application for release with the Cologne Higher Regional Court in 2020. The Higher Regional Court of Cologne dismissed the application for release on July 9, 2020.

 

In its reasons for the decision, the Cologne Higher Regional Court assumed that our management board had violated the requirement of equal treatment of shareholders in connection with a capital increase carried out in October/November 2016 in a severe and unequivocal manner. On September 22, 2020, the German Federal Supreme Court reversed that decision and determined that the violation of law assumed by the Cologne Higher Regional Court had not occurred.

 

ABC Beteiligungen Litigation

 

An action for rescission and nullification was brought by ABC Beteiligungen AG, Heidelberg, an affiliate of Deutsche Balaton AG, 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, Deutsche Balaton AG requested that the court recognize that the Annual General Meeting adopted the resolutions in the form proposed by 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 of share capital against cash contributions with the granting of an indirect subscription right), an application for release was filed with the Cologne Higher Regional Court on October 20, 2020. The Higher Regional Court of Cologne granted the motion for release on January 7, 2021.

 

CFO Transition

 

On February 2, 2020, we announced that Thomas Schaffer’s last day as chief financial officer of Biofrontera will be February 28, 2021. He will be succeeded by Ludwig Lutter, whose appointment as our chief financial officer will be effective on March 1, 2021.

 

Ludwig Lutter, 54, is a German citizen, and has over 20 years of experience as chief financial officer at several technology companies. Before joining Biofrontera, he served as chief financial officer for brillen.de, Hotel Reservation Service, Intershop Communications AG, SOPHOS and Poet Holdings, Inc. Prior to that, he served in public accounting and tax consulting for KPMG and other public accounting firms. Mr. Lutter holds a degree in business administration from the University of Texas, and is qualified as a certified tax advisor in Germany. Mr. Lutter does not beneficially own any ordinary shares of Biofrontera.

 

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OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The following discussion of our financial condition and results of operations is designed to provide you with a narrative explanation of our financial condition and results of operations. You should read such discussion in conjunction with our unaudited interim condensed financial information as of and for the six months ended June 30, 2020 included as Exhibit 99.1 to this Report on Form 6-K. You also should read the discussion of our financial condition and results of operations and our audited financial statements and the notes thereto, which appear in our Annual Report on Form 20-F for the year ended December 31, 2019 (the “2019 Form 20-F”) on file with the U.S. Securities and Exchange Commission (the “Commission”).

 

Unless otherwise indicated or the context otherwise requires, all references to “Biofrontera” or the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to Biofrontera AG and its consolidated subsidiaries, Biofrontera Pharma GmbH, Biofrontera Bioscience GmbH, Biofrontera Neuroscience GmbH, Biofrontera Development GmbH and Biofrontera Inc. Our consolidated financial statements and related notes are presented in euros, or €, and have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. None of our consolidated financial statements in this Form 6-K of which this exhibit forms a part have been prepared in accordance with United States generally accepted accounting principles. For any of our subsidiaries that use a functional currency that is not euros, the assets and liabilities have been translated at the closing exchange rate as of June 30, 2020, which was 1.1237 U.S. dollars to 1 euro, while the income and expenses have been translated at the average exchange rate for the six-month period ended June 30, 2020, which was 1.1019____ U.S. dollars to 1 euro. 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. Transactions realized in currencies other than euros 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 arising from such currency translations are recognized in income. See “Summary of Significant Accounting Policies — Translation of Amounts in Foreign Currencies” in the notes to our consolidated financial statements included in our 2019 Form 20-F for more information. Unless otherwise indicated, all references to currency amounts in this discussion and analysis are in euros.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This discussion includes forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this annual report regarding our strategy, future operations, regulatory process, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words “believe”, “anticipate”, “intend”, “expect”, “target”, “goal”, “estimate”, “plan”, “assume”, “may”, “will”, “predict”, “project”, “would”, “could” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

 

The forward-looking statements in this report include, but are not limited to, statements about:

 

  our ability to achieve and sustain profitability;
     
  our ability to compete effectively in selling our products;
     
  our ability to expand, manage and maintain our direct sales and marketing organizations;
     
  our actual financial results may vary significantly from forecasts and from period to period;
     
  our estimates regarding anticipated operating losses, future revenues, capital requirements and our needs for additional financing;
     
  our ability to market, commercialize, achieve market acceptance for and sell our products and product candidates;
     
  market risks regarding consolidation in the healthcare industry;

 

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  the willingness of healthcare providers to purchase our products if coverage, reimbursement and pricing from third party payors for procedures using our products significantly declines;
     
  our ability to adequately protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;
     
  the regulatory and legal risks, and certain operating risks, that our international operations subject us to;
     
  the fact that product quality issues or product defects may harm our business;
     
  any product liability claims;
     
  the progress, timing and completion of our research, development and preclinical studies and clinical trials for our products and product candidates; and
     
  our expectations regarding the merits and outcomes of pending or threatened litigation, including the lawsuit brought by DUSA Pharmaceuticals, Inc. against us before the District Court of Massachusetts claiming patent infringement, trade secret misappropriation, tortious interference with contractual relations, and deceptive and unfair trade practices.

 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this discussion that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make.

 

You should read this discussion and the financial statements filed as an exhibit to the report on Form 6-K of which this discussion forms a part completely and with the understanding that our actual future results may be materially different from what we expect. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about us, including those listed in the sections of the 2019 Form 20-F entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

Factors Affecting our Results of Operations

 

We believe that the following factors have influenced and will continue to influence the development of our business and our future financial performance:

 

Effects of the COVID-19 Pandemic

 

Since mid-March, we have been affected by the global COVID-19 pandemic as it has disrupted economic activity around the world. We experienced the most significant impact of the COVID-19 pandemic in the United States. While we were able to achieve product sales of around €16.6 million in the United States, our largest market, in the fiscal year 2020, this represents a decline in sales of 29% compared to 2019. In early 2020, sales were slightly lower than expected due to stockpiling of Ameluz® by doctors at the end of 2019 prior to the price increase that became effective on January 1, 2020. Between mid-February and mid-March 2020, we were then able to generate sales revenues in line with our original budget. However, in the second half of March 2020, revenue dropped close to zero as a result of the COVID-19 pandemic. The American Academy of Dermatology, the largest dermatology organization in the United States, in Spring 2020, issued official recommendations that physicians provide patients with remote diagnosis and treatment where possible during the COVID-19 pandemic. We believe that this resulted in a significant decline in the number of patients treated in dermatology practices as well as temporary practice closures.

 

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In response to the COVID-19 pandemic, we introduced temporary short-time work for all employees in Germany until the end of July 2020. Similar measures were implemented for our subsidiaries in Spain and the United Kingdom. Biofrontera Inc., our wholly-owned U.S. subsidiary, responded by introducing significant cost-cutting measures, including a reduction of 17 employees. At the same time, a furlough program was introduced in which all employees were obligated to take temporary unpaid leave. In addition, the members of our Management Board and the management of Biofrontera Inc. voluntarily agreed to waive a substantial portion of their salaries.

 

After sales of our products had initially dropped to almost zero in April 2020, we were able to observe a slow recovery of our U.S. business in May and June 2020. In many parts of the United States, medical practices have reopened at least in part and we believe patients are increasingly willing to undergo treatment for actinic keratoses. However, due to the continuing dynamics of the COVID-19 pandemic in the United States, the delays in product shipments caused by the pandemic in many states and the possibility that federal, state and/or local governmental authorities may impose or re-impose restrictions on activity in response to an increase in infections, hospitalizations and deaths, the situation remains difficult to assess.

 

Sales of Ameluz® in the United States

 

Increasing our sales of Ameluz® in the United States is the most important growth driver for our overall business. Our ability to grow our revenues in line with our expectations and to become profitable depends on our ability to successfully meet our sales targets in the United States. As a result of the significant impact of the COVID-19 pandemic on the United States, we experienced an overall decrease in U.S. sales. As the number of COVID-19 cases continue to fluctuate in the United States, it remains very difficult to plan sales revenue growth, thereby leading to a considerable fluctuation range in achievable sales revenues. We believe that the success of our sales strategy in the United States will be influenced heavily by the U.S. response to the COVID-19 pandemic, our ability to obtain from the FDA approval for further label extensions for Ameluz® and our ability to promote our products in the medical community.

 

Acquisition of Cutanea Life Sciences, Inc.

 

Overview

 

On March 25, 2019, we announced that we, through a U.S. subsidiary, had acquired Cutanea Life Sciences, Inc. (“Cutanea”) from Maruho, the parent company of our major shareholder Maruho Deutschland GmbH. For information relating to the acquisition, including a summary of the Share Purchase and Transfer Agreement dated March 25, 2019, by and among Biofrontera Newderm LLC, Biofrontera AG, Maruho and Cutanea Life Sciences, Inc. (the “Cutanea Purchase Agreement”), relating thereto, please refer to our annual report on Form 20-F for the fiscal year ended December 31, 2018 (the “2019 Form 20-F”), including the notes to our audited financial statements included therein. Descriptions of any portion or portions of the Cutanea Purchase Agreement contained herein are qualified in their entirety by reference to the Cutanea Purchase Agreement, a copy of which is filed as Exhibit 4.13 to our 2018 Form 20-F. As of December 31, 2019, Cutanea was merged with Biofrontera Inc.

 

At the time of the acquisition, Cutanea had two prescription drugs approved by the U.S. Food and Drug Administration: Xepi®, a prescription antibiotic cream for the treatment of impetigo (a common bacterial skin infection) and Aktipak®, a generic drug for the treatment of mild-to-moderate acne. Xepi® is produced for Biofrontera by Ferrer Internacional S.A., the licensor of Xepi®, which supplied Cutanea, and now supplies Biofrontera, with the finished product. At the time of the acquisition, Cutanea also had other operations, including significant research and development projects.

 

After our acquisition of Cutanea’s business, Cutanea was significantly restructured before it was merged into Biofrontera Inc. Due to technical challenges with the manufacturing process of Aktipak®, which could not be remedied in the short term, Biofrontera ceased the production and sale of Aktipak® in August 2019. Biofrontera incurred only de minimis expenses related to Aktipak® before and in connection with discontinuing that product, and does not expect to incur going forward any expenses relating to Aktipak® that will not be reimbursed by Maruho in connection with the Cutanea Purchase Agreement. As part of our acquisition of Cutanea, we returned to Maruho or discontinued all of Cutanea’s research and development projects. As of December 31, 2019, approximately 95% of Cutanea’s workforce as of the date of the acquisition had been terminated, and we had dissolved or eliminated through mergers or other internal restructuring all Cutanea legal entities. Thus, because of the discontinuance of Aktipak® sales and the treatment in the transaction of research and development projects, Biofrontera’s acquisition of Cutanea represented, in substance, the acquisition of only the rights to market a single product, Xepi®. Accordingly, except for the single Xepi® product line (and de minimis impacts from Aktipak®-related operations that have already been discontinued), none of the other historical business activities of Cutanea have impacted our results of operations, and we do not expect that they will impact our results of operations in the future. Xepi® first became available on the market in November 2018.

 

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Effects of Acquisition of Cutanea on Our Income Statement

 

Cutanea and its subsidiaries Dermarc LLC and Dermapex LLC were fully consolidated on March 25, 2019, the date we acquired Cutanea. Sales revenues for Xepi® and Aktipak® as well as cost of sales calculated applying the cost of sales method, are reported in the respective items of our consolidated income statement for the fiscal year ended December 31, 2019.

 

The following table sets forth the sales revenue, cost of sales, research and development costs, general administrative costs and sales and marketing costs attributable to Cutanea and its subsidiaries, as included in our consolidated statement of comprehensive income for the period from March 25, 2019 to December 31, 2019:

 

   

March 25 -

December 31,

2019

 
       
    € thousands  
Sales revenue(1)     822  
Cost of sales(2)     (1,148 )
Research and development costs(2)     (103 )
General administrative costs(2)     (2,334 )
Sales and marketing costs(2)     (5,906 )

 

(1) Attributable to Xepi® and Aktipak® from and including acquisition date of March 25, 2019
(2) Attributable to operations of Cutanea and its subsidiaries from and including acquisition date of March 25, 2019

 

Pursuant to the Cutanea Purchase Agreement, Maruho agreed to, among other things, assume all (1) ongoing costs that we may incur in connection with our operation of Cutanea’s business during the first three months after completion of the acquisition and (2) restructuring expenses incurred at Cutanea from any restructuring activities commenced or decided within three months from the acquisition date, including a substantial portion of the costs set forth in the table above. These costs will be paid using cash and cash equivalents acquired by Biofrontera upon the acquisition of Cutanea, or they will be passed on to Maruho in accordance with the Cutanea Purchase Agreement and reported under other income. Other income attributable to reimbursement from Maruho amounted to €6.2 million for the period from March 25, 2019 to December 31, 2019.

 

In addition, badwill in the amount of €14.8 million was included in our other income for the fiscal year ended December 31, 2019. Badwill results from the negative difference in asset and liability items measured at fair value resulting from the purchase price allocation in connection with our acquisition of Cutanea. No badwill was recorded after December 31, 2019.

 

Financing Needs

 

As of the date of this Report on Form 6-K, we believe that existing cash and cash equivalents will be sufficient to fund operations for the next 12 months from the date of this report at least. However, changing circumstances may cause us to consume capital significantly faster than currently anticipated, and we may need to spend more money than currently expected because of circumstances beyond the control of the Company. The report of the independent registered public accounting firm accompanying our December 31, 2019 and 2018 audited financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The prior financing requirement of at least €5 million to maintain business operations until the end of April 2021 was covered by the successful placement of a mandatory convertible bond generating gross proceeds of €7.9 million, leaving the Company with sufficient liquidity at present. We prioritize the use of our funds as follows: firstly, to pursue clinical studies; secondly, to fund the development of the larger BF-RhodoLED® lamp; and thirdly, to finance our general business operations, which includes improving the market positioning of our products.

 

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Litigation Relating to Our Intellectual Property and Other Litigation

 

Despite lower legal costs incurred due to our litigation with DUSA Pharmaceuticals, Inc., in the first nine months of 2020, we expect the legal costs related to our intellectual property and other litigation may affect our operating results and financial condition in future periods.

 

Recent Developments

 

Set forth below is certain limited unaudited financial information as of and for the three months and nine months ended September 30, 2020. In connection with our listing on the Frankfurt Stock Exchange, we published substantially all of this financial information in an announcement issued on November 11, 2020. This financial information has been prepared under IFRS as adopted by the European Union (“EU”). No material differences are believed to exist between the presented financial information in accordance with IFRS as adopted by the EU and IFRS as issued by the IASB.

 

The information presented in this section is not a comprehensive statement of our financial results for the three months and nine months ended September 30, 2020 and should not be considered a substitute for full annual audited or interim unaudited financial statements. The information presented herein should be read in conjunction with the consolidated audited financial statements and related notes filed as part of our Annual Report on Form 20-F for the year ended December 31, 2019 and our interim unaudited financial statements for the six-month period ended June 30, 2020 which have been filed as an exhibit to the report on Form 6-K of which this section is a part.

 

The following is not intended to serve as a complete management’s discussion and analysis of our financial condition and results of operations for the period presented and does not include all the information that a domestic issuer in the United States whose securities are registered under the Securities and Exchange Act of 1934 would be required to disclose.

 

Key Figures

 

in EUR thousands (if not stated otherwise)  

9M 2020

unaudited

   

9M 2019

unaudited

   

Q3 2020

unaudited

   

Q3 2019

unaudited

 
Sales revenue     20,829       19,059       4,713       5,155  
Gross profit on sales     18,262       14,865       3,637       3,445  
Research and development costs     (3,403 )     (3,215 )     (1,014 )     (894 )
General administrative costs     (6,882 )     (12,108 )     (2,470 )     (4,340 )
Sales costs     (16,340 )     (20,635 )     (4,189 )     (6,440 )
Loss on operations     (8,364 )     (21,093 )     (4,036 )     (8,229 )
Financial result     (1,642 )     (2,259 )     (927 )     (914 )
Other expenses and income     (1,630 )     20,828       (1,438 )     (2,407 )
Loss before income tax     (11,635 )     (2,524 )     (6,401 )     (11,550 )
Total result for the period     (10,903 )     (3,265 )     (5,498 )     (11,822 )

 

In EUR thousands (if not stated otherwise)   9M 2020
unaudited
    December 31, 2019  
Net assets                
Total assets     55,635       58,363  
Non-current assets     31,599       35,872  
Cash and cash equivalents     16,619       11,119  
Other current assets     7,417       11,372  
Non-current liabilities     47,788       36,830  
Current liabilities     8,929       11,578  
Equity     (1,083 )     9,955  

 

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    9M 2020
unaudited
    9M 2019
unaudited
 
Employees (as of September 30)     155       191  
                 
Biofrontera Share                
Number of shares outstanding (as of Sep, 30)     44,849,365       44,849,365  
Share price (XETRA closing price in EUR on Sep, 30)     3.46       6.00  

 

Results of Operations

 

Sales Revenue

 

 

Our sales revenue for the nine-month period ended September 30, 2020 increased by 9% to €20.8 million compared to €19.1 million in the nine-month period ended September 30, 2019, driven primarily by growth in Germany and a one-time payment of €6.0 million, which was received by the Company from Maruho Co., Ltd. under the Maruho license agreement. Revenues from product sales in the nine-month period ended September 30, 2020, amounted to €14.3 million, a decrease of 23% compared to the same period in 2019. In the United States, product sales of €9.1 million in the nine-month period ended September 30, 2020 were down 33% compared to €13.6 million in the same period of 2019. This includes €202,000 in sales generated by the sale of Xepi®. Sales in other European countries decreased by 26% to €1.3 million in the nine-month period ended September 30, 2020, compared to €1.8 million in the nine-month period ended September 30, 2019. Sales from other regions amounted to €6.5 million in the nine-month period ended September 30, 2020, compared to €367,000 in the nine-month period ended September 30, 2019 and included a one-time payment of €6.0 million under the Maruho license agreement. The decrease in revenues from product sales is primarily due to the effects of the COVID-19 pandemic and the response thereto, especially in the United States, which limited access to, and demand for, our products. The notable exception to this trend were sales in Germany which increased by 19% to €3.9 million in the nine-month period ended September 30, 2020 compared to €3.3 million in the same period of 2019.

 

Gross Profit on sales

 

Gross profit on sales for the nine months ended September 30, 2020 increased by €3.4 million to €18.3 million compared to €14.9 million in the same period in 2019. The gross margin increased from 78% in the first nine months of 2019 to 88% in the first nine months of 2020, mainly due to the revenue from the one-time payment received under the Maruho license agreement, which is not offset by any directly attributable sales costs

 

Research and Development Costs

 

Research and development costs for the nine months ended September 30, 2020 amounted to €3.4 million, which was slightly above the costs of €3.2 for the nine months ended September 30, 2019. Research and development costs include costs for clinical studies as well as regulatory expenses, i.e., the granting, maintenance and extension of our approvals.

 

General Administrative Costs

 

General administrative expenses amounted to €6.9 million in the nine months ended September 30, 2020, compared to €12.1 million in the nine months ended September 30, 2019, a decrease of €5.2 million. This was primarily due to the cost-saving measures we introduced as a result of the COVID-19 pandemic as well as lower legal costs. Additionally, the 2019 figure also included costs due to the first-time consolidation of Cutanea Life Sciences, Inc. (which we acquired in March 2019).

 

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Sales Costs

 

Sales costs amounted to €16.3 million for the nine months ended September 30, 2020, a decrease of €4.3 million compared to €20.6 million for the nine months ended September 30, 2019. This decrease was mainly due to the cost-saving measures introduced as a result of the COVID-19 pandemic as well as the fact that the 2019 figure also included costs due to the first-time consolidation of Cutanea Life Sciences, Inc. (which we acquired in March 2019). Both these effects led to a total reduction in costs of €6.3 million, which was offset by a non-cash impairment of the Xepi® license in the amount of €2.0 million in the first quarter of 2020. This resulted in the total decrease of €4.3 million.

 

Loss on Operations

 

The loss from operations of €8.4 million for nine months ended September 30, 2020, compared to the loss of €21.1 million in the nine months ended September 30, 2019, improved due to the cost-saving measures implemented during the reporting period as well as due to the effects of the first-time consolidation of Cutanea Life Sciences, Inc. acquired in March 2019 included in the previous year’s figure.

 

Other Income and Expenses

 

Other income and expenses totaled €(1.6) million for the nine months ended September 30, 2020 compared to €20.8 million for the same period of 2019. The decrease is primarily due to the one-time effects of €19.3 million from the acquisition of Cutanea Life Sciences, Inc. This figure also includes expenses and income from currency translation.

 

Group Assets

 

The changes in the financial position are as follows as of September 30, 2020:

 

in EUR thousands  

September 30, 2020

unaudited

    December 31, 2019  
Non-current assets     31,599       35,872  
Current financial assets     19,274       17,227  
Other current assets     4,762       5,264  
Total assets     55,635       58,363  
                 
Equity     (1,083 )     9,955  
Non-current liabilities     47,788       36,830  
Current financial liabilities     2,809       5,507  
Other current liabilities     6,120       6,071  
Total equity and liabilities     55,635       58,363  

 

Non-Current Assets

 

Non-current assets amounting to a total of €31.6 million include the recognized deferred tax assets on tax loss carryforwards for Biofrontera Pharma GmbH in the amount of €7.5 million and the acquired Xepi® license in the amount of €17.9 million. The value of the carrying amount was verified by an impairment test, which also includes the current market situation caused by the COVID-19 pandemic and the resulting delays in the market penetration of Xepi®. As a result, this led to a non-cash impairment in the amount of €2.0 million.

 

Current Financial Assets

 

Current financial assets as of September 30, 2020, totaled €19.3 million. This includes cash and cash equivalents of €16.7 million (December 31, 2019: €11.1 million) and trade receivables of €2.0 million (December 31, 2019: €5.0 million).

 

11
 

 

Other Current Assets

 

Other current assets mainly include inventories amounting to €4.7 million as of September 30, 2020 (December 31, 2019: €5.3 million).

 

Equity

 

The fully paid in share capital of the parent company, Biofrontera AG, amounted to €44.8 million as of September 30, 2020. It was divided into 44,849,365 registered shares with a nominal par value of €1.00 each. Total equity as of September 30, 2020 amounted to €(1.1) million compared to €9.6 million as of December 31, 2019. The decrease in equity can be attributed to the additional losses incurred in the first nine months of 2020.

 

Non-Current Liabilities

 

Non-current liabilities include financial liabilities (€30.4 million as of September 30, 2020; December 31, 2019: €22.1 million) and other non-current financial liabilities from the purchase price for Cutanea (€17.3 million as of September 30, 2020; December 31, 2019: €14.7 million). The increase in the purchase price liability, compared to December 31, 2019, is mainly due to the provision of further start-up costs from Maruho in the amount of €2.9 million. Also included in non-current liabilities are liabilities from the stock appreciation rights program in the amount of €90,000 (Dec 31, 2019: €0). The non-current financial liabilities include the loan from the under our credit facility with European Investment Bank, or EIB, including the performance participation interest payment in the amount of €17.6 million as September 30, 2020 (December 31, 2019: €17.1 million), the non-converted portion of the convertible bond 2017-22 in the amount of €2 million as of September 30, 2020, the non-converted portion of the convertible bond 2020-21 in the amount of €7.9 million as of September 30, 2020 and liabilities from leasing agreements in the amount of €2.9 million to be recognized under IFRS 16.

 

Current Financial Liabilities

 

Current financial liabilities mainly include trade payables of €1.6 million as of September 30, 2020 (December 31, 2019: €4.2 million) and liabilities from leases in the amount of €1.1 million (Dec 31, 2019: €1.0 million) to be recognized in accordance with IFRS 16.

 

Other Current Liabilities

 

Other current liabilities amounted to €6.1 million and primarily comprise provisions of €3.0 million (Dec 31, 2019: €3.5 million) and accrued liabilities of €1.6 million (Dec 31, 2019: €2.2 million). This item also includes liabilities towards employees for payments to the Company for exercising options for which shares were not transferred until the fourth quarter 2020 in the amount of €703 thousand.

 

Condensed consolidated balance sheet as of September 30, 2020

 

Assets

 

in EUR thousands   September 30, 2020     December 31, 2019  
      unaudited          
Non-current assets                
Tangible assets     5,218       5,230  
Intangible assets     18,906       22,848  
Deferred taxes     7,475       7,794  
Total non-current assets     31,599       35,872  
                 
Current assets                
Current financial assets                
Trade receivables     2,042       5,031  
Other financial assets     613       1,077  
Cash and cash equivalents     16,619       11,119  
Total current financial assets     19,274       17,227  
                 
Other current assets                
Inventories     4,171       4,065  
Income tax reimbursement claims     5       4  
Other assets     586       1,195  
Total other current assets     4,762       5,264  
                 
Total current assets     24,036       22,491  
Total assets     55,635       58,363  

 

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Equity and liabilities

 

in EUR thousands   September 30, 2020      December 31, 2019  
    unaudited        
Equity                
Subscribed capital     44,849       44,849  
Capital reserve     117,969       118,103  
Capital reserve from foreign currency conversion adjustments     835       (288 )
Loss carried forward     (152,709 )     (145,351 )
Loss for the period     (12,027 )     (7,358 )
Total equity     (1,083 )     9,955  
                 
Non-current liabilities                
Financial debt     30,448       22,110  
Other financial liabilities     17,340       14,720  
Total non-current liabilities     47,788       36,830  
                 
Current liabilities                
Current financial liabilities                
Trade payables     1,645       4,196  
Current financial debt     1,148       1,212  
Other financial liabilities     16       99  
Total current financial liabilities     2,809       5,508  
                 
Other current liabilities                
Income tax     26       11  
Other provisions     2,986       3,495  
Other current liabilities     3,109       2,565  
Total other current liabilities     6,120       6,071  
                 
Total current liabilities     8,929       11,578  
Total equity and liabilities     55,635       58,363  

 

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Condensed consolidated statement of comprehensive income for the first nine months of the 2020 and 2019 fiscal years

 

in EUR thousands   9M 2020     9M 2019     Q3 2020     Q3 2019  
    unaudited     unaudited     unaudited     unaudited  
Sales revenue     20,829       19,059       4,713       5,155  
Cost of sales     (2,567 )     (4,194 )     (1,076 )     (1,710 )
Gross profit from sales     18,262       14,865       3,637       3,445  
                                 
Operating expenses                                
Research and development costs     (3,403 )     (3,215 )     (1,014 )     (894 )
General administrative costs     (6,882 )     (12,108 )     (2,470 )     (4,340 )
Sales costs     (16,340 )     (20,635 )     (4,189 )     (6,440 )
                                 
Loss from operations     (8,364 )     (21,093 )     (4,036 )     (8,229 )
                                 
Interest expenses     (691 )     (1,694 )     (252 )     (637 )
Effective interest expenses     (1,411 )     (950 )     (604 )     (453 )
Interest income     460       385       (72 )     176  
Other expenses     (2,022 )     (255 )     (1,720 )     (66 )
Other income     393       21,082       283       (2,341 )
                                 
Profit/loss before income tax     (11,635 )     (2,524 )     (6,401 )     (11,550 )
Income tax     (392 )     (25 )     (54 )     -  
Profit/loss for the period     (12,027 )     (2,549 )     (6,456 )     (11,550 )
                                 
Expenses and income not included in profit/loss                                
Items which may in future be regrouped into the profit and loss statement under certain conditions.     1,124       (716 )     958       (272 )
Translation differences resulting from the conversion of foreign business operations                                
Other expenses and income total     1,124       (716 )     958       (272 )
                                 
Total result for the period     (10,903 )     (3,265 )     (5,498 )     (11,822 )
                                 
Basic earnings per share in EUR     (0.24 )     (0.06 )                

 

Selected Consolidated Financial Data

 

The following tables set forth a summary of the consolidated historical financial information of, and for the periods ended on, the dates indicated for Biofrontera. We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. The selected consolidated statement of operations data for the fiscal years ended December 31, 2019, December 31, 2018 and December 31, 2017, and the selected consolidated balance sheet data as of December 31, 2019 and December 31, 2018 have been derived from our audited consolidated financial statements. Our selected consolidated statement of operations data for the six months ended June 30, 2020 and June 30, 2019 and the selected consolidated balance sheet data as of June 30, 2020 have been derived from our unaudited interim condensed consolidated financial statements included as an exhibit to the report on Form 6-K of which this exhibit forms a part. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all normal recurring adjustments that we consider necessary for a fair statement of our financial position and operating results for the periods presented.

 

The following selected consolidated financial data for the periods and as of the dates indicated are qualified by reference to and should be read in conjunction with our consolidated financial statements and related notes included as an exhibit to the report on Form 6-K of which this discussion forms a part.

 

Our historical results for any prior period do not necessarily indicate our results to be expected for any future period.

 

   

Six Months ended June 30,

unaudited

    Year Ended December 31,  
    2020     2019     2019     2018     2017  
                     
    (amounts in thousands, except share and per share data)  
Statement of operations data:                                        
Sales Revenue                   16,116       13,904       31,265       21,107       12,025  
Gross Margin     90.75 %     82.14 %     84.41 %     78.91 %     85.73 %
Research and development costs     (2,389 )     (2,322 )     (4,636 )     (4,427 )     (4,225 )
Sales costs     (12,151 )     (14,195 )     (28,856 )     (17,744 )     (16,922 )
General administrative costs     (4,412 )     (7,768 )     (16,275 )     (12,963 )     (3,097 )
Loss from operations     (4,327 )     (12,864 )     (23,377 )     (18,478 )     (13,934 )
Loss before income tax     (5,233 )     9,027       (4,777 )     (19,269 )     (16,102 )
Loss for the period     (5,571 )     9,001       (7,358 )     (8,878 )     (16,102 )

 

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Six Months ended June 30,

unaudited

    Year Ended December 31,  
    2020     2019     2019     2018     2017  
                     
Per share data:                                        
Basic and diluted loss per share                     (0.12 )     0.20       (0.16 )     (0.20 )     (0.42 )
Basic and diluted operating loss per share     (0.10 )     (0.29 )     (0.52 )     (0.42 )     (0.37 )
Shares used in computing basic and diluted loss per share     44,849,365       44,635,447       44,690,009       43,669,264       38,076,087  

 

    At June 30,     At December 31,  
   

2020

unaudited

    2019     2018     2017  
                   
    (amounts in thousands)  
Balance sheet data:                                
Cash and cash equivalents     10,550       11,119       19,451       11,083  
Other current financial assets     2,964       6,108       4,191       2,132  
Other current assets     5,350       5,264       3,945       5,239  
Non-current Assets     33,099       35,872       11,546       1,394  
Total assets     51,963       58,363       39,133       19,848  
Long-term liabilities     _39,261       36,830       15,007       12,355  
Current liabilities     7,965       11,578       7,770       4,112  
Total shareholders’ equity     4,737       9,955       16,356       3,381  

 

(1) See Note 24 to our consolidated financial statements filed with our 2019 Form 20-F for further details on the calculation of basic and diluted loss per ordinary share.
   
(2) Per share data are calculated by dividing net consolidated loss by the weighted average number of outstanding ordinary shares during the year in accordance with IAS 33.

 

Components of Our Results of Operations

 

Revenue

 

We generate revenue through the sale of our products Ameluz®, BF-RhodoLED® and Belixos® (our cosmetic skin care product). Following our acquisition of Cutanea Life Sciences, Inc. in March 2019, we have begun to generate revenue through sales of Xepi®.

 

In Germany, Spain, the United Kingdom, or UK, and the United States, we distribute and sell Ameluz® through our own sales force and recognize revenue upon shipment to our customers, such as wholesalers or hospitals or physicians. We have entered into license and distribution agreements with a variety of partners in other European countries and Israel. According to these agreements, we produce our products and sell them to our distribution or commercial partners at a transfer price, which is a defined percentage of the estimated final sales price in the respective country or territory. Such percentages range from 35% to 55%. Since production of Ameluz® is specific for most countries, we typically produce larger lots for our distribution or commercial partners and ship and invoice them. Our distribution or commercial partners hold inventory and subsequently sell stock over time in their applicable country or territory. We recognize revenue upon shipment to such partners. Upon signing of our license and distribution agreements, we also typically receive one-time payments from our distribution partners.

 

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Accordingly, the primary factors that determine our revenue derived from our products are:

 

  the level of orders generated by our sales force in the Germany, Spain, the UK and the United States;
  the level of orders from our commercial partners;
  the level of prescriptions and institutional demand for our products; and
  unit sales prices.

 

As discussed elsewhere in this Operating and Financial Review, the COVID-19 pandemic has impacted sales revenue, especially in the United States, our largest market. As long as the COVID-19 pandemic continues, we expect that it will have an impact on sales revenue in the regions that are affected by the COVID-19 pandemic.

 

Revenue from sales of our BF-RhodoLED® PDT lamp, are relatively insignificant compared with the revenues generated through our sales of Ameluz®.

 

Because traditional PDT treatments using a lamp are performed more frequently during the winter, our revenue has historically been higher during the first and fourth quarters than during the second and third quarters. However, daylight PDT is more frequently performed during the summer (and often cannot be performed during the winter). For this reason, we believe that our approval from the European Commission for daylight PDT may have the effect of smoothing our revenue throughout the year.

 

The following table provides a breakdown of revenue for the six-month periods ended June 30, 2020 and 2019:

 

   

Six months ended June 30,

unaudited

 
    2020     2019  
    € thousands  
Germany     2,364       2,154  
Europe     965       1,357  
United States     6,347       10,231  
Other Regions     6,441       162  
                 
Total revenue     16,116       13,904  

 

Cost of Goods Sold

 

Our cost of goods sold is comprised of all direct manufacturing expenses for our products, including any expenses associated with manufacturing and logistics, such as packaging, freight or transportation costs. We further include any costs associated with changes or upgrades in the manufacturing processes at our third-party manufacturers which had to be paid by us to fulfill certain obligations requested by the European Medicines Agency, or EMA, or the FDA. All overhead costs associated with manufacturing are also included in our costs of goods sold.

 

Research and Development Expenses

 

We incur research and development expenses related to our clinical and drug and medical device development programs. Our research and development expenses consist of expenses incurred in developing, testing and manufacturing drugs and devices for clinical trials, as well as seeking and maintaining regulatory approval of our product and product candidates, including:

 

  expenses associated with regulatory submissions, clinical trials and manufacturing;
  payments to third party contract research organizations contract laboratories and independent contractors;
  payments made to regulatory consultants;
  payments made to third party investigators who perform clinical research on our behalf and clinical sites where such testing is conducted;

 

16
 

 

  personnel related expenses, such as salaries, benefits, travel and other related expenses;
  expenses incurred to obtain and maintain regulatory approvals and licenses, patents, trademarks and other intellectual property; and
  facility, maintenance, and allocated rent, utilities, and depreciation and amortization, and other related expenses.

 

As we continue our clinical trial program for Ameluz®, both to show effectiveness in comparison to other drugs or therapies and to try to extend the current indications of Ameluz®, we expect to incur increasing levels of research and development expenses. In addition, any termination of, or delays in completing, our clinical trials will slow down our product development and approval process, leading to increased costs.

 

We incurred total research and development expenses of €2.4 million and €2.3 million for the six months ended June 30, 2020 and 2019, respectively.

 

Sales Costs

 

Sales costs consist primarily of salaries, benefits and other related costs for personnel serving in our sales, marketing and business development functions in Germany, Spain and the United States. Our sales costs also include costs related to marketing materials as well as sales congresses, industry conferences and similar events conducted to promote our products.

 

We incurred sales costs of €12.2 million and €14.2 million for the six months ended June 30, 2020 and 2019, respectively. The decrease in sales costs compared to the year-earlier period resulted from the cost savings measures we implemented in response to the COVID-19 pandemic, which were partly offset by the non-cash impairment of the Xepi®-license of €2.0 million.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of compensation for employees in executive and operational functions, including finance, investor relations, information technology and human resources. Other significant costs in this category include facilities costs and professional fees for accounting and legal services, investor relations, travel, insurance premiums and depreciation. Our general and administrative expenses decreased during the six months ended June 30, 2020 as compared to the same period in 2019 and as a result of cost savings measures we implemented in response to the COVID-19 pandemic as well as lower legal costs during the reporting period. We incurred general and administrative expenses of €4.4 million and €7.8 million for the six months ended June 30, 2020 and 2019, respectively.

 

Stock Compensation

 

We grant stock options to members of our management board, senior management, and employees. We recognize compensation expense as a charge to operations over the relevant vesting period of the options, which generally is four years. The aggregate estimated fair value for options issued during the six months ended June 30, 2020 was approximately €2.8 million as compared to €2.9 million in the six months ended June 30, 2019, which is being recognized over the vesting periods. Total compensation expense recorded related to options during the six months ended June 30, 2020, was approximately € 0.2 million. From inception through June 30, 2020, we have incurred cumulative compensation expense related to stock options of approximately € 1.5 million.

 

Interest Expense

 

Finance expense consists of interest income and interest expense, and foreign exchange gains (losses). Interest income consists of interest earned on our cash and cash equivalents. The interest expenses we incurred were principally comprised of interest payments under the EIB credit facility and on our outstanding warrant bond, using the effective interest method as well as the fair-value valuation of the purchase price liability. We incurred interest expense of €715,000 and €1.35 million in the six months ended June 30, 2020 and 2019, respectively.

 

17
 

 

Other Income and Expenses

 

Other income and expenses were €(191,000) and €23.24 million in the six months ended June 30, 2020 and 2019, respectively. Other income and expenses is comprised of badwill expenses, certain other expenses and gains and losses from currency conversion. The significant decrease in other income and expenses during the six months ended June 30, 2020 resulted from the €17.32 million in badwill in 2019 in connection with our acquisition of Cutanea Life Sciences, Inc. as well as other income generated from the reimbursement of restructuring costs by Maruho.

 

Income Taxes

 

We recorded €338,000 and €26,000 in income tax expense during the six months ended June 30, 2020 and 2019, respectively. In prior reporting periods, as a result of the net losses we have incurred in each fiscal year since inception, we recorded no provision for income taxes. Deferred tax assets are generally determined on the basis of the existing income tax rates in Germany. As a result of the German Company Tax Reform Act 2008, the corporation tax rate is set at 15%. When a solidarity surcharge of 5.5% is included, this results in a combined tax rate of 15.8%.

 

In addition to the corporate tax rate, our company is also subject to a local business tax rate of 8.6%. As the business taxes are not deductible as an operating expense, the resulting tax rate is 25.4%.

 

Loss carry forwards have an unlimited carry forward period under current German law.

 

We are also subject to corporate taxation in the United States. We are entitled under U.S. laws to carry forward any losses incurred from tax years ending on or before December 31, 2018 for a period of twenty years and can offset our losses carried forward against future taxes.

 

Due to the lack of predictability regarding future taxable profits, the existing deferred tax assets deriving, as a matter of principle, from loss carryforwards and tax-deductible differences were generally not recognized on the balance sheet, in accordance with IAS 12.34. On our balance sheet as of June 30, 2020, however, we capitalized deferred tax assets of € 7.5 million as our wholly owned subsidiary Biofrontera Pharma GmbH has become profitable and is expected to remain profitable such that we will be able to set off respective loss carry-forwards against future profits in accordance with German tax acts.

 

Effect of Foreign Currency Fluctuations

 

We publish our consolidated financial statements in euros. Historically, most of our revenues and expenses have also been denominated in euros. Therefore, historically, we had not been subject to any major influences on our net income due to currency exchange effects. Since we obtained FDA approval and began to commercialize our products in the United States, however, we now generate a significant part of our revenues and expenses in U.S. dollars. These revenues and expenses incurred in U.S. dollars will be translated into euros when they are reported in our consolidated financial statements. As a result, any substantial future appreciation or decline of the U.S. dollar against the euro could have a material effect on our revenue and profitability.

 

Our holding company Biofrontera AG has provided to our wholly-owned U.S. subsidiary Biofrontera Inc. an inter-company loan to provide financial funds for our U.S. operations. The loan is denominated in U.S. dollars and interest bearing. Any fluctuation of the exchange rate between the euro and the US dollar will have an impact on our consolidated profit and loss statement.

 

Our product Ameluz® is manufactured by a third-party contract manufacturer in Switzerland. Any invoices by such manufacturer are denominated in Swiss Francs. We expect that as our sales and revenue increase, we would increase the manufacturing purchases from our Swiss manufacturer and could, therefore, be increasingly subject to currency exchange effects from these Swiss Franc denominated transactions with our Swiss manufacturer.

 

18
 

 

Results of Operations

 

Comparison of the six months ended June 30, 2020 to the six months ended June 30, 2019

 

Total Revenue

 

Total Revenue
   

Six months ended June 30,

unaudited

    Increase (decrease)  
    2020     2019     Amount     Percentage  
    € thousands (except percentages)  
Germany     2,364       2,154       210       10 %
United States     6,347       10,231       (3,884 )     (38 )%
Europe     965       1,357       (392 )     (29 )%
Other Regions     6,441       162       6,279       3,876 %
Total Revenue     16,116       13,904       2,212       16 %

 

We generated revenue of €16.1 million in the six months ended June 30, 2020, an increase of more than 16% over the comparable period in 2019.

 

The largest impact of the COVID-19 pandemic was felt in the United States, where our revenues decreased by 38% to €6.3 million in the six-month period ended June 30, 2020 compared to the six-month period ended June 30, 2019 of €10.2 million. This includes €157,000 in sales from the new product Xepi® in the six-month period ended June 30, 2020 compared to €282,000 in the six-month period ended June 30, 2019.

 

In Germany, we generated revenue of €2.4 million in the six months ended June 30, 2020, an increase of 10%, over the comparable period in 2019. In European countries other than Germany, we generated revenue of €965,000 in the six months ended June 30, 2020, a decrease of 29% over the comparable period in 2019. The revenue decline in countries in Europe other than Germany, was driven primarily by the impact of the COVID-19 pandemic.

 

In other regions, we generated revenue of €6.4 million in the six months ended June 30, 2019, as compared to €162,000 in the comparable period in 2019. The revenue increase in other regions was driven primarily by the one-time payment of €6 million under the Maruho license agreement.

 

Cost of Sales

 

Cost of Sales
    Six Months ended June 30,
unaudited
    Increase (decrease)  
    2020     2019     Amount     Percentage  
    € thousands (except percentages)  
Cost of sales     (1,491 )     (2,483 )     (992 )     (40 )%

 

Cost of sales was €1.5 million for the six months ended June 30, 2020, compared to €2.5 million for the six months ended June 30, 2019, a decrease in costs of €992,000. This decrease resulted primarily from a lower volume of products sold during the period.

 

Research and Development Expenses

 

Research and development expenses

 

Research and Development Expenses
    Six Months ended June 30,
unaudited
    Increase (decrease)  
    2020     2019     Amount     Percentage  
    € thousands (except percentages)  
Clinical studies (external expenses)     (1,080 )     (715 )     365       51 %
FDA and EMA Fees     (312 )     (165 )     147       89 %
Other research and development expenses     (997 )     (1,442 )     (445 )     (31 )%
Total research & development expenses     (2,389 )     (2,322 )     67       3 %

 

19
 

 

Research and development expenses were €2.4 million for the six months ended June 30, 2020, compared to €2.3 million for the six months ended June 30, 2019. Research and development expenses incurred in the six months ended June 30, 2020 and 2019 were related to our clinical studies as well as expenses associated with maintaining our European and U.S. approval dossiers, preparing regulatory documentation and filing with regulatory authorities, in particular with the FDA in the United States, and the EMA in Europe for Ameluz® . A small portion of our expenses were associated with filing and maintaining our patents and other intellectual property rights.

 

General Administrative Costs

 

General and Administrative Expenses
    Six Months ended June 30,
unaudited
    Increase (decrease)  
    2020     2019     Amount     Percentage  
    € thousands (except percentages)  
General and administrative expenses     (4,412 )     (7,768 )     (3,356 )     (43 )%

 

General administrative expenses were €4.4 million for the six months ended June 30, 2020, compared to €7.8 million for the six months ended June 30, 2019, representing a significant decrease of €3.4 million. This decrease was due primarily to cost savings measures we implemented in response to the COVID-19 pandemic as well as lower legal costs.

 

Sales Costs

 

Sales Costs
    Six Months ended June 30,
unaudited
    Increase (decrease)  
    2020     2019     Amount     Percentage  
    € thousands (except percentages)  
Sales Costs     (12,151 )     (14,195 )     (2,044 )     (14 )%

 

Sales costs were €12.1 million for the six months ended June 30, 2020, compared to €14.2 million for the six months ended June 30, 2019, representing a decrease of €2.0 million. This decrease was driven primarily by a decrease in sales activity due to the COVID-19 pandemic as well as cost saving measures, the decrease was partly offset by the non-cash impairment of the Xepi-license of €2.0million. Sales costs include the costs of our own field sales team in Germany, Spain, the UK and the United States, as well as marketing expenses.

 

Interest Income and Expense

 

Interest Income and Expense
    Six Months ended June 30,
unaudited
    Increase (decrease)  
    2020     2019     Amount     Percentage  
    € thousands (except percentages)  
Interest Expense     (1,246 )     (1,554 )     (308 )     (20 )%
Interest Income     531       209       322       154 %

 

Interest income was €531,000 for the six months ended June 30, 2020, compared with €209,000 for the six months ended June 30, 2019.

 

The amount of net interest was €(0.7) million for the six months ended June 30, 2020 compared to €(1.3) million) in the six months ended June 30, 2019, and mainly includes interest expenses for the EIB loan made available in July 2017 and which was increased by a further tranche in February 2019. Interest income of €0.5 million in the six months ended June 30, 2020 compared to an interest expense of € 0.2 million in the six months ended June 30, 2019, is reported from the re-evaluation of the performance component of the EIB loan. In addition, interest expenses include higher amounts from the compounding of non-current liabilities.

 

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Other Income and Expense, Net

 

Other income and (expense), net

 

Other Income and (Expense), Net
    Six Months ended June 30,
unaudited
    Increase (decrease)  
    2020     2019     Amount     Percentage  
    € thousands (except percentages)  
Other income and (expense), net     (191 )     23,236       (23,427 )     (101 )%

 

Other income and expense, net was €(191,000) for the six months ended June 30, 2020, compared to €23.2 million for the six months ended June 30, 2019. The decrease was primarily driven by (a) €17.3 million of other income in the form of badwill resulting from the negative difference in asset and liability items measured at fair value resulting from the purchase price allocation in 2019 and (b) €5.5 million of other income received from Maruho as reimbursement of restructuring expenses in 2019, in each case in connection with our acquisition of Cutanea Life Sciences, Inc. Expenses and income from currency translation are also included in other income and expense, net.

 

Liquidity and Capital Resources

 

We devote a substantial portion of our cash resources to research and development and sales, general and administrative activities primarily related to the commercialization of our products, Ameluz®, BF-RhodoLED® lamp and Xepi® We have financed our operations primarily with the proceeds of the issuance and sale of equity securities, warrant bonds and convertible bonds in Germany and the United States and, since May 2017, with proceeds from the EIB credit facility, and supply revenue and licensing income from some of our distribution and other partners. To date, we have generated supply revenue from direct sales in the United States, Germany, Spain and the UK as well as from sales to distribution partners in some European countries and Israel.

 

Our management board regularly reviews the equity ratio of Biofrontera AG as a standalone entity as well as on a consolidated basis with its subsidiaries. Management seeks to ensure an appropriate equity base, within the framework of expectations of the capital markets, and creditworthiness with respect to national and international business partners. Our management board seeks to ensure that all companies within our group have sufficient equity and debt funding at their disposal.

 

We have incurred losses and generated negative cash flows from operations since inception. As of June 30, 2020, we had an accumulated deficit of €158.3 million and cash and cash equivalents of €10.6 million. In May 2017, we entered into the EIB credit facility under which EIB agreed to provide us with loans of up to €20 million in the aggregate. In 2017, we borrowed €10 million under the EIB credit facility, all of which remained outstanding as of September 30, 2020. In February 2019, we borrowed another €5.0 million from this credit facility after the conditions had been met. The remaining tranche of €5.0 million has expired and can no longer be drawn. See “Description of Our Principal Financing Documents — European Investment Bank Loan Commitment and Security Agreements” below.

 

The following table summarizes our cash flows from operating, investing and financing activities for the periods presented:

 

   

Six Months ended June 30,

unaudited

 
    2020     2019  
    € thousands  
Consolidated Statement of Cash Flows Data:                
Net cash provided by (used in):                
Operating activities     (1,246 )     (21,873 )
Investing activities     1,764       (19,718 )
Financing activities     (1,079 )     4,278  
Net increase (decrease) in cash and cash equivalents     (561 )     2,123  

 

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Operating Activities

 

For the six months ended June 30, 2020 and 2019, our net cash used in operating activities was €1.25 million and €21.9 million, respectively. The decrease in net cash used in operating activities in the six months ended June 30, 2020 was driven primarily by the effects of the restructuring of Cutanea in the previous year.

 

Investing Activities

 

For the six months ended June 30, 2020, our net cash generated in investing activities was €1.8 million, compared to net cash used in investing activities of €19.7 million for the six months ended June 30, 2019. The net cash generated in investing activities during the six months ended June 30, 2020 was primarily from further cash inflow from start-up costs in connection with the acquisition of Cutanea Life Sciences, Inc.

 

Financing Activities

 

Our net cash provided by financing activities was €(1.1) million for the six months ended June 30, 2020 compared to €4.3 million for the six months ended June 30, 2019. The decrease in cash provided by financing activities during the six months ended June 30, 2020 compared to the prior-year period was primarily due to the receipt of proceeds from another tranche of the EIB loan in the first half of 2019, which did not recur in 2020.

 

Future Capital Requirements

 

The report of the independent registered public accounting firm accompanying our December 31, 2019 and 2018 audited financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. As a result of the one-time payment of €6 million under the Maruho license agreement and the issuance of the mandatory convertible bond 2021-22 in August 2020 with gross proceeds of €7.9 million, we believe that, as of the date of this Report on Form 6-K our existing cash and cash equivalents, together with revenue from product sales and future milestone or license payments, will be sufficient to enable us to fund our operating expenses and to advance our commercialization strategy in our key markets for the next 12 months. However, we also may raise additional funds from public or private equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives to meet our working capital requirements and to fund the continuing commercialization of our existing products and the launch of any new products in the United States, the EU or other jurisdictions. Our existing financing arrangements place important restrictions on our ability to raise additional debt. See “Description of Our Principal Financing Documents” below.

 

Our need for additional sources of liquidity and capital will depend significantly on the level and timing of regulatory approval and product sales, as well as the extent to which we choose to establish collaboration, co-promotion, distribution or other similar agreements for our products and product candidates. Moreover, changing circumstances may cause us to spend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control.

 

We expect to continue to incur substantial additional operating losses from significant general and administrative (including relating to litigation), sales, marketing and manufacturing expenses in the United States as we seek to expand the commercialization of Ameluz® in the United States and undertake further clinical trials and other activities related to extending the approved indications for Ameluz®. In addition, we expect to incur additional expenses to add and improve operational, financial and information systems and personnel, including personnel to support our product commercialization efforts. We also expect to incur significant costs to continue to comply with corporate governance, internal controls and similar requirements applicable to us as a public company in the United States and in Germany. We also anticipate to incur significant expenses in connection with lawsuits brought by and against our competitor in the United States and by and against a shareholder.

 

Our future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:

 

  the costs of our commercialization activities for Ameluz®, most importantly in the United States;
     
  the scope, progress, results and costs of development for extending indications for Ameluz®;

 

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  the costs of maintaining and extending our regulatory approvals;
     
  the extent to which we acquire or invest in products, businesses and technologies;
     
  the extent to which we choose to establish collaboration, co-promotion, distribution or other similar agreements for our products; and
     
  the costs of preparing, submitting and prosecuting patent applications and maintaining, enforcing and defending intellectual property claims.

 

We may not have sufficient funds and may be unable to arrange for additional financing to pay the amounts due under our existing debt obligations, in particular the minimum €13.0 million payment that we must make on July 7, 2022 and a minimum payment of €6.5 million that we must make on February 4, 2024. To the extent that our capital resources are insufficient to meet our future operating and capital requirements, we will need to finance our cash needs through public or private equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives. We have no committed external sources of funds., Amounts that are repaid under the credit facility cannot be reborrowed. Additional equity or debt financing or corporate collaboration and licensing arrangements may not be available on acceptable terms, if at all. In addition, the covenants under our existing debt obligations could limit our ability to obtain additional debt financing. For example, under the EIB credit facility, we are not permitted to incur additional third-party debt in excess of €1.0 million without the prior consent of EIB (subject to certain exceptions).

 

If we raise additional funds by issuing equity securities, our shareholders will experience dilution. Any additional debt financing or additional equity that we raise may contain terms that are not favorable to us or our shareholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us.

 

Description of Principal Financing Documents

 

European Investment Bank Loan Commitment and Security Agreements

 

On May 19, 2017, we entered into a Finance Contract with EIB, which we sometimes refer to as the EIB credit facility, whereby EIB has committed to lend us up to €20.0 million. The loan terms specify that the amounts drawn will be used to finance up to approximately 50% of specified research and development expenses forecast to be made by us between 2017 and 2020. The key terms of the EIB credit facility are as follows:

 

  Term and Availability. The EIB credit facility can be drawn in up to four tranches each in a minimum amount of €5.0 million, each of which matures 5 years from the scheduled date of disbursement for the relevant tranche. The final availability date for the EIB credit facility was May 19, 2020.
     
  Conditions to disbursement. We had drawn the first €10.0 million of the loan commitment in the form of two €5 million tranches in 2017. In February 2019 we drew another tranche of €5.0 million. The remaining tranche of €5.0 million has expired and cannot be drawn.
     
  Use of Proceeds and Co-Funding Requirement. We are required to use proceeds from the EIB credit facility in order to fund post-marketing level clinical trials to produce data for obtaining regulatory clearance in the EU and United States for Ameluz® in different indications and treatment modalities, referred to as the “Project”. In addition, we are required to ensure that we have available, and to expend, our own funds to finance approximately 50% of the Project budget (which is approximately €40.0 million in total). This means that, for any given year we may use the EIB credit facility to finance only approximately 50% of costs related to the Project.
     
  Interest. There are three components to the interest we pay under the EIB credit facility: quarterly floating interest payments, a deferred interest payment, and a performance participation interest payment. We make floating interest payments each quarter based on a rate per annum equal to EURIBOR plus 4.00%. The deferred interest and the performance participation interest payments are payable in full when the relevant tranche matures (or on any earlier prepayment date). Deferred interest accrues daily on each €5.0 million tranche at a rate of 6.0% per annum. For each €5.0 million tranche, the performance participation interest amount is equal to the product of EIB’s disbursement date notional equity proportion in respect of such tranche multiplied by our market capitalization on the maturity date of such tranche. The disbursement date notional equity proportion in relation to the outstanding €10.0 million tranche of the loan is 0.64% and the disbursement date notional equity proportion in relation to the outstanding €5.0 million tranche of the loan is 0.20%.

 

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  Restriction on Debt. We are not permitted to incur additional third-party debt in excess of €1.0 million without the prior consent of EIB. This restriction is subject to certain exceptions, such as for ordinary course deferred purchase arrangements and, subject to maximum amounts, various types of leases.
     
  Events of Default. The EIB credit facility contains a number of provisions allowing EIB to accelerate the payment of all or part of amounts outstanding under the EIB credit facility, including customary acceleration provisions for failure to make payments, inaccuracy of representations and warranties, default on other loan obligations (cross-default), illegality or change of law, and events relating to bankruptcy, insolvency and administration. In addition, EIB may accelerate upon any event or change in condition which in the opinion of EIB has a material adverse effect on our business, operations, property, condition (financial or otherwise) or prospects, or on the business, operations, property,

 

Convertible Bond II

 

In January 2017, we issued a convertible bond with an aggregate principal amount of €4.999 million, which is divided into 49,990 non-registered pari passu ranking bonds, each with a principal amount of €100. These bonds bear interest at a rate of 6% per annum on their principal amount from and including February 1, 2017. We must pay interest on these bonds semi-annually in arrears on January 1 and July 1 of each year. We must redeem these bonds in full on January 1, 2022, by paying the outstanding principal amount, together with accrued interest on the principal amount until (but excluding) the maturity date, unless they have previously been redeemed or converted or purchased and cancelled. The bonds were offered on a preemptive basis to all existing shareholders and were fully subscribed.

 

The terms and conditions of these bonds provide that each bondholder is entitled to declare due and payable the entire principal amount and any other claims arising from the bonds if we fail to pay within 30 days after the relevant payment date any amounts due and payable on the bonds or we exceed the “permissible indebtedness” under the terms and conditions by incurring additional debt. We will be deemed to exceed the “permissible indebtedness” if, as a result of our incurrence of any debt, both (1) our “net financial indebtedness” exceeds €25 million, and (2) our “net indebtedness quota” exceeds 4.0. “Net financial indebtedness” is defined as (i) the sum of long-term financial liabilities and short-term financial debt, less (ii) cash and cash equivalents, and “net indebtedness quota” is defined as the quotient of (i) our “net financial indebtedness” divided by (ii) our EBITDA (as defined in the terms and conditions of the bonds). For purposes of these calculations, all relevant figures are determined based on our most recent published annual or interim quarterly financial reports at the time we incur additional debt. We will not be deemed to exceed the “permissible indebtedness” if the “net indebtedness quota” exceeds 4.0 due to a reduction of our EBITDA.

 

We granted each bondholder the right to convert its bonds, at any time, in whole but not in part, into our ordinary shares, at a conversion price per share equal to: €3.50 per share from the date of issuance until March 31, 2017; €4.00 per share from April 1, 2017 until December 31, 2018; and €5.00 per share from January 1, 2018 until maturity. In March 2018 the conversion price was reduced to €4.75 in accordance with section 11 of the bond terms and conditions. As of the date of this Report on Form 6-K, a principal amount of €3.0 million of these convertible bonds has been converted into shares.

 

For more information on Convertible Bond II, see Note 10 (Financial Liabilities) to our audited consolidated financial statements for the fiscal years ended December 31, 2019 included in our Annual Report on Form 20-F filed with the Commission on April 21, 2020.

 

Convertible Bond III

 

In August 2020, we issued a mandatory convertible bond with an aggregate principal amount of €7.9 million with a mandatory conversion right for the life of the bond. The gross proceeds to us from the bond offering were €7.9 million. In November 2020, we exercised the mandatory conversion right once the trigger price for our shares had been exceeded (which was €4.50) and converted all outstanding bonds into 2,638,150 of our ordinary shares.

 

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Off-Balance Sheet Transactions

 

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

 

The condensed interim consolidated financial statements as of June 30, 2020 were prepared in accordance with the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB) as well as the interpretations of the International Financial Reporting Standards Interpretations Committee (IFRS IC) for “Interim Financial Reporting” in accordance with IAS 34, as adopted by the IASB. As a consequence, they do not include all information and disclosures required for consolidated financial statements, and for this reason should be read in connection with the consolidated financial statements for the fiscal year ended December 31, 2019.

 

As part of preparing the interim consolidated financial statements, our management board must make assumptions that affect the application of accounting policies within Biofrontera, and the reporting of assets and liabilities as well as income and expenses. Actual amounts can differ from such estimates. The accounting policies applied in the preparation of the consolidated financial statements as of December 31, 2019 were adopted unchanged for the preparation of these condensed interim consolidated financial statements.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The following information updates and replaces the disclosures in “Item 11 Quantitative and Qualitative Disclosures About Market Risk” in our 2019 Form 20-F.”

 

We are exposed to various risks in relation to financial instruments including credit risk, liquidity risk and currency risk. Our risk management is coordinated by our management board. We do not engage in the trading of financial assets for speculative purposes. The most significant financial risks to which we are exposed include the following discussed below. Please see note 15 (Reporting on Financial Instruments) to our consolidated financial statements for the fiscal year ended December 31, 2019 for additional information.

 

Liquidity risk

 

We have been dependent on our shareholders and bondholders for the funding of our operations. As described in note 1 of our consolidated audited financial statements included in our 2019 Form 20-F, our ability to continue as a going concern is dependent on the ability of our company or subsidiaries to raise additional funds by way of debt and/or equity offerings to enable our company or subsidiaries to fund our clinical trial programs and commercialization plans. Additionally, changing circumstances may cause our company or subsidiaries to consume capital significantly faster than we currently anticipate, including as a result of a temporary but significant decline in demand for our products as a result of the COVID-19 pandemic, and our company or subsidiaries may need to spend more money than currently expected because of circumstances beyond our control. We will require additional capital for the further development and commercialization of our products and product candidates. We may need substantial additional funds to fully develop, manufacture, market and sell our other potential products. See “Risk Factors” in our 2019 Form 20-F.

 

As of the date of this Report on Form 6-K, we believe that existing cash and cash equivalents will be sufficient to fund operations for the next 12 months at least. The report of the independent registered public accounting firm accompanying our December 31, 2019 and 2018 audited financial statements in our 2019 Form 20-F contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The prior financing requirement of at least €5 million to maintain business operations until the end of April 2021 was met by our successful placement of a mandatory convertible bond generating gross proceeds of €7.9 million, providing us with sufficient liquidity at present. With regard to material uncertainties in connection with the going concern status, we refer to “Note 33—Subsequent events—Effects of the COVID-19 pandemic,” in the notes to our consolidated audited financial statements included in our 2019 Form 20-F.

 

Currency risk

 

We are subject to currency risk, as our income and expenditures are denominated in euro, Swiss francs and the U.S. dollar. As such we are exposed to exchange rate fluctuations between such foreign currencies and the euro. We aim to match foreign currency cash inflows with foreign cash outflows where possible. We do not hedge this exposure. If we increase sales of our products in the U.S., we would expect to have significant increases in cash balances, revenues and sales and marketing costs denominated in U.S. dollars and in Swiss francs, while we would expect the majority of our development and operating costs to remain denominated in euro. Between January 2015 and March 2020, the exchange rate between the U.S. dollar and the euro ranged between 1.0375 dollars per euro and 1.2488 dollars per euro, and the exchange rate between the Swiss franc and the euro ranged between 0.9816 Swiss franc per euro and 1.2383 Swiss franc per euro. Based on certain assumptions relating to our operations (which assumptions may prove incorrect) and our internal models, we believe that, with respect to the fiscal year ended December 31, 2019, an average 10% appreciation of the U.S. dollar against the euro would have resulted in an increase of approximately €3.4 million in our net income for such period, whereas we believe that an average 10% depreciation of the U.S. dollar against the euro would have resulted in a decrease of approximately €2.7 million in our net income during such period.

 

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Exhibit 99.3

 

Execution Version

 

Die deutsche Fassung ist maßgeblich. Die englische Fassung ist eine Übersetzung ausschließlich zu Informationszwecken.   The German version is binding. The English version is a convenience translation for information purposes only.
     
Vertrag über ein Wertpapierdarlehen   Share Loan Agreement
     
zwischen   between
     
Maruho Deutschland GmbH, vertreten durch ihren einzelvertretungsberechtigten Geschäftsführer Takaharu Kato, Hemmelrather Weg 201, 51377 Leverkusen   Maruho Deutschland GmbH, represented by its managing director with sole power of representation Takaharu Kato, Hemmelrather Weg 201, 51377 Leverkusen
     
(im folgenden „Darlehensgeber” genannt)   (hereinafter referred to as the “Lender”)
     
und   and
     
Quirin Privatbank AG, vertreten durch ihren Vorstand, Kurfürstendamm 119, 10711 Berlin   Quirin Privatbank AG, represented by its management board, Kurfürstendamm 119, 10711 Berlin
     
(im folgenden “Darlehensnehmer” und zusammen mit dem Darlehensgeber die „Parteien” genannt)   (hereinafter referred to as the “Borrower” and, together with the Lender, the “Parties”)

 

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Präambel:   Preamble:
     
Der Darlehensnehmer ist eine Wertpapier-handelsbank (Kreditinstitut gem. § 1 Abs. 3d Satz 3 KWG). Die Biofrontera AG (die „Gesellschaft”) ist eine Gesellschaft mit Sitz in Leverkusen und eingetragen im Handelsregister des Amtsgerichts Köln unter HRB 49717. Sie verfügt derzeit über ein im Handelsregister eingetragenes Grundkapital in Höhe von EUR 47.747.515,00, eingeteilt in 47.747.515 auf den Namen lautende Stammaktien in Form von nennbetragslosen Stückaktien, welche im Regulierten Markt der Düsseldorfer und der Frankfurter Wertpapierbörse (ISIN DE0006046113) notiert sind (die „Alten Aktien”). Einige der Alten Aktien sind als American Depositary Shares („ADSs”) an der U.S.-NASDAQ gelistet, wobei ein ADS jeweils zwei Stammaktien repräsentiert. U.S.-Verwahrstelle der ADS ist die Bank of New York Mellon, 101 Barclay Street, New York, New York 10286, USA („BNY Mellon NY”).   The Borrower is a securities trading bank (credit institution pursuant to section 1(3d), sentence 3 German Banking Act). Biofrontera AG (the “Company”) is a company with registered office in Leverkusen entered in the commercial register kept at the Local Court of Cologne under HRB 49717. It currently has a registered share capital in the amount of EUR 47,747,515.00, divided into 47,747,515 registered ordinary shares in the form of no-par value shares listed on the regulated market of the Düsseldorf and Frankfurt Stock Exchanges (ISIN DE0006046113) (the “Old Shares”). Some of the Old Shares are listed on the U.S. NASDAQ in form of American Depositary Shares („ADSs”). One ADS represents to ordinary shares. The U.S. depositary bank for ADS is Bank of New York Mellon, 101 Barclay Street, New York, New York 10286, USA („BNY Mellon NY”).
     
Die Hauptversammlung der Gesellschaft hat am 28. Mai 2020 beschlossen, das Grundkapital um bis zu EUR 8.969.870,00 gegen Bareinlagen durch Ausgabe von bis zu 8.969.870 neuen, auf den Namen lautenden Stückaktien mit einem rechnerischen Anteil am Grundkapital von je EUR 1,00 und mit voller Gewinnberechtigung ab dem 1. Januar 2020 zu erhöhen (die „Kapitalerhöhung”). Die neuen Aktien sollen zu einem Ausgabebetrag von EUR 1,00 (d.h. Nennbetrag) je neuer Aktie, d.h. zu einem Gesamtausgabebetrag von bis zu EUR 8.969.870,00 ausgegeben werden und von einem Kreditinstitut mit der vertraglichen Verpflichtung übernommen werden, sie den Aktionären im Verhältnis 5:1 zu einem noch festzulegenden Bezugspreis zum Bezug anzubieten (mittelbares Bezugsangebot) und den Mehrerlös - nach Abzug angemessener Kosten - an die Gesellschaft abzuführen. Die nicht in Ausübung des Bezugsrechts bezogenen neuen Aktien können den Aktionären über ihr Bezugsrecht hinaus (Mehrbezug) unter Wahrung des Gleichbehandlungsgrundsatzes sowie Dritten im Rahmen einer Privatplatzierung zum festgesetzten Bezugspreis angeboten werden.   On 28 May 2020, the annual general meeting of the Company resolved to increase the share capital by up to EUR 8,969,870.00 against cash contributions by issuing up to 8,969,870 new no-par value registered shares with a notional share in the share capital of EUR 1.00 each and with full dividend rights as of January 1, 2020 (the “Capital Increase”). The new shares are to be issued at an issue price of EUR 1.00 (i.e. par) per new share, i.e. at a total issue price of up to EUR 8,969,870.00 and shall be subscribed by a credit institution with the contractual obligation to offer them to the shareholders for subscription at a ratio of 5:1 at a subscription price to be determined (indirect subscription offer) and to transfer the additional proceeds - after deduction of reasonable costs - to the Company. New shares not subscribed by exercising the subscription right may be offered to the shareholders in addition to their subscription right (additional subscription) in compliance with the principle of equal treatment and to third parties in a private placement at the determined subscription price.

 

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Die Gesellschaft beabsichtigt, die Kapitalerhöhung in vollem Umfang umzusetzen und ihr Grundkapital durch Ausgabe der bis zu 8.969.870 neuen, auf den Namen lautenden Stückaktien mit einem rechnerischen Anteil am Grundkapital von je EUR 1,00 und mit voller Gewinnanteilberechtigung ab dem 1. Januar 2020 (die „Neuen Aktien”) zu erhöhen. Die Gesellschaft beabsichtigt, die Neuen Aktien im Wege eines öffentlichen Angebots in Deutschland in Form eines Bezugsangebots an die Aktionäre der Gesellschaft anzubieten (das „Bezugsangebot”). Die Bezugsfrist soll vom 8. Februar 2021 bis zum 22. Februar 2021 12:00 Uhr laufen („Bezugsfrist”). Der Bezugspreis je Neuer Aktie wird spätestens drei Tage vor Ablauf der Bezugsfrist in den Gesellschaftsblättern (Bundesanzeiger) und über ein elektronisches Informationsmedium bekannt gemacht („Bezugspreis”). Eine von der Gesellschaft festgelegte Anzahl der im Rahmen des Bezugsangebots nicht bezogenen Neuen Aktien sollen den Aktionären zusätzlich zu ihrem Bezugsrecht unter Wahrung des Gleichbehandlungsgrundsatzes („Mehrbezug”) und qualifizierten Anlegern in bestimmten europäischen Ländern im Wege von Privatplatzierungen angeboten werden (die „Privatplatzierung”, und zusammen mit dem Bezugsangebot und dem Mehrbezug das „Europäische Angebot”).

 

 

The Company contemplates to perform the Capital Increase and to increase its share capital by issuing the up to 8,969,870 new no-par value registered shares with a notional share in the share capital of EUR 1.00 each and with full dividend rights as of January 1, 2020 (the “New Shares”). The Company contemplates offering the New Shares by way of a public offering in Germany in the form of a subscription rights offer to the Company’s shareholders (the Subscription Offer). The subscription period will run from 8 February 2021 until 15 February 2021, 12.00 noon (“Subscription Period”). The subscription price per New Share will be published in the company gazettes (Bundesanzeiger) and via an electronic information medium no later than three days before the end of the Subscription Period („Subscription Price”). An amount of the New Shares not subscribed in the course of the Subscription Offer to be determined by the Company shall be offered to the shareholders in addition to their subscription right (“Additional Subscription”) in compliance with the principle of equal treatment and to qualified investors in certain European countries by way of private placements (the “Private Placement”, and together with the Subscription Offer and the Additional Subscription the “European Offer”).

Darüber hinaus sollen (i) die Neuen Aktien, die aus den BNY Mellon NY als U.S.-Verwahrstelle zugeteilten Bezugsrechten resultieren, sowie (ii) eine von der Gesellschaft festgelegte Anzahl von Neuen Aktien, die nicht im Rahmen des Bezugsangebots gezeichnet werden, in Form von ADSs neuen Investoren in den Vereinigten Staaten von Amerika (die „Vereinigten Staaten”) im Wege eines fest übernommenen öffentlichen Angebots in Übereinstimmung mit den Registrierungserfordernissen von Section 5 des U.S. Securities Act von 1933 in der jeweils gültigen Fassung (der „Securities Act”) durch The Benchmark Company LLC als US Underwriter (der „US-Manager” und zusammen mit dem Darlehensnehmer die „Banken”) angeboten werden (das „US-Angebot”).   In addition, (i) the New Shares derived from the subscription rights allocated to BNY Mellon NY in its capacity as U.S. depositary bank as well as (ii) an amount of the New Shares not subscribed for in the Subscription Offer to be determined by the Company shall be offered, in the form of ADSs to new investors in the United States of America (the “United States”) by way of an underwritten public offering in compliance with the registration requirements of Section 5 of the U.S. Securities Act of 1933, as amended from time to time (the “Securities Act”), by The Benchmark Company LLC as U.S, underwriter (the “US Manager”, and together with the Borrower the “Banks”) (the “US Offer”).

 

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Der Darlehensnehmer ist von der Gesellschaft mit der u.a. Herstellung der Girosammelverwahrung und der Beantragung der Börsenzulassungen für die Neuen Aktien mandatiert worden. Die Neuen Aktien sollen zum Handel im Regulierten Markt an der Düsseldorfer Wertpapierbörse und im Regulierten Markt an der Frankfurter Wertpapierbörse im Segment mit weiteren Zulassungsfolgepflichten (Prime Standard) zugelassen werden.   The Company has instructed the Borrower, inter alia, to set up the collective deposit of securities and apply for admission of the New Shares to trading on the stock exchanges. The New Shares are to be admitted to trading on the regulated market of the Düsseldorf Stock Exchange and to trading on the regulated market of the Frankfurt Stock Exchange in the segment with additional post admission obligations (Prime Standard).
     
Ferner ist der Darlehensnehmer von der Gesellschaft als Bezugsstelle im Sinne von § 186 Abs. 5 AktG (mittelbares Bezugsrecht) mit der Abwicklung des Bezugsangebots beauftragt worden. D.h. der Darlehensnehmer wird Neue Aktien aus der Kapitalerhöhung zum geringsten Ausgabebetrag von EUR 1,00 je Neuer Aktie gem. § 185 AktG zeichnen und gegen Zahlung des Bezugspreises an Aktionäre (bzw. Inhaber von Bezugsrechten) im Rahmen der Ausübung von deren Bezugsrechten sowie weiteren Anlegern liefern.   In addition, the Company also mandated the Borrower as the subscription agent within the meaning of section 186(5) Stock Corporation Act (indirect subscription right) with handling the Subscription Offer. Accordingly, the Borrower shall subscribe for New Shares from the Capital Increase at the lowest issue price of EUR 1.00 per New Share pursuant to section 185 Stock Corporation Act and deliver these, in exchange for payment of the Subscription Price, to shareholders (or holders of subscription rights) as part of the exercise of their subscription rights and other investors.
     
Der Darlehensgeber ist Inhaber von 13.399.965 Alten Aktien der Gesellschaft (entspricht derzeit ca. 28,06% des Grundkapitals).   The Lender holds 13,399,965 Old Shares in the Company (currently representing approx. 28.06% of the share capital).
     
Der Darlehensgeber als Aktionär der Gesellschaft unterstützt die Kapitalmarktaktivitäten der Gesellschaft in den Vereinigten Staaten. Damit BNY Mellon NY ADS´s zur Belieferung von etwaigen US Investoren ausstellen kann, hat sich der Darlehensgeber daher bereit erklärt, dem Darlehensnehmer im Wege eines Sachdarlehens zum Zwecke der rechtzeitigen Belieferung von BNY Mellon NY Alte Aktien der Gesellschaft zur Verfügung zu stellen („Wertpapierleihe”). Diese Aktien sollen an BNY Mellon (Deutschland) („BNY Mellon”) geliefert werden.   As the Company’s shareholder the Lender supports the capital market activities by the Company in the United States. In order for BNY Mellon NY to be able to provide potential US investors with ADSs, the Lender has agreed to furnish the Borrower, by way of a loan (Sachdarlehen), with Old Shares in the Company for the purpose of a timely delivery of them to BNY Mellon NY (“Share Loan”). These shares are to be delivered to BNY Mellon (Germany) (“BNY Mellon”).
     
Da der Darlehensnehmer sämtliche platzierten Neuen Aktien zeichnen wird, wird er im Rahmen der Durchführung der Kapitalerhöhung auch über die zum Zwecke der Rückgewähr der Wertpapierleihe erforderlichen Aktien verfügen. Der Anspruch auf Rückgewähr der Wertpapierleihe soll davon jedoch nicht abhängen.   Since the Lender will subscribe for all placed New Shares, it will have at its disposal the necessary number of New Shares for purposes of repaying the Share Loan. The obligation to repay the Share Loan shall however not depend on this.
     
Vor diesem Hintergrund vereinbaren die Parteien was folgt:   Now, therefore, the parties agree as follows:

 

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§ 1

Wertpapierdarlehen, Übertragung der Wertpapiere

 

Section 1

Share loan, transfer of the shares

     
1. Der Darlehensgeber überlässt dem Darlehensnehmer im Wege eines Wertpapierdarlehens insgesamt bis zu 8.969.870 (in Worten acht Millionen neunhundertneunund-sechzigtausendachthundertsiebzig Stück) auf den Namen lautende Stammaktien in Form von nennbetragslosen Stückaktien der Gesellschaft (ISIN DE0006046113), also Alte Aktien, (nachfolgend insgesamt die „Leih-Aktien”).   1. The Lender shall relinquish to the Borrower by way of a share loan a total of up to 8,969,870 (in words eight million nine hundred sixty nine thousand eight hundred seventy units) ordinary registered shares in the form of no-par value shares of the Company (ISIN DE0006046113), i.e. Old Shares (hereinafter together the “Loan Shares”).
         
2. Der Darlehensgeber wird innerhalb von fünf Bankarbeitstagen (Düsseldorf) nach entsprechender Anforderung durch den Darlehensnehmer die in der Anforderung genannte Anzahl Leih-Aktien (ISIN DE0006046113), jedoch nicht mehr als die in § 1 Abs. 1 dieses Vertrags genannte Anzahl, auf das Depot des Darlehensnehmers Nr. 5990480002 bei CBF-Nr. 1255 kosten- und spesenfrei übertragen, frühestens jedoch fünf Bankarbeitstage (Düsseldorf) nach Veröffentlichung des Bezugsangebots durch die Gesellschaft. Der Darlehensgeber haftet nicht für Verzögerungen bei der Abwicklung der Übertragung durch seine Depotbank.   2. Upon request of the Borrower, the Lender shall transfer the number of Loan Shares specified in this request (ISIN DE0006046113), but no more than the maximum amount specified in Section 1 para. (1) of this Agreement, within five banking days (Düsseldorf) to the Borrower’s securities account no. 5990480002 with CBF-No. 1255 free of charge, but at the earliest five banking days (Düsseldorf) after publication of the Subscription Offer by the Company. The Lender shall not be liable for delays in the execution of the transfer by its custodian bank.
         
3. Der Darlehensgeber versichert, dass die übertragenen Leih-Aktien frei von Rechten Dritter sein werden.   3. The Lender affirms that transferred Loan Shares will be free of third-party rights.

 

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§ 2

Verwendung der überlassenen Wertpapiere

 

Section 2

Use of the relinquished shares

         
Der Darlehensnehmer ist berechtigt und verpflichtet, Leih-Aktien im Umfang der von der Gesellschaft festgelegten Anzahl von Neuen Aktien, die im Rahmen des US-Angebots ausgegeben werden sollen, nach einer entsprechenden Anweisung der Gesellschaft an BNY Mellon zu übertragen, sofern die nachstehenden Bedingungen erfüllt sind:   Following a respective instruction by the Company, the Borrower is entitled and obliged to transfer Loan Shares to BNY Mellon in an amount equal to the number of New Shares designated by the Company to be issued in the US Offer, provided that the following conditions are met:
         
  - Die Durchführung der Kapitalerhöhung wurde im Handelsregister der Gesellschaft eingetragen.     - The completion of the Capital Increase has been recorded in the commercial register of the Company.
             
  - Die Mandatierung des Darlehensnehmers durch die Gesellschaft (wie in der Präambel beschrieben) wurde bis zur Übertragung der Leih-Aktien an BNY Mellon weder von dem Darlehensnehmer noch von der Gesellschaft widerrufen.     - The engagement of the Borrower (as described in the preamble) has neither been rescinded by the Borrower nor the Company by the time of the transfer of the Loan Shares to BNY Mellon.
             
  - Die Lieferung der Leih-Aktien vom Darlehnsnehmer an BNY Mellon erfolgt zunächst in ein Treuhanddepot. Der Darlehensnehmer wird BNY Mellon die Übernahme von Leih-Aktien zur Ausgabe und Lieferung von ADS´s an den US-Manager nur im Rahmen eines abzuhaltenden Closing-Calls gestatten, wenn und soweit er zuvor eine Bestätigung des US-Manager in Textform erhalten hat, die im Wesentlichen dem als Anlage beigefügten Entwurf entspricht, wonach (i) der Bezugspreis je Neuer Aktie je für die Durchführung des US-Angebots erforderlicher Leih-Aktie („US-Emissionserlös”) auf einem hierfür vorgesehenen Konto des US-Manager wirtschaftlich zur Verfügung steht und (ii) der Gesamtbetrag im Rahmen des Closing-Calls auf ein vom Darlehensnehmer benanntes Konto übertragen wird, unverzüglich nach Erhalt der entsprechenden Anzahl von ADSs auf einem Depot des US-Manager.     - The Loan Shares shall be supplied by the Borrower to BNY Mellon initially to an escrow account. The Borrower will only permit BNY Mellon to take over Loan Shares for issue and delivery of ADS´s to the US Manager in a closing call to be held, if and insofar as the Borrower has received a confirmation by the US Manager, in text form and essentially in the form of the draft attached as Annex, pursuant to which (i) the Subscription Price per New Share for each Loan Share required to settle the US-Offer (the “US-Proceeds”) is economically available in a specific account of the US Manager and (ii) the total amount will be transferred in the course of the closing call to an account specified by the Borrower immediately after the receipt of the correspondent number of ADS´s in an account of the US Manager.
             
    Anderweitige Verfügungen wird der Darlehensnehmer nicht über die Leih-Aktien treffen.       The Lender may not otherwise dispose of Loan Shares.

 

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§ 3

Verwendung der Erlöse

 

Section 3

Use of the proceeds

     
Der Darlehensnehmer ist verpflichtet, den gesamten auf die Leih-Aktien entfallenden US-Emissionserlös zum Erwerb Neuer Aktien aus der Kapitalerhöhung von der Gesellschaft zu verwenden und diese Aktien nach Maßgabe von § 4 dieses Vertrags an den Darlehensgeber zu übertragen.   The Borrower is obliged to use the total amount of US-Proceeds relating to Loan Shares to acquire New Shares resulting from the Capital Increase from the Company and to transfer these shares to the Lender in accordance with Section 4 of this Agreement.
     
§ 4 Darlehensrückgewähr   Section 4 Repayment of the loan
       
1. Der Darlehensnehmer verpflichtet sich, Wertpapiere gleicher Art und Menge wie die Leih-Aktien an den Darlehensgeber nach Maßgabe dieses Vertrags auf das Depot des Darlehensgebers 401784400 bei der Commerzbank AG (CBF 7004) rück zu übertragen („Darlehensrückgewähr”). Wertpapiere sind der gleichen Art, wenn Emittent, Gattung, rechnerischer Nennwert und verbriefte Rechte dieser Wertpapiere und der Leih-Aktien übereinstimmen. Als an der Börse, insbesondere im Regulierten Markt der Düsseldorfer Wertpapierbörse und der Frankfurter Wertpapierbörse (Prime Standard), handelbar gelten für Zwecke dieses Vertrags auch Neue Aktien der Gesellschaft mit abweichender ISIN vor deren Zulassung zum Regulierten Markt und vor der Zusammenlegung mit den Aktien mit der ISIN DE0006046113. Nach Zulassung zum Regulierten Markt werden die Neuen Aktien unter der ISIN DE0006046113 geführt. Der Darlehensnehmer haftet nicht dafür, dass eine Zulassung der Neuen Aktien zum Regulierten Markt erfolgt.   1. The Borrower undertakes to transfer securities of the same type and quantity as the Loan Shares back to the Lender’s securities account 401784400 held at Commerzbank AG (CBF 7004) subject to the provisions of this Agreement (“Repayment of the Loan”). Securities shall be deemed to be of the same type if the issuer, class and arithmetical nominal value of and the rights attached to these securities are the same as for the Loan Shares. For the purpose of this Agreement, New Shares in the Company with a different ISIN shall be deemed tradable on the stock exchange, in particular in the regulated market of the Düsseldorf Stock Exchange and the Prime Standard segment of the Frankfurt Stock Exchange, prior to their admission to the regulated market and their consolidation with the shares with the ISIN DE0006046113. Following their admission to the regulated market, the shares will be traded under ISIN DE0006046113. The Borrower shall not be liable for admission of the New Shares to the regulated market.
         
2. Die Darlehensrückgewähr erfolgt im Fall der Durchführung der Kapitalerhöhung spätestens sieben Bankarbeitstage (Düsseldorf) nach der Eintragung der Durchführung in das zuständige Handelsregister und Einbuchung der Neuen Aktien bei Clearstream Banking AG.   2. The Repayment of the Loan shall occur, in case the Capital Increase is implemented, no later than seven banking days (Düsseldorf) after the registration of completion with the relevant commercial register and registration of the New Shares with Clearstream Banking AG.
         
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3. Im Übrigen erfolgt die Darlehensrückgewähr spätestens fünf Bankarbeitstage (Düsseldorf) nach   3. Otherwise, the Repayment of the Loan shall occur no later than five banking days (Düsseldorf) after
             
  a. der Veröffentlichung der Gesellschaft, dass die Kapitalerhöhung nicht durchgeführt wird, oder     a. publication by the Company to the effect that the Capital Increase will not be carried out, or
             
  b. der endgültigen Ablehnung der Eintragung der Durchführung der Kapitalerhöhung im Handelsregister durch das zuständige Gericht.     b. final refusal by the competent court to enter completion of the Capital Increase in the commercial register.
             
4. Im Falle der Kündigung nach § 6 dieses Vertrags erfolgt die Darlehensrückgewähr unmittelbar.   4. In the event of termination pursuant to section 6 the Repayment of the Loan shall take place immediately.
         
5. Sollte sich im Fall der Nichterfüllung des Anspruchs auf Darlehensrückgewähr nach Abs. 1 der vertragliche Erfüllungsanspruch in einen sekundärrechtlichen Schadensersatzanspruch wandeln, ist der Darlehensnehmer in Bezug auf diejenigen Leih-Aktien, die der Darlehensnehmer gem. § 2 dieses Vertrags an BNY Mellon übertragen hat, mindestens zur Zahlung des Bezugspreises je Leih-Aktie verpflichtet. Weitergehende Schadensersatzansprüche des Darlehensgebers bleiben dadurch unberührt.   5 . Should the Borrower default on the Repayment of the Loan in accordance with para. 1 and the contractual claim for performance convert into a secondary claim for damages, the Borrower shall – in relation to those Loan Shares transferred to BNY Mellon by the Borrower pursuant to Section 2 – be obliged to at least pay the Subscription Price per Loan Share. This shall in no way preclude the Lender from claiming further damages.
         

§ 5

Entgelt

 

Section

5 Fees

Die Zurverfügungstellung der Leihaktien erfolgt unentgeltlich.   The Loan Shares shall be provided free of charge.
             

§ 6

Kündigung

 

Section 6

Termination

     
  Für den Fall, dass das US-Angebot, gleich aus welchem Grund, nicht zustande kommt, kann diese Vereinbarung von beiden Parteien schriftlich fristlos gekündigt werden.   Should the US Offer not take place for whatever reason, this Agreement may be terminated by both Parties in writing without notice.
         

§ 7

Ausübung von Stimmrechten / Ausschüttungen / Bezugsrechte

 

Section 7

Exercise of voting rights / Dividends /

Subscription rights

     
  1. Der Darlehensnehmer wird Stimmrechte aus den Leih-Aktien nicht ausüben. Er wird dem Darlehensgeber aber auf Verlangen eine Vollmacht zu Ausübung der Stimmrechte ausstellen.   1. The Borrower shall not exercise voting rights attached to the Loan Shares. It shall, however, grant the Lender a power of attorney to exercise the voting rights upon request.

 

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2. Etwaige Ausschüttungen, die der Darlehensnehmer auf die Leih-Aktien erhält, wird er unverzüglich, spätestens innerhalb von fünf Bankarbeitstagen nach Erhalt, an den Darlehensgeber herausgeben.   2. The Borrower shall surrender any dividends it receives on Loan Shares without undue delay and within five banking days after receipt at the latest to the Lender.
3. Der Darlehensgeber wird Bezugsrechte auf Neue Aktien, die ihm im Rahmen der Kapitalerhöhung zustehen, an den Darlehensnehmer übertragen. Sofern dem Darlehensnehmer nach Übertragung der Leih-Aktien Bezugsrechte aus den Leih-Aktien eingebucht werden oder der Darlehensgeber ihm Bezugsrechte überträgt, wird der Darlehensnehmer diese Bezugsrechte ausüben, um seine Pflichten aus den §§ 2 und 3 dieses Vertrags zu erfüllen.   3. The Lender will transfer Subscription Rights for New Shares granted to the Lender in connection with the Capital Increase to the Borrower. Should any subscription rights attached to the Loan Shares be recorded for the Borrower following transfer of the Loan Shares or should the Lender transfer subscription rights to the Borrower, the Borrower shall exercise such rights in order to fulfil its obligations under section 2 and 3 of this Agreement.
         

§ 8

Erfüllung gesetzlicher Pflichten in Bezug auf die Leih-Aktien / Freistellung

 

Section 8

Fulfilment of statutory obligations relating to the Loan Shares / Indemnification

     
1. Der Darlehensnehmer wird alle gesetzlichen Pflichten in Bezug auf die Leih-Aktien erfüllen, insbesondere erforderlichen Stimmrechtsmitteilungen gemäß §§ 33 ff. WpHG abgeben. Die Parteien werden sich im Vorfeld der Abgabe von Stimmrechtsmitteilungen über Zeitpunkt und Inhalt der Mitteilungen abstimmen.   1. The Borrower shall fulfil all statutory obligations regarding Loan Shares, and shall, in particular, make the requisite voting rights notifications in accordance with sections 33 et seq. Securities Trading Act. Prior to issuing a voting rights notification, the Parties will coordinate the timing and content of such notification.
         
2. Der Darlehensnehmer stellt den Darlehensgeber von allen Schäden frei, die diesem durch die Nichterfüllung von Pflichten nach Maßgabe des Absatzes 1 durch den Darlehensnehmer entstehen.   2. The Borrower shall indemnify the Lender against all damages incurred by the latter as a result of the Borrower’s failure to fulfil obligations pursuant to subsection 1.
         
3. Sobald der Darlehensnehmer Leih-Aktien an BNY Mellon gemäß § 2 dieses Vertrags überträgt, teilt er dem Darlehensgeber unverzüglich den jeweiligen Zeitpunkt und die jeweilige Anzahl der übertragenen Leih-Aktien mit.   3. As soon as the Borrower transfers Loan Shares to BNY Mellon in accordance with section 2 of this Agreement, the Borrower shall notify the Lender without undue delay about the respective date and the respective amount of transferred Loan Shares.
         

§ 9

Verschiedenes

 

Section 9

Miscellaneous

     
1. Ausschließlicher Gerichtsstand für alle aus oder im Zusammenhang mit dieser Vereinbarung entstehenden Streitigkeiten ist Düsseldorf.   1. The exclusive place of jurisdiction for all disputes arising from or in connection with this Agreement shall be Düsseldorf.
         
2. Mündliche Nebenabreden wurden nicht getroffen. Änderungen oder Ergänzungen zu diesem Vertrag bedürfen der Schriftform. Das gleiche gilt für den Verzicht auf das Schriftformerfordernis.   2. No verbal subsidiary agreements have been made. Any amendments or supplements to this Agreement must be made in writing. The same shall apply to a waiver of the written form requirement.
         
3. Sollte eine Bestimmung dieses Vertrages unwirksam oder undurchführbar sein oder werden, so wird hierdurch die Wirksamkeit des Vertrages im Übrigen nicht berührt. Die Parteien werden in einem solchen Fall die unwirksame oder undurchführbare Bestimmung durch eine wirksame und durchführbare Bestimmung ersetzen, die dem gewollten wirtschaftlichen Zweck der unwirksamen oder undurchführbaren Bestimmung möglichst nahe kommt. Entsprechendes gilt für den Fall einer Regelungslücke.   3. Should a provision of this Agreement be or become invalid or unenforceable, this shall not affect the validity of the remainder of the Agreement. In such a case, the parties shall replace the invalid or unenforceable provision with a valid and enforceable provision that comes as close as possible to the intended economic purpose of the invalid or unenforceable one. The same shall apply to any omission.
         
  Leverkusen, 4. Februar / 4 February 2021     Berlin, 4. Februar / 4 February 2021
         
  ______________________________     ______________________________
  Darlehensgeber / Lender     Darlehensnehmer / Borrower

 

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Anlage / Annex

Sample Letter by The Benchmark Company to QUIRIN Bank AG

[The Benchmark Company LLC Letterhead]

 

To:

Quirin Bank AG

Kurfürstendamm 119

10711 Berlin

Germany

 

  Re: Biofrontera AG (the “Company”)
    Capital Increase 2021 – Proceeds Payment Instructions

 

Dear Ladies and Genlemen:

 

The Benchmark Company LLC (“Benchmark”), acting as underwriter in the US Offering as part of the Company’s 2021 Capital Increase, hereby irrevocably confirms that an amount equal to the purchase price for the ADSs, i.e. in amount of [_] US dollars in total (“Purchase Price”) and thus an amount of [_] US dollars per ADS (an equivalent of [_] EUR based on the noon buying rate of the Federal Reserve Bank of New York for the Euro on February [_], 2021; amount per ADS, equivalent to the Subscription Price per New Share x 2), each ADS representing two ordinary shares, nominal value EUR 1.00 per share (International Securities Identification Number (ISIN) DE0006046113), is available in a specified account at Royal Bank of Canada (“RBC”), to effect the wire payment of the Purchase Price in connection with the settlement of the US Offer. Benchmark hereby acknowledges its obligation to pay the Purchase Price in full as set forth in paragraph below.

 

Further, Benchmark confirms that it has irrevocably instructed RBC to initiate a wire payment of the Purchase Price to Quirin Bank AG, immediately (i) after RBC has been informed by BNY Mellon that Quirin Bank AG has released the necessary shares of Biofrontera AG from escrow in order to enable BNY Mellon to create the ADSs, and (ii) upon RBC’s confirmation to Benchmark of its receipt of such shares, both of (i) and (ii) taking place during the closing conference call involving relevant parties.

 

Payment will be made without any deduction or reserve to the following account:

 

Account number: [Number]
Account holder: Quirin Bank AG

 

The Benchmark Company LLC  
   
Executed by: ________________________  
Name: [_]  
Title: [_]  

 

Seite 10 von 10

 

 

Exhibit 99.4

 

 

License Agreement

 

 

Between

 

Biofrontera AG

 

and

 

Maruho Co. Ltd.

 

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED BECAUSE THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.

 

  

Table of Contents
 
Preamble 3
     
1. Definitions 3
     
2. License 7
     
3. Considerations 8
     
4. Dossier 10
     
5. Obtaining and maintaining the Marketing Authorizations 11
     
6. Further Development and Cooperation 12
     
7. Manufacture and supply of Product 13
     
8. Illumination Device with the Product 14
     
9. Compliance with Regulations 15
     
10. Commercialization 15
     
11. Records and Audits 15
     
12. Confidentiality 16
     
13. Representations and Undertakings 17
     
14. Third party infringements; defence against Third Party claims and invalidity attacks 18
     
15. Liability 20
     
16. Indemnification 20
     
17. Force Majeure 21
     
18. Term and Termination 22
     
19. Applicable Law and Venue 23
     
20. Notices and Other Communications 24
     
21. General Provisions 24

 

2/31

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED BECAUSE THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.

 

 

License Agreement

 

Between

 

(1) Biofrontera AG, with registered business address at Hemmelrather Weg 201, 51377 Leverkusen, Germany (“BIOFRONTERA”);
   
  and
   
(2) Maruho Co., Ltd., a Japanese corporation having its principal office at 1-5-22 Nakatsu, Kita-ku, Osaka, Japan, 531-0071 (“MARUHO”).

 

Preamble

 

(A) BIOFRONTERA engages in the development, production and marketing of pharmaceutical products and cosmetics;
   
(B) MARUHO has the facilities to research, develop, register, make, import, promote, market, sell, resell, distribute and use prescription drugs, medical devices and cosmetics in the Territory;
   
(C) BIOFRONTERA is the owner of certain proprietary information and certain intellectual property rights relating to a product containing the active ingredient 5-aminolevulinic acid (5-ALA);
   
(D) BIOFRONTERA wishes to grant, and MARUHO wishes to obtain a license to use certain proprietary information for the purpose of Marketing Authorizations for products containing the active ingredient 5-ALA in the Territory and for the development, registration, import, distribution, promotion, marketing, use, and sale of such products in the Territory;

 

Therefore, BIOFRONTERA and MARUHO (together the “Parties”, each a “Party”) agree as follows (the “Agreement”):

 

1. Definitions
   
  In addition to the terms defined above and other terms defined in other Sections of this Agreement the following initially capitalized terms have the meanings set forth below for purposes of this Agreement:
   
1.1 Active Ingredient” shall mean the active substance(s) listed in ANNEX 1.1.
   
1.2 Additional R&D” shall have the meaning as defined in Section 2.3.
   
1.3 Affiliate” shall mean, with respect to either Party, any person that controls, is controlled by, or is under common control with that Party. For the purpose of this definition, “control” (including, with correlative meaning, the terms “controlled by” and “under the common control”) means the actual power, either directly or indirectly through one or more intermediaries, to direct or cause the direction of the management and policies of such person, whether by the ownership of more than 50 % (fifty per cent) of the voting stocking of such person, by contract or otherwise.

 

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1.4 Annual Net Sales” shall mean Net Sales (as defined in Section 1.28) in the period from October 1st of one calendar year to September 30th of the subsequent calendar year.
   
1.5 BIOFRONTERA Dossiers” shall mean the registration dossiers relating to the Product prepared by BIOFRONTERA, in particular the Common Technical Document (CTD) as specified in Annex 1.5, and all information, data, know-how and documents contained therein or necessary or useful for developing, obtaining and/or maintaining the Marketing Authorizations for the Product in the Territory, and as updated from time to time.

 

1.6 Commercially Reasonable Efforts” shall mean with respect to a Party’s obligations or tasks under this Agreement with respect to the Territory, the performance of such obligations or tasks by a Party in an active and sustained manner, without undue interruption, pause or delay, using a level of effort and resources consistent with the exercise of good faith and prudent scientific and business judgment as commonly practiced in the pharmaceutical industry for the development and commercialization of similarly situated products as the Product at a similar stage of its product life (e.g, development or commercialization), taking into account efficacy, safety, the proprietary position of the Product (e.g., patent and regulatory exclusivity), the regulatory status (e.g., anticipated or approved labeling), the establishment of the Product in the market, present and future market potential, competitive market conditions, the profitability of the Product in the light of pricing and reimbursement issues, including rebates under risk sharing schemes, and all other relevant factors, and corresponding at least to the type (quality and quantity) of channels, methods, investments and staff (including, without limitation, sales force), which are used by reputable pharmaceutical companies in the marketing, promotion and sales of products with a similar potential in the Territory, but without regard to other products then being developed or commercialized by the Party required to apply such level of efforts pursuant to this Agreement.
   
1.7 Competing Product” shall mean a topical product having aminolevulinic acid and/or methyl-aminolevulinic acid as active ingredient.
   
1.8 Compact Device” shall have the meaning defined in Section 8.3.
   
1.9 Confidential Information” shall mean all commercial, financial, technical or other information made accessible to or otherwise disclosed by one Party to the other Party under or in connection with this Agreement.
   
1.10 Control” shall mean with respect to any patents or other intellectual property rights, or know-how, possession of the right to disclose to and grant a license to such items under the terms of this Agreement without violating the terms of any agreement with any third party, or any applicable law or governmental regulation, or incurring any financial or other additional obligation.

 

4/31

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1.11 Device” shall have the meaning as defined in Section 8.1.
   
1.12 Device Supply Agreement” shall mean the agreement on the supply of the Device by BIOFRONTERA to the MARUHO to be negotiated by the Parties immediately following the Effective Date.
   
1.13 Effective Date” means the date of the last signature to this Agreement.
   
1.14 Field” means the prevention, diagnosis and treatment for all indications including medical and aesthetic therapy (including, but not limited to, OTCs, quasi-drugs and cosmetics)
   
1.15 Force Majeure” shall have the meaning as defined in clause 17 of this Agreement.
   
1.16 Generic Product” shall mean a product that is introduced in the Territory by an entity other than MARUHO or a Sublicensee or their respective Affiliates, which contains the same active ingredient, has the same indications and is approved in reliance, in whole or in part, on a prior Regulatory Approval of a Product by an applicable Regulatory Authority.
   
1.17 ICH” shall mean the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use.
   
1.18 Initial Term” shall have the meaning as defined in Section 18.1 of this Agreement.
   
1.19 JSC” shall have the meaning as defined in Section 6.2.
   
1.20 Licensed Proprietary Information” shall mean all scientific, medical, toxicological, pharmacological, analytical, clinical and technical data and information, on processes, methods and techniques and other know-how in the ownership of, or Controlled by, BIOFRONTERA relating to the Active Ingredient and/or the Product, particularly the BIOFRONTERA Dossiers and, if required for the MARUHO Dossier, other documents provided by BIOFRONTERA, but notwithstanding anything to the contrary herein, under exclusion of the MARUHO Developments. Any Licensed Proprietary Information related to material remains property of BIOFRONTERA.
   
1.21 Licensed Patents” shall mean the Patents that are Controlled by BIOFRONTERA which are used for the marketing, sale or use of the Product in the Territory as exclusively specified in ANNEX 1.21.
   
1.22 Licensed Trademarks” shall mean the trademarks exclusively specified in ANNEX 1.22. MARUHO may use the trademarks exclusively in the form shown in ANNEX 1.22 hereto.
   
1.23 Marketing Authorization” shall mean any approval, license, registration or other regulatory Authorization by the competent Regulatory Authority/ies in the Territory relating to the Product which may be required in the Territory to import, distribute, promote, market, use and/or sell the Product in the Territory, including (without limitation) price and reimbursement approvals.

 

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1.24 MARUHO Dossiers” shall mean the registration dossiers relating to the Product prepared by MARUHO and all information, data and documents contained therein and necessary or useful for developing, obtaining and/or maintaining the Marketing Authorizations for the Product in the Territory, and as updated from time to time.
   
1.25 “MARUHO Developments” shall mean the Results of research and development (including, without limitation, the discovery of additional indications and formulation design) concerning the Active Ingredient and/or the Product carried out by MARUHO in the Territory in the Field, irrespective of whether as part of the Additional R&D or otherwise.
   
1.26 Milestone Events” shall have the meaning as specified in clause 3.3 of this Agreement.
   
1.27 Milestone Payments” shall have the meaning as specified in clause 3.3 of this Agreement.
   
1.28 Net Sales” shall mean the amounts invoiced by MARUHO as well as by Sublicensees on all sales of the Product in the Territory to its customers, less the following deductions, in each case related specifically to the Product and actually allowed and taken by such third parties and not otherwise recovered or reimbursed: (A) credits and allowances or adjustments (consistent with generally accepted accounting principles), granted to such customers on account of rejections, recalls or returns of the Product and; (B) any trade and cash discounts, rebates, including government rebates, granted in connection with the sale of the Product to such customers, (C) value added taxes and (D) distribution costs (which shall only include costs for transportation of Products from warehouse of MARUHO as well as warehouse of Sublicensees to its customers).
   
1.29 “Party/ies” shall mean either BIOFRONTERA or MARUHO, or both, as the case may be.
   
1.30 Patents” shall mean worldwide (i) all patents, utility models, supplementary protection certificates and all applications and term extensions of all kind for such rights, (ii) all other intellectual protection rights for inventions worldwide, and applications for such rights, including, without limitation, provisionals, substitutions, extensions, reissues, re-exams, renewals, divisions, continuations, continuations-in-part, continued prosecution applications and term extensions, (iii) the right to claim priority from any of the aforementioned rights, and (iv) all other rights and claims resulting worldwide from inventions (under exclusion of inventor’s personal rights), including in particular the right to a patent.
   
1.31 Product” shall mean Ameluz (10% 5-ALA gel using nanoemulsion technology) as well as any other formulation of Active Ingredient and any other concentration of Active Ingredient using nano-emulsion technology.
   
1.32 Quality Agreement” shall mean the agreement on the quality of the Product between BIOFRONTERA and MARUHO to be negotiated by the Parties immediately following the Effective Date.
   
1.33 Regulatory Authority” shall mean any governmental authority or notified body competent for issuing Marketing Authorizations for the Product within the Territory.

 

6/31

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1.34 Results” means all materials, data and other information generated pursuant to this Agreement, including without limitation, findings, test results, screening results, discoveries, inventions, know-how, work of authorship, software, processes, methods, techniques, formulae, substances, specifications, studies, designs or improvements whatsoever (whether patentable or not) as well as all raw data obtained as a result of screenings or studies conducted, and all experimental procedures developed that are originated, conceived, derived, produced, discovered, invented or otherwise made by each of the Parties either separately or jointly under this Agreement.
   
1.35 Specifications” shall mean the technical characteristics of the Product as approved by the respective Regulatory Authorities in the Territory and set out in the respective Annex to the Supply Agreement and the Quality Agreement.
   
1.36 Supply Agreement” shall mean the agreement on the supply of the Product by BIOFRONTERA to the MARUHO to be negotiated by the Parties immediately following the Effective Date.
   
1.37 Sublicensee” shall mean any Affiliate or Third Party to whom MARUHO grants sub-licenses according to this Agreement.
   
1.38 Territory” shall mean the countries listed in ANNEX 1.38.
   
1.39 Third Party” shall mean any party other than the Parties and their Affiliates.
   
1.40 Upfront Payment” shall have the meaning as specified in clause 3.2 of this Agreement.

 

In this Agreement, unless the context requires otherwise: (i) references to clauses and annexes are to clauses of and annexes to this Agreement; (ii) references to the singular shall include the plural and vice versa; (iii) the annexes will have the same force and effect as if expressly set out in the body of this Agreement; and (iv) headings are inserted for convenience only and shall not affect the construction of the Agreement.

 

2. License
   
2.1 BIOFRONTERA hereby grants to MARUHO, and MARUHO hereby accepts, an exclusive, transferable to Affiliates, and – subject to Section 2.2 – sub-licensable license, to use the Licensed Proprietary Information, the Licensed Patents and the Licensed Trademarks for (i) researching and developing as well as using Product, (ii) obtaining and/or maintaining Marketing Authorizations for Product, and/or (iii) commercializing (i.e. importing, distributing, marketing and selling) Product, in each case in the Territory.
   
2.2 MARUHO shall have the right to sublicense, without any further consideration, the Licensed Proprietary Information and the Licensed Patents as well as Licensed Trademark to Affiliates and to any Third Party, it being understood that MARUHO shall notify BIOFRONTERA of any sublicense to Third Parties in writing prior to the grant of such sublicense. The Parties share the common understanding that all sub-licenses granted by MARUHO are subject to an existing and valid main license under this Agreement between BIOFRONTERA and MARUHO and any sub-license is granted by MARUHO under the stipulation that it automatically terminates in the event the license to MARUHO under this Agreement ends.

 

7/31

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  MARUHO undertakes vis-à-vis BIOFRONTERA to include a dissolving condition (“auflösende Bedingung”) in the sublicense agreement with any Sublicensee, according to which the sub-license will automatically and ipso jure lapse if this Agreement on which the sub-license is based does not longer exist, i.e. as a result of expiration or termination of the Agreement according to Section 18. The sub-license agreement must also contain a clause stating that all rights granted to any Sublicensee (Affiliate and/or any Third Party) according to the sublicense agreement will be relinquished to BIOFRONTERA in the event of the occurrence of the dissolving condition (“auflösende Bedingung”). MARUHO shall be liable vis-à-vis BIOFRONTERA for all damages resulting from any omission of these obligations.
   
  Except as explicitly stipulated in this Agreement, BIOFRONTERA shall not be entitled to receive any license fees or margin share of payments made to MARUHO by any Sublicensee.
   
2.3 MARUHO is entitled to perform additional research and development with the aim of (i) developing any other formulations, i.e. any formulation design other than Ameluz(10% 5-ALA gel using nanoemulsion technology), in the Territory and in the Field, and/or (ii) discovering additional indications, i.e. any indications other than actinic keratosis, basal cell carcinoma and acne (including acne scar) for the Product (“Additional R&D”), in each case upon prior written consent by BIOFRONTERA, which consent is not to be unreasonably withheld and to be given within [***] weeks of a notice by MARUHO of its intention to start such Additional R&D. MARUHO shall own the entire right, title, and interest, including any and all intellectual property, in and to all Results generated or obtained or otherwise perceived or reduced to practice in the course of the Additional R&D. BIOFRONTERA shall be entitled to participate in, and contribute to, Additional R&D in each case upon prior written consent by MARUHO, which consent is not to be unreasonably withheld and to be given within [***] weeks of a notice by BIOFRONTERA of its intention to participate in, and contribute to such Additional R&D. Irrespective of whether BIOFRONTERA participated in such Additional R&D or did not participate, BIOFRONTERA shall have the right to be granted by MARUHO a royalty-free, non-exclusive licence to make use of and market the results of the Additional R&D by MARUHO outside of the Territory.
   
2.4 MARUHO may select the names for the Products in the Territory on a country-by-country basis. BIOFRONTERA shall choose, either to (i) register and maintain such trademarks or (ii) allow MARUHO to register and maintain such trademarks in the Territory for the names selected by MARUHO for the Product in the Territory. In the case BIOFRONTERA chooses item (i) above, the trademarks registered and maintained BIOFRONTERA shall be automatically added to the Licensed Trademarks.

 

3. Considerations

 

3.1 In consideration of the rights granted pursuant to this Agreement, MARUHO shall make the payments to BIOFRONTERA set forth in this Section 3, excluding value added and withholding taxes.

 

8/31

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3.2 Up-front Payment: MARUHO shall make a non-refundable, one-time payment to BIOFRONTERA of EUR 6,000,000.00 (six million euros) within [***] days after the Effective Date (“Upfront Payment”);
   
3.3 Milestone Payments: MARUHO shall make the following non-refundable payments to BIOFRONTERA (the “Milestone Payments”) upon occurrence of the following events (“Milestone Events”):

 

  a) one-time payment of EUR [***] upon the issuance of a Marketing Authorization in Japan for a Product for Acne indication;
     
  b) one-time payment of EUR [***]upon the first achievement of aggregate Net Sales of ≥ ¥[***] during a year starting on the 1st day of a quarter year and lasting to the last day of the previous quarter in the subsequent calendar year on a rolling quarterly basis;
     
  c) one-time payment of EUR [***] upon the first achievement of aggregate Net Sales of ≥ ¥[***] during a year starting on the 1st day of a quarter year and lasting to the last day of the previous quarter in the subsequent calendar year on a rolling quarterly basis;

 

  MARUHO will notify BIOFRONTERA in writing within [***] days, of the occurrence of a Milestone Event as set out above giving rise to payment of a Milestone Payment. Upon receipt of each such written notification from MARUHO, BIOFRONTERA will issue an invoice to MARUHO in respect of the corresponding Milestone Payment, which will become due and payable within [***] days after the date of the issue of the relevant invoice.
   
3.4 Running Royalty: MARUHO shall pay to BIOFRONTERA, on a country-by-country basis, a royalty which is (i) 6% of Net Sales in case the aggregate Annual Net Sales do not exceed EUR [***], and (ii) in case the aggregate Annual Net Sales exceed EUR [***], [***]% of Net Sales in the amount of EUR [***] plus [***]% of the amount of aggregate Annual Net Sales remaining after deduction of Net Sales in the amount of EUR [***], in each case on a country-by-country basis. provided, however, that irrespective of the aggregate amount of Annual Net Sales the royalty shall be reduced, on a country-by-country basis, to [***]% of Net Sales in case a Generic Product is marketed by a Third Party in the Field in a country of the Territory. The reduction of the royalty rate shall apply on a country-by country basis from the month of launch of the Generic Product.
   
3.5 Exchange Rate: When conversion from any currency of country in which MARUHO and Sublicensees invoice to their customers to Japanese Yen or Euro is required, such conversion shall be at an exchange rate equal to the telegraphic transfer middle rates on the last business day of each month of exchange for the currency of the country as published by the MUFG Bank, Ltd. in Japan (or such other source agreed in writing by the Parties).

 

9/31

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3.6 If any withholding tax is imposed on any payment to be made by MARUHO, MARUHO shall withhold the corresponding amount from the payment due to BIOFRONTERA according to the rates or exemptions provided for under the applicable convention for the avoidance of double taxation with respect to taxes on income, i.e. the treaty between Germany and Japan, in force on the payment date (“Treaty”). For this purpose, Parties will comply with the following process: BIOFRONTERA shall without delay provide MARUHO with all application forms and other documents properly filled in as may be required under the relevant Treaty. If MARUHO does not receive such application forms and other documents by the due date of payment provided for in Section 3.2, 3.3 and 3.4, MARUHO may postpone such date until the date which is in [***] days after the receipt of such documents; and
   
  After payment of the withholding tax, MARUHO shall obtain and send to BIOFRONTERA without delay the withholding tax receipt issued by the Japanese tax authority as well as any other document that may be necessary for BIOFRONTERA to get the benefit of a tax credit under the applicable Treaty.
   
3.7 MARUHO shall send quarterly royalty reports to BIOFRONTERA, i.e. within [***] days of the last day of each December, March, June and September MARUHO shall report to BIOFRONTERA the Net Sales in the preceding 3-(three)-months-period (“Quarterly Royalty Report”). The Running Royalty shall become due and payable by MARUHO within [***] days of the date of issuance of the relevant invoice by BIOFRONTERA upon receipt of a Quarterly Royalty Report from MARUHO.
   
4. Dossier
   
4.1 In no case will BIOFRONTERA be Marketing Approval Holder (“MAH”) in the Territory. MARUHO will be responsible to assume or control or, if applicable, have its Sublicensee’s to assume or control any responsibility that the MAH in the Territory may and shall have.
   
4.2 BIOFRONTERA shall provide MARUHO with an electronic copy of the most recent version of the BIOFRONTERA Dossiers within [***] days after the Effective Date.
   
4.3 Throughout the term of this Agreement, BIOFRONTERA shall provide MARUHO, free of charge, with any update of the BIOFRONTERA Dossiers that is relevant to the dossiers submitted in the Territory, including but not limited to non-clinical and clinical studies for the development of Product for acne and acne scar in the United States according to the applicable ICH guidelines, as soon as such data is available to BIOFRONTERA.

 

10/31

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4.4 MARUHO acknowledges BIOFRONTERA’s ownership of the BIOFRONTERA Dossiers. BIOFRONTERA reserves the unrestricted right to use the BIOFRONTERA Dossiers, including the creation and utilization of Marketing Authorizations in the Territory other than those obtained by MARUHO based on this Agreement. MARUHO shall become the owner of copies of the BIOFRONTERA Dossier provided pursuant to Sections 4.2 and 4.3 as well as of all Marketing Authorizations, including without limitation MARUHO Dossiers, obtained by MARUHO or its Affiliates, respectively. In case of sublicensing MARUHO shall be entitled to transfer a further copy of the BIOFRONTERA Dossier to the respective Sublicensee for the relevant country of the Territory. Unless provided for otherwise herein, the mere Marketing Authorizations which are lawfully obtained by MARUHO based on this Agreement shall be and remain with MARUHO during and after the term of this Agreement, except when the Agreement is terminated due to a breach of this Agreement by MARUHO. The forgoing sentence does not impair the general understanding that any sublicense shall automatically terminate in the event the license to MARUHO under this Agreement ends. Obtaining and maintaining the Marketing Authorizations.
   
5. Obtaining and maintaining Marketing Authorizations
   
5.1 BIOFRONTERA shall use Commercially Reasonable Efforts to assist MARUHO with existing data and information in obtaining and/or maintaining Marketing Authorizations in the Territory. BIOFRONTERA will make Commercially Reasonable Efforts to cause its API and, where applicable, excipient and packaging supplier(s) to submit the Drug Master File (“DMF”) in the Territory and provide a letter of authorization to MARUHO or its Sublicensees within a deadline requested by MARUHO.
   
5.2 All costs related to and/or in connection with obtaining and/or maintaining and/or amending the Marketing Authorizations and the DMFs in the Territory as well as any other costs related to the registration procedures, including but not limited to the registration fees, variation fees and potential consultant’s fees, shall be borne by MARUHO.
   
5.3 Should a Regulatory Authority in the Territory require additional data, documentation or information relating to the Product, or otherwise information for obtaining and/or maintaining the Marketing Authorizations, then such additional data, information and documentation shall be provided by BIOFRONTERA to MARUHO insofar as such additional data, documentation or information are available to BIOFRONTERA. If a Regulatory Authority requests additional data, documentation or information regarding the Product which are not readily available to BIOFRONTERA, the Parties shall negotiate in good faith the necessary steps. In case that BIOFRONTERA and MARUHO are unable to agree on a mutually acceptable solution within a time frame of [***] calendar days, MARUHO shall be entitled to terminate this Agreement with [***] prior written notice with regard to the country/ies of the Territory concerned.
   
5.4 At MARUHO’s request, BIOFRONTERA will assist MARUHO in answering deficiency letters and other queries raised by a Regulatory Authority with regard to the MARUHO Dossiers and/or the Marketing Authorizations. BIOFRONTERA will use its best endeavors to provide such answers, provided the information is available to BIOFRONTERA, to such queries within a deadline requested from MARUHO.

 

11/31

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5.5 In case BIOFRONTERA is obliged to or wishes to amend the BIOFRONTERA Dossier and/or any information or document relevant to the Marketing Authorizations with the Regulatory Authorities in the Territory, BIOFRONTERA shall make Commercially Reasonable Efforts to inform MARUHO at least [***] months or otherwise as soon as reasonably possible prior to the assumed filing date to each Regulatory Authority. Biofrontera shall share drafts of the intended variations with MARUHO as early as possible. BIOFRONTERA shall provide MARUHO with copies of the submitted variations immediately after filing. The notification of amendment of the BIOFRONTERA Dossier regarding quality and safety information of the Product is further specified in the Quality Agreement and pharmacovigilance agreement or Safety Data Exchange Agreement (“SDEA”), respectively.
   
5.6 BIOFRONTERA shall assist MARUHO in the preparation and submission of annual reports or any safety reports to the Regulatory Authorities in the Territory.
   
5.7 In case MARUHO wishes to cease the commercialization of the Product in the Territory, it shall notify BIOFRONTERA thereof in writing and Section 18.4 shall apply mutatis mutandis.
   
5.8 MARUHO or its Sublicensee will be responsible for any post-approval requirements from the Regulatory Authorities within the Territory (including submission and maintenance of regulatory dossier, submission of regular reports including safety reports, and any other local post-marketing requirements).
   
5.9 MARUHO exclusively bears the pharmacovigilance responsibilities for the Product in the Territory, Biofrontera will be the holder of the global safety database and responsible for the management of global pharmacovigilance activities at its own expenses. Further details will be described in the Pharmacovigilance Agreement.
   
6. Further Development and Cooperation
   
6.1 BIOFRONTERA shall conduct POC studies for acne and acne scar in the USA or other appropriate countries at its own responsibility and expense. BIOFRONTERA shall discuss and agree in good faith with MARUHO the design of these studies and any changes of such design in advance prior to conducting or changing such studies.
   
6.2 MARUHO and BIOFRONTERA agree to cooperate in the further research and development with respect to acne, acne scar, Basal Cell Carcinoma and/or Actinic Keratosis as well as Ameluz marketing in the world, including, but not limited to, the Territory, USA and EU, through a joint steering committee (“JSC”). The JSC shall consist of two representatives of either Party and shall review (i) progress; (ii) a Party’s performance; (iii) changes or termination of development; (iv) any changes to the development plan; (v) the synopsis of the study designs; and (vi) the marketing efforts the product. Each Party may propose discussion of life cycle management of the Product and of BF-RhodoLED to the JSC.

 

12/31

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6.3 As regards the Product marketing in East Asia and/or in Oceania, should a Sublicensee in those regions (except Japan) become available who provides the opportunity to launch the Product significantly sooner than anticipated by MARUHO for its own launch, the JSC will discuss and jointly decide in line with the process set forth in Section 6.4 on the opportunity taking into consideration the best commercial interests of either Party, it being understood that the decision of the JSC must neither put BIOFRONTERA at a significant financial disadvantage nor trigger MARUHO losing any prior investment in the respective region.
   
6.4 The JSC shall regularly come together or hold conference calls, at least twice per year or as frequently as either Party may reasonably request, provided that, the first JSC shall be held within [***] months following the Effective Date. Unless the members of the JSC agree otherwise, the following procedural rules shall apply: The quorum for a meeting of the JSC shall be two individuals comprising one individual representing each of the Parties. All decisions of the JSC shall be made by majority decision. In case that no majority vote can be obtained with respect to an item voted on, MARUHO shall have a tie-breaking vote in each case within the Territory. The JSC shall keep accurate minutes of its deliberations, which record all proposed decisions and all actions recommended or taken. The JSC’s role outside the Territory serves the mere purpose of information and discussion but includes no voting power. Each Party shall bear all travel and related expenses as well as other costs associated with the activity of its members of the JSC.
   
7. Manufacture and supply of Product
   
7.1 BIOFRONTERA agrees to supply all of MARUHO’s requirements of Product in accordance with the terms and conditions set forth in the Supply Agreement to be negotiated and the Quality Agreement to be negotiated (e.g., the purchase price which shall be equal to BIOFRONTERA’s external costs plus [***]% of BIOFRONTERA’s external costs). If pricing becomes unreasonable for MARUHO, MARUHO is entitled to discuss the adequacy of the price with BIOFRONTERA. BIOFRONTERA shall make Commercially Reasonable Efforts to minimize waste when supplying Product and will discuss disposal costs and the minimum order quantity at the time of the negotiation of the Supply Agreement.
   
7.2 BIOFRONTERA shall manufacture Product for non-clinical studies, clinical trials and commercial sales. BIOFRONTERA shall make Commercially Reasonable Efforts to extend the shelf-life of Product at its own responsibility and expense under the cooperation of MARUHO. If the shelf-life of the Product cannot be maintained for at least [***] months when the Product is received by MARUHO as carton box of the Product, MARUHO is entitled to request BIOFRONTERA to manufacture the Product complying with MARUHO’s specifications which are provided in the Quality Agreement and/or supply it to MARUHO as a product that is not filled in the primary container.

 

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7.3 If MARUHO’s procurement of the Product from BIOFRONTERA is from MARUHO’s point of view no longer commercially reasonable for MARUHO with respect to quality, pricing and/or shelf life according to Section 7.2, MARUHO is entitled to establish its own source of supply of the Product. In this case, upon MARUHO’s request, BIOFRONTERA shall (i) provide MARUHO or a mere manufacturing entity (not allowed to develop, obtain/maintain Marketing Authorizations and/or to commercialize the Product) designated by MARUHO with any and all Licensed Proprietary Information as well as other know-how, data and technology reasonably required for the mere manufacture of the Product and (ii) expand the license granted to MARUHO in Section 2 such that MARUHO is also granted the exclusive, not sublicensable right to use the Licensed Proprietary Information, the Licensed Patents and the Licensed Trademarks to make and have made the Product in the Field in the Territory, it being understood that MARUHO is not authorized to use the technology provided by BIOFRONTERA outside the Territory without BIOFRONTERA’s written consent. The actual costs associated with such provision will be exclusively borne by MARUHO.
   
7.4 In the event that MARUHO is entitled to establish its own source of supply of the Product according to Section 7.3, MARUHO shall take due and reasonable care throughout the term of this Agreement to ensure that the Product

 

  is fit for its purpose and free from defect in workmanship or materials; and
     
  complies with any applicable laws, regulations and/or relevant approvals, including but not limited to any industry health, environmental and safety standards.

 

8. Illumination Device with the Product
   
8.1 MARUHO may select, at its own discretion, any illumination device for use with the Product in the Field in the Territory (“Device”).
   
8.2 If MARUHO selects to develop and commercialize BF-RhodoLED as the Device, BIOFRONTERA shall be obliged to provide BF-RhodoLED at BIOFRONTERA’s actual cost plus [***]% of BIOFRONTERA’s actual cost to MARUHO upon MARUHO’s request. Actual cost will include all of BIOFRONTERA’s internal and external cost exclusively to manufacture BF-RhodoLED.
   
8.3 If MARUHO selects to develop and commercialize a portable compact Device having a performance based on the BF-RhodoLED for use with the Product in the Field in the Territory, MARUHO shall own the entire right, title, and interest, including any and all intellectual property, in and to all Results generated or obtained or otherwise perceived or reduced to practice in the course of the development of the Compact Device. BIOFRONTERA shall reasonably cooperate with MARUHO upon MARUHO’s request in the development of such portable compact Device (“Compact Device”). The actual cost to develop such Compact Device will be borne by MARUHO. In this case, for all regions outside the Territory, MARUHO grants an exclusive, royalty-bearing license to this intellectual property to BIOFRONTERA.
   
8.4 If MARUHO selects to develop the Device independently from BIOFRONTERA, MARUHO shall own the entire right, title, and interest, including any and all intellectual property, in and to all Results generated or obtained or otherwise perceived or reduced to practice in the course of the development of the Device and BIOFRONTERA shall have no right to obtain any license to any Results generated by MARUHO related to the Device.

 

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9. Compliance with Regulations
   
9.1 MARUHO shall use the Marketing Authorizations in strict compliance with all applicable governmental regulations in the Territory.
   
9.2 The Parties shall enter into a suitable pharmacovigilance agreement or SDEA prior to the initiation of the first clinical study or the first commercial launch of the Product in the Territory, whichever comes earlier.
   
9.3 Throughout the term of this Agreement, the Parties shall give each other such assistance as either Party may reasonably require for the purposes of compliance with the pharmacovigilance agreement.
   
10. Commercialization
   
10.1 MARUHO shall use its Commercially Reasonable Efforts

 

  a) to make the Product available in the market in each country of the Territory after receipt of the Marketing Authorization in such country, provided that BIOFRONTERA has timely delivered to MARUHO the Product meeting the agreed quality (as defined in the Supply Agreement and the Quality Agreement both to be negotiated), and
     
  b) to exploit the Marketing Authorization by marketing and selling the Product in the Territory during the term of this Agreement.

 

10.2 If MARUHO has not applied for a Marketing Authorization for the Product (i) in the East Asia countries of the Territory within [***] years after regulatory approval of the commercialization of the Product for the Acne indication in the USA by BIOFRONTERA, and/or (ii) in the Oceania countries of the Territory within [***] years after the Effective Date, BIOFRONTERA may request MARUHO, on a country-by-country basis, to return any license granted to MARUHO by BIOFRONTERA hereunder, in each case unless MARUHO can invoke reasonable regulatory or commercial reasons for not having applied for a Marketing Authorization in the respective country within the applicable period of time.
   
10.3 In case of BIOFRONTERA’s request in line with Section 10.2 to return a license, MARUHO shall, at MARUHO’s discretion, either (i) pay to BIOFRONTERA an annual amount of EUR [***] per country instead of returning the license, or (ii) return the license in such country to BIOFRONTERA, i.e. will provide to BIOFRONTERA, free of charge, any data or documentation related to the registration and/or reimbursement of the Product in the respective country that MARUHO may have.

 

11. Records and Audits
   
11.1  MARUHO shall keep complete and accurate books and records of the sales of and payments made for the Product, and shall permit an independent auditor access to such books and records in order to confirm the accuracy of any reports and payments made to BIOFRONTERA pursuant to this Agreement. BIOFRONTERA may appoint such independent auditor to check MARUHO’s relevant books and records once a year upon prior written notice to MARUHO. The auditor’s report shall only state whether the relevant calculations have been accurate or reveal an underpayment. The charges for such an audit shall be borne by BIOFRONTERA, unless the audit reveals an underpayment of royalties in excess of [***]% [***] of the royalties actually due, in which case MARUHO shall bear the cost of such audit and shall remit any amounts due to BIOFRONTERA within [***] days of receiving an invoice from BIOFRONTERA. BIOFRONTERA’s audit right pursuant to this clause shall expire [***] after the Quarterly Royalty Report has been received by BIOFRONTERA.

 

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11.2 BIOFRONTERA shall keep complete and accurate books and records (i) of the manufacturing and supply of the Product and of the Device to MARUHO as well as (ii) of all payments of BIOFRONTERA’s external costs for the Product and of the actual costs for the Device and shall permit MARUHO and/or an independent auditor access to such books and records in order to confirm the accuracy of any invoices issued to MARUHO pursuant to this Agreement for the supply of Product and/or Devices. Section 11.1 shall apply mutatis mutandis with respect to a check of BIOFRONTERA’s books and records by MARUHO.
   
12. Confidentiality
   
12.1 Each Party shall keep, during the Term and thereafter for an unlimited period of time, as confidential and shall not publish or otherwise disclose and shall not use for any purpose other than as provided for in this Agreement (which includes the exercise of any rights or the performance of any obligations hereunder or thereunder) the contents of this Agreement, of the Supply Agreement to be negotiated and of the Quality Agreement to be negotiated as well as the Confidential Information furnished to it or its Affiliates by the other Party or its Affiliates pursuant to this Agreement except to the extent expressly authorized by this Agreement or as otherwise agreed to in writing by the Parties. Either Party may disclose Confidential Information of the other Party to its employees, directors, personnel and Affiliates, potential Sublicensees, as well as Regulatory Authorities, service providers, consultants, non-clinical and clinical investigators, manufacturers and distributors only to the extent required to exercise its rights and/or to fulfil its obligations under this Agreement, the Supply Agreement to be negotiated or the Quality Agreement to be negotiated, provided that same shall be bound by confidentiality and non-use obligations no less stringent than those set forth under this Agreement. The duty of confidentiality as per this clause 12.1 does not apply to:

 

  a) information, which was already in the public domain at the time of signing of this Agreement;

 

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  b) information, which becomes a part of the public domain by publication or otherwise during the term of this Agreement, except by breach of this Agreement;
     
  c) information, which the receiving Party can establish was in its possession before signing of this Agreement and which was not acquired directly or indirectly from the disclosing Party;
     
  d) information, which the receiving Party can establish was acquired from a third party, such third party having acquired the information neither directly nor indirectly from the disclosing Party;
     
  e) information which has to be disclosed by law, a court decision or an administrative order;