Journey Medical Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results; amounts below are in U.S. dollars unless stated otherwise. Journey is a commercial-stage dermatology pharmaceutical company with eight branded and three authorized generic products marketed in the U.S.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $16.1m | $19.6m | $57.7m | $45.6m |
| Operating loss | $9.5m | $12.6m | $17.5m | $25.8m |
| Net loss | $10.1m | $10.6m | $19.0m | $22.2m |
| Loss per share, basic and diluted | $0.57 | $1.16 | $1.09 | $2.43 |
- Q3 net product revenue was $16.0m, down 18%. Nine-month product revenue was $55.1m, up 21%; total nine-month revenue included $2.6m of other revenue, mainly a net Maruho milestone payment.
- Product gross margin was approximately 55% in Q3 and 58% for the first nine months, calculated from reported product revenue and product cost of goods sold.
- Cash and cash equivalents were $34.9m at September 30, versus $49.1m at December 31, 2021. Current assets were $79.6m and current liabilities $60.8m.
- Operating cash flow was negative $9.7m for the nine months, compared with positive $1.0m a year earlier. Investing cash outflow was $20.0m, principally for the Vyne product acquisition; financing provided $15.5m. Cash declined $14.2m over the period.
- Term-loan debt was $19.8m net of discount; no revolving credit was drawn. The $10m revolving facility remained available. The term loan and revolver mature January 2026; the term loan bears a floating rate, with interest-only payments through January 2024, potentially extendable six months subject to covenants.
Material changes versus comparable periods
- Q3 revenue fell primarily because of continued generic competition for Targadox and shortages affecting Ximino and Exelderm. The company said the shortages were resolved in Q3 and expected sales of those products to normalize through year-end.
- Q3 revenue from Accutane increased 17% to $4.1m. Amzeeq and Zilxi, acquired in January 2022, contributed $1.2m and $0.6m, respectively. For nine months, Qbrexza and Accutane growth and the newly acquired products more than offset declines in Targadox, Ximino and Exelderm.
- Q3 research and development expense rose to $2.8m from $0.7m, reflecting DFD-29 Phase 3 development. Nine-month R&D was $6.7m versus $0.7m.
- Q3 selling, general and administrative expense increased 45% to $15.6m; nine-month expense increased 84% to $45.5m. The company cited salesforce and marketing expansion, additional headcount and stock compensation, and public-company compliance and professional costs.
- Q3 operating loss improved partly because the prior-year quarter included a $9.5m wire-transfer fraud loss. Nine-month results also benefited from the absence of $13.8m of prior-year acquired-license R&D expense. The 2021 comparison included a $6.7m income tax benefit, versus a $0.05m tax expense in 2022.
Outlook, commentary and risks
- Management said existing cash, operating cash generation and the EWB facility would fund operations for the 12 months following issuance of the statements. It also said additional financing may be needed for product development and expansion; unavailable or unacceptable financing could curtail portfolio expansion.
- Management expected DFD-29 Phase 3 enrollment to exceed 75% by October 2022, topline data in the first half of 2023 and an NDA filing in the second half of 2023. It expected DFD-29 development costs to increase as enrollment progressed.
- The Vyne acquisition added Amzeeq and Zilxi and included a $5m payment due January 2023, plus product-specific contingent sales milestones that could total up to $450m. The agreement also provides for a payment tied to certain ex-U.S. licensing proceeds.
- DFD-29 requires the company to fund Phase 3 trials, estimated at approximately $24m under the current plan and budget. The license includes potential regulatory and commercial milestones of up to $158m and royalties of approximately 10%–20% on net sales.
- Floating-rate EWB borrowing exposes the company to higher interest expense as rates rise. Management cited inflation and possible future COVID-19 effects as risks, although it said the business had not been materially affected by COVID-19 to date.
- The company reported compliance with EWB financial covenants. It stated disclosure controls were effective and reported no material change in internal control during the quarter. No new material legal proceedings were reported.
Most important facts for investors to verify
- Whether Ximino and Exelderm sales recovered as expected after reported manufacturing shortages, and how generic competition continues to affect Targadox.
- Actual cash burn, cash collections and working-capital requirements relative to management’s 12-month funding assessment.
- Floating-rate borrowing costs, covenant compliance and the timing of principal repayments under the EWB term loan.
- Progress, costs and clinical results for DFD-29, including the stated enrollment, topline-data and NDA milestones.
- The January 2023 $5m Vyne payment and the potential scale and conditions of contingent product milestones, royalties and other license obligations.
- Revenue deductions and estimates for returns, coupons, rebates and chargebacks, as well as customer concentration in accounts receivable.