Journey Medical Corporation — Q1 2023 Form 10-Q
Business context and period: The unaudited report covers the three months ended March 31, 2023. Journey Medical is a commercial-stage pharmaceutical company marketing dermatology products in the U.S.; its portfolio includes eight branded and three authorized generic prescription drugs. Fortress Biotech owned 57.12% of outstanding common stock at quarter-end.
Key financial metrics
Amounts are in millions of dollars, except per-share data. Comparisons are with Q1 2022 unless otherwise noted.
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $12.213 | $23.296; down 48% |
| Net product revenue | $12.165 | $20.796; down 42% |
| Cost of product revenue | $6.449 | $8.203 |
| Approx. product gross profit and margin | $5.716; 47% | $12.593; 61% |
| Research and development | $2.033 | $1.266 |
| Selling, general and administrative | $13.292 | $14.715 |
| Operating loss | $(9.561) | $(0.888) |
| Net loss / loss per share | $(10.136) / $(0.57) | $(1.378) / $(0.08) |
| Cash used in operating activities | $(0.956) | Cash provided: $0.884 |
| Cash used in investing activities | $(5.000) | $(20.000) |
| Cash provided by financing activities | $0.052 | $11.366 |
Product gross profit and margin above are calculated as net product revenue less cost of product revenue; cost of goods sold includes intangible-asset amortization. At March 31, cash and cash equivalents were $17.349 million, with $8.750 million classified as restricted cash, for $26.099 million in cash and restricted cash combined. Current assets were $60.720 million and current liabilities $76.898 million, implying negative working capital of approximately $16.178 million. Total liabilities were $88.361 million and stockholders’ equity $7.492 million.
Material changes and drivers
- Product revenue declined $8.631 million. Qbrexza fell 44% to $4.094 million; Targadox fell 70% to $0.793 million; Amzeeq fell 66% to $1.193 million; and Accutane declined 5% to $4.648 million. The filing attributes declines to lower volumes for Qbrexza, Targadox and Ximino, generic competition affecting Targadox, and higher gross-to-net deductions, including coupons and managed-care and government rebates.
- Other revenue was $0.048 million versus $2.500 million, primarily because Q1 2022 included a one-time milestone payment from Maruho tied to Japanese approval of Rapifort. Q1 2023 other revenue was royalties.
- Despite 10% lower total operating expenses, operating loss widened substantially as revenue fell. R&D rose 61%, primarily from DFD-29 clinical-trial costs. SG&A fell 10%, reflecting lower legal costs and cost-reduction efforts.
- Interest expense increased to $0.650 million from $0.389 million, mainly due to higher interest rates on the East West Bank facility. Q1 2023 included approximately $0.5 million in salesforce termination costs.
- Cash and cash equivalents declined from $32.003 million at year-end; $8.750 million was reclassified to restricted cash for the bank’s minimum-cash requirement. Operating cash use was $0.956 million. Investing outflow included the $5.000 million deferred payment for the VYNE product acquisition.
Outlook, financing, and risks
- Management expects cost-reduction actions, including salesforce headcount reductions and marketing cuts implemented in Q1 and April 2023, to reduce annual SG&A costs by more than $12 million. This is an expectation, not earnings guidance; the filing provides no formal revenue or profit guidance.
- The company concluded that substantial doubt exists about its ability to continue as a going concern for at least 12 months from issuance of the financial statements. Management may pursue additional debt or equity financing and plans to seek a new borrowing relationship; financing availability and terms are not assured.
- Subsequent to quarter-end, on May 16, 2023, the company amended its East West Bank facility, prepaid $10 million of term debt, and moved the remaining $10 million term loan maturity to July 1, 2024, with interest-only payments until maturity. The amendment removed the revolving line of credit; the company also paid its remaining $3 million line balance in May. The required bank cash balance was $8.75 million, increasing to $10 million on August 31, 2023.
- The effective shelf registration had $150 million available at quarter-end; an associated sales agreement permits offers of up to 4.9 million common shares. Any equity issuance could dilute shareholders. Post-quarter debt repayments and the restricted-cash requirement make liquidity and refinancing important to monitor.
- Additional obligations include up to approximately $158 million in contingent DFD-29 milestones and about $8 million in remaining Phase 3 costs under the current plan; contingent VYNE product sales milestones; and $4 million of scheduled license installment payments, including $2.5 million in 2023. These amounts are contingent or scheduled as described in the filing and are not all current liabilities.
- Key business risks include generic and other competition, gross-to-net deductions and product returns, dependence on dermatology product sales, clinical and regulatory uncertainty for DFD-29, and the need for additional capital. The company reported no material pending legal proceedings and stated disclosure controls were effective as of March 31, 2023.
Important facts for investors to verify
- Whether product demand and gross-to-net deductions—especially for Qbrexza, Targadox and Ximino—improve or continue to pressure net revenue and margins.
- Actual savings achieved from the announced cost reductions, including the timing and any further restructuring costs.
- Available unrestricted liquidity after the May debt repayments, the required cash balance, and the company’s ability to refinance or repay the $10 million term loan by July 1, 2024.
- Whether additional financing is secured, and its cost, covenants, and potential dilution under the shelf or other offerings.
- DFD-29 Phase 3 progress, remaining funding needs, regulatory prospects, and any resulting milestone or royalty obligations.
- Changes in customer concentration, receivable collectability, product returns, inventory reserves, and contingent license obligations.