Q4 2023 Journey Medical Corp Earnings Call
Participants
Jaclyn Jaffe; Senior Director of Corporate Operations; Journey Medical Corp
Claude Maraoui; President, Chief Executive Officer, Director; Journey Medical Corp
Joseph Benesch; Interim Chief Financial Officer; Journey Medical Corp
Ramsey Alloush; General Counsel, Corporate Secretary; Journey Medical Corp
Srinivas Sidgiddi; Vice President, Research & Development; Journey Medical Corp
Scott Henry; Analyst; Alliance Global Partners
Kalpit Patel; Analyst; B. Riley Securities
Presentation
Operator
Good afternoon, ladies and gentlemen, and thank you for standing by, and welcome to Journeys Medical's Fourth Quarter and Full Year 2023 financial results and corporate update conference call. At this time, all participants are in a listen-only mode. Several questions, please signal a 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 also being recorded for playback purposes and webcast.
Replay of the call will be available approximately one hour after the end of the call for approximately 30 days. I would now like to turn the floor over to Jacqueline J.P. The Company's Senior Director of Corporate Operations. Please go ahead, Jonathan.
Jaclyn Jaffe
Good afternoon and thank you for participating in today's conference call. Joining me from Journey Medical's leadership team, our cloud morality, Co-Founder, President and Chief Executive Officer, does that finish in Durham, Chief Financial Officer, Dr. Srini Sogeti, Vice President of Research and Development, and Randy elution, General Counsel and Corporate Secretary, who will be joining for the Q&A portion of the call.
During this call, management will be making forward-looking statements, including statements that address, among other things, Journey Medical's expectations for future performance, operational results, financial condition and the receipt of regulatory approvals. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Germany Medical's most recently filed periodic reports on Form 10-K and Form 10-Q, the Form 8-K filed with the SEC today and the Company's press release that accompanies this call, particularly the cautionary statements in it.
Today's conference call includes non-GAAP financial measures that Journey Medical believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of this non-GAAP financial measure to its most directly comparable GAAP financial measure, please see the reconciliation table located in the company's earnings press release. The content of this call contains time-sensitive information that is accurate only as of today, Thursday, March 21, 2024. Except as required by law, Journey Medical disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to climb rally Co-founder, President and Chief Executive Officer of Journey Medical.
Claude Maraoui
Thanks, Jacqueline, and good afternoon to everyone on the call today. I'm very pleased to report the strong progress that we made in 2023 across each of our business initiatives. To begin with, we generated $79.2 million in total revenue last year, a 7% increase from 2022 and an all-time high for the Company since inception. We achieved this with the $19 million upfront license payment that we received in September from Revo in exchange for the rights to develop and market to Brexit in certain Asian countries.
In addition to the solid contribution from our product portfolio, I'd like to note that we were able to deliver this top line growth despite the continued erosion of the target ox franchise due to generic competition as well as the discontinuation of ZoomInfo in the third quarter of 2023. At the beginning of 2023, we set a goal to reduce our annual SG&A expense by $12 million and later in the year, we raised our guidance on this initiative. I am delighted to report that by the end of the year, we lowered our annual SG&A expense by approximately $15.6 million. As a direct result of our cost reduction efforts in 2024, we believe that we will be able to reduce our SG&A expense by an additional $2 million to $5 million, resulting in a total cost reduction of approximately $20 million from the 2022 SG&A expense base. Currently, our four core products to Brexit, Accutane and Z and ZC. represent approximately 90% of our product revenue as a result of our expense reduction efforts related to our legacy brands and our strategic focus on these four core brands. We expect that these brands will contribute positively to cash flow in 2024.
In addition to reducing our operating expenses, we also strengthen the patent protection around our core product portfolio. As a result of our recent patent litigation settlements, we have a strong runway of patent exclusivity for to Brexit with current patent exclusivity to 2030 and Zeke with patent exclusivity to 2031 and Zosyn with patent exclusivity to 2027.
Stabilizing.
Our commercial business was a key strategic objective in 2023 that we believe has and will continue to contribute to shareholder value for years to come as we execute on our growth plans.
Moving into product development and another milestone event from 2023, we completed our two pivotal Phase 3 trials for DFD-29, a novel oral therapy for the treatment of rosacea. The execution by our clinical team was tantamount in achieving this milestone, and I am pleased with the quality of the clinical trials and the team's ability to meet all of its planned timelines without any significant issues. So a big thanks to the team. Results from both trials were highly positive and allows us continue to show extreme optimism regarding both the market potential and opportunity for DFD-29 on both of the co-primary endpoints, IGA success and the reduction of inflammatory lesions associated with rosacea. DFD-29 demonstrated statistical superiority to placebo and our ratio, the current standard of care and the market leading treatment.
To provide context and illustrate the DFD-29 market opportunity. Orasure had approximately $300 million in annual TRx sales in 2023 with DFT's superior efficacy results. As demonstrated in our Phase 3 clinical trials, we believe there is significant opportunity to take share from our ratio as well as the other topical agents that are commonly prescribed to treat realization. Impressively, DFD-29 also demonstrated the ability to significantly reduce erythema for the skin redness associated with rosacea. We believe this is a meaningful clinical result for our Phase 3 program that can differentiate DFD-29 product profile if approved, and can help accelerate both prescriber and patient adoption also importantly, DFD-29 demonstrated the safety and tolerability profile in our Phase 3 trials that was similar to placebo. We continue to expect that DFD-29 will be able to achieve peak annual net sales of $300 million with $200 million of those sales being achieved in the U.S. alone. Currently, DFD-29 has three Orange Book listable patents expected to provide exclusivity until 2039. So we anticipate that we will have market exclusivity without generic intrusion for the foreseeable future. We believe that the achievement of these efficacy and safety results will pave the way for a new realization treatment paradigm, which would significantly enhance the value of our company as well as the value that we bring to physicians and patients alike.
Looking back at our time line of events, we submitted our NDA for DFD-29 at the beginning of January, and we received an NDA acceptance from the FDA on March 13. Based on the acceptance letter that we received from the FDA. No potential filing review issues were identified and there are no plans at this time to convene an advisory panel meeting to discuss the application. The FDA has established up due for date of November fourth, 2024. And we plan on continuing to invest the proper resources to prepare for an NDA approval and commercial launch of DFD-29 in early 2025.
On the market access front, we are continuing our research and discussions with payers and physicians in preparation of our DFD-29 launch. So far, I am pleased with the initial feedback that we've received regarding expected product acceptance and anticipated product reimbursement. We will provide more details on this later in the year as we solidify our launch plans.
Looking at our financials. From 2023, we paid off our debt facility, which had a balance of $20 million. And in late 2023, we entered into a new credit agreement with SWK Holdings to access up to $20 million in non dilutive debt capital. The terms on the SWK loan are less restrictive and give us more flexibility than the debt we retired in the middle of last year. So far we have drawn down $15 million on the SWK facility and another $5 million remains available for us to draw down in the future. We reported over $27 million in cash at the end of 2023. And with the recent reductions in our cost structure, we believe that we are well positioned this year to invest in and prepare for the anticipated launch of DFD-29. We believe that DFD-29 has the potential to become the standard of care for rosacea treatment and offer significant sales growth and financial leverage to our business.
Lastly, I'd like to review the success and opportunities from our business development initiatives. There are two areas that we are focused on in this vein. First, we are working to continue out-licensing our IP and related technologies to companies outside of the United States. Our license agreement with Meru Ho last year provides an example of how we successfully executed on this strategy analogous to this transaction. We believe that Qube Rexair, our other patented products and DFD-29 may provide attractive near term opportunities for our companies in other countries seeking to exclusively in-license our proprietary products.
Second, we continue to survey the dermatology landscape for new product opportunities this involves acquiring and or in-licensing FDA approved or late-stage product candidates that would allow us to achieve synergies by leveraging our focused commercial infrastructure.
Our first priority in this area is to bring in on-market FDA approved prescription dermatology products that would fit directly into our existing commercial footprint. Executing on one or more of these acquisitions or in-licensing opportunities would allow us to bring in additive revenues with minimal investments adding to both the top line and the bottom line.
And with that, I will now turn the call over to our CFO, Joe finish to review our financial results for 2023.
Joseph Benesch
Thank you, Clark, and hello, everyone. I would like to start by reviewing the full year financial results for 2023 Now I'll provide financial guidance for 2024. Our total net revenues for the full year 2023 was $79.2 million compared to $73.7 million for the full year 2022 reflects an increase of $5.4 million or 7% over the prior year. The increase is mainly due to the execution of the new license agreement with Meru eHow in Asia, which generated revenue of $19 million during the third quarter of 2023. Our gross profit margins in 2023 increased by 22% as our contractual royalty obligations to Brexit have decreased. The reduction in royalties for Q. Brexit decreased by 50% began in May 2023. Furthermore, our actual Dan royalty to fund ended in the fourth quarter of 2023. These contractual royalty reductions are expected to lead to further improvement in our margins going forward through 2024. R&d expenses decreased by $3.4 million to $7.5 million for the full year 2023. This compares to the $10.9 million that we reported for the full year of 2022. The decrease is related to lower clinical trial expenses to develop the DFD-29 as the clinical trial work has been completed, and we are now advancing to expected FDA approval.
Looking now to our SG&A expenses. SG&A decreased by $15.6 million or 26%, $43.9 million for the full year 2023. This compares to the $59.5 million that we reported for the full year 2022. The decrease is mainly due to our expense reduction efforts, primarily in sales and marketing and other SG&A areas. We plan to continue to reduce expenses and right-size our business in areas outside of sales and marketing in 2024 as appropriate.
Continuing to our net loss for the periods, net loss to common shareholders was $3.9 million or $0.21 per share. Basic and diluted for the full year 2023. This compares to a net loss to common shareholders of $29.6 million or $1.69 per share basic and diluted for the full year 2022.
Turning now to our non-GAAP results. Our non-GAAP adjusted EBITDA for the full year 2023 resulted in a net income of $15.6 million or $0.85 per share basic and $0.75 per share diluted. This compares to a net loss of $7.3 million or $0.42 per share basic and diluted for the full year of 2022. At December 31, 2023, we had $27.4 million in cash and cash equivalents, which compares to $32 million at December 31, 2022.
Moving to our financial expectations for this year and 2024, we anticipate net product revenue in the range of $55 million to $60 million. For SG&A expenses, we foresee a range of $39 million to $42 million for the year. And for R&D expense we expect to be in the range of $9 million to $10 million.
Thank you very much. And now I'll turn it back to Clive.
Claude Maraoui
Thank you, Joe. Journey Medical is in its 3rd year as a public company, and I believe that we have delivered on our goal of positioning the business for success. We have a solid lineup of dermatology products with strong patent protection. We have rightsized our cost infrastructure so that our base business is now contributing positively and we are ready to leverage future anticipated top line growth. Most notably, we now have a product candidate for rosacea treatment under FDA review with very positive head-to-head Phase 3 clinical trial results against the market leader as well as long dated patent protection. I am extremely pleased with the accomplishments that Journey has achieved to date, and I am excited for 2024 and the opportunities that we see to continue creating value for our shareholders and the dermatology community.
Thank you, operator. We are now ready to open the lines for Q&A.
Question and Answer Session
Operator
Ladies and gentlemen, at this time, we'll begin the question and answer session. If you'd like to ask a question, you may do so by pressing star and then one in your touch-tone telephone.
To withdraw your question, you may press star and two, if you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the numbers to ensure the best sound quality. Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from Scott Henry from Alliance Global Partners. Please go ahead with your question.
Scott Henry
Thank you good afternoon and congratulations on the accepted filing for DFD-29. Couple of questions, I guess starting on the staying on DFD-29, can you tell me do you have a could you talk about what rights you have outside the U.S. And within those rights, what timelines you may have for bringing the product internationally to the market?
Claude Maraoui
Sure. Hey, Scott, this is Claude. Thank you for the question. I'm going to pass the first part of this over to Ramzi Lou short, our General Counsel. He can be specific with that team, sir?
Thanks, Claude.
Ramsey Alloush
He, Scott, thanks for the question. So in terms of the rights for DFD-29, we have rights globally. But for the brick countries, Brazil, Russia, India, China, as well as the CIS. countries. And so that's that's the rights that we have in terms of time line, I know we're looking right now obviously at the United States as our primary focus. But there is there is some some emphasis now in Europe potentially. And then obviously we're looking at tuck-ins, potential deals with other partners in other territories in Asia, et cetera. Nothing definitive at the time on, but I can pass it to Srini, if you want to talk a little bit about what a time line could could look like if we engage in Europe.
Scott Henry
Okay. Well, that's helpful. So so the idea would be to partner it and perhaps monetize some of those rights while also contribute or maintaining contribution from them?
Operator
Absolutely.
Scott Henry
Okay. And shifting gears and I know it's early, but when we think of 2025, how should we think about the incremental launch costs for DFD-29, both from a sales force expansion and from expansion of promotional resources thinking?
Claude Maraoui
Sure, Scott. So yes, we're very excited and we believe that we will be getting the approval in right at November 4th of this year.
And in terms of timing for the launch of DFD-29, it'll be in Q1 at the at the latest early Q2. So from that standpoint right now, when you take a look at our commercial footprint, our sales grew our sales team right now in the realization market as well as our other markets covers 80% of the top MSAs across the country. And then when you take a look at that further and look into the areas that we cover, including rows, Asia, hyperhidrosis and acne. We are controlling about 75% of the prescriptions total prescriptions in the marketplace now higher than that in realization. So I think we've got a good good baseline right here. You know, we will take a look at it as we get approval. That's when we'll be able to begin our negotiations with the various PBMs and the managed care plans. And as we start to get more acceptance, we can see us most likely expanding as we go through this over the next 6 to 18 months plus. So where we are right now, we're about 35 representatives. We feel very good about starting off with our coverage with them from the get-go and as we increase our covered lives, well, you'll see us expand. I think that expansion, if I had to guess here, we're going to certainly do a study to make sure that we have it right to go up as high as 45 to 50 individuals.
Scott Henry
Okay, great. Thank you for that color. And a final question just on the core products, particularly Q Brexit and Accutane any and we will see the numbers in the 10 K. But any anything notable as far as trend changes going into 2024?
Claude Maraoui
Sure. Yes. So those are our top two products that our sales force and marketing team focuses on. I can tell you, I'll start out with Accutane really tremendous growth. If we look at IMS prescriptions. It's 27% growth year over year from from '22 to '23. So we've really had a nice surge in prescription volume levels there.
And in terms of another indicator with the Q Brexit. Again, when you take a look between '22 versus '23, we had approximately a 6% plus increase in prescription levels. So I think the marketing messages and the emphasis with the sales force on continues to move those products. We're looking for core growth with the with those two brands as well as Oxy and Zeke in 2025.
Scott Henry
Okay, great. Thank you for taking the questions.
Operator
Once again, if you would like to ask a question, please press star and then one. Our next question comes from Kalpesh Patel from B. Riley Securities.
Kalpit Patel
Pete, congrats on the thanks for taking the questions. In the past, you communicated that since erythema was a secondary endpoint, it could potentially be included on the label for DFD-29. Now that you have the official NDA acceptance has the FDA given any additional guidance on that aspect of the filing? Thank you.
Claude Maraoui
Yes. Thank you for the question and a pleasure to meet you. I'll start off and then I'm going to pass it on to Dr. Sogeti who can give more detail. The two Phase 3 clinical trials of the evidence and and numbers statistical superiority are really very, very strong. So we do feel rather comfortable and confident that we should be able to get this erythema indication as part of the label. And I'm going to pass it on to Srinivas here to get into more detail.
Srinivas Sidgiddi
Thanks, Claude. Hi, Jay. That's a very good question. And I would like to say that the secondary endpoints were discussed with the FDA before the study started. And these endpoints have been adjusted for multiplicity, which is a statistical concept by which it means that an endpoint can be assessed only after the previous endpoint is successful. And when the endpoints are multiplicity adjusted, these endpoints can end up in the label. So having been discussed with the FDA, we are sure that this this endpoint is very likely to end up on the label If the FDA accepts the data.
Kalpit Patel
Okay. Thank you. That's very helpful.
Srinivas Sidgiddi
Thank you. And I think there was another part of that question, which was about any indication by the FDA on the erythema front so far, there is no no particular indication from the FDA. I think that we are good so far. We are on course, quick country.
Operator
Thanks. And ladies and gentlemen, in showing no additional questions, we'll be concluding today's question and answer session as well as today's conference call. We do thank everyone for joining.
You may now disconnect your lines.
