Journey Medical Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results; amounts below are in U.S. dollars, generally millions unless stated otherwise. Journey Medical markets prescription dermatology products and reported one operating segment.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Product revenue, net | $15.3 | $16.0 | $44.4 | $55.1 |
| Other revenue | $19.3 | $0.1 | $19.5 | $2.6 |
| Total revenue | $34.5 | $16.1 | $63.9 | $57.7 |
| Operating income (loss) | $17.2 | $(9.5) | $0.03 | $(17.5) |
| Net income (loss) | $16.8 | $(10.1) | $(1.7) | $(19.0) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $21.8 | $(9.7) |
- Q3 product gross profit was approximately $8.9 million, or 58% of product revenue, based on product revenue less reported product cost of goods sold. Q3 operating income and net income were substantially affected by a $19.0 million non-refundable Maruho upfront license payment; they should not be viewed as recurring product earnings.
- For the nine months, total revenue rose 11%, but product revenue fell 19%. The reported nine-month operating result was near breakeven and included a $3.1 million non-cash impairment charge.
- Cash and cash equivalents were $24.7 million at September 30, 2023, down from $32.0 million at year-end 2022. Current assets were $44.7 million and current liabilities $48.5 million, implying negative working capital of about $3.8 million. The filing states substantial doubt about the company’s ability to continue as a going concern for at least 12 months from issuance.
- Operating cash flow of $21.8 million for the nine months was driven in part by the $19.0 million Maruho receipt, receivable collections, and lower spending. Investing cash flow was $(5.0) million and financing cash flow was $(24.0) million; cash declined by $7.3 million overall.
- Journey reported no debt outstanding at September 30, 2023 after repaying its East West Bank obligations in July. It had $3.0 million of current license installment payments. The company also reported $150 million available under its shelf registration and authority to sell up to 4.9 million shares through its ATM agreement.
Material changes versus comparable periods
- Q3 total revenue increased 114%, primarily from the Maruho upfront payment; product revenue declined 5%. Nine-month total revenue increased 11% despite the 19% product revenue decline, again because of Maruho-related revenue.
- Q3 product trends were mixed: Accutane revenue rose 18% and Amzeeq 101%; Qbrexza fell 6%. Ximino revenue was negative $0.2 million in Q3, versus $1.8 million a year earlier, and Journey discontinued selling it on September 29, 2023. Nine-month Targadox, Ximino, and Exelderm revenue fell substantially, with generic competition cited as a key pressure on Targadox.
- Q3 SG&A decreased 45% to $8.6 million; nine-month SG&A decreased 25% to $34.1 million, reflecting sales-force reductions and marketing and other cost cuts. Nine-month R&D fell 10% as DFD-29 trials wound down.
- Journey recorded a $3.1 million impairment of the Ximino intangible asset after revising its product outlook. The intangible asset balance fell to $21.1 million from $27.2 million at year-end 2022.
Outlook, risks, contingencies, and unusual items
- Maruho agreements: Journey received $19.0 million for exclusive Qbrexza development and commercialization rights in specified Asian territories. Maruho owes royalties on territory sales at rates corresponding to those Journey owes Dermira and may terminate the new license for convenience on 30 days’ notice. Under a related amendment, Japan Rapifort sales cease generating royalties for Journey after October 1, 2023; certain other milestone obligations remain.
- DFD-29: Journey reported positive topline results from two Phase 3 trials, achieving co-primary and secondary endpoints without significant safety issues reported. Management planned to submit an NDA around year-end 2023 and expected potential FDA approval in the second half of 2024. The filing estimates an approximately $4.0 million FDA filing fee and notes further contingent milestone and royalty obligations.
- Funding risk: Despite repaying bank debt, management stated substantial doubt about the company’s ability to continue as a going concern for at least 12 months. Additional financing may be needed and may be unavailable or dilutive or restrictive. The company may need to curtail development or commercialization, sell assets, or revise its business plan.
- Other obligations and risks: Potential sales or regulatory milestones include up to $158 million under the DFD-29 license and up to $450 million under the VYNE product acquisition agreement, contingent on specified milestones. Additional sales-based royalties apply to licensed products. Product revenue faces generic competition, pricing and rebate pressures, and dependence on acceptance by prescribers and payors.
- Journey reduced its sales force and other costs; it recorded approximately $0.7 million of severance, with $0.1 million unpaid at quarter-end. Fortress owned 54.34% of outstanding common stock and provides certain shared services; Q3 related-party expense to Fortress was approximately $11,000 as stated in the filing.
Important facts for investors to verify
- Whether the $19.0 million Maruho payment and Q3 earnings are being distinguished from recurring product sales and profitability.
- Progress and timing of the DFD-29 NDA submission, FDA review, expected filing costs, and any additional milestone obligations.
- Cash use after the Maruho receipt, working-capital needs, and management’s financing plans given the stated going-concern doubt.
- Trends in core-product sales, gross-to-net deductions and returns, and the effects of generic competition and the Ximino discontinuation.
- Effects of ending Japan royalties after October 1, 2023, and the terms and termination exposure under the Maruho territory license.
- Potential dilution or other shareholder effects if Journey uses its shelf registration or ATM facility.