Incyte Q1 2024 Earnings Call Transcript

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May 13, 2024

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to Journey Medical's First Quarter 2024 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.

Operator

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

Speaker 1

Good afternoon, and thank you for participating in today's conference call. Joining me from Journey Medical's leadership team are Claude Muraue, Co Founder, President and Chief Executive Officer Joseph Binesh, Chief Financial Officer Doctor. Srini Sidgiddhi, 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 Journey 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, Monday, May 13, 2024.

Speaker 1

Except as required by law, Journee 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 Claude Meraui, Co Founder, President and Chief Executive Officer of Journey Medical.

Speaker 2

Thanks, Jacqueline, and good afternoon to everyone on the call today. I am pleased to report on the progress that we've made at Journey Medical. I will begin with the positive results that we delivered in Q1. During the period, we generated revenue of $13,000,000 which is a 7% increase over the Q1 of last year. This growth was driven primarily by strong revenues of QBREXZA and Accutane.

Speaker 2

These two products together contributed over $10,800,000 in revenue in Q1 2024 versus $8,700,000 in Q1 2023. This represents year over year growth of 24 100 prescriptions when compared to Q1 of 2023 and Accutane grew by 29,000 prescriptions when compared to Q1 2023, showing strong progress for both brands. Additionally, both QBREXZA and Accutane gained market share in their respective categories. This was achieved through a combination of efforts by our sales and marketing team and our trade and access group. Particularly, our reach has expanded both with prescriber adoption of our brands and the expansion of our pharmacy network.

Speaker 2

Our expectation is for these brands to continue to grow throughout the remainder of 2024. Our strategic pivot to significantly reduce SG and A expenses during 2023 in order to achieve profitability has shown to be a success. This was most recently evidenced by our performance during the Q1 where we were able to achieve 7% revenue growth and profitability in our base business with only 35 territories versus the 59 territories that we had in Q1 of 2023. Looking at the performance of our 4 core commercial brands during the quarter, QBREXZA, Accutane, Amzik and Zolksy make up more than 90% of our revenue. And importantly, these brands generated a positive contribution given our optimized commercial infrastructure.

Speaker 2

Simply put, the revenues generated from these products have surpassed our SG and A expenses with the exception of one time occurrences, such as our NDA filing fee for DFD-twenty 9. Historically, Q1 is typically our softest quarter as we are affected by seasonality in our business as well as insurance deductible resets that take place throughout the Q1 of each year. Looking ahead into 2024, we continue to expect growth from our core brands and further expect to benefit from additional incremental expense reductions as a result of our cost optimization efforts that took place in 2023. We believe that these dynamics position us to achieve sustained profitability on an adjusted EBITDA basis and highlight the potential future leverage of our business, particularly with the anticipated launch of DFD-twenty 9. From a macro perspective, our primary emphasis as an organization is to continue preparing for the impending launch of our DfD 29 product candidate.

Speaker 2

DfD 29 is a novel oral therapy for the treatment of rosacea with best in class potential. There are approximately 16,500,000 patients that suffer from rosacea in the United States. In 2023, there were over 4,000,000 9 provides a significant growth opportunity for the company as well as for our shareholders. The clinical trial results for both our Phase 3 studies were positive. On both of the co primary endpoints, IGA success, which is investigator global assessment and the reduction of inflammatory lesions associated with rosacea.

Speaker 2

EFE-twenty nine demonstrated statistical superiority to both placebo and oratia, current standard of care and market leading oral treatment for rosacea. To provide color around the DfD29 market opportunity, Oracea had over $300,000,000 in annual TRx sales in 2023. We believe that based on DfD29 superior efficacy as demonstrated in our Phase 3 clinical trials, there is a significant opportunity to take market share from Oracea as well as from other topical treatments that are commonly prescribed to treat rosacea. Additionally, DFD-twenty Additionally, DFD-twenty 9 demonstrated the ability to significantly reduce erythema or the skin redness associated with rosacea. We believe this is a meaningful clinical result from our Phase 3 clinical trials that can differentiate DFD-twenty nine's product profile if approved and can help accelerate both prescriber and patient adoption.

Speaker 2

The Phase 3 results also demonstrated a favorable safety and tolerability profile for DfD-twenty 9 with safety results that were similar to placebo. Based on the full set of clinical trial results, we recently conducted and completed a fresh round of market research, which focused on 2 critical groups. First was a survey conducted with prescribers of rosacea treatments to measure the likelihood of adoption of DfD 29. 2nd was a survey of the payers that represent a majority of commercial insurance plans to measure their willingness to include DfD-twenty 9 on their formulary. I am pleased to report that the feedback was positive for both sets of participants.

Speaker 2

Favorable responses were driven by statistical superiority of DFD-twenty nine when compared head to head versus Oracea in reducing inflammatory lesions and IgA success, as well as statistical significant reduction in clinicians erythema assessment score of DFD-twenty 9 versus placebo. Healthcare prescribers overwhelmingly confirmed their willingness to adopt and prescribe DFD-twenty nine for the rosacea patients and adoption rate of 79%. In our industry, this is an astoundingly high rate and translates into an approximate 8 out of 10 rosacea prescriptions going to DFD-twenty 9. This rate exceeded even our own internal expectations and gives us the confidence in a successful BFD-twenty nine launch. Given the 16,500,000 rosacea sufferers in the United States and over 4,000,000 prescriptions written annually, the prescriber adoption rate market potential.

Speaker 2

With respect to the payer market research results, the data shows most, if not almost all PBMs, GPOs and other managed care organizations are likely to contract with us to provide coverage for DFD-twenty 9 for over 200,000,000 lives. As a result of this market research, we are even more confident that DFD-twenty 9 will have high acceptance among prescribers and that negotiations with payers for formulary inclusion and reimbursement will be favorable after DfD-twenty 9 is approved. We will provide additional details on pre launch activities later in the year as we finalize the launch plans, pricing and product positioning for DfD29. To recap on our regulatory activities in Q1, we submitted our new drug application for DfD29 on January 4, and the application was accepted by the FDA on March 13, whereby FDA provided us with key timelines of the review process and a PDUFA date of November 4th this year. Given the impressive efficacy and safety data generated from the DFD Phase 3 head to head clinical trial program, we remain highly confident that FDA will provide us with an approval by the PDUFA date.

Speaker 2

Regarding intellectual property, DFD 29 has a robust patent profile. We currently have 3 Orange Book listable patents to provide exclusivity until 2,039. As a result, we anticipate having market exclusivity without generic intrusion for the foreseeable future. To conclude on our discussion of DfD29, we believe the achievement of superior 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 the dermatology prescribers and patients alike. Moving into our business development efforts.

Speaker 2

We continue to evaluate opportunities to enhance shareholder value. A primary focus for the company is to continue to outlicense our intellectual property and related technologies to interested capable companies outside of the United States. In 2023, we entered into an out licensing agreement with Maruho, which resulted in a $19,000,000 upfront licensing payment for the rights to develop and commercialize QBREXZA in certain Asian countries. We will continue to explore opportunities to exploit and monetize our IP and technologies globally for QBREXZA, AMZYK and Zolpi as well as DfD29. 2nd, we continue to survey the dermatology landscape for new product opportunities that we can acquire or in license FDA approved products as well as late stage product candidates.

Speaker 2

That would allow us to leverage our focused commercial infrastructure. In this regard, our first priority would be to bring in commercially available FDA approved prescription dermatology products that would fit directly into our existing commercial footprint. As a secondary focus, we will continue evaluating late stage product candidates that have demonstrated strong clinical trial results in therapeutic areas in dermatology, where there are unmet treatment needs that we believe we can best serve patients. Executing on 1 or more of these opportunities would allow us to bring in additive revenue with minimal investment in our infrastructure, adding to both our top and bottom lines. And with that, I will now turn the call over to our Chief Financial Officer, Joe Benesh, to review our financial results for the Q1 of 2024.

Speaker 3

Thank you, Clyde, and good afternoon to everyone on the call. Our total net revenue for the Q1 of 2024 was $13,000,000 compared to $12,200,000 for the Q1 of 2023. The increase is primarily due to increases in net product revenues for QBREXZA and Accutane as we continue to focus our marketing efforts on these products. Our gross profit margin increased slightly year over year driven by higher sales. R and D expense increased by $5,900,000 from the prior year quarter, driven by a $4,100,000 DfD29 application fee payment to the FDA in January and the $3,000,000 expense for a contractual milestone payment triggered by the FDA's acceptance of our DfD-twenty nine application in March.

Speaker 3

These one time expenses were offset by lower DFB 29 clinical trial expenses as the project winds down and eventually concludes. Looking now to our SG and A expenses. SG and A decreased by $4,700,000 or 35% from the prior year quarter, as a result of our continued expense management efforts. This is in addition to the $15,600,000 reduction in SG and A in 2022 to 2023 that we reported at year end. Continuing to our net loss for the periods.

Speaker 3

Net loss to common shareholders was $10,400,000 or $0.53 per share basic and diluted for the Q1 of 2024, compared to a net loss to common shareholders of $10,100,000 or $0.57 per share basic and diluted for the Q1 of 2023. The loss for the period was substantially due to one time charges for the FDA application fee and the milestone payment discussed previously. Turning now to our non GAAP results. Our non GAAP adjusted EBITDA for the Q1 of 2024 resulted in income of positive $11,000 reflecting our 3rd consecutive non GAAP adjusted EBITDA positive quarter. This compares to a non GAAP adjusted EBITDA loss of $5,300,000 for the Q1 2023.

Speaker 3

While the Q1 was only slightly positive, we do expect non GAAP adjusted EBITDA to increase more significantly throughout the remainder of 2024. We ended the Q1 of 2024 with $24,100,000 in cash compared to $27,400,000 at December 31, 2020 trading. Cash burn for the quarter reflects our cash outlay for the one time FDA application fee payment of $4,100,000 offset by positive cash flow from operations. Lastly, we are on track to meet and potentially exceed the financial guidance that we communicated at year end, which is to achieve net revenues in the range of $55,000,000 to $60,000,000 SG and A expense in the range of $39,000,000 to $42,000,000 and R and D expense in the range of $9,000,000 to $10,000,000 Thank you very much. I will now turn the call back over to Clyde.

Speaker 2

Thank you, Joe. The first quarter results demonstrate the strength of our base business as we delivered year over year growth and generated our 3rd consecutive quarter of positive non GAAP adjusted EBITDA. By strengthening the IP around our portfolio, rightsizing our operating expenses, advancing DFD-twenty 9 towards U. S. Market approval and bringing in non dilutive capital from our business development initiatives, I believe that the company is now stronger than ever and we are ready for the next growth phase in our journey.

Speaker 2

Thank you. Operator, we are now ready to open the lines for Q and A.

Operator

Thank you very much. We will now begin the question and answer session. Today's first question comes from the line of Scott Henry with Alliance Global Partners. Please go ahead.

Speaker 4

Thank you and good afternoon. First, Joe, congratulations on losing the interim title of CFO.

Speaker 3

Thanks, Scott. So

Speaker 4

starting on the numbers, COGS was a little higher relative to Q4. I thought we were going to start to see more consistent numbers there. Was there a reason or is there a reset in the COGS line that we should still be factoring in?

Speaker 3

Yes. Thanks, Scott, and thanks for the congrats. I really appreciate it. Really, the margins were a little bit lower due to product mix. That's the first piece.

Speaker 3

Product mix to the higher margin products was pretty prevalent in the Q1. And also we had some isolated freight costs, isolated testing costs, and we had some raw material obsolescence that came through the Q1. Moving to the Q2, Q3, things should go back to normal.

Speaker 4

Okay. And by normal, we should get to 40% or I guess a 60% plus gross margin?

Speaker 3

Exactly. Back where we were like in the December realm or the Q4 realm.

Speaker 4

Okay, great. There were also some comments as to QBREXZA and Accutane being the main growth drivers of the current product portfolio. Do you have any thoughts on which one of those 2 would be the larger growth asset? I would think it would be QBREXZA, but the script numbers were pretty strong for Accutane. Just want to get your sense on that?

Speaker 2

Sure. Yes. Hi, Scott. It's Claude. I'll start out.

Speaker 2

Accutane and QBREXZA are certainly key drivers for us as we continue to move forward. Like you said, approximately 29,000 prescription increase year over year same quarter, so just tremendous growth there. And we had just a little shy of 2,000 prescriptions in growth with QBREXZA. So I'll start out with Accutane first since it had the largest demand increase. This isotretinoinoma market is growing.

Speaker 2

We're penetrating more and more into the market share area. We're looking at now close to 17% plus market share. So that's a very good sign. We don't anticipate hitting a ceiling with that. I think if you take a look at our best quarter ever, it was about 75,000, 73,000 prescriptions and here we are at 93,000 strong double digit growth moving into this year here with Accutane.

Speaker 2

With QBREXZA in terms of market share gains, We are it is a seasonal drug. The winter is typically a slower time for us in terms of picking up demand. So as we get into the warmer months that we're into right now in this calendar year, our momentum seems to be picking up with that and having stronger demand. So I think our sales team as well as our marketing promotion is working very effectively. This is all about getting awareness out there with the product, as well as just constant education.

Speaker 2

So most people still don't have the full understanding and that there's a benefit for what they're ailing with. So, yes, more growth. I would tell you that QBREXZA should be in the mid to high single digits as we keep going and could venture into the double digits. So both those will drive our growth.

Speaker 4

Okay. Great. Thank you, Claude. And then just shifting over quickly to DFD-twenty nine, I heard a lot of great color on the surveys that you have run with clinicians. Where I mean, should we look for that to be published somewhere or perhaps you'll include some slides in your presentation?

Speaker 4

I'm just wondering how you're going to disseminate some of that data?

Speaker 2

Yes, sure. Scott, we used a 3rd party independent market research company, Indigent. You probably well know it. And we certainly will have some slides in the very near future included in our deck as we go that will be posted on our website.

Speaker 4

Okay, great. Well, thank you for taking the questions.

Operator

Thank you. The next question is from Talpit Patel with B. Riley Securities. Please go ahead.

Speaker 5

Yes. Hey, good afternoon. Thanks for taking the questions. Maybe starting with DFB 29, Have you had any initial conversations with payers on the drug's profile? I know you probably need to wait until the drug is approved to have any official contract signed, but just wanted to know if you had any color on preliminary dialogue with payers?

Speaker 2

Yes, absolutely, Talpit. We certainly have done the market research that was also done recently. So it's fresh, new. We looked at over the payers that included lives of over 220,000,000 covered lives nationally. So a very good broad sample.

Speaker 2

They looked at the Phase III clinical trials. We offered all the various product attributes, the proposition value and overwhelmingly in terms of acceptance and being able to negotiate and get that covered, that way we have the access and ability to do the pull through with our sales and marketing promotion, overwhelming response is very, very positive. We will be able to get good coverage on DFD-twenty nine. And as you mentioned, we won't be able to negotiate with payers until after the approval.

Speaker 3

Okay. Got it. All right.

Speaker 5

And then you previously guided that you would potentially breakeven or even turn cash flow positive in fiscal year 2024. Can you comment if this guidance is still unchanged as of today?

Speaker 2

Yes. Joe, would you like to handle that, please?

Speaker 3

Sure. So thanks, Kelpit. The guidance is definitely unchanged. Basically, we have some DSD-twenty 9 launch costs in our budget. If you pull all those launch costs out, pull some of the non cash stuff out, the core business is contribution positive at this time.

Speaker 3

So we continue to work towards that. And by year end, we believe we're going to be non GAAP EBITDA positive as we suspected.

Speaker 5

Okay, perfect. Thank you very much.

Speaker 3

Thanks.

Operator

Thank you very much. Seeing no further lines in the queue, this concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines and have a great day.

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Earnings Conference Call
Incyte Q1 2024
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