Journey Medical Corporation — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Journey Medical is a commercial-stage dermatology pharmaceutical company and a majority-owned subsidiary of Fortress Biotech. Its U.S. portfolio included eight branded and three authorized generic prescription products.
Financial performance and position
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $73.7 million | $63.1 million | Up 17% |
| Net product revenue | $71.0 million | $63.1 million | Up 12% |
| Cost of goods sold | $30.8 million | $32.1 million | Down 4% |
| Loss from operations | $27.5 million | $34.9 million | Loss narrowed |
| Net loss | $29.6 million | $44.0 million | Loss narrowed |
| Net loss per share, basic and diluted | $1.69 | $4.32 | Loss per share narrowed |
| Cash used in operating activities | $13.5 million | $2.2 million | Use increased |
| Cash and cash equivalents at year-end | $32.0 million | $49.1 million | Down $17.1 million |
Product gross profit was approximately $40.2 million, or 56.7% of net product revenue. Operating loss was about 37.4% of total revenue and net loss about 40.2%. These are calculated ratios; the filing does not present them as reported margins.
At year-end, current assets were $77.7 million and current liabilities $66.8 million, implying a current ratio of approximately 1.16. Total liabilities were $88.2 million and stockholders’ equity $17.0 million. Debt and related obligations included a $20.0 million East West Bank term loan, $2.9 million drawn on the revolving line, and a $5.0 million deferred payment for the VYNE acquisition. The filing reports the term loan at $19.8 million net of debt discount. The $10.0 million revolving facility had $7.1 million available. The company reported compliance with loan covenants.
Material changes and drivers
- Revenue growth reflected the first full year of Qbrexza and Accutane, plus Amzeeq and Zilxi, acquired in January 2022. Qbrexza, Accutane, Amzeeq and Zilxi together represented approximately 77% of 2022 net product revenue.
- Qbrexza revenue rose 57% to $26.7 million; Accutane rose 83% to $18.4 million. Amzeeq and Zilxi contributed $7.2 million and $2.3 million, respectively.
- Targadox revenue fell 64% to $8.0 million, primarily amid generic competition. Ximino and Exelderm revenue declined 40% and 35%, respectively, with product shortages cited as a factor; the shortages were resolved in the third quarter, but sales had not returned to pre-shortage levels.
- Other revenue was $2.7 million, including a net $2.5 million milestone payment following Japanese approval of Rapifort (Qbrexza) and approximately $0.2 million of royalties.
- Research and development expense rose to $10.9 million from $2.7 million, mainly due to DFD-29 clinical development. SG&A increased 49% to $59.5 million, reflecting sales-force and marketing expansion, added products, public-company costs, legal expenses and other costs.
- FY2021 comparisons included a $9.5 million wire-fraud loss and $13.8 million of acquired-license R&D expense; neither was recorded in FY2022. FY2022 also included a $20.0 million cash acquisition payment for the VYNE assets.
Outlook, risks and unusual items
- Management said it expected to fund operations for the next 12 months from the financial-statement issuance date using existing cash, cash generated from operations and the East West Bank facility. It also said expenses were expected to increase and additional financing might be needed; unavailable or unacceptable financing could limit planned portfolio expansion.
- DFD-29 Phase 3 trials were fully enrolled as of January 2023. Management expected top-line results in Q2 2023, planned an NDA submission in the second half of 2023 and anticipated possible FDA approval in the second half of 2024. These are forward-looking expectations, not assured outcomes. The filing estimates approximately $24 million to fund the Phase 3 program.
- Variable-rate borrowing creates exposure to higher interest expense as rates rise. The term loan’s reported effective interest rate was 9.64% at year-end 2022.
- A 2021 cyber-fraud incident redirected approximately $9.5 million in payments. The FBI investigation remained ongoing; U.S. authorities had seized associated cryptocurrency, but timing and recovery amount were uncertain. Management reported remediation of the previously identified cash-disbursement control material weakness and said internal controls over financial reporting were effective at year-end 2022.
- Key business risks include generic competition and loss of exclusivity, dependence on a concentrated portfolio and third-party manufacturers, product reimbursement and pricing pressures, clinical and regulatory uncertainty for DFD-29, and the company’s reliance on Fortress, which controls voting power.
- The Perrigo Qbrexza patent litigation was settled and dismissed by year-end 2022. The company reported no other pending legal proceedings expected to have a material adverse effect.
- KPMG issued an unqualified opinion on the financial statements. The auditor was not engaged to, and did not, express an opinion on internal control over financial reporting.
Most important facts for investors to verify
- Whether DFD-29 Phase 3 results, NDA timing and regulatory progress support management’s stated development timetable and financing assumptions.
- Whether growth in Qbrexza, Accutane, Amzeeq and Zilxi can offset Targadox generic pressure and recovery in Ximino and Exelderm sales.
- Cash burn, working-capital movements, available revolving credit, upcoming debt and acquisition payments, and any use of the $150 million shelf or 4.9 million-share ATM program.
- Actual recovery, if any, of the funds tied to the 2021 cyber incident, and continued effectiveness of the strengthened payment and cybersecurity controls.
- Product-level profitability and gross-to-net deductions, including rebates, coupons, returns, royalties and acquisition-related amortization.