Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this Form 10-K. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Please see the section titled “Special Cautionary Notice Regarding Forward-Looking Statements” elsewhere in this Annual Report on Form 10-K for more information. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” herein. As used below, the words “we,” “us” and “our” refer to Journey Medical Corporation and its consolidated subsidiaries.
Overview
We are a commercial-stage pharmaceutical company founded in October 2014 that primarily focuses on the selling and marketing of FDA approved prescription pharmaceutical products for the treatment of dermatological conditions. Our current portfolio includes eight FDA-approved prescription drugs for dermatological conditions that are marketed in the U.S. and a majority of our revenues derive from our branded, patent protected products. We are managed by experienced life science executives with a track record of creating value for their stakeholders and bringing novel medicines to the market, enabling patients to experience increased quality of life and physicians and other licensed medical professionals to provide better care for their patients. We acquire 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 our field sales organization. We are a controlled subsidiary of Fortress.
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Recent Corporate Highlights
On November 1, 2024, the FDA approved Emrosi, for the treatment of inflammatory lesions of rosacea in adults. Emrosi was developed by Journey in collaboration with DRL. Our initial supply became available in March 2025. We began sales promotion of Emrosi beginning in April 2025, and we are commercializing Emrosi in the U.S. with our existing commercial team.
Effective after the close of U.S. equity markets on June 27, 2025, we joined the small cap Russell 2000® Index and the broad-market Russell 3000® Index as a result of the 2025 annual Russell Index reconstitution.
Critical Accounting Policies and Uses of Estimates
Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make difficult, subjective or complex judgments, often as a result of the need to make estimates and assumptions about the effect of matters that are inherently uncertain in the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in greater detail in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies” in our consolidated financial statements, appearing under Part II, Item 8 and beginning at page F-1 of this Annual Report on Form 10-K, we believe that the following accounting policies and estimates are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements in understanding our historical and future performance. These policies relate to the more significant areas involving management’s judgments and estimates.
Revenue Recognition
Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. Such variable consideration represents chargebacks, coupons, discounts, other sales allowances and sales returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on gross sales for a reporting period. Historically, adjustments to these estimates to reflect actual results or updated expectations have not been material to our overall business. Coupons, however, can have a significant impact on year-over-year individual product revenue growth trends. If any of our ratios, factors, assessments, experiences, or judgments are not indicative or accurate estimates of our future experience, our results could be materially affected. The potential of our estimates to vary differs by program, product, type of customer and geographic location.
Recent Accounting Pronouncements
See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies” in our consolidated financial statements, appearing under Part II, Item 8 and beginning at page F-1 of this Annual Report on Form 10-K for information about recent accounting pronouncements, the timing of their adoption, if applicable, and our assessment, if any, of their potential impact on our financial condition and results of operations.
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years of audited financial statements in our annual reports on Form 10-K, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation and less extensive disclosure about our executive compensation arrangements. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively
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and irrevocably opt out of the extended transition period provided in the JOBS Act. The Company expects to cease qualifying as an emerging growth company as of the end of its fiscal year ending December 31, 2026.
We are also a “smaller reporting company,” meaning that either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. As a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K, have reduced disclosure obligations regarding executive compensation, and smaller reporting companies are permitted to delay adoption of certain recent accounting pronouncements discussed in Note 2. See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies” in our consolidated financial statements, appearing under Part II, Item 8 and beginning at page F-1 of this Annual Report on Form 10-K.
Results of Operations
Comparison of the Years Ended December 31, 2025 and 2024
The following table summarizes our results of operations for the years ended December 31, 2025 and 2024:
Year Ended December 31,
Change
2025
2024
$
%
Revenue:
Product revenue, net
$
61,239
$
55,134
$
6,105
11
%
Other revenue
619
1,000
(381)
(38)
%
Total revenue
61,858
56,134
5,724
10
%
Operating expenses
Cost of goods sold – (excluding amortization of acquired intangible assets)
20,924
20,879
45
—
%
Amortization of acquired intangible assets
4,258
3,424
834
24
%
Research and development
480
9,857
(9,377)
(95)
%
Selling, general and administrative
44,368
40,204
4,164
10
%
Loss recovery
—
(4,553)
4,553
100
%
Total operating expenses
70,030
69,811
219
—
%
Loss from operations
(8,172)
(13,677)
5,505
(40)
%
Other expense (income)
Interest income
(589)
(757)
168
(22)
%
Interest expense
3,698
2,700
998
37
%
Gain on extinguishment of debt
—
(1,125)
1,125
100
%
Foreign exchange transaction losses
90
116
(26)
(22)
%
Total other expense
3,199
934
2,265
243
%
Loss before income taxes
(11,371)
(14,611)
3,240
(22)
%
Income tax expense
60
61
(1)
(2)
%
Net loss
$
(11,431)
$
(14,672)
$
3,241
(22)
%
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Revenues
The following table reflects our revenue by product for the years ended December 31, 2025 and 2024:
For the Years Ended December 31,
Change
($ in thousands)
2025
2024
$
%
Emrosi TM
$
14,745
$
—
$
14,745
100
%
Qbrexza®
25,014
25,114
(100)
—
%
Accutane®
12,882
19,407
(6,525)
(34)
%
Foam franchise products (Amzeeq® & Zilxi®)
5,859
6,652
(793)
(12)
%
Other / legacy
2,739
3,961
(1,222)
(31)
%
Total net product revenue
$
61,239
$
55,134
$
6,105
11
%
Revenues totaled $61.2 million for the year ended December 31, 2025, reflecting an 11% increase from $55.1 million for the year ended December 31, 2024. The growth was primarily driven by incremental revenue from the launch and commercialization of Emrosi, partially offset by continued competitive pressures on Accutane, for which revenue declined by $6.5 million, as well as lower sales of our legacy products.
Other revenue
For the Years Ended December 31,
Change
($ in thousands)
2025
2024
$
%
Milestone payment from Cutia
$
—
$
1,000
$
(1,000)
(100)
%
Cutia supply agreement
606
—
606
100
%
Royalties on sales Amzeeq by Cutia
13
—
13
100
%
Total other revenue
$
619
$
1,000
$
(381)
(38)
%
Other revenue for the year ended December 31, 2025, reflects the supply to Cutia of Amzeeq for commercial use and sales-based royalties on Cutia’s net sales of Amzeeq, pursuant to the Cutia Agreement. The Company began supplying Amzeeq to Cutia in August 2025 under the Cutia Agreement. Other revenue for the year ended December 31, 2024 reflects a $1.0 million milestone payment from Cutia under the Cutia Agreement that became payable to us upon Cutia receiving marketing approval for topical 4% minocycline foam in the PRC.
Gross-to-Net Sales Accruals
We record gross-to-net sales accruals for sales returns, coupons, managed care rebates, government rebates, and other allowances (chargebacks, distributor service fees and prompt pay discounts) customary to the pharmaceutical industry.
Gross-to-net sales accruals and the balance in the related allowance accounts for the years ended December 31, 2025, 2024 and 2023 were as follows:
Managed
Care
($’s in thousands)
Returns
Coupons
Rebates
Other
Total
Balance as of December 31, 2023
$
4,077
$
3,444
$
5,210
$
1,386
$
14,117
Current provision related to sales in the current period
1,787
79,451
23,627
6,312
111,177
Checks/credits issued to third parties
(2,740)
(81,145)
(25,120)
(6,965)
(115,970)
Balance as of December 31, 2024
$
3,124
$
1,750
$
3,717
$
733
$
9,324
Current provision related to sales in the current period
493
148,587
24,938
6,178
180,196
Checks/credits issued to third parties
(1,440)
(138,921)
(24,421)
(6,014)
(170,796)
Balance as of December 31, 2025
$
2,177
$
11,416
$
4,234
$
897
$
18,724
Gross-to-net sales accruals are primarily a function of product sales volume, mix of products sold, and contractual discounts or rebates. Our reserves for gross-to-net sales allowances were $18.7 million as of December 31, 2025, compared to $9.3 million as of December 31, 2024, an increase of $9.4 million. The increase is due to the incremental allowances recorded related to the launch and commercialization of Emrosi, due substantially to the coupon rebate allowance.
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Cost of Goods Sold – (excluding amortization of acquired intangible assets)
Cost of goods sold – (excluding amortization of acquired intangible assets) was consistent year over year at $20.9 million for the years ended December 31, 2025 and 2024. Higher royalty expenses associated with incremental revenue from Emrosi in 2025 were offset by lower product costs resulting from a favorable product mix, primarily reflecting the increased sales of Emrosi in 2025. Emrosi carries a higher gross margin than our other products, contributing to the stable overall cost of goods sold despite the increased revenues.
Amortization of acquired intangible assets
Amortization of acquired intangible assets increased by $0.8 million, or 24%, to $4.3 million for the year ended December 31, 2025, from $3.4 million for the year ended December 31, 2024, driven by the addition of the Emrosi acquired intangible asset upon our payment to DRL of the milestone payment triggered by the FDA’s approval of Emrosi in November 2024.
Research and Development
Research and development expense decreased by $9.4 million, or 95%, to $0.5 million for the year ended December 31, 2025 from $9.9 million for the year ended December 31, 2024. Research and development expenses in 2024 included pre-approval project costs related to Emrosi, which concluded following the FDA’s approval of Emrosi in November 2024.
Selling, General and Administrative Expenses (“SG&A”)
SG&A expenses increased by $4.2 million, or 10%, to $44.4 million for the year ended December 31, 2025, from $40.2 million for the year ended December 31, 2024. The increase is primarily due to the incremental operational activities related to the launch and commercialization of Emrosi.
Loss Recovery
We recorded a $4.6 million loss recovery benefit in connection with the recovery of funds related to the previously disclosed September 2021 cybersecurity incident. We received the $4.6 million in cash in December of 2024.
Interest Expense, net
Interest expense, net increased by $1.2 million to $3.1 million for the year ended December 31, 2025, from $1.9 million for the year ended December 31, 2024. The increase was primarily due to a higher principal balance outstanding under the Credit Agreement, dated as of December 27, 2023 (the “Credit Agreement”) with SWK throughout 2025. We drew an additional $10.0 million under the Credit Agreement during 2024, increasing the principal balance from $15.0 million to $25.0 million.
Gain on Extinguishment of Debt
We recorded a gain of $1.1 million in August 2024 upon the execution of a settlement agreement (the “Settlement Agreement”) to settle amounts owed by the Company to Sun pursuant to the Ximino Asset Purchase Agreement. See Note 9 to our consolidated financial statements for further details.
Liquidity and Capital Resources
At December 31, 2025, we had cash and cash equivalents on hand of approximately $24.1 million as compared to $20.3 million of cash and cash equivalents at December 31, 2024, and working capital of $29.4 million at December 31, 2025, compared to $13.0 million at December 31, 2024.
We rely primarily on cash on hand generated from sales of our pharmaceutical products to customers to fund our core operations. In addition, we have relied on the proceeds from our term loan Credit Facility with SWK, and our at-the-market sales program to meet additional capital and liquidity needs.
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In August 2025, we executed a new At Market Issuance Sales Agreement (the “2025 Sales Agreement”) with B. Riley Securities, Inc (“B. Riley”) and Lake Street Capital Markets, LLC (“Lake Street”) (each, an “Agent” and together, the “Agents”), replacing the previous December 30, 2022 At Market Issuance Sales Agreement with B. Riley, as described in further detail below.
On September 25, 2025, we entered into a Third Amendment to our Credit Agreement with SWK (the “Third Amendment”). The Third Amendment, among other things, modifies our existing Credit Facility as described in further detail below.
We regularly evaluate market conditions, our liquidity profile, and financing alternatives, including out-licensing arrangements for our products, to enhance our capital structure. We may seek to raise capital through debt or equity financings, which may include sales of securities under either our 2026 Shelf (as defined below) or a new registration statement, to expand our product portfolio and/or for other strategic initiatives. Additionally, as a result of recurring losses, substantial doubt exists about our ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements included in this Annual Report on Form 10-K.
Sources of Liquidity
SWK Credit Facility
On December 27, 2023, we entered into the Credit Agreement with SWK. The Credit Agreement originally provided for a term loan facility (the “Credit Facility”) in the original principal amount of up to $20.0 million. On the closing date, we drew $15.0 million. On June 26, 2024, we drew the remaining $5.0 million under the Credit Facility. Loans under the Credit Facility (the “Term Loans”) 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.
On July 9, 2024, we entered into an amendment (the “First Amendment”) to the Credit Agreement. The First 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 First Amendment was contractually required to be drawn upon FDA approval of Emrosi, subject to us receiving approval on or before June 30, 2025. The FDA approved Emrosi on November 1, 2024, and we subsequently drew the remaining $5.0 million.
On September 25, 2025, we entered into the Third Amendment. The Third Amendment, among other things, extends the maturity date of the facility from December 27, 2027 to June 27, 2028. The Third Amendment also modifies the Revenue-Based Payment provision, as defined in the Credit Agreement, by lowering the applicable revenue threshold, measured on a trailing twelve-month basis, from $70.0 million to $60.0 million. Upon satisfaction of the revised revenue threshold, the interest-only period under the Credit Facility will be extended by one year, with scheduled principal repayments commencing in February 2027 rather than February 2026. We satisfied the $60.0 million revenue threshold as of December 31, 2025. Accordingly, principal payments under the Credit Facility will begin in February 2027.
The Credit Agreement also includes both revenue and liquidity covenants, restrictions as to payment of dividends, and is secured by substantially all of our assets. As of December 31, 2025, we were in compliance with the financial covenants under the Credit Agreement.
At-the-Market Offering
On December 30, 2022, we filed a shelf registration statement on Form S-3 (File No. 333-269079) (the “2022 Shelf”), which was declared effective by the SEC on January 26, 2023. This shelf registration statement covers the offering, issuance and sale by us of up to an aggregate of $150.0 million of our common stock, preferred stock, debt securities, warrants, and units.
In August 2025, we entered into the 2025 Sales Agreement relating to shares of the Company’s common stock with B. Riley and Lake Street. In accordance with the terms of the 2025 Sales Agreement, we may offer and sell up to 3,750,000 shares of common stock, from time to time through or to the Agents, each acting as sales agent or principal. As of December 31, 2025, we have issued 750,000 shares under the 2025 Sales Agreement.
During the year ended December 31, 2025, we issued and sold 2,582,107 shares of common stock under the 2022 Shelf, generating net proceeds of $16.4 million under the At Market Issuance Agreement with B. Riley entered into 2022 (the “2022 Sales Agreement”) and the 2025 Sales Agreement.
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On January 15, 2026, we filed a shelf registration statement on Form S-3 (File No. 333-292758) (the “2026 Shelf”), which was declared effective by the SEC on January 21, 2026. This shelf registration statement covers the offering, issuance and sale by us of up to an aggregate of $150.0 million of our common stock, preferred stock, debt securities, warrants, and units. The 2026 Shelf replaces the 2022 Shelf. Sales under the 2025 Sales Agreement after the effective date will occur under the 2026 Shelf.
Cash Flows for the Years Ended December 31, 2025 and 2024
For the Years ended December 31,
Increase
($’s in thousands)
2025
2024
(Decrease)
Net cash (used in) operating activities
$
(12,441)
$
(9,127)
$
(3,314)
Net cash (used in) investing activities
—
(15,000)
15,000
Net cash provided by financing activities
16,226
16,993
(767)
Net change in cash and cash equivalents
$
3,785
$
(7,134)
$
(10,919)
Operating Activities
Net cash flows used in operating activities for the year ended December 31, 2025 were $12.4 million compared to $9.1 million of net cash flows used in operating activities for the year ended December 31, 2024, reflecting a change of $3.3 million from period-to-period. Net cash used in operating activities during 2025 was primarily driven by our net loss and changes in net working capital.
Investing Activities
Net cash flows used in investing activities for the year ended December 31, 2025 were $0 compared to $15.0 million for the year ended December 31, 2024, reflecting a change of $15.0 million from period-to-period. The year ended December 31, 2024 reflects a $15.0 million milestone payment made to DRL, which was triggered upon our receipt of FDA approval for Emrosi in November 2024.
Financing Activities
Net cash flows provided by financing activities for the year ended December 31, 2025 were $16.2 million compared to $17.0 million of net cash flows provided by financing activities for the year ended December 31, 2024, reflecting a change of $0.8 million from period-to-period. Cash provided by financing activities for the year ended December 31, 2025 reflects net proceeds from the issuance of common stock under the Sales Agreement of $16.4 million. Cash provided by financing activities for the year ended December 31, 2024 reflects the draw of an additional $10.0 million under the SWK Credit Facility, as well as the net proceeds from issuances of common stock under the 2022 Sales Agreement of $7.9 million.
Material Cash Requirements
In the normal course of business, we enter into contractual obligations that contain cash requirements of which the most significant currently include the following:
● We are required to make regular payments under the SWK Credit Facility. Based on the amount currently outstanding under the SWK Facility and current interest rates, and assuming we do not make further draws under the SWK facility, we expect to make the following payments:
Payments by Period
Total
2026
2027
2028
($’s in thousands)
Interest
$
7,008
$
3,223
$
2,746
$
1,039
Principal
25,000
—
10,000
15,000
Exit fee
1,250
—
—
1,250
Total
$
33,258
$
3,223
$
12,746
$
17,289
● We are contractually obligated to pay certain milestone and sales-based royalty payments to the counterparties of our license and product acquisition agreements. Due to the contingent nature of these obligations, the amounts of these payments cannot be reasonably predicted.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risks
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is set forth in the financial statements and notes thereto beginning at page F-1 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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