Journey Medical Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited results; dollar amounts below are in millions unless noted. Journey Medical markets prescription dermatology products in the U.S.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $17.2 | $18.3 | $29.4 | $41.6 |
| Operating loss | $(7.7) | $(7.1) | $(17.2) | $(8.0) |
| Net loss | $(8.4) | $(7.5) | $(18.5) | $(8.9) |
| Basic and diluted loss per share | $(0.46) | $(0.43) | $(1.03) | $(0.51) |
- Q2 net product revenue was $17.0 million; product cost of goods sold was $7.8 million, implying product gross profit of approximately $9.2 million and a 54% product gross margin.
- Six-month operating cash flow was positive $3.0 million, versus cash used of $2.4 million a year earlier. The company attributed the improvement in part to working-capital movements, including collections of accounts receivable; it does not indicate recurring cash generation.
- Investing cash outflow was $5.0 million, primarily the deferred payment for the VYNE product acquisition. Financing cash outflow was $13.0 million, including term-loan and revolving-credit repayments. Cash and restricted cash fell by $15.0 million during the six months.
- At June 30, cash and cash equivalents were $8.2 million and restricted cash was $8.75 million. Current liabilities of $68.2 million exceeded current assets of $47.7 million. Stockholders’ equity was just $5,000.
- Debt at June 30 included a $10.0 million EWB term loan. The company used the $8.75 million restricted cash and $1.25 million of cash to repay it in full in July 2023; it reported no remaining obligations to EWB.
Material changes versus prior periods
- Q2 revenue decreased 6%; six-month revenue decreased 29%. Six-month product revenue fell 25%, mainly due to declining legacy-product sales and higher gross-to-net deductions. Other revenue fell 90%, largely because the prior-year period included a $2.5 million one-time Maruho milestone.
- Q2 product revenue was mixed: Qbrexza rose 32%, Accutane 7%, Amzeeq 9%, and Zilxi 3%; Targadox fell 76%, Exelderm 59%, and Ximino 85%. For the six months, all listed products except Accutane declined year over year.
- SG&A declined 20% in Q2 and 15% for the six months, reflecting cost reductions, including salesforce headcount, marketing, and other expense cuts. R&D declined 32% in Q2 as DFD-29 trial costs wound down.
- Despite lower total operating expenses, losses widened: Q2 net loss increased 11%, and six-month net loss increased 108%. The six-month comparison also reflects lower revenue, increased interest expense, and a $3.1 million non-cash impairment charge for the Ximino intangible asset.
Outlook, risks and unusual items
- Management states that substantial doubt exists about the company’s ability to continue as a going concern for at least 12 months from issuance of the financial statements. It may seek new borrowing or raise debt or equity capital, but availability and terms are uncertain.
- The company expects its cost-reduction initiatives to lower annual SG&A by more than $12 million. No specific revenue or earnings guidance is provided.
- Journey reported positive topline results from two Phase 3 DFD-29 trials on July 11, 2023. It expects an approximately $3.2 million FDA filing fee in Q4 2023. The product remains subject to regulatory review; potential milestone payments of up to $158 million and sales royalties may apply.
- Other contingent obligations include VYNE sales milestones of up to $450 million in aggregate, plus licensing royalties and other product-related milestones. These amounts are contingent and are not presented as currently payable in full.
- Generic competition, product acceptance and pricing/rebate pressures, reliance on a concentrated dermatology portfolio, access to additional financing, and Fortress’s voting control are identified risks. Two customers represented 22.0% and 17.3% of accounts receivable at June 30, although no customer exceeded 10% of gross product revenue in the reported periods.
- A $3.1 million Ximino intangible impairment followed reduced revenue and gross profit expectations. The company also recorded approximately $0.7 million of severance from workforce reductions, with $0.13 million unpaid at June 30.
Key facts for investors to verify
- Whether cash generation and the planned cost reductions are sufficient to address the disclosed going-concern uncertainty, including after the July debt repayment.
- Progress and timing of the DFD-29 FDA filing, regulatory review, filing costs, and any additional financing needed to support development or commercialization.
- Whether declines in legacy products and higher gross-to-net deductions persist, and whether growth in core products offsets those pressures.
- The terms, timing, and dilution or operating constraints of any new financing; the filing states that the $150 million shelf registration remained available at June 30, 2023.
- Future inventory reserves, Ximino performance, and the scale and timing of contingent product-license milestones and royalties.