DERM - NASDAQ

Ladies and gentlemen, thank you for standing by. Good day, and welcome to Journey Medical's Second Quarter 2024 Financial Results and Corporate Update Conference Call. [Operator Instructions]. I would like to turn the conference over to Ms. Jaclyn Jaffe, the Company's Senior Director of Corporate Operations. Please go ahead, ma'am.

Good afternoon, and thank you for participating in today's conference call. Joining me from Journey Medical's leadership team are Claude Maraoui, Co-Founder, President and Chief Executive Officer; Joseph Benesch Chief Financial Officer; Dr. Srini Sidgiddi, Vice President of Research and Development; and Ramsey Alloush, 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 Journey Medical's most recently filed periodic reports on Form 10-K and Form 10-Q and 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 net loss, 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, Monday, August 12, 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 Claude Maraoui, Co-Founder, President and Chief Executive Officer of Journey Medical.

Thank you, Jaclyn, and good afternoon to everyone on the call today. I am pleased to report on the ongoing progress that we are making at Journey Medical. Our second quarter results were solid with $14.9 million in net product revenue. We believe that our second quarter performance demonstrates that we remain on track to meet our 2024 annual revenue guidance range of $55 million to $60 million. We also believe that our second quarter results highlight the strength of our base business as we await the November 4 PDUFA date for DFD-29, our product candidate for rosacea. With our core portfolio of prescription dermatology brands generating operating cash, and direct commercial organization already calling on physicians that generate greater than 90% of prescriptions written in our dermatology network, we believe we are well for leverage to DFD-29 opportunity. Looking at the TRxs for our top brands, QBREX

Thank you, Claude, and good afternoon to everyone on the call. Our net product revenue for the second quarter of 2024 was $14.9 million compared to $17 million for the second quarter of 2023. The decrease from the prior year period was primarily due to the timing of custom orders for QBREX

The second quarter results demonstrate the strength of our base business as we delivered revenue results on track with our annual guidance range and generated our fourth consecutive quarter of positive non-GAAP adjusted EBITDA. We've strengthened the IP position around our core dermatology portfolio established a productive business development platform and right-sized our operations, positioning us well strategically and financially in advance of an anticipated DFD-29 launch, which has transformative potential for our business. Thank you. Operator, we are now ready to open the lines for Q&A.

[Operator Instructions]. And the first question will come from Kalpit Patel with B. Riley Securities.

Maybe one related to DFD-29. And looks like for Oracea, there was a generic entry a little sooner than we had anticipated, and it looks like there was a launch in April-May time frame. So a question for you is, does that in any sense, impact your internal forward estimates for DFD-29 launch?

Kalpit, this is Claude. So yes, Lupin came out in April of this year. They have a very similar, if not identical price to the Oracea AG that's out there. And in terms of our moving forward and negotiations with the payers, we do not see this as a critical factor in any headway.

And then assuming you guys get FDA approval here in November, what early metrics would you recommend investors to focus on in the first few quarters of launch that might be useful.

Well, sure. Just too sort of take one step back. We're anticipating an approval on November 4, our PDUFA date. At that time, we're anticipating having product delivered and hopefully, into our 3PL for product distribution. We are targeting sometime in late Q1 for that to take place. If anything, falls up from label printing. It could put us into April, but we are counting towards March right now. So we'll get distribution moving in March. And then the sales and marketing team will execute on the pull-through with the product beginning in Q2. Some of the metrics I would certainly look for if I was an investor, is after the first full month is just where our prescriptions landed and what sort of volume that we've created there. So one would be prescriptions. I think another metric that one should follow is to see the uptick in physician adoption. So how many unique prescribers begin to prescribe DFD-29 and the market share that we start to share in the field with Oracea and the other generic that you just mentioned. I think those are three basic areas that I would look to early on in a launch.

And how should we think about the SG&A ramp for fiscal year 2025. And as a follow-up, do you expect to give forward guidance maybe starting next year when you're in your launch phase?

Sure. Yes. We have been preparing for DFD and the marketing and everything that comes along with executing a flawless launch early next year in the first half of next year. So in terms of marketing spend, SG&A spend, I think for pre-approval, you're seeing a few million dollars already put into play here. In 2025, we'll certainly meet that and exceed that to execute our launch for DFD. In terms of the forecast that we will give as we get closer to the launch next year, we'll plan on giving some sort of guidance as we had done this year in 2024. I just think it's a bit early right now for us to comment on that Kalpit.

Next question will come from Scott Henry with Alliance Global Partners.

Thank you, and good afternoon. Couple of questions. For starters, gross margins, as expected, ticked up in 2Q relative to first quarter. Would you expect a continued increase in gross margins in the third quarter and fourth quarter of the year?

Joe, would you like to take that please?

Sure. Scott, our margins definitely will continue to grow. Right now, we're at the lowest level of royalty for QBREX

And then on SG&A, it looked like about $8.4 million in first quarter, $10.3 million in second quarter, which one of those numbers do you think is more reflective of what we should expect going forward?

Scott, I think you're going to see it right in between and probably in the $9 million mark, and we're in line with our guidance and expectations for the total SG&A line for the year.

And then with regards to DFD-29, the erythema, the data there is strong and you want to get it in the label. When we think about that, in the label? Should we think about the data being in the label? Or could this potentially be a client within the indications?

Yes. Dr. Sidgiddi, would you like to take that one, please?

So with the erythema, we have 2 things over there. One is the claim, the indication itself, which would be erythema in addition to inflammatory lesions. We also have data that we have in the proposed PI, and we expect data for erythema to be there in the label as well.

Final question. AM

Yes, Scott. There was some growth there with both of the brands combined. Absolutely.

Okay. And I guess, even though that was supposed to be the last question. I guess, Accutane, we'll see the numbers when we look at the filing, but it sounds like that was a new record quarter for revenues there. Is that an accurate statement?

Yes. I think that probably Joe can give more specifics, but you'll see revenue for Q2 with Accutane match up relatively equal to what you saw in Q1 of this year. So maybe a little bit higher.

Next question will come from Jason Wittes with Roth.

On DFD-29, this -- excuse me, external poll you took of purchasers and reimbursers. What is that -- what kind of confidence that give you out of the gate in terms of where you might be with reimbursement in the purchasers? And in terms of how many years that you think it might take to get full penetration of the DFD-29 opportunity?

Yes. Sure, Jason. First of all, the survey that we took was a third party independent from us looked at about 220 million lives in total. We feel like a benchmark for us to really go out there and shoot for could be close to that 200 million lives in coverage. So that's really what we're going to strive for once we get approval and once negotiations begin, in terms of the uptake and when we would expect to have that full lives in terms of our coverage, that could take anywhere from 6 months to 12 months, perhaps a little bit longer. But that's pretty much the guidance we're giving here.

Okay. That's very helpful. And then in terms of -- there may be a question about this before, but in terms of SG&A and specifically sales force build. It sounds like roughly $9 million is the right SG&A number for this year. My understanding was there might be a little bit of growth in that next year with the launch of DFD-29 specifically, you may add additional sales people. Is that the right way to think about it? Or is sort of this rate is kind of the rate we should anticipate even going into next year?

Yes. In terms of looking at the sales force, I think we're in a really solid place with our platform as is. If I give you a few points here, 92% of all of ratio's prescriptions come from dermatology and that's over 300,000 prescriptions in a year. When we look at those physicians and profile them we have 90% of those prescribers have been writing Journey Medical products already. So we're calling on the right people and then of the coverage has written specifically Oracea prescriptions as well. So with our current 35 sales configuration, I think you're going to see us stay at the same amount moving into launch, depending on our hockey stick ramp up and what our needs are, we will continue to analyze and see if we want to fill other territories that make sense, but we're going to wait and launch with this current configuration. So from a headcount I think you'll see very minimum, if anything, you'll see perhaps maybe 5 sales additions towards the end of 2025. If that. And then in 2026, we'll reassess. In terms of our marketing spend for its part in SG&A, I think we're well set with what we have already configured. So Joe, I'll give you the mic over here on SG&A for anything else you wanted to add on it.

Sure. Thanks, Claude. So to answer your question, no, you're not going to see a huge ramp-up in SG&A from year-over-year going to be pretty consistent. You will see some marketing expenses come through. You are seeing some inflationary cost increase, but you're not going to see anything enormous come through any kind of big swings.