UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-41063

JOURNEY MEDICAL CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		47-1879539
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9237 E Via de Ventura Blvd., Suite 105, Scottsdale, AZ 85258

(Address of principal executive offices and zip code)

(480) 434-6670

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	DERM	NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☒	Smaller Reporting Company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.


Class of Common Stock		Outstanding Shares as of May 9, 2022
Common Stock Class A, $0.0001 par value		6,000,000
Common Stock, $0.0001 par value		11,431,594

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JOURNEY MEDICAL CORPORATION

Quarterly Report on Form 10-Q

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PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30

SIGNATURES		31

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PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

JOURNEY MEDICAL CORPORATION

Unaudited Condensed Consolidated Balance Sheets

(Dollars in thousands except for share and per share amounts)


	March 31,		December 31,
	2022		2021
ASSETS
Current assets
Cash and cash equivalents	$	41,331	$	49,081
Accounts receivable, net of reserves		31,183		23,112
Inventory		16,137		9,862
Prepaid expenses and other current assets		1,608		2,438
Total current assets		90,259		84,493

Intangible assets, net		30,457		12,552
Operating lease right-of-use asset, net		67		89
Other assets		118		150
Total assets	$	120,901	$	97,284

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	26,959	$	22,812
Due to related party		511		641
Accrued expenses		25,885		22,733
Accrued interest		66		—
Income taxes payable		112		8
Line of credit		—		812
Deferred payment (net of discount of $206)		4,794		—
Installment payments – licenses, short-term (net of debt discount of $431 and $490 as of March 31, 2022 and December 31, 2021, respectively)		2,569		4,510
Operating lease liabilities, short-term		74		98
Total current liabilities		60,970		51,614

Term loan (net of debt discount of $223)		14,777		—
Installment payments – licenses, long-term (net of debt discount of $284 and $373 as of March 31, 2022 and December 31, 2021, respectively)		3,716		3,627
Total liabilities		79,463		55,241

Commitments and contingencies (Note 15)

Stockholders’ equity
Common stock, $.0001 par value, 50,000,000 shares authorized, 11,318,344 and 11,316,344 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		1		1
Common stock - Class A, $.0001 par value, 50,000,000 shares authorized, 6,000,000 shares issued and outstanding as of March 31, 2022 and December 31, 2021		1		1
Additional paid-in capital		81,688		80,915
Accumulated deficit		(40,252)		(38,874)
Total stockholders’ equity		41,438		42,043
Total liabilities and stockholders’ equity	$	120,901	$	97,284

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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JOURNEY MEDICAL CORPORATION

Unaudited Condensed Consolidated Statements of Operations

(Dollars in thousands except for share and per share amounts)


	Three-Month Periods Ended
	March 31,
	2022		2021
Revenue
Product revenue, net	$	20,796	$	10,719
Other revenue		2,500		—
Total Revenue		23,296		10,719

Operating expenses
Cost of goods sold – product revenue		8,203		3,908
Research and development		1,266		—
Selling, general and administrative		14,715		6,226
Total operating expenses		24,184		10,134
(Loss) income from operations		(888)		585

Other expense
Interest income		(3)		—
Interest expense		389		221
Total other expense		386		221
Net (loss) income before income taxes		(1,274)		364

Income tax expense		104		96
Net (loss) income	$	(1,378)	$	268

Net (loss) income per common share – basic	$	(0.08)	$	0.03
Net (loss) income per common share – diluted	$	(0.08)	$	0.02

Weighted average shares outstanding – basic		17,318,344		9,158,333
Weighted average shares outstanding – diluted		17,318,344		10,897,096

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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JOURNEY MEDICAL CORPORATION

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity

(Dollars in thousands except for share amounts)


											Total
	Common Stock			Common Stock A			Additional		(Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit)		Equity
Balance as of December 31, 2021	11,316,344	$	1	6,000,000	$	1	$	80,915	$	(38,874)	$	42,043
Share-based compensation	—		—	—		—		773		—		773
Issuance of common stock related to equity plan	2,000		—	—		—		—		—		—
Net loss	—		—	—		—		—		(1,378)		(1,378)
Balance as of March 31, 2022	11,318,344	$	1	6,000,000	$	1	$	81,688	$	(40,252)	$	41,438


											Total
	Common Stock			Common Stock A			Additional		Retained		Stockholders’
	Shares	Amount		Shares	Amount		Paid-in Capital		Earnings		Equity
Balance as of December 31, 2020	3,151,333	$	—	6,000,000	$	1	$	5,171	$	5,120	$	10,292
Share-based compensation	—		—	—		—		22		—		22
Exercise of stock options for cash	10,000		—	—		—		7		—		7
Contribution of capital – extinguishment of related party payable	—		—	—		—		178		—		178
Net income	—		—	—		—		—		268		268
Balance as of March 31, 2021	3,161,333	$	—	6,000,000	$	1	$	5,378	$	5,388	$	10,767

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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JOURNEY MEDICAL CORPORATION

Unaudited Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)


	Three-Month Periods
	Ended March 31,
	2022		2021
Cash flows from operating activities
Net (loss) income	$	(1,378)	$	268
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt (recovery) expense		(76)		70
Non-cash interest expense		203		221
Amortization of debt discount		14		—
Amortization of acquired intangible assets		1,017		584
Amortization of operating lease right-of-use assets		22		21
Share-based compensation		773		22
Deferred taxes provision		—		69
Changes in operating assets and liabilities:
Accounts receivable		(7,995)		390
Inventory		(234)		(887)
Prepaid expenses and other current assets		830		472
Other assets		32		(121)
Accounts payable		4,732		566
Due to related party		(130)		70
Accrued expenses		2,928		(395)
Accrued interest		66		—
Income tax payable		104		26
Lease liabilities		(24)		(15)
Net cash provided by operating activities		884		1,361

Cash flows from investing activities
Acquired intangible assets		(20,000)		—
Net cash used in investing activities		(20,000)		—

Cash flows from financing activities
Proceeds from the exercise of options		—		7
Payment of license installment note payable		(2,000)		(1,800)
Proceeds from convertible preferred shares		—		12,537
Payment of debt issuance costs associated with convertible preferred shares		(214)		(1,353)
Proceeds from EWB term-loan, net of discount		14,763		—
Repayment of line of credit		(812)		—
Offering costs for the issuance of common stock - initial public offering		(371)		—
Net cash provided by financing activities		11,366		9,391

Net change in cash		(7,750)		10,752
Cash at the beginning of the period		49,081		8,246
Cash at the end of the period	$	41,331	$	18,998

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	—	$	—
Cash paid for interest	$	95	$	—

Supplemental disclosure of non-cash financing and investing activities:
Deferred payment for asset acquisition	$	4,794	$	—
Unpaid debt offering cost	$	—	$	135
Unpaid initial public offering cost	$	—	$	362
Extinguishment of related party payable relates to deferred tax assets	$	—	$	109

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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JOURNEY MEDICAL CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1. ORGANIZATION AND PLAN OF BUSINESS OPERATIONS

Journey Medical Corporation (collectively “Journey” or the “Company”) was formed on July 18, 2014. The Company is a commercial-stage pharmaceutical company that focuses on the development and commercialization of pharmaceutical products for the treatment of dermatological conditions. The Company’s current product portfolio includes nine branded and three authorized generic prescription drugs for dermatological conditions that are marketed in the U.S. The Company acquires rights to future products by licensing or otherwise acquiring an ownership interest in, funding the research and development of, and eventually commercializing, the products through their exclusive field sales organization.

As of March 31, 2022 and December 31, 2021, the Company was a majority-owned subsidiary of Fortress Biotech, Inc. (“Fortress” or “Parent”).

All dollar amounts discussed in these Notes to Unaudited Condensed Consolidated Financial Statements are in thousands of U.S. dollars, except for per share amounts, and unless otherwise indicated.

Liquidity and Capital Resources

At March 31, 2022, the Company had $41.3 million in cash and cash equivalents as compared to $49.1 million at December 31, 2021.

On November 16, 2021, the Company completed an initial public offering (collectively the “Journey IPO” or “IPO”) of its Common Stock, par value $0.0001 (“Common Stock”), which resulted in net proceeds of approximately $30.6 million, after deducting underwriting discounts and other offering costs.

Prior the Company's IPO, the Company's operations were primarily financed through a working capital note from Fortress, referred to herein as the "Fortress Note," cash generated by operations and cash raised in the Company's private offering of 8% Cumulative Convertible Class A Preferred Stock ("Class A Preferred Stock"). In connection with the closing of the Company's IPO on November 16, 2021, the Company issued 2,231,346 shares of Common Stock resulting from the conversion of all of the Class A Preferred Stock. In addition, the Fortress Note was converted into 1,610,467 shares of Journey Common Stock at the Journey IPO price of $10.00 per share.

The Company also has access to a $30.0 million East West Bank (“EWB”) borrowing facility, which includes a $10.0 revolving line of credit (with zero outstanding at March 31, 2022), and a $20.0 million term loan with both maturing on January 12, 2026. In January 2022, the Company borrowed $15.0 million against the term loan. Through June 12, 2023, the Company has the option to borrow an additional $5 million under another term loan facility. For the next twelve months from the issuance of these financial statements, the Company will be able to fund its operations through a combination of existing cash and cash equivalents generated from operations and the EWB borrowing facility.

The Company regularly evaluates market conditions, its liquidity profile, and various financing alternatives for opportunities to enhance its capital structure. The Company may seek to raise capital through debt or equity financings to expand its product portfolio. If such funding is not available or not available on terms acceptable to the Company, the Company’s current plans for expansion of its product portfolio will be curtailed.

NOTE 2. BASIS OF PRESENTATION

Basis of Presentation and Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which include only normal recurring

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adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited interim condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period. The Company’s unaudited interim condensed consolidated financial statements include the accounts of the Company and the accounts of the Company’s wholly-owned subsidiary, JG Pharma, Inc. All intercompany balances and transactions have been eliminated.

Emerging Growth Company

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s unaudited interim condensed consolidated financial statements upon adoption. Under the Jumpstart Our Business Startups Act of 2012, as amended, the Company meets the definition of an emerging growth company and elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates made by management include provisions for product returns, coupons, rebates, chargebacks, discounts, allowances and distribution fees paid to certain wholesalers, inventory realization and useful lives of amortizable intangible assets. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment, which reflects products for the treatment of dermatological conditions.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. (the “2021 Form 10-K”).

Recently Issued Accounting Pronouncements

During the three-month period ended March 31, 2022, there were no new accounting pronouncements or updates to recently issued accounting pronouncements disclosed in the 2021 Form 10-K that affect the Company’s present or future results of operations, overall financial condition, liquidity or disclosures.

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NOTE 4. INVENTORY

The Company’s inventory consists of the following:


	March 31,		December 31,
($’s in thousands)	2022		2021

Raw materials	$	8,357	$	5,572
Work-in-process		533		—
Finished goods		7,297		4,290
Inventory at cost		16,187		—
Inventory reserves		(50)		—
Total Inventories	$	16,137	$	9,862

NOTE 5. ASSET ACQUISITION

In January 2022, the Company acquired two United States Food and Drug Administration (“FDA”) Approved Topical Minocycline Products, AMZEEQ (minocycline) topical foam, 4%, and ZILXI (minocycline) topical foam, 1.5%, and a Molecule Stabilizing Technology™ proprietary platform from VYNE Therapeutics, Inc. (“VYNE”) for an upfront payment of $20.0 million and an additional $5.0 million payment on the one (1)-year anniversary of the closing (The “VYNE Product Acquisition”). This expands the Company’s product portfolio to nine marketed branded dermatology products. The Company also acquired certain associated inventory.

The VYNE Product Acquisition also provides for contingent net sales milestone payments. In the first calendar year in which annual sales reach each of $100 million, $200 million, $300 million, $400 million and $500 million, a one-time payment of $10 million, $20 million, $30 million, $40 million and $50 million, respectively, will be paid in that year only, per product, totaling up to $450 million. In addition, the Company will pay VYNE 10% of any upfront payment received by the Company from a licensee or sublicensee of the products in any territory outside of the United States, subject to exceptions for certain jurisdictions as detailed in the VYNE Product Acquisition.

The following table summarizes the aggregate consideration transferred for the assets acquired by the Company in connection with the VYNE Product Acquisition:


	Aggregate
	Consideration
($'s in thousands)	Transferred
Consideration transferred to VYNE at closing	$	20,000
Fair Value of deferred cash payment due January 2023		4,740
Transaction costs		223
Total consideration transferred at closing	$	24,963

The fair value of the deferred cash payment is being accreted to the $5.0 million January 2023 cash payment over a one-year period through interest expense.

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The following table summarizes the assets acquired in the VYNE Product Acquisition:


	Assets
($'s in thousands)	Recognized

Inventory		6,041
Identifiable Intangibles:
AMZEEQ Intangible		15,162
ZILXI Intangible		3,760
Fair value of net identifiable assets acquired	$	24,963

The intangible assets were valued using an income approach, while the inventory was valued using a final sales value less cost to dispose approach.

NOTE 6. INTANGIBLES

The Company's finite-lived intangible assets consist of acquired intangible assets.

The Company acquired AMZEEQ (minocycline) topical foam, 4%, and ZILXI (minocycline) topical foam, 1.5%, two FDA-Approved Topical Minocycline Products and Molecule Stabilizing Technology (MST)(TM) from VYNE, which expands the Company's product portfolio to nine marketed branded dermatology products.

On March 31, 2021, the Company executed an Asset Purchase Agreement (the “Agreement”) with Dermira, Inc., a subsidiary of Eli Lilly and Company (“Dermira”). Pursuant to the terms of the Agreement, the Company acquired the rights to Qbrexza® (glycoprronium), a prescription cloth towelette to treat primary axillary hyperhidrosis in patients nine years of age or older. Upon receipt of clearance under federal antitrust laws, which was received on May 13, 2021, the Company paid the upfront fee of $12.5 million to Dermira. In addition, Dermira is eligible to receive up to $144 million in the aggregate upon the achievement of certain sales milestones. The royalty structure for the Agreement is tiered with royalties for the first two years ranging from approximately 40% to 30%. Thereafter, for a period of eight years, royalties are approximately 12% to 19%. Royalty amounts are subject to 50% diminution in the event of loss of exclusivity due to the introduction of an authorized generic.

Upon closing of the Qbrexza® purchase, the Company became substituted for Dermira as the plaintiff in U.S. patent litigation commenced by Dermira on October 21, 2020 in the U.S. District Court of Delaware (the “Patent Litigation”) against Perrigo Pharma International DAC (“Perrigo”) alleging infringement of certain patents covering Qbrexza® (the “Qbrexza® Patents”), which are included among the proprietary rights to Qbrexza®. The Patent Litigation was initiated following the submission by Perrigo, in accordance with the procedures set out in the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”), of an Abbreviated New Drug Application (“ANDA”). The ANDA seeks approval to market a generic version of Qbrexza® prior to the expiration of the Qbrexza® Patents and alleges that the Qbrexza® Patents are invalid. Perrigo is subject to a 30-month stay preventing it from selling a generic version. The stay is set to expire on March 9, 2023. Trial in the Patent Litigation is scheduled for September 19, 2022. The Company cannot make any predictions about the final outcome of this matter or the timing thereof.

The purchase price of $12.5 million included the asset, Qbrexza®, as well as finished goods and raw material inventory. The Company also has the obligation to accept any product returns related to sales made by Dermira. The Company allocated the upfront payment to inventory since the fair value of the inventory and Qbrexza rights exceeded the purchase price. The future contingent milestone payments, if achieved, will be recorded to intangible asset and amortized over the seven-year life of the asset commencing on the closing date.

In December 18, 2020, the Company entered an Asset Purchase Agreement with a third party (the "Anti-itch Product Agreement") for a topical product that is indicated to treat scabies and skin itch conditions ("Anti-itch Product"). Pursuant to the terms and conditions of the Anti-itch Product Agreement, the Company agreed to pay $4.0 million, comprised of a $0.2 million upon the execution of the term sheet, payments of $2.8 million in 2021, and a final payment of $1.0 million on January 1, 2022. There are no subsequent milestone payments or royalties beyond the aforementioned payments.

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On July 29, 2020, the Company entered into a license and supply agreement for Accutane® ("Accutane Agreement") with DRL. Pursuant to the Accutane Agreement, the Company agreed to pay $5.0 million, comprised of an upfront payment of $1.0 million paid upon execution, with additional milestone payments totaling $2.0 million. Three additional milestone payments totaling $17.0 million are contingent upon the achievement of certain net sales milestones. Royalties in the low-double digits based on net sales, subject to specified reductions are also due. The term of the Accutane Agreement is ten years and renewable upon mutual agreement. Each party may terminate the Accutane Agreement for material breach by the other party or for certain bankruptcy or insolvency related events. The Company may also terminate upon 180 days written notice to the other party.

The gross carrying amount and accumulated amortization of intangible assets as of March 31, 2022 and December 31, 2021 are summarized as follows:


	March 31, 2022
	Estimated
	Useful		Gross
	Lives		Carrying		Accumulated		Intangble
($'s in thousands)	(Years)		Value		Amortizaiton		Assets, Net

Amortizable intangible assets:
Ceracade^®		3	$	300	$	(300)	$	—
Luxamend^®		3		50		(50)		—
Targadox^®		3		1,250		(1,250)		—
Ximino^®		7		7,134		(2,718)		4,416
Exelderm^®		3		1,600		(1,600)		—
Accutane^®		5		4,727		(1,024)		3,703
Amzeeq^®		9		15,162		(422)		14,740
Zilxi^®		9		3,760		(104)		3,656
				33,983		(7,468)		26,515
Non-amortizable intangible assets:
Anti-itch product (1)		3		3,942		—		3,942
Total intangible assets			$	37,925	$	(7,468)	$	30,457


	December 31, 2021
	Estimated
	Useful		Gross
	Lives		Carrying		Accumulated		Intangble
($'s in thousands)	(Years)		Value		Amortizaiton		Assets, Net

Amortizable intangible assets:
Ceracade^®		3	$	300	$	(300)	$	—
Luxamend^®		3		50		(50)		—
Targadox^®		3		1,250		(1,250)		—
Ximino^®		7		7,134		(2,463)		4,671
Exelderm^®		3		1,600		(1,600)		—
Accutane^®		5		4,727		(788)		3,939
				15,061		(6,451)		8,610
Non-amortizable intangible assets:
Anti-itch product (1)		3		3,942		—		3,942
Total intangible assets			$	19,003	$	(6,451)	$	12,552

(1)	The Company is transferring manufacturing to an existing contract manufacturer and upon validation will launch such product and commence amortizing.

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The Company’s amortization expense for the three-month periods ended March 31, 2022 and 2021 was $1.0 million and $584,000, respectively. Amortization expense is recorded as a component of cost of goods sold in the Company’s unaudited condensed consolidated statements of operations.

Future amortization of the Company’s intangible assets is as follows:


									Total
($’s in thousands)	Ximino^®		Accutane^®		Amzeeq^®		Zilxi^®		Amortization
Remainder of 2022	$	764	$	710	$	1,263	$	313	$	3,050
December 31, 2023		1,019		945		1,685		418		4,067
December 31, 2024		1,019		946		1,685		418		4,068
December 31, 2025		1,019		945		1,685		418		4,067
December 31, 2026		595		157		1,685		418		2,855
Thereafter		—		—		6,737		1,671		8,408
Subtotal	$	4,416	$	3,703	$	14,740	$	3,656	$	26,515
Asset not yet placed in service		—		—		—		—		3,942
Total	$	4,416	$	3,703	$	14,740	$	3,656	$	30,457

NOTE 7. LICENSES ACQUIRED

On June 29, 2021, the Company entered a license, collaboration, and assignment agreement (the “DFD-29 Agreement”) to obtain the global rights for the development and commercialization of a late-stage development modified release oral minocycline for the treatment of rosacea (“DFD-29”) with Dr. Reddy’s Laboratories, Ltd (“DRL”). Pursuant to the terms and conditions of the DFD-29 Agreement, the Company paid $10.0 million. Additional contingent regulatory and commercial milestone payments totaling up to $163.0 million are also payable. Royalties ranging from approximately ten percent to twenty percent are payable on net sales of the product.

The technology licensed has not reached technological feasibility and has no alternative future use. The licenses purchased by the Company require substantial completion of research and development, and regulatory and marketing approval efforts in order to reach technological feasibility. Accordingly, costs incurred in obtaining the license were charged to research and development expense.

Additionally, the Company is required to fund and oversee the Phase 3 clinical trials approximating $24.0 million, based upon the current development plan and budget. Either party may terminate the DFD-29 Agreement prior to NDA approval in the event of bankruptcy or a material breach that remains uncured beyond the applicable cure period. Additionally, DRL may terminate the DFD-29 Agreement if the Company: i.) ceases development of the DFD-29 product for six consecutive months (except if such cessation is caused by DRL, applicable laws, or action/inaction of any third party beyond the Company's control); ii.) files a patent challenge on any claim for the DFD-29 product patent or DRL background patent; or iii.) fails to initiate development of the DFD-29 product in the European Union ("EU") (such termination solely relates to the rights granted in EU) within 24 months after product regulatory approval or cause first commercial sale in at least one country in the EU within 72 months after product regulatory approval.

In connection with the DFD-29 Agreement, the Company agreed to pay DRL additional consideration of approximately $5 million in cash or shares based on a 15 day volume weighted average price following the IPO date, upon either an IPO of the Company's Common Stock or an acquisition of the Company. The DFD-29 Agreement further specifies that only one payment can be made. As a result of the Company's IPO on November 16, 2021, the Company issued 545,131 unregistered shares of Journey Common Stock to DRL. The restrictions on the unregistered shares of Common Stock are governed by the terms set forth in the DFD-29 Agreement and applicable securities laws.

NOTE 8. FAIR VALUE MEASUREMENTS

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-

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based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Certain of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as accounts payable, accrued expenses and other current liabilities.

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:


	March 31, 2022
($'s in thousands)	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	41,331	$	—	$	—	$	41,331
Total	$	41,331	$	—	$	—	$	41,331


	December 31, 2021
($'s in thousands)	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	49,081	$	—	$	—	$	49,081
Total	$	49,081	$	—	$	—	$	49,081

The Company did not carry any level 2 or level 3 assets or liabilities at March 31, 2022, December 31, 2021. No transfers occurred between level 1, level 2, and level 3 instruments for the three-month periods ended March 31, 2022 and 2021.

NOTE 9. RELATED PARTY AGREEMENTS

Shared Services Agreement with Fortress

On November 12, 2021, the Company and Fortress entered into an arrangement to share the cost of certain legal, finance, regulatory, and research and development employees (the “Shared Services Agreement”). Fortress’ Executive Chairman and Chief Executive Officer is the Executive Chairman of the Company. Under the terms of the Shared Services Agreement, the Company will reimburse Fortress for the salary and benefit costs associated with these employees based upon actual hours worked on Journey related projects following the completion of the IPO. In addition, the Company reimburses Fortress for various payroll related costs and selling, general and administrative costs. For the three-month periods ended March 31, 2022 and 2021, Fortress employees have provided services to the Company, and the Company recorded related expense of approximately $0.1 million and zero, respectively. At March 31, 2022 and December 31, 2021, the Company’s outstanding balance under the Shared Services Agreement was $0.5 million and $0.6 million, respectively, recorded as accounts payable and accrued expenses - related party on the condensed consolidated balance sheets.

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Fortress Income Tax

At March 31, 2022, 58% of the Company’s outstanding Common Stock was owned by Fortress. Prior to the IPO, the Company had been filing consolidated federal tax returns and consolidated or combined state tax returns in multiple jurisdictions with Fortress. The Company may still be required to file combined tax returns in certain “combined filing states”. These jurisdictions generally require corporations engaged in unitary business and meet the capital stock requirement of fifty percent to file a combined state tax return.

Additionally, see Note 19 below for a discussion of income taxes.

NOTE 10. ACCRUED EXPENSES

Accrued expenses consisted of the following:


	March 31,		December 31,
($'s in thousands)	2022		2021
Accrued expenses:
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

NOTE 11. INSTALLMENT PAYMENTS — LICENSES

The following tables show the details of the Company’s installment payments – licenses for the periods presented:


	March 31, 2022

($'s in thousands)	Ximino(1)		Accutane (2)		Total
Installment payments - licenses, short-term	$	2,000	$	1,000	$	3,000
Less: imputed interest		(379)		(52)		(431)
Sub-total installment payments - licenses, short-term		1,621		948		2,569
Installment payments - licenses, long-term		3,000		1,000		4,000
Less: imputed interest		(271)		(13)		(284)
Sub-total installment payments - licenses, long-term		2,729		987		3,716
Total installment payments - licenses	$	4,350	$	1,935	$	6,285


	December 31, 2021
					Anti-Itch
($'s in thousands)	Ximino (1)		Accutane (2)		Product (3)		Total
Installment payments - licenses, short-term	$	2,000	$	2,000	$	1,000	$	5,000
Less: imputed interest		(425)		(65)		-		(490)
Sub-total installment payments - licenses, short-term		1,575		1,935		1,000		4,510

Installment payments - licenses, long-term		3,000		1,000		—		4,000
Less: imputed interest		(350)		(23)		—		(373)
Sub-total installment payments - licenses, long-term		2,650		977		—		3,627
Total installment payments - licenses	$	4,225	$	2,912	$	1,000	$	8,137

Note 1: Imputed interest rate of 11.96% and maturity date of July 22, 2024.

Note 2: Imputed interest rate of 4.03% and maturity date of July 29, 2023.

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Note 3: Imputed interest rate of </