Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the Journey Medical First Quarter 2022 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only-mode.

Participants on this call are advised that the audio of the conference call is being broadcast live over the internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately 1 hour after the end of the call for approximately 30 days.

I would now like to turn the conference over to Jose Ibrahim of Co-IR, the company’s Investor Relations firm. Please go ahead, sir..

Thank you. Good afternoon and thank you everyone for participating in today’s conference call.

Joining me today from Journey Medical Corporation’s leadership team are Claude Maraoui, Co-Founder, President and Chief Executive Officer; Ernie De Paolantonio, Chief Financial Officer; and Ramsey Alloush, General Counsel who will be joining 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 in Journey 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 within.

Today’s conference call includes the non-GAAP financial measures and Journey Medical’s beliefs 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 reconciliation of this non-GAAP financial measure to net loss is most direct 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’s accurate only as of today May 10, 2022 and except as required by law, Journal 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?.

Thanks, Jose. Good afternoon and thanks to everyone for joining our first quarter 2022 conference call. Journey has made notable progress on several fronts during the first quarter which we believe positions the company for yet another year of record growth and results. With the acquisitions of two Vyne Therapeutics’ FDA approved products.

AMZEEQ and ZILXI, our portfolio has now grown to 9 marketed prescription dermatology products and we anticipate launching 1 additional prescription product in the second half of 2022.

The continued expansion of our product portfolio through in-licensing acquiring and developing new dermatology products, combined with our industry leading sales force is the foundation for our future growth.

Net product revenues of $20.8 million, an increase of 94% when compared to the first quarter of 2021 was driven primarily by strong results for Qbrexza and Accutane, with combined revenue of $12.3 million. These products were both launched during the first half of 2021.

In addition, we acquired and launched two new prescription dermatology products, AMZEEQ and ZILXI, which combined contributed an incremental $4.2 million in revenues for the quarter. We expect to see continued momentum with these products in 2022.

In January, our exclusive licensing partner in Japan, Maruho announced that Japan’s Ministry of Health, Labor and Welfare approved Rapifort Wipes 2.5%, the Japanese equivalent of Qbrexza for the treatment of primary axillary hyperhidrosis.

This approval triggered a net milestone payment of $2.5 million earned by Journey Medical, when included in our net revenue for the first quarter. This gives us a total of $23.3 million or an increase of 117% over the first quarter of 2021.

These excellent results are representative of our strategy to acquire, license and transform Journey Medical into a fully integrated and leading dermatology company, including R&D that will manage its overall product lifecycle.

While our new products continue to build momentum and growth, we expect that Targadox which has seen rising generic competition since Q4 of 2021 may encounter future price competition and a decline in growth.

Importantly, our commercial operations continue to generate positive cash flow with non-GAAP adjusted EBITDA of $2.3 million in the quarter after adjusting for R&D expenses related to the development of DFD-29. This compares favorably to the $1.2 million of reported adjusted EBITDA in the first quarter of 2021.

During the first quarter, we dosed our first patient in our pivotal Phase 3 clinical program for DFD-29, which is being evaluated for the treatment of papulopustular rosacea. This is a significant milestone for our company and our expectation is to reach 640 patients in the trial by the end of this year.

The market opportunity for DFD-29 is significant, as an estimated 16 million patients suffer from rosacea, which correlated to an estimated $1 billion in TRX sales in 2021. Phase 2 data of DFD-29 demonstrated nearly double the efficacy overall ratio, the current market leader with $340 million TRX sales in 2021.

As you can see, we are very excited about the opportunities already in our pipeline and we will continue to look for additional products to develop and acquire. We believe our financial foundation is strong as we ended the quarter with $41.3 million in cash.

In addition to this balance, we expanded our credit agreement, allowing us to borrow up to $30 million with EastWest Bank, of which $15 million remains available. Q1 was Journey’s first full quarter as a public company. And I am very pleased to say that we are executing on the strategic growth plan we have presented to shareholders since our IPO.

With the continued momentum of our new products and another product launch scheduled in the second half of this year and the financial flexibility to make accretive acquisitions, we believe that Journey Medical is well-positioned for continued growth in 2022 and beyond.

With that, I will now turn it over to Ernie who will review our financial results for the first quarter..

Thanks, Claude and hello everyone. I will now review the first quarter financial results. Total net product revenues increased $10.1 million or 94% to $20.8 million for the 3-month period ended March 31, 2022 from $10.7 million for the 3-month period ended March 31, 2021.

Our sales growth from period-to-period is primarily due to incremental revenues from Qbrexza, $7.4 million launched during the second quarter of 2021 and Accutane $4.9 million launched late in the first quarter of 2021, and as Claude mentioned earlier by $4.2 million of net revenues from our newly launched products, AMZEEQ, and ZILXI from the Vyne asset acquisition in January of 2022.

Targadox revenue continued to reflect generic competition primarily driven by increased promotional emphasis from our sales force to Accutane and increased pressure from generic competition.

Other revenue for the 3-month period ended March 31 reflects the net $2.5 million milestone payment to us from our exclusive out-licensing partner in Japan, Maruho as Claude also mentioned earlier and nets Journey Medical a total of $23.3 million for the quarter, a 118% increase over 2021 first quarter.

Cost of goods sold increased by $4.3 million to $8.2 million for the 3-month period ended March 31, 2022 and is primarily due to a higher sales volume of $10.1 million versus first quarter sales in 2021, incremental royalties of Qbrexza that has a higher royalty rate that will decrease notably in Q2, a gross profit of $12.6 million from product revenue was 61% and reflects the end of the step up costs for Qbrexza that expired in Q4 of 2021.

In May of Q2, Qbrexza’s royalty rate will decrease notably and we expect we will increase our gross profit percentage further for part of Q2 and in Q3 and beyond when the full effect is realized.

Research and development expenses increased $1.2 million for the 3-month period ended March 31, 2022 from zero for the same 3-month period in the prior year. The increase is related to clinical trial expenses to develop our DFT-29 product. We expect these expenses to increase as additional patients are enrolled in the trials.

Selling, general and administrative expenses were $14.7 million for the first quarter ended March 31 and is primarily attributable to the expansion of our sales force, marketing expenses related to our expanded product portfolio, and legal expenses.

Net loss was $1.4 million or $0.08 per share basic and diluted for the first quarter of 2022 compared to net income of $0.3 million or $0.03 basic and $0.02 diluted for the first quarter of 2021. And also as Claude mentioned, we remain cash flow positive in our commercial operations by $2.3 million on a non-GAAP EBITDA basis.

As of March 31, 2022, we had $41.3 million in cash and cash equivalents as compared to $49.1 million on December 31, 2021 and reflects one-time cash expenses for the purchase of the Vyne acquisition working capital required for operating expenses in the assumption of the assets acquired. And with that, I will turn it back to Claude..

Great. Thank you, Ernie. As I mentioned earlier, with the strong momentum in our new products, along with at least one additional product launch anticipated this year, we expect to achieve record revenue in 2022.

As we gain traction as a public company and continue to fully optimize and integrate our most recent acquisitions, we hope to be in a position to give guidance in the near future. I will now turn the call over to the operator for questions. Thank you..

The first question comes from Kalpit Patel with B. Riley. Please go ahead..

Yes. Hey, good afternoon. Thanks for taking my questions.

So Claude or Ernie, I think if I did the math right, your quarterly sales for the existing products were essentially flat or slightly declining, if you exclude those assets from Vyne Therapeutics? So I guess, was this primarily because of the impact that you have had from the additional competition for Targadox.

I think last quarter we learned that there were other players that were entering through.

So, was that the main reason for this decline?.

Thanks, Kalpit. Thanks for the question. First of all, I just want to want to reflect again, the sales for the full portfolio in Q1 are $20.8 million versus what we did 1 year ago at $10.7 million. So, we look at this as a full portfolio of all our assets combined together.

In terms of when you look at Targadox, certainly there has been the pressure of competition. This is something that has been anticipated in part of life cycle planning.

When you take a look at last year, in Q1 of 2021, Targadox represented just under 70% of the revenue for the entire portfolio that we had, this year in Q1 2022, that’s down all the way to 13%.

Still contributing significantly to our overall framework, but certainly the generic has taken away some of the revenue from previous historical sales of Targadox. We have de-emphasized our sales force, from Targadox, to the newer prescriptions, for example, the AMZEEQ and the Qbrexza. So, this is all anticipated in what we planned.

And we are really just focused right now, predominantly on the growth drivers, AMZEEQ, ZILXI, Qbrexza and Exelderm..

Okay. And then you mentioned on the call that you are launching – you are expected to launch an additional product in the second half of this year. I guess can you give us additional detail on this product? How much you expect it to impact your top line, at least during the initial launch period? And then I have one more question..

Sure. Yes. This is – we haven’t disclosed the name of the product. So, not to be too mysterious, but this is an antipyretic product, no histamines. Non-biologic is going to contribute to the top line. But in terms of forward looking sales, I think we are just really limited to what giving you guidance on that.

I don’t know, Ernie, if you want to add anything to that..

Yes. It’s still a lesser extent, but again, Kalpit, we are not going to – we are not providing guidance for the second half of the year with this product..

Okay.

And then one last question for any of the other assets that you have in place, commercial assets, I haven’t checked the Orange Book, but any other generic competition that you are expecting on the remaining assets outside of Targadox in the foreseeable future?.

I think everything that we have stated in the past is accurate, in terms of taking a look at our portfolio, with Orange Book listed drugs have patent lives. Again, we are talking about Qbrexza, and AMZEEQ, ZILXI, Ximino. All of these have good, long runways.

And have patent lives out in different parts from anywhere from 2027 extending all the way out into the mid and late-2030s..

Okay, fantastic. Thanks for taking the questions..

Absolutely..

Our next question comes from Brandon Folkes with Cantor Fitzgerald. Please go ahead..

Hi. Thanks for taking my questions and congratulations on the strong growth in the quarter. Maybe just two for me, can you talk about the Japanese opportunity for Rapifort. Just find it bit interesting in the market sizing there. And then secondly, any thoughts of how resilient your portfolio is to a recession? Obviously, it’s very nicely diversified.

But I heard if you have been around the space for a while, so just love the insight into that. Thank you..

Sure.

The second part of your – the second question, Brandon, what about the recession, can you clarify that for me?.

I guess how historically have given DERM products performed in a recession, right.

I think you have got very diversified portfolio and maybe it’s not a one size fits all answer, but I just love your stats and feedback?.

Yes. And again, I have been in the industry for over 30 years and all of that time really dedicated to dermatology. So, look through a couple of those cycles. Dermatology has been relatively resilient. There is not enough time and usually dermatologists are booked out for quite a long way.

So, the patient demand typically is there, even when there is a slowdown in the economy. When I take a look and reflect back at the Journey days here, just taking a look back at the COVID. In 2020, dermatology as a whole was down about 30%, Journey at that same time in 2020 was up about 28%. So, we held our own pretty well during that time.

So, we are open to the difficulties and dealing with a recession like all other companies. I think we will be in good shape. And it all depends on how deep and how long a recession goes I guess. Switching back to your first question is regarding Rapifort. Maruho has been a great partner.

We have been getting to know them over this last year more and more. They have got great plans for Rapifort. It’s a little bit different in terms of strength, and some of the formulation there it’s 2.5% strength for example. The Japanese market is rather large.

They have some competition out there already in hyperhydrosis market, the axillary hyperhidrosis market. So, I believe there will be second to marketplace. But I think they have got a solid company with a deep rooted history. And they are very excited about the launch.

In addition to this milestone payment, there are sales royalties that Journey will be receiving upon their commercial launch. So, that bodes well for us as well..

Great. Thanks very much. I appreciate the insight, and congratulations on the progress over the 12 months..

Thank you..

Our next question comes from Scott Henry with ROTH Capital. Please go ahead..

Thank you, and good afternoon. A couple of questions. First, just for clarity, did you give us Targadox sales? I thought I might have heard $3.1 million, but I wanted to confirm that..

No, we didn’t give Targadox sales on the call..

Would you like to give, Ernie?.

Give me one second. I have that earnings. So I have it, it’s $2.6 million..

Okay, great. Thank you for that clarity. And then just a couple other questions.

First, on DFD-29, the 640 patients, is that for two trials, or is that for the first trial?.

That’s for two trials. They are both underway, Scott. And there is going to be 320 in each trial..

Yes. That’s what I expected. So, they are just run simultaneously. And they should read out at the same time.

Is that the idea there?.

That’s correct. Yes. They maybe were about two weeks separated in time. But there will be all the data will be together at the end..

Okay, great. And then I want to get a sense that the adjusted EBITDA, which won’t reflect the R&D on those trials, the $2.3 million number is a good number.

But I guess I should expect that to go up anyways, just on the Qbrexza royalties going down? Can you give us any thought of how, where would you expect to be kind of a year from now, with that adjusted EBITDA target? Maybe just in generalities, would you expect that to be growing sequentially pretty strong?.

Yes. As we said earlier, we expect the VYNE transaction to be accretive and along with that, you will see that number increase again, as our other friends or our other products the Accutane and Qbrexza increase, we would also expect that number to go up..

Okay. And then with AMZEEQ and ZILXI, obviously, you have to bring them and you bought them, they probably weren’t marketed very heavily before the transition. I would expect there to be a transitional stage where you are just trying to base it out before the growth starts to come through.

When would you expect those products to start to bottom out and reconvene? I guess they are probably already bottomed out.

But when would we expect to see the benefits of your efforts and traction with that growth?.

Sure. Yes. Scott, we got the products around mid-January, right. That’s when we officially executed the deal with VYNE excuse me mid-January. We tried to bring the products over and get them into our 3PA that way we can have continuity of the sales as quickly as possible. That took just a little bit around two weeks to do that.

We did try to get the samples out with the sales force, and the marketing materials that we can, what we call it was a soft launch. So, we started just really knocking on the doors of the targets of the dermatologists, the PAs and nurse practitioners that had been using AMZEEQ and ZILXI. VYNE cut their sales force back in August of last year in 2021.

So, we started just knocking on the door, just giving reminders. And in April, we really just went into what we consider a hard launch. So, I think April will start to see trends picking up. But when you look at Symphony numbers, for example, with AMZEEQ, we have already seen a nice uptick.

In February, those prescriptions were approximately 9,200 prescriptions. And in March, after really a full month of us really getting going if you will, we were up to 11,400 prescriptions, April numbers aren’t out yet. And we still have some incremental growth as well with ZILXI.

But in terms of a general understanding of how we believe the trends will be with these products, we will start to see pickup of these products month-over-month. And we should start to see things happen here towards this month here in May, in June and onward..

Okay, great. And final question, just because it’s definitely on the top of people’s mind with every company, the cash balance $41 million, it would seem like that would be enough for you guys, you wouldn’t need to go to the equity markets, you may choose to, but you don’t have to. I mean is that fair to say that you should have a lot of flexibility.

There is a lot of working capital in this business.

But I mean you could always use debt or just any sort of context you can give about, what we should think when we see that $41 million number on the balance sheet?.

Yes, Scott, the $41 million which includes the money from our IPO was mainly to fund the DFT-29 development and launch. And we in our current operating plan, we don’t have any plans to go out to the market and raise capital. That could change it if something from BD comes in as always. But for right now, we don’t have any other plans to raise capital..

Okay, great. That should do it for me. Thank you for taking the questions..

Thanks Scott..

Thank you..

This concludes the question-and-answer session. I would like to turn the call back over to Claude Maraoui for closing remarks..

Excellent. Thank you everyone for participating in today’s call and for your interest in Journey Medical. We look forward to sharing our ongoing progress when we report our second quarter results in August. Thanks and have a good day..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..