Biofrontera AG (NASDAQ: BFRA) Q4 2019 Earnings Call Transcript

Biofrontera AG (BFRA) Q4 2019 earnings call dated Apr. 21, 2020

Corporate Participants:

Pamela Keck — Investor Relations

Hermann Lubbert — Chief Executive Officer

Thomas Schaffer — Chief Financial Officer

Analysts:

Bruce D. Jackson — Benchmark Company, LLC — Analyst

Thomas Flaten — Lake Street Capital Markets — Analyst 

Presentation:

Operator

Dear ladies and gentlemen, welcome to the conference call of Biofrontera AG to discuss Full Year 2019 Financial Results. [Operator Instructions]. After the presentation, there will be an opportunity to ask questions. [Operator Instructions].

May I now hand you over to Pamela Keck, Head of Investor Relations who will lead you through this conference. Please go ahead.

Pamela Keck — Investor Relations

Thank you, and good morning. Welcome to Biofrontera’s Earnings Conference Call for the full year 2019. Yesterday, we issued a press release announcing financial results for the fiscal year ended December 31st, 2019. We encourage everyone to read the press release as well as the annual report, both of which are available on our website.

Please note that certain information discussed on the call today is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that, during this call, Biofrontera’s management will be making forward-looking statements. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the Company’s business.

All risks and uncertainties are detailed in and are qualified by the cautionary statements contained in Biofrontera’s press releases and SEC filings. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, today, April 21st, 2020. Biofrontera undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

With that, I would now like to turn the call over to Hermann Lubbert, our CEO. Hermann?

Hermann Lubbert — Chief Executive Officer

Yeah. Thank you, Pamela, and thank you very much, ladies and gentlemen for taking the time to participate in today’s call. With me today is Thomas Schaffer, our CFO. I will summarize the general business development and clinical updates achieved during 2019 and will provide an update on the current status of our commercial efforts. Mr. Schaffer will then present the financial results for the year.

Over the course of 2019, we continued to achieve tremendous growth with sales growing 48% over the previous year. In addition to all commercial success, we continued to expand our market opportunity for Ameluz in both the US and EU as well as completed our acquisition and integration of Cutanea Life Sciences.

We closed out the year very strong, recording our highest quarterly sales figures in Biofrontera’s history driven by significant growth in our US business as well as continued growth in Germany and Spain with the growing acceptance of daylight PDT.

As we move into 2020, we continue to work with dermatologists in order to provide patients with highly effective treatments. The COVID-19 pandemic, however, has been negatively affecting sales worldwide since March 2020. The reason for this is the decreasing number of medical treatments, especially treatments that are carried out in doctors’ offices.

During this time, we are focusing on our long-term plan, while working diligently to ensure that our cash position and liquidity remains adequate. I will let Mr. Schaffer elaborate on how do we plan to manage this current situation in more detail, but first, let us review our operational and commercial successes over the last year.

Starting off, in our home market Germany, 2019 sales grew by around 40%. This strong growth is due to our European approval for daylight photodynamic therapy or PDT, which we received in 2018. This label extension enable us to make a significant leap forward in the largest European pharmaceutical market, making Ameluz with 70% — 57% market share among its competitors, the clear leader for PDT in Germany.

We are very pleased by this growth and intend to continue expanding our market share as the definitive market leader in Germany, especially since Ameluz in combination with daylight PDT is now fully reimbursed by the public healthcare system.

As we continue to educate physicians about the benefits of PDT, we expect to continue to take market share from the much larger topical cream market, which was historically favored by physicians as it was the simplest treatment option reimbursed by the public healthcare system.

In Spain, we continue to see a similarly positive market performance for Ameluz. Sales grew approximately 10%, which needs to be interpreted in consideration of a government-mandated price reduction of 27% for Ameluz. The price reduction was more than offset by the increased demand.

In the United Kingdom, the focus of sales continued to be on hospitals, in particular on the administrative steps to include Ameluz in the respective hospital pharmacies. To date, the Company has seen success as some major hospitals now rate Ameluz as the first choice PDT drug for the treatment of actinic keratosis and basal cell carcinoma. These successes are beginning to translate into growing sales figures. However, the UK still remains a minor portion of the Company’s revenue.

Shipments to license partners in other European countries declined significantly. As has been the case over the last several quarters, the United States continues to be a major growth driver for Biofrontera, accounting for 75% of our total sales. For the full year 2019, Biofrontera achieved revenue in the United States amounting to approximately EUR23.3 million, representing revenue growth of approximately 57% compared to 2018.

This growth was driven by the continued expansion of our sales and distribution infrastructure as well as improved reimbursement of PDT, which was increased in 2019. Product sales of Aktipak, which has since been discontinued and Xepi contributed approximately EUR800,000 to sales since the acquisition of Cutanea Life Sciences.

In the US, we see a number of long-term growth opportunities. We have devoted our R&D budget almost entirely to projects that will help increasing our share on the US market for Ameluz. Furthermore, we expanded our product portfolio with Xepi, the first new antibiotic in dermatology in about ten years for the treatment of impetigo.

The successful integration of Cutanea, which we acquired from our strategic partner and major shareholder Maruho in March 2019 will play a key role in our long-term strategy. With this acquisition, we expanded our product portfolio in the US to include the FDA approved drug, Xepi.

While we also acquired a second approved prescription drug, Aktipak for acne, we made the decision to discontinue this product last year due to unexpected quality problems and production, which could not be addressed in the short-term and would require large investments. As a reminder, this decision was supported by Maruho, who bore all the financial consequences of the discontinuation.

Now taking a look at Xepi. Xepi is the only approved topical antibiotic that has been introduced into the US market in the past decade. Xepi is approved to treat impetigo including skin infections caused by antibiotic-resistant bacteria such as MRSA. Xepi has a double mechanism of action resulting in bacteria — bactericidal activity. Competing antibodies display only bacterial static activity. This novel mechanism of action renders the development of resistant bacteria extremely well.

In total, there are approximately 10 million prescriptions written annually in the US for drugs and indications where Xepi could be effective, a large part of them by dermatologists. Therefore, we see significant growth potential for this product. While Xepi is a blended drug selling at about $300 per tube, it competes with generic antibiotic drugs at much lower prices. However, all major private payers have in the meantime accepted Xepi for unrestricted reimbursement giving about 150 million people in the US unlimited access to Xepi.

This together with the new co-pay program that we introduced on April 1st this year, forms the basis for growing Xepi sales in the future. The fact that payers are willing to cover Xepi’s higher price compared to its competitors without any restrictions, demonstrates the tremendous advantages and potential of this new drug.

Turning now to our clinical and regulatory activities, which will help to sustain the growth of Ameluz sales in the long-term. We achieved a number of milestones in both the EU and US over the course of 2019, as well as in recent months. In March 2020, we received formal approval from the European Commission for the use of Ameluz for the treatment of actinic keratosis on the extremities and trunk, and neck.

This approval was based on positive results from our Phase III trial that were published last year. The study, which met its primary regulatory endpoint, demonstrated a mean clearance rate per patient side of 86% for Ameluz compared to 33% for placebo.

Earlier this year, we also reported 12 months follow-up results from this Phase III study demonstrating lesion recurrence rates after one year of 14.1% after Ameluz treatment, compared to 27.4% after placebo treatment. Along with the label expansion to a case in the periphery, the European Commission accepted the inclusion of Phase III data into the European product information, which demonstrated significantly lower recurrence rates after daylight PDT with Ameluz compared to daylight PDT with its competitor products.

This upgrade of the regulatory approval for Ameluz in the EU continues to expand the market opportunity of Ameluz and will further drive our long-term growth in Europe. We anticipate seeing this positive effect on our sales development once the consequences of social distancing for dermatology offices decline. In the US, we have been working diligently to address two of Ameluz’s current competitive disadvantages.

First, our current FDA approved prescribing information only allows the reimbursement of one tube of Ameluz per patient per day. This restriction on the Ameluz label is reflected in the reimbursement guidelines for Ameluz, issued at the end of 2018. In other words, there is no problem with the reimbursement of Ameluz by health insurers as such, but a restriction in our label led to unexpected reimbursement limitations. As we seek to expand the Ameluz label to include the treatment of actinic keratosis on the extremities, tongue and neck, we will need to expand the reimbursement of Ameluz to include additional tubes.

After discussions with the US Food and Drug Administration, the agency has requested that we complete a corresponding pharmacokinetic study or PK study in short of Ameluz. We have initiated this PK study in order to examine the safety and efficacy of three tubes of Ameluz. The study started patient recruitment in February 2019, but then had to put — to be put on hold due to the corona situation. Nevertheless, it is expected to be completed in the second half of 2020.

In parallel, in order to enable doctors to treat larger body areas with Ameluz, we are in the process of developing a next-generation PDT lamp, the BF-RhodoLED XL. The final prototype of the BF-RhodoLED XL is ready and we expect to submit the application for approval to the FDA in the second half of 2020, together with the results of the PK trial.

Furthermore, we are preparing studies to treat actinic keratosis also in the periphery as in the US, the current label covers head and scalp only. Due to the current situation, the start of these trials will likely be delayed until next year. All three of these developments, the treatment of larger body areas with up to three tubes of Ameluz, the development of a larger lamp, and the approval of the treatment of actinic keratosis on the extremities, together work to signify — significantly improve our market opportunity in the US.

As we seek to further secure our medium-term growth in the US, we continue to enroll patients in our Phase III US study examining the use of Ameluz for the treatment of superficial basal cell carcinoma. We have been working intensively on patient recruitment since September 2018. However, due to the extremely demanding study protocol mandated by the FDA, the recruitment process will likely take a considerable amount of time.

Following successful FDA approval, Ameluz would be the only drug in the United States for the treatment of superficial BCC tumor indication with PDT. Actinic keratosis is still considered a precursor to a tumor, and as such the approval for BCC will allow Ameluz to be recognized as a stronger drug.

As long as Ameluz remains our most important sales driver, exploring new indications is essential. As you may remember, we plan to develop Ameluz further for use in moderate to severe acne. Recently, the FDA has provided feedback regarding our proposed design of the required clinical trials and the program is ready to be initiated as soon as business has returned to normal. We will keep you informed about the progress in this indication.

An important aspect of developing the US PDT market further is our contract with the US Department of Veterans Affairs or VA for short. Even though this will not lead to significant sales in the short-term and has therefore not received our primary attention so far, we believe that the agreement with the VA will provide further long-term business opportunities for us.

With many young doctors being trained in VA hospitals and being able to experience Ameluz PDT, we will be able to use this platform to educate a new generation of opinion leaders and innovation drivers in dermatology about the advantages of PDT in combination with Ameluz. Despite the currently still very low business volume, the VA market remains a strategically important market.

Just yesterday, we signed a final license agreement with Maruho under which we grant Maruho a license to commercialize Ameluz in East Asia and Oceania. Given the nature of the Asian dermatology market, Maruho has a particular interest in the acne indication. Maruho will make an upfront payment of EUR6 million as well as further milestone payments.

Furthermore, we will receive royalties initially of 6% for any revenues recorded in their territory included in the agreement. Royalty rates will increase with the larger sales and decrease if and when generic drugs hit the market. We are very happy that our strategic partnership with Maruho continues to the benefit of both parties.

Finally, we have continued to make progress in our research collaboration agreement with Maruho for the development of branded generics based on our nanoemulsion technology. We have almost completely — completed the necessary preclinical work to enter into clinical studies. These branded generics further bolster our pipeline, and we appreciate the support our partner Maruho has provided for the development of these products allowing us to focus our own financial resources on more short-term value drivers and still participate also in long-term value development.

With that said, I would like to hand the call over to our CFO, Thomas Schaffer, who will review our financials and provide an update on our outlook for 2020. Thank you very much.

Thomas Schaffer — Chief Financial Officer

Thank you, Hermann, and thank you everyone for joining this call today. Good morning, good afternoon, wherever you are. I would now like to give you an overview of the financial results for the full year ended 2019 and provide our outlook for 2020.

For the full year 2019, we achieved the total revenue of approximately EUR31.3 million compared to approximately EUR21.1 million for the full year 2018. This corresponds to revenue growth of approximately 48% year-over-year. I would like to note that the fourth quarter of 2019 was our best quarter ever achieving our highest quarterly sales, which were driven by significant growth in our US business, as well as by growth in Germany and Spain from the increased acceptance of daylight PDT.

Sales in the United States, which now account for 75% of total sales, grew 57% to approximately EUR23.3 million compared to EUR14.9 million for 2018. Growth was due to the continued expansion of our sales structures and improvements in the reimbursement of PDT for dermatologists in the US.

Sales in Germany amounted to around EUR4.6 million for the full year 2019 compared to approximately EUR3.3 million in the year before. This corresponds to an increase of 40%. The increase in sales in Germany is mainly due to the introduction of daylight PDT.

Our sales in the other European countries decreased in the reporting period by 5%, to approximately EUR2.6 million compared to approximately EUR2.7 million in 2018. The decline was primarily due to a decline in deliveries to license partners.

I would like to mention though that despite the substantial price reduction in Spain, the volume growth offset these price reductions and led the sales growth of approximately 10% as the number of prescriptions of Ameluz continues to accelerate. Gross profit increased to EUR9.7 million — by EUR9.7 million to approximately EUR26.4 million compared to approximately EUR16.7 million for the previous year. The gross margin increased to 84% from 79% in 2018.

Research and development cost increased slightly to approximately EUR4.6 million compared to approximately EUR4.4 million in the prior year. These costs include the cost of our clinical studies, but also the cost of regulatory affairs including the granting, maintenance and expansion of our approvals.

General and administrative expenses came in at approximately EUR16.3 million in the reporting period compared to approximately EUR13 million in 2018. The increase was due to the initial consolidation of Cutanea. Further due to legal and consulting costs for the defense of the DUSA Pharmaceutical lawsuit, as well as administrative costs in the United States.

Sales and marketing costs amounted to around EUR28.9 million, a significant increase of almost EUR17.7 million from the previous year. This was due to the costs for the further expansion of our sales organization in the United States, as well as sales cost incurred at Cutanea. Our sales costs include the cost of our own sales forces in Germany and Spain, in the UK and in the United States as well as marketing expenses.

Other expenses and income totaled approximately EUR21.2 million in 2019. This includes the negative difference arising from the purchase price allocation of the assets and liability items carried at fair market value in the amount of approximately EUR14.8 million. The item also includes cost reimbursements from Maruho of approximately EUR6.2 million based on the share purchase agreement.

Biofrontera reported a net loss before taxes of around EUR4.8 million and after taxes of around EUR7.4 million. The difference or the income tax reported of EUR2.6 million is a non-cash item as it is due to the use of our tax asset in connection with positive results of our subsidiary Biofrontera Pharma, up mainly in the amount of EUR2.4 million due to the reduction in the municipal trade tax rate of the city of Leverkusen and a corresponding reduction of our tax asset. Cash and cash equivalents amounted to approximately EUR11.1 million as of December 31, 2019, compared to approximately EUR19.5 million as of December 31, 2018.

That concludes our financial performance for the full year 2019. We have prepared our financial statements under a growing concern assumption, and have received confirmation from our statutory auditors. However, the potential impact of the COVID-19 pandemic, which is continuing to worsen around the world and is causing massive disruptions in global supply chains, consumer markets and the economy as a whole has also been impacting our business significantly.

The current situation remains dynamic and has severely limited our predictability. And as it is currently impossible to foresee how long and how strongly the pandemic will affect the economy, no reliable estimate or more precise quantification of the specific implications for sales, earnings can be made for the 2020 financial year at this point in time.

For this reason, our ability to forecast is significantly impaired at this time. In our initial budget for 2020, we had assumed a 25% increase in revenue compared to the previous year and operating costs are approximately at the same level as in the previous year. However, the effects of the coronavirus pandemic may lead to a significant deviation from previous projections and to a noticeable decline in sales compared to previous plans and possibly even compared to the previous financial year.

The anticipated reduced revenue will also have a negative impact on the profitability and liquidity of Biofrontera in the 2020 financial year, as the lack of revenue may not be fully offset by cost reduction measures. At the same time, the cost reduction measures already initiated in March ’20 will continue. These measures include in particular, the introduction of short-time work in Germany and comparable measures in Spain and the UK, the reduction of the workforce in the United States by almost 20%, and mandatory unpaid leave for all employees in the US.

Steps to secure liquidity and strengthen cash flows have given the highest priority. As you are aware, we had to withdraw our offer to issue convertible bonds or ADRs in the United States a few weeks ago as the capital markets went into such turmoil that the placement became impossible in a reasonable price. As the Company requires further financing in light of the changed economic situation, we have decided that we will propose a regular capital increase of up to 20% of our share capital for the Annual General Meeting, which will be held on May 28.

We trust that all our shareholders will endorse and support this decision. The proceeds from this capital increase will initially be used to finance our current operations, which as you know have quite heavily been impacted by the COVID-19 crisis. It will further be used to continue financing clinical studies for the further development of Ameluz as well as for sales and marketing expenses of Ameluz particularly in the United States.

Long-term structural growth drivers including the reimbursement framework in US, the label extensions for Ameluz and decreasing acceptance of daylight PDT in Europe remain intact. And we will likely accelerate once the COVID-19 crisis is over.

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

Hermann Lubbert — Chief Executive Officer

Yeah. Thank you very much, Thomas. As we move into 2020, we will continue to work towards strengthening the market positioning of Ameluz across the United States and Europe with additional label expansion and improved reimbursement. However, in the short-term as the COVID-19 pandemic continues to affect global supply chains, clinical trials and medical treatments, it is difficult to predict or forecast the remainder of the year.

While we move through this pandemic, we will continue to implement a number of cost reduction measures and look forward to returning to a period of strong growth once the situation is resolved. Until then, we retain our cash and prepare the Company for a rebound in business once the markets have recovered.

The upfront payment of EUR6 million by Maruho will help the Company to stay financially secure during this unprecedented crisis. We appreciate the continued dedication of our employees who have without exception accepted salary reductions until the business improves, again, as well as the support of our shareholders through this difficult time.

With that said, I would now like to open the call for questions.

Questions and Answers:

Operator

Thank you very much, and we will now begin our question-and-answer session. [Operator Instructions]. And we’ve received the first question, it is from Bruce Jackson of The Benchmark Company. Please go ahead, your line is now open.

Bruce D. Jackson — Benchmark Company, LLC — Analyst

Thank you. Good morning. The first place, I’d like to start is with the cash position, and you’re going to be receiving the EUR6 million payment from Maruho. Is that going to be booked in the first quarter or the second quarter?

Hermann Lubbert — Chief Executive Officer

That will be booked in the second quarter. We signed the contract yesterday and we expect the payment from Maruho within the next few days.

Bruce D. Jackson — Benchmark Company, LLC — Analyst

Okay. And then, you were discussing the operating expenses were originally expected to be flat over 2019. Looking forward, we don’t have much visibility on the revenue side, but maybe we’ve got some visibility on the expense side of things. Where do you — where do you think the expenses could land right now and what proportion of that is fixed costs?

Hermann Lubbert — Chief Executive Officer

Well, we — Unfortunately, we can’t really give a guidance for the remainder of the current financial year. However, with the cost measures in place, we certainly expect a significant reduction in our cost compared to the previous years. Our costs are mainly driven by our personnel expenses. So, force along we — we keep the headcount and the employees that we currently employ, these costs are pretty much fixed. If we wanted to make further significant cuts in our costs that would require layoffs and we certainly try to avoid this if at all possible.

Bruce D. Jackson — Benchmark Company, LLC — Analyst

Okay. Last question on the cost side. Last year we had the litigation expense, it was fairly active. Is that going to be reduced in 2020 or about the same or what’s the trend for the litigation costs?

Hermann Lubbert — Chief Executive Officer

Well, legal costs are to — the vast majority of our legal costs refer to the defense of the DUSA litigation. And as the trial stands now, these costs are — I don’t want to say down to zero, but they significantly reduced, as we are waiting for the judge to come forward with a plan as to how this drug is going to go forward. Most of the costs spent were during the investigation period that requires a lot of hours.

Bruce D. Jackson — Benchmark Company, LLC — Analyst

Okay. Thank you for taking my questions. I’ll hop back in queue.

Hermann Lubbert — Chief Executive Officer

Thank you, Bruce.

Operator

Thank you. The next question is from Thomas Flaten of Lake Street Capital Markets. Please go ahead, your line is now open.

Thomas Flaten — Lake Street Capital Markets — Analyst

Thank you, and thanks for taking the questions. Just following up on the questions with respect to cost-cutting. I think you mentioned that you had a 20% reduction enforced in the US. Can you comment on, was that primarily on the commercial organization or can you provide some color on where those reductions took place?

Hermann Lubbert — Chief Executive Officer

They were across the organization, both field-based people as well as office based people.

Thomas Flaten — Lake Street Capital Markets — Analyst

And just switching gears, the first quarter sales you pre-announced on Friday, the first quarter numbers, which were a bit below, certainly our expectations for where the first quarter could come in, given everything that’s going on. Could you provide some color on the sequence of events in the first quarter, were things proceeding to plan until the middle of March when it seems that most companies started seeing COVID impact or can you provide some, just some commentary around how the first quarter evolved relative to your expectations?

Thomas Schaffer — Chief Financial Officer

Yes. We can certainly do that. So when we went into the year, the first quarter was quite strong in Europe. So most European — or all our European markets particularly Germany was above — strongly above budget. And then the sales dropped close to zero on the middle of March. And still, Europe came out pretty much at budget more or less by the end of March, because it had been so strong before that.

The US market hasn’t been as strong, in January, particularly, we were still seeing effects of some stocking that went on by the end of last year due to the current price increase on January 1st. So the US went comparably slowly into the year, picked up in February and then by the beginning of March was actually where we expected US sales to be, and we thought it would still be a very strong quarter when this pandemic actually happened and then all the offices either closed down or they are trying to avoid seeing patients in physically, in the offices.

Thomas Flaten — Lake Street Capital Markets — Analyst

So, for the sales team that remains in place, are there activities that they’re conducting either virtually or some other way to continue educating because I’m assuming physicians are still available to be contacted may be outside of the office setting obviously, but can you comment on any ongoing commercial activities you have going on?

Hermann Lubbert — Chief Executive Officer

This is again different between Europe and the US, because of the different approvals. In Europe, the major focus obviously right now is to use some sort of distant approaches like sending letters or telephone calls to advertise daylight PDT and the new label extension that we had. While in the US, the reps try to stay in touch with the customers through the same kind of measures, but not so much with the goal of short-term selling because nobody is going to buy now, but with the goal of preparing the upswing that we expect once the offices can open again.

So most of the time, what the — what our reps do is try to stay in touch with the customers as good as possible and at the same time analyze the customer market, the PDT market and try to prioritize the customers better particularly with respect to the balance between Ameluz and Xepi and use the time that we have now to again prepare for what comes after this entire thing is over.

Thomas Flaten — Lake Street Capital Markets — Analyst

And then one final question, assuming that you’re able to raise the capital following approval of the May shareholders meeting. Given your cash position today, what kind of cash runway does that provide you against your maybe most conservative models internally?

Hermann Lubbert — Chief Executive Officer

That’s never a guarantee, but in all likelihood this should be more than sufficient to bring the Company to breakeven.

Thomas Flaten — Lake Street Capital Markets — Analyst

Excellent. Thank you so much for taking the questions.

Hermann Lubbert — Chief Executive Officer

Thank you, Thomas.

Operator

Thank you. Then we’ll now take the questions of Bruce Jackson. Your line is now open.

Bruce D. Jackson — Benchmark Company, LLC — Analyst

Hi, thanks for the follow-up questions. First, so you said that the FDA trial designed for acne is ready to go and you’re ready — you’re prepared to start the trial. Can you maybe give us a few details on what that trial is going to look like in terms of the number of sites, the number of patients you have to recruit, things like that?

Hermann Lubbert — Chief Executive Officer

Yeah, certainly. So the total — the first trial will be a Phase 2b trial in which we look at different incubation times. So, if you recall, the process of PDT, first the drug is applied and then there is an incubation, which first of all allows the active ingredients to enter the cells and then the active ingredient has to be metabolized to the actual, a light-sensitive compound and that takes a certain time and the longer you wait, the more sensitive the skin eventually gets for the PDT treatment.

And so here, we will look at different time points and form different groups of 30 patients each to actually compare the effect in these — with different incubation times.

Bruce D. Jackson — Benchmark Company, LLC — Analyst

So 30 patients each for how many groups?

Hermann Lubbert — Chief Executive Officer

Three groups.

Bruce D. Jackson — Benchmark Company, LLC — Analyst

Three groups? Okay. And then if we could move over to Xepi, the availability of the reimbursement is certainly a positive development. One of the other questions about Xepi was the marketing channel piece of it. So the dermatologists do prescribe some of it, I believe there is also a fair amount that is used in hospitals. So how do you feel about your channel coverage for Xepi and is there a different marketing strategy for the product compared to Ameluz?

Hermann Lubbert — Chief Executive Officer

Yes, there is certainly a different marketing strategy in that Ameluz is a buy-and-bill drug. So we sell directly to the doctor and the doctor and the doctor has to buy the drug with his personal money and then try to get reimbursement afterwards, while Xepi is a normal drug, like most other drugs that are actually bought into the pharmacy and then sold out of the pharmacy if a patient presents with a prescription.

And here, we still have an open issue with Xepi. So when we took the product over, there were basically three major issues that we had to work on. One was reimbursement, and we have been very successful with that one, with pretty much 150 million people now covered without any restrictions and the second was an improved and more adequate with respect also to our profit, more adequate co-pay system, which we introduced in April 1st.

And now the next step would be to then improve the availability in local pharmacies and this is a little bit of a catch-22 situation, if you sell little, then the pharmacies won’t stock it. And then if a patient comes, it takes a while to actually get the product.

And obviously, since we are looking at an acute infection, the patient wants treatment to start immediately and not wait a day or two for the product to arrive and this is currently bridged with a sample that we give to the doctors, but that is a solution, which we hope is temporary and with growing sales, we can actually move away from that and make the product readily available at local pharmacies.

Bruce D. Jackson — Benchmark Company, LLC — Analyst

Okay. Okay, great. And then the last question from me, with the branded generic project with Maruho. What’s the next step for that project?

Hermann Lubbert — Chief Executive Officer

Well, the next step for that would be — would be clinical trial. So it would go straight into Phase II and so we are actually looking at bringing this into dose-finding studies.

Bruce D. Jackson — Benchmark Company, LLC — Analyst

Okay, great. Thank you very much.

Hermann Lubbert — Chief Executive Officer

Thank you.

Operator

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

Hermann Lubbert — Chief Executive Officer

Well, then I would like to thank you all again for the time that you took to participate in this telephone conference and the interest in Biofrontera and wish you a very nice day. Thank you.

Thomas Schaffer — Chief Financial Officer

Yeah. Thank you very much and stay healthy everyone.

Operator

[Operator Closing Remarks]