Journey Medical Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 21, 2024

There are 8 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Journee Medical's 4th Quarter and Full Year 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 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.

Operator

I would now like to turn the floor over to Jacqueline Jaffe, the company's Senior Director of Corporate Operations. Please go ahead, Jacqueline.

Speaker 1

Good afternoon, and thank you for participating in today's conference call. Joining me from Journey Medical's leadership team are Claude Murali, Co Founder, President and Chief Executive Officer Joseph Binesh, Interim Chief Financial Officer Doctor. Srini Sajidhi, 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 reports on Form 10 ks and Form 10 Q, 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 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, Thursday, March 21, 2024.

Speaker 1

Except as required by law, Journey Medical disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Clyde Murali, Co Founder, President and Chief Executive Officer of Journey Medical.

Speaker 2

Thanks, Jacqueline, and good afternoon to everyone on the call today. I'm very pleased to report the strong progress that we made in 2023 across each of our business initiatives. To begin with, we generated $79,200,000 in total revenue last year, a 7% increase from 2022 and an all time high for the company since inception. We achieved this with the $19,000,000 upfront license payment that we received in September from Maruho in exchange for the rights to develop and market QBREXZA in certain Asian countries, in addition to the solid contribution from our product portfolio. I'd like to note that we were able to deliver this top line growth despite the continued erosion of the Targetox franchise due to generic competition as well as the discontinuation of Zimino in the Q3 of 2023.

Speaker 2

At the beginning of 2023, we set a goal to reduce our annual SG and A expense by $12,000,000 and later in the year, we raised our guidance on this initiative. I am delighted to report that by the end of the year, we lowered our annual SG and A expense by approximately $15,600,000 as a direct result of our cost reduction efforts. In 2024, we believe that we will be able to reduce our SG and A expense by an additional $2,000,000 to $5,000,000 resulting in a total cost reduction of approximately $20,000,000 from the 2022 SG and A expense base. Currently, our 4 core products, QBREXZA, Accutane, Amzeq and ZILXI represent approximately 90% of our product revenue. As a result of our expense reduction efforts related to our legacy brands and our strategic focus on these 4 core brands, we expect that these brands will contribute positively to cash flow in 2024.

Speaker 2

In addition to reducing our operating expenses, we also strengthened the patent protection around our core product portfolio. As a result of our recent patent litigation settlements, we have a strong runway of patent exclusivity for QBREXZA with current patent exclusivity to 2,030 Amzik with patent exclusivity to 2,031 and ZILXI with patent exclusivity to 2027. Stabilizing our commercial business was a key strategic in 2023 that we believe has and will continue to contribute to shareholder value for years to come as we execute on our growth plan. Moving into product development and another milestone event from 2023, we completed our 2 pivotal Phase III trials for DfD29, a novel oral therapy for the treatment of rosacea. The execution by our clinical team was tantamount in achieving this milestone.

Speaker 2

And I am pleased with the quality of the clinical trials and the team's ability to meet all of its planned timelines without any significant issues. So a big thanks to the team. The results from both trials were highly positive and allows us to continue to show extreme optimism regarding both the market potential and opportunity for DfD29. On both of the co primary endpoints, IgA success and the reduction of inflammatory lesions associated with rosacea, DFD-twenty nine demonstrated statistical superiority to placebo and oresia, the current standard of care and the market leading treatment. To provide context and illustrate the DfD29 market opportunity, Oracea had approximately $300,000,000 in annual TRx sales in 2023.

Speaker 2

With DFD's superior efficacy results as demonstrated in our Phase III clinical trials, we believe there is significant opportunity to take share from Oracea as well as the other topical agents that are commonly prescribed to treat rosacea. Impressively, EFD-twenty 9 also demonstrated the ability to significantly reduce erythema or the skin redness associated with rosacea. We believe this is a meaningful clinical result for our Phase 3 program that can differentiate DfD-twenty nine's product profile if approved and can help accelerate both prescriber and patient adoption. Also importantly, DFD-twenty nine demonstrated a safety and tolerability profile in our Phase III trials that was similar to placebo. We continue to expect that DfD29 will be able to achieve peak annual net sales of $300,000,000 with $200,000,000 of those sales being achieved in the U.

Speaker 2

S. Alone. Currently, DFD 29 has 3 Orange Book listable patents expected to provide exclusivity until 2,039. So we anticipate that we will have market exclusivity without generic intrusion for the foreseeable future. We believe that the achievement of these efficacy and safety results will pave the way for a new rosacea treatment paradigm, which would significantly enhance the value of our company as well as the value that we bring to physicians and patients alike.

Speaker 2

Looking back at our timeline of events, we submitted our NDA for DfD-twenty 9 at the beginning of January and we received an NDA acceptance from the FDA on March 13. Based on the acceptance letter that we received from the FDA, no potential filing review issues were identified and there are no plans at this time to convene an advisory panel meeting to discuss the application. The FDA has established a PDUFA date of November 4, 2024, and we plan on continuing to invest the proper resources to prepare for an NDA approval and commercial launch of DfD-twenty 9 in early 2025. On the market access front, we are continuing our research and discussions with payers and physicians in preparation of our DfD29 launch. So far, I am pleased with the initial feedback that we've received regarding expected product acceptance and anticipated product reimbursement.

Speaker 2

We will provide more details on this later in the year as we solidify our launch plans. Looking at our financials from 2023, we paid off our debt facility, which had a balance of $20,000,000 And in late 2023, we entered into a new credit agreement with SWK Holdings to access up to $20,000,000 in non dilutive debt capital. The terms on the SWK loan are less restrictive and give us more flexibility than the debt we retired in the middle of last year. So far, we have drawn down $15,000,000 on the SWK facility and another $5,000,000 remains available for us to draw down in the future. We reported over $27,000,000 in cash at the end of 2023.

Speaker 2

And with the recent reductions in our cost structure, we believe that we are well positioned this year to invest in and prepare for the anticipated launch of DfD29. We believe that DfD29 has the potential to become the standard of care for rosacea treatment and offer significant sales growth and financial leverage to our business. Lastly, I'd like to review the success and opportunities from our business development initiatives. There are 2 areas that we are focused on in this vein. First, we are working to continue out licensing our IP and related technologies to companies outside of the United States.

Speaker 2

Our license agreement with Maruho last year provides an example of how we successfully executed on this strategy. Analogous to this transaction, we believe that QBREXZA, our other patented products and DFD-twenty nine may provide attractive near term opportunities for our companies in other countries seeking to exclusively in license our proprietary products. 2nd, we continue to survey the dermatology landscape for new product opportunities. This involves acquiring and or in licensing FDA approved or late stage product candidates that would allow us to achieve synergies by leveraging our focused commercial infrastructure. Our first priority in this area is to bring in on market FDA approved prescription dermatology products that would fit directly into our existing commercial footprint.

Speaker 2

Executing on 1 or more of these acquisitions or in licensing opportunities would allow us to bring in additive revenue with minimal investment, adding to both the top line and the bottom line. And with that, I will now turn the call over to our CFO, Joe Benesh, to review our financial results for 2023.

Speaker 3

Thank you, Claude, and hello, everyone. I would like to start by reviewing the full year financial results for 2023. Now I'll provide financial guidance for 2024. Our total net revenues for the full year 2023 were $79,200,000 compared to $73,700,000 for the full year 2022. This reflects an increase of $5,400,000 or 7% over the prior year.

Speaker 3

The increase is mainly due to the execution of the new license agreement with Maruho in Asia, which generated revenue of $19,000,000 during the Q3 of 2023. Our gross profit margins in 2023 increased by 22% as a contractual royalty obligation for QBREXZA decreased. The reduction in royalties for QBREXZA decreased by 50% began in May 2023. Furthermore, our EksoDorm royalty to SUN ended in the Q4 of 2023. These contractual royalty reductions are expected to lead to further improvement in our margins going forward through 2024.

Speaker 3

R and D expenses decreased by $3,400,000 to $7,500,000 for the full year 2023. This compares to the $10,900,000 that we reported for the full year of 2022. The decrease is related to lower clinical trial expenses developed EFT-twenty 9 as the clinical trial work has been completed. And we are now advancing to expected FDA approval. Looking now to our SG and A expenses.

Speaker 3

SG and A decreased by $15,600,000 or 26 percent to $43,900,000 for the full year 2023. This compares to the $59,500,000 that we reported for the full year 2022. The decrease is mainly due to our expense reduction efforts, primarily in sales and marketing and other SG and A areas. We plan to continue to reduce expenses and right size our business in areas outside of sales and marketing in 2024 as appropriate. Continuing to our net loss for the periods, net loss to common shareholders was $3,900,000 or $0.21 per share basic and diluted for the full year 2023.

Speaker 3

This compares to a net loss to common shareholders of $29,600,000 or $1.69 per share base and diluted for the full year 2022. Turning now to our non GAAP results. Our non GAAP adjusted EBITDA for the full year 2023 resulted in a net income of $15,600,000 or $0.85 per share basic and $0.75 per share diluted. This compares to a net loss of $7,300,000 or $0.42 per share basic and diluted for the full year of 2022. At December 31, 2023, we had $27,400,000 in cash and cash equivalents, which compares to $32,000,000 at December 31, 2022.

Speaker 3

Moving to our financial expectations for this year. In 2024, we anticipate net product revenue in the range of $55,000,000 to $60,000,000 For SG and A expenses, we foresee a range of $39,000,000 to $42,000,000 for the year. And for R and D expense, we expect to be in the range of $9,000,000 to $10,000,000 Thank you very much. And now I'll turn it back to Claude.

Speaker 2

Thank you, Joe. Journey Medical is in its 3rd year as a public company, and I believe that we have delivered on our goal of positioning the business for success. We have a solid lineup of dermatology products with strong patent protection. We have right sized our cost infrastructure so that our base business is now contributing positively and we are ready to leverage future anticipated top line growth. Most notably, we now have a product candidate for rosacea treatment under FDA review with very positive head to head Phase 3 clinical trial results against the market leader as well as long dated patent protection.

Speaker 2

I am extremely pleased with the accomplishments that Journee has achieved to date, and I am excited for 2024 and the opportunities that we see to continue creating value for our shareholders and the dermatology community. Thank you. Operator, we are now ready to open the lines for Q and A.

Operator

Our first question comes from Scott Henry from Alliance Global Partners.

Speaker 4

Congratulations on the accepted filing for DFD 29. Couple of questions, I guess starting on staying on DFD 29. Could you tell me, do you have could you talk about what rights you have outside the U. S. And within those rights, what timelines you may have for bringing the product internationally to the market?

Speaker 2

Sure. Hey, Scott, this is Claude. Thank you for the question. I'm going to pass the first part of this over to Ramzi Illush, our General Counsel. He can be specific with that to you.

Speaker 5

Sure. Thanks, Claude. Hey, Scott. Thanks for the question.

Speaker 3

So in terms

Speaker 5

of the rights for DfD-twenty nine, we have rights globally, but for the BRIC countries, Brazil, Russia, India, China, as well as the CIS countries. So that's the rights that we have. In terms of timeline, I know we're looking right now obviously at the United States as our primary focus, but there is some emphasis now in Europe potentially. And then obviously, we're looking at potential deals with other partners in other territories in Asia, etcetera. Nothing definitive at the time, but I can pass it to Srini if you want to talk a little bit about what a timeline could look like if we engage in Europe.

Speaker 4

Okay. Well, that's helpful. So the idea would be to partner it and perhaps monetize some of those rights while also contributing or maintaining contribution from them?

Speaker 5

Absolutely.

Speaker 4

Okay. And shifting gears, and I know it's early, but when we think of 2025, how should we think about the incremental launch costs for DFD-twenty 9 both from sales force expansion and from expansion of promotional resources? Thank you.

Speaker 2

Sure, Scott. So, yes, we're very excited. We believe that we will be getting the approval in right November 4 this year. And in terms of timing for the launch of DfD29, it will be in Q1 at the latest early Q2. So from that standpoint, right now, when you take a look at our commercial footprint, our sales group, our sales team right now in the rosacea market, as well as our other markets covers 80% of the top MSAs across the country.

Speaker 2

And then when you take a look at that further and look into the areas that we cover, including rosacea, hyperhidrosis and acne, we are controlling about 75% of the prescriptions total prescriptions in the marketplace, higher than that in rosacea. So I think we've got a good baseline right here. We will take a look at it as we get approval. That's when we'll be able to begin our negotiations with the various PBMs and the managed care plans. And as we start to get more acceptance, you can see us most likely expanding as we go through this over the next 6 to 18 months plus.

Speaker 2

So where we are right now, we're about 35 representatives. We feel very good about starting off with our coverage with them from the get go. And as we increase our covered lives, you'll see us expand. I think that expansion, if I had a guess here, we're going to certainly do a study to make sure that we have it right, could go up as high as 45 to 50 individuals.

Speaker 4

Okay, great. Thank you for that color. And a final question just on the core products, particularly QBREXZA and Accutane. Any I mean, we'll see the numbers in the 10 ks, but anything notable as far as trend changes going into 2024? Thank you.

Speaker 2

Sure. Yes. So those are our top 2 products that our sales force and marketing team focuses on. I can tell you, I'll start out with Accutane, really tremendous growth. If we look at IMS prescriptions, it's 27% growth year over year from 2022 to 2023.

Speaker 2

So we've really had a nice surge in prescription volume levels there. And in terms of another indicator with QBREXZA, again, when you take a look between 22 versus 23, we had approximately a 6% plus increase in prescription levels. So I think the marketing messages and the emphasis with the sales force continues to move those products. We're looking for core growth with those 2 brands as well as ZILXI and AMZYK in 2025.

Speaker 4

Okay, great. Thank you for taking the questions.

Operator

Our next question comes from Calpit Patel from B. Riley Securities. Please go ahead with your question.

Speaker 6

Hi. This is Jay on for Calpit. Congrats and thanks for taking the questions. In the past, you communicated that since erythema was a secondary endpoint, it could potentially be included on the label for DfD29. Now that you have the official NDA acceptance, has the FDA given any additional guidance on that aspect of the filing?

Speaker 6

Thank you.

Speaker 2

Yes. Thank you for the question and a pleasure to meet you. I'll start off and then I'm going to pass it on to Doctor. Segidi who can give more detail. The 2 Phase III clinical trials, the evidence and numbers, statistical superiority are really very, very strong.

Speaker 2

So we do feel rather comfortable and confident that we should be able to get this erythema indication as part of the label. And I'm going to pass it on to Srini Vas here to get into more detail.

Speaker 7

Thanks, Claude. Hi, Jay, that's a very good question. And I would like to say that the secondary endpoints were discussed with the FDA before the study started. And these endpoints have been adjusted for multiplicity, which is a statistical concept by which it means that an endpoint can be assessed only after the previous endpoint is successful. And when the endpoints are multiplicity adjusted, these endpoints can end up in the label.

Speaker 7

So having been discussed with the FDA, we are sure that this endpoint is very likely to end up on the label if the FDA accepts

Speaker 6

the data. Okay. Thank you.

Speaker 3

That's very helpful. Thank you.

Speaker 7

And I think there was another part of that question, which was about any indication by the FDA on the erythema front. So far, there is no particular indication from the FDA. I think that we are good so far. We are on course.

Speaker 6

Great. Thank you. Thanks.

Operator

And ladies and gentlemen, I'm showing no additional questions. We'll be concluding today's

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Earnings Conference Call
Journey Medical Q4 2023
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