Q2 2023 Journey Medical Corp Earnings Call
Ladies and gentlemen, thank you for standing by good afternoon, and welcome to journey Medical's second quarter 2023 financial results and corporate update conference call. At this time all participants are in listen only mode should you need assistance. Please.
No our conference conference specialist by pressing the Star key followed by zero.
Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour. After the end of the call for approximately 30 days I would like now to turn the call over to Mr. Matt Blasi of core.
I or the company's Investor Relations firm. Please go ahead Sir.
Good afternoon, and thank you for participating in today's conference call. Joining me from journey Medical Corporation's leadership team, our Quad Murali co founder President and Chief Executive Officer, Joe Burnish interim Chief Financial Officer, Dr. Serene, Sydney, Vice President Research and development and joining us for the Q&A session will be Dr. <unk>.
Neil Bakiyev director of clinical Dermatology Therapeutics clinical research.
During this call management will be making forward looking statements, including statements that address among other things journey medical expectations for future performance operational results financial condition and the receipt of regulatory approvals forward looking statements involve risks and other factors may cause actual results to differ materially from those statements.
For more information about these risks please refer to the risk factors described in journey Medical's. Most recently filed periodic reports on Form 10-K and Form 10-Q.
Form 8-K filed with the SEC today and the company's press release that accompanies this call, particularly the cautionary statements in it.
Today's conference call includes non-GAAP financial measures to the 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.
Conciliation of this non-GAAP financial measure to net loss its most directly comparable GAAP financial measure.
The reconciliation table located in the company's earnings press release.
The content of this call contains time sensitive information that is accurate only as of today August eight 2023.
That is required by law or any medical disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur. After this call.
It is now my pleasure to turn the call to the cloud and Raleigh, Co founder President and Chief Executive Officer of journey medical.
Thanks, Matt Good afternoon, and thanks to everyone for joining our second quarter 2023 conference call and corporate update.
This is an exciting time for journey medical our commercial business has seen a strong rebound this quarter.
And as we recently announced our phase III trials for DFT twenty-nine treatment for rosacea achieved the co primary and all secondary end points with no significant safety issues.
I will begin by making some brief comments on the clinical trials and will then be joined by our Vice President of research and development. Dr. Shiny <unk>, who will present this clinical data in greater detail.
Immediately following the presentation, we will review our second quarter results and open the line for questions.
For the benefit of those on the call who are following our slides. Please note that those slides will only be used in the section of the call where doctors see Judy is reviewing the data from the phase III trials.
We are very pleased with the positive results of our two phase III clinical trials evaluating D. F. D 29 for the treatment of rosacea.
<unk> demonstrated statistical superiority over both a ratio and placebo.
This is a significant milestone for journey medical and potentially the broader dermatology community.
There were approximately 4 million prescriptions written for rosacea in 2022 according to Symphony health prescription data.
On these positive study results, we plan on submitting a new drug application for D. F. D 29 in the second half of 2023.
If approved by the FDA, we believe that DFT twenty-nine has annual peak sales potential of $300 million globally.
With these clinically meaningful outcomes D. F. D 29 has the potential to become the new treatment paradigm for the millions of patients suffering from rosacea as the lowest dose oral minocycline on the market.
The success of the program is a direct result of the exceptional collaboration between journey medical Doctor readiness, the investigators and all the others that have been involved.
We believe the potential approval of D. F. D 29 will be a transformational event for journey.
At this point I would like to turn the call over to doctors to Judy to discuss the results of the phase III data in more detail.
I will follow up to discuss this market opportunity and our strategy on becoming the market leader in this space.
Thank you Claude.
I would like to begin by reviewing the highlights from the phase three for the year to 29 topline data readout.
I would also like to refer investors to the investor presentation on our website, which we'll have slides supporting my comments in more detail.
Germany medical in collaboration with Doctor Wendy's has conducted two phase III studies for the FDA 29.
The phase III studies had the following key design elements.
Each study enrolled approximately 320 patients with moderate to see be a popular question that rosacea.
I'm pleased to at least two randomization to DFT 29, or ACR placebo.
The first study and the old one enrolled all patients in the U S. C. While the second study MBR to enroll patients in a ratio of approximately 17 to therapy in the U S and Germany.
Of the total of approximately 640 patients in the two trials.
Approximately 540 patients who had a white caucasians, while approximately 100 patients van of darker skinned tell us.
All of these subjects had an idea grade of three core <unk>.
And in inflammatory lesion count of 15 to 16 at study entry.
Subjects were adequately washed out of any previous medication. They were taking before starting this study treatments.
Does the efficacy seen in these studies can be attribute it to this study medication and not do any confounding or previous medication.
The study treatment.
Just on two co primary endpoints.
Proportion of subjects with Iga treatment success.
The reduction in total inflammatory lesion count.
The results show that DFT 29 was statistically significantly superior to both placebo and or this year with 16 weeks treatment duration.
The proportion of subjects that showed Iga treatment success was 65% for the IP 29, 46, 1% for this year and 31, 2% for placebo in M. B a lot of one.
The P value for the difference between D F 'twenty nine and or ACR was 0.014.
While it was less than point Zealand's it'll one against placebo.
In EMEA, our two the proportion of subjects that showed idea treatment sepsis was 61% for the IP 29, that'd be one 4% for this year and 26, 8% for placebo.
The P values less than 0.001 for DFT twenty-nine against both our Asia and placebo.
And then B R. One the reduction in total inflammatory lesion count was.
21.3 lesions for the F 'twenty 915.9 quarters, or Asia, and 12.2 lesions what placebo.
The P values were less than point digital one or the ft 29 against both our Asia and placebo.
And then we are towards the reduction in total inflammatory lesion count was 18.4 lesions for the IP 29, 14.9 lesions for ratio and 11.1 lesions for placebo.
The P values were less endpoints. It is it'll one for the IP 29 against both our Asia and placebo.
As can be seen from the data.
<unk> 29 has consistently outperformed both our Asia and placebo on the two key endpoints in both studies.
DFT 29 has shown statistically significant reduction of EDA demand in both studies compared to placebo.
DFT 29 has also demonstrated that has taken a significant improvement in quality of life against placebo with regards to two very commonly used quality of life tools.
The <unk> dermatology quality of life index, which is agenda quality of life tool used.
Used across dermatology trials.
And although this yes specific quality of life tool Rosa called that is rosacea quality of life.
Finally, we are pleased to say that DFT 29 also has shown rapid onset of action that is it has shown statistically superior efficacy or placebo on both idea's success and lesion count reduction from week, two onwards, which is a very significant.
Mr. Clint that humans, considering these monotherapy studies.
On the safety front do you have to be 29 was found to be safe and well tolerated in both the studies with adverse event rates being close to placebo.
These results indicate the possibility of DFT 29, being the new standard of care in Rosacea and also being the best in class therapy.
It is likely to be perceived as a safe minocycline formulation compared to other formulations because of the law and fixed dose.
We anticipate that the 29 to capture significant market share upon its launch based on the significant differentiator it brings to the table.
I will now hand, it back to Claude to discuss our second fiscal quarter results in more detail.
<unk>.
Thank you Doctor surgery, I would like now to turn our attention to the improving results in our commercial operations for the second quarter.
As discussed on our last call with investors. Our objective was to see continued sequential growth in revenues throughout this year and to achieve positive non-GAAP adjusted EBITDA for fiscal year 'twenty two 'twenty three.
The key metrics for the second quarter surpassed our internal expectations generating $17 2 million in net revenue, which corresponds to a remarkable 41% sequential gain over Q1 'twenty two 'twenty three.
Some key highlights note worthy of mentioning.
Our leading core product Q Brecksville led the way with net sales of $8 million in Q2 compared to $4 million in Q1.
Which is an outstanding 97% increase in addition to achieving a new quarterly all time high for the brand.
Accutane currently our second highest volume core product in our portfolio had an impressive gain as well.
<unk> had net sales of $5 $5 million in Q2 versus net sales of $4 6 million in Q1 of 2023.
Which is a 20% increase.
And our third and fourth position of priority, we saw sequential increases in <unk> net revenue of 15% and silk sheet of 82% versus their Q1 results.
We expect these trends to continue as we build momentum.
Our legacy brands, which are actual derm target ox engine. They do continue to see anticipated erosion and combined only account for 8% of our total revenue in Q2 2023.
I'd like to congratulate our commercial sales and marketing teams for remaining focused and executing our strategic plan.
Yeah.
Journey continues making great strides towards the guidance that we gave during our 2022 10-K earnings call and which is achieving non-GAAP adjusted EBITDA positive for calendar year 'twenty two 'twenty three.
Our entire organization has taken the necessary steps and becoming more efficient and optimizing our business goals.
A key example of this effort is limiting our SG&A spend.
Journey has successfully reduced SG&A expenses in Q2 2023 by over $3 million compared to Q2 2022.
We remain steadfast in our efforts and well on track of achieving a projected reduction of over $12 million in SG&A spend this calendar year.
Important to note not only have we been able to implement the appropriate expense reduction efforts. We also were able to achieve revenue growth in parallel.
We are certainly trending towards meeting our financial objectives and continue to expect this trend to continue into the second half of 'twenty to 'twenty three.
Finally, I am pleased to announce that we have paid off the entire debt facility, we had with east West Bank.
Journey now has zero bank debt.
With that I'll now turn the call over to Joe who will review our financial results for the second quarter.
Thank you Claude and Hello, everyone I will now review, our second quarter financial results for 2023.
As Claude mentioned total net revenues for the second quarter of 2023 were $17 $2 million.
41% increase from $12 2 million in the first quarter and.
And a slight decrease of $1 $1 million from the prior year quarter.
The decrease from the prior year quarter is primarily due to lower unit volumes from our legacy products target ox, the Minto and XO Darren.
Substantially driven by continued generic competition for target ox.
These results were offset by an increase in net product revenues from our four core products <unk> <unk>.
Pain and <unk>.
Primarily due to increased unit volumes as a result of our focused sales and marketing emphasis on these products.
Which led to 19% growth for these products combined.
From the prior year quarter.
These products combined reflect approximately 92% or $15 $6 million of the company's total product revenues for the second quarter of 2023.
R&D expenses decreased by 32%.
The prior year quarter related to lower clinical trial expenses for <unk> 29.
Project winds down.
SG&A expenses decreased by 20% from the prior year quarter.
The decrease is mainly due to our expense reduction efforts, primarily in sales and marketing.
During the last quarter of 2022, we implemented a cost reduction initiative.
Zions to improve operational efficiencies optimize expenses and reduce overall costs.
The initiative is intended to reduce SG&A expenses to better align costs with revenues being generated.
In connection with this cost reduction initiative, we executed on a head to head count reduction to our salesforce and implementing marketing and other cost cuts.
The impact of this cost reduction initiative and expect it to result, as Claude mentioned.
Reduction of greater than $12 million of annual SG&A expenses.
In the second quarter of 2023, we recorded $3 $1 million noncash impairment loss towards the Minto intangible asset.
Based on <unk> current net product revenue and gross profit levels, we revised our financial outlook for the nano <unk>.
<unk> and lower projected sales and net cash flows for future periods.
We assessed this revised forecast.
I mean, that's a revision constituted a triggering event.
We reviewed the undiscovered future cash flows identified personnel and.
And the results of the analysis indicated that the carrying amount of this intangible asset on our balance sheet was not expected to be recovered.
GAAP net loss common shareholders was $8 $4 million or <unk> 46 per share basic and diluted for the second quarter of 2023.
To a GAAP net loss of $10 1 million or 57 per share basic and diluted for the first quarter of 2023.
Seven $5 million or <unk> 43 per share basic and diluted for the second quarter of 2022.
Our non-GAAP adjusted EBITDA for the second quarter of 2023 resulted in a net loss of $600000 or four cents per share basic and diluted.
<unk> do you have an adjusted EBITDA net loss of $5 $3 million or <unk> 30 per share basic and diluted for the first quarter of 2023.
And an adjusted EBITDA net loss of $2 $6 million or <unk> 15 per share basic and diluted for the second quarter of 2022.
We are well on our way to becoming non-GAAP adjusted EBITDA positive in 2023.
At June 32023, we had $17 million in cash and cash equivalents and restricted cash.
As compared to $26 1 million at March 31, 2023.
At December 31, 2022, we had $32 million in cash and cash equivalents.
From a cash burn perspective in.
In May 2023, we paid down $10 million of our term loan and a $3 million revolver with east West Bank.
Subsequently in July of 2023, we voluntarily paid off the entire $10 million outstanding East West Bank term loan effectively terminated the entire east West Bank facility.
Therefore, I have no further obligations to east West Bank.
We were able to pay off all of our east West Bank debt without any additional dilution to the company.
Thank you very much and now I'll turn it back to Claude.
Thank you Joe.
In summary, I'd like to recap the highlights discussed on today's call first.
DFT twenty-nine achieved outstanding results.
29 showed superiority to current standard of treatment a ratio.
We met all primary and secondary endpoints.
The NDA filing in Q4, 2023 is on schedule.
Our phase one sub anti microbial data suggests suitable long term usage.
And if approved DFT twenty-nine has sales potential over $300 million globally.
Second our Q2 2023 financial results rebounded from Q1.
In Q2, we were up 41% over Q1 net sales.
Over 90% of revenue in our core four promoted products.
Third the east West Bank full debt pay off happened in July .
We are confident in our ability to have enough cash to see DFT 29 through approval.
Fourth.
We are targeting operational profitability non-GAAP adjusted by end of this year 2023.
The R&D expenses winding down with completion of our phase III studies.
And finally in fifth.
Our BD team continues to be opportunistic and looking at various commercial stage assets to add to our portfolio plus we look forward and continuing to work on out licensing efforts with our current product portfolio and as well as with DFT 'twenty.
Nine and its successful phase III trials.
We look forward to sharing our ongoing progress for both our commercial and clinical business. When we report our third quarter results in November .
Thank you and have a good day.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily.
To assemble our roster.
Our first question today comes from <unk>.
Henry of Roth Capital. Please go ahead.
Thank you good afternoon tremendous.
Tremendous improvement from the first quarter I'm sure.
With tough, making a lot of those cuts, but I do think.
It was instrumental to making the company viable in the long term. So I commend you and your team on that clock.
Shifting gears I'm going to stop.
With the quarter, then I do have some DFT 29 questions.
First my assumption would be that when you paid off the loan that was all out of restricted cash is that correct.
Joe would you like to take that please.
Yes, Scott, we had $8 $75 million of his script restricted cash on the books and it was definitely paid off with that.
Okay excellent.
And then.
Your you got your target of being EBITDA positive for the year.
It still requires a lot of work because you've got a you've got to make money in the second half, but you also have to work down some of the loss he started with in the first quarter.
To do that do you expect that to be.
Driven by higher revenues.
Or lower expenses or a little bit of both.
Yeah got it got it.
Oh go ahead please.
It's going to be a little bit of both Scott so.
The second quarter, we still have some residual.
Expenses in there from from the cuts right. So April and May still had some higher expenses in there. So third quarter fourth quarter are going to show the true cuts and also from a revenue standpoint, we expect to be.
Sequentially better.
Okay, Great now I just wanted to shift to DSD twenty-nine you you told us what your peak sales would be could you comment on how long you expect it to take to reach peak sales I. This category does it tend to be rapid uptake or you know what kind of trajectory.
Typically see.
Sure Scott Yeah.
In terms of uptake and launching DFT twenty-nine, we plan on doing that in early 2025, a few months after we get approval hopefully from the FDA in terms of how quickly to the peak sales numbers typically you're going to be looking between two to three.
Years as the peak annual sales ramp up.
You know, we're going to be looking at the SaaS are going head to head using what we hope to be a very rich package insert that the FDA has approved we'll be able to go and start to change the habits of utilizing or ratio as the gold standard and starts to switch that over.
To DFT 29.
What's key with this asset is the ability of us not just sticking in the oral systemic marketplace, but this drug candidate DFT 29 has the ability to go into the topical market, which has a much greater potential so youre.
Terms of the number off the top of my head I can get back to you on the exact size of oral versus topical in the acne.
Arena, but youre right about that percentage it holds true on the Rosaceous side so about.
360000, prescriptions 400000 prescriptions for our ratio last year and about $3 6 million.
The topical so very close to those percentages.
Okay, and then just a final question on the balance sheet.
How comfortable are you with your cash balance.
Obviously at the right time, you'll you would probably consider raising some more equity, but I'm trying to get a sense of how flexible are you are you comfortable that you don't have to raise it down here.
And you may have a path to get pretty pretty close to breakeven from here as well.
Yeah, I'll start with this one Joe.
So far like you said, we've had an exceptional second quarter, we've really cut our losses dramatically.
Adjusted EBITDA at 600000, so the breakeven is within a throw away. So we.
We expect to be able to.
Continue with operations, we're not looking to raise any.
Any equity.
Funding whatsoever, we are looking at debt facilities.
Certainly I think that would be proper to do but right now in terms of being operationally profitable we're at that point, where our revenues and where our SG&A SG&A is falling allows us the ability to go for all the way through the end of 2024 as a matter of fact.
Scott.
Okay, Great I'll jump back in the queue. Thank you for taking the question.
Yeah.
Our next question comes from <unk> Patel of B Riley. Please go ahead.
Yeah, Hey.
Good afternoon, and congrats on clearing the phase III studies for DFT 29.
Maybe I'll start with a couple of questions on this asset.
You, obviously beat both placebo and or Asia.
The phase III study.
Maybe give us a sense of how reflective where the patients.
Enrolled in the trial compared to in a real world population.
Against oil ratio today.
Sure I'll tell you I think.
I think Dr. <unk> could take that and talk about the inclusion criteria of real world types of patients and we also have Augusta investigator dermatologist, Dr. Neil Barth here and perhaps he can follow up to Dr. <unk> comments.
Thanks Claude.
That's a great question.
The inclusion exclusion criteria that we had on these studies.
Very much.
<unk> population in Florida this year.
<unk> kind of Iga grades and the.
Lesion counts at baseline that the used.
Those.
Flat.
And I think to the point that commercially we see a lot of rosacea patients who are tired of applying bad vehicles to their face which is already hyper sensitive.
They're concerned about the photo sensitivity of higher doses of antibiotics like doxycycline.
In minutes I glean until now Unfortunately, a lot of the brands have fell by the wayside.
So seeing this dose of minutes cycling come to fruition.
As well as what we saw on the trials I think this could actually have a very strong foothold in gaining that spot for world treatment as a standard.
I think the other component to rosacea patients as many of them are otherwise healthy they're not on the other medications.
They again would preferred.
Pill, and something orally to minimize the labor involved with trading topically Ah.
So I think some of those would fit very well into the potential for the realisation market I know a lot of our trial patients did not want to let this drug go out of their hands. They were so pleased with the way things turned out to them that they were actually sat the trial ended.
Okay, understood and and a doctor, but since we have you here today I guess.
Can you give us an understanding of how.
Minocycline capsules Ah you know maybe used today in the market for rose Asia or they use commonly as an off label treatment or is it more or less reserved just for just for one ratio yeah I mean the doctors.
Let me go back with tetracycline family as a whole.
Impacts a number of processes that stop inflammatory cascade authorization.
It's been understood for many years in terms of <unk>.
Different proteins that get cleaved, the capsule aside and pathway and without getting too scientific a lot of the cell lines that are progressing the process of Uprose Asia.
So both doxycycline administer likely have been proven effective at optimal dose.
Because for one there's no bacterial target so there's no action as an antibiotic it's more of an anti inflammatory dose.
But the problem is above a certain threshold the the medication, whether it's doxycycline or minutes cycling.
Can have antibiotic properties, which can lead to consequence down the road, which is what led to the cultivation of erasure.
At that dosage now the way minutes like me will work at this dosage and and the D F. The product.
You know an empty 29th product will be in a very similar directed fashion against the process that makes rose Asia and the safety of it will allow it to be used you know again your long if you will.
Whatever it's whatever indication comes from it the long term studies, you know for 52 weeks and everything else that goes along with this class of drugs tells us that we have a safety profile, we can rely on.
So I think in the end you know rosacea patients.
So do you think about your average 30 something year old they have a high co pay high deductible <unk>.
I'd, rather treat them with something that I know will work for the long run and not have to see them back in the office to fine tune them and let them do well on the medication that's going to serve the purpose of treating the process of their disease not just the.
The symptoms.
So I hope that makes sense.
[noise] for Ya.
No. That's that's helpful and this one I believe is an extended release or you know, it's a special formulation of mental cycling.
Do you see any advantages here in terms of the safety profile or Tolerability profile, you know versus just using a generic immediate release minocycline tablets aren't capsule.
I mean minutes cycling is a synthetic drugs compared to doxycycline, which is natural.
So doxycycline effects.
More immediate thing cause headaches.
Sensitivity G I distress minutes cycling over the long term at high doses.
Cause vertigo, and lupus like effects and kidney issues and things that are dose limiting at higher doses.
So with this does you know we are less likely to see any long term chronic issues that were once a stigma related to higher doses admits likely.
So minutes cycling by nature.
Is better absorbed in the fat and the pilots sebaceous unit in the middle layers of the skin, which is why it was always a better drug for Acme then doxycycline.
From a logistics standpoint, and this might sound selfish is dermatologist always looked at minutes cycling is our drug because a lot of the primary care physicians and others, who were treating realisation actually they were sending the patients to us I'm doxey and we'd say, while I, let's switch it up.
So there's gonna be a little bit of possession.
Colleges will feel.
When they get their hands on this.
Alright, and and maybe one last marketing opportunity related question here for your Doctor if.
Assuming this drug gets approved what proportion of your realisation of patients when he prescribed this drug and in what proportion will you continue to use <unk> Oh sure I mean I'll be honest I'm, an early adopter, so when I get something new and I get my hands on something I I pretty much flood everybody with it.
There are going to be those who might be tied to erasure.
They're gonna be others, who will take a chance on minutes cycling and in all fairness, there's probably going to be a few dermatologist to say no I I'm not comfortable with minocycline. So all of that will be up to journey to kind of bring all those mindsets forward and approach the marketing that way.
As in you know I'm, an educated myself I speak at conferences on Rosace I've published textbooks I would have no problem talking about safety first and talking about here's of applications approach to the process of rosacea with an oral route.
And I would probably work on convincing my colleagues to maybe get off the ledge rather than be concerned with what we used to know.
But your father has been a cycling if you Wanna call it that.
Okay, Okay, and maybe one question before the company clinical.
Clinical trial itself, how did Ah erythema fair in both of your studies I believe in orations pivotal studies back in the day, we saw a statistically significant improvement at least in in one of those two studies for erythema to receive that here as well.
[noise] shrinks and you take that one please.
Sure.
So that'll put you right back in those days or is she had.
Mystical significance against placebo on <unk> and one of their studies one the other one didn't show the significance.
But during the N D. A redo closest I think the F. D. A did find out some data on and that there was no significance on board the studies.
Now coming back to all studies V did studied the impact on <unk> as unimportant.
And point and we found that both the studies have shown that is significant against placebo for D. F. D 29, but that's going to be one of our key messages on D. N D. A finding.
Okay.
Cause I could add to that just real quick and all of that is correct.
The clinical erythema assessment that is done when you walk in the door as an investigator.
Often a marker of overall success.
Keep in mind that the patient their number one concern is looking less red.
So when you're looking at them when you walk in the door to assess their grading. The erythema assessment is included in your overall grade of improvement, even though the Papuan pustular count is still.
One of the more objective measures.
So keep in mind, if it if people are not getting less red as a result of the pulse inflammatory erythema or the background erythema, they're gonna, let you know.
Okay. Thank you very much for taking my questions.
As a reminder, if you have a question. Please press Star then one.
With no further questions. This will conclude our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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