Q4 2022 Fortress Biotech Inc Earnings Call
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.
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I would now like to turn the call over to my blessing for of core IR, the company's Investor relations firm.
Please go ahead Sir.
Thank you Anthony and good afternoon, and thank you for participating in today's conference call joining from journey Medical Corporation's leadership team are clogged Murali co founder President and Chief Executive Officer, Joe Burnish interim Chief Financial Officer, Ramzi Loose General Counsel and Dr. <unk> <unk>, Vice President of research and.
<unk>.
During this call management will be making forward looking statements, including statements that address journey medical's expectations for future performance or operational results.
We're 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 <unk> 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 include 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 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.
The contents of this call contains time sensitive information that is accurate only as of today March 29 2023.
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.
My pleasure to turn the call over to cloud and Roy Co founder President and Chief Executive Officer Journey Medical.
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 'twenty two 'twenty three.
We are also approaching significant clinical milestones for our phase III clinical trial evaluating <unk> 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 2000.
23.
In addition, we recently announced completion of treatment in our phase one clinical trial assessing the impact of DFT 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 medicals ninth marketed dermatology product.
Looking back on 2022.
<unk> 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.
Target ox revenue for the year declined by $14 4 million when compared against the full year 2021.
<unk> the continued impact of generic competition for the brand.
However, this shortfall was offset by increases of cube, Brexit Accutane, <unk>, Zeke and silk C, 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 <unk> and <unk> for volume Therapeutics.
And <unk> silk C are two unique topical products that complement our currently marketed prescription based products, including <unk>.
We also executed settlement agreements with Paragon to enforce the patents covering <unk> <unk> and silk C, which will help solidify the exclusivity of <unk> and provide a clear pathway to grow the sales of these patented products for years to.
Carl.
Additionally, we settled the <unk> 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, Meru hold limited that wrap a fort wipes to 5%.
The Japanese equivalent of <unk> was approved for the treatment of primary axillary hyperhidrosis in Japan.
This approval triggered a net $2 5 million dollar milestone payment.
To us pursuant to the terms of the asset purchase agreement between journey and Derm Euro <unk>.
On the product development front as previously mentioned, we have achieved 100% enrollment in our phase III DFT 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 DFT 29 is a mess 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 two trial results for DFT twenty-nine 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 this study which were first.
Reduction in total inflammatory lesion count.
And second investigator global assessment success.
Or ratio had approximately $300 million in prescription sales in 2022, According to Symphony data.
Once approved and launched we believe DFT 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 Q, Brexit Accutane, <unk>, Zeke and silk C.
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 power goal for journey is to be non-GAAP adjusted EBITDA positive for fiscal 2023.
Okay.
Our strategic focus on the continued expansion of our product portfolio through in licensing or 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.
Yeah.
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% $73 7 million from $63 $1 million for the full year of 2021.
Increase is mainly due to revenue growth from our newly acquired products Accutane <unk>, which were acquired and launched in the first and second quarters of 2021, respectively.
The incremental net revenue from <unk>, so can be acquired in January 2022.
So Brexit Accutane <unk> geography, 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.
For the fourth quarter of 2021.
The decrease is mainly related to generic competition for target ox, 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.
Prior year included higher inventory acquisition step up costs from <unk> and.
In addition, during 2022, our contractual royalty obligations for Brexit have decreased.
A 10% royalty reductions you could Brexit occurred in May of 2022 and will decrease another 50% in may of 2023.
Furthermore.
As the mineral royalty to Sun ended in December 2022, excellent darn royalty to sign and in the fourth quarter of 2023.
These contractual royalty reductions will lead to further improvement in our margins going forward through 2023.
<unk> 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 2022 and two.
$2 million from the fourth quarter of 2021.
Increase for both periods is related to our continuing clinical trial expenses for the development of <unk> 29.
Looking now to our selling general and administrative expenses.
SG&A increased $19 6 million or <unk>, 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.
Marketing expenses related to expanding our product portfolio.
Additional head count 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 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 was mainly due to our expense optimization efforts as we continue to improve our operational efficiencies post IPO.
Ensuring continued focus on the development and commercialization of <unk> 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.
The common shareholders was $29 6 million or $1 69 per share basic and diluted for the full year 2022.
To a net loss to common shareholders of $44 million or $4 32 per share basic and diluted for the full year 2021.
Net loss to common shareholders was $10 6 million or 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 <unk>.
$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 <unk> 42 per share basic and diluted versus a net loss of $10 9 million or $1 seven 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 <unk> 17 per share basic and diluted versus a net loss of $1 $7 million 13 per share basic and diluted for the fourth quarter of 2021.
We expect sequential improvement in our non-GAAP adjusted EBITDA as we progressed through 2023.
And work towards our goal to be non-GAAP adjusted EBITDA positive for fiscal year 2023.
Yeah.
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 Clive.
Thank you Joe.
Our strategy with our product portfolio expansion was designed to pivot during the lifecycle challenges like we have faced over this past year with target ox, 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.
We are also excited about the full enrollment for both phase III clinical trials for DFT 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 non reoccurring expenses, such as R&D stock based compensation expense and other similar one time 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 reduced by.
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.
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One moment please for the first question.
Our first question will come from Brandon Folkes with Cantor Fitzgerald, you May now go ahead.
Hi, Thanks for taking my questions and congratulations on all the progress in 2022.
And maybe just two from me.
Maybe just starting on the commercial business.
Got a big uptake in Accutane prescriptions in 2023, so just any color in terms of.
Yeah, what you're doing different there or what's resonating or what's driving that strength.
And then maybe on DFT 'twenty nine.
In terms of looking at the differentiating factors of this product obviously this efficacy there.
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 when we think about the commercial landscape. Thank you very much.
Okay, great. Thank you Brandon and good to hear your voice.
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 19000, plus to 20000 plus per month in the first two months here.
So we like where we are headed.
Our sales force our marketing efforts are really making some headway.
And.
Our our aggressiveness in this area.
We have started to pay dividends. So we were able to for the most part in all of 2020 to 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 <unk>, 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 DFT 29 to your second.
Question.
You know the there's a couple of key things I'd like to mention first.
Co primary endpoints are almost or are exactly the way or ratio.
Had done their trials when they got approval. So we decided to mimic that as well is not only going head to head against placebo, but also doing the same thing with the ratio. What we wanted to do is have a robust package insert allow our commercial and marketing team to really tell.
<unk> 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 ended up negotiating I'd like to also pass the same question.
On to doctors should give me to give some more differentiation surrounding DFT 29.
Thanks, Claude and thanks, Brandon for the question.
The significant differentiator as you said Brandon is going to be the efficacy.
And as Claude mentioned, the two 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.
Additional secondary endpoints like the impact on EDA demand the impact on quality of life.
Those are going to be additional handlers that we might get if we get good results. We do expect based on the phase two study results that.
There is going to be significant superiority on multiple endpoints.
Great. Thanks, Scott.
Yes, it does and thank you very much to both of your answers very helpful.
Thank you.
Our next question will come from Scott Henry with Roth capital.
Thank you and good afternoon, I have a couple of questions, but I'll I'll start on the big picture.
Claude you.
You know targeting.
EBITDA positive.
Albeit adjusted results in <unk> and 'twenty to 'twenty three.
He is an admirable goal I mean, you're you're starting from minus $4 million in Q3 minus $3 million in Q2.
It sounds like Youre not you just don't want to exit, but you want to have the whole year.
Breakeven is I commend you for that but you know now I want to try to figure out a little better of how 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 you know the question are you know within that five to 7 million do you either with any of that be sales and marketing driven will that present any challenges to have the same.
<unk> share of voice out there in 2023 that you had in 2022.
Sure Yeah. Thank you Scott for that question Yeah.
It is it is a goal of ours and we are highly focused on achieving that I think a number of ways. As you mentioned, partly due to the commercial structure that we have we.
We have taken.
<unk> taken steps in early January and we have reduced the size of our sales force.
And what we did when we.
We're aggressive in building our portfolio.
We had doubled the size of our sales force. If you go back in time and in some of our other conversations we had 42 individuals' we doubled that to 80, another 42 to a total of 84.
As as the as we peaked at that point and as the sales trends.
<unk> and then the really the.
Difficulty in the in the target docs with the generic competition, we had to make some adjustments to that so we've taken those necessary steps with the field sales force, but your question was also targeted are we going to lose any geography in coverage reach and frequency.
See that type of thing and I would tell you that we're not so what we did was we actually had two individuals in each territory. When we were at our peak of 84, we've reduced that now, but we still have all the geographic coverage that we had in the past.
Albeit some territories will only have one individual versus two.
And the way, we decided to come to that configuration is all about profitability and.
We look at profitability by territory, not just on a quarterly basis, but by a monthly basis, and we were able to chart two.
To determine the best configuration, and we feel that what we have right now will really suffice and still get us to the goals that we wanted to cheap so you.
You would expect with the lower numbers to possibly have lower expectations, but we still have the same expectations as before and again all the geography geography is still being covered now every representative doesn't have the same portfolio too.
Promote and educate and.
You know answer questions to our customers. So we do that very custom styled in each territory.
And then in the second part really optimization and efficiencies, we're taking other steps to reduce that not just by the sales force.
But by like you mentioned marketing and bringing some things that we've used outside vendors for and bringing those internally.
Okay great.
Look forward to that progress.
Shifting to the product items Accutane scripts are great.
As the previous question hit on so we should expect that to grow can you talk a little bit Q Brexit big the flagship product I believe you referred to it as you know how should we think about that as a growth asset.
You know should we be thinking about that as a 5% to 10% grower or you know ideally I think you'd like it to be higher than that but how should we think about it in 2023.
Yeah.
I'll start out by saying this.
We had a major success last year, when we settled the patent infringement cases, with Paragon and <unk>. So it was part of that and I'm glad to say, we've got a long road of exclusivity with this brand that takes us all the way out into 'twenty, 30, and our marketing and <unk>.
Marshall teams I think have a really good strategy to continue.
Educating and bringing awareness and hopefully that means.
Increasing our demand for <unk> out there in 2022, Scott we achieved an all time record for this particular brand Q Brexit and we hit a well over 116000 prescriptions. It launched in 2018, and we just hit that record. So I think we've got some more.
Mentum behind us.
Specifically what percent of gain that we're gonna have with each product.
We're not necessarily giving guidance on that but I can tell you I have high expectations. It's number one out of the bag with a significant majority of our sales force we have great.
Marketing strategies to continue to be able to get the product as simple and as easy to the patients. Once the doctor has decided to prescribe that for their primary axillary hyperhidrosis. So I think we've got a number of key items here that are going to really help brings.
Some growth into the sprint.
Okay, and when would you expect the anti itch product to launch any clarity there yeah I'd love to give you exact date and month I'm not going to be able to do that.
Right now it's positioned for the second half of 2023, we are working very closely with our manufacturer and we have some good guidance from them, but that has been pushed out several times before.
They've given us guidance again, and it's going to be in the second half of 2023.
Okay great.
Great.
Shifting gears.
I'll wrap up pretty quick here, but Cogs was pretty high in Q4 anything going on there when should we expect that to kind of.
Normalized with higher margins.
Sure Joe would you like to take that one please sure sure our Cogs in the fourth quarter included some freight.
Some additional validation and testing cost that we that we have through Cogs.
That was for <unk> for the most part.
2023 will not have those costs at least not as not as high.
No.
With the reduction in royalties and a reduction in some of those expenses, we expect our margins to be around the 60% range.
Okay great.
Thank you.
And then final question just on.
The pipeline product D V D. I think 124, hopefully I got those letters right.
Got.
Enrollment was complete let's say mid January if I'm trying to think about when the data should be easy.
You see a follow up in that trial remind me is it the 12 week follow up and then we should maybe think about a month to slice and dice. The data is that the right way to think about the timing of that data.
Yeah, It's a DFT 29, and a doctor should get he will give you the specifics on that.
Yeah.
Hey, Scott Thanks for that question.
<unk> 29, as we mentioned in our press release of the last subject first visit.
That is the last subject enrolled laws.
Early January .
And there is a treatment duration of 16 weeks that is each subject will be treated for 16 weeks with this product.
And then there is as you said a four to six weeks.
<unk> four <unk>.
And the data and analyzing.
So that's what makes it.
Towards the end of the first half of 2023 somewhere around June 2022.
Perfect. Thank you for the clarity there and thank you for taking the questions.
Thanks Scott.
Again, if you have a question. Please press Star then one our next question will come from Macau.
Okay.
Writing Securities you.
You May now go ahead.
Good afternoon. This is Andy pleasure on for <unk>. Thank you for taking question. It looks like some of the method of use patents for arrays are set to expire starting next year in anticipation of potential generic introductions for <unk>, how should we think about the potential market opportunity for <unk> 29.
Specifically you got the peak sales of over $100 million does this figure factor in the possibility of generic cannibalization and does it assume that DFT twenty-nine demonstrate improved efficacy of where our ratio.
Yeah, Hi, Andy it's Claude here, Thanks for the question.
Yeah the.
Final you know the patent expiry on a ratio as of December 2025 is the way we're looking at it again this product is oh.
Gal Derma asset and.
They actually have had an authorized generic out into the marketplace now for several years. So that mix has been out there and it's now more skewed to the.
Generic again roughly.
It's about 60% on the generic and 40% on the brand.
And I think you really honed in on an exactly yet the study results for <unk> 29 in the phase II are superb.
Again, almost doubling the efficacy of the co primary endpoints. If we are able to achieve that type of level and get that approval. We believe that that is going to be very meaningful where you can actually say that this product has this much better efficacy.
C and very comparable safety for example, I think that goes a long way.
And that's why we believe again when we've discussed this with our Kols and other consultants. The early adoption for DFT is going to be quite considerable so we're expecting a very quick uptake and.
That's how we see us getting to those numbers so.
Brand or generic if you have an asset that has tremendous results.
Gonna have us a very big homerun in the field of dermatology anytime you can get close to that $100 million Mark that's considered a grand Slam.
Again in these small molecules.
That's helpful. Thank you and then maybe one follow up on the <unk> piece of that I guess, what feedback are you hearing directly from the Kols and the physician community that.
That gives you confidence that they would prescribe <unk> 29 over our ratio if the ethics. He holds up independent of money.
Sure.
What we did simply as we've shared during our due diligence we have shared all the phase II data.
And we've asked them to analyze it and we've given them the messages that we believe we would be.
Well to do once we have an approved label and the feedback was exactly that make sure you have a product that's not just going to be approved going against a placebo you have to go against the market leader and that sort of ratio. So that's what the phase two included <unk>.
Fortunately for us and Thats, what we are.
Counting on here in the Phase III study and secondly, when they looked at all the various adverse events very comparable so they're already familiar with our ratios they've been relatively satisfied with its efficacy now we're going to be introducing.
New indicated product for rosacea, specifically that hopefully is getting close to doubling the efficacy.
The question is why Wouldnt de convert over quickly to this.
Brent and that's what we heard time and time again, and there's many cyclin doctors theres doxycycline doctors and theres different classes right.
And a lot of these doctors that we did speak to where the doxycycline and we were very.
Positive and very pleased with what we were the feedback that we received and that really was a key factor in us moving forward and licensing and acquiring the SaaS yet.
I appreciate the additional color and we're looking forward to the results of that study here in the second quarter.
Excellent.
Thank you Andy.
This concludes our question and answer session.
I'll turn the conference back over to Clark for any closing remarks.
Sure.
I just want to thank everyone for participating in today's conference call and their interest in journey medical.
We look forward to sharing our ongoing progress when we report the first quarter results in may thanks.
And have a good day everyone.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.