Journey Medical (DERM) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) Unaudited Q3 2023 financials report $16.8 million net income, driven by a licensing payment, with decreased assets and going concern doubts Condensed Consolidated Balance Sheets Balance Sheet Summary (in thousands) | Balance Sheet Item | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $24,749 | $32,003 | | Accounts receivable, net | $7,989 | $28,208 | | Total current assets | $44,686 | $77,679 | | Total assets | $65,918 | $105,160 | | Liabilities & Equity | | | | Accounts payable | $28,164 | $36,570 | | Total current liabilities | $48,510 | $66,832 | | Total liabilities | $48,544 | $88,178 | | Total stockholders' equity | $17,374 | $16,982 | - Total assets decreased significantly from $105.2 million at the end of 2022 to $65.9 million as of September 30, 2023, driven by a reduction in cash, accounts receivable, and inventory[9] - Total liabilities were reduced from $88.2 million to $48.5 million, largely due to the repayment of a long-term term loan and a decrease in accounts payable[9] Condensed Consolidated Statements of Operations Q3 2023 vs Q3 2022 Statement of Operations (in thousands) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Total revenue | $34,539 | $16,116 | | Income (loss) from operations | $17,245 | $(9,492) | | Net income (loss) | $16,789 | $(10,080) | | Diluted EPS | $0.80 | $(0.57) | Nine Months 2023 vs 2022 Statement of Operations (in thousands) | Metric | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Total revenue | $63,924 | $57,703 | | Income (loss) from operations | $31 | $(17,522) | | Net loss | $(1,710) | $(18,986) | | Diluted EPS | $(0.09) | $(1.09) | - The company reported a significant turnaround in Q3 2023 with a net income of $16.8 million, compared to a net loss of $10.1 million in Q3 2022, primarily driven by a large increase in 'Other revenue'[11] - For the nine months ended September 30, 2023, the company recorded a loss on impairment of intangible assets of $3.1 million, which was not present in the same period of 2022[11] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Nine-Month Periods (in thousands) | Cash Flow Activity | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $21,760 | $(9,698) | | Net cash used in investing activities | $(5,000) | $(20,000) | | Net cash (used in) provided by financing activities | $(24,014) | $15,508 | | Net change in cash | $(7,254) | $(14,190) | - Cash from operating activities was a positive $21.8 million for the first nine months of 2023, a significant improvement from a $9.7 million use of cash in the same period of 2022[21] - Financing activities used $24.0 million in cash, primarily due to the repayment of a $20.0 million term loan and $30.9 million in line of credit repayments[21] Notes to Unaudited Condensed Consolidated Financial Statements - The company granted an exclusive license to Maruho Co., Ltd. for Qbrexza® in certain Asian territories, receiving a $19.0 million non-refundable upfront payment in August 2023[25][79] - In July 2023, the company repaid its entire $10.0 million outstanding term loan under the EWB Facility and has no further debt obligations to EWB[26][64] - Due to its financial condition, substantial doubt exists about the Company's ability to continue as a going concern for at least twelve months from the financial statement issuance date[29] - An intangible asset impairment charge of $3.1 million was recorded during the nine months ended September 30, 2023, related to the Ximino products due to revised lower financial outlook[42] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q3 2023 revenue increase and profitability to a $19.0 million licensing payment, with reduced operating expenses and ongoing liquidity challenges Recent Corporate Highlights - Entered into a new license agreement with Maruho for Qbrexza® in certain Asian territories, receiving a $19.0 million non-refundable upfront payment[97] - Paid off the entire $10.0 million outstanding balance on the EWB term loan in July 2023, leaving the company with no outstanding bank debt[98] - Announced positive topline data from two Phase 3 clinical trials for DFD-29 for rosacea, with plans to file an NDA with the FDA around the end of 2023[99] Results of Operations Q3 2023 vs Q3 2022 Performance (in thousands) | Metric | Q3 2023 | Q3 2022 | Change % | | :--- | :--- | :--- | :--- | | Total revenue | $34,539 | $16,116 | 114% | | Total operating expenses | $17,294 | $25,608 | -32% | | Net income (loss) | $16,789 | $(10,080) | -267% | Nine Months 2023 vs 2022 Performance (in thousands) | Metric | Nine Months 2023 | Nine Months 2022 | Change % | | :--- | :--- | :--- | :--- | | Total revenue | $63,924 | $57,703 | 11% | | Total operating expenses | $63,893 | $75,225 | -15% | | Net loss | $(1,710) | $(18,986) | -91% | - Q3 2023 net product revenue decreased by 5% YoY to $15.3 million, primarily due to lower Ximino sales as the product was wound down, with core products constituting 90% of net product revenue[108][109] - SG&A expenses decreased by 45% in Q3 2023 and 25% in the nine-month period, driven by cost reduction initiatives including a salesforce headcount reduction[115][124] Liquidity and Capital Resources - As of September 30, 2023, the company had $24.7 million in cash and cash equivalents, down from $32.0 million at December 31, 2022[127] - The company implemented a cost reduction initiative in late 2022, which included a salesforce headcount reduction and other cost cuts, resulting in a severance obligation of approximately $0.7 million[131] - Management states that substantial doubt exists about the company's ability to continue as a going concern for at least twelve months from the issuance date of the financial statements[132] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is a smaller reporting company and is not required to provide information for this item - As a smaller reporting company, Journey Medical Corporation is not required to provide quantitative and qualitative disclosures about market risk[140] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting - Management concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[141] - No changes in internal control over financial reporting occurred during the most recent quarter that materially affected, or are reasonably likely to materially affect, internal controls[142] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports no pending legal proceedings, other than routine matters, expected to materially affect its financial condition, results of operations, or cash flows - There are no material legal proceedings pending against the company[145] Item 1A. Risk Factors The primary risk factor is substantial doubt regarding the company's ability to continue as a going concern, necessitating additional funding which may not be available - A key risk factor is the substantial doubt about the company's ability to continue as a going concern for at least 12 months from the report's issuance date[147] - The company may need to raise additional capital through debt or equity financing, but there is no guarantee that financing will be available on acceptable terms[148] - If funding is not secured, the company may be required to significantly curtail, delay, or discontinue its DFD-29 research or development programs or the commercialization of other products[149] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the reporting period, the company did not sell any equity securities in unregistered transactions, nor did it or its affiliates purchase any of its equity securities - The company has not sold any unregistered equity securities during the period covered by the report[150] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, new license agreements with Maruho Co., Ltd., and officer certifications - Exhibits filed include the License Agreement and the Second Amended and Restated License Agreement with Maruho Co., Ltd., both dated August 31, 2023[155]