Journey Medical Corporation

Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the Journey Medical first quarter 2022 financial results and corporate update conference call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Participants on this call are advised that the audio of the conference call is being broadcast live over the internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call for approximately 30 days. I would now like to turn the conference over to Jules Abraham of Core IR, the company's investor relations firm. Please go ahead, sir.

Thank you. Good afternoon, and thank you, everyone, for participating in today's conference call. Joining me today from Journey Medical Corporation's leadership team are Claude Morali, co-founder, president, and chief executive officer, Ernie DiPalantonio, chief financial officer, and Ramzi Aloush, general counsel, who will be joining for the question and answer session. During this call, management will be making forward-looking statements, including statements that address Journey Medical's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Journey Medical's most recently filed periodic reports on Form 10-K and Form 10-Q the form 8K filed with the SEC today, and the company's press release that accompanies this call, particularly the cautionary statements with that. Today's conference call includes non-GAAP financial measures that Journey Medical believes can be useful in evaluating its performance. You should not consider this additional information in isolation, nor as a substitute for results prepared in accordance with GAAP. For reconciliation of this, this non-GAAP financial measure for net loss, its most direct comparable GAAP financial measure, please see the reconciliation table located in the company's earnings press release. The content of this call contains time-sensitive information that's accurate only as of today, May 10, 2022, and except as required by law, journey medical, this claims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It's now my pleasure to turn the call over to Claude Morawi, co-founder, president, and chief executive officer. Claude.

Thanks, Jules. Good afternoon, and thanks to everyone for joining our first quarter 2022 conference call. The journey has made notable progress on several fronts during the first quarter, which we believe positions the company for yet another year of record growth and results. With the acquisitions of two Vine Therapeutics FDA-approved products, Amzik and Zilxy, our portfolio has now grown to nine marketed prescription dermatology products, and we anticipate launching one additional prescription product in the second half of 2022. The continued expansion of our product portfolio through in-licensing, acquiring, and developing new dermatology products combined with our industry-leading sales force is the foundation for our future growth. Net product revenues of 20.8 million, an increase of 94% when compared to the first quarter of 2021. was driven primarily by strong results for Cubrexa and Accutane, with combined revenue of $12.3 million. These products were both launched during the first half of 2021. In addition, we acquired and launched two new prescription dermatology products, Amzeek and Zilxy, which combined contributed an incremental $4.2 million in revenues for the quarter. We expect to see continued momentum with these products in 2022. In January, our exclusive licensing partner in Japan, Maruho, announced that Japan's Ministry of Health, Labor, and Welfare approved Rappaport Wipes 2.5%, the Japanese equivalent of Kubrixa. for the treatment of primary axillary hyperhidrosis. This approval triggered a net milestone payment of $2.5 million earned by Journey Medical when included in our net revenue for the first quarter. This gives us a total of 23.3 million or an increase of 117% over the first quarter of 2021. These excellent results are representative of our strategy to acquire, license, and transform Journey Medical into a fully integrated and leading dermatology company, including R&D that will manage its overall product lifecycle. While our new products continue to build momentum and growth, we expect that TargetOx, which has seen rising generic competition since Q4 of 2021, may encounter future price competition and a decline in growth. Importantly, our commercial operations continue to generate positive cash flow with non-GAAP adjusted EBITDA of $2.3 million in the quarter after adjusting for R&D expenses related to the development of DFD 29. This compares favorably to the 1.2 million of reported adjusted EBITDA in the first quarter of 2021. During the first quarter, we dosed our first patient in our pivotal Phase III clinical program for DFD29, which is being evaluated for the treatment of papulopustular rosacea. This is a significant milestone for our company and our expectation is to reach 640 patients in the trial by the end of this year. The market opportunity for DFD29 is significant. As an estimated 16 million patients suffer from rosacea, which correlated to an estimated 1 billion in TRX sales in 2021. Phase II data of DFD29 demonstrated nearly double the efficacy over Oratia, the current market leader with 340 million TRX sales in 2021. As you can see, we are very excited about the opportunities already in our pipeline, and we will continue to look for additional products to develop and acquire. We believe our financial foundation is strong as we ended the quarter with 41.3 million in cash. In addition to this balance, we expanded our credit agreement, allowing us to borrow up to $30 million with EastWest Bank, of which $15 million remains available. Q1 was Journey's first full quarter as a public company, and I am very pleased to say that we are executing on the strategic growth plan we have presented to shareholders since our IPO. With the continued momentum of our new products and another product launch scheduled in the second half of this year, and the financial flexibility to make accretive acquisitions, we believe that Journey Medical is well positioned for continued growth in 2022 and beyond. With that, I'll now turn it over to Ernie, who will review our financial results for the first quarter.

Thanks, Claude, and hello, everyone. I will now review the first quarter financial results. Total net product revenues increased 10.1 million, or 94% to 20.8 million, for the three-month period ended March 31st, 2022, from 10.7 million for the three-month period ended March 31st, 2021. Our sales growth from period to period is primarily due to incremental revenues from QBREXA, 7.4 million, launched during the second quarter of 2021, and Accutane, 4.9 million, launched late in the first quarter of 2021. And as Claude mentioned earlier, by 4.2 million of net revenues from our newly launched products and Zeek and Ziltsi from the Vine asset acquisition in January of 2022. TargetOps revenue continued to reflect generic competition, primarily driven by increased promotional emphasis from our sales force to Accutane and increased pressure from generic competition. Other revenue for the three-month period ended March 31st reflects the net 2.5 million milestone payment to us from our exclusive out-licensing partner in Japan, Maruho, as Claude also mentioned earlier, and NET's Journey Medical, a total of 23.3 million for the quarter. a 118% increase over 2021 first quarter. Cost of goods sold increased by $4.3 million to $8.2 million for the three-month period, ended March 31st, 2022, and is primarily due to a higher sales volume of $10.1 million versus first quarter sales in 2021. Incremental royalties of Cubrexa that has a higher royalty rate that will decrease notably in Q2. A gross profit of $12.6 million from product revenue was 61% and reflects the end of the step-up cost for Qbrexa that expired in Q4 of 2021. In May of Q2, Qbrexa's royalty rate will decrease notably, and we expect we will increase our gross profit percentage further for part of Q2 and in Q3 and beyond when the full effect is realized. Research and development expenses increased $1.2 million for the three-month period ended March 31st, 2022, from zero for the same three-month period in the prior year. The increase is related to clinical trial expenses to develop our DFD29 product. We expect these expenses to increase as additional patients are enrolled in the trials. Selling, general, and administrative expenses were 14.7 million for the first quarter ended March 31st, and is primarily attributable to the expansion of our sales force, marketing expenses related to our expanded product portfolio, and legal expenses. Net loss was 1.4 million, or eight cents per share, basic and diluted, for the first quarter of 2022, compared to net income, of 0.3 million or 3 cents basic and 2 cents diluted for the first quarter of 2021. And also, as Claude mentioned, we remain cash flow positive in our commercial operations by 2.3 million on a non-GAAP EBITDA basis. As of March 31st, 2022, we had 41.3 million in cash and cash equivalents as compared to $49.1 million on December 31st, 2021, and reflects one-time cash expenses for the purchase of the VINE acquisition, working capital required for operating expenses in the assumption of the assets acquired. And with that, I'll turn it back to Claude.

Great. Thank you, Ernie. As I mentioned earlier, with the strong momentum in our new products, along with at least one additional product launch anticipated this year, we expect to achieve record revenue in 2022. As we gain traction as a public company and continue to fully optimize and integrate our most recent acquisitions, we hope to be in a position to give guidance in the near future. I will now turn the call over to the operator for questions. Thank you.

Ladies and gentlemen, if you wish to ask a question on today's call, you will need to press the Start key, then 1 on your telephone. If your question has been answered and you wish to withdraw your question, you may do so by pressing the Start key followed by 2. If you're using a speakerphone, please pick up your headset before entering your request and speaking on the call. One moment, please, for the first question. The first question comes from Talpit Patel with B Reilly. Please go ahead.

Yes. Hey, good afternoon. Thanks for taking my questions. So, Claude Ernie, I think if I did the math right, your quarterly sales for the existing products were essentially flat or slightly declining. if you exclude those assets from Vine Therapeutics. So I guess, you know, was this primarily because of the impact that you've had from the additional competition for TargetDocs? I think last quarter we learned that there were other players that were entering through. So was that the main reason for this decline?

Yeah, thanks, Calvin. Thanks for the question. You know, First of all, I just want to reflect again. The sales for the full portfolio in Q1 are $20.8 million versus what we did one year ago at $10.7 million. So we look at this as a full portfolio of all our assets combined together. In terms of when you look at TargetOx, certainly there's been the pressure of competition. This is something that has been anticipated and part of lifecycle planning. When you take a look at last year in Q1 of 2021, Target Ops represented just under 70% of the revenue for the entire portfolio that we had. This year in Q1 2022, that's down all the way to 13%, still contributing significantly to our overall framework. but certainly the generic has taken away some of the revenue from previous historical sales of TargetOx. We have de-emphasized our sales force from TargetOx to the newer prescriptions, for example, the Amzeek and the Cubrexa. So this is all anticipated in what we planned And we're really just focused right now predominantly on the growth drivers, AMSEC, Xiloxy, Qbrexa, and Accutane.

Okay. And then you mentioned on the call that you're launching, you're expected to launch an additional product in the second half of this year. I guess, can you give us additional detail on this product, you know, how much you expect it to impact your top line, at least during the initial launch period? And then I have one more question.

Sure. Yeah, this is, you know, we haven't disclosed the name of the product, so not to be too mysterious, but this is an anti-itch, anti-pruritic product. No histamines. It's non-biologic. It is going to contribute to the top line, but in terms of forward-looking sales, I think we're just really limited to what giving you guidance on that. I don't know, Ernie, if you want to add anything to that.

Yeah, it's to a lesser extent, but again, we're not providing guidance for the second half of the year with this product. Okay.

Okay. And then one last question. For any of the other assets that you have in place, the commercial assets, You know, I haven't checked the Orange Book, but any other generic competition that you're expecting on the remaining assets outside of Tardadox in the foreseeable future?

I think everything that we've stated in the past is accurate. You know, in terms of taking a look at our portfolio with Orange Book listed drugs, the half-patent lives, again, we're talking about Q-Brexa. Amzeek, Xilxie, Ximeno, all of these have good long runways and have patent lines out in different parts from anywhere from 2027 extending all the way out into the mid and late 2030s.

Okay, fantastic. Thanks for taking the question. Absolutely.

Our next question comes from Brandon Foulkes with Cantor Fitzgerald. Please go ahead.

Hi, thanks for taking my questions, and congratulations on the strong growth in the quarter. Maybe just two from me. Can you talk about the Japanese opportunity for RapidFort? I just find that a bit interesting, just any color in the market sizing there. And then secondly, any thoughts of how resilient your portfolio is to a recession? Obviously, it's very nicely diversified, but I'm sure you have been around this space for a while, so I'd just love your insight into that.

Thank you. Sure. The second part of your, the second question, Brandon, what about the recession? Can you clarify that for me?

Just, I guess, you know, how historically have Derm products performed in a recession, right? I mean, you've got a very diversified portfolio, and maybe it's not a, you know, one-size-fits-all answer, but I'd just love your experience and feedback.

Yeah, and again, I've been in the industry for over 30 years and all of that time really dedicated to dermatology. So I've lived through a couple of those cycles. You know, dermatology has been relatively resilient. There's not enough time, and usually dermatologists are booked out for quite a long way. So the patient demand typically is there, even when there's a slowdown in the economy. When I take a look and reflect back at the journey days here, just taking a look back at COVID, you know, in 2020, dermatology as a whole was down about 30%. Journey at that same time in 2020 was up about 28%. So we held our own pretty well during that time. So we're open to... You know, the difficulties in dealing with a recession like all other companies I think will be in good shape, and it all depends on how deep and how long a recession goes, I guess. Switching back to your first question is regarding Rappaport. You know, Maruho has been a great partner. We've been getting to know them over this last year more and more. They've got great plans for Arapafort. It's a little bit different in terms of strength and some of the formulation there. It's 2.5% strength, for example. The Japanese market is rather large. They have some competition out there already in the hyperhidrosis market, the axillary hyperhidrosis market. So I believe they'll be second in the marketplace, but I think they've got... a solid company with a deep-rooted history, and they're very excited about the launch. In addition to this milestone payment, there are sales royalties that Journey will be receiving upon their commercial launch. So that bodes well for us as well.

Great. Thanks very much. I appreciate the insight, and congratulations on all the progress over the last 12 months.

Thank you.

Our next question comes from Scott Henry with Roth Capital. Please go ahead.

Thank you, and good afternoon. A couple questions. First, just for clarity, did you give us target dock sales? I thought I might have heard 3.1 million, but I wanted to confirm that.

No, we didn't list target dock sales on the call.

Oh. Would you like to list them, Ernie?

Give me one second.

I have that, Ernie, if you'd like.

Yeah, I have it. Yeah, it's 2.6 million.

Okay, great. Thank you for that clarity. And then just a couple other questions. First on DFD 29. The 640 patients, is that for two trials or is that for the first trial?

It's for two trials. They're both underway, Scott, and there's going to be 320 in each trial.

Okay, that's what I expected. So they're just run simultaneously and they should read out at the same time? Is that the idea there?

That's correct, yeah. They maybe were about two weeks separated in time, but all the data will be together at the end.

Okay, great. And then I wanted to get a sense that the adjusted EBITDA, which won't reflect the R&D on those trials, the 2.3 million number is a good number, but I guess I should expect that to go up anyways just on the QBREXA royalties going down. Can you give us any thought of how – Where would you expect to be kind of a year from now with that adjusted EBITDA target? Maybe just in generalities, would you expect that to be growing sequentially pretty strong?

Yeah, as we said earlier, we expect the VINE transaction to be accretive. And along with that, you know, you will see that number increase again. As our other products, the Accutane and Cubrexa increase, we would also expect that number to go up.

Okay. And then with Amzeek and Zilxy, obviously you have to bring them in. You bought them. They probably weren't marketed very heavily before the transition. I would expect there to be a transitional stage where you're just trying to base it out. before the growth starts to come through. When would you expect those products to start to bottom out? I guess they're probably already bottomed out, but when would we expect to see the benefits of your efforts and the traction with that growth?

Sure, yeah. Scott, we got the products around mid-January, right? That's when we officially executed the deal with Vine. excuse me, mid-January. We tried to bring the products over and get them into our 3PL. That way we can have a continuity of the sales as quickly as possible. That took just a little bit, around two weeks to do that. We did try to get the samples out with the sales force and get the marketing materials that we can. What we called it was a soft launch. So we started just really knocking on the doors of the targets of the dermatologists, the PAs, and nurse practitioners that had been using Amzik and Zilxy. Vine cut their sales force back in August of last year in 2021. So we started just knocking on the door, just giving reminders. And in April, we really just went into what we consider a hard launch. So I think April, we'll start to see trends picking up. But, you know, when you look at Symphony numbers, for example, with AMZ, we've already seen a nice uptick. In February, those prescriptions were approximately 9,200 prescriptions. And in March, after really a full month of us really getting going, if you will, we were up to 11,400 prescriptions. April numbers aren't out yet. and we saw some incremental growth as well with Ziltsy. But in terms of a general understanding of how we believe the trends will be with these products, we'll start to see pickup of these products month over month, and we should start to see things happen here towards this month here in May and June and onward.

Okay, great. And final question, just because, It's definitely on the top of people's mind with every company. The cash balance, $41 million, it would seem like that would be enough for you guys. You wouldn't need to go to the equity markets. You may choose to, but you don't have to. I mean, is that fair to say that you should have a lot of flexibility? There is a lot of working capital in this business, but you could always use debt or, you know, what we should think when we see that 41 million number on the balance sheet.

Yes, Scott. The 41 million, which includes the money from our IPO, was mainly to fund the DFD 29 development and launch. And we, in our current operating plan, we don't have any plans to go out to the market and raise capital. That could change if something from BD comes in, as always. But for right now, we don't have any other plans to raise capital.

Okay, great. That should do it for me. Thank you for taking the questions.

Thanks, Scott.

Thank you.

This concludes the question and answer session. I would like to turn the call back over to Claude Morawi for closing remarks.

Excellent. Thank you, everyone. participating on today's call and for your interest in Journey Medical. We look forward to sharing our ongoing progress when we report our second quarter results in August. Thanks and have a good day.

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