shore capital

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



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



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



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



6

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



7

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



8

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



9

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



10

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



11

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



12

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



13

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



14

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



15

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



16

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



17

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%



18

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



19

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.



20

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.



21

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



22

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23

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