Executive Summary / Key Takeaways

• Journey Medical is strategically pivoting towards sustainable profitability, leveraging an optimized commercial model and the recent U.S. launch of Emrosi, a differentiated oral treatment for rosacea with demonstrated clinical superiority over the current standard of care.
• Emrosi's unique modified-release formulation and strong Phase 3 data, including statistically significant reduction in inflammatory lesions and erythema, position it as a potential new standard of care in the multi-billion dollar rosacea market, driving initial prescription uptake and payer access gains.
• While Q1 2025 revenue was flat year-over-year at $13.1 million, initial Emrosi sales of $2.07 million offset declines in Accutane and Legacy products, demonstrating the new product's immediate impact and the resilience of Qbrexza against new competition.
• Expense optimization efforts have improved gross margins (64% in Q1 2025) and contributed to positive non-GAAP adjusted EBITDA in recent quarters, though increased SG&A for the Emrosi launch and past R&D costs contribute to ongoing GAAP net losses and raise going concern considerations.
• The company aims to achieve sustainable EBITDA positive status later in 2025, with future catalysts including increasing Emrosi payer coverage (targeting 12-18 months for peak access), additional clinical data publications, and potential business development activities to monetize intellectual property globally.

Setting the Stage: A Focused Approach to Dermatology

Journey Medical Corporation is a commercial-stage pharmaceutical company dedicated to the U.S. dermatology market. Founded in 2014, its core strategy revolves around acquiring or licensing FDA-approved prescription products and commercializing them through a specialized field sales organization. This model allows the company to build a portfolio addressing common skin conditions, aiming to provide value to patients, physicians, and shareholders.

The dermatology market is characterized by a mix of large, diversified pharmaceutical companies and smaller, specialized players. Large competitors like Pfizer (PFE), AbbVie (ABBV), and Johnson & Johnson (JNJ) possess vast resources, broad portfolios, and global reach, often focusing on high-margin biologics or established brands. Bausch Health (BHC) and generic manufacturers compete on cost, particularly in mature product categories. Journey Medical positions itself by focusing on specific dermatology niches where it believes its products can offer differentiated clinical value, leveraging a targeted commercial footprint rather than attempting to compete on the scale or breadth of larger rivals. The company's strategic pivot in 2023 to significantly reduce SG&A expenses, including rationalizing its sales force, reflects a focus on efficiency and profitability within its chosen market segment. This move, which reduced total expenses by approximately $22 million since early 2023, has been instrumental in achieving positive non-GAAP adjusted EBITDA in recent quarters, demonstrating the potential operating leverage of the business model.

Central to Journey Medical's current narrative is the launch of Emrosi, a novel oral treatment for rosacea. This product represents a significant step for the company, being its first internally developed asset and targeting a substantial market with a differentiated technological profile.

Technological Edge: Emrosi's Differentiated Formulation

Emrosi (Minocycline Hydrochloride Extended Release Capsules, 40 mg) stands as Journey Medical's key technological differentiator. It is a modified-release oral minocycline formulation, uniquely comprised of 10 mg immediate release and 30 mg extended release components. This design allows for a controlled delivery profile.

The tangible benefits of Emrosi's technology were highlighted in its Phase 3 clinical trials, which demonstrated statistical superiority over both placebo and ORACEA, the current market-leading oral standard of care for rosacea. Specifically, Emrosi showed superior efficacy in achieving Investigator Global Assessment (IGA) treatment success and reducing total inflammatory lesion count. Beyond the primary endpoints, the trials also yielded positive and statistically significant results on secondary endpoints, notably the reduction in erythema (skin redness) compared to placebo. Management believes this erythema benefit is a meaningful clinical result that can further differentiate Emrosi's product profile, even if not explicitly included in the initial label indication for inflammatory lesions. Furthermore, Emrosi is positioned as the lowest-dose oral minocycline available, which may contribute to its favorable safety and tolerability profile, reported as similar to placebo in trials.

For investors, Emrosi's differentiated technology and superior clinical profile are crucial. They form the basis of the product's competitive moat against established treatments like ORACEA and generic minocycline/doxycycline. This clinical edge supports the potential for premium pricing and market share capture in the estimated $1.2 billion U.S. rosacea market (oral and topical). The company is pursuing further R&D initiatives related to Emrosi, including anticipated publications on a microbiology study demonstrating sub-antimicrobial effects and a study on quality of life improvement, aiming to further bolster the product's clinical value proposition and support its positioning as a potential new standard of care.

The Journey to Launch and Early Traction

Journey Medical's history has built towards this moment. Acquisitions like Qbrexza (for hyperhidrosis) from Dermira in 2021 and the licensing of Accutane (for acne) from DRL (RDY) in 2020 established a core portfolio and commercial presence. The assumption of Amzeeq and Zilxi rights in 2022 further diversified its topical offerings. These products, along with others like Exelderm and Targadox, formed the base business. The 2023 strategic cost reductions aimed to make this base business profitable on an operational level, providing a foundation for future growth. Business development efforts, such as the 2023 out-licensing of Qbrexza rights in Asia to Maruho for a $19 million upfront payment, have also provided non-dilutive capital.

The path to Emrosi's launch involved significant investment. The company entered into a license agreement with DRL in 2021, including an upfront payment and contingent milestones. Funding for R&D and commercialization was supported by the SWK Credit Facility (expanded to $25 million) and the ATM program. Milestone payments totaling $18 million were made to DRL in 2024 upon NDA acceptance and FDA approval (November 1, 2024), transferring the asset to Journey. These R&D costs, while necessary for bringing Emrosi to market, contributed to recurring losses and the going concern note in the Q1 2025 financials.

The first quarter of 2025 marked the official market introduction of Emrosi. Initial supply became available in March 2025, with distribution to pharmacies commencing and the first prescriptions being filled late in the quarter. Sales promotion by the existing commercial team began in April 2025. This initial activity contributed approximately $2.07 million in net product revenue in Q1 2025, primarily representing stocking in the distribution channel.

Early indicators for the launch are encouraging. As of the Q1 2025 call, over 660 unique healthcare providers had written prescriptions for Emrosi. Management views this as a testament to the team's effectiveness and the unmet need Emrosi addresses. The company is leveraging its existing commercial footprint, which actively calls on approximately 83% of dermatology offices that prescribe oral rosacea treatments, providing high reach and brand equity for Emrosi penetration.

Financial Performance and Operational Dynamics

Journey Medical's financial performance in Q1 2025 reflects the early stages of the Emrosi launch and dynamics within its existing portfolio. Total net product revenue was $13.139 million, consistent with $13.030 million in Q1 2024. The $2.070 million in initial Emrosi revenue in Q1 2025 was offset by a $2.164 million decrease in Accutane revenue (down 37%) and a $0.439 million decrease in Other Legacy products (down 38%). Accutane's decline was attributed to lower sales volume driven by recent market competition, while Legacy products continued to be impacted by generic competition (specifically Targadox). Qbrexza, however, showed resilience, increasing slightly to $5.161 million from $5.017 million (up 3%), and management noted strong prescription growth (15% in March and April 2025 vs. prior year) despite the entry of a new competitor, Sofdra. Amzeeq and Zilxi also showed significant growth, up 46% and 56% respectively in Q1 2025.

Gross margin improved significantly to 64% in Q1 2025 from 54% in Q1 2024. This increase was primarily due to a lower overall product cost of goods related to the product sales mix and the absence of nonrecurring charges present in the prior year.

Operating expenses saw notable shifts. Research and development costs dropped dramatically to $39 thousand in Q1 2025 from $7.884 million in Q1 2024, reflecting the conclusion of the Emrosi Phase 3 clinical program and related pre-approval expenses and milestone payments that occurred in the prior year. Selling, general and administrative expenses increased by $2.149 million, or 26%, to $10.569 million in Q1 2025, primarily due to incremental operational activities associated with the Emrosi launch.

The net loss for Q1 2025 was $4.073 million, a substantial improvement from the $10.442 million net loss in Q1 2024. This improvement was largely driven by the significant reduction in R&D expenses, partially offset by increased SG&A and higher interest expense ($0.891 million in Q1 2025 vs. $0.548 million in Q1 2024) due to the higher principal balance on the SWK Credit Facility.

Financially, the company ended Q1 2025 with $21.070 million in cash and cash equivalents, up from $20.305 million at December 31, 2024. Working capital also increased to $13.8 million. Net cash used in operating activities decreased to $2.832 million in Q1 2025 from $5.019 million in Q1 2024, primarily due to the lower net loss, partially offset by changes in working capital like an increase in accounts receivable related to the Emrosi launch. Net cash provided by financing activities increased to $3.597 million from $1.637 million, driven mainly by $4.048 million in net proceeds from the ATM offering in Q1 2025.

Despite the improved Q1 performance and cash position, the company's recurring losses, primarily from past Emrosi R&D costs, continue to raise substantial doubt about its ability to continue as a going concern for at least twelve months from the Q1 2025 filing date (May 15, 2025). The company relies on its cash on hand, product sales, the SWK Credit Facility, and the ATM program to fund operations and evaluates financing alternatives.

Competitive Dynamics and Market Access

The dermatology market is intensely competitive. For Emrosi, the primary competitor is ORACEA, the established oral standard of care. Journey Medical's strategy is to directly challenge ORACEA based on Emrosi's demonstrated clinical superiority in head-to-head trials. Management believes this efficacy advantage, coupled with the favorable safety profile and erythema benefit, provides a strong value proposition to prescribers. Early prescriber adoption (over 660 writers) and inclusion in the National Rosacea Society's treatment algorithms signal initial acceptance within the dermatology community.

Securing payer coverage is critical for Emrosi's commercial success. Market access efforts began immediately after FDA approval. As of the Q1 2025 call, approximately 30% of covered commercial insured lives had access to Emrosi. The company recently contracted with a large commercial GPO, with access for its members beginning July 1st, and expects additional payer agreements in the coming months. While some payers may require step therapy through generic oral agents (minocycline/doxycycline), management noted that some payers are adopting unrestricted access. The goal is to increase covered lives substantially, with peak commercial coverage anticipated within 12 to 18 months from launch.

Beyond Emrosi, Journey Medical faces competition across its portfolio. Accutane competes in the isotretinoin market, which saw new generic entries in 2024, impacting Journey's sales volume. Legacy products like Targadox face continued erosion from generics. Qbrexza competes in the hyperhidrosis market, where a new competitor (Sofdra) launched in January 2025. Despite this, Qbrexza has shown strong prescription growth, suggesting that increased market awareness may benefit effective treatments in the category.

The company's competitive advantages lie in its focused commercial team's deep relationships within dermatology, its portfolio of FDA-approved products with intellectual property protection (Emrosi patents to 2039, Qbrexza to 2030, Amzeeq to 2031, Zilxi to 2027), and the clinical differentiation of key products like Emrosi and Qbrexza. However, disadvantages include smaller scale compared to large pharma, reliance on third parties for manufacturing and distribution, and vulnerability to generic competition for older products. External risks like potential tariffs on imported pharmaceutical ingredients (a large portion sourced from India) and evolving healthcare reform/reimbursement policies could also impact profitability and competitive positioning.

Outlook and Future Catalysts

Journey Medical is focused on driving the successful commercialization of Emrosi and achieving sustainable profitability. While specific full-year 2025 financial guidance will be provided later, management expressed confidence that Emrosi's launch momentum and the underlying performance of the core portfolio, combined with expense management, will enable the company to become sustainably EBITDA positive later in 2025.

Key catalysts for the remainder of 2025 include the continued ramp-up in Emrosi prescription volume as the sales team executes and awareness grows, securing additional significant payer agreements to expand covered lives, and the anticipated publication of further clinical data on Emrosi (microbiology/sub-antimicrobial effects, quality of life), which can support promotional efforts and clinical adoption. The company also plans to maintain its presence at dermatology medical congresses.

Beyond Emrosi's launch, Journey Medical continues to pursue business development opportunities. This includes out-licensing its intellectual property globally for products like Qbrexza, Amzeeq, Zilxi, and potentially Emrosi, and in-licensing or acquiring new revenue-generating FDA-approved products or late-stage candidates that fit its commercial model. These activities could provide additional non-dilutive capital and leverage the existing infrastructure for further top and bottom-line growth.

Conclusion

Journey Medical stands at a pivotal juncture, transitioning from a period of significant investment in R&D and operational restructuring to a growth phase centered on the commercial launch of Emrosi. The initial market introduction of Emrosi in Q1 2025, contributing meaningful revenue and showing early prescriber uptake, is a promising start. Leveraging Emrosi's clinically differentiated technology and the company's focused dermatology commercial expertise, Journey Medical aims to capture significant share in the rosacea market.

While challenges remain, including managing the financial implications of past losses, securing broad payer access, and navigating competitive pressures across its portfolio, the strategic focus on efficiency and the potential of Emrosi provide a clear path towards sustainable profitability. Investors should monitor the pace of Emrosi's prescription growth, the expansion of payer coverage, and the company's progress towards achieving its stated goal of becoming sustainably EBITDA positive later this year as key indicators of the investment thesis unfolding. The successful execution of the Emrosi launch and continued disciplined expense management will be critical determinants of Journey Medical's future trajectory.