Journey Medical Corp

Previous wording

In July 2023, we announced positive topline data from our two DFD-29 Phase 3 clinical trials for the treatment of papulopustular rosacea. The Phase 3 clinical trials achieved the co-primary and all secondary endpoints, the subjects completed the 16-week treatment and the drug was well-tolerated. DFD-29 demonstrated statistical superiority over both the standard of care, Oracea® capsules, and placebo for Investigator’s Global Assessment treatment success and the reduction in the total inflammatory lesion count in both studies. We summitted a New Drug Application (“NDA”) under Section 505(b)(2) of the United States Federal Food, Drug and Cosmetic Act (“FDCA”) with the U.S. Food and Drug Administration (the “FDA”) for DFD-29 on January 4, 2024, paying a $4.0 million filing fee, and expect potential approval from the FDA in the second half of 2024. On March 18, 2024, we announced the FDA accepted the Company’s NDA with a Prescription Drug User Fee Act goal date of November 4, 2024.

Current wording

In January 2024, we summitted a New Drug Application (“NDA”) under Section 505(b)(2) of the United States Federal Food, Drug and Cosmetic Act (“FDCA”) with the U.S. Food and Drug Administration (the “FDA”) for DFD-29.

Previous wording

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. Applying these principles requires our judgment in determining the appropriateness of acceptable accounting principles and methods of application in diverse and complex economic activities. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of revenues, expenses, assets and liabilities, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Current wording

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. Applying these principles requires our judgment in determining the appropriateness of acceptable accounting principles and methods of application in diverse and complex economic activities. The preparation of the accompanying financial statements requires us to make estimates and judgments that affect the reported amounts of revenues, expenses, assets and liabilities, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Previous wording

During the three-month period ended March 31, 2024, there were no new accounting pronouncements or updates to recently issued accounting pronouncements disclosed in the 2023 Form 10-K that are expected to materially affect the Company’s present or future financial statements.

Current wording

During the six-month period ended June 30, 2024, there were no new accounting pronouncements or updates to recently issued accounting pronouncements disclosed in the 2023 Form 10-K that are expected to materially affect the Company’s present or future financial statements.

Previous wording

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years of audited financial statements in our annual reports on Form 10-K, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation and less extensive disclosure about our executive compensation arrangements. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

Current wording

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years of audited financial statements in our annual reports on Form 10-K, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting

Previous wording

Gross-to-net sales accruals are primarily a function of product sales volume, mix of products sold, and contractual discounts or rebates. Our reserves for gross-to-net sales allowances were $9.9 million at March 31, 2024, compared to $11.6 million at March 31, 2023, a decrease of $1.7 million. The decrease is largely driven by decreases in our reserves for government rebates. Since July 1, 2023, we no longer participate in the Medicaid Drug Rebate Program.

Current wording

Gross-to-net sales accruals are primarily a function of product sales volume, mix of products sold, and contractual discounts or rebates. Our reserves for gross-to-net sales allowances were $9.8 million at June 30, 2024, compared to $9.9 million at March 31, 2024, consistent from period-to-period.

Previous wording

Cost of goods sold increased by $0.4 million, or 6%, to $6.8 million for the three-month period ended March 31, 2024, from $6.4 million for the three-month period ended March 31, 2023, due to the increase in net product revenue.

Current wording

Cost of goods sold decreased by $1.2 million, or 16%, to $6.5 million for the three-month period ended June 30, 2024, from $7.8 million for the three-month period ended June 30, 2023, due to the decrease in net product revenue from period-to-period.

Previous wording

Selling, general and administrative (“SG&A”) expenses decreased by $4.9 million, or 37%, to $8.4 million for the three-month period ended March 31, 2024, from $13.3 million for the three-month period ended March 31, 2023. The decrease is mainly due to our continued expense management efforts, primarily in sales and marketing and other SG&A areas, designed to improve operational efficiencies, optimize expenses and reduce overall costs.

Current wording

Selling, general and administrative (“SG&A”) expenses decreased by $1.8 million, or 15%, to $10.3 million for the three-month period ended June 30, 2024, from $12.1 million for the three-month period ended June 30, 2023. The decrease is mainly due to our continued expense management efforts, primarily in sales and marketing and other SG&A areas, designed to improve operational efficiencies, optimize expenses and reduce overall costs.

Previous wording

Interest expense decreased by $0.1 million to $0.5 million for the three-month period ended March 31, 2024, from $0.6 million for the three-month period ended March 31, 2023. The decrease is primarily attributable to a lower principal balance outstanding during the three-months ended March 31, 2024 of $15.0 million as compared to $20.0 million during the three-months ended March 31, 2023.

Current wording

Interest expense decreased by $0.3 million to $0.4 million for the three-month period ended June 30, 2024, from $0.7 million for the three-month period ended June 30, 2023. The decrease is primarily attributable to a lower average principal balance outstanding during the three-months ended June 30, 2024 of approximately $15.0 million as compared to $20.0 million during the three-months ended June 30, 2023, and higher interest income resulting from increased yields.

Previous wording

Research and Development expense increased by $5.9 million, to $7.9 million for the three-month period ended March 31, 2024, from $2.0 million for the three-month period ended March 31, 2023. The increase is driven by the $4.0 million filing fee payment to the FDA in January 2024 for DFD-29 and $3.0 million expense for the contractual milestone payment owed to Dr. Reddy’s Laboratories, Ltd (“DRL”) triggered by the FDA’s acceptance of our DFD-29 product NDA in March 2024. This was partially offset by lower clinical trial expenses to develop our DFD-29 product as the project concludes.

Current wording

Research and Development expense increased by $5.0 million, to $8.8 million for the six-month period ended June 30, 2024, from $3.8 million for the six-month period ended June 30, 2023. The increase is driven by the $4.1 million filing fee payment to the FDA in January 2024 for DFD-29 and $3.0 million payment for the contractual milestone payment owed to Dr. Reddy’s Laboratories, Ltd (“DRL”) triggered by the FDA’s acceptance of our DFD-29 product NDA in March 2024. This was partially offset by lower clinical trial expenses to develop our DFD-29 product as the clinical phase of the project has concluded.

Previous wording

At March 31, 2024, we had $24.1 million in cash and cash equivalents as compared to $27.4 million of cash and cash equivalents at December 31, 2023.

Current wording

At June 30, 2024, we had $23.9 million in cash and cash equivalents as compared to $27.4 million of cash and cash equivalents at December 31, 2023.

Previous wording

On December 27, 2023, we entered into a Credit Agreement (the “Credit Agreement”) with SWK Funding LLC (“SWK”). The Credit Agreement provides for a term loan facility (the “Credit Facility”) in the original principal amount of up to $20.0 million. On the closing date, we drew $15.0 million. The remaining $5.0 million may be drawn at our request within 12 months after the closing date. Loans under the Credit Facility (the “Term Loans”) mature on December 27, 2027, and bear interest at a rate per annum equal to the three-month term Secured Overnight Financing Rate (“SOFR”) (subject to a SOFR floor of 5%) plus 7.75%. The interest rate resets quarterly. Interest payments began in February 2024 and are paid quarterly. Beginning in February 2026, we are required to repay a portion of the outstanding principal of the Term Loans quarterly in an amount equal to 7.5% of the principal amount of funded Term Loans. The SWK Credit Facility also includes both revenue and liquidity covenants, restrictions as to payment of dividends, and is secured by substantially all assets of the Company. As of March 31, 2023, and as of the date of this Quarterly Report on Form 10-Q, the Company was in compliance with the financial covenants under the SWK Credit Facility.

Current wording

On December 27, 2023, we entered into a Credit Agreement (the “Credit Agreement”) with SWK Funding LLC (“SWK”). The Credit Agreement originally provided for a term loan facility (the “Credit Facility”) in the original principal amount of up to $20.0 million. On the closing date, we drew $15.0 million. On June 26, 2024, we drew the then remaining $5.0 million under the Credit Facility. Loans under the Credit Facility (the “Term Loans”) mature on December 27, 2027, and bear interest at a rate per annum equal to the three-month term Secured Overnight Financing Rate (“SOFR”) (subject to a SOFR floor of 5%) plus 7.75%. The interest rate resets quarterly. Interest payments began in February 2024 and are paid quarterly. Beginning in February 2026, we are required to repay a portion of the outstanding principal of the Term Loans quarterly in an amount equal to 7.5% of the principal amount of funded Term Loans. The SWK Credit Facility also includes both revenue and liquidity covenants, restrictions as to payment of dividends, and is secured by substantially all assets of the Company. As of June 30, 2023, and as of the date of this Quarterly Report on Form 10-Q, the Company was in compliance with the financial covenants under the SWK Credit Facility.

Previous wording

On December 30, 2022, we filed a shelf registration statement on Form S-3 (File No. 333-269079), which was declared effective by the Securities and Exchange Commission (“SEC”) on January 26, 2023. This shelf registration statement covers the offering, issuance and sale of up to an aggregate of $150.0 million of our common stock, preferred stock, debt securities, warrants, and units (the “2022 Shelf”). In connection with the 2022 Shelf, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) relating to shares of our common stock. We may offer and sell up to 4,900,000 shares of its common stock, from time to time, under the Sales Agreement. During the three months ended March 31, 2024, we issued and sold 289,744 shares of common stock under the 2022 Shelf, generating net proceeds of $1.5 million. At March 31, 2024, 3,861,553 shares remain available for issuance under the 2022 Shelf.

Current wording

On December 30, 2022, we filed a shelf registration statement on Form S-3 (File No. 333-269079), which was declared effective by the Securities and Exchange Commission (“SEC”) on January 26, 2023. This shelf registration statement covers the offering, issuance and sale of up to an aggregate of $150.0 million of our common stock, preferred stock, debt securities, warrants, and units (the “2022 Shelf”). In connection with the 2022 Shelf, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) relating to shares of our common stock. We may offer and sell up to 4,900,000 shares of our common stock, from time to time, under the Sales Agreement. During the six months ended June 30, 2024, we issued and sold 289,744 shares of common stock under the 2022 Shelf, generating net proceeds of $1.5 million. At June 30, 2024, 3,861,553 shares remain available for issuance under the 2022 Shelf.

Previous wording

We regularly evaluate market conditions, our liquidity profile, and financing alternatives, including out-licensing arrangements for our products to enhance our capital structure. We may seek to raise capital through debt or equity financings to expand our product portfolio and for other strategic initiatives, which may include sales of securities under either the 2022 Shelf or a new registration statement or drawing on the SWK Credit Facility. We cannot make any assurances that such additional financing will be available and, if available, the terms may negatively impact the Company’s business and operations. Our expectations are based on current assumptions, projected commercial sales of our products, clinical development plans and regulatory submission timelines, which may be uncertain and may not emerge as expected. Additionally, as a result of recurring losses, substantial doubt exists about our ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements.

Current wording

We regularly evaluate market conditions, our liquidity profile, and financing alternatives, including out-licensing arrangements for our products to enhance our capital structure. We may seek to raise capital through debt or equity financings to expand our product portfolio and for other strategic initiatives, which may include sales of securities under either the 2022 Shelf or a new registration statement or drawing on the SWK Credit Facility, if the conditions for the final drawdown are satisfied. We cannot make any assurances that such additional financing will be available and, if available, the terms may negatively impact the Company’s business and operations. Our expectations are based on current assumptions, projected commercial sales of our products, clinical development plans and regulatory submission timelines, which may be uncertain and may not emerge as expected. Additionally, as a result of recurring losses, substantial doubt exists about our ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements.

Previous wording

Cash Flows for the Three-Month Periods Ended March 31, 2024 and 2023

Current wording

Cash Flows for the Six-Month Periods Ended June 30, 2024 and 2023

Previous wording

Net cash used in investing activities decreased by $5.0 million from period to period. The three-month period ended March 31, 2023 reflects the $5.0 million deferred cash payment paid in January 2023 related to the Vyne Product Acquisition.

Current wording

Net cash used in investing activities decreased by $5.0 million from period to period. The six-month period ended June 30, 2023 reflects the $5.0 million deferred cash payment paid in January 2023 related to the Vyne Product Acquisition.

Previous wording

Net cash flows provided by financing activities for three-month period ended March 31, 2024 increased by $1.6 million to $1.6 million from $0.1 million of cash flows provided by financing activities for the three-month period ended March 31, 2023. The increase is driven primarily by the net proceeds from issuances of common stock under our ATM.

Current wording

Net cash flows provided by financing activities for the six-month period ended June 30, 2024 were $6.7 million compared to $13.0 million of net cash flows used in financing activities for the six-month period ended June 30, 2023, reflecting a change of $19.7 million from period-to-period. The change is driven primarily by the draw of an additional $5.0 million under the Credit Facility with SWK as well as the net proceeds from issuances of common stock under the Sales Agreement of $1.5 million as compared to the paydown of our prior letter of credit and debt facility in the prior year period.