UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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:
(Exact name of registrant as specified in its charter)
| ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices and zip code)
(
(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 |
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.
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).
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 | ☐ | |
☒ | 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
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 November 10, 2022 |
Common Stock Class A, $0.0001 par value | ||
Common Stock, $0.0001 par value |
JOURNEY MEDICAL CORPORATION
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | ||
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33 |
i
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)
| September 30, |
| December 31, | |||
2022 | 2021 | |||||
ASSETS |
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Current assets |
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Cash and cash equivalents |
| $ | |
| $ | |
Accounts receivable, net of reserves |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Intangible assets, net |
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Operating lease right-of-use asset, net |
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Other assets |
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Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable | $ | | $ | | ||
Due to related party |
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Accrued expenses |
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Accrued interest | | — | ||||
Income taxes payable |
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Line of credit | — | | ||||
Deferred cash payment (net of discount of $ | | — | ||||
Installment payments – licenses, short-term |
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Operating lease liability |
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Total current liabilities |
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Term loan (net of debt discount of $ | | — | ||||
Installment payments – licenses, long-term |
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Total liabilities |
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Commitments and contingencies (Note 15) |
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Stockholders’ equity |
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Common stock, $ |
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Common stock - Class A, $ |
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Additional paid-in capital |
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Accumulated deficit |
| ( |
| ( | ||
Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
JOURNEY MEDICAL CORPORATION
Unaudited Condensed Consolidated Statements of Operations
(Dollars in thousands except for share and per share amounts)
| Three-Month Periods Ended |
| Nine-Month Periods Ended | |||||||||
September 30, | September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Revenue: | ||||||||||||
Product revenue, net | $ | | $ | | $ | | $ | | ||||
Other revenue | | — | | - | ||||||||
Total Revenue | | | | | ||||||||
Operating expenses |
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Cost of goods sold – product revenue |
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Research and development |
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Research and development - licenses acquired |
| — |
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| — |
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Selling, general and administrative |
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Wire transfer fraud loss |
| — |
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| — |
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Total operating expenses |
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Loss from operations |
| ( |
| ( |
| ( |
| ( | ||||
Other expense |
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| — |
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Interest income |
| ( |
| — |
| ( |
| - | ||||
Interest expense | | | | | ||||||||
Foreign exchange transaction losses | | — | | — | ||||||||
Change in fair value of derivative liability |
| — |
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| — |
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Total other expense |
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Loss before income taxes |
| ( |
| ( |
| ( |
| ( | ||||
Income tax (benefit) expense |
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| ( |
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| ( | ||||
Net Loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net loss per common share: | ||||||||||||
Basic and diluted | ( | ( | ( | ( | ||||||||
Weighted average number of common shares: |
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Basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
JOURNEY MEDICAL CORPORATION
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity
(Dollars in thousands except for share amounts)
Nine-Month Period Ended September 30, 2022
Total | |||||||||||||||||||
| Common Stock |
| Common Stock A | Additional | (Accumulated | Stockholders’ | |||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit) |
| Equity | ||||||
Balance as of December 31, 2021 | | $ | | | $ | | $ | | $ | ( | $ | | |||||||
Share-based compensation | — |
| — | — |
| — |
| |
| — |
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Exercise of stock options for cash | | — | — | — | | — | | ||||||||||||
Issuance of common stock for vested restricted stock units | | — | — | — | — | — | — | ||||||||||||
Net loss | — |
| — | — |
| — |
| — |
| ( |
| ( | |||||||
Balance as of September 30, 2022 | | $ | | | $ | | $ | | $ | ( | $ | |
Three-Month Period Ended September 30, 2022
Total | |||||||||||||||||||
Common Stock | Common Stock A | Additional | (Accumulated | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit) |
| Equity | ||||||
Balance as of June 30, 2022 | | | ( | $ | | ||||||||||||||
Share-based compensation |
| — |
| — |
| — |
| — |
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| — |
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Exercise of stock options for cash |
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| — |
| — |
| — |
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| — |
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Issuance of common stock for vested restricted stock units |
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| — |
| — |
| — |
| — |
| — |
| — | |||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance as of September 30, 2022 |
| | $ | |
| | $ | | $ | | $ | ( | $ | |
Nine-Month Period Ended September 30, 2021
Retained | |||||||||||||||||||
Earnings | Total | ||||||||||||||||||
| Common Stock |
| Common Stock A | Additional | (Accumulated | Stockholders’ | |||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit) |
| Equity (Deficit) | ||||||
Balance as of December 31, 2020 | | $ | — | | $ | | $ | | $ | | $ | | |||||||
Share-based compensation | — |
| — | — |
| — |
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| — |
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Exercise of options for cash | | — | — | — | | — | | ||||||||||||
Contribution of capital – extinguishment of related party payable | — |
| — | — |
| — |
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| — |
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Net loss | — |
| — | — |
| — |
| — |
| ( |
| ( | |||||||
Balance as of September 30, 2021 | | $ | — | | $ | | $ | | $ | ( | $ | ( |
Three-Month Period Ended September 30, 2021
Total | |||||||||||||||||||
| Common Stock | Common Stock A | Additional | (Accumulated | Stockholders’ | ||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit) |
| Equity (Deficit) | ||||||
Balance as of June 30, 2021 | | $ | — |
| | $ | | $ | | $ | ( | $ | ( | ||||||
Share-based compensation | — |
| — |
| — |
| — |
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| — |
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Distribution of capital – extinguishment of related party payable | — |
| — | — |
| — |
| ( |
| — |
| ( | |||||||
Net loss | — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance as of September 30, 2021 | | $ | — |
| | $ | | $ | | $ | ( | $ | ( |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
JOURNEY MEDICAL CORPORATION
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
| Nine-Month Periods | |||||
Ended September 30, | ||||||
| 2022 |
| 2021 | |||
Cash flows from operating activities |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Bad debt expense (recoveries) |
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| ( | ||
Non-cash interest expense |
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Amortization of debt discount |
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Accretion of convertible preferred shares |
| — |
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Amortization of acquired intangible assets |
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Amortization of operating lease right-of-use assets |
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Share-based compensation |
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Deferred tax benefit | — | ( | ||||
Change in fair value of derivative liability |
| — |
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Research and development-licenses acquired, expense |
| — |
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Changes in operating assets and liabilities: |
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Accounts receivable | ( | ( | ||||
Inventory |
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| ( | ||
Prepaid expenses and other current assets |
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Other assets |
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| ( | ||
Accounts payable |
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Related party expenses |
| ( |
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Accrued expenses |
| ( |
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Accrued interest | | — | ||||
Income tax payable |
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| ( | ||
Lease liabilities | ( | ( | ||||
Net cash (used in) provided by operating activities |
| ( |
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Cash flows from investing activities |
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Purchase of research and development licenses | — | ( | ||||
Acquired intangible assets |
| ( |
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Net cash used in investing activities | ( | ( | ||||
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Cash flows from financing activities |
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Proceeds from the exercise of stock options |
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Proceeds from Fortress note | — | | ||||
Payment of license installment note payable |
| ( |
| ( | ||
Proceeds from convertible preferred shares |
| — |
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Payment of debt issuance costs associated with convertible preferred shares |
| ( |
| ( | ||
Proceeds from EWB term-loan, net of discount | | — | ||||
Repayment of line of credit | ( | — | ||||
Offering costs for the issuance of common stock - initial public offering |
| ( |
| — | ||
Net cash provided by financing activities |
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Net change in cash |
| ( |
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Cash at the beginning of the period |
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Cash at the end of the period | $ | | $ | | ||
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Supplemental disclosure of cash flow information: | ||||||
Cash paid for interest | $ | | $ | — | ||
Cash paid for income taxes | $ | | $ | | ||
Supplemental disclosure of non-cash financing and investing activities: | ||||||
Deferred payment for asset acquisition | $ | | ||||
Unpaid debt offering cost | $ | — | $ | | ||
Unpaid deferred offering cost | $ | — | $ | | ||
Derivative warrant liability associated with convertible preferred shares | $ | — | $ | | ||
Extinguishment of related party payable relates to deferred tax assets | $ | — | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
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”) 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
As of September 30, 2022 and December 31, 2021, the Company was a 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 September 30, 2022, the Company had $
On November 16, 2021, the Company completed an initial public offering (collectively the “Journey IPO” or “IPO”) of its Common Stock, par value $
Prior to 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
The Company has access to a $
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.
5
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 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
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 September 30, 2022, there were no new accounting pronouncements or updates to recently issued accounting pronouncements disclosed in the 2021 Form 10-K that are expected to materially affect the Company’s present or future results of operations, overall financial condition, liquidity or disclosures.
6
NOTE 4. INVENTORY
The Company’s inventory consists of the following for the periods ended:
| September 30, |
| December 31, | |||
($’s in thousands) | 2022 | 2021 | ||||
Raw materials | $ | | $ | | ||
Work-in-process |
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| — | ||
Finished goods |
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Inventory at cost | | | ||||
Inventory reserves | ( | — | ||||
Total Inventories | $ | | $ | |
NOTE 5. ASSET ACQUISITION
On January 12, 2022, the Company entered into an agreement with Vyne Therapeutics Inc. (“Vyne”) to acquire two United States Food and Drug Administration (“FDA”) approved topical minocycline products, Amzeeq® (minocycline) topical foam,
The Vyne Product Acquisition Agreement also provides for contingent net sales milestone payments, on a product-by-product basis. In the first calendar year in which annual net sales reach each of $
The following table summarizes the aggregate consideration transferred for the assets acquired by the Company in connection with the Vyne Product Acquisition Agreement:
| Aggregate | ||
Consideration | |||
($’s in thousands) |
| Transferred | |
Consideration transferred to Vyne at closing | $ | | |
Fair Value of deferred cash payment due January 2023 |
| | |
Transaction costs |
| | |
Total consideration transferred at closing | $ | |
The fair value of the deferred cash payment is being accreted to the $
7
The following table summarizes the assets acquired in the Vyne Product Acquisition Agreement:
| Assets | ||
($’s in thousands) | Recognized | ||
Inventory | $ | | |
Identifiable Intangibles: |
|
| |
Amzeeq Intangible |
| | |
Zilxi Intangible |
| | |
Fair value of net identifiable assets acquired | $ | |
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 gross carrying amount and accumulated amortization of intangible assets as of September 30, 2022 and December 31, 2021 are summarized as follows:
| September 30, 2022 | |||||||||||
Estimated | ||||||||||||
Useful | Gross | |||||||||||
Lives | Carrying | Accumulated | Intangible | |||||||||
($'s in thousands) |
| (Years) |
| Value |
| Amortization |
| Assets, Net | ||||
Amortizable intangible assets: |
|
|
|
| ||||||||
Ceracade® | $ | | $ | ( | $ | — | ||||||
Luxamend® |
|
| |
| ( |
| — | |||||
Targadox® |
|
| |
| ( |
| — | |||||
Ximino® |
|
| |
| ( |
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Exelderm® |
|
| |
| ( |
| — | |||||
Accutane® |
|
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| ( |
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Amzeeq® |
|
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| ( |
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Zilxi® |
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| ( |
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| ( | | |||||||
Non-amortizable intangible assets: |
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Anti-itch product (1) |
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| — |
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Total intangible assets | $ | | $ | ( | $ | |
| December 31, 2021 | |||||||||||
Estimated | ||||||||||||
Useful | Gross | |||||||||||
Lives | Carrying | Accumulated | Intangible | |||||||||
($’s in thousands) |
| (Years) |
| Value |
| Amortization |
| Assets, Net | ||||
Amortizable intangible assets: |
|
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| ||||||||
Ceracade® | $ | | $ | ( | $ | — | ||||||
Luxamend® |
|
| |
| ( |
| — | |||||
Targadox® |
|
| |
| ( |
| — | |||||
Ximino® |
|
| |
| ( |
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Exelderm® |
|
| |
| ( |
| — | |||||
Accutane® |
|
| |
| ( |
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|
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| ( | | |||||||
Non-amortizable intangible assets: |
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Anti-itch product (1) |
|
| |
| — |
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Total intangible assets | $ | | $ | ( | $ | |
8
The Company’s amortization expense for the three-month periods ended September 30, 2022 and 2021 was $
Future amortization of the Company’s intangible assets is as follows:
| Total | ||
($’s in thousands) |
| Amortization | |
Remainder of 2022 | $ | | |
December 31, 2023 | | ||
December 31, 2024 |
| | |
December 31, 2025 |
| | |
December 31, 2026 |
| | |
Thereafter |
| | |
Subtotal | $ | | |
Asset not yet placed in service |
| | |
Total | $ | |
NOTE 7. LICENSES/PRODUCTS ACQUIRED
DFD-29
On June 29, 2021, the Company entered a license, collaboration, and assignment agreement (the “DFD-29 Agreement”) to obtain 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”); provided, that DRL has retained certain rights to the program in select markets including Brazil, Russia, India and China. Pursuant to the DFD-29 Agreement, the Company paid $
Additionally, the Company is required to fund and oversee the Phase 3 clinical trials approximating $
The technology licensed has not reached technological feasibility and has no alternative future use. The licenses acquired 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.
9
Qbrexza
On March 31, 2021, the Company executed an Asset Purchase Agreement (the “Qbrexza Agreement”) with Dermira, Inc., a subsidiary of Eli Lilly and Company (“Dermira”). The Company acquired global rights to Qbrexza (glycoprronium), a prescription cloth towelette to treat primary axillary hyperhidrosis in patients
The Upfront Payment of $
Accutane
On July 29, 2020, the Company entered into an exclusive license and supply agreement for Accutane (the“Accutane Agreement”) with DRL. Pursuant to the Accutane Agreement, the Company agreed to pay $
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-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.
10