SEC Form 10-Q filed by Journey Medical Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to _________
Commission File Number:
(Exact name of registrant as specified in its charter)
| ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices and zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | |
☒ | Smaller Reporting Company | |||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class of Common Stock |
| Outstanding Shares as of May 14, 2024 |
Common Stock Class A, $0.0001 par value | ||
Common Stock, $0.0001 par value |
JOURNEY MEDICAL CORPORATION
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 | ||
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
JOURNEY MEDICAL CORPORATION
Unaudited Condensed Consolidated Balance Sheets
(Dollars in thousands except for share and per share amounts)
| March 31, |
| December 31, | |||
2024 | 2023 | |||||
ASSETS |
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Current assets |
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Cash and cash equivalents |
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| $ | |
Accounts receivable, net of reserves |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Intangible assets, net |
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Operating lease right-of-use asset, net |
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Other assets |
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Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable | $ | | $ | | ||
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Accrued expenses |
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Accrued interest | | | ||||
Income taxes payable |
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Installment payments – licenses, short-term |
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Operating lease liability, short-term |
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Total current liabilities |
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Term loan, long-term, net of debt discount | | | ||||
Operating lease liability, long-term |
| — |
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Total liabilities |
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Commitments and contingencies (Note 13) |
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Stockholders’ equity |
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Common stock, $ |
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Common stock - Class A, $ |
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Additional paid-in capital |
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Accumulated deficit |
| ( |
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Total stockholders' equity |
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Total liabilities and stockholders’ equity | $ | | $ | | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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JOURNEY MEDICAL CORPORATION
Unaudited Condensed Consolidated Statements of Operations
(Dollars in thousands except for share and per share amounts)
| Three-Month Periods Ended | |||||
March 31, | ||||||
| 2024 |
| 2023 | |||
Revenue: | ||||||
Product revenue, net | $ | | $ | | ||
Other revenue | — | | ||||
Total revenue | | | ||||
Operating expenses |
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Cost of goods sold – product revenue |
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Research and development |
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Selling, general and administrative |
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Total operating expenses |
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Loss from operations |
| ( |
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Other expense (income) |
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Interest income |
| ( |
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Interest expense | | | ||||
Foreign exchange transaction losses | | | ||||
Total other expense (income) | | | ||||
Loss before income taxes |
| ( |
| ( | ||
Income tax expense |
| — |
| — | ||
Net loss | $ | ( | $ | ( | ||
Net loss per common share: | ||||||
Basic and diluted | $ | ( | $ | ( | ||
Weighted average number of common shares: |
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Basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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JOURNEY MEDICAL CORPORATION
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands except for share and per share amounts)
Three-Month Period Ended March 31, 2024
Total | |||||||||||||||||||
| Common Stock |
| Common Stock A | Additional | Accumulated | Shareholders’ | |||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Equity | ||||||
Balance as of December 31, 2023 | | $ | |
| | $ | | $ | | $ | ( | $ | | ||||||
Share-based compensation | — |
| — |
| — |
| — |
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| — |
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Exercise of stock options for cash | |
| — | — |
| — |
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| — |
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Issuance of common stock for vested restricted stock units | |
| — |
| — |
| — |
| - |
| — |
| - | ||||||
Issuance of common stock under ESPP | | — | — | — | | — | | ||||||||||||
Issuance of common stock, ATM offering, net of issuance costs of $ | | — | — | — | | — | | ||||||||||||
Net loss | — | — | — | — | - | ( | ( | ||||||||||||
Balance as of March 31, 2024 | | $ | |
| | $ | | $ | | $ | ( | $ | | ||||||
Three-Month Period Ended March 31, 2023
Total | |||||||||||||||||||
| Common Stock | Common Stock A | Additional | Accumulated | Shareholders’ | ||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Equity | ||||||
Balance as of December 31, 2022 | | $ | |
| | $ | | $ | | $ | ( | $ | | ||||||
Share-based compensation | — |
| — |
| — |
| — |
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| — |
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Issuance of common stock for vested restricted stock units | |
| — | — |
| — |
| — |
| — |
| — | |||||||
Net loss | — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance as of March 31, 2023 | | $ | |
| | $ | | $ | | $ | ( | $ | | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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JOURNEY MEDICAL CORPORATION
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars in thousands except for share and per share amounts)
| Three-Month Periods Ended | |||||
March 31, | ||||||
| 2024 |
| 2023 | |||
Cash flows from operating activities |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Bad debt expense |
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Non-cash interest expense |
| — |
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Amortization of debt discount |
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Amortization of acquired intangible assets |
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Amortization of operating lease right-of-use assets |
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Share-based compensation |
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Changes in operating assets and liabilities: |
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Accounts receivable | | | ||||
Inventory |
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Prepaid expenses and other current assets |
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Accounts payable |
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Due to related party |
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Accrued expenses |
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Accrued interest | | | ||||
Income tax payable |
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Lease liabilities | ( | ( | ||||
Net cash used in operating activities |
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Cash flows from investing activities |
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Acquired intangible assets |
| — |
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Net cash provided by (used in) investing activities | — | ( | ||||
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Cash flows from financing activities |
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Proceeds from exercise of stock options |
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Proceeds from issuance of common stock, ATM offering, net of issuance costs |
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Issuance of common stock under ESPP | | — | ||||
Proceeds from line of credit | — | | ||||
Repayments of line of credit | — | ( | ||||
Net cash provided by financing activities |
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Net change in cash |
| ( |
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Cash at the beginning of the period |
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Cash at the end of the period | $ | | $ | | ||
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Supplemental disclosure of cash flow information: | ||||||
Cash paid for interest | $ | | $ | | ||
Cash paid for income taxes | $ | — | $ | | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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JOURNEY MEDICAL CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1. ORGANIZATION AND PLAN OF BUSINESS OPERATIONS
Journey Medical Corporation (“Journey” or the “Company”) is a commercial-stage pharmaceutical company that primarily focuses on the selling and marketing of U.S. Food and Drug Administration (“FDA”)-approved prescription pharmaceutical products for the treatment of dermatological conditions. The Company’s current product portfolio includes
As of March 31, 2024 and December 31, 2023, the Company was a majority-owned subsidiary of Fortress Biotech, Inc. (“Fortress” or “Parent”).
Liquidity and Capital Resources
At March 31, 2024, the Company had $
On December 27, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”) with SWK Funding LLC (“SWK”). The Credit Agreement provides for a term loan facility (the “Credit Facility”) in the original principal amount of up to $
On December 30, 2022, the Company filed a shelf registration statement on Form S-3 (File No. 333-269079), which was declared effective by the Securities and Exchange Commission (“SEC”) on January 26, 2023. This shelf registration statement covers the offering, issuance and sale by the Company of up to an aggregate of $
The Company regularly evaluates market conditions, its liquidity profile, and financing alternatives, including out-licensing arrangements for its products, to enhance its capital structure. The Company may seek to raise capital through debt or equity financings to expand its product portfolio and for other strategic initiatives, which may include sales of securities under either the 2022 Shelf or a new registration statement or drawing on the SWK Credit Facility. The Company cannot make any assurances that such additional financing will be available and, if available, the terms may negatively impact the Company’s business and operations. The Company’s expectations are based on current assumptions, projected commercial sales of products, clinical development plans and regulatory submission timelines, which may be uncertain and may not emerge as expected. Additionally, as a result of recurring losses, substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary if the Company is unable to continue as a going concern.
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NOTE 2. BASIS OF PRESENTATION
Basis of Presentation and Principles of Consolidation
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company’s consolidated financial statements include the accounts of the Company and the accounts of the Company’s wholly-owned subsidiary, JG Pharma, Inc. (“JG” or “JG Pharma”). All intercompany balances and transactions have been eliminated.
Emerging Growth Company
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s audited consolidated financial statements upon adoption. Under the Jumpstart Our Business Startups Act of 2012, as amended, the Company meets the definition of an emerging growth company and elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates made by management include provisions for coupons, chargebacks, wholesaler fees, specialty pharmacy discounts, managed care rebates, product returns, and other allowances customary to the pharmaceutical industry. Significant estimates made by management also include inventory realization, valuation of intangible assets, useful lives of amortizable intangible assets and share-based compensation. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).
Accounting Standards Note Yet Adopted
In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires that an entity report segment information in accordance with Topic 280, Segment Reporting. The amendment in the ASU is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of the new standard on its financial statements and disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that this guidance will have on its financial statements and disclosures.
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NOTE 4. INVENTORY
The Company’s inventory consists of the following for the periods ended:
| March 31, |
| December 31, | |||
($’s in thousands) | 2024 | 2023 | ||||
Raw materials | $ | | $ | | ||
Work-in-process |
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Finished goods |
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Inventory at cost | | | ||||
Inventory reserves | ( | ( | ||||
Total inventories | $ | | $ | | ||
NOTE 5. INTANGIBLE ASSETS
The Company’s finite-lived intangible assets consist of acquired intangible assets. The Company’s intangible assets as of March 31, 2024 and December 31, 2023 are summarized as follows:
Estimated | |||||||||
Useful Lives | March 31, | December 31, | |||||||
($’s in thousands) |
| (Years) |
| 2024 |
| 2023 | |||
Intangible assets - product licenses |
| $ | | $ | | ||||
Accumulated amortization | ( | ( | |||||||
Accumulated impairment loss |
|
| ( |
| ( | ||||
Total intangible assets | $ | | $ | | |||||
The Company’s amortization expense for the three-month periods ended March 31, 2024 and 2023 was $
Future amortization of the Company’s intangible assets is as follows:
For the years ended |
| Total Amortization | |
Remainder of 2024 | $ | | |
December 31, 2025 | | ||
December 31, 2026 |
| | |
December 31, 2027 |
| | |
December 31, 2028 |
| | |
Thereafter |
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Subtotal | | ||
Asset not yet placed in service |
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Total | $ | | |
NOTE 6. LICENSES ACQUIRED
DFD-29
In June 2021, the Company entered a license, collaboration, and assignment agreement (the “DFD-29 Agreement”) to obtain global rights for the development and commercialization of a late-stage development modified release oral minocycline for the treatment of rosacea (“DFD-29”) with Dr. Reddy’s Laboratories, Ltd (“DRL”); provided, that DRL retained certain rights to the program in select
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markets including Brazil, Russia, India and China. Pursuant to the terms and conditions of the DFD-29 Agreement, the Company paid $
Qbrexza
In March 2021, the Company executed an Asset Purchase Agreement (the “Qbrexza APA”) with Dermira, Inc., a subsidiary of Eli Lilly and Company (“Dermira”). Pursuant to the terms of the Qbrexza APA, the Company acquired the rights to Qbrexza® (glycopyrronium), a prescription cloth towelette to treat primary axillary hyperhidrosis in patients
Accutane
In July 2020, the Company entered into an exclusive license and supply agreement for Accutane (the “Accutane Agreement”) with DRL. Pursuant to the Accutane Agreement, the Company paid $
NOTE 7. FAIR VALUE MEASUREMENTS
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Certain of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as accounts payable, accrued expenses and other current liabilities.
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Financial assets and liabilities measured at fair value on a recurring basis are summarized below:
| March 31, 2024 | |||||||||||
($’s in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Assets |
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Cash and cash equivalents | $ | | $ | — | $ | — | $ | | ||||
Total | $ | | $ | — | $ | — | $ | | ||||
| December 31, 2023 | |||||||||||
($’s in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Assets |
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|
|
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Cash and cash equivalents | $ | | $ | — | $ | — | $ | | ||||
Total | $ | | $ | — | $ | — | $ | | ||||
The Company did not carry any level 2 or level 3 assets or liabilities at March 31, 2024 or December 31, 2023.
NOTE 8. RELATED PARTY AGREEMENTS
Shared Services Agreement with Fortress
On November 12, 2021, the Company and Fortress entered into an arrangement to share the cost of certain employees (the “Shared Services Agreement”). Fortress’ Executive Chairman and Chief Executive Officer is the Executive Chairman of the Company. Under the terms of the Shared Services Agreement, the Company will reimburse Fortress for the salary and benefit costs associated with these employees based upon actual hours worked on Journey-related projects following the completion of the Company’s initial public offering, which occurred in November 2021. In addition, the Company reimburses Fortress for various payroll-related costs and selling, general and administrative costs incurred by Fortress for the benefit of the Company.
For the three-month periods ended March 31, 2024 and 2023, the Company recorded related party expenses to Fortress of approximately $
Fortress Income Tax
At March 31, 2024,
Additionally, see Note 16 below for a discussion of income taxes.
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NOTE 9. ACCRUED EXPENSES
Accrued expenses consisted of the following:
| March 31, |
| December 31, | |||
($’s in thousands) | 2024 | 2023 | ||||
Accrued expenses: |
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Accrued coupons and rebates | $ | | $ | | ||
Return reserve | | | ||||
Accrued compensation |
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Accrued royalties payable | | | ||||
Accrued legal, accounting and tax |
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Accrued research and development |
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Accrued inventory |
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Accrued iPledge program | | | ||||
Other |
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Total accrued expenses | $ | | $ | | ||
NOTE 10. OPERATING LEASE OBLIGATIONS
The Company leases
The Company recorded lease expense as follows:
| Three-Month Periods Ended | |||||
March 31, | ||||||
($’s in thousands) | 2024 |
| 2023 | |||
Operating lease cost | $ | | $ | | ||
Variable lease cost |
| | | |||
Total lease cost | $ | | $ | | ||
The following table summarizes quantitative information about the Company’s operating leases:
| Three-Month Periods Ended | |||||||
March 31, | ||||||||
($’s in thousands) |
| 2024 | 2023 | |||||
Cash paid for amounts included in the measurement of lease liabilities | $ | | $ | | ||||
Weighted-average remaining lease term - operating leases |
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Weighted-average discount rate - operating leases |
| | % |
| | % | ||
As of March 31, 2024, future minimum lease payments under lease agreements associated with the Company’s operations were as follows:
$’s in thousands |
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Remainder of 2024 | $ | | |
2025 |
| | |
Total lease payments |
| | |
Less: present value discount |
| ( | |
Total operating lease liabilities | $ | |
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NOTE 11. DEBT
The Company’s debt obligations at March 31, 2024 and December 31, 2023 were as follows:
March 31, | December 31, | |||||
($’s in thousands) |
| 2024 |
| 2023 | ||
Principal balance | $ | | $ | | ||
Plus: Exit fee |
| |
| | ||
Less: Debt discount and fees | $ | ( | $ | ( | ||
Net carry amount (Long-term) | $ | | $ | | ||
SWK Long-Term Debt
On December 27, 2023 (the “Closing Date”), the Company entered into a Credit Agreement with SWK. The Credit Agreement provides for a term loan Credit Facility in the original principal amount of up to $
Beginning in February 2026, the Company is required to repay a portion of the outstanding principal of the Term Loans quarterly in an amount equal to
The Company may at any time prepay the outstanding principal balance of the Term Loans in whole or in part. Prepayment of the Term Loans is subject to payment of a prepayment premium equal to (i)
Upon repayment in full of the Term Loans, the Company will pay an exit fee equal to
The SWK Credit Facility also includes both revenue and liquidity covenants, restrictions as to payment of dividends, and is secured by substantially all assets of the Company. As of March 31, 2024, the Company was in compliance with the financial covenants under the SWK Credit Facility.
As of March 31, 2024, the contractual maturities of the long-term debt, including the payment of the exit fee, are as follows (dollars in thousands):
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Years ending December 31, |
| Term Loan | |
Remainder of 2024 | $ | — | |
2025 |
| — | |
2026 |
| | |
2027 |
| | |
Total |
| | |
Debt discount |
| ( | |
Total, net |
| | |
Current portion |
| — | |
Term-loan (long-term) | $ | | |
NOTE 12: INTEREST EXPENSE AND FINANCING FEES
Interest expense and financing fees for the three months ended March 31, 2024 consisted of the following:
| Three-Month Periods Ended March 31, | |||||
($’s in thousands) |
| 2024 |
| 2023 | ||
Interest payments on term loans and LOC | $ | | $ | | ||
Amortization/Accretion | | | ||||
Imputed interest on acquired intangible assets | — | | ||||
Total Interest expense and financing fees | $ | | $ | | ||
NOTE 13. COMMITMENTS AND CONTINGENCIES
License Agreements
The Company has undertaken to make contingent milestone payments to the licensors of its portfolio of drug products and candidates. In addition, the Company is required to pay royalties to such licensors based on a percentage of net sales of each drug candidate following regulatory marketing approval. For additional information on future milestone payments and royalties, see Note 6.
NOTE 14. SHARE-BASED COMPENSATION
In 2015, the Company’s Board of Directors adopted, and stockholders approved, the Journey Medical 2015 Stock Plan (the “Plan”) authorizing the Company to grant shares of common stock to eligible employees, directors, and consultants in the form of restricted stock, restricted stock units (“RSUs”), stock options and other types of grants. The amount, terms, and exercisability provisions of grants are determined by the Board of Directors. The number of shares issuable under the Plan is
The Company, from time to time, grants stock options to employees, non-employees and directors with exercise prices equal to the closing price of the underlying shares of the Company’s common stock on the Nasdaq Capital Market on the date that the options are granted. Options granted have a term of ten years from the grant date. Options granted generally vest over four-year period. Compensation cost for stock options is charged against operations on a straight-line basis over the vesting period. The Company estimates the fair value of stock options on the grant date by applying the Black-Scholes option pricing valuation model.
In 2023, the Company’s Board of Directors adopted, and stockholders approved, the Journey Medical Corporation 2023 Employee Stock Purchase Plan (the “2023 ESPP”). The Company initially reserved
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The following table summarizes the components of share-based compensation expense in the consolidated statements of operations for the three-month period ended March 31, 2024 and 2023:
| Three-Month Periods Ended March 31, | |||||
($’s in thousands) |
| 2024 |
| 2023 | ||
Research and development | $ | | $ | | ||
Selling, general and administrative |
| |
| | ||
Total non-cash compensation expense related to share-based compensation included in operating expense | $ | | $ | | ||
Stock Options
The following table summarizes the Company’s stock option activities:
Weighted | ||||||||||
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| Weighted |
|
| average | |||||
Number | average | Aggregate | remaining | |||||||
of | exercise | intrinsic | contractual | |||||||
| Shares |
| price |
| value |
| life (years) | |||
Outstanding options at December 31, 2023 | | $ | | $ | | |||||
Granted | | | — | |||||||
Exercised | ( | | — | — | ||||||
Forfeited | ( | | — | — | ||||||
Expired | ( | | — | — | ||||||
Outstanding options at March 31, 2024 |
| | $ | | $ | |
| |||
Options vested and exercisable at March 31, 2024 |
| | $ | | $ | |
| |||
For the three-month periods ended March 31, 2024 and 2023, approximately $
The aggregate intrinsic value in the previous table reflects the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on March 31, 2024. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s common stock.
Restricted Stock Units
The following table summarizes the activity related to the Company’s RSUs for the three-month period ended March 31, 2024:
| |||||
Weighted | |||||
Number of | average grant | ||||
| units |
| date Fair value | ||
Unvested balance at December 31, 2023 |
| | $ | | |
Granted |
| |
| | |
Vested | ( | | |||
Forfeited | ( | | |||
Unvested balance at March 31, 2024 | | $ | | ||
For the three-month periods ended March 31, 2024 and 2023, approximately $
13
the Company issued
Employee Stock Purchase Plan
The 2023 ESPP provides that eligible employees may contribute up to
NOTE 15. REVENUES FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Net Revenues
The Company has the following actively marketed products, Qbrexza®, Amzeeq®, Zilxi®, Accutane®, Exelderm®, Targadox®, and Luxamend®. All of the Company’s product revenues are recorded in the U.S.
Revenues by product are summarized as follows:
Three-Month Periods Ended March 31, | ||||||
($ in thousands) |
| 2024 |
| 2023 | ||
Qbrexza® | $ | | $ | | ||
Accutane® |
| |
| | ||
Amzeeq® | | | ||||
Zilxi® | | | ||||
Other / legacy | | | ||||
Total product revenues | $ | | $ | | ||
The Company recognized other revenue as follows:
| Three-Month Periods Ended March 31, | |||||
($in thousands) | 2024 | 2023 | ||||
Other revenue |
| — |
| | ||
Total other revenue | $ | — | $ | | ||
Significant Customers
For the three-month periods ended March 31, 2024 and 2023 there were
At March 31, 2024,
14
NOTE 16. INCOME TAXES
Three-Month Periods Ended | |||||||
March 31, | |||||||
($ in thousands) |
| 2024 | 2023 | ||||
Net Income (loss) before income taxes | $ | ( | $ | ( | |||
Provision (benefit) for Income |
| — |
| — | |||
Effective tax rate |
| % |
| % | |||
The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company establishes a valuation allowance if management believes it is more likely than not that the deferred tax assets will not be recovered based on an evaluation of objective verifiable evidence. Management has considered the Company’s history of book and tax income and losses incurred since inception, and the other positive and negative evidence, and has concluded that it is more likely than not that the Company will not realize the benefits of the net deferred tax assets as of March 31, 2024.
As of March 31, 2024, the Company had
NOTE 17. NET LOSS PER COMMON SHARE
The Company accounts for and discloses net earnings (loss) per share using the treasury stock method. Net earnings (loss) per share, or basic earnings (loss) per share, is computed by dividing net earnings (loss) by the weighted-average number of shares of common stock outstanding. Net earnings (loss) per share assuming dilutions, or diluted earnings (loss) per share, is computed by reflecting the potential dilution from the exercise of in-the-money stock options and the issuance of non-vested restricted stock units.
The Company’s basic and diluted weighted-average number of common shares outstanding for the three-month periods ended March 31, 2024 and 2023 were as follows:
Three-Month Periods Ended March 31, | ||||||
| 2024 |
| 2023 | |||
Basic and diluted | | | ||||
Potentially dilutive securities: | ||||||
Unvested restricted stock units |
| | | |||
Stock options |
| | | |||
Total potentially dilutive securities | | | ||||
The Company’s potentially dilutive securities, including unvested restricted stock and options have been excluded from the computation of diluted loss per share for the three-month periods ended March 31, 2024, and 2023, as the effect would be to reduce the loss per share. Therefore, the weighted average common stock outstanding used to calculate both basic and diluted income loss per share is the same for the three-month periods ended March 31, 2024 and 2023.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements
Certain matters discussed in this report may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. The words “anticipate,” “believe,” “estimate,” “may,” “expect,” “will,” “could,” “project,” “should,” “intend” and similar expressions are generally intended to identify forward-looking statements. Our actual results may differ materially from the results anticipated in or implied by these forward-looking statements due to a variety of factors, including, without limitation:
| ● | the fact that our products and product candidates are subject to time and cost intensive regulation and clinical testing and as a result, may never be successfully developed or commercialized; |
| ● | a substantial portion of our sales derive from products that are without patent protection and/or are or may become subject to third-party generic competition, the introduction of new competitor products, or an increase in market share of existing competitor products, any of which could have a significant adverse impact on our operating income; |
| ● | we operate in a heavily regulated industry, and we cannot predict the impact that any future legislation or administrative or executive action may have on our operations; |
| ● | our revenue is dependent mainly upon sales of our dermatology products and any setback relating to the sale of such products could impair our operating results; |
| ● | competition could limit our products’ commercial opportunity and profitability, including competition from manufacturers of generic versions of our products; |
| ● | the risk that our products do not achieve broad market acceptance, including by government and third-party payors; |
| ● | our reliance third parties for several aspects of our operations; |
| ● | our dependence on our ability to identify, develop, and acquire or in-license products and integrate them into our operations, at which we may be unsuccessful; |
| ● | the dependence of the success of our business, including our ability to finance our company and generate additional revenue, on the successful development and regulatory approval of the DFD-29 product candidate and any future product candidates that we may develop, in-license or acquire; |
| ● | clinical drug development is very expensive, time consuming, and uncertain and our clinical trials may fail to adequately demonstrate the safety and efficacy of our current or any future product candidates; |
| ● | our competitors could develop and commercialize products similar or identical to ours; |
| ● | risks related to the protection of our intellectual property and our potential inability to maintain sufficient patent protection for our technology and products; |
| ● | our business and operations would suffer in the event of computer system failures, cyber-attacks, or deficiencies in our or our third parties’ cybersecurity; |
| ● | the effects of major public health issues, epidemics or pandemics on our product revenues and any future clinical trials; |
| ● | our potential need to raise additional capital; |
16
| ● | the substantial doubt expressed about our ability to continue as a going concern; |
| ● | Fortress controls a voting majority of our common stock, which could be detrimental to our other shareholders; |
| ● | and the risks described in under the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”). |
The forward-looking statements contained in this report reflect our views and assumptions as of the effective date of this report. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Except as required by law, we assume no responsibility for updating any forward-looking statements.
We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Overview
We are a commercial-stage pharmaceutical company founded in October 2014 that primarily focuses on the selling and marketing of FDA-approved prescription pharmaceutical products for the treatment of dermatological conditions. Our current portfolio includes seven branded and two authorized generic prescription drugs for dermatological conditions that are actively marketed in the U.S. We are managed by experienced life science executives with a track record of creating value for their stakeholders and bringing novel medicines to the market, enabling patients to experience increased quality of life and physicians and other licensed medical professionals to provide better care for their patients. We aim to acquire rights to future products by licensing or otherwise acquiring an ownership interest in, funding the research and development of, and eventually commercializing, the products through our field sales force.
Recent Corporate Highlights
In July 2023, we announced positive topline data from our two DFD-29 Phase 3 clinical trials for the treatment of papulopustular rosacea. The Phase 3 clinical trials achieved the co-primary and all secondary endpoints, the subjects completed the 16-week treatment and the drug was well-tolerated. DFD-29 demonstrated statistical superiority over both the standard of care, Oracea® capsules, and placebo for Investigator’s Global Assessment treatment success and the reduction in the total inflammatory lesion count in both studies. We summitted a New Drug Application (“NDA”) under Section 505(b)(2) of the United States Federal Food, Drug and Cosmetic Act (“FDCA”) with the U.S. Food and Drug Administration (the “FDA”) for DFD-29 on January 4, 2024, paying a $4.0 million filing fee, and expect potential approval from the FDA in the second half of 2024. On March 18, 2024, we announced the FDA accepted the Company’s NDA with a Prescription Drug User Fee Act goal date of November 4, 2024.
Critical Accounting Polices and Uses of Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. Applying these principles requires our judgment in determining the appropriateness of acceptable accounting principles and methods of application in diverse and complex economic activities. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of revenues, expenses, assets and liabilities, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
For a discussion of our critical accounting estimates, see the section of the 2023 Form 10-K titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Use of Estimates.” There were no material changes in our critical accounting estimates or accounting policies from December 31, 2023.
17
Accounting Pronouncements
During the three-month period ended March 31, 2024, there were no new accounting pronouncements or updates to recently issued accounting pronouncements disclosed in the 2023 Form 10-K that are expected to materially affect the Company’s present or future financial statements.
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years of audited financial statements in our annual reports on Form 10-K, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation and less extensive disclosure about our executive compensation arrangements. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.
We are also a “smaller reporting company,” meaning that either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. As a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K, we have reduced disclosure obligations regarding executive compensation, and smaller reporting companies are permitted to delay adoption of certain recent accounting pronouncements discussed in Note 2 to our consolidated financial statements in this report on Form 10-Q.
Results of Operations
The following table summarizes our results of operations for the three-month periods ended March 31, 2024 and 2023:
18
Comparison of the Three-Month Periods Ended March 31, 2024 and 2023
Three-Month Periods Ended March 31, | Change | |||||||||||
($ in thousands, except per share data) |
| 2024 |
| 2023 |
| $ |
| % | ||||
Revenue: | ||||||||||||
Product revenue, net |
| $ | 13,030 |
| $ | 12,165 | $ | 865 | 7 | % | ||
Other revenue | — | 48 | (48) | -100 | % | |||||||
Total revenue | 13,030 | 12,213 | 817 | 7 | % | |||||||
Operating expenses |
|
|
|
|
|
| ||||||
Cost of goods sold – product revenue |
| 6,816 |
| 6,449 | 367 | 6 | % | |||||
Research and development |
| 7,884 |
| 2,033 | 5,851 | 288 | % | |||||
Selling, general and administrative |
| 8,420 |
| 13,292 | (4,872) | -37 | % | |||||
Total operating expenses |
| 23,120 |
| 21,774 | 1,346 | 6 | % | |||||
Loss from operations |
| (10,090) |
| (9,561) | (529) | 6 | % | |||||
Other expense (income) |
|
|
|
|
| |||||||
Interest income |
| (217) |
| (122) | (95) | 78 | % | |||||
Interest expense | 548 | 650 | (102) | -16 | % | |||||||
Foreign exchange transaction losses | 21 | 47 | (26) | -55 | % | |||||||
Total other expense (income) |
| 352 |
| 575 | (223) | -39 | % | |||||
Loss before income taxes |
| (10,442) |
| (10,136) | (306) | 3 | % | |||||
Income tax expense |
| — |
| — | — | 0 | % | |||||
Net loss | $ | (10,442) | $ | (10,136) | (306) | 3 | % | |||||
Revenues
The following table reflects our net product revenue for the three-month periods ended March 31, 2024 and 2023:
Three-Month Periods Ended |
| |||||||||||
March 31 | Change | |||||||||||
($ in thousands) |
| 2024 |
| 2023 |
| $ |
| % | ||||
Qbrexza® | $ | 5,017 | $ | 4,094 | $ | 923 | 23 | % | ||||
Accutane® | 5,819 | 4,648 | 1,171 | 25 | % | |||||||
Amzeeq® | 755 | 1,193 | (438) | -37 | % | |||||||
Zilxi® | 273 | 314 | (41) | -13 | % | |||||||
Other / legacy | 1,166 | 1,916 | (750) | -39 | % | |||||||
Total net product revenue | $ | 13,030 | $ | 12,165 | $ | 865 | 7 | % | ||||
Total net product revenues increased by $0.9 million, or 7%, to $13.0 million for the three-month period ended March 31, 2024, from $12.2 million for the three-month period ended March 31, 2023. The increase is primarily due to an increase in net product revenues for Qbrexza and Accutane as we continue to focus our marketing efforts on these products. The increase was partially offset by a decrease in net products revenues from Amzeeq and Zilxi as a result of lower sales volume and Targadox and Ximino. Targadox continues to experience erosion due to generic competition and we discontinued selling Ximino on September 29, 2023.
Gross-to-Net Sales Accruals
We record gross-to-net sales accruals for other (chargebacks, distributor service fees, prompt pay discounts), sales returns, coupons, managed care rebates, government rebates, and other allowances customary to the pharmaceutical industry.
19
Gross-to-net sales accruals and the balance in the related allowance accounts for the three-month periods ended March 31, 2024 and 2023, were as follows:
Managed | |||||||||||||||
Care | |||||||||||||||
($’s in thousands) |
| Returns |
| Coupons |
| Rebates |
| Other |
| Total | |||||
Balance as of December 31, 2023 | $ | 4,077 | $ | 3,444 | $ | 5,210 | $ | 1,386 | $ | 14,117 | |||||
Current provision related to sales in the current period | 128 | 18,742 | 4,721 | 1,981 | 25,572 | ||||||||||
Payments/adjustments | (1,399) | (19,429) | (6,486) | (2,429) | (29,743) | ||||||||||
Balance as of March 31, 2024 | $ | 2,806 | $ | 2,757 | $ | 3,445 | $ | 938 | $ | 9,946 | |||||
Managed | |||||||||||||||
Care | |||||||||||||||
($’s in thousands) |
| Returns |
| Coupons |
| Rebates |
| Other |
| Total | |||||
Balance as of December 31, 2022 | $ | 3,689 | $ | 1,696 | $ | 3,594 | $ | 2,399 | $ | 11,378 | |||||
Current provision related to sales in the current period | 2,091 | 27,930 | 5,572 | 3,927 | 39,520 | ||||||||||
Payments/adjustments | (2,409) | (27,409) | (5,475) | (4,008) | (39,301) | ||||||||||
Balance as of March 31, 2023 | $ | 3,371 | $ | 2,217 | $ | 3,691 | $ | 2,318 | $ | 11,597 | |||||
Gross-to-net sales accruals are primarily a function of product sales volume, mix of products sold, and contractual discounts or rebates. Our reserves for gross-to-net sales allowances were $9.9 million at March 31, 2024, compared to $11.6 million at March 31, 2023, a decrease of $1.7 million. The decrease is largely driven by decreases in our reserves for government rebates. Since July 1, 2023, we no longer participate in the Medicaid Drug Rebate Program.
Cost of Goods Sold
Cost of goods sold increased by $0.4 million, or 6%, to $6.8 million for the three-month period ended March 31, 2024, from $6.4 million for the three-month period ended March 31, 2023, due to the increase in net product revenue.
Research and Development
Research and Development expense increased by $5.9 million, to $7.9 million for the three-month period ended March 31, 2024, from $2.0 million for the three-month period ended March 31, 2023. The increase is driven by the $4.0 million filing fee payment to the FDA in January 2024 for DFD-29 and $3.0 million expense for the contractual milestone payment owed to Dr. Reddy’s Laboratories, Ltd (“DRL”) triggered by the FDA’s acceptance of our DFD-29 product NDA in March 2024. This was partially offset by lower clinical trial expenses to develop our DFD-29 product as the project concludes.
Selling, General and Administrative
Selling, general and administrative (“SG&A”) expenses decreased by $4.9 million, or 37%, to $8.4 million for the three-month period ended March 31, 2024, from $13.3 million for the three-month period ended March 31, 2023. The decrease is mainly due to our continued expense management efforts, primarily in sales and marketing and other SG&A areas, designed to improve operational efficiencies, optimize expenses and reduce overall costs.
Interest Expense
Interest expense decreased by $0.1 million to $0.5 million for the three-month period ended March 31, 2024, from $0.6 million for the three-month period ended March 31, 2023. The decrease is primarily attributable to a lower principal balance outstanding during the three-months ended March 31, 2024 of $15.0 million as compared to $20.0 million during the three-months ended March 31, 2023.
Liquidity and Capital Resources
At March 31, 2024, we had $24.1 million in cash and cash equivalents as compared to $27.4 million of cash and cash equivalents at December 31, 2023.
20
On December 27, 2023, we entered into a Credit Agreement (the “Credit Agreement”) with SWK Funding LLC (“SWK”). The Credit Agreement provides for a term loan facility (the “Credit Facility”) in the original principal amount of up to $20.0 million. On the closing date, we drew $15.0 million. The remaining $5.0 million may be drawn at our request within 12 months after the closing date. Loans under the Credit Facility (the “Term Loans”) mature on December 27, 2027, and bear interest at a rate per annum equal to the three-month term Secured Overnight Financing Rate (“SOFR”) (subject to a SOFR floor of 5%) plus 7.75%. The interest rate resets quarterly. Interest payments began in February 2024 and are paid quarterly. Beginning in February 2026, we are required to repay a portion of the outstanding principal of the Term Loans quarterly in an amount equal to 7.5% of the principal amount of funded Term Loans. The SWK Credit Facility also includes both revenue and liquidity covenants, restrictions as to payment of dividends, and is secured by substantially all assets of the Company. As of March 31, 2023, and as of the date of this Quarterly Report on Form 10-Q, the Company was in compliance with the financial covenants under the SWK Credit Facility.
On December 30, 2022, we filed a shelf registration statement on Form S-3 (File No. 333-269079), which was declared effective by the Securities and Exchange Commission (“SEC”) on January 26, 2023. This shelf registration statement covers the offering, issuance and sale of up to an aggregate of $150.0 million of our common stock, preferred stock, debt securities, warrants, and units (the “2022 Shelf”). In connection with the 2022 Shelf, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) relating to shares of our common stock. We may offer and sell up to 4,900,000 shares of its common stock, from time to time, under the Sales Agreement. During the three months ended March 31, 2024, we issued and sold 289,744 shares of common stock under the 2022 Shelf, generating net proceeds of $1.5 million. At March 31, 2024, 3,861,553 shares remain available for issuance under the 2022 Shelf.
We regularly evaluate market conditions, our liquidity profile, and financing alternatives, including out-licensing arrangements for our products to enhance our capital structure. We may seek to raise capital through debt or equity financings to expand our product portfolio and for other strategic initiatives, which may include sales of securities under either the 2022 Shelf or a new registration statement or drawing on the SWK Credit Facility. We cannot make any assurances that such additional financing will be available and, if available, the terms may negatively impact the Company’s business and operations. Our expectations are based on current assumptions, projected commercial sales of our products, clinical development plans and regulatory submission timelines, which may be uncertain and may not emerge as expected. Additionally, as a result of recurring losses, substantial doubt exists about our ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements.
Cash Flows for the Three-Month Periods Ended March 31, 2024 and 2023
Three-Month Periods Ended March 31, | Increase | ||||||||
($’s in thousands) |
| 2024 |
| 2023 |
| (Decrease) | |||
Net cash used in operating activities | $ | (5,019) | $ | (956) | $ | (4,063) | |||
Net cash provided by (used in) investing activities |
| — |
| (5,000) |
| 5,000 | |||
Net cash provided by financing activities |
| 1,637 |
| 52 |
| 1,585 | |||
Net change in cash and cash equivalents | (3,382) | (5,904) | 2,522 | ||||||
Operating Activities
Net cash flows used in operating activities for the three-month period ended March 31, 2024 increased by $4.1 million to $5.0 million from net cash flows used by operating activities of $1.0 million for the three-month period ended March 31, 2023. The increase was driven primarily by changes in net working capital primarily attributable to accounts receivable collections offset by vendor payables from our continued expense management efforts resulting in comparably lower vendor payables from the first quarter of 2023, and inventory, in addition to the net loss for the first quarter 2024.
Investing Activities
Net cash used in investing activities decreased by $5.0 million from period to period. The three-month period ended March 31, 2023 reflects the $5.0 million deferred cash payment paid in January 2023 related to the Vyne Product Acquisition.
21
Financing Activities
Net cash flows provided by financing activities for three-month period ended March 31, 2024 increased by $1.6 million to $1.6 million from $0.1 million of cash flows provided by financing activities for the three-month period ended March 31, 2023. The increase is driven primarily by the net proceeds from issuances of common stock under our ATM.
Material Cash Requirements
In the normal course of business, we enter into contractual obligations that contain cash requirements of which the most significant currently include the following:
| ● | We are required to make regular payments under the SWK Credit Facility. Based on the amount currently outstanding under the SWK facility and current interest rates, and assuming we do not make further draws under the SWK facility, we expect to make the following payments: |
| Payments by Period | ||||||||||||||
| Total |
| Remainder of 2024 |
| 2025 |
| 2026 |
| 2027 | ||||||
($'s in thousands) | |||||||||||||||
Interest | $ | 6,273 | $ | 1,501 | $ | 1,993 | $ | 1,693 | $ | 1,086 | |||||
Principal |
| 15,000 |
| — |
| — |
| 4,500 |
| 10,500 | |||||
Exit fee |
| 750 |
| — |
| — |
| — |
| 750 | |||||
Total | $ | 22,023 | $ | 1,501 | $ | 1,993 | $ | 6,193 | $ | 12,336 | |||||
Should we elect to borrow the remaining $5.0 undrawn balance under the SWB facility, we would expect to repay additional amounts each year until maturity.
| ● | Pursuant to the Vyne Product Acquisition Agreement, upon the achievement of net sales milestones with respect to the products purchased in the Vyne Product Acquisition, we are also required to pay contingent consideration consisting of a one-time payment, per product, of $10.0 million and $20.0 million upon each product reaching annual net sales of $100 million and $200 million, respectively. Each required payment must only be paid one time following the first achievement of the applicable annual net sales milestone amount. |
| ● | On June 29, 2021, we entered into the DFD-29 Agreement to obtain the global rights for the development and commercialization of DFD-29 with DRL. Based on the development and commercialization of DFD-29, additional contingent regulatory and commercial milestone payments totaling up to $155.0 million may also become payable. Royalties ranging from ten percent to twenty percent are payable on net sales of the product. In January 2024, the Company paid a $4.0 million filing fee to the FDA upon filing of an NDA for DFD-29. The Company made a $3.0 million contractual milestone payment to DRL in April 2024 based on the FDA’s acceptance of our NDA for DFD-29 filed in January 2024. |
| ● | We are contractually obligated to make installment milestone payments of $3.0 million on Ximino, all of which is classified as current. |
| ● | We are contractually obligated to make sales-based royalty payments to Dermira (for Qbrexza), Sun Pharmaceutical Industries (for Exelderm) and PuraCap Caribe (for Targadox). Due to the contingent nature of these obligations, the amounts of these payments cannot be reasonably predicted. |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
22
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness, as of March 31, 2024, of the design and operation of our disclosure controls and procedures, as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
No change in internal control over financial reporting occurred during the most recent quarter with respect to our operations; which materially affected, or is reasonable likely to materially affect, our internal controls over financial reporting.
23
Part II. Other Information
Item 1. Legal Proceedings.
To our knowledge, there are no legal proceedings pending against us, other than routine actions, administrative proceedings, and other actions not deemed material, that are expected to have a material adverse effect on our financial condition, results of operations, or cash flows. In the ordinary course of business, however, the Company may be subject to both insured and uninsured litigation. Suits and claims may be brought against the Company by customers, suppliers, partners and/or third parties (including tort claims for personal injury arising from clinical trials of the Company’s product candidates and property damage) alleging deficiencies in performance, breach of contract, etc., and seeking resulting alleged damages.
Item 1A. Risk Factors.
We have disclosed under the heading “Risk Factors” in the 2023 Form 10-K a number of risks which may materially affect our business, financial condition or results of operations. You should carefully consider these Risk Factors and other information set forth elsewhere in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us may also materially adversely affect our business, financial condition and/or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the period covered by this report, we have not sold any equity securities in transactions that were not registered under the Securities Act, and neither we nor our affiliates have purchased any equity securities issued by us.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
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Item 6. Exhibits
Exhibit No. |
| Description |
3.1 | ||
3.2 | ||
4.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101 | The following financial information from the Company’s quarterly report on Form 10-Q for the period ended March 31, 2024, formatted in Inline Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statement of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements (filed herewith).** | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).** |
** Filed herewith.
*** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Journey Medical Corporation | ||
(Registrant) | ||
Date: May 14, 2024 | By: | /s/ Claude Maraoui |
Claude Maraoui | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: May 14, 2024 | By: | /s/ Joseph Benesch |
Joseph Benesch | ||
Chief Financial Officer | ||
(Principal Financial Officer) | ||
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