Journey Medical Q3 2023 Earnings Call Transcript

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November 7, 2023

There are 7 speakers on the call.

Operator

Good afternoon, and welcome to Journey Medical's Third Quarter 2023 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen only mode. Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately 1 hour after the end of the call for approximately 30 days. I would now like to turn the call over to Jacqueline Jaffe, the Company's Senior Director of Corporate Operations.

Operator

Please go ahead, Jacqueline.

Speaker 1

Good afternoon and thank you for participating in today's conference call. Joining me from Journey Medical Corporation's leadership team are Claude Murali, Co Founder, President and Chief Executive Officer Joseph Vinesh, Interim Chief Financial Officer Doctor. Srini Sidgiti, Vice President of Research and Development and Ramzi Alush, General Counsel and Corporate Secretary, who will be joining for the Q and A portion of the call. During this call, management will be making forward looking statements, including statements that address, among other things, Journey Medical's expectations for future performance, operational results, financial condition and the receipt of regulatory approvals. Forward looking statements involve risks and other factors that may cause actual results to differ materially from those statements.

Speaker 1

For more information about these risks, Please refer to the risk factors described in Journey Medical's most recently filed periodic report on Form 10 ks and Form 10Q, The Form 8 ks filed with the SEC today and the company's press release that accompanies this call, particularly the cautionary statements in it. Today's conference call includes non GAAP financial measures that Journee Medical believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of this non GAAP financial measure to net loss, its most directly comparable GAAP financial measure, please see the reconciliation table located in the company's earnings press release. The content of this call contains time sensitive information that is accurate only as of today, November 7, 2023.

Speaker 1

Except as required by law, Journey Medical disclaims any obligation It is now my pleasure to turn the call over to Claude Murali, Co Founder, President and Chief Executive Officer of Journee Metzmo.

Speaker 2

Thanks, Jacqueline. Good afternoon, and thanks to everyone for joining our Q3 2023 conference call and corporate update. Let me begin by saying that Q3 2023 continues to be a very positive and evolving time for Journey Medical. Our focus during our 2nd year as a public company is to achieve profitability from our commercial operations. To achieve this, we've been working with 3 critical factors.

Speaker 2

The first is driving net revenue for our 4 core brands: QBREXZA, Accutane, Amzik and Zolte. The second is optimizing and reducing our SG and A. And the third is building out our portfolio through licensing In the Q3 of 2023, our total net revenues, which included the Maruho outlicensing upfront payment, was $34,500,000 which is an increase of 101% from $17,200,000 in the Q2 and an increase of 114% from $16,100,000 in the Q3 of 2022. As evidenced by our most recent transaction, we believe that QBREXZA as well as our Patented products, including DFD-twenty 9, are extremely attractive near term opportunities for those companies looking to exclusively in license our products in other countries. We previously gave guidance in March of this year that we expected our SG and A expense to be reduced by $12,000,000 for 2023 compared to 2022.

Speaker 2

Through our financially disciplined approach, We are raising our guidance to reduce SG and A expense by approximately $17,000,000 for 2023 compared to 2022. Regarding our clinical development asset that is being evaluated for the treatment of rosacea. DFD-twenty nine, we are encouraged by the recent positive We remain on track to submit a new drug application to the FDA for DfD-twenty nine around the end of this year. We believe that the opportunity to enhance patient care For those who suffer from rosacea with a potentially best in class therapy will be appealing to both Patients as well as medical providers who treat this type of condition. In terms of prescription market size, There were approximately 4,000,000 prescriptions written for rosacea in 2022 according to Symphony Health prescription data.

Speaker 2

If approved by the FDA, we believe that DfD-twenty 9 has annual peak net sales potential in excess of $300,000,000 globally. With these clinically meaningful outcomes, DfD29 has the potential to become the new treatment paradigm for the millions of patients suffering from rosacea as well as the lowest dose oral minocycline on the market. We believe that the potential approval and commercial launch of DfD29 will be a transformational event for both Journee and the broader dermatology community. At this point, I would like to turn the call over to Doctor. Srini Sajidhi to discuss our DfD-twenty nine clinical program in greater detail.

Speaker 3

Thank you, Claude, and hello, everyone. I would like to begin by reviewing the highlights from the Phase 3 studies for DFT-twenty nine. I'd also like to refer investors to the investor presentation On our website, which contains the slides supporting my remarks here in more detail. Journey Medical in collaboration with Doctor. Reddy's has recently conducted and completed 2 pivotal Phase 3 studies for BFT-twenty nine.

Speaker 3

Both studies had the following key design elements. Each study enrolled approximately 320 patients with moderate to severe rosacea in a 3:3:2 randomization to DFT-twenty nine, ORACIA or placebo. The first study, MBOR-one, Enrolled patients solely in the U. S, while the second study, MVOR II, enrolled patients in a ratio of approximately 70 is to 30 in the U. S.

Speaker 3

And Germany. All subjects had moderate to severe rosacea at study entry. Subjects were adequately washed out Of any previous medication they were taking before starting the study treatments. Thus, The efficacy seen in these studies can be attributed to the study medication and not to any confounding or previous medication. The study treatments were assessed on 2 core primary endpoints.

Speaker 3

The first, Proportion of subjects with IgA treatment success. The second, reduction in total inflammatory lesion count. In addition, the study had 5 secondary endpoints that were adjusted for multiplicity, meaning that There is a possibility of being included in the label upon FDA approval if the results are statistically superior to placebo. The results for the co primary and all 5 secondary endpoints demonstrated that DFT-twenty nine was statistically significantly superior to both placebo and Oracea with 16 weeks treatment duration. The proportion of subjects that showed IgA treatment success was 65% for DFT-twenty nine, 46.1 percent for Orescia and 31.2 percent for placebo in MBOR1.

Speaker 3

The p value for the difference between DFT-twenty nine and Orescia was 0.014, while it was less than 0.001 against placebo. In NVOR II, the proportion of subjects that showed IgA treatment success was 60.1% for DFT-twenty nine, 31.4% for Croatia and 26.8% for placebo. The P values were less than 0.001 for DfT29 against both Oracea and placebo. In MBOR1, the reduction in total inflammatory lesion count was minus 21.3 for DFT-twenty nine, Minus 15.9 for Oresia and minus 12.2 for placebo. The p values were less than 0.001 for TFT-twenty 9 against both Orescia and placebo.

Speaker 3

In MvO R2, the reduction in total inflammatory lesion count was minus 18.4 for DFT-twenty 9, Minus 14.9 for Croatia and minus 11.1 for placebo. The P values were less than 0.001 for DFT-twenty 9 against both Auracea and placebo. As can be seen from the data, TFT-twenty nine consistently outperformed both Orescia and placebo On the 2 co primary endpoints in both studies, one of the important secondary endpoints The proportion of subjects that showed CEA success, That is Erythema success was 31.7 percent for DFT-twenty 9 and 13.8% for placebo in MvO R1. The p value for the difference between DFT-twenty nine and placebo was 0.006. In MUR2, the proportion of subjects that showed CEA success was 24.5% for DFT-twenty 9 and 12% for placebo.

Speaker 3

The p value was 0.023 for the difference between DFT-twenty 9 and placebo. If approved, the significant impact on edema reduction is expected to result In a unique differentiator on the label and TFT29 is likely to be the 1st oral With an indication for the treatment of inflammatory lesions and erythema of rosacea, While most other therapies approved for rosacea have either treatment of inflammatory lesions or treatment of edema on their labels, But not both. DFT-twenty nine has also demonstrated Statistically significant improvement in quality of life against placebo with regards to both BLQI and ROSA Call, 2 widely accepted tools for quality of life assessment in dermatology. We are encouraged by PFT29's safety profile that was demonstrated in both of the studies with the adverse event rates Being close to placebo. These results indicate the possibility of TFT-twenty nine Being the new standard of care in rosacea and also being the best in class therapy with head to head superiority over the current standard of care.

Speaker 3

Additionally, it is likely to be perceived as a potentially safer minocycline Compared to other oral minocycline therapies, because of the low and fixed daily dose, We anticipate DFT-twenty nine to capture significant market share upon its launch based on the significant differentiators demonstrated in the Phase 3 studies. The most recent update on PFT29 is from October 2023, where we had a productive pre NDA meeting with the FDA for DFT-twenty nine. We expect to provide an update following receipt of the FDA meeting minutes. Thank you very much. And now, I'll hand it to Joe to discuss our Q3 financial results in greater detail.

Speaker 4

Thank you, Doctor. Seguidi, and hello, everyone. I will now review the Q3 financial results for 2023. Total net revenues for the 3rd quarter were $34,500,000 a 101% increase $17,200,000 in the 2nd quarter and

Speaker 1

an $18,400,000

Speaker 4

or 114% increase from the prior year quarter due to our most recent out licensing agreement with Maruho. Net product sales were $15,300,000 for the 3rd quarter, a slight decrease of $800,000 from $16,000,000 in the Q3 The decrease is primarily due to lower net revenue from XENINNO, resulting from lower unit volumes Due to the winding down of the product during the Q3, we discontinued selling Zimino on September 29, 2023. The decrease was partially offset by an increase in net product revenues from Accutane, Amzeq and ZILTI Due to our continued sales and marketing emphasis on these products, our 4 core products QBREXZA, Accutane, Amzik and Zolte, all acquired and launched since 2022, represent approximately 90% were $13,800,000 of our total net product revenue for the Q3 of 2023. Cost of goods sold decreased by $800,000 or 11 percent to $6,400,000 for the Q3 of 2023 and $7,200,000 for the Q3 of 2022. The decrease is substantially due to the contractual royalty percentage reduction on QBREXZA net sales from period to period.

Speaker 4

Research and development expenses decreased by $600,000 compared to the prior year quarter due to lower DSD-twenty nine expenses As the clinical development activities continue to wind down. SG and A expenses decreased by 7,000,000 were 45% from the prior year quarter. The decrease is mainly due to our expense reduction efforts, primarily in sales and marketing. As we have discussed in prior quarter calls, during the last quarter of 2022, We implemented a cost reduction initiative designed to improve operational efficiencies, optimize expenses and reduce overall costs. As demonstrated by SG and A expense in Q3, Our efforts have proven to be effective.

Speaker 4

The impact of these cost reduction initiatives is expected to result and a reduction of approximately $17,000,000 of annual SG and A expenses, surpassing our earlier target of $12,000,000 The company recorded GAAP net income of $16,800,000 or $0.91 per share basic and $0.80 per share diluted for the Q3 of 2023 compared to a GAAP net loss of $8,400,000 or 0.46 It continues to improve its operating performance. Company's non GAAP adjusted EBITDA for the Q3 of 2023 resulted in income of $20,800,000 or $1.13 per share basic and $0.99 per share diluted compared to an adjusted EBITDA net loss of $600,000 or $0.04 per share basic and diluted for the Q2 of 2023 and an adjusted EBITDA net loss of $4,000,000 or $0.23 At September 30, 2023, we had $24,800,000 in cash and cash equivalents compared to $32,000,000 of cash and cash equivalents at December 31, 2022. As a result of our recent payoff of the EWB debt facility, the company no longer has any debt obligations. Thank you very much. And now I'll turn it back to Clyde.

Speaker 2

Thank you, Joe. The positive momentum is evident and is expected to continue into the final quarter of 2023. We believe that this momentum is further reflected by our stock price performance, which as of yesterday is up approximately 70% year to date. I'd like to close the call by reminding everyone that November is hyperhidrosis awareness month. A key initiative at Journee is to continue to build disease state awareness, education and the treatment option that QBREXZA offers for patients suffering from this condition.

Speaker 2

Thank you and have a good day. I will now turn the call back over to the operator.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from Scott Henry with ROTH Capital. Please go ahead.

Speaker 5

Thank you. Good afternoon and Congratulations. A lot of progress on the income statement, a lot of progress in the pipeline. So great job there. A couple of questions.

Speaker 5

When we think about Q4 to Q3, just trying to get a sense How we should think about that both from a revenue standpoint and as well that SG and A, do you think You can cut it. It was 8.6% in Q3. Is there more? Is it going lower than that? Or are we kind of at a steady state At this point.

Speaker 2

Hey, Scott, good to hear your voice. I'll take part of this question. In terms of Q4 and how that's going to reflect comparing it to Q3 here, We're 1 month into the 4th and final quarter of the year. We've got good momentum. The prescriptions look Solid and I would expect a very strong quarter similar to what you see in Q3 so far.

Speaker 2

And then in terms of our SG and A efforts and operating efficiencies, I'm going to have Joe jump in here and give you his take.

Speaker 4

Sure. Thanks, Claude, and how are you doing, Scott? So from an SG and A standpoint, Scott, We should be pretty even with the Q3. There's a chance we could be a little bit better, but from an expectations point, I would Our guidance sticks That's with our the $17,000,000

Speaker 5

Okay, fantastic. And then any color on Accutane and QBREXZA? I know you mentioned if you combine them all together, But any surprises there? Or did they I mean, I would have guessed they look kind of similar to last year, but just any color on those 2?

Speaker 2

Yes. In terms of Accutane, I think we're very pleased with how the product is performing. I think from a sales and marketing end, the message is getting out there. I think more and more Patients and physicians are turning to the brand Accutane. So we like where we are.

Speaker 2

Right now, we have approximately 14.5 percent market share. So in no ways have we come close to hitting our ceiling. And we've got a lot of emphasis with the sales force right now on that particular brand. So in terms of QBREXZA, there is seasonality for this brand. We're heading into the winter right now, so there can be some offsets with that.

Speaker 2

But generally, I would anticipate A very similar solid quarter in Q4 as you've seen in Q3 here with QBREXZA.

Speaker 5

Okay, great. Final question just on DFD-twenty 9. The rosacea data It was pretty compelling, pretty big potential product, particularly relative To the size of the company, Journey is today, although a lot more today than 3 months ago. The question is, do you give any incoming calls on that asset? I mean, is it possible if someone made you An offer you couldn't refuse that you would look at partnering that in perhaps in bigger hands or do you even consider that?

Speaker 5

Thank

Speaker 2

Sure. Yes, Scott. Great question. With the results that came out, the Phase III results that came out in early July, It certainly has caught a lot of attention from the industry as well as a lot of interested parties Potentially licensing the asset from us outside of the country here in the U. S.

Speaker 2

In terms of would we ever entertain any sort of Potential offer for the asset. I think it's all in what the offers look like. We're always open. We're very when it comes to business development and we've always got an open ear. But right now, we are really focused On continuing to execute and make sure we have all the launch plans ready to really hit the door running once we get the approval hopefully in the later half of twenty 24.

Speaker 2

So, all hands are on deck and that's as much as I could say.

Speaker 5

Okay, great. Thank you for taking the questions.

Operator

Our next question comes from Andy Please go ahead.

Speaker 6

Hey, good afternoon. Thank you for taking questions. A few from us, starting with DSD-twenty 9. What market research may be emerging ahead of the NDA And the potential launch there and have you sampled prescribers to get a better understanding of the drug's potential positioning in the market?

Speaker 2

Sure, Andy. Thanks for the question. Yes, previously we've already conducted some market research Specifically with payers to really examine the price sensitivity, for example, and potential contracting Requirements that would be needed. Now we want to revalidate that and we've got additional research that's Being conducted as we speak. So I mean, some of the areas are in terms of Looking at Oracea, where it's contracted, potential generics to Oracea and what that means to the marketplace, As well as considerations of the perceptions of our providers.

Speaker 2

So how does DFD-twenty nine, this modified minocycline release once a day that will have hopefully A very unique indication for anti inflammatory and erythema associated to rosacea And we want to get aided and unaided qualifications from our customers. So We want to look at all sorts of factors. And like I said, we really want to understand and validate our adoption And our peak demand for this particular product, and then how long it will take for that peak to come. So We have great assumptions. We've already validated a lot of this with previous market research.

Speaker 2

But now with the studies Conducted and complete, and now we're doing additional research.

Speaker 6

Okay, great. We'll look forward to some of the results there. And that's in your prepared remarks. It sounds like EMA may be included in the label. Can you elaborate on that at all?

Speaker 2

Sure. I'm going to have Doctor. Srinivas, talk about that a little bit.

Speaker 3

Thanks, Claude, and thanks, Andy, for that question. That's a very good The thing that I would like to say about Eredema is that, To be one of the secondary endpoints that we had on the Phase 3 studies and the secondary endpoints were Adjusted for multiplicity, which means that if there is statistical superiority to placebo, There is a very high chance of that endpoint ending up on the label. So since it was a multiplicity at this secondary endpoint And it was agreed with the FDA in terms of where it would be placed in the hierarchy. We believe that we have a good chance of getting that on the label.

Speaker 6

Excellent. That's very helpful. And now switching gears, one final question for me on Accutane. It sounds like you're having continued growth in market share at 14.5%. But I know that we had a bit of a slowdown in the isotretinoin market overall last Have things kind of returned to the expected long term growth rate there?

Speaker 6

And any additional color you can provide on the overall market?

Speaker 2

Sure. Yes, Andy. Just to give you some market background on the isotretinoin market in 2021, And that's all isotretinoins included. There was about 2,075,000 prescriptions. And in 2022, about the same amount.

Speaker 2

And now in 2023 through the 1st three quarters, We're at about 1.5 and change. So, it looks like it is going to be close to that 2,000,000 Prescription market, there was a touch of a slowdown, but I think we're starting to see that ramp back up. So it's holding very strongly. I think we saw some good single digits year over year. That's just Backed off a bit, but it's very nominal.

Speaker 6

Great. Thanks for the additional color and thank you for taking the questions.

Speaker 2

Sure. Absolutely.

Operator

This concludes our question and answer session as well as our call for today. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Journey Medical Q3 2023
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