Journey Medical Corporation (NASDAQ:DERM) Q4 2022 Earnings Call Transcript

Page 1 of 4

Journey Medical Corporation (NASDAQ:DERM) Q4 2022 Earnings Call Transcript March 29, 2023

Operator: Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the Journey Medical’s Fourth Quarter and Fiscal Year 2022 Financial Results and Corporate Update Conference Call. . 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 Matt Blazei of CORE IR, the company’s Investor Relations firm. Please go ahead, sir.

Matt Blazei: Thank you, Anthony. Good afternoon, and thank you for participating in today’s conference call. Joining from Journey Medical Corporation’s leadership team are Claude Maraoui, Co-Founder, President and Chief Executive Officer; Joseph Benesch, Interim Chief Financial Officer; Ramsey Alloush, General Counsel; and Dr. Srini Sidgiddi, Vice President of Research and Development. During this call, management will be making forward-looking statements including statements that address Journey Medical’s expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. 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-K and Form 10-Q, the Form 8-K 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 to 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, March 29, 2023. Except as required by law, Journey Medical disclaims any obligations 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 Maraoui, Co-Founder, President and Chief Executive Officer of Journey Medical.

Claude Maraoui: Thanks, Matt. Good afternoon, and thanks to everyone for joining our fourth quarter and fiscal year 2022 conference call. We are pleased with many of our accomplishments during our first full year as a public company. And although we faced a number of challenges, we look forward to continued revenue growth in 2023. We are also approaching significant clinical milestones for our Phase III clinical trial evaluating DFD-29. We have achieved 100% enrollment in the clinical trials as of the beginning of January 2023, with an expected topline data readout in the second quarter of 2023, which we expect to be followed by an NDA filing in the second half of 2023. In addition, we recently announced completion of treatment in our Phase I clinical trial assessing the impact of DFD-29 on the microbial flora with no significant safety issues noted during the study.

We also anticipate launching an additional product in the second half of 2023, which will be Journey Medical’s ninth marketed dermatology product. Looking back on 2022, Journey reported record revenues for the fiscal year of $73.7 million, which is a 17% increase from the revenue reported for the prior year of $63.1 million. Fourth quarter revenue was $16 million, which was $1.6 million less than the fourth quarter of 2021. In addition to the macroeconomic challenges faced by our sector, which limited our growth throughout 2022, Targadox revenue for the year declined by $14.4 million when compared against the full year 2021, reflecting the continued impact of generic competition for the brand. However, this shortfall was offset by increases of QBREXZA, ACCUTANE, AMZEEQ and ZILXI, which represented 77% of our year-to-date revenue.

During 2022, we achieved some noteworthy highlights. At the beginning of the year, we expanded our dermatologic footprint with the acquisition of AMZEEQ and ZILXI from VYNE Therapeutics. AMZEEQ and ZILXI are 2 unique topical products that complement our currently marketed prescription-based products, including QBREXZA. We also executed settlement agreements with Padagis to enforce the patents covering QBREXZA, AMZEEQ and ZILXI, which will help solidify the exclusivity of QBREXZA, AMZEEQ and ZILXI and provide a clear pathway to grow the sales of these patented products for years to come. Additionally, we settled the QBREXZA patent infringement matter that we filed against Teva in December of 2022. In January ’22, we established our ex-U.S. presence upon receipt of notice from our exclusive out-licensing partner in Japan, Maruho Limited, that Rapifort Wipes 2.5%, the Japanese equivalent of QBREXZA was approved for the treatment of primary axillary hyperhidrosis in Japan.

This approval triggered a net $2.5 million milestone payment to us pursuant to the terms of the asset purchase agreement between Journey and Dermira for QBREXZA. On the product development front, as previously mentioned, we have achieved 100% enrollment in our Phase III DFD-29 clinical trial as of January 2023. With topline data readout expected in the second quarter of 2023 and an expected NDA filing in the second half of 2023. To reiterate, the market opportunity for DFD-29 is immense. With an estimated 16 million people in the U.S. suffering from rosacea and as many as 415 million worldwide. The rosacea market had 3.6 million prescriptions in 2022 and 3.4 million prescriptions in 2021, according to Symphony data. The Phase II trial results for DFD-29 demonstrated nearly double the efficacy overall ratio, which is the current market leader and standard of care.

With respect to both co-primary endpoints in the study, which were: first, the reduction in total inflammatory lesion count and second, Investigator Global Assessment success. Oracea had approximately $300 million in prescription sales in 2022 according to Symphony data. Once approved and launched, we believe DFD-29 will be able to achieve net sales in excess of $100 million annually, which to put in context, would exceed Journeys’ total revenue of $73.7 million in fiscal year 2022. With the anticipated continued growth and momentum of QBREXZA, ACCUTANE, AMZEEQ and ZILXI, the expected launch of our anti-itch product later this year and ongoing efforts to maximize internal efficiencies, we expect our commercial operations to return to profitability.

Through the combination of revenue growth, and expense optimization. Our goal for Journey is to be non-GAAP adjusted EBITDA positive for fiscal 2023. Our strategic focus on the continued expansion of our product portfolio through in-licensing, acquiring and developing novel dermatology products and future product candidates combined with our industry-leading sales force continues to be the cornerstone of our future growth. With that, I’ll now turn the call over to Joe, who will review our financial results for the fourth quarter and full year.

Joseph Benesch: Thank you, Claude, and hello, everyone. I will now review the full year and fourth quarter financial results for 2022. Our net revenues for the full year 2022 increased by $10.5 million or 17% to $73.7 million and $63.1 million for the full year of 2021. Increase is mainly due to revenue growth from our newly acquired products, ACCUTANE and QBREXZA, which were acquired and launched in the first and second quarters of 2021, respectively, an incremental net revenue from AMZEEQ and ZILXI acquired in January 2022. QBREXZA, ACCUTANE, AMZEEQ and ZILXI now represent approximately 77% of our total net product revenues. Our net revenues for the fourth quarter of 2022 decreased by $1.6 million or 9% to $16 million from $17.5 million for the fourth quarter of 2021.

The decrease is mainly related to generic competition for Targadox, which began in the fourth quarter of 2021. Our gross profit margins for the full year and fourth quarter 2022 have increased by 38% and 3%, respectively. The prior year included higher inventory acquisition step-up costs from QBREXZA. In addition, during 2022, our contractual royalty obligations for QBREXZA have decreased. A 10% royalty reduction for QBREXZA occurred in May of 2022 and will decrease another 50% in May of 2023. Furthermore, XIMINO royalty to Sun ended in December 2022 and our EXELDERM royalty to SUN ends in the fourth quarter of 2023. These contractual royalty reductions will lead to further improvement in our margins going forward through 2023. Research and development expenses increased by $8.2 million to $10.9 million for the full year 2022 from $2.7 million for the full year 2021.

R&D increased $2.3 million to $4.3 million for the fourth quarter of 2022 from $2 million for the fourth quarter of 2021. Increase for both periods is related to our continuing clinical trial expenses for the development of DFD-29. Looking now to our selling, general and administrative expenses. SG&A increased $19.6 million or 49% to $59.5 million for the full year 2022 from $39.8 million for the full year 2021. Increase is mainly due to the expansion of our sales force and marketing expenses related to expanding our product portfolio, additional headcount costs, including noncash stock compensation, legal expenses associated with patent litigation and compliance and other professional fees associated with being a public company that we did not incur as a privately held company prior to our IPO in November 2021.

SG&A decreased by $1.1 million or 7% to $14 million for the fourth quarter from $15.1 million for the fourth quarter of 2021. The decrease is mainly due to our expense optimization efforts as we continue to improve our operational efficiencies post-IPO, while ensuring continued focus on the development and commercialization of DFD-29. We anticipate that our SG&A will decrease for 2023 as we continue to focus on expense optimization. Continuing to our net loss for the periods. Net loss to common shareholders was $29.6 million or $1.69 per share basic and diluted for the full year 2022 compared to a net loss to common shareholders of $44 million or $4.32 per share basic and diluted for the full year of 2021. Net loss to common shareholders was $10.6 million or $0.60 per share basic and diluted for the fourth quarter of 2022, compared to a net loss to common shareholders of $21.8 million or $1.64 per share basic and diluted for the fourth quarter of 2021.

Focusing now on our non-GAAP results. Our non-GAAP adjusted EBITDA for the full year 2022 resulted in a net loss of $7.3 million or $0.42 per share basic and diluted versus a net loss of $10.9 million or $1.07 per share basic and diluted for the full year of 2021. Our non-GAAP adjusted EBITDA for the fourth quarter of 2022 reflects a net loss of $3 million or $0.17 per share basic and diluted versus a net loss of $1.7 million or $0.13 per share basic and diluted for the fourth quarter of 2021. We expect sequential improvement in our non-GAAP adjusted EBITDA as we progress through 2023 and work towards our goal to be non-GAAP adjusted EBITDA positive for fiscal year 2023. Moving to our cash. At December 31, 2022, we had $32 million in cash and cash equivalents.

Thank you very much, and I’ll now turn it back to Claude.

Claude Maraoui: Thank you, Joe. Our strategy with our product portfolio expansion was designed to pivot during the life cycle challenges like we have faced over this past year with Targadox, which declined in revenue by $14.4 million in 2022. We remain optimistic about the future performance of our newly launched products heading into 2023. We are also excited about the full enrollment for both Phase III clinical trials for DFD-29 and the launch of another prescription product to add to our portfolio. With a strong financial foundation and continued momentum with our new products, we expect to achieve another year of product revenue growth in 2023. And our goal is to be non-GAAP adjusted EBITDA positive for fiscal year 2023 after backing certain nonrecurring expenses, such as R&D stock-based compensation expense and other similar onetime expenses.

Additionally, we anticipate sequential net revenue growth throughout 2023 beginning in our second quarter. Finally, we expect our SG&A expense for 2023 to be reduced by $5 million to $7 million, targeting a range between $52 million to $54 million for the full fiscal year. I will now turn the call over to the operator for questions. Thank you.

See also 25 Biggest New Jersey Companies and 13 Best Communication Services Stocks To Invest In.

Q&A Session

Follow Dermira Inc. (NASDAQ:DERM)

Operator: . Our first question will come from Brandon Folkes with Cantor Fitzgerald.

Brandon Folkes: Congratulations on all the progress in 2022. Maybe just 2 for me. Maybe just starting on the commercial business. Seem quite a big uptake in ACCUTANE prescriptions in 2023. So just any color in terms of what you’re doing different there? Or what’s resonating or what’s driving that strength? And then maybe on DFD-29, in terms of looking at the differentiating factors of this product, obviously, there’s efficacy that to hold. It’s obviously going to be a very strong differentiating factor. But any other differentiating factors you think we should pay attention to when we look at the data and you think about the commercial landscape?

Claude Maraoui: Okay. Great. Thank you, Brandon. And good to hear your voice. The first question regarding ACCUTANE. Yes, absolutely. 2023, we have gotten off to a very strong start, and prescription trends by Symphony data are indicating anywhere in the range of 19,000-plus to 20,000-plus per month in the first 2 months here. So we like where we are headed. I think our sales force, our marketing efforts are really making some headway. And our aggressiveness in this area have started to pay dividends. So we were able to, for the most part in all of 2022, hold our market share anywhere between about 11.1% to 12-plus percent. And we believe that there is more ample opportunity for that market share to grow in 2023 here. So it is one of our key focuses.

Our flagship brand is QBREXZA followed secondly to ACCUTANE. So our commercial sales team is focused on it in terms of their priorities. And so far, I’d say we’re in stride with ACCUTANE. In terms of DFD-29 to your second question, the — there’s a couple of key things I’d like to mention first. The co-primary endpoints are almost — or are exactly the way Oracea had done their trials when they got approval. So we decided to mimic that as well as not only going head-to-head against placebo, but also doing the same thing with Oracea. What we want to do is have a robust package insert, allow our commercial and marketing team to really take advantage, as you said, about the efficacy. The additional part of this is for myself, is the fact that in terms of payers, it’s not enough to go against just placebo these days.

So going head-to-head against what is considered the standard of care and the Phase II results showing double that efficacy in both co-primary endpoints really will help with the, I think, the payer contracts and where we end up negotiating. I’d like to also pass the same question on to Dr. Sidgiddi to give some more differentiation surrounding DFD-29.

Srinivas Sidgiddi: Thanks, Claude, and thanks, Brandon for that question. The significant differentiator, as you said, Brandon, is going to be the efficacy. And as Claude mentioned, the 2 co-primary endpoints of lesion count as well as IGA treatment success, those are going to be significant differentiators. We might also look at a couple of additional secondary end points like the impact on Eridama, the impact on quality of life, those are going to be additional handles that we might get if we get good results, we do expect, based on the Phase II study results that there is going to be significant superiority on multiple end points.

Operator: Our next question will come from Scott Henry with Roth Capital.

Scott Henry: I have a couple of questions, but I’ll start on the big picture. Claude targeting EBITDA positive, albeit adjusted results in 2023 is an admirable goal, I mean you’re starting from minus $4 million in Q3, minus $3 million in Q2. It sounds like you’re not — you just don’t want to exit it, but you want to have the whole year. Breakeven is — I commend you for that. But now I want to try to figure out a little better of how we’re going to get there. I think you said it sounds like $5 million to $7 million in SG&A that gets you almost all the way there. But then the question are within that $5 million to $7 million, do you — will any of that be sales and marketing driven? Will that present any challenges to have the same share of voice out there in 2023 that you had in 2022?

Page 1 of 4