Journey Medical (US:DERM)2022-05-09 16:00markdown [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Presents Journey Medical Corporation's unaudited condensed consolidated financial statements and comprehensive notes [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20%28unaudited%29) Unaudited condensed consolidated financial statements and detailed notes on Journey Medical Corporation's financial position, operations, and cash flows Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (March 31, 2022 vs. December 31, 2021, in thousands): | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total Current Assets | $90,259 | $84,493 | $5,766 | 6.8% | | Total Assets | $120,901 | $97,284 | $23,617 | 24.3% | | Total Current Liabilities | $60,970 | $51,614 | $9,356 | 18.1% | | Total Liabilities | $79,463 | $55,241 | $24,222 | 43.8% | | Total Stockholders' Equity | $41,438 | $42,043 | $(605) | -1.4% | Unaudited Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Highlights (Three-Months Ended March 31, 2022 vs. 2021, in thousands): | Metric | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | Change (in thousands) | Change (%) | | :---------------------------------- | :------------- | :------------- | :--------- | :--------- | | Total Revenue | $23,296 | $10,719 | $12,577 | 117.3% | | Product Revenue, net | $20,796 | $10,719 | $10,077 | 94.0% | | Other Revenue | $2,500 | $0 | $2,500 | 100.0% | | Total Operating Expenses | $24,184 | $10,134 | $14,050 | 138.6% | | (Loss) Income from Operations | $(888) | $585 | $(1,473) | -251.8% | | Net (Loss) Income | $(1,378) | $268 | $(1,646) | -614.2% | | Net (Loss) Income per Common Share – Basic | $(0.08) | $0.03 | $(0.11) | -366.7% | Unaudited Condensed Consolidated Statements of Stockholders' Equity Stockholders' Equity Changes (December 31, 2021 to March 31, 2022, in thousands): | Item | December 31, 2021 (in thousands) | March 31, 2022 (in thousands) | Change (in thousands) | | :------------------------- | :---------------- | :------------- | :----- | | Additional Paid-in Capital | $80,915 | $81,688 | $773 | | Accumulated Deficit | $(38,874) | $(40,252) | $(1,378)| | Total Stockholders' Equity | $42,043 | $41,438 | $(605) | - Share-based compensation contributed **$773 thousand** to additional paid-in capital[17](index=17&type=chunk) - Net loss for the period was **$1,378 thousand**, increasing the accumulated deficit[17](index=17&type=chunk) Unaudited Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (Three-Months Ended March 31, 2022 vs. 2021, in thousands): | Cash Flow Activity | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | Change (in thousands) | | :---------------------------------- | :------------- | :------------- | :--------- | | Net cash provided by operating activities | $884 | $1,361 | $(477) | | Net cash used in investing activities | $(20,000) | $0 | $(20,000) | | Net cash provided by financing activities | $11,366 | $9,391 | $1,975 | | Net change in cash | $(7,750) | $10,752 | $(18,502) | | Cash at end of period | $41,331 | $18,998 | $22,333 | - The significant increase in cash used in investing activities is primarily due to the **$20.0 million** acquisition of intangible assets in 2022[20](index=20&type=chunk) NOTE 1. ORGANIZATION AND PLAN OF BUSINESS OPERATIONS - Journey Medical Corporation is a commercial-stage pharmaceutical company focused on dermatological conditions, marketing **nine branded** and **three authorized generic** prescription drugs in the U.S[24](index=24&type=chunk) - The Company's cash and cash equivalents decreased from **$49.1 million** at December 31, 2021, to **$41.3 million** at March 31, 2022[26](index=26&type=chunk) - In January 2022, Journey Medical borrowed **$15.0 million** from its **$30.0 million** East West Bank (EWB) borrowing facility, which includes a **$10.0 million** revolving line of credit and a **$20.0 million** term loan, to fund operations and potential product portfolio expansion[28](index=28&type=chunk) NOTE 2. BASIS OF PRESENTATION - The unaudited interim condensed consolidated financial statements are prepared in conformity with GAAP, with certain information condensed or omitted compared to annual statements[31](index=31&type=chunk)[33](index=33&type=chunk) - The Company operates as a **single segment** focused on dermatological products[36](index=36&type=chunk) - As an emerging growth company, Journey Medical has elected the extended transition period for complying with new or revised accounting standards[34](index=34&type=chunk) NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - No new accounting pronouncements or updates materially affected the Company's financial statements during the three-month period ended March 31, 2022[38](index=38&type=chunk) NOTE 4. INVENTORY Inventory Composition (in thousands): | Category | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--------------- | :------------- | :---------------- | | Raw materials | $8,357 | $5,572 | | Work-in-process | $533 | $0 | | Finished goods | $7,297 | $4,290 | | Inventory at cost| $16,187 | $9,862 | | Inventory reserves| $(50) | $0 | | Total Inventories| $16,137 | $9,862 | - Total inventories increased by **$6,275 thousand (63.6%)** from December 31, 2021, to March 31, 2022, primarily due to increases in raw materials and finished goods[40](index=40&type=chunk) NOTE 5. ASSET ACQUISITION - In January 2022, Journey Medical acquired two FDA-Approved Topical Minocycline Products (AMZEEQ and ZILXI) and a Molecule Stabilizing Technology™ platform from VYNE Therapeutics, Inc. for an upfront payment of **$20.0 million** and a deferred payment of **$5.0 million** due in January 2023[41](index=41&type=chunk)[43](index=43&type=chunk) - The VYNE Product Acquisition includes contingent net sales milestone payments totaling up to **$450 million**, payable upon reaching annual sales thresholds for each product[42](index=42&type=chunk) Assets Acquired in VYNE Product Acquisition (in thousands): | Asset Category | Assets Recognized (in thousands) | | :------------------------- | :---------------- | | Inventory | $6,041 | | AMZEEQ Intangible | $15,162 | | ZILXI Intangible | $3,760 | | **Fair value of net identifiable assets acquired** | **$24,963** | NOTE 6. INTANGIBLES - The Company's intangible assets primarily consist of acquired product rights, including Qbrexza® (acquired March 2021), Anti-itch Product (acquired December 2020), and Accutane® (licensed July 2020), in addition to the newly acquired AMZEEQ and ZILXI[46](index=46&type=chunk)[47](index=47&type=chunk)[50](index=50&type=chunk) Intangible Assets, Net (in thousands): | Product | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------- | :------------- | :---------------- | | Ximino® | $4,416 | $4,671 | | Accutane® | $3,703 | $3,939 | | Amzeeq® | $14,740 | $0 | | Zilxi® | $3,656 | $0 | | Anti-itch product| $3,942 | $3,942 | | **Total Intangible Assets, Net** | **$30,457** | **$12,552** | - Amortization expense for intangible assets increased from **$584 thousand** in Q1 2021 to **$1.0 million** in Q1 2022, primarily due to new acquisitions[56](index=56&type=chunk) NOTE 7. LICENSES ACQUIRED - In June 2021, Journey Medical acquired global rights for DFD-29 (modified release oral minocycline for rosacea) from Dr. Reddy's Laboratories, Ltd (DRL) for **$10.0 million** upfront, with potential contingent milestone payments up to **$163.0 million** and royalties[58](index=58&type=chunk) - The Company is required to fund and oversee Phase 3 clinical trials for DFD-29, estimated at **$24.0 million**[60](index=60&type=chunk) - In connection with the DFD-29 Agreement, Journey Medical issued **545,131 unregistered shares** of Common Stock to DRL following its IPO[61](index=61&type=chunk) NOTE 8. FAIR VALUE MEASUREMENTS Financial Assets Measured at Fair Value (in thousands): | Asset | March 31, 2022 (Level 1, in thousands) | December 31, 2021 (Level 1, in thousands) | | :------------------------ | :----------------------- | :-------------------------- | | Cash and cash equivalents | $41,331 | $49,081 | | **Total** | **$41,331** | **$49,081** | - The Company did not carry any Level 2 or Level 3 assets or liabilities at March 31, 2022, or December 31, 2021, and no transfers occurred between levels[66](index=66&type=chunk) NOTE 9. RELATED PARTY AGREEMENTS - Journey Medical has a Shared Services Agreement with Fortress Biotech, Inc. (its majority-owned subsidiary), reimbursing Fortress for certain employee and administrative costs[25](index=25&type=chunk)[67](index=67&type=chunk) - Related expense under the Shared Services Agreement was approximately **$0.1 million** for the three-month period ended March 31, 2022, compared to **zero** in the prior year[67](index=67&type=chunk) - As of March 31, 2022, Fortress owned **58%** of the Company's outstanding Common Stock[69](index=69&type=chunk) NOTE 10. ACCRUED EXPENSES Accrued Expenses (in thousands): | Category | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------- | :------------- | :---------------- | | Accrued compensation | $4,421 | $2,702 | | Research and development | $160 | $870 | | Accrued royalties payable| $3,779 | $3,833 | | Accrued coupons and rebates| $11,627 | $10,603 | | Return reserve | $3,151 | $3,240 | | Other | $2,747 | $1,485 | | **Total Accrued Expenses** | **$25,885** | **$22,733** | - Total accrued expenses increased by **$3,152 thousand (13.9%)** from December 31, 2021, to March 31, 2022, driven mainly by increases in accrued compensation and other accrued expenses[71](index=71&type=chunk) NOTE 11. INSTALLMENT PAYMENTS — LICENSES Installment Payments – Licenses (in thousands): | Product | March 31, 2022 (Total, in thousands) | December 31, 2021 (Total, in thousands) | | :-------------- | :--------------------- | :------------------------ | | Ximino | $4,350 | $4,225 | | Accutane | $1,935 | $2,912 | | Anti-Itch Product| $0 | $1,000 | | **Total** | **$6,285** | **$8,137** | - Total installment payments for licenses decreased by **$1,852 thousand**, primarily due to the Anti-Itch Product payment maturing by January 1, 2022[72](index=72&type=chunk)[74](index=74&type=chunk) NOTE 12. OPERATING LEASE OBLIGATIONS - The Company leases office space in Scottsdale, Arizona, with the amended lease term expiring on December 31, 2022[75](index=75&type=chunk) Operating Lease Costs (in thousands): | Lease Cost Type | Three-Month Periods Ended March 31, 2022 (in thousands) | Three-Month Periods Ended March 31, 2021 (in thousands) | | :-------------------- | :--------------------------------------- | :--------------------------------------- | | Operating lease cost | $26 | $23 | | Variable lease cost | $1 | $1 | | **Total lease cost** | **$27** | **$24** | - As of March 31, 2022, future minimum lease payments totaled **$75 thousand**, with a weighted-average remaining lease term of **0.8 years**[76](index=76&type=chunk) NOTE 13. DEBT - The Company has a **$10.0 million** revolving line of credit with East West Bank (EWB), maturing on January 12, 2026, with **no outstanding balance** as of March 31, 2022[77](index=77&type=chunk) - As of March 31, 2022, the Company had approximately **$14.8 million** outstanding under a term loan with EWB, which was initiated in January 2022 to facilitate the VYNE Product Acquisition[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) - The term loan bears interest at a floating rate of **1.73%** above the prime rate, with an interest-only payment period through January 12, 2024[81](index=81&type=chunk) NOTE 14. INTEREST EXPENSE AND FINANCING FEES Interest Expense and Financing Fees (in thousands): | Category | Three-Month Periods Ended March 31, 2022 (in thousands) | Three-Month Periods Ended March 31, 2021 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Interest payments for EWB term loan | $161 | $0 | | Amortization of term loan costs | $14 | $0 | | Installment payments - licenses | $148 | $221 | | Accretion of deferred payment | $55 | $0 | | **Total Interest Expense and Financing Fee** | **$389** | **$221** | - Total interest expense and financing fees increased by **$168 thousand (76%)** year-over-year, primarily due to new EWB term loan interest and amortization, and accretion of deferred payment[86](index=86&type=chunk) NOTE 15. COMMITMENTS AND CONTINGENCIES - The Company is committed to making contingent milestone payments and royalties to licensors of its drug products and candidates[84](index=84&type=chunk) NOTE 16. STOCKHOLDERS' EQUITY - The Company is authorized to issue **50,000,000 shares** of **$0.0001 par value** Common Stock, including **6,000,000 shares** of Class A Common Stock[85](index=85&type=chunk) - Class A Common Stock holders are entitled to **1.1 times** the voting power of Common Stock, ensuring a voting majority[89](index=89&type=chunk) - All **8% Cumulative Convertible Class A Preferred Stock** converted into **2,231,346 shares** of Common Stock in connection with the Company's IPO, with **no preferred shares outstanding** as of March 31, 2022[94](index=94&type=chunk) NOTE 17. SHARE BASED COMPENSATION - Total share-based compensation cost charged against operations increased significantly to **$0.8 million** for Q1 2022, compared to **$21,486** for Q1 2021[98](index=98&type=chunk) Stock Option Activity (March 31, 2022): | Metric | Number of Shares | Weighted Average Exercise Price ($) | | :-------------------------------- | :--------------- | :------------------------------ | | Outstanding options at Dec 31, 2021 | 2,104,334 | $0.79 | | Granted | 10,000 | $1.39 | | Forfeited | 2,750 | $1.39 | | Outstanding options at Mar 31, 2022 | 2,111,584 | $0.79 | | Options vested and exercisable at Mar 31, 2022 | 2,051,584 | $0.77 | - The Company issued **2,000 shares** of restricted stock units (RSUs) in Q1 2022, with approximately **$0.8 million** of compensation cost charged against operations for RSUs in the period[101](index=101&type=chunk) NOTE 18. REVENUES FROM CONTRACTS AND SIGNIFICANT CUSTOMERS Net Product Revenues (in thousands): | Product | Three-Month Periods Ended March 31, 2022 (in thousands) | Three-Month Periods Ended March 31, 2021 (in thousands) | | :-------------- | :--------------------------------------- | :--------------------------------------- | | Qbrexza® | $7,376 | $0 | | Accutane® | $4,907 | $196 | | Amzeeq® | $3,466 | $0 | | Targadox® | $2,634 | $7,199 | | Ximino® | $967 | $2,100 | | Zilxi® | $741 | $0 | | Exelderm® | $704 | $1,217 | | **Total product revenues** | **$20,796** | **$10,719** | - Total product revenues increased by **$10.1 million (94%)** year-over-year, driven by new product launches (Qbrexza®, Accutane®, Amzeeq®, Zilxi®), partially offset by decreases in Targadox®, Ximino®, and Exelderm®[104](index=104&type=chunk) - Other revenue for Q1 2022 includes a net **$2.5 million** milestone payment from Maruho Co., Ltd. for the Japanese marketing approval of Rapifort® Wipes (QBREXZA® equivalent)[106](index=106&type=chunk) NOTE 19. INCOME TAXES Income Tax Expense and Effective Rate: | Metric | Three-Month Periods Ended March 31, 2022 (in thousands) | Three-Month Periods Ended March 31, 2021 (in thousands) | | :-------------------- | :--------------------------------------- | :--------------------------------------- | | Income tax expense | $104,000 | $96,000 | | Effective income tax rate | (8.20)% | 26.42% | - The change in effective tax rate is due to changes in unfavorable permanent book-tax differences and valuation allowances[109](index=109&type=chunk) NOTE 20. NET INCOME PER COMMON SHARE Net (Loss) Income Per Common Share: | Metric | Three-Month Periods Ended March 31, 2022 ($) | Three-Month Periods Ended March 31, 2021 ($) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net (loss) income per common share – basic | $(0.08) | $0.03 | | Net (loss) income per common share – diluted | $(0.08) | $0.02 | - Potentially dilutive securities (unvested restricted stock units and outstanding options) were excluded from diluted EPS computation for Q1 2022 as their effect would be anti-dilutive due to the net loss[110](index=110&type=chunk) NOTE 21. Subsequent Event - On May 2, 2022, Journey Medical filed a complaint against Padagis Israel Pharmaceuticals Ltd. alleging infringement of patents covering Zilxi®, seeking to prevent the marketing of a generic version until **October 1, 2030**[112](index=112&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis of Journey Medical Corporation's financial condition and results of operations for the reported periods Overview - Journey Medical Corporation is a commercial-stage pharmaceutical company specializing in dermatological products, with a portfolio of **nine branded** and **three authorized generic** prescription drugs in the U.S[115](index=115&type=chunk) - The Company completed an IPO on November 16, 2021, generating net proceeds of approximately **$30.6 million**[116](index=116&type=chunk) - Expenses are expected to increase due to business development, new product commercialization, and public company operating costs[117](index=117&type=chunk) Recent Highlights - In January 2022, Journey Medical acquired AMZEEQ and ZILXI, two FDA-approved topical minocycline products, expanding its dermatology product portfolio[118](index=118&type=chunk)[119](index=119&type=chunk) - The Company amended its East West Bank credit facility in January 2022, increasing its revolving line of credit to **$10.0 million** and adding a **$20.0 million** term loan, with **$15.0 million** drawn to fund the VYNE Product Acquisition[123](index=123&type=chunk) - Japanese marketing approval for Rapifort® Wipes (QBREXZA® equivalent) triggered a net **$2.5 million** milestone payment to Journey Medical in February 2022, with a **10% sales-based royalty** expected upon product launch[124](index=124&type=chunk) - The first patient was dosed in a Phase 3 clinical trial for DFD-29 (Minocycline Modified Release Capsules 40 mg) for rosacea in March 2022, with trials comparing DFD-29 to Oracea® and placebo[125](index=125&type=chunk) Critical Accounting Polices and Uses of Estimates - The financial statements are prepared in accordance with GAAP, requiring management to make estimates and judgments that affect reported amounts[127](index=127&type=chunk)[129](index=129&type=chunk) - There were **no material changes** in critical accounting estimates or policies from December 31, 2021[130](index=130&type=chunk) Accounting Pronouncements - No new accounting pronouncements or updates are expected to materially affect the Company's financial statements for the three-month period ended March 31, 2022[131](index=131&type=chunk) Smaller Reporting Company Status - Journey Medical is a 'smaller reporting company,' allowing for reduced disclosure obligations and delayed adoption of certain accounting pronouncements[132](index=132&type=chunk) Results of Operations Summary of Results of Operations (Three-Months Ended March 31, 2022 vs. 2021, in thousands): | Metric | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | Change (in thousands) | Change (%) | | :---------------------------------- | :------------- | :------------- | :--------- | :--------- | | Total Revenue | $23,296 | $10,719 | $12,577 | 117% | | Cost of Goods Sold – Product Revenue| $8,203 | $3,908 | $4,295 | 110% | | Research and Development | $1,266 | $0 | $1,266 | 100% | | Selling, General and Administrative | $14,715 | $6,226 | $8,489 | 136% | | Total Operating Expenses | $24,184 | $10,134 | $14,050 | 139% | | (Loss) Income from Operations | $(888) | $585 | $(1,473) | -252% | | Net (Loss) Income | $(1,378) | $268 | $(1,646) | -614% | Revenues Net Product Revenue by Product (in thousands): | Product | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | Change (in thousands) | Change (%) | | :-------------- | :------------- | :------------- | :--------- | :--------- | | Qbrexza® | $7,376 | $0 | $7,376 | 100% | | Accutane® | $4,907 | $196 | $4,711 | 2404% | | Amzeeq® | $3,466 | $0 | $3,466 | 100% | | Targadox® | $2,634 | $7,199 | $(4,565) | -63% | | Ximino® | $964 | $2,100 | $(1,133) | -54% | | Zilxi® | $741 | $0 | $741 | 100% | | Exelderm® | $704 | $1,217 | $(513) | -42% | | **Total Net Product Revenues** | **$20,796** | **$10,719** | **$10,077**| **94%** | - Total net product revenues increased by **$10.1 million (94%)** year-over-year, primarily driven by incremental revenues from Qbrexza® (launched Q2 2021), Accutane® (launched late Q1 2021), and newly acquired Amzeeq® and Zilxi® (acquired January 2022)[136](index=136&type=chunk) - Other revenue of **$2.5 million** in Q1 2022 resulted from a milestone payment for Japanese marketing approval of Rapifort® Wipes (QBREXZA® equivalent)[139](index=139&type=chunk) Gross-to-Net Sales Accruals Gross-to-Net Sales Accruals (in thousands): | Accrual Type | Balance as of Dec 31, 2021 (in thousands) | Current Provision (Q1 2022) (in thousands) | Checks/Credits Issued (Q1 2022) (in thousands) | Balance as of Mar 31, 2022 (in thousands) | | :--------------------------------------- | :------------------------- | :-------------------------- | :------------------------------ | :------------------------- | | Chargebacks and Distributor Service Fees | $1,610 | $2,185 | $(2,409) | $1,386 | | Returns | $3,240 | $1,120 | $(1,209) | $3,151 | | Coupons | $4,992 | $35,617 | $(33,949) | $6,660 | | Managed Care Rebates | $3,492 | $3,691 | $(4,548) | $2,635 | | Gov't Rebates | $690 | $1,004 | $(668) | $1,026 | | **Total** | **$14,024** | **$43,617** | **$(42,783)** | **$14,858** | - The provision for returns increased to **$3.2 million** at March 31, 2022, from **$2.0 million** at March 31, 2021, due to newly launched products (Accutane®, Qbrexza®, Amzeeq®, Zilxi®)[143](index=143&type=chunk) - Managed care and government rebate provisions combined increased significantly to **$3.6 million** and **$1.0 million**, respectively, at March 31, 2022, from **$0.8 million** and **zero**, respectively, at March 31, 2021, also driven by new product launches[146](index=146&type=chunk) Cost of Good Sold - Cost of goods sold increased by **$4.3 million (110%)** to **$8.2 million** for Q1 2022, compared to **$3.9 million** for Q1 2021[147](index=147&type=chunk) - The increase is primarily due to higher sales volume, incremental royalties from Qbrexza®, and increased amortization of acquired intangible assets from Amzeeq® and Zilxi®[147](index=147&type=chunk) Research and Development - Research and Development expense increased to **$1.2 million** for Q1 2022 from **zero** in Q1 2021, mainly due to clinical trial expenses for the DFD-29 product[148](index=148&type=chunk) Selling, General and Administrative - Selling, general and administrative expenses increased by **$8.5 million (136%)** to **$14.7 million** for Q1 2022, from **$6.2 million** for Q1 2021[149](index=149&type=chunk) - This increase is primarily attributed to the expansion of the salesforce, marketing expenses for the expanded product portfolio, and legal expenses[149](index=149&type=chunk) Interest Expense - Interest expense increased by **$0.2 million** to **$0.4 million** for Q1 2022, from **$0.2 million** for Q1 2021, due to incremental interest and amortization of fees on the EWB term loan and accretion of deferred payment discount[150](index=150&type=chunk) Liquidity and Capital Resources - Cash and cash equivalents decreased from **$49.1 million** at December 31, 2021, to **$41.3 million** at March 31, 2022[151](index=151&type=chunk) - The Company expects increased expenses for business development, new product commercialization, and public company operations, potentially requiring additional financing[155](index=155&type=chunk)[156](index=156&type=chunk) - Operations for the next twelve months are expected to be funded through existing cash, cash generated from operations, and the EWB borrowing facility[156](index=156&type=chunk) Cash Flows for the Three-Month Periods Ended March 31, 2022 and 2021 Cash Flow Summary (in thousands): | Cash Flow Activity | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | Change (in thousands) | | :--------------------------------------- | :------------- | :------------- | :--------- | | Net cash provided by operating activities | $884 | $1,361 | $(477) | | Net cash used in investing activities | $(20,000) | $0 | $(20,000) | | Net cash provided by financing activities | $11,366 | $9,391 | $1,975 | | **Net change in cash and cash equivalents** | **$(7,750)** | **$10,752** | **$(18,502)**| Operating Activities - Net cash provided by operating activities decreased to **$0.8 million** for Q1 2022 from **$1.4 million** for Q1 2021, primarily due to **$8.4 million** growth in accounts receivable, partially offset by increases in accounts payable and accrued expenses[158](index=158&type=chunk) Investing Activities - Net cash used in investing activities increased by **$20.0 million** due to the cash payment for the VYNE Product Acquisition in Q1 2022[159](index=159&type=chunk) Financing Activities - Net cash provided by financing activities was **$11.4 million** for Q1 2022, up from **$9.4 million** for Q1 2021, mainly due to **$15.0 million** in proceeds from the EWB term loan, partially offset by license installment payments and line of credit repayment[160](index=160&type=chunk) Material Cash Requirements EWB Loan Facility Expected Payments (in thousands): | Category | Total (in thousands) | Remainder of 2022 (in thousands) | 2023 (in thousands) | 2024 (in thousands) | 2025 (in thousands) | 2026 (in thousands) | | :-------- | :---- | :---------------- | :--- | :--- | :--- | :--- | | Interest | $2,487| $599 | $795 | $761 | $330 | $2 | | Principle | $15,000| $0 | $0 | $4,167| $10,000| $833 | | **Total** | **$17,487**| **$599** | **$795**| **$4,928**| **$10,330**| **$835**| - A **$5.0 million** deferred payment for the VYNE Product Acquisition is due in January 2023, with additional contingent sales milestone payments up to **$450 million**[164](index=164&type=chunk) - The DFD-29 Agreement includes contingent regulatory and commercial milestone payments up to **$163.0 million** and requires funding of Phase 3 clinical trials approximating **$24.0 million**[165](index=165&type=chunk) Installment Milestone Payments on Acquired Licenses (in thousands): | Product | Total (in thousands) | Payments 2022 (in thousands) | Payments 2023 (in thousands) | Payments 2024 (in thousands) | | :-------------- | :---- | :------------ | :------------ | :------------ | | Ximino | $5,000| $2,000 | $1,500 | $1,500 | | Accutane | $2,000| $1,000 | $1,000 | $0 | | **Total** | **$7,000**| **$3,000** | **$2,500** | **$1,500** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Journey Medical Corporation, as a smaller reporting company, is exempt from providing quantitative and qualitative market risk disclosures - The Company is a smaller reporting company and is not required to provide market risk disclosures[168](index=168&type=chunk) [Item 4. Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) Details the evaluation of the Company's disclosure controls and procedures and reports on changes in internal control over financial reporting - Management concluded that the Company's disclosure controls and procedures were **effective** as of March 31, 2022[169](index=169&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent quarter[170](index=170&type=chunk) [PART II. OTHER INFORMATION](index=51&type=section&id=PART%20II.%20OTHER%20INFORMATION) Presents other required information, including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) Outlines ongoing patent litigation for Qbrexza® and Amzeeq® against generic drug manufacturers seeking early market entry Qbrexza Patent Litigation - Journey Medical is actively litigating against Perrigo Pharma International DAC regarding infringement of Qbrexza® patents, with a **30-month stay** preventing generic sales set to expire on **March 9, 2023**, and trial scheduled for **September 19, 2022**[172](index=172&type=chunk) - The Company also filed a complaint against Teva Pharmaceuticals, Inc. for infringement of Qbrexza® patents, with a **30-month stay** preventing generic sales expected to expire no earlier than **August 8, 2024**[174](index=174&type=chunk) Amzeeq Patent Litigation - Journey Medical is involved in patent litigation against Padagis Israel Pharmaceuticals Ltd. concerning Amzeeq® patents, with a **30-month stay** preventing generic sales set to expire on **December 30, 2023**, and trial scheduled for **July 10, 2023**[175](index=175&type=chunk) [Item 1A. Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) No new risk factors are presented in this quarterly report, referring to the Annual Report on Form 10-K for comprehensive disclosures - This item is not applicable for this report, referring to the 2021 Form 10-K for risk factors[176](index=176&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Confirms no unregistered equity securities were sold during the reporting period, with references to previous filings for details - No equity securities were sold in unregistered transactions during the reporting period[177](index=177&type=chunk) [Item 3. Defaults Upon Senior Securities](index=53&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[179](index=179&type=chunk) [Item 4. Mine Safety Disclosures](index=53&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[181](index=181&type=chunk) [Item 5. Other Information](index=53&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - No other information is reported under this item[183](index=183&type=chunk) [Item 6. Exhibits](index=55&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed as part of the Form 10-Q, including organizational documents, material agreements, and certifications - The exhibits include the Third Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, various amendments to the Loan and Security Agreement with East West Bank, and certifications from the CEO and CFO[185](index=185&type=chunk) [SIGNATURES](index=56&type=section&id=SIGNATURES) Contains the official signatures of the registrant's authorized officers, confirming the submission of the report - The report is signed by Claude Maraoui, President and Chief Executive Officer, and Ernest De Paolantonio, Chief Financial Officer, on **May 10, 2022**[189](index=189&type=chunk)