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Equities Research Initiation of Coverage 29 September 2016
House Stock Current price €2.98 Pharmaceuticals
United Kingdom
Xetra B8F
No. of shares in issue (m) 30.3
Market Cap (€m) 91.0
Net Cash/(Debt) (€m)* 10.2
EV (€m) – DCF target 307.0
Website www.biofrontera.com
Next update
Q3 results November 2016
Performance 1M 3M 12M
Absolute (%) -6.9 21.6 38.6
Rel Index (%) -5.1 17.6 34.5
Relative to DAX performance index
*As of Jun-16
Exchange rate $1.00=€0.90
+ Non-Independent Marketing Communication:
This is non-independent research. The
analyst who has prepared this report is
aware that Shore Capital Stockbrokers
Limited and/or another member of the Shore
Capital group has a relationship with the
company covered in this report and/or a
conflict of interest which may impair the
objectivity of the research. Accordingly, the
report has not been prepared in accordance
with legal requirements designed to promote
the independence of investment research
and is not subject to any prohibition on
dealing ahead of the dissemination of
investment research.
Shore Capital and Corporate acts as UK
financial adviser to Biofrontera and Shore
Capital Stockbrokers is UK broker. As part of
its conflicts of interests policy Shore Capital
does not make a formal recommendation on
house stocks.
Research analysts
Dr Tara Raveendran
020 7647 8142
Dr Adam Barker
0151 600 3707
Disclosures of potential conflicts of interest as required by regulatory
bodies are shown on page 23.
Biofrontera+
Coming into the light
Biofrontera is a European specialist dermatology company, with an
approved product which it has developed and launched itself in Europe,
and is due to launch in the US imminently (October 2016). The lead product,
Ameluz, together with the BF-RhodoLED lamp, is approved to treat a
common pre-cancerous skin lesion – actinic keratosis (AK) – and boasts
clinical outcomes that are superior to the market leader in both the US (Sun
Pharma^(SUNPHARMA, NR, CNP at INR 766)/DUSA’s Levulan) and Europe
(Galderma’s^ (private, NR, CNP) Metvix). Furthermore, we look to the launch
of Ameluz in basal cell carcinoma (BCC) in Europe (H1 2017F), and the start
of the P3 BCC trial in the US (H2 2017F) as two key catalysts to drive share
price appreciation over the next 12-18 months. Biofrontera is on the cusp of
entering a period of considerable growth (+80% 2015-2020F revenue CAGR),
driven by the launch of Ameluz in AK in the US and by the addition of the
BCC indication in Europe. We see the next 12-18 months as critical to the
long-term opportunity. House Stock.
AK approval just the beginning; US is key: Ameluz is a topical drug
preparation that is approved in Europe (December 2011) and more recently the
US (May 2016) for the treatment of actinic keratosis (AK). It is used as a
photodynamic therapy (PDT) together with Biofrontera’s own BF-RhodoLED
lamp. The US AK-PDT market is estimated to be worth around $160m (based on
2016F Levulan sales, the only approved competitor). The market opportunity for
conventional PDT in Europe is considerably smaller ($15-20m, +3% p.a.),
reflecting a less developed reimbursement infrastructure in our view. However,
we note these dynamics are changing, with the increasing recognition of the need
to treat AK and an improving reimbursement environment in select countries (e.g.
Germany and Switzerland), and the recognition of daylight therapy as an option.
BCC a significant opportunity: Ameluz is filed in the EU for the treatment of
BCC, with approval anticipated in H1 2017F. BCC is the most common kind of
skin cancer worldwide, principally caused by chronic exposure to UV light from
the sun, and particularly in persons with a “light or very light skin type”. With the
majority of the key competitor (Metvix) sales from this indication, we believe the
absence of this indication has been a significant hindrance to Ameluz uptake to
date. Hence the addition of BCC to the Ameluz label in Europe should drive a
step-change in growth over the next 12-18 months in our view.
Fair value at c.€9.7 per share: Our DCF valuation includes sales from approved
indications in Europe (BCC+AK) and the US (AK), and excludes the US BCC
opportunity. The cash balance of €10.2m (June 2016) is insufficient for the next
12 months in our view, and hence we would anticipate some form of additional
capital raise in the near future.
This report is prepared solely for the use of herman luebbert
29 September 2016 BIOFRONTERA
2
Contents
Investment summary 3
Catalysts and financing needs 4
Valuation framework 5
Risks 6
Company background 7
NMSC – disease background 8
Multiple treatment options 9
Photodynamic therapy (PDT) 10
Market opportunity 11
PDT – competitive landscape 13
Ameluz – “Healing with light” 14
Financial model 16
Management team 19
Glossary 20
Abbreviations 21
This report is prepared solely for the use of herman luebbert
29 September 2016 BIOFRONTERA
3
Investment summary
Biofrontera is a European specialist dermatology company, with an approved product in
Europe and the US. We see significant opportunity as the company continues to roll-out its
lead product in Europe, with two near-term catalysts to drive share price appreciation,
namely the addition of a second, larger indication – basal cell carcinoma (BCC) in Europe
during H1 2017F, and the US launch in actinic keratosis (AK) from October 2016.
Its lead product, Ameluz, is a topical photodynamic therapy (PDT), approved for the treatment
of the common pre-cancerous condition AK. To light-activate the medicinal product,
Biofrontera’s BF-RhodoLED lamp was approved separately in Europe (December 2011) and
together with Ameluz as a drug-device combination in the US (May 2016). Clinical data
confirms a superior profile when compared with all marketed competitors in both the US and
Europe, with respect to efficacy and convenience, and underpins our confidence in the
commercial opportunity. The product is rapidly establishing itself in Europe, with Biofrontera
having established a primary dedicated salesforce in select markets.
We are optimistic on Biofrontera’s ability to continue to gain share with Ameluz across the
EU, given the experience with Ameluz in Germany. As the first country of launch, and under
the direct sales model from the onset, Germany is the most advanced market for Ameluz. In
less than one year since launch (2012), Ameluz captured >50% of the PDT drug market,
taking share from the now second and third most commonly used products – Galderma’s
topical cream Metvix and Photonamic’s 5-ALA loaded patch Alacare (now also marketed by
Galderma).
We look to the expansion of the European label to include BCC as a key driver of growth
over the period. In Europe BCC is a more mature market (compared with AK), with an
established reimbursement framework in the inpatient (hospital) market, and accounts for
the majority of sales (c.80%) of the key competitor (Metvix). We believe the absence of this
indication from the Ameluz European label to date has led to a less competitive profile and
has restricted its uptake to some extent. Hence we expect approval in BCC in Q1 2017F,
together with the continued focus from the shift to a direct primary salesforce, to drive a
step-change in the sales trajectory over the next few years.
Biofrontera is also developing Ameluz as a “daylight PDT” in Europe. Phase 3 data is
expected in Q4 2016F. We note that Galderma’s Metvix for daylight PDT (to be marked as
Luxera/Luxerm), was recently (May 2016]) approved as a daylight therapy in several EU
countries. More recently (September 2016) Ameluz also received approval in the EU for
“field cancerisation” therapy; inclusion of this on the label should further support wider
adoption of Ameluz in the European market, in our view.
Longer term we expect Biofrontera to pursue the addition of the BCC indication to the US
label. We assume the Phase 3 starts in H2 2017F, with data in H2 2018F and potential
approval and launch in mid-2019F. We have conservatively excluded this opportunity from
our forecasts, and hence this represents upside. The European approval in BCC (expected
Q1 2017F) partly de-risks the opportunity, in our view, but we look forward to feedback from
the FDA to further reinforce this opportunity.
Significant growth ahead, with two
near-term catalysts to support
shares
Lead product is best-in-class PDT
Ameluz achieved >50% share of
the German PDT market within
less than 12 months
BCC indication in label should drive
step-change in European growth
Label expansions beyond BCC, i.e.
daylight therapy and “field
cancerisation” therapy, to support
wider adoption in Europe
BCC opportunity in the US
represents source of longer-term
upside
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29 September 2016 BIOFRONTERA
4
Catalysts and financing needs
We foresee a number of key catalysts for Biofrontera over the next 12-18 months including:
The commercial launch of Ameluz in the US market (October 2016F).
P3 data for Ameluz as daylight therapy (EU, Q4 2016F).
Expansion of the European label to include BCC and daylight therapy (2017F).
The start of the US P3 in BCC (H2 2017F).
Fig 1: Biofrontera catalysts
Source: Shore Capital Markets, Biofrontera
Biofrontera has two outstanding interest-bearing debt instruments, with warrants attached.
Our model assumes that Biofrontera raises c. €15-20m debt during 2016F (we understand
from management this could be part equity-funded, with negotiations ongoing at present),
together with a further equity/debt raise of €25-30m during 2017F, to honour these
obligations and working capital obligations through to profitability, currently 2019F in our
model. We anticipate the 2017F raise will be part debt-funded in conjunction with a
NASDAQ listing, as previously communicated by the company. Biofrontera reported cash of
€10.2m as of June 2016.
Fig 2: Biofrontera’s outstanding warrant bonds
Name Term date Total nominal value Interest charge Warrant
Warrant bond I 31-Dec-2017 €4.9m* €394,000 p.a. 5 shares for €5/sh per €100 of bond
Warrant bond II 31-Dec-2016 €8.7m €436,000 p.a. 10 shares for €3/sh per €100 of bond
* Redemption at 106% of nominal value of bond. Source: Biofrontera
Refinancing will remain a drag on
share performance until a financing
strategy is announced to the
market
This report is prepared solely for the use of herman luebbert
29 September 2016 BIOFRONTERA
5
Valuation framework
We have used a discounted cash flow (DCF) methodology to derive a value of around €9.7
per share, corresponding to an enterprise value of c.€300m for Biofrontera, excluding any
sales from BCC in the US.
We believe early-stage venture investments should use a discount rate of c.30% to reflect
the relatively high risk profile, while a lower discount rate (c.8-10%) is more appropriate for
mature companies. We have used a discount rate of c.12%, reflecting the fact that
Biofrontera already has its lead product approved in both Europe and the US, but also the
financing overhang and the clinical risk associated with the BCC indication in the US.
Our forecasts include sales of Ameluz in Europe (AK+BCC) and the US (AK only). We have
not included any sales for Ameluz in BCC in the US. Given the historical challenges faced
with BCC products in the US (Galderma/Photocure’s Metvix was rejected for approval in
BCC in the US), we await the outcome of discussions with the FDA before turning more
positive, and increasing our probability to the more standard 50-60% for a Phase 3 asset.
Including US BCC sales at 50% would take our valuation to €12.0/share.
We have also provided the acquisition multiples of two related transactions:
DUSA acquisition: In December 2012 DUSA Pharmaceuticals, the manufacturer and
developer of the only approved direct competitor to Ameluz on the US market for the
treatment of AK (Levulan), was acquired for $230m (enterprise value ~$200m) by the
US generics manufacturer Sun Pharmaceuticals. The acquisition price represented
approximately 4.5x EV/Sales and 21x EV/EBITDA.
Metvix acquisition: In 2009 Photocure ASA sold its remaining rights (royalties on
sales and Scandinavian sales rights) to Metvix, the primary European competitor to
Ameluz, approved for both AK and BCC, to Galderma for c.€51m. The acquisition price
represented c.3x sales (based on European sales of c.€22m in the year) for the
remaining rights. Under an earlier deal Galderma had acquired worldwide rights (ex-
the Nordic region) for an upfront payment of €12m and up to €18m in milestones.
We believe that a premium multiple would be justified for Biofrontera given: (i) it owns
primary marketing rights in key territories for key indications, (ii) Ameluz has been filed for
BCC in Europe and is about to enter P3 for BCC in the US.
Our valuation is based on a
discount rate of c.12%
We do not include risk-adjusted
sales for Ameluz in BCC in our
base case
Fig 3: DCF valuation range and sensitivity analysis (EUR per share)
g/Discount rate 9.6% 10.7% 11.8% 12.9%
2.00% 13.6 11.3 9.5 8.1
2.25% 13.8 11.4 9.6 8.1
2.50% 14.0 11.6 9.7 8.2
2.75% 14.2 11.7 9.8 8.3
3.00% 14.4 11.8 9.9 8.3
Source: Shore Capital Markets
DUSA and Metvix transactions
suggest fair value around 3-5x
sales
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29 September 2016 BIOFRONTERA
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Risks
Commercial/execution risk: Biofrontera is seeking to launch its PDT treatment Ameluz in
the key US AK market via its own dedicated salesforce, and hence there is some degree of
commercial execution risk, in our view. However, we believe the clinical package supporting
the use of Ameluz to treat AK is compelling, and the fact that the market is more mature
than Europe should offer some reassurance that Biofrontera can successfully commercialise
its portfolio in the US.
Regulatory risk: A key strategic priority for Biofrontera is to expand the Ameluz label to
include the treatment of BCC. The label expansion for Ameluz as a treatment for BCC has
been filed in Europe, with a decision expected by H1 2017F; however, there remains a risk
of delay or indeed that the filing is not approved, though we view this as vanishingly small.
Clinical risk: Biofrontera is expected to start a P3 BCC trial in the US in H2 2017F, with
data expected from H2 2018F. As with any clinical trial there are risks associated with
recruitment and execution and clinical outcome. That said, we are optimistic, however, given
the positive results from the European BCC trial.
Financing risk: Biofrontera has two outstanding interest-bearing debt instruments, with
warrants attached, which have redemption dates of 31st December 2016 and 31
st December
2017. Until Ameluz revenues are able to offset the operating spend (unlikely before the
expiration of the two debt instruments) Biofrontera will have to rely on alternative sources of
funding to honour these obligations. Hence we see an immediate need for Biofrontera to
raise some capital to support its ongoing operations together with debt obligations. We note
that the viability of any fund-raising is dependent upon the capital market environment and
the achievement of important milestones in the year, such as the successful launch of
Ameluz for AK in the US (October 2016F). Biofrontera reported cash of €10.2m as of June
2016; we forecast year-end cash of €2.6m in the absence of a fund-raising during 2016F
and before the repayment of the outstanding warrant bond.
Commercial execution risk,
predominantly in the US
Regulatory risk around BCC
approval in EU
Financing required to honour
interest-bearing debt requirements
and to fund working capital
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29 September 2016 BIOFRONTERA
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Company background
Biofrontera AG is a German biopharmaceutical company specialising in the development of
dermatological products for the care and treatment of skin and inflammatory diseases.
Biofrontera’s key product is Ameluz, a prescription drug approved for use in Europe (2011)
and the US (2016) for lesion- and field-directed treatment of mild to moderate actinic
keratosis (AK) on the face and scalp. In the EU, Biofrontera was also approved for the
treatment of field cancerisation.
The company was established in 1997 in Lörrach, Germany as a services company, and
shortly thereafter moved to Leverkusen, where it remains today. Biofrontera listed on the
German stock exchange in 2006, and with the submission of the European marketing
authorisation for its first drug BF-200 ALA (Ameluz) in 2011 it moved away from its exclusive
focus on research and development activities and started the transition to becoming an
integrated dermatology business. Ameluz was approved for the treatment of AK in
December 2011.
As of May 2016, Biofrontera has approved products both in Europe and the US, with the
product launched and on the market via a direct salesforce in Europe while Biofrontera is in
the midst of preparing for the US launch via its own primary salesforce in October 2016.
Fig 4: Key milestones in Biofrontera’s history
Source: Shore Capital Markets, Biofrontera
German biopharmaceutical
company specialising in
dermatological products
Preparations of US launch well
underway
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29 September 2016 BIOFRONTERA
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NMSC – disease background
Non-melanoma skin cancer (NMSC) refers to a group of common cancers that slowly
develop in the upper layers of the skin (the epidermis), and is differentiated from the less
common “melanoma”, which typically spreads more quickly in the body. NMSC is
predominantly caused by overexposure to ultraviolet (UV) light (i.e. as from the sun as well
as artificial sunbeds/sunlamps). In addition to UV light overexposure there are a number of
risk factors including a family history, fair skin and a large number of moles and/or freckles.
There are >100k new cases of NMSC in the UK every year.1 The types of NMSC (squamous
cell carcinoma (SCC) and basal cell carcinoma (BCC)) are broadly named after the type of
skin cell from which they develop. Actinic keratosis (AK) and squamous cell carcinoma
(SCC) represent the same disease process at different stages of evolution, and indeed AK is
a precursor of SCC.
Actinic keratosis: AK, or solar keratosis, is characterised by dry scaly patches of skin
caused by damage from extended exposure to the sun’s UV rays. AK lesions may remain
unchanged, spontaneously resolve, or in rare cases (<10%) may progress to invasive SCC.
However, AK can be clinically indistinguishable from more serious cutaneous malignancies,
and as the number of lesions increases so does the risk of progression. Hence, together
with the availability of generally simple, effective and well-tolerated treatment options, it is
widely accepted among medical professionals that AK should be treated. Estimates suggest
AK affects around 58m Americans.2
Squamous cell carcinoma: SCC starts in the cells lining the top of the epidermis and
accounts for c.20% of skin cancers. SCC does not spread beyond the primary site in most
cases. However, in c.2-5% of patients with SCC spreading occurs and cancer cells can be
detected in neighbouring lymph nodes.
Basal cell carcinoma: BCC starts in the cells lining the bottom of the epidermis (the basal
cells) and accounts for c.75% of skin cancers. Of all BCCs c.85% appear in the head and
neck region. It is estimated that there are c.5.4m BCC treatments in the US every year.
Fig 5: Schematic representation of the layers of the skin
Source: Cancer.org
1 NHS
2 Skin Cancer Foundation
NMSCs are caused by over-
exposure to UV light (i.e. from the
sun or artificial tanning light)
Despite benign outcomes in most
cases, ease of treatment and risk
of disease progression warrants
treatment
NMSCs usually develop in the
outer most layer of the skin (the
epidermis), and are often
named after the type of skin cell
from which they develop.
(i) Squamous cell carcinomas
(ii) Basal cells carcinomas
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29 September 2016 BIOFRONTERA
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Multiple treatment options
AK and NMSC may be recognised by patients or their relatives in routine skin cancer
screening, or by a GP, who may then refer the patient to see a dermatologist.
Dermatologists will often rely on a biopsy to confirm the diagnosis and recommend
treatment – typically surgery or cryotherapy.
A number of modestly effective (c.50% success rate, based on patient clearance) treatment
options are available for the treatment of AK. While popular, curettage and cryotherapy have
sub-optimal cosmetic outcomes and hence alternatives – such as topical creams (e.g.
imiquimod, 5-fluorouracil), radiotherapy, chemotherapy and PDT – have gained traction.
Therapies can be broadly divided into lesion-directed (i.e. for visible AK lesions) or field-
directed (i.e. for multiple lesions which affect a larger surface area).
Lesion-directed therapies: One of the more commonly used therapies in the US is
cryotherapy.4 Side-effects, such as hypopigmentation, increase with freeze time, negatively
affecting the cosmetic outcome. Surgery/excision and curettage are also options for lesion-
directed therapy, more often used for hyperkeratotic (i.e. related to the thickening of the
outer layer of skin) AKs and those with follicular involvement (i.e. deeper penetration).
Field-directed therapies: More appropriate for multiple lesions that are less well-defined
(confluent) and can cover larger surface areas. These therapies can be further classified as
patient-administered (e.g. topical therapies) or physician-administered (e.g. PDT).
Compliance can be a concern with patient-administered therapy while physician-
administered therapies can be expensive and require specialist training.
Fig 6: Treatment options in NMSC
Intervention Pros Cons Comment
Surgery/excision Well-established and effective for
discrete lesions
Poor cosmetic outcomes (particularly for
larger lesions)
Traditionally the mainstay treatment
Radiotherapy Effective if cancer covers
extensive area/is difficult to reach
Long-term risks from radiation Can be used for BCC or SCC
Curettage/scraping Effective for discrete
hyperkeratotic lesions
Limited use for multiple lesions
Long healing times
Particularly useful for hypertrophic AK
of the extremities
Cryotherapy (liquid
nitrogen)
Fast and can be conducted in an
outpatient setting
Variable cosmetic outcomes and higher
recurrence rate
Historically the treatment of choice for
AK in the US
Laser therapy Effective long-term outcomes High recurrence rates
Common risks – Infection,
scarring/discolouration
Limited standards of use
Photodynamic therapy
(PDT)
Superior cosmetic outcomes and
amenable to “field” therapy
Pain (“burning sensation”) Other advantages include reduced
therapy duration & patient compliance
Topical therapies
Non-invasive and can be
administered by the patient
5-FU associated with toxicity and the
potential for skin irritation
Typically used for superficial lesions;
compliance an issue
Source: European Dermatology Forum. Shore Capital Markets
3 Cancer Research UK
4 Uhlenhake, E (Optimal treatment of actinic keratoses; Clinical Interventions In Aging 2013:8 29-35)
The cure rate of those diagnosed
with NMSC is very high at c.80-
90%, and is even higher if
diagnosed early.3
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29 September 2016 BIOFRONTERA
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Photodynamic therapy (PDT)
PDT represents an attractive therapeutic option for the treatment of NMSC, especially when
treating large areas with field cancerisation (large areas of cells that are affected by
carcinogenic alternations). The cure rates are good (80-100% histological cure rate)5, but it
is favoured largely due to its non-invasive nature and excellent cosmetic outcomes. The
major side-effect reported is the pain experienced by patients during treatment.
PDT involves the application of a photosensitive preparation (containing porphyrin or its
metabolic precursor) to the lesion, followed by irradiation with light of a pre-specified
wavelength (to match the absorption of the porphyrin) from a suitable lamp (typically red or
blue light), which initiates a tissue-toxic photochemical reaction.
There are many types of photosensitisers (topical, oral or intravenous). Currently the only
approved photosensitisers in the EU for dermatologic indications are aminolevulinic acid
(ALA) and its methyl ester (MAL). ALA is the only approved photosensitiser in the US. Both
drugs are “prodrugs” that require conversion to the photoactive porphyrin (in particularly
porphyrin IX). Most cells in the body can metabolise the prodrugs ALA/MAL into the
photosensitive porphyrin required but the levels vary between tissues and cell types – with
accumulation mostly in sebaceous glands and in the epidermis and preferentially in
dysplastic and hyperproliferative (i.e. abnormally fast-growing) tissue.6
Blue light has a shorter wavelength (450-495nm) than red light (620-750nm), with the latter
able to penetrate the skin more deeply, which is of particular relevance with regard to the
use of PDT in the treatment of skin lesions that extend beyond the superficial epidermal
layer, such as those in NMSC. Of note, light therapy (which uses blue and sometimes red
light) has been applied to other cosmetic treatments (e.g. acne) though we note there is a
paucity of conclusive evidence to support its effectiveness.
Fig 7: Photo Dynamic Therapy (PDT) – The mechanism of action
After the application of the
photosensitiser, an “incubation time” is
permitted for the drug to be metabolised
and accumulate porphyrins before
activation.
ALA/MAL is selectively metabolised
mostly in the sebaceous glands and in
fast-growing (potentially pre-cancerous)
cells/tissues.
Source: Lin et al, 2014
5 DermNet New Zealand Trust (2016)
6 Lin et al (2014)
PDT increasingly favoured due to
its non-invasive nature and its
favourable effect on cosmetic
outcomes
PDT requires three components –
a photosensitiser, a light source
and oxygen
Preferential uptake of ALA/MAL in
dysplastic and hyperproliferative
(i.e. precancerous or tumour)
tissue
Red light has a longer wavelength
and is able to penetrate the skin
more deeply
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29 September 2016 BIOFRONTERA
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Market opportunity
The global actinic keratosis (AK) market was estimated to be >$6bn in 2015 and growing at
a +4% 2016-2022 CAGR, with destructive therapies (surgery and particularly cryotherapy),
owing to their proven efficacy and cost effectiveness, comprising more than half of this
market.7
Topical medications (e.g. 5-flouorouracil (5-FU), imiquimod, ingenol mebutate and
diclofenac sodium) are a mainstay of extended AK treatment regimens, although patient
compliance remains a key issue. The availability of cheaper topical options is likely to
underpin this segment longer term, particularly in emerging and middle- and low-income
markets.
Photodynamic therapy (e.g. ALA/MAL) is expected to be the fastest-growing segment over
the next five years, supported by an increasing demand for non-invasive treatments with
strong cosmetic outcomes.
North America, and within it the US, is the largest market for AK treatment, reflecting both an
increasing prevalence and growing public awareness about prevention and the management
of skin cancer, together with a supportive reimbursement environment. PDT is the fastest-
growing segment of this market, largely at the expense of the topical therapies. Of note PDT
is generally reimbursed in the US for the treatment of AK, which is in contrast to the
European market, where PDT is more commonly used (and reimbursed) to treat BCC in a
hospital setting, and less so to treat AK. Hence, the European PDT-AK segment is smaller
and more slowly growing than its US counterpart.
Fig 8: Global AK market by treatment (2015), ~$6.6bn (+4% 2016-2022F CAGR)
Source: Adapted from Credence Research report (2016)
7 Credence Research (2016) -http://www.credenceresearch.com/report/actinic-keratosis-market
Global AK market estimated to be
>$6bn in 2015, with a +4% 2016-
2022F CAGR
Topical medications the second-
largest segment
PDT gaining traction – PDT is the
fastest-growing segment of the AK
market
The US is the largest AK market,
with increasing use of PDT; the
European AK market remains
dominated by topical treatments
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29 September 2016 BIOFRONTERA
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There are an estimated 5.2m AK annual visits in the US per year, of which around 60% are
made by the Medicare population (>65 years). This corresponds to an annual spend of
c.$920m, of which just over half is spent on “destructive” therapies, such as surgery and
cryotherapy.8
In Europe the AK-PDT market is less well developed, representing <10% of the overall AK
market, with European dermatologists yet to embrace early treatment of AK in the same way
as their US counterparts. Increasing awareness and improved reimbursement should bolster
the modest growth (mid-single digit versus the US at >20%9) of the European market, in our
view. We highlight that the reimbursement environment in Europe is improving, with
Switzerland recently (March 2016) including Ameluz in its reimbursement list for the
treatment of AK.
Despite impressive healing rates and superior clinical outcomes, market penetration of PDT
overall, in both the US and Europe, has been modest, in part reflecting a disparate
marketing effort in the former and an unfavourable reimbursement environment in the latter.
In the US dermatologists historically preferred cryotherapy, partly due to favourable
coding. Commercialisation of PDT has also been hindered by a number of factors –
including the absence of the BCC indication and litigation (which was subsequently
resolved in 2006) over the use of ALA-esters in PDT. The use of PDT is increasing,
however, with the market growing by double-digits (+20% pa) and constituting the third
most used therapy option after surgery/cryotherapy and generic 5-FU.
In Europe dermatologists favour topical prescriptions, which are the least labour-
intensive (from the physician’s perspective). Metvix (Galderma’s leading PDT) has
benefited from the inclusion of BCC in the label. Hence, we believe an expanded label,
in both the US and Europe, would be a fillip to the overall market. The recent (May
2016) approval of Metvix as Luxerm for daylight PDT (in which illumination is done by
daylight) in Europe is likely to be a further driver of market growth in our view, and
hence we see Biofrontera as well positioned with its Ameluz currently in P3 for daylight
PDT (EU approval anticipated during H1 2017F).
Fig 9: PDT – limited uptake in AK market to date
Source: Biofrontera
8 BioLineRx
9 Biofrontera (personal communication)
AK market well established in the
US, less so in Europe
Improving reimbursement should
support European AK-PDT market
BCC indication would boost PDT
market
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29 September 2016 BIOFRONTERA
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PDT – competitive landscape
Topical PDT as a therapeutic option for the treatment of AK is well established, with three
available options: Biofrontera’s Ameluz in Europe and the US, DUSA/Sun’s Levulan in the
US and Galderma’s (Photocure) Metvix in Europe. Of note the latter is also approved to treat
the more serious indication BCC in Europe and was recently approved for daylight PDT of
mild AK lesions on the face or scalp. US approval of PDT for BCC has proven elusive to
date. The only photosensitisers approved for dermatologic indications are aminolevulinic
acid (ALA) and its methyl ester (MAL).
Aminolevulinic acid (ALA)
In the US Levulan and, more recently, Ameluz are approved for the treatment of AK lesions
on the face and scalp in combination with blue and red light respectively. Levulan, the only
marketed PDT in the US, is expected to generate sales of c.$160m in 2016F. In Europe a
patch-containing ALA (Alacare, Galderma) is licensed for the treatment of mild AK in
combination with red light. ALA is unstable as an aqueous (water-based) formulation and
has low lipid solubility, although it has a higher capacity to induce the photo-active porphyrin
species. Importantly, Biofrontera’s nano-emulsion has overcome these instability issues.
Furthermore, the lipophilic nature of the nano-emulsion is believed to facilitate superior
delivery of the active ingredient through the outermost skin layer (stratum corneum) into the
lesion, potentially explaining Ameluz’s higher efficacy. Biofrontera’s Ameluz gel was
approved in Europe for mild and moderate AK of the face and scalp in 2011 and the EMA
has provided a positive opinion for extension to the indication field cancerisation in 2016. The
company anticipates approval in BCC by the end of 2016F or early in 2017F. Ameluz was
approved in the US in May 2016 for lesion- and field-directed AK.
Methyl aminolevulinate (MAL)
A derivative of ALA, Metvix was the first commercially available MAL-drug for topical PDT in
Europe (approved together with red light in 2001), with specific approvals for the second-line
treatment of mild AK lesions of the face and scalp and also superficial and nodular BCC.
The drug was also approved in the US for AK (2004). Subsequent attempts to obtain
approval in BCC were thwarted with a rejection by the FDA (2005). Due to Galderma’s
failure to meet post-approval obligations, approval was withdrawn in 2014.
Fig 10: Commercially available photosensitising drugs for topical PDT
Manufacturer Drug Active Ingredient Light Source Approval Date Indications
DUSA/Sun Levulan 20% ALA BLU-U (Blue) 1999 (US) Mild/moderate AK US
Galderma/
Photocure*
Metvix 16% MAL Aktilite (Red), daylight 2001 (EU)/2004 (US)+ Mild AK, BCC
2nd
line (EU)
Biofrontera Ameluz 7.8% ALA BF-RhodoLED (Red) 2011 (EU )/2015 (US) Mild/moderate AK,
Field cancerisation (US/EU),
1st line
Photonamic/Medac Alacare ALA Red light EU (2009) Mild AK (EU)
Galderma Luxera 2x2 16% MAL Daylight 2015 Mild AK, 2nd line (EU)
* Galderma acquired Metvix from Photocure in 2009 for €51m; +not available in the US. Source: Shore Capital Markets:
A number of PDT options for the
treatment of AK
Levulan and Ameluz approved for
AK in the US
Metvix and Ameluz approved for
AK in Europe
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Ameluz – “Healing with light”
Biofrontera’s Ameluz® gel is approved in combination with red light in general in the EU, and
specifically with the BF-RhodoLED lamp in the US for use in lesion- or field-directed
photodynamic therapy (PDT) of AK. It combines the active ingredient 5-aminolevulinic acid
(5-ALA) with a patent-protected nano-emulsion (BF-200), which improves skin penetration
and increases the chemical stability of 5-ALA. Importantly, the nano-emulsion product has
been observed to be superior to both MAL (the active ingredient in Metvix) and the US-
approved Levulan in the treatment of AK and field cancerisation.
Fig 11: Ameluz has demonstrated compelling clinical efficacy in AK*
* Based on meta-analysis of AK therapies Source: Vector & Tolley
Fig 12: Comparison of Ameluz versus Levulan for the treatment of AK
Ameluz/BF-RhodoLED 3hr exposure
Levulan / Blu-U 14-18hr exposure
ST patient clearance 91% 66%
Patient clearance (scalp) 82% 50%
LT Patient clearance 57% 31%
ST Lesion clearance 94.3% 72.1%/83.6%
LT Lesion clearance 84.9% 63.6%
Application gel liquid
Illumination time 10 min 17 min
Skin rejuvenation P3 data no P3 data
Approved treatment area field lesion
Treatment of superficial & nodular BCC high efficacy in P3 no data
ST – 3 mos (Ameluz) or 2 mos (Levulan) after last 1 or 2 PDT treatments; LT 12 mos (Ameluz) or 10-12 mos (Levulan) after last of 1 or 2 PDT treatments
PDT superior to other topical AK
treatments, with >60% complete
patient clearance
Ameluz approved for the treatment
of AK in the US and the EU
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29 September 2016 BIOFRONTERA
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Source: Biofrontera
We also refer to the October 2012 assessment from the Scottish Medicines Consortium
(SMC), which concluded that Ameluz was superior (clinically, based on complete clearance
of AK lesions on the face or bald scalp) to the alternative PDT agent (Metvix). Furthermore,
Ameluz was found to be more cost-effective than Metvix, with the former estimated at an
annual treatment cost of c.£280/patient compared with Metvix at £324 – resulting in a cost
saving of £44 per patient per year.
We are encouraged by the trends in Germany, where there are an estimated 8m AK
patients. Since launch Ameluz has quickly achieved status as market leader in the
pharmacy segment, with a >70% share. However, we note that pharmacy-dispensed PDT
drugs represent only c.5% of the overall PDT market in Germany, where the majority of use
is in the hospital setting (and for BCC). The recognition of AK as an occupational disease in
2013, together with the recent (March 2016) positive reimbursement developments, should
continue to drive uptake of PDT in the outpatient setting. We also note that the addition of
the daylight PDT indication to the label should go some way to address previous barriers to
use, including complexity and duration of the treatment (i.e. patients had to attend the
physician’s office on multiple occasions for treatment).
We believe the addition of the BCC indication to the label in Europe (anticipated in H1
2017F) should allow Ameluz to compete more equally with Metvix, which is currently
approved for both BCC and AK in the region. Moreover, the superior clinical profile, as
based on the P3 data, which demonstrated complete clearance of c.93.4% in Ameluz®-
treated patients compared with c.91.8% of Metvix-treated patients, should allow Biofrontera
to win considerable market share over time.
Fig 13: Comparison of Ameluz and Metvix for the treatment of BCC
(n=281 patients with 1 to 3 non-aggressive BCCs of up to 2mm)
Ameluz/ BF-200 ALA
Metvix (MAL)
Complete clearance (% of patients) 93.4% 91.8%
Compete clearance (% of total lesions) 94.6% 92.9%
Lesions 0 – 1mm thick 96.4% 95.7%
Lesions 1-2 mm thick 72.7% 66.7%
Nodular BCCs 89.3% 78.6%
Cosmetic* – “very good to excellent” 60%l 48.6%
Cosmetic* – “unsatisfactory” 17.1% 18.9%
* Cosmetic outcomes based on physician assessments Source: Biofrontera , Shore Capital Markets
Improving momentum in Germany;
daylight PDT should help drive
uptake
Ameluz better than Metvix® in all
subgroups in Phase 3 BCC study
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Financial model
Our summary forecasts are presented in Figures 14 and 15.
Biofrontera is entering a period of supra-normal revenue growth. While we acknowledge a
period of lacklustre sales pre-2014, reflecting: (i) modest AK market growth in Europe, (ii)
the lack of a BCC indication on the European label (resulting in a competitive disadvantage
despite superior efficacy) and (iii) the lack of a US approval. Recent milestones underpin a
c.80% 2015-2020F revenue CAGR for Biofrontera. These include positive European Phase
3 data for BCC (March 2016), and the approval of Ameluz for AK in the US (May 2016).
The US represents a significant opportunity for Biofrontera. As detailed in Figure 14 we
forecast Ameluz sales of c.€230m by 2025 from current/imminent market opportunities in
Europe (BCC+AK) and the US (AK). Our forecasts assume comparable pricing in BCC/AK
indications, with the US priced at a c.30% premium to Europe. In the US, we assume
Ameluz is able to convert c.25% of the existing Levulan users within three full years on the
market (i.e. by 2019F), reaching a peak of $160m by 2025.
The US BCC opportunity, which could conservatively add c.$60m (c.€50m) in US sales by
2025, represents upside to our base case. Our sales forecasts assume launch in the US in
AK in October 2016F and launch in BCC in Europe in H1 2017F.
We forecast a significant step up in operating expenses in 2016-17F, with R&D increasing
slightly to c.€6.5m in 2017F to support the start of the Phase 3 in BCC in the US. We
anticipate a significant step-up in selling expense to c.€10m and c.€20m over 2016-17F,
ahead of the launch of Ameluz in the US (October 2016F) and to support the salesforce,
which is expected to reach its target size of 45 US reps by the end of 2017F. We then
forecast more moderate (+5-6% YoY) growth in selling expenditure from 2018F.
Our forecasts assume that Biofrontera is able to successfully raise c.€15-20m of debt in
2016F to support the repayment of the two outstanding warrant bonds, the earliest of which
has a redemption date of 31st December 2016. We model a net cash outflow of €12.4m for
both warrant instruments in 2017F.
Furthermore, we forecast a c.€25-30m debt/equity raise during 2017F to support the launch
of Ameluz in BCC in the US and ongoing working capital requirements through to
sustainable profitability, from 2019-2020F in our model.
Taken together these capital raisings increase the annual interest charge from 2017F to
c.€2-3m pa.
We assume Biofrontera will pay tax at a rate of c.20% from 2019F.
Biofrontera entering a period of
supra-normal growth
Our sales forecasts do not include
any contribution form Ameluz BCC
in the US
Increased opex over 2016-17F to
support label expansion and
market launch
Debt refinancing required in 2016F
to pay outstanding warrants
Further equity placing required to
support Biofrontera through to
sustainable profitability
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Fig 14: Biofrontera – Ameluz revenue model (risk-adjusted)
Note: We do not include the US BCC opportunity in our base case. . Source: Biofrontera, Shore Capital Markets
(EUR '000) - YE 31 Dec 2015A 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F
Summary sales model
Ameluz US sales 0 946 9,459 18,919 34,054 54,486 81,730 114,422 125,864 135,933 144,089
% YoY 900% 100% 80% 60% 50% 40% 10% 8% 6%
Ameluz AK sales 0 946 9,459 18,919 34,054 54,486 81,730 114,422 125,864 135,933 144,089
Ameluz BCC sales 0 0 0 0 0 0 0 0 0 0 0
Ameluz EU 4,138 4,197 5,966 9,438 14,359 21,890 31,081 42,793 56,525 71,000 83,834
% YoY 42% 58% 52% 52% 42% 38% 32% 26% 18%
Ameluz AK sales 4,138 4,197 4,826 5,791 7,065 8,761 10,075 11,284 12,413 13,654 15,019
Ameluz BCC sales 0 0 1,140 3,647 7,294 13,129 21,006 31,509 44,112 57,346 68,815
Total product sales 4,138 6,443 16,725 29,657 49,713 77,676 114,111 158,515 182,389 206,933 227,923
% YoY 55.7% 159.6% 77.3% 67.6% 56.2% 46.9% 38.9% 15.1% 13.5% 10.1%
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29 September 2016 BIOFRONTERA
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Fig 15: Biofrontera – summary financial model
Source: Biofrontera, Shore Capital Markets
(EUR '000) - YE 31 Dec 2015A 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F
Summary P&L
Revenues 4,138 6,443 16,725 29,657 49,713 77,676 114,111 158,515 182,389 206,933 227,923
Cost of Sales (1,236) (2,190) (5,519) (9,490) (15,411) (23,691) (34,233) (46,762) (52,893) (58,976) (63,818)
Gross Profit 2,903 4,252 11,206 20,167 34,302 53,985 79,877 111,753 129,496 147,957 164,105
R&D (6,204) (5,657) (6,479) (6,802) (7,143) (7,500) (7,875) (8,268) (8,682) (9,116) (9,572)
G&A (2,759) (2,828) (1,450) (1,522) (1,599) (1,679) (1,762) (1,851) (1,943) (2,040) (2,081)
S&M (4,170) (10,799) (20,053) (21,256) (22,531) (23,883) (25,316) (26,835) (28,445) (30,152) (31,961)
Total Operating Expenses (13,133) (19,284) (27,981) (29,581) (31,272) (33,061) (34,953) (36,954) (39,070) (41,308) (43,614)
Operating Profit (10,231) (15,032) (16,775) (9,414) 3,030 20,924 44,924 74,799 90,426 106,649 120,491
% Margin 6% 27% 39% 47% 50% 52% 53%
Net Financial Income (972) 1,128 (2,425) (1,516) (1,678) (1,743) (1,691) (1,476) (1,045) (407) 363
Profit Before Tax (11,203) (13,905) (19,201) (10,930) 1,351 19,181 43,233 73,323 89,380 106,241 120,854
Tax 0 0 0 0 (270) (3,836) (8,647) (14,665) (17,876) (21,248) (24,171)
% effective tax rate 20% 20% 20% 20% 20% 20% 20%
Net Income (11,203) (13,905) (19,201) (10,930) 1,081 15,345 34,586 58,659 71,504 84,993 96,684
% Margin 2% 20% 30% 37% 39% 41% 42%
Summary Cash Flow
Profit Before Tax (11,203) (13,905) (19,201) (10,930) 1,351 19,181 43,233 73,323 89,380 106,241 120,854
+ Depreciation & Amortisation 812 625 497 407 345 304 279 265 261 264 273
+ Finanical expense 1,159 0 0 0 0 0 0 0 0 0 0
+ Change in WC (463) (771) (3,441) (4,328) (6,712) (9,358) (12,193) (14,860) (7,989) (8,214) (7,024)
+ Tax, net 0 0 0 0 (270) (3,836) (8,647) (14,665) (17,876) (21,248) (24,171)
Cash Flow from Operations (9,717) (14,051) (22,145) (14,851) (5,286) 6,290 22,672 44,064 63,776 77,044 89,932
Purchase (Sale) of PPE (167) (145) (158) (173) (188) (205) (224) (244) (266) (290) (316)
Purchase (Sale) of Intangible Assets 0 0 0 0 0 0 0 0 0 0 0
Other financial 184 0 0 0 0 0 0 0 0 0 0
Cash Flow from Investing 17 (145) (158) (173) (188) (205) (224) (244) (266) (290) (316)
Capital changes 6,313 9,300 27,027 0 0 0 0 0 0 0 0
Debt changes 61 20,270 (12,400) 0 0 0 0 0 0 0 0
Other financial (1,225) 0 0 0 0 0 0 0 0 0 0
Cash Flow from Financing 5,150 29,570 14,627 0 0 0 0 0 0 0 0
Increase (Decrease) in Cash (4,550) 15,374 (7,676) (15,023) (5,474) 6,085 22,448 43,820 63,510 76,754 89,616
Closing Cash & Equivalents 3,960 19,334 11,657 (3,366) (8,840) (2,755) 19,693 63,514 127,024 203,778 293,394
(Cash Burn) (9,533) (14,051) (22,145) (14,851) (5,286) 6,290 22,672 44,064 63,776 77,044 89,932
Summary Balance Sheet
Cash & equivalents 3,960 19,334 11,657 (3,366) (8,840) (2,755) 19,693 63,514 127,024 203,778 293,394
PPE 373 406 443 483 526 574 625 682 743 810 883
Intangible Assets 1,902 1,388 1,014 740 540 394 288 210 153 112 82
Goodwill 0 0 0 0 0 0 0 0 0 0 0
Investments 730 730 730 730 730 730 730 730 730 730 730
Total Assets 9,498 25,745 23,764 16,095 22,234 44,629 88,403 158,258 235,783 326,965 428,941
ST Debt 868 868 868 868 868 868 868 868 868 868 868
LT Debt 11,230 31,500 19,100 19,100 19,100 19,100 19,100 19,100 19,100 19,100 19,100
Deferred Consideration 0 0 0 0 0 0 0 0 0 0 0
Total Liabilities 11,230 31,500 19,100 19,100 19,100 19,100 19,100 19,100 19,100 19,100 19,100
Share Capital 25,490 34,790 61,817 61,817 61,817 61,817 61,817 61,817 61,817 61,817 61,817
Total Equity (4,809) (9,413) (1,587) (12,517) (11,436) 3,909 38,495 97,154 168,658 253,651 350,335
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Management team
Professor Hermann Lübbert (CEO, Founder) – Professor Lübbert founded Biofrontera in
1997 and is Chairman of the Management Board of Biofrontera AG and Managing Director
of all subsidiaries of Biofrontera AG. After studying biology and receiving his doctorate in
Cologne in 1984, he spent four years in academic research at the University of Cologne and
California Institute of Technology. Subsequent to his academic career, Professor Lübbert
spent ten years at Sandoz and Novartis Pharma AG. Professor Lübbert has also qualified as
a university lecturer at the Swiss Federal Institute of Technology (ETH) and holds the Chair
of Animal Physiology at Ruhr-University Bochum.
Thomas Schaffer (CFO) – Mr Schaffer joined Biofrontera in 2013. He began his career in
finance at Siemens Semiconductor, where he held the position of Vice President and CFO in
the Security & Chipcard IC business and subsequently Infineon Technologies AG. Mr
Schaffer then spent four years as Managing Director and CFO of Infineon Ventures GmbH
and subsequently continued as Vice President and CFO of the Speciality DRAM division of
Qimonda AG and assumed management of Qimonda Solar GmbH. Mr Schaffer has also
held CFO positions at Heptagon Oy and Ubidyne Inc.
Christoph Dünwald (CCO) – Mr Dünwald joined Biofrontera in 2015 as the Chief
Commercial Officer (CCO). He began his career with Bayer, where he spent 15 years in
marketing roles in both Europe and the US and also held strategic management positions in
Germany and Asia Pacific. Following these roles, he was appointed General Manager of
Bayer’s Healthcare Diagnostics division in Belgium and Luxembourg. Following two years as
International Sales and Marketing Director for Corporacion Dermoestetica SA in Spain, Mr
Dünwald joined Allergan in 2009 as Senior Commercial Director, initially in the company’s
European headquarters in Britain, later overseeing the Medical Business unit in Spain and
Portugal.
Monica Tamborini (COO of Biofrontera’s US Operations) – Ms Tamborini holds 20 years’
experience in managing healthcare companies within the US, following graduating from
Suffolk University (Boston) summa cum laude with a BS in Business Administration. Ms
Tamborini worked in several industries prior to entering the pharmaceutical sector and has
since held a number of executive positions including CFO and COO for public and private
companies. Her recent work has focused on quality management systems and FDA
compliance for pharmaceutical and medical device businesses.
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Glossary
Actinic keratosis – a form of non-melanoma skin cancer characterised by dry scaly
patches of skin caused by damage from extended exposure to the sun’s UV rays. Actinic
keratosis lesions may remain unchanged, spontaneously resolve, or in rare cases (<10%)
may progress to invasive squamous cell carcinoma (SCC).
Basal cell carcinoma – a form of non-melanoma skin cancer starting in the cells lining the
bottom of the epidermis (the basal cells) and accounting for c.75% of skin cancers.
Daylight therapy – photodynamic therapy mediated by natural daylight.
Field cancerisation – large areas of cells that are impacted by carcinogenic alterations.
Field-directed therapies – therapies for actinic keratosis that target wider areas of the skin
and less clearly defined/multiple lesions, e.g. photodynamic therapy or the use of topical
agents.
Lesion-directed therapies – therapies for actinic keratosis that target a visible lesion, e.g.
surgery or cryotherapy.
Photodynamic therapy – the use of a light source to stimulate a photosensitive agent (a
chemical activated upon irradiation) and induce cell killing.
Photosensitiser – a light-sensitive molecule which can mediate cell killing upon activation.
Squamous cell carcinoma – a form of non-melanoma skin cancer starting in the cells lining
the top of the epidermis and accounting for c.20% of skin cancers.
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Abbreviations
5-FU – 5-fluorouracil
AK – Actinic keratosis
ALA – Aminolevulinic acid
BCC – Basal cell carcinoma
MAL – Methyl aminolevulinate
NMSC – Non-melanoma skin cancer
P3 – Phase 3
PDT – Photodynamic therapy
SCC – Squamous cell carcinoma
UV – Ultraviolet
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T: +44 (0)20 7408 4080 T: +44 (0)151 600 3700 T: +44 (0)20 7079 1670
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