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Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to Journey Medical's First Quarter 2024 Financial Results and Corporate Update Conference Call.
[Operator Instructions]
Participants of this call are advised that the audio of this 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 one hour after the end of the call for approximately 30 days.
I would now like to turn the call over to Jaclyn Jaffe, the company's Senior Director of Corporate Operations. Jaclyn, please go ahead.
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, 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, May 13, 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 over to Claude Maraoui, Co-Founder, President and Chief Executive Officer of Journey Medical.
Thanks, Jaclyn, and good afternoon to everyone on the call today.
I am pleased to report on the progress that we've made at Journey Medical. I will begin with the positive results that we delivered in Q1. During the period, we generated revenue of $13 million, which is a 7% increase over the first quarter of last year. This growth was driven primarily by strong revenues of QBREXZA and ACCUTANE. These two products, together, contributed over $10.8 million in revenue in Q1 2024 versus $8.7 million in Q1 2023. This represents year-over-year growth of 24%.
Looking at the TRxs. QBREXZA grew by approximately 1,800 prescriptions when compared to Q1 of 2023, and ACCUTANE grew by 29,000 prescriptions when compared to Q1 2023, showing strong progress for both brands. Additionally, both QBREXZA and ACCUTANE gained market share in their respective categories. This was achieved through a combination of efforts by our sales and marketing team and our Trade and Access Group. Particularly our reach has expanded both with prescriber adoption of our brands and the expansion of our pharmacy network.
Our expectation is, for these brands, to continue to grow throughout the remainder of 2024. Our strategic pivot to significantly reduce SG&A expenses during 2023 in order to achieve profitability has shown to be a success. This was most recently evidenced by our performance during the first quarter where we were able to achieve 7% revenue growth and profitability in our base business with only 35 territories versus the 59 territories that we had in Q1 of 2023.
Looking at the performance of our four core commercial brands during the quarter: QBREXZA, ACCUTANE, AMZEEQ and ZILXI, make up more than 90% of our revenue, and importantly, these brands generated a positive contribution given our optimized commercial infrastructure.
Simply put, the revenues generated from these products have surpassed our SG&A expenses with the exception of onetime occurrences such as our NDA filing fee for DFD-29.
Historically, Q1 is typically our softest quarter as we are affected by seasonality in our business as well as insurance deductible resets that take place throughout the first quarter of each year. Looking ahead into 2024, we continue to expect growth from our core brands and further expect to benefit from additional incremental expense reductions as a result of our cost optimization efforts that took place in 2023. We believe that these dynamics position us to achieve sustained profitability on an adjusted EBITDA basis and highlight the potential future leverage of our business, particularly with the anticipated launch of DFD-29.
From a macro perspective, our primary emphasis as an organization is to continue preparing for the impending launch of our DFD-29 product candidate. DFD-29 is a novel oral therapy for the treatment of rosacea with best-in-class potential. There are approximately 16.5 million patients that suffer from rosacea in the United States. In 2023, there were over 4 million total prescriptions written for rosacea, which is a 5% increase over 2022. We believe that DFD-29 provides a significant growth opportunity for the company as well as for our shareholders. The clinical trial results for both our Phase III studies were positive on both of the co-primary endpoints, IGA success, which is Investigator Global Assessment, and the reduction of inflammatory lesions associated with rosacea.
DFD-29 demonstrated statistical superiority to both placebo and Oracea, current standard of care and market-leading oral treatment for rosacea. To provide color around the DFD-29 market opportunity, Oracea had over $300 million in annual TRx sales in 2023. We believe that based on DFD-29 superior efficacy, as demonstrated in our Phase III clinical trials, there is a significant opportunity to take market share from Oracea as well as from other topical treatments that are commonly prescribed to treat rosacea. Additionally, DFD-29 demonstrated the ability to significantly reduce erythema or the skin redness associated with rosacea. We believe this is a meaningful clinical result from our Phase III clinical trials that can differentiate DFD-29's product profile, if approved and can help accelerate both prescriber and patient adoption.
The Phase III results also demonstrated a favorable safety and tolerability profile for DFD-29, with safety results that were similar to placebo. Based on the full set of clinical trial results, we recently conducted and completed a fresh round of market research, which focused on two critical groups: First was a survey conducted with prescribers of rosacea treatments that measure the likelihood of adoption of DFD-29; second was a survey of the payers that represent a majority of commercial insurance plans to measure their willingness to include DFD-29 on their formulary. I am pleased to report that the feedback was positive for both sets of participants. Favorable responses were driven by statistical superiority of DFD-29 when compared head-to-head versus Oracea in reducing inflammatory lesions and IGA success as well as statistical significant reduction in clinicians erythema assessment score of DFD-29 versus placebo.
Health care prescribers overwhelmingly confirm their willingness to adopt and prescribe DFD-29 for the rosacea patients at an adoption rate of 79%. In our industry, this is an astoundingly high rate and translates into an approximate 8 out of 10 rosacea prescriptions going to DFD-29. This rate exceeded even our own internal expectations and gives us the confidence in a successful DFD-29 launch. Given the 16.5 million rosacea sufferers in the United States and over 4 million prescriptions written annually, the prescriber adoption rate captured in our market research makes us even more excited about DFD's market potential.
With respect to the payer market research results, the data shows most, if not almost all PBMs, GPOs and other managed care organizations are likely to contract with us to provide coverage for DFD-29 for over 200 million lives. As a result of this market research, we are even more confident that DFD-29 will have high acceptance among prescribers and that negotiations with payers for formulary inclusion and reimbursement will be favorable after DFD-29 is approved.
We will provide additional details on prelaunch activities later in the year as we finalize the launch plans, pricing and product positioning for DFD-29. To recap on our regulatory activities in Q1, we submitted our new drug application for DFD-29 on January 4, and the application was accepted by the FDA on March 13, whereby FDA provided us with key timelines of the review process and a PDUFA date of November 4 of this year. Given the impressive efficacy and safety data generated from the DFD Phase III head-to-head clinical trial program, we remain highly confident that FDA will provide us with an approval by the PDUFA date. Regarding intellectual property, DFD-29 has a robust patent profile. We currently have 3 Orange Book listable patents to provide exclusivity until 2039. As a result, we anticipate having market exclusivity without generic intrusion for the foreseeable future.
To conclude on our discussion of DFD-29, we believe the achievement of superior efficacy and safety results will pave the way for a new rosacea treatment paradigm, which would significantly enhance the value of our company as well as the value that we bring to the dermatology prescribers and patients alike.
Moving into our business development efforts. We continue to evaluate opportunities to enhance shareholder value. A primary focus for the company is to continue to out-license our intellectual property and related technologies to interested and capable companies outside of the United States. In 2023, we entered into an out-licensing agreement with Maruho, which resulted in a $19 million upfront licensing payment for the rights to develop and commercialize QBREXZA in certain Asian countries. We will continue to explore opportunities to exploit and monetize our IP and technologies globally for QBREXZA, AMZEEQ and ZILXI as well as DFD-29. Second, we continue to survey the dermatology landscape for new product opportunities that we can acquire or in-license FDA-approved products as well as late-stage product candidates. That would allow us to leverage our focused commercial infrastructure. In this regard, our first priority would be to bring in commercially available FDA-approved prescription dermatology products that would fit directly into our existing commercial footprint.
As a secondary focus, we will continue evaluating late-stage product candidates that have demonstrated strong clinical trial results in therapeutic areas in dermatology where there are unmet treatment needs that we believe we can best serve patients. Executing on one or more of these opportunities would allow us to bring in additive revenue with minimal investment in our infrastructure, adding to both our top and bottom lines.
With that, I will now turn the call over to our Chief Financial Officer, Joe Benesch, to review our financial results for the first quarter of 2024.
Thank you, Claude, and good afternoon to everyone on the call. Our total net revenue for the first quarter of 2024 was $13 million compared to $12.2 million for the first quarter of 2023. Increase was primarily due to increases in net product revenues for QBREXZA and ACCUTANE as we continue to focus our marketing efforts on these products. Our gross profit margin increased slightly year-over-year driven by higher sales. R&D expense increased by $5.9 million from the prior year quarter, driven by a $4.1 million DFD-29 application repayment to the FDA in January, and a $3 million expense for a contractual milestone payment triggered by the FDA's acceptance of our DFD-29 application in March. These onetime expenses were offset by lower DFD-29 clinical trial expenses as the project winds down and eventually concludes.
Looking now to our SG&A expenses. SG&A decreased by $4.7 million or 35% from the prior year quarter as a result of our continued expense management efforts. This is in addition to the $15.6 million reduction in SG&A in 2022 to 2023 that we reported at year-end.
Continuing to our net loss for the period. Net loss to common shareholders was $10.4 million or $0.53 per share basic and diluted for the first quarter of 2024 compared to a net loss to common shareholders of $10.1 million or $0.57 per share basic and diluted for the first quarter of 2023. The loss for the period was substantially due to onetime charges for the FDA application fee and the milestone payment discussed previously.
Turning now to our non-GAAP results. Our non-GAAP adjusted EBITDA for the first quarter of 2024 resulted in income of positive $11,000, reflecting our third consecutive non-GAAP adjusted EBITDA positive quarter. This compares to a non-GAAP adjusted EBITDA loss of $5.3 million for the first quarter 2023.
While the first quarter was only slightly positive, we do expect non-GAAP adjusted EBITDA to increase more significantly throughout the remainder of 2024. We ended the first quarter of 2024 with $24.1 million in cash compared to $27.4 million at December 31, 2023. Cash burn for the quarter reflects our cash outlay for the onetime FDA application fee payment of $4.1 million offset by positive cash flow from operations.
Lastly, we are on track to meet and potentially exceed the financial guidance that we communicated at year-end, which is to achieve net revenues in the range of $55 million to $60 million; SG&A expense in the range of $39 million to $42 million; and R&D expense in the range of $9 million to $10 million. Thank you very much. I will now turn the call back over to Claude.
Thank you, Joe. The first quarter results demonstrate the strength of our base business as we delivered year-over-year growth and generated our third consecutive quarter of positive non-GAAP adjusted EBITDA. By strengthening the IP around our portfolio, rightsizing our operating expenses, advancing DFD-29 towards U.S. market approval and bringing in non-dilutive capital from our business development initiatives, I believe that the company is now stronger than ever, and we are ready for the next growth phase in our journey. Thank you. Operator, we are now ready to open the lines for Q&A.
[Operator Instructions]
Today's first question comes from the line of Scott Henry with Alliance Global Partners.
First, Joe, congratulations on losing the interim title of CFO. So starting on the numbers. COGS was a little higher relative to Q4. I thought we were going to start to see more consistent numbers there. Was there a reason? Or is there a reset in the COGS line that we should still be factoring in?
Yes. Thanks, Scott, and thanks for the congrats. I really appreciate it. I believe the margins were a little bit lower due to product mix. That's the first piece. Product mix to the higher-margin products was pretty prevalent in the first quarter. And also, we had some isolated freight costs, isolated testing costs, and we had some raw material obsolescence that came through the first quarter. Moving to the second quarter, third quarter, things should go back to normal.
Okay. And by normal, we should get 40% or, I guess, a 60% plus gross margin?
Exactly, back where we were like in the December realm or the fourth quarter realm.
Great. There were also some comments as to QBREXZA and ACCUTANE being the main growth drivers of the current product portfolio. Do you have any thoughts on which one of those two would be the larger growth asset? I would think it would be QBREXZA, but the script numbers were pretty strong for ACCUTANE, just I want to get your sense on that.
Sure. Yes. Scott, it's Claude. I'll start out. ACCUTANE and QBREXZA are certainly key drivers for us as we continue to move forward. Like you said, approximately 29,000 prescription increase year-over-year, same quarter, so just tremendous growth there, and we had just a little shy of 2,000 prescriptions in growth with QBREXZA. So I'll start out with ACCUTANE first since it had the largest demand increase. This isotretinoin market is growing. We're penetrating more and more into the market share area.
We're looking at now close to 17% plus market share. So that's a very good sign. We don't anticipate hitting a ceiling with that. I think if you take a look at our best quarter ever, it was about 75,000, 73,000 prescriptions, and here we are at 93,000. So if you just take a run rate of that, you're still showing strong double-digit growth moving into this year here with ACCUTANE. With QBREXZA, in terms of market share gains, it is a seasonal drug. The winter is typically a slower time for us in terms of picking up demand. So as we get into the warmer months that we're into right now in this calendar year, our momentum seems to be picking up with that and having stronger demand.
So I think our sales team as well as our marketing promotion is working very effectively. This is all about getting awareness out there with the product as well as just constant education. So most people still don't have the full understanding and that there's a benefit for what they're ailing with, so yes, more growth. I would tell you that QBREXZA should be in the mid- to high single digits as we keep going and could venture into the double digits. So both those will drive our growth.
Okay. Great. And then just shifting over quickly to DFD-29, I heard a lot of great color on the surveys that you have run with clinicians. Where, I mean, should we look for that to be published somewhere or perhaps you'll include some slides in your presentation. I'm just wondering how you're going to disseminate some of that data.
Yes, sure. Scott, we used a third-party independent market research company, [ Indogen ], you probably well know it. And we certainly will have some slides in the very near future included in our deck as we go, that will be posted on our website.
The next question is from Kalpit Patel with B. Riley Securities.
Maybe starting with DFD-29, have you had any initial conversations with payers on the drug's profile? I know you probably need to wait until the drug is approved to have any official contracts signed, but just wanted to know if you had any color on preliminary dialogue with payers.
Yes, absolutely, Kalpit. We certainly have done the market research that was also done recently. So it's fresh, new. We looked at over the payers that included lives of over 220 million covered lives nationally, so a very good broad sample.
They looked at the Phase III clinical trials. We offered all the various product attributes, the proposition value, and overwhelmingly in terms of acceptance, and being able to negotiate and get that covered. That way, we have the access and ability to do the pull-through with our sales and marketing promotion. Overwhelming response is very, very positive. We will be able to get good coverage on DFD-29, and as you mentioned, we won't be able to negotiate with payers until after the approval.
Okay. All right. Then you previously guided that you would potentially breakeven or even turn cash flow positive in fiscal year 2024. Can you comment if this guidance is still unchanged as of today?
Joe, would you like to handle that, please?
Sure. So thanks, Kalpit. The guidance is definitely unchanged. Basically, we have some DFD-29 launch costs in our budget. If you pull all those launch costs out, pull some of the noncash stuff out, the core business is contribution positive at this time. So we continue to work towards that. By year-end, we believe we're going to be non-GAAP EBITDA positive, as we suspected.
Thank you very much. Seeing no further lines in the queue, this concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines, and have a great day.