Journey Medical Corporation (NASDAQ:FBIO) Q2 2022 Results Conference Call August 9, 2022 4:30 PM ET
Company Participants
Claude Maraoui – Co-Founder President and Chief Executive Officer
Ernest De Paolantonio – Chief Financial Officer
Ramsey Alloush – General Counsel
Dr. Srinivas Sidgiddi – Vice President of Clinical Development and Medical Affairs
Conference Call Participants
Brandon Folkes – Cantor Fitzgerald
Mayank Mamtani – B. Riley FBR
Operator
Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the Journey Medical’s Second Quarter 2022 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and it’s also being recorded for playback purposes. Our 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 [Jos Abraham] of [Korier], the Company’s Investor Relations. Please go ahead, sir.
Unidentified Company Representative
Thank you, Carolyn. Good afternoon, everyone. And thank you for participating in today’s conference call. Joining me from Journey medical Corporation’s leadership today are Claude Maraoui, Co-Founder President and Chief Executive Officer, Ernest De Paolantonio, Chief Financial Officer, Ramsey Alloush, General Counsel and Dr. Srinivas Sidgiddi, Vice President of Clinical Development and Medical Affairs, who will also be joining us for the question-and-answer session.
During this call, management will be making forward-looking statements including statements that address Journey Medical’s expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described 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 within.
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, nor as a substitute for results prepared in accordance with GAAP. For 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 contents of this call contain time sensitive information that is accurate only as of today, August 9, 2022. 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’s now my pleasure to turn the call over to Claude Maraoui Co-Founder President and Chief Executive Officer. Claude.
Claude Maraoui
Thanks, Jules. Good afternoon, and thanks to everyone for joining or second quarter 2022 conference call. Journey continued to show solid growth in the second quarter of 2022, despite the challenge of supply chain delays during the quarter that reduced the availability of product for sale. However, this was a temporary setback as these delays were resolved in July, and we feel confident that we will recover a significant portion of these lost revenues over the remainder of the year. Our flagship products QBREXZA and Accutane continue to gain momentum in the market and the additional cost contributions of our recently acquired products AMZEEQ and ZILXI, coupled with the launch of one additional prescription product in the second half of this year, positions us for yet another year of record revenue growth.
We achieved net sales of $18.3 million, an increase of 20% when compared to the second quarter of 2021, which was driven primarily by the strong performance of QBREXZA and ACCUTANE. We began selling these products in the second quarter of 2021, which achieved combined net sales of 6.5 million versus this quarters combined net sales of 11.3 million, which represents a growth rate of 74%. This growth was slightly offset by product shortages in the quarter for Ximino and Exelderm, as well as the continued generic competition for Targadox, which was 3 million less than the prior two years period.
Looking forward, we will continue executing our strategy of supporting and growing our newly acquired and launched products to QBREXZA, Accutane and AMZEEQ and ZILXI.
The second quarter was also impacted by an update to our managed care claim estimates, particularly for the recently acquired assets of AMZEEQ and ZILXI. As the actual Managed Care Claim experienced, emerged greater than expected. On the development front, we continue to be excited about the ongoing progress of our pivotal Phase 3 clinical program for DFD-29, which is being evaluated for the treatment of papulopustular rosacea in adults. Patient enrollment is tracking according to plan. And with the recent addition of nine sites this quarter, we have already achieved and reached 45% of our targeted enrollment of 640 patients in the two trials.
We anticipate announcing top-line data from the trials in the first half of 2023. With the submission of our new drug application in the second half of 2023. To reiterate, the market opportunity for DFD-29 is a mess, as an estimated 16 million patients in the U.S. suffer from rosacea, which equated to an estimated $1 billion in prescription sales in 2021. The Phase 2 clinical data for DFD-29 demonstrated nearly double the efficacy overall ratio to current market leader with 340 million prescription sales in 2021.
We estimate that our peak net sales for this product will be in excess of $100 million. While we face some unforeseen challenges this quarter, we are confident that these issues have been resolved, and we look forward to another record year of growth in sales. The foundation of our future growth continues to be the expansion of our product portfolio through in licensing and acquiring of commercial and late-stage development assets that will allow us to continue to leverage our industry leading sales force.
With that, I’ll now turn the call over to Ernie, our Chief Financial Officer who will review our financial results for the second quarter.
Ernest De Paolantonio
Thanks, Claude, and hello, everyone. I will now review the second quarter financial results. Total net revenues increased 3 million or 20% to $18.3 million for the three months period ending June 30, 2022 from 15.3 million for the three month period ended June 30, 2021. Net revenue growth from period the period is primarily due to year-over-year revenue growth of QBREXZA acquired and launched during the second quarter of 2021 and revenue growth in ACCUTANE launched late in the first quarter of 2021.
In addition, the increase from period to period is driven by incremental net revenues as a result of our newly acquired and launched products and AMZEEQ and ZILXI in January of 2022. Offsetting the increase is a decrease in revenue of 3 million from Targadox as a result of continued generic competition and XIMINO and EXELDERM supply delays from our contract manufacturers in the second quarter as Claude previously, these delays were resolved in July, and we currently have sufficient inventory to meet our current and future demand.
Cost of goods sold increased by $0.1 million to $7.6 million for the three month period ended June 30, 2022 from $7.5 million for the same period of the prior year. This credit increases primarily due to higher product cost of goods sold of 0.8 million driven by the higher volume of product sales, and noncash amortization of $0.3 million related to our acquired intangible assets due to the acquisition of AMZEEQ and ZILXI. This increase are offset by a net $1 million decrease in product cost of goods related to the inventory step up of units sold from the acquired finished goods to QBREXZA in 2021.
Selling general and administrative expenses increased by $7.4 million to $15.2 million for the three month period ended June 30, 2022, from $7.8 million for the three month period ended June 30, 2021. The increase is primarily attributable to the expansion of our sales force, marketing expenses related to our expanded product portfolio, patent litigation expenses, compliance, and other costs associated with being a public company. Research and development expenses increased to 2.6 million for the three month period ended June 30, from 29,000 for the three month period ended June 30, 2021. The increase is attributable to clinical trial expenses of our DFD-29 candidates, for which dosing began in March of 2022. These expenses will increase as more patients are fully enrolled in the trials in the coming months.
Research and development licensing acquired decrease $13.7 million or 100% for the three month period ended June 30, 2022, from the prior period of the same quarter in 2021. The prior period expense reflects the acquisition of DFD-29 for Dr. Reddy for $10 million. And a fair value of the contingent payment due to Dr. Reddy of 3.7 million. Net loss attributable to common shareholders was $7.5 million or $0.43 per share basic and diluted for the second quarter of 2022 compared to a net loss attributable to common shareholders of 11.9 million or $1.30 per share basic and diluted for the second quarter of 2021.
Our non-GAAP adjusted EBITDA for the quarter after adjusting for R&D expenses related to DFD-29 was a loss of $2.6 million and on a year-to-date basis is negative $263,000. This does not take into account the impact that certain product delays had on our sales in the quarter. We believe that this non-GAAP adjusted EBITDA figure will turn positive in the upcoming quarters as it has been since 2017.
At June 30, 2022, we had $38.1 million in cash and cash equivalents as compared to $49.1 million at December 31, 2021. As mentioned in our press release, we received encouraging news regarding our cybersecurity breach, which resulted in losses to us of 9.5 million from the FBI and the Department of Homeland Security that a significant amount of cryptocurrency associated with the breach has been seized and that will be soon in the liquidation process over the upcoming months for the eventual return to Journey Medical. We are not able at this time to estimate the exact amount or the timetable for receiving the funds.
Finally in August, we borrowed the additional 5 million available from the second tranche of the term loan with East West Bank. The additional 5 million is part of our operating plan of supporting DFD-29 clinical program and working capital.
And with that I will turn the call back over to Claude. Thank you.
Claude Maraoui
Thank you, Ernie. We are looking forward to achieving a day National milestone events in the second half of 2022 including the completion of second half of 2022, including the completion of enrollment for both Phase 3 clinical trials for DFD-29 and the launch of another prescription dermatology product to add to our portfolio. With a strong foundation and the continued momentum in our new products, we expect to achieve another year of record revenues in 2022.
I will now turn the call over to the operator for questions. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes with Brandon Folkes with Cantor Fitzgerald.
Brandon Folkes
Maybe just for me starting off on DFD-29. What do we need to see in the data in order to differentiate the product from others? And then how does the enrollment at the stage compare to your initial expectation?
Claude Maraoui
I’ll just start I’m going to hand it over to our Vice President of Clinical Development, Dr. Srinivas Sidgiddi. But overall, in summary, we are on track regarding the clinical trials for DFD-29 and enrollment and going on track with our plan. I’m going to have Dr. Sidgiddi take it from here and give you some more details. Sidgiddi?
Srinivas Sidgiddi
16.17 The enrollment for the two studies, the Phase 3 studies MVOR-1 and MVOR-2. So that’s the acronym that we have given to the Phase 3 studies. MVOR essentially stands for minocycline versus arratia and rosacea. And the enrollment for the two studies is going on as planned, there is a slight delay on the European leg of the second study. And that is because of things that are out of our control, regulatory approvals, et cetera, have been delayed.
But otherwise, the overall enrollment still within what we had anticipated, and within the buffers that we have had. So that’s the first question or the second part of the question was about differentiation. In rosacea, we anticipate to see a significant improvement on the inflammatory lesions and the investigator global assessment, which are the two primary endpoints for this study. So we essentially would like to see a significant difference on the inflammatory lesion counts, as well as the erythema component of rosacea. Those are the two things that would differentiate us from the other products.
Operator
Next question comes with Mayank Mamtani with B. Riley FBR.
Mayank Mamtani
Just may be first on the QBREXZA sales. Could you comment on, what specific campaigns are you seeing resonate well, with your customers. And then also, if you could give us a sense of repeat versus new prescriptions? Again, I understand it’s still early days, but if you could comment on how you’re seeing that trend? And then I have a couple of follow-ups.
Claude Maraoui
Regarding QBREXZA, we have really focused in on a digital campaign with the brand and it really encompasses a few areas. One is really building awareness with the demographic in the age group that we’re targeting, and I think it’s off to a really good start. We’re focused in, for example, with Facebook and Instagram and other social media platforms to really get that message.
And again, awareness, education, and really just driving inquiries about this to the dermatology providers when these patients go and see their dermatologist. So we like that’s how it’s been progressing. Our impressions, our hitch have all been increasing nicely. And I think that’s really corresponded well, in terms of prescription demand. For example, from Q1 to Q2, Mayank, we have had approximately 25% increase in prescription growth. So I think the campaign is working well. And we’re making some progress on that front.
Could you repeat your second part of your question, please?
Mayank Mamtani
Repeat versus new prescriptions?
Claude Maraoui
Sure, sure. I think just as far as looking into the new prescriptions with Symphony data, and as of the most recent month, new prescriptions have been trending upward. In January, for example, we were at 3600 prescriptions for the month in new prescriptions. And in June, which is the most recent data, we’re all the way up to approximately 5400 prescriptions. And then when you take a look at that comparator and look at the ratio of total prescriptions, we’ve more than doubled that. So for example, again, NRx’s in June at 5400 and TRx’s in June, total prescriptions at approximately 12,000 prescriptions. So I think that’s a good indicator and sign that we are getting, and increasing our refill rates as well.
Mayank Mamtani
Great. And then a second follow-up to the earlier question that Srini addressed, if you could comment on your assumptions on the placebo and the active comparator in the two studies that you’re doing the MVOR-1 and MVOR-2 and sort of Srini could you just comment on the expectation for an effect size on the IGA and the influence that — lesion count reduction endpoint?
Srinivas Sidgiddi
Sure, Mike, thank you so much for the question. And it’s a really good question. We have looked at the efficacy that we saw in the Phase 2 study that was conducted in Europe, in which we had DFD-29, as one of the arms, and we had Oracea, that is the European Oracea, as well as placebo. And we have used those estimates, in the calculation of the sample sizes for this Phase 3 program. To give you a brief about what kind of efficacy we have seen there, We had seen IGA treatment success of 66% for the DFD-29 40 mg, versus 33% for Oracea, and 11% for placebo. Those were the estimates that we use for calculation of sample sizes.
Mayank Mamtani
Very helpful. And my final question, just high-level, maybe for Claude and ErnIE, at what stage, you will feel comfortable talking about a little longer term projection and maybe talk about giving guidance. I understand you have some one-off supply chain dynamics and with certain products, competitive dynamics. So this just curious, at what point do you feel, you’d have a good command of thinking, I had like two, three quarters and maybe even thinking about the next year from a financial guidance standpoint?
Claude Maraoui
Sure, first of all, I think we are getting closer to giving guidance in terms of getting the new assets on board that we acquired in January with AMZEEQ and ZILXI. I think in the next two quarters, definitely towards the beginning of next year, we’ll be able to give guidance moving forward there with a very comfortable range. Ernie, I’d like you to add anything onto that if you’d like.
Ernest De Paolantonio
We’re still getting our portfolio of products from normalize where we can make such estimates for our earnings. But as Claude said, I think in the upcoming quarters, you’ll see us start to provide guidance.
Claude Maraoui
Sri, if you don’t mind, just a follow-up on the DFD-29. How many sites — can you go over how many sites we have enrolled now for the study?
Srinivas Sidgiddi
So we initially planned to have 29 sites in both the studies MVOR-1 and MVOR-2, which means that we would have 58 sites for the U.S. and Europe combined. And we plan to get 640 subjects from these 58 sites. Currently, we stand at 30 sites that are enrolled into the MVOR-01 study. Those are entirely in the United States. And then on MVOR-2, we have 15 sites in the U.S. that have been enrolling patients. And we have 14 sites that are coming up in Europe, of the 14 we have nine sites in Germany that are initiated or in the process of being initiated.
We are awaiting approval from the Polish competent authority, after which we will be starting the four sites in Poland as well. So as of now we have 29 sites on DFD-29, 29 MVOR-01 study and the 15 sites in the U.S. for the MVOR-02 study plus additional five sites that have been initiated in Germany as of today.
Operator
Thank you very much gentleman and that concludes our question-and-answer session. I would like now to turn the call back over to Claude Maraoui. Please go ahead, sir.
Claude Maraoui
Thank you very much. I want to thank all of you for participating on today’s call and your interest in Journey Medical. We look forward to sharing our ongoing process when we report our third quarter results in November. Thank you and have a good day.
Operator
This conference is now concluded.
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