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Journey Medical Corporation: A Promising Dermatology Play with Exciting Growth Prospects
Published on September 24, 2024 | Ticker: DERM

Journey Medical Corporation (NASDAQ:DERM) is a commercial-stage pharmaceutical company that primarily focuses on the selling and marketing of FDA-approved prescription pharmaceutical products for the treatment of dermatological conditions. The company's current product portfolio includes seven branded and two authorized generic prescription drugs for dermatological conditions that are marketed in the U.S.

Financials

Journey Medical's financial performance in recent years has been mixed, but the company is now poised for a turnaround. In the fiscal year 2023, the company reported annual revenue of $79.18 million, a decrease from the previous year's $83.02 million. However, the company's annual net income was -$3.85 million, an improvement from the previous year's -$10.14 million. The company's annual operating cash flow was $5.24 million, and its annual free cash flow was $0.24 million.

In the first quarter of 2024, Journey Medical reported revenue of $13.03 million, a 7% increase from the same period in the previous year. The company's gross profit margin increased slightly year-over-year, driven by higher sales. Research and development (R&D) expenses increased by $5.9 million from the prior year quarter, primarily due to a $4.1 million DFD-29 application fee payment to the FDA and a $3 million expense for a contractual milestone payment triggered by the FDA's acceptance of the DFD-29 application. These one-time expenses were offset by lower DFD-29 clinical trial expenses as the project winds down.

Selling, general, and administrative (SG&A) expenses decreased by $4.7 million, or 35%, from the prior year quarter as a result of the company's continued expense management efforts. This is in addition to the $15.6 million reduction in SG&A in 2022 to 2023 that the company reported at year-end.

The company's net loss to common shareholders for the first quarter of 2024 was $10.4 million, or $0.53 per share, compared to a net loss of $10.1 million, or $0.57 per share, in the first quarter of 2023. The loss for the period was substantially due to the one-time charges for the FDA application fee and the milestone payment.

On a non-GAAP basis, Journey Medical's adjusted EBITDA for the first quarter of 2024 was positive $11,000, reflecting the company's third consecutive non-GAAP adjusted EBITDA positive quarter. This compares to a non-GAAP adjusted EBITDA loss of $5.3 million for the first quarter of 2023. The company expects non-GAAP adjusted EBITDA to increase more significantly throughout the remainder of 2024.

Liquidity

Journey Medical ended the first quarter of 2024 with $24.1 million in cash, compared to $27.4 million at the end of 2023. The cash burn for the quarter reflects the company's cash outlay for the one-time FDA application fee payment of $4.1 million, offset by positive cash flow from operations.

Outlook

The company is on track to meet and potentially exceed the financial guidance it communicated at year-end, which includes net revenues in the range of $55 million to $60 million, SG&A expense in the range of $39 million to $42 million, and R&D expense in the range of $9 million to $10 million.

Recent Developments

One of the key drivers of Journey Medical's growth is its DFD-29 product candidate, a novel oral therapy for the treatment of rosacea. In 2023, the company announced positive topline data from its two DFD-29 Phase 3 clinical trials, which achieved the co-primary and all secondary endpoints. The Phase 3 clinical trials demonstrated that DFD-29 achieved statistical superiority over both the standard of care, Oracea® capsules, and placebo for Investigator's Global Assessment treatment success and the reduction in the total inflammatory lesion count in both studies.

The company recently conducted market research that focused on two critical groups: prescribers of rosacea treatments and payers that represent a majority of commercial insurance plans. The feedback was overwhelmingly positive, with healthcare prescribers confirming their willingness to adopt and prescribe DFD-29 for rosacea patients at an adoption rate of 79%. Additionally, the data shows that most, if not almost all, PBMs, GPOs, and other managed care organizations are likely to contract with Journey Medical to provide coverage for DFD-29 for over 200 million lives.

Journey Medical submitted its new drug application for DFD-29 on January 4, 2024, and the application was accepted by the FDA on March 13, 2024. The FDA provided the company with key timelines of the review process and a PDUFA date of November 4, 2024. Given the impressive efficacy and safety data generated from the DFD-29 Phase 3 clinical trial program, the company remains highly confident that the FDA will provide approval by the PDUFA date.

Product Portfolio Performance

In addition to the DFD-29 opportunity, Journey Medical's current product portfolio includes several key brands that have been driving the company's growth. QBREXZA and ACCUTANE, the company's two largest revenue contributors, generated over $10.8 million in revenue in the first quarter of 2024, representing a 24% year-over-year increase. QBREXZA grew by approximately 1,800 prescriptions, and ACCUTANE grew by 29,000 prescriptions when compared to the first quarter of 2023, showing strong progress for both brands.

Strategic Initiatives

The company's strategic pivot to significantly reduce SG&A expenses during 2023 in order to achieve profitability has shown to be a success. This was most recently evidenced by the company's performance during the first quarter, where it was able to achieve 7% revenue growth and profitability in its base business with only 35 territories, compared to the 59 territories it had in the first quarter of 2023.

Journey Medical's business development efforts also continue to be a focus. The company is actively exploring opportunities to out-license its intellectual property and related technologies to interested and capable companies outside of the United States. In 2023, the company entered into an out-licensing agreement with Maruho, which resulted in a $19 million upfront licensing payment for the rights to develop and commercialize QBREXZA in certain Asian countries.

Additionally, the company continues to survey the dermatology landscape for new product opportunities that it can acquire or in-license, both FDA-approved products and late-stage product candidates. Executing on one or more of these opportunities would allow Journey Medical to bring in additive revenue with minimal investment in its infrastructure, adding to both its top and bottom lines.

Conclusion

In conclusion, Journey Medical Corporation is a promising dermatology play with exciting growth prospects. The company's strong performance in its core brands, the anticipated launch of the DFD-29 product candidate, and its continued focus on expense management and business development initiatives position it well for future success. Investors should closely monitor the company's progress as it navigates the regulatory approval process for DFD-29 and continues to execute on its strategic priorities.

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