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 September 30, 2024


☐	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 November 11, 2024
Common Stock Class A, $0.0001 par value		6,000,000
Common Stock, $0.0001 par value		14,889,936

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JOURNEY MEDICAL CORPORATION

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

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	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

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

SIGNATURES		30

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

JOURNEY MEDICAL CORPORATION

Unaudited Condensed Consolidated Balance Sheets

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


	September 30,		December 31,
	2024		2023
ASSETS
Current assets
Cash and cash equivalents	$	22,461	$	27,439
Accounts receivable, net of reserves		10,671		15,222
Inventory		11,788		10,206
Prepaid expenses and other current assets		1,242		3,588
Total current assets		46,162		56,455

Intangible assets, net		17,844		20,287
Operating lease right-of-use asset, net		32		101
Other assets		6		6
Total assets	$	64,044	$	76,849

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	15,339	$	18,149
Due to related party		370		195
Accrued expenses		16,008		20,350
Accrued interest		332		22
Income taxes payable		—		53
Installment payments – licenses, short-term		1,250		3,000
Operating lease liability, short-term		34		99
Total current liabilities		33,333		41,868

Term loan, long-term, net of debt discount		19,785		14,622
Operating lease liability, long-term		—		9
Total liabilities		53,118		56,499

Commitments and contingencies (Note 13)

Stockholders’ equity
Common stock, $.0001 par value, 50,000,000 shares authorized, 14,728,904 and 13,323,952 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively		1		1
Common stock - Class A, $.0001 par value, 50,000,000 shares authorized, 6,000,000 shares issued and outstanding as of September 30, 2024 and December 31, 2023		1		1
Additional paid-in capital		99,472		92,703
Accumulated deficit		(88,548)		(72,355)
Total stockholders’ equity		10,926		20,350
Total liabilities and stockholders’ equity	$	64,044	$	76,849

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				Nine-Month Periods Ended
	September 30,				September 30,
	2024		2023		2024		2023
Revenue:
Product revenue, net	$	14,629	$	15,279	$	42,514	$	44,405
Other revenue		—		19,260		—		19,519
Total revenue		14,629		34,539		42,514		63,924

Operating expenses
Cost of goods sold – product revenue		5,285		6,429		18,642		20,645
Research and development		842		2,229		9,639		6,036
Selling, general and administrative		11,396		8,636		30,144		34,069
Loss on impairment of intangible assets		—		—		—		3,143
Total operating expenses		17,523		17,294		58,425		63,893
Income (loss) from operations		(2,894)		17,245		(15,911)		31

Other expense (income)
Interest income		(188)		(8)		(566)		(209)
Interest expense		758		268		1,869		1,674
Foreign exchange transaction losses		51		101		104		181
Gain on extinguishment of debt		(1,125)		—		(1,125)		—
Total other expense (income)		(504)		361		282		1,646
Income (loss) before income taxes		(2,390)		16,884		(16,193)		(1,615)

Income tax expense		—		95		—		95
Net income (loss)	$	(2,390)	$	16,789	$	(16,193)	$	(1,710)

Net income (loss) per common share:
Basic	$	(0.12)	$	0.91	$	(0.80)	$	(0.09)
Diluted	$	(0.12)	$	0.80	$	(0.80)	$	(0.09)
Weighted average number of common shares:
Basic		20,537,794		18,416,368		20,137,942		18,078,437
Diluted		20,537,794		21,034,758		20,137,942		18,078,437

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 Changes in Stockholders’ Equity

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

Nine-Month Period Ended September 30, 2024


											Total
	Common Stock			Common Stock A			Additional		Accumulated		Shareholders’
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Equity
Balance as of December 31, 2023	13,323,952	$	1	6,000,000	$	1	$	92,703	$	(72,355)	$	20,350
Share-based compensation	—		—	—		—		4,720		—		4,720
Exercise of stock options for cash	101,568		—	—		—		162		—		162
Issuance of common stock for vested restricted stock units	893,901		—	—		—		—		—		—
Issuance of common stock under ESPP	84,464		—	—		—		209		—		209
Issuance of common stock, ATM offering, net of issuance costs of $52	325,019		—	—		—		1,678		—		1,678
Net loss	—		—	—		—		—		(16,193)		(16,193)
Balance as of September 30, 2024	14,728,904	$	1	6,000,000	$	1	$	99,472	$	(88,548)	$	10,926

Three-Month Period Ended September 30, 2024


											Total
	Common Stock			Common Stock A			Additional		Accumulated		Shareholders’
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Equity
Balance as of June 30, 2024	14,018,146	$	1	6,000,000	$	1	$	97,451	$	(86,158)	$	11,295
Share-based compensation	—		—	—		—		1,640		—		1,640
Exercise of stock options for cash	31,524		—	—		—		63		—		63
Issuance of common stock for vested restricted stock units	611,706		—	—		—		—		—		—
Issuance of common stock under ESPP	32,253		—	—		—		124		—		124
Issuance of common stock, ATM offering, net of issuance costs of $6	35,275		—	—		—		194		—		194
Net loss	—		—	—		—		—		(2,390)		(2,390)
Balance as of September 30, 2024	14,728,904	$	1	6,000,000	$	1	$	99,472	$	(88,548)	$	10,926

Nine-Month Period Ended September 30, 2023


											Total
	Common Stock			Common Stock A			Additional		Accumulated		Shareholders’
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Equity
Balance as of December 31, 2022	11,765,700	$	1	6,000,000	$	1	$	85,482	$	(68,502)	$	16,982
Share-based compensation	—		—	—		—		2,077		—		2,077
Exercise of options for cash	23,000		—	—		—		25		—		25
Issuance of common stock for vested restricted stock units	708,082		—	—		—		—		—		—
Net loss	—		—	—		—		—		(1,710)		(1,710)
Balance as of September 30, 2023	12,496,782	$	1	6,000,000	$	1	$	87,584	$	(70,212)	$	17,374

Three-Month Period Ended September 30, 2023


											Total
	Common Stock			Common Stock A			Additional		Accumulated		Shareholders’
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Equity
Balance as of June 30, 2023	12,133,890	$	1	6,000,000	$	1	$	87,004	$	(87,001)	$	5
Share-based compensation	—		—	—		—		558		—		558
Exercise of options for cash	18,000		—	—		—		22		—		22
Issuance of common stock for vested restricted stock units	344,892		—	—		—		—		—		—
Net loss	—		—	—		—		—		16,789		16,789
Balance as of September 30, 2023	12,496,782	$	1	6,000,000	$	1	$	87,584	$	(70,212)	$	17,374

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 except for share and per share amounts)


	Nine-Month Periods Ended
	September 30,
	2024		2023
Cash flows from operating activities
Net loss	$	(16,193)	$	(1,710)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense		823		492
Non-cash interest expense		—		353
Amortization of debt discount		213		354
Amortization of acquired intangible assets		2,443		2,952
Amortization of operating lease right-of-use assets		69		65
Share-based compensation		4,720		2,077
Loss on impairment of intangible assets		—		3,143
Gain on extinguishment of debt		(1,125)		—
Changes in operating assets and liabilities:
Accounts receivable		3,728		19,727
Inventory		(1,582)		3,135
Prepaid expenses and other current assets		2,346		2,385
Accounts payable		(2,810)		(8,406)
Due to related party		175		680
Accrued expenses		(4,342)		(3,362)
Accrued interest		310		(160)
Income tax payable		(53)		95
Lease liabilities		(74)		(60)
Net cash (used in) provided by operating activities		(11,352)		21,760

Cash flows from investing activities
Acquired intangible assets		—		(5,000)
Net cash used in investing activities		—		(5,000)

Cash flows from financing activities
Proceeds from exercise of stock options		162		25
Proceeds from issuance of common stock, ATM offering, net of issuance costs		1,678		—
Issuance of common stock under ESPP		209		—
Proceeds from term-loan, net of issuance costs		4,950		—
Payment of license installment note payable		(625)		(1,000)
Proceeds from line of credit		—		28,000
Repayments of line of credit		—		(30,948)
Repayment of EWB term-loan		—		(20,000)
Payment of issuance costs associated with EWB term-loan modification		—		(91)
Net cash provided by (used in) financing activities		6,374		(24,014)

Net change in cash		(4,978)		(7,254)
Cash at the beginning of the period		27,439		32,003
Cash at the end of the period	$	22,461	$	24,749

Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,346	$	1,127
Cash paid for income taxes	$	104	$	85

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 (“Journey” or the “Company”) is a commercial-stage pharmaceutical company that primarily focuses on the selling and marketing of U.S. Food and Drug Administration (“FDA”) approved prescription pharmaceutical products for the treatment of dermatological conditions. The Company’s current product portfolio includes seven branded and two authorized generic prescription drugs for dermatological conditions that are marketed in the U.S. The Company acquires rights to products and product candidates by licensing or otherwise acquiring an ownership interest in, funding the research and development of, and eventually commercializing the products through its field sales organization.

As of September 30, 2024 and December 31, 2023, the Company was a majority-owned subsidiary of Fortress Biotech, Inc. (“Fortress” or “Parent”).

Liquidity and Capital Resources

At September 30, 2024, the Company had $22.5 million in cash and cash equivalents as compared to $27.4 million of cash and cash equivalents at December 31, 2023.

On December 27, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”) with SWK Funding LLC (“SWK”). The Credit Agreement provides for a term loan facility (the “Credit Facility”) in the original principal amount of up to $20.0 million. On the closing date, the Company drew $15.0 million. On June 26, 2024, the Company drew the remaining $5.0 million under the Credit Facility. Loans under the Credit Facility (the “Term Loans”) mature on December 27, 2027, and bear interest at a rate per annum equal to the three-month term Secured Overnight Financing Rate (“SOFR”) (subject to a SOFR floor of 5%) plus 7.75%. The interest rate resets quarterly. Interest payments began in February 2024 and are paid quarterly. Beginning in February 2026, the Company is required to repay a portion of the outstanding principal of the Term Loans quarterly in an amount equal to 7.5% of the principal amount of funded Term Loans.

On July 9, 2024, the Company entered into an amendment (the “Amendment”) to the Credit Agreement. The Amendment increased the original principal amount of the Credit Facility from $20.0 million to $25.0 million. The $5.0 million of additional principal added in the Amendment is contractually required to be drawn upon FDA approval of Emrosi^TM (Minocycline Hydrochloride Extended Release Capsules, 40 mg), formerly referred to as DFD-29 (“Emrosi”), subject to the Company receiving approval on or before June 30, 2025. The FDA approved Emrosi on November 4, 2024. The FDA approval also triggered a $15.0 million milestone payment obligation to Dr. Reddy’s Laboratories, Ltd (“DRL”) that is due 30 days after the FDA approval. See Note 19, Subsequent Events, for further information regarding the payment triggered upon FDA approval of Emrosi.

On December 30, 2022, the Company filed a shelf registration statement on Form S-3 (File No. 333-269079), which was declared effective by the Securities and Exchange Commission (“SEC”) on January 26, 2023. This shelf registration statement covers the offering, issuance and sale by the Company of up to an aggregate of $150.0 million of the Company’s common stock, preferred stock, debt securities, warrants, and units (the “2022 Shelf”). In connection with the 2022 Shelf, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) relating to shares of the Company’s common stock. The Company may offer and sell up to 4,900,000 shares of its common stock, from time to time, under the Sales Agreement. During the nine months ended September 30, 2024, the Company issued and sold 325,019 shares of common stock under the 2022 Shelf, generating net proceeds of $1.7 million. At September 30, 2024, 3,826,278 shares remain available for issuance under the 2022 Shelf.

On September 19, 2024, the United Stated District Court Southern District of New York through the United States Marshalls notified the Company that it has recovered and will be returning to the Company a portion of the misappropriated cash in connection with the previously disclosed September 2021 cybersecurity incident.

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

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary if the Company is unable to continue as a going concern.

NOTE 2. BASIS OF PRESENTATION

Basis of Presentation and Principles of Consolidation

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company’s consolidated financial statements include the accounts of the Company and the accounts of the Company’s wholly-owned subsidiary, JG Pharma, Inc. (“JG” or “JG Pharma”). 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 audited 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 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 coupons, chargebacks, wholesaler fees, specialty pharmacy discounts, managed care rebates, product returns, and other allowances customary to the pharmaceutical industry. Significant estimates made by management also include inventory realization, valuation of intangible assets, useful lives of amortizable intangible assets and share-based compensation. 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, 2023 (the “2023 Form 10-K”).

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Accounting Standards Note Yet Adopted

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires that an entity report segment information in accordance with Topic 280, Segment Reporting. The amendment in the ASU is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of the new standard on its financial statement disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that this guidance will have on its financial statement disclosures.

NOTE 4. INVENTORY

The Company’s inventory consists of the following for the periods ended:


	September 30,		December 31,
($’s in thousands)	2024		2023
Raw materials	$	3,551	$	4,640
Work-in-process		—		884
Finished goods		8,718		4,987
Inventory at cost		12,269		10,511
Inventory reserves		(481)		(305)
Total inventories	$	11,788	$	10,206

NOTE 5. INTANGIBLE ASSETS

The Company’s finite-lived intangible assets consist of acquired intangible assets. The Company’s intangible assets as of September 30, 2024 and December 31, 2023 are summarized as follows:


	Estimated
	Useful Lives		September 30,		December 31,
($’s in thousands)	(Years)		2024		2023
Intangible assets - product licenses		3-9	$	37,925	$	37,925
Accumulated amortization				(16,938)		(14,495)
Accumulated impairment loss				(3,143)		(3,143)
Total intangible assets			$	17,844	$	20,287

The Company’s amortization expense for the three-month periods ended September 30, 2024 and 2023 was $0.8 million and $0.8 million, respectively. The Company’s amortization expense for the nine-month periods ended September 30, 2024 and 2023 was $2.4 million and $3.0 million, respectively. Amortization expense is recorded as a component of cost of goods sold in the Company’s unaudited condensed consolidated statements of operations.

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


For the years ended	Total Amortization
Remainder of 2024	$	814
December 31, 2025		3,257
December 31, 2026		2,471
December 31, 2027		1,775
December 31, 2028		1,595
Thereafter		3,990
Subtotal		13,902
Asset not yet placed in service		3,942
Total	$	17,844

NOTE 6. LICENSES ACQUIRED

Emrosi

In June 2021, the Company entered a license, collaboration, and assignment agreement (the “DFD-29 Agreement”) to obtain global rights for the development and commercialization of Emrosi for the treatment of rosacea with DRL; provided, that DRL retained certain rights to the program in select markets including Brazil, Russia, India and China. Pursuant to the terms and conditions of the DFD-29 Agreement, the Company paid $10.0 million. Based on the development and commercialization of Emrosi, additional contingent regulatory and commercial milestone payments totaling up to $140.0 million, which excludes the $15.0 million milestone payment triggered by FDA approval on November 4, 2024, may also become payable by the Company. (See Note 19, Subsequent Events, for further information regarding current contingent regulatory milestone payments to DRL pursuant to the DFD - 29 Agreement). The Company is required to pay royalties ranging from approximately ten percent to twenty percent on net sales of Emrosi, subject to certain reductions. Additionally, the Company was required to fund and oversee the Phase 3 clinical trials beginning after the execution of the DFD-29 Agreement in 2021. The Phase 3 clinical trials substantially concluded in July 2023 upon the Company’s receipt of positive Phase 3 clinical trial results.

Qbrexza

In March 2021, the Company executed an Asset Purchase Agreement (the “Qbrexza APA”) with Dermira, Inc., a subsidiary of Eli Lilly and Company (“Dermira”). Pursuant to the terms of the Qbrexza APA, the Company acquired the rights to Qbrexza® (glycopyrronium), a prescription cloth towelette to treat primary axillary hyperhidrosis in patients nine years of age or older. The Company paid the upfront fee of $12.5 million to Dermira. In addition, the Company is obligated to pay Dermira up to $144.0 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, royalties are approximately 12.0% to 19.0%. Royalty amounts are subject to certain reductions in the event there is a loss of exclusivity.

Accutane

In July 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 paid $5.0 million. Three additional milestone payments totaling $17.0 million are contingent upon the achievement of certain net sales milestones. The Company is required to pay royalties in an amount equal to a low-double digit percentage of net sales. The term of the Accutane Agreement is ten years and renewable upon mutual agreement. Each party may terminate the Accutane Agreement for an uncured material breach by the other party or for certain bankruptcy or insolvency related events. The Company may also terminate the Accutane Agreement without cause upon 180 days written notice to DRL.

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NOTE 7. 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.

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


	September 30, 2024
($’s in thousands)	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	22,461	$	—	$	—	$	22,461
Total	$	22,461	$	—	$	—	$	22,461


	December 31, 2023
($’s in thousands)	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	27,439	$	—	$	—	$	27,439
Total	$	27,439	$	—	$	—	$	27,439

The Company did not carry any level 2 or level 3 assets or liabilities at September 30, 2024 or December 31, 2023. No transfers occurred between level 1, level 2, and level 3 instruments during the nine-month periods ended September 30, 2024 and 2023.

NOTE 8. 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 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 Company’s initial public offering, which occurred in November 2021. In addition, the Company reimburses Fortress for various payroll-related costs and selling, general and administrative costs incurred by Fortress for the benefit of the Company.

For the three-month periods ended September 30, 2024 and 2023, the Company recorded related party expenses to Fortress of approximately $8,000 and $11,000, respectively. For the nine-month periods ended September 30, 2024 and 2023, the Company recorded related party expenses to Fortress of approximately $26,000 and $47,000, respectively. The due to related party liability at September 30, 2024 and December 31, 2023 was $0.4 million and $0.2 million, respectively, and primarily relate to reimbursable

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expenses incurred by Fortress on behalf of the Company. The Company would have incurred these costs irrespective of the relationship with Fortress.

Fortress Income Tax

At September 30, 2024, 47.6% of all classes of the Company’s outstanding common stock was owned by Fortress. Prior to the Company’s initial public offering of securities in 2021, 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 17 below for a discussion of income taxes.

NOTE 9. ACCRUED EXPENSES

Accrued expenses consisted of the following:


	September 30,		December 31,
($’s in thousands)	2024		2023
Accrued expenses:
Accrued coupons and rebates	$	6,321	$	9,987
Return reserve		3,430		4,077
Accrued compensation		2,588		3,374
Accrued royalties payable		1,601		2,015
Accrued legal, accounting and tax		567		185
Accrued marketing and market access		673		—
Accrued research and development		248		20
Accrued inventory		355		352
Accrued iPledge program		90		174
Other		135		166
Total accrued expenses	$	16,008	$	20,350

NOTE 10. OPERATING LEASE OBLIGATIONS

The Company leases 3,681 square feet of office space in Scottsdale, Arizona. In September 2022, the Company amended the lease to extend the lease term for an additional 25 months at an annual rate of approximately $0.1 million. The amended lease will expire on January 31, 2025.

The Company recorded lease expense as follows:


	Three-Month Periods Ended				Nine-Month Periods Ended
	September 30,				September 30,
($’s in thousands)	2024		2023		2024		2023
Operating lease cost	$	24	$	24	$	72	$	72
Variable lease cost		1		1		4		3
Total lease cost	$	25	$	25	$	76	$	75

The following table summarizes quantitative information about the Company’s operating leases:


	Three-Month Periods Ended						Nine-Month Periods Ended
	September 30,						September 30,
($’s in thousands)	2024			2023			2024			2023
Cash paid for amounts included in the measurement of lease liabilities	$	26		$	25		$	77		$	67
Weighted-average remaining lease term - operating leases		0.3			1.4			0.3			1.4
Weighted-average discount rate - operating leases		6.25	%		6.25	%		6.25	%		6.25	%

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As of September 30, 2024, future minimum lease payments under lease agreements associated with the Company’s operations were as follows:


$’s in thousands
Remainder of 2024	$	25
2025		9
Total lease payments		34
Less: present value discount		—
Total operating lease liabilities	$	34

NOTE 11. DEBT

The Company’s debt obligations at September 30, 2024 and December 31, 2023 were as follows:


	September 30,		December 31,
($’s in thousands)	2024		2023
Principal balance	$	20,000	$	15,000
Plus: Exit fee		1,000		750
Less: Debt discount and fees		(1,215)		(1,128)
Net carry amount (Long-term)	$	19,785	$	14,622

SWK Long-Term Debt

On December 27, 2023 (the “Closing Date”), the Company entered into a Credit Agreement with SWK. The Credit Agreement provides for a term loan Credit Facility in the original principal amount of up to $20.0 million. On the Closing Date, the Company drew $15.0 million. On June 26, 2024, the Company drew the remaining $5.0 million under the Credit Facility. On July 9, 2024, the Company entered into the Amendment to the Credit Agreement with SWK. The Amendment increased the original principal amount of the Credit Facility from $20.0 million to $25.0 million. The $5.0 million of additional principal added in the Amendment is contractually required to be drawn upon FDA approval of Emrosi, subject to the Company receiving approval on or before June 30, 2025.

Term Loans under the Credit Facility mature on December 27, 2027. The Term Loans accrue interest which is payable quarterly in arrears. The Term Loans bear interest at a rate per annum equal to the three-month term SOFR (subject to a SOFR floor of 5%) plus 7.75%. The interest rate resets quarterly.

Beginning in February 2026, the Company is required to repay a portion of the outstanding principal of the Term Loans quarterly in an amount equal to 7.5% of the principal amount of funded Term Loans, with any remaining principal balance due on the maturity date. If the total revenue of the Company, measured on a trailing twelve-month basis, is greater than $70.0 million as of December 31, 2025, the principal repayment start date is extended from February 2026 to February 2027, at which point the Company is required to repay a portion of the outstanding principal of the Term Loans quarterly in an amount equal to 15% of the principal amount of funded Term Loans, with any remaining principal balance due on the maturity date.

The Company may at any time prepay the outstanding principal balance of the Term Loans in whole or in part. Prepayment of the Term Loans is subject to payment of a prepayment premium equal to (i) 2% of the Term Loans prepaid plus the amount of interest that would have been due through the first anniversary of the Closing Date if the Term Loans are prepaid prior to the first anniversary of the Closing Date, (ii) 1% of the Term Loans prepaid if the Term Loans are prepaid on or after the first anniversary of the Closing Date but prior to the second anniversary of the Closing Date, or (iii) 0% if prepaid thereafter.

Upon repayment in full of the Term Loans, the Company will pay an exit fee equal to 5% of the original principal amount of the Term Loans. Additionally, the Company paid an origination fee of $0.2 million on the Closing Date and incurred issuance costs of $0.2 million, both of which have been recorded as a debt discount. The Company is accreting the carrying value of the SWK Term Loan to the original principal balance plus the exit fee over the term of the loan using the effective interest method. The amortization of the discount is accounted for as interest expense. The effective interest rate on the SWK Term Loan as of September 30, 2024 was 14.88%. The fair value of the debt approximates its carrying value.

The SWK Credit Facility also includes both revenue and liquidity covenants, restrictions as to payment of dividends, and is secured by substantially all assets of the Company. As of September 30, 2024, the Company was in compliance with the financial covenants under the SWK Credit Facility.

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As of September 30, 2024, the contractual maturities of the long-term debt, including the payment of the exit fee, are as follows (dollars in thousands):


Years ending December 31,	Term Loan
Remainder of 2024	$	—
2025		—
2026		6,000
2027		15,000
Total		21,000
Debt discount		(1,215)
Total, net		19,785
Current portion		—
Term-loan (long-term)	$	19,785

NOTE 12: INTEREST EXPENSE AND FINANCING FEES

Interest expense and financing fees for the three and nine-month periods ended September 30, 2024 and 2023 consisted of the following: