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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the Journey Medical's Third Quarter 2022 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. [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 conference call over to Matt Blazei of CORE IR the company's Investor Relations firm. Please go ahead.
Good afternoon and thank you for participating in today's conference call. Joining me from Journey Medical Corporation's leadership team are Claude Maraoui, Co-Founder President and Chief Executive Officer; Ernie De Paolantonio, Chief Financial Officer; Ramsey Alloush, General Counsel; and Dr. Srinivas Sidgiddi, VP of Clinical Development and Medical Affairs who will be joining us for the Q&A 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 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, November 10, 2022. 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 Officers of Journey Medical. Thank you.
Thanks, Matt. Good afternoon, and thanks to everyone for joining our third quarter 2022 conference call. While third quarter financial results did not meet our expectations, we continue to report record revenues for the nine months ended September 30, 2022 of $57.7 million, which is 26% greater than revenues for the nine months ended of the prior year of $45.1 million. Third quarter revenue was $16.1 million, which was $3.5 million less than the third quarter of 2021. In addition to the macroeconomic challenges faced by our sector, which limited our growth in the third quarter, Targadox revenue for the quarter was $4 million less when compared against third quarter of the prior year, reflecting the continued impact of generic competition for the brand. However, this shortfall was partially offset by an increase in Accutane revenue of $0.6 million or a 17% increase versus the third quarter of the prior year. Our flagship products Qbrexza and Accutane along with the contributions of our newly launched products, Amzeeq and Zilxi represented $44.4 million or 81% of our year-to-date revenue.
On the product development front, we are pleased to have enrolled 75% of patients throughout the U.S. and Europe in our two Phase 3 clinical studies MVOR-1 and MVOR-2 for our DFD-29 product candidate that is being evaluated for the treatment of papulopustular rosacea in adults. We anticipate completing enrollment by year's end and expect to announce top-line data from the clinical trials in the first half of 2023 with an expected NDA filing in the second half of 2023.
To reiterate, the market opportunity for DFD-29 is significant, with an estimated 16 million people in the United States suffering from rosacea. This equates to an estimated 1 billion plus in prescription sales in 2021 according to Symphony data. The Phase 2 clinical trial results for DFD-29 demonstrated nearly double the efficacy overall ratio the current market leader and standard of care with respect to both co-primary endpoints in the study, which were: one, reduction in total inflammatory lesion count; and two, IGA success. Oraycea had approximately 340 million in prescription sales in 2021 according to Symphony data. Once approved and launched in 2024, we believe that DFD-29 will be able to achieve net sales in excess of $100 million annually, providing meaningful revenue contribution for the company. To provide context of the expected revenue contribution of DFD-29, our total revenue for fiscal year 2021 was $63.1 million. We believe that the commercial opportunity for DFD-29 and the near-term launch of our anti-itch product together with our robust portfolio of prescription dermatology products positions Journey Medical for continued growth in the future.
Further strengthening our ability to achieve continued growth and expanding our runway to do so are our successful three paragraph IV litigation settlements with Padagis which resulted in the following: Qbrexza with an entry date no earlier than August 15, 2030, Amzeeq with an entry date no earlier than July 1, 2031 and Zilxi with an entry date no earlier than April 1, 2027. With the continued expected growth of our newly launched products, the expected launch of our anti-itch product and our ability to maximize internal efficiencies, we expect our commercial operations to return to profitability. Our strategic focus on the continued expansion of our product portfolio through in-licensing, acquisition and developing novel dermatology products and future product candidates, combined with our industry-leading sales force continues to be the cornerstone of our future growth.
With that, I'll now turn the call over to Ernie De Paolantonio, our CFO who will review our financial results for the third quarter.
Thanks, Claude, and hello, everyone. I will now review the third quarter financial results. Total revenue was $16.1 million for the three month period ended September 30, 2022, a decrease of $3.5 million from $19.6 million for the three month period ended September 30, 2021. The decrease is primarily driven by a $4 million reduction due to generic competition of Targadox that was partially offset by an increase in Accutane revenue of $0.6 million versus the same period in 2021. Other incremental product revenue of $1.7 million versus 2021 during the three month period ended September 30, 2022, was driven by our newly acquired and launched products Amzeeq and Zilxi.
Cost of goods sold decreased by $3.9 million or 35% to $7.2 million for the third quarter of 2022 from $11.2 million for the third quarter of 2021. The decrease in cost of goods sold was primarily due to a $2.1 million decrease in Qbrexza royalties as a result of a contractual royalty rate reduction of 10 percentage points that occurred in May of 2022. Also contributing to the reduction in royalty expense was the lower Targadox revenue as a result of generic competition.
In addition, the three month period ended September 30, 2021, included an inventory step up of $3 million for inventory units sold related to the acquired finished goods of Qbrexza from Dermira in 2021. The decrease in cost of goods sold were slightly offset by higher freight charges and additional testing costs of approximately $1 million as a result of our newly acquired and launched products Amzeeq and Zilxi, and an increase in cost of goods sold related to higher noncash amortization of licenses of approximately $0.4 million.
Research and development expenses increased to $2.8 million for the three month period ended September 30, 2022 from $0.7 million for the same period of the prior year. The increase is primarily related to additional clinical trial expenses related to the development of our DFD-29 product candidate, for which dosing began in March of 2022. Total R&D expenses reflect the additional enrollment of patients in the two Phase 3 trials, MVOR-1 and MVOR-2 as well as other associated costs of the development program.
Selling, general and administrative expenses were $15.6 million for the third quarter of 2022 compared to $10.8 million for the third quarter of 2021 with the increase primarily resulted from the expansion of our sales force, product samples, marketing expenses related to the expanded portfolio of four products Accutane, Qbrexza, Amzeeq and Zilxi, and professional fees associated with being a public company.
Net loss attributable to common shareholders was $10.1 million or $0.57 per share basic and diluted for the third quarter of 2022 compared to a net loss attributable to common shareholders of $10.6 million or $1.16 per share basic and diluted for the third quarter of 2021.
Our non-GAAP adjusted EBITDA for the third quarter of 2022 after adjusting for R&D expenses, related to DFD-29 resulted in a net loss of $4 million or $0.23 per share basic and diluted versus a net profit of $1.3 million or $0.14 per share basic and $0.12 per share diluted. At September 30th, we had $34.9 million in cash and cash equivalents as compared to $49.1 million at December 31, 2021.
Finally, an update to the cryptocurrency breach that resulted in losses of $9.5 million in September of 2021. The Federal government has been able to seize a significant amount of cryptocurrency associated with the breach. Once the cryptocurrency has been converted back into U.S. dollars, Journey Medical will receive a notification letter to initiate the return of cash to the company. The process could take as long as six months or more to complete.
And with that, I'll turn it back to Claude.
Thank you, Ernie. Our strategy with our product portfolio expansion has been designed to pivot during the lifecycle challenges that we have faced over the last few quarters with Targadox. And we remain optimistic about the future performance of our newly launched products heading into 2023. We are also excited about completing enrollment for both Phase 3 clinical trials for DFD-29 this calendar year, and the launch of another prescription product to add to our portfolio. With a strong financial foundation and continued momentum with our new products, we expect to achieve another year of record revenues in 2022.
I will now turn the call over to the operator for questions. Thank you.
[Operator Instructions] Our first question comes from Scott Henry with ROTH Capital.
Yes, I thought the results were kind of within expectations but sort of at the low end. I guess the question is, since you're tracking at the low end, granted, it may be a macro environment issue, do you make some adjustments? I mean, because you've added so much to sales force, and you're not necessarily getting the return that you thought you'd get from that investment. Sometimes you got to make adjustments as it plays out. What are your thoughts on that?
Hi, Scott. This is Claude. I'll take that one. So, yes, our third quarter revenue of $16.1 million was on the lower side. I think as we enter Q4, I think we're ramping things up here. So that's a positive. We've already taken care of October. And we are looking at a various number of ways to cause efficiencies throughout the whole organization, from marketing expenses to operating expenses, and so forth. But our plan is to grow our prescription base and our commercial team certainly has the ability and capability to do that. And we expect good things coming up here. So we'll look at everything, and we'll take many things into consideration.
Now, if I heard you -- do you feel pretty confident that there will be sequential growth from Q3 of this year to Q4?
We haven't -- as you know, and I know, I get this question repeatedly, we just haven't given any guidance yet. Like I did say, I think we're off to a better start to Q4 than we did in Q3. So that's certainly pointing in the right direction. And I think, the trends are looking better. So we'll see where we end up at the end of the quarter. We've launched now four assets within the last 15, 16 months or so, and we're starting to get a good understanding of the landscape. Some of the products such as Amzeeq and Zilxi, not only are we picking those assets up at a much lower rate than we had anticipated to originally, but they are also having competition -- new competition enter the marketplace. So again, I think the commercial marketing and sales organization is doing a good job getting traction. We're seeing some good growth out of those now. And we'll see how the year-end goes.
Okay. Just on one specific product, I know that Accutane, yes, it was up over last third quarter, but it was down sequentially. How do you think about that product? I mean, it's been a great brand regardless. But do you think, we're kind of at the plateau where we're just looking to match I guess in that 4 million to 5 million range, or do you think there's room for growth from here? Or is it even 4 million, maybe that's a big number per quarter?
Yes, I mean, as I look historically, right, it's relatively new product. We've been averaging, like you said, first quarter, we did about 4.9 million; second quarter this year, we did about 5.2 million; in Q3, the isotretinoin market was down. We still held our market share at about 11.2%. Revenues for Accutane came in about 4.1 plus for the quarter. So, the run rate is looking close to 19 million to 20 million for the year. And we're at 11% market share.
Do we see more opportunity as we move forward into 2023? The answer is, absolutely. We have gone from seventh position entering the marketplace in last position when we started out with zero prescriptions. We now have climbed up already to the third position. So we've made great gains moving up four positions already in the marketplace. And I think we've got some good strategies and good tactical programs to really come in a strong fashion in 2023. It comes down to execution. But there certainly is a lot more room in that brand in my perspective.
And just two very small questions. First, you know, that 9.5 million wire fraud situation. Given that it's in cryptocurrency, how do you even think about how much money can come back to you? I assume it's less than that. But you don't know what price it went in, what price it came out? Any color on what you think you could get back out of that transaction?
Sure, yes, great question. I'm going to pass that off to Ramsey Alloush, our general counsel.
Great. Hi, Scott. As you mentioned, we were victims back in September of 2021 of that cyber theft. The FBI did inform us that they’ve recovered a significant portion. It did get converted into cryptocurrency, as you mentioned. So we are -- right now what we know is it’s sitting in cryptocurrency. And so I guess at the time in which the administrative proceedings are complete and the money is transferred back into U.S. dollars, it will all depend on where -- using Bitcoin, for example, as the measurement where that is in terms of dollars.
I guess we will wait and see. Final question, just that anti-itch product, is that still on track for a fourth quarter? Or I guess it'd be a very near term launch?
Yes. Absolutely. That's the anticipated timetable that we've given in the past. We had our supply issues in that, were rectified for us in July with Ximino and Exelderm, we're glad to say that, that was taken care of. And now we continue to work with our manufacturer for this particular brand. And it's frustrating for us. We anticipated having this a lot earlier. But from COVID potential impacts, if there's someone on the line that gets COVID, we get to move back to the line and start all over on the queue.
When there are various excipients and tubes that are supposed to take typically 12 weeks are taking 16 to 18 weeks. So everything seems to keep getting pushed back and back further on the CMO part. In terms of the commercial readiness, in terms of training the sales force, in terms of our marketing messages, materials, we're ready to go. It's really just waiting for the manufacturing to take place on this approved product. So we are at the mercy of the manufacturer. We are in constant communications on a weekly basis with them. And it's been kind of up and down. We feel good. And then they hit us with a setback. So I believe it's coming here in the very near future. I just don't have a date for you.
Our next question comes from Brandon Folkes with Cantor Fitzgerald.
Can you maybe just talk a little bit about to Qbrexza, just how you viewing that product. How you are doing the progress there? And then secondly, in terms of 100 million opportunity you put out there, can you contextualize how large of incremental commercial investments you think you may need behind DFD-29 to achieve that 100 million? And apologies if I missed this, was it just U.S. or worldwide? And then maybe lastly, have you said anything about the commercial opportunity for the anti-itch product? Thank you very much.
Sure. Okay. Thanks, Brandon, good to hear you. I will begin that regarding Qbrexza. So just to kind of give a level set and let you know how this brand is doing in terms of execution from the field and the demand that we're generating for this. If you take a look at year 2020, again, using Symphony data, the total prescriptions for that were 92,000. That was under the realm at the time of Dermira, which was part of Eli Lilly. And then in 2021, with Qbrexza, we finished the acquisition, brought over the set towards the middle to the end of May. That year, it ended up hitting 98,000 in prescriptions. And now at a full year through nine months of 2022, right now, if we just average out the last few months of the year, we're looking at approximately anywhere from 115,000 prescriptions to 120,000 prescriptions, if that were to happen on the average, which would be a 20% plus gain over last year. So when I look at it from that perspective, and when we rely on a highly tenured commercial sales team, I see a lot of progress there in that front.
And then in terms of revenue and what it's generating for us on a regular quarterly cycle, we're looking at anywhere between $6 million to $7 million. So when we take a look at through nine months, Qbrexza by itself has brought in just about $20 million in three months. We still have this full quarter to go in Q4. And then when you add on top of that as well the additional milestone revenue that we received from our partners Maruho in Japan, a milestone payment of $2.5 million, you're looking at a potential run rate from $28 million to $30 million. So I think that the brand is doing well. It's meeting our expectations. We certainly believe with the successful settlement that we had, that’s going all the way out to 2030, that we have ample room to grow this brand over time. And we've been doing a very strong effort on the DTC front and search engine optimization, and then owning the offices with our providers and dermatologists. So on that front I think Qbrexza is well in a good position. We certainly want to ramp it up some more. And this is a market really that's being created, right? Patients are not even aware that this is really a disease. They're not aware that they can get provided a product that typically has 77% of patients reporting that their underarm sweating is much better to moderately better in just four weeks of utilization. So this has all the characteristics of building a brand that's significantly more than $30 million over time.
In terms of DFD-29, this is a -- we have rights to it globally with a few exceptions. I'm going to have Ramsey talk about that. And then also discuss a little bit more about the financial backing regarding DFD-29, perhaps Ernie will jump in there.
Thanks, Claude. Hello, Brandon. Just to answer your question in terms of the peak revenues of the $100 million, we were looking at that U.S.-only. As Claude mentioned, we do have global rates, subject to a few exceptions, that includes what we know as the BRIC countries, Brazil, Russia, India, and China, as well as what they call the CIS countries, which are some small, old -- smaller older, Eastern European countries. And so we do see opportunities, not only in Europe, but in Japan and other markets, as well to be able to either co-develop our outlicense or develop ourselves. So there's definitely potential outside of the U.S. And I think I'll hand it over to Ernie to discuss, I think the question was commercial spends to get this thing up and running to that point.
Yes. Hi, Brandon. On the commercial side of it, there will be additional marketing expenses as you would expect to get the product up and running. Similar to that of the other products that we have, we hadn't given guidance. And in addition to that, there will be other commercial expenses, for once the territories are identified and once the number of sales reps are identified. So there will be additional expenses for the sales force for marketing and probably some other things, I don't know MSLs or whatever. But we haven't really given guidance on that fact. But probably, similar percentage that we would spend in the introduction of one of our other brands as well.
Our next question comes from Kalpit Patel with B. Riley.
This is Andy on for Kalpit, and thank you for taking the questions. I know you guys aren't providing revenue guidance at this time. But maybe looking out into 2023, do you expect revenue growth from Qbrexza, Accutane, Amzeeq and Zilxi to overcome declining revenues from your legacy assets? Or are you sort of in steady state at this point and maybe will need to wait for DFD-29 commercial launch to really see top-line growth?
Hi, Andy. This is Claude, nice to say hello. So in terms of Targadox, really the competition with the generic out there, I really think that 2022 we're really taking the brunt of this competition. So that's where really we're getting impacted the most. And I think we've been forthright and detailed on that. So as 2023 enters, we'll see Targadox becoming less material for the revenue base in terms of our legacy brands. Now, the remaining legacy brands would be really considered for us are Ximino as well as Exelderm really taking the bulk of the revenue. And I actually really believe that Ximino and Exelderm are going to hold their own quite well in 2023. So we're not really anticipating declines with those two assets. So the base should hold strong with legacy brands for 2023.
Now, in terms of our newly launched brands, it certainly is our expectations that we're going to get growth from each of these brands in 2023. And certainly that is part of our brand plan and our overall arching strategy.
And then -- then maybe one additional question to dig a little bit deeper on Accutane. You mentioned that your market share held in this product, but you saw kind of a decline in the overall market. Can you elaborate a little bit on that, whether it was macro related or something else or what's taking place there?
Sure. The market itself is down. When you take a look at Q3 over Q2 2022, you're looking at about a 12% decline in the market itself. So what that is necessarily attributable? I can't tell you a 100%. But so lots of times, there are a lot less people going into the dermatology office. This is a product once a patient is on it, they're typically on it for anywhere from four to six months, but you're not necessarily getting as many new patients on. So, that really is for the entire market, not just our particular brand.
But, like you mentioned, and as I mentioned, that 11% plus 11.12% share that we've had has been very consistent. And I think I forgot to mention earlier, that with each prescription that we get, it quantifies back into approximately 1.6 to 1.8 units sold per month. So that's also a very good positive attribute that the brand has.
This concludes our question-and-answer session. I would like to turn the conference back over to Claude Maraoui for any closing remarks.
Yes, appreciate it. And really just wanted to thank you all for participating in today's call, for your interest in Journey Medical. We look forward to sharing our ongoing progress when we report fourth quarter and year-end results in March. Thanks and have a good day.
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.