What changed in this filing

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Item 1. Business

2023-03-31 compared with 2022-03-28 · 184 added, 192 removed, 485 unchanged (44% of the section changed)

We are a commercial-stage pharmaceutical company founded in October 2014 that focuses on the development and commercialization of pharmaceutical products for the treatment of dermatological conditions.

Our current portfolio includes seven branded and three authorized generic prescription drugs for dermatological conditions that are actively marketed in the U.S.

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 aim to acquire rights to future products by licensing or otherwise acquiring an ownership interest in, funding the research and development of, and eventually commercializing, the products through our exclusive field sales organization.

On November 16, 2021, we completed an initial public offering (“IPO”) of our common stock, which resulted in net proceeds of approximately $30.6 million, after deducting underwriting discounts and other offering costs.

Prior to our IPO, our operations were primarily financed through a working capital note from Fortress Biotech, Inc.

(“Fortress”), referred to herein as the “Fortress Note,” cash generated by operations and cash raised in our private offering of our 8% Cumulative Convertible Class A Preferred Stock (“Class A Preferred Stock”).

In connection with the closing of our IPO on November 16, 2021, we issued 2,231,346 shares of common stock resulting from the conversion of all of the Class A Preferred Stock.

In addition, the Fortress Note was converted into 1,476,044 shares of Journey common stock at our IPO price of $10.00 per share.

We expect our expenses will increase substantially for the foreseeable future as we pursue business development opportunities, commercialize and market new products and incur additional costs associated with operating as a public company.

To date, our business has not been materially impacted by COVID-19;

however, depending on the extent of the ongoing pandemic, it is possible that our business, financial condition and results of operations could be materially and adversely affected by COVID-19 in the future.

Our cash and cash equivalents balance at December 31, 2021 was $49.1 million.

Our current portfolio includes eight branded and three authorized generic prescription drugs for dermatological conditions that are marketed in the U.S.

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 enabling physicians and other licensed medical professionals to provide better care for their patients.

Since inception, we have made significant investments to build out our commercial product portfolios, which we believe, coupled with our experienced dermatology sales leadership team and our recently expanded field sales force, will position our business for growth.

We are a majority-owned subsidiary of Fortress.

2022 Highlights and Events

On December 30, 2022, we 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 us of up to an aggregate of $150.0 million of our common stock, preferred stock, debt securities, warrants, and units (the “2022 Shelf”).

At December 31, 2022, $150.0 million remains available under the 2022 Shelf.

In connection with the 2022 shelf, we have entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B.

Riley Securities, Inc.

Riley”), relating to shares of our common stock.

In accordance with the terms of the Sales Agreement, we may offer and sell up to 4,900,000 shares of our common stock, par value $0.0001 per share, from time to time through or to B.

Riley acting as our agent or principal.

On March 14, 2022, we dosed the first patient in our Phase 3 clinical trial evaluating DFD-29 (Minocycline Modified Release Capsules 40 mg) for the Treatment of Rosacea.

In January 2023 we achieved 100% enrollment in the trial, with a top-line data readout expected in the second quarter of 2023.

We plan to submit the NDA for DFD-29 in the second half of 2023 and FDA approval is anticipated in the second half of 2024.

In the Phase 2 clinical trials, DFD-29 (40mg) demonstrated nearly double the efficacy when compared against Oraycea® (European equivalent of Oracea®) on both co-primary endpoints.

For the first co-primary endpoint, Investigator’s Global Assessment (“IGA”) treatment success, Oraycea only had a 33.33% IGA treatment success rate, while DFD-29 achieved a 66.04% IGA treatment success rate.

For the second co-primary endpoint, the change in total inflammatory lesion count, Oraycea only had a 10.5 reduction in inflammatory lesions, while DFD-29 achieved a 19.2 reduction in inflammatory lesions.

On February 11, 2022, we announced that our exclusive licensing partner in Japan, Maruho Co., Ltd.

(“Maruho”), received marketing and manufacturing approval for Rapifort® Wipes 2.5% (Qbrexza®), for the treatment of primary axillary hyperhidrosis, triggering a net $2.5 million milestone payment to us.

The net payment reflects a milestone payment of $10 million to us from our exclusive licensing partner Maruho, offset by a $7.5 million payment to Dermira, Inc.

(“Dermira”), the company from which we acquired global rights to Qbrexza® in May 2021, pursuant to the terms of the Asset Purchase Agreement between us and Dermira.

Under the terms of the licensing agreement with Maruho, the milestone payment was due from Maruho within 30 days of the approval.

The period ended December 31, 2022 also reflects total year-to-date royalties of $0.2 million from Maruho on sales of Rapifort® Wipes 2.5% in Japan.

On January 12, 2022, we acquired Amzeeq® (minocycline) topical foam, 4%, and Zilxi® (minocycline) topical foam, 1.5%, two FDA-Approved Topical Minocycline Products and Molecule Stabilizing Technology (MST)™ from VYNE Therapeutics Inc., which expanded our product portfolio to eight actively marketed branded dermatology products.

These proprietary foam-based products optimize the topical delivery of minocycline, an active pharmaceutical ingredient that was previously available only in oral form.

Approved by the FDA nearly 50 years ago, minocycline is a well-established molecule that has been prescribed, in oral formulation, over 30 million times in the past decade.

AMZEEQ (minocycline) topical foam, 4%, is the first and only topical formulation of minocycline to be approved by the FDA for the treatment of inflammatory lesions of non-nodular moderate to severe acne vulgaris in adults and children 9 years and older.

According to the American Academy of Dermatology (“AAD”), acne is the most common skin condition in the United States, affecting up to 50 million Americans annually.

Approved by the FDA in May 2020, ZILXI (minocycline) topical foam, 1.5%, is the first and only topical minocycline treatment for inflammatory lesions due to rosacea in adults.

Rosacea is a common skin disease that affects 16 million Americans, according to AAD.

Market research shows that over 70% of patients with rosacea are seeking better alternatives to current treatments.

On January 12, 2022, we entered into a third amendment of the loan and security agreement with East West Bank (“EWB”) (the “Amendment”), which increased the borrowing capacity of our revolving line of credit to $10.0 million, $2.9 million of which was outstanding at December 31, 2022, and added a term loan not to exceed $20.0 million.

Both the revolving line of credit and the term loan mature on January 12, 2026.

In January 2022 and August 2022, the Company borrowed $15.0 million and $5.0 million, respectively, against the term loan.

The term loans bear interest at a floating rate equal to 1.73% above the prime rate and are payable monthly.

The term loans contain an interest-only payment period through January 12, 2024, with an extension through July 12, 2024 if certain covenants are met, after which the outstanding balance of each term loan is payable in equal monthly installments of principal, plus all accrued interest, through the term loan maturity date.

We may elect to prepay all or any part of the term loan without penalty or premium, but we may not re-borrow any amount, once repaid.

Any outstanding borrowing against the revolving line of credit bears interest at a floating rate equal to 0.70% above the prime rate.

The Amendment includes customary financial covenants such as collateral ratios and minimum liquidity provisions.

We are in compliance with all applicable financial covenants under the Amendment as of December 31, 2022.

The $10.0 million revolving line of credit is fully available to us without any restrictions, other than certain customary and ordinary closing conditions.

In September 2021, we were the victim of a cybersecurity incident that affected our accounts payable function and led to approximately $9.5 million in wire transfers being misdirected to fraudulent accounts.

The matter was reported to the Federal Bureau of Investigation (“FBI”) and remains under their investigation.

The cybersecurity incident does not appear to have compromised any personally identifiable information or protected health information.

Fortress, as our controlling stockholder and supporting partner in our back-office functions, provided us with $9.5 million to ensure our accounts payable operations continued to function smoothly.

The $9.5 million of support was in the form of a related party note, which was approved by the board of directors of both companies, and the balance of which was fully converted into 1,476,044 shares of our common stock upon the consummation of our IPO in November 2021 at the IPO price.

The federal government has been able to trace and seize the fraudulently transferred cryptocurrency assets associated with the breach.

The seized cryptocurrency has been transferred into U.S.

government-controlled custodial wallets.

Subsequently, the forfeiture process will be initiated by the U.S.

Attorney’s Office.

The process includes mandatory waiting periods for filing of claims.

Once the cryptocurrency has been converted back into U.S.

dollars, we expect to receive a notification letter to initiate the return of the cash to the Company.

This process could take several months to a year or possibly longer to complete before funds can be returned.

Given the recent market declines, volatility, and liquidity issues with cryptocurrency, there is no certainty as to the amount we will ultimately recover.

See “ Risk Factors — Risks Related to our Platform and Data — Our business and operations would suffer in the event of computer system failures, cyber-attack s, or deficiencies in our or third parties’ cybersecurity.

CORPORATE INFORMATION

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We maintain a website with the address www.jmcderm.com.

We make available free of charge through our Internet website our annual reports on Form 10-K, quarterly reports on Form 10-K and current reports on Form 8-K, and any amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (“SEC”).

We are not including the information on our website as a part of, nor incorporating it by reference into, this report.

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The SEC’s website address is http://www.sec.gov.

Overview of the Business, Relevant Disease States, Market, and Products

Journey Medical Corporation is a commercial-stage pharmaceutical company founded in October 2014 that focuses on the development and commercialization of pharmaceutical products for the treatment of dermatological conditions.

Our current portfolio includes seven branded and three authorized generic prescription drugs for dermatological conditions that are actively marketed in the U.S.

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 enabling physicians and other licensed medical professionals to provide better care for their patients.

Our Market, Products and Relevant Disease States

As of December 31, 2022, our major actively marketed products, which have been approved by the U.S.

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● Qbrexza® (a medicated cloth towelette for the treatment of primary axillary hyperhidrosis), acquired and launched in May 2021;

● Accutane® (an oral isotretinoin drug for the treatment of severe recalcitrant nodular acne), licensed in July 2020 and launched in April 2021;

● Targadox® (an oral doxycycline drug for adjunctive therapy for severe acne), licensed in March 2015 and launched in October 2016;

● Accutane® (an oral isotretinoin drug for the treatment of severe recalcitrant nodular acne), licensed in July 2020 and launched in March 2021;

● Amzeeq® (minocycline) topical foam, 4% (a topical formulation of minocycline for the treatment of inflammatory lesions of non-nodular moderate to severe acne vulgaris in adults and children 9 years and older), acquired and launched in January 2022;

● Zilxi® (minocycline) topical foam, 1.5% (a topical minocycline treatment for inflammatory lesions due to rosacea in adults), acquired and launched in January 2022.

● Ximino® (an oral minocycline drug for the treatment of moderate to severe acne), acquired and launched in August 2019;

● Exelderm® Cream and Solution (a broad-spectrum antifungal intended for topical use), acquired and launched in October 2018;

● Targadox® (an oral doxycycline drug for adjunctive therapy for severe acne), licensed in March 2015 and launched in October 2016.

Additionally, we sell three authorized generic products:

● doxycycline hyclate immediate release tablets, launched in May 2018;

● minocycline hydrocholoride extended release capsules, launched in April 2020;

● sulconazole nitrate cream and solution, launched in January 2020;

Recent Subsequent Highlights (“VYNE Product Acquisition”)

In January 2022, we acquired AMZEEQ (minocycline) topical foam, 4%, and ZILXI (minocycline) topical foam, 1.5%, two FDA-Approved Topical Minocycline Products and Molecule Stabilizing Technology (MST)™ from VYNE Therapeutics, Inc., which expands our product portfolio to seven actively marketed branded dermatology products.

These proprietary foam-based products optimize the topical delivery of minocycline, an active pharmaceutical ingredient that was previously available only in oral form.

Approved by the FDA nearly 50 years ago, minocycline is a well-established molecule that has been prescribed, in oral formulation, over 30 million times in the past decade.

According to the American Academy of Dermatology (“AAD”), acne is the most common skin condition in the United States, affecting up to 50 million Americans annually.

Approved by the FDA in May 2020, ZILXI (minocycline) topical foam, 1.5%, is the first and only topical minocycline treatment for inflammatory lesions due to rosacea in adults.

Rosacea is a common skin disease that affects 16 million Americans, according to AAD.

Market research shows that over 70% of patients with rosacea are seeking better alternatives to current treatments.

Upon completion of the VYNE Product Acquisition, Journey became substituted for VYNE as the plaintiff in U.S.

patent litigation commenced by VYNE on August 9, 2021 in the U.S.

District Court of Delaware (the “Padagis Patent Litigation”) against Padagis Israel Pharmaceuticals Ltd.

(F/K/A Perrigo Israel Pharmaceuticals Ltd.) (“Padagis”) alleging infringement of certain patents covering Amzeeq® (the “Amzeeq® Patents”), which are included among the proprietary rights to Amzeeq® that were acquired pursuant to the Qbrexza APA.

The Padagis Patent Litigation was initiated following the submission by Padagis, in accordance with the procedures set out in the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”), of an Abbreviated New Drug Application (the “ANDA”).

The ANDA seeks approval to market a generic version of Amzeeq® prior to the expiration of the Amzeeq® Patents and alleges that the Amzeeq® Patents are invalid.

Padagis is subject to a 30-month stay preventing it from selling a generic version, but that stay is set to expire on December 30, 2023.

Journey is seeking, among other relief, an order that the effective date of any United States Food and Drug Administration approval of Padagis’ ANDA be no earlier than the expiration of the patents listed in the Orange Book, the latest of which expires on September 8, 2037, and such further and other relief as the court may deem appropriate.

Trial in the Padagis Patent Litigation is scheduled for July 10, 2023.

Journey cannot make any predictions about the final outcome of this matter or the timing thereof.

2021 Highlights and Events

● On November 16, 2021, we completed an IPO of our common stock, which resulted in net proceeds of approximately $30.6 million, after deducting underwriting discounts and other offering costs.

● In September 2021, we were the victim of a cybersecurity incident that affected our accounts payable function and led to approximately $9.5 million in wire transfers being misdirected to fraudulent accounts.

The details of the incident and its origin are under investigation with the assistance of third-party cybersecurity experts working at the direction of legal counsel.

The matter was reported to the Federal Bureau of Investigation and does not appear to have compromised any personally identifiable information or protected health information.

Fortress, as our controlling stockholder and supporting partner in our back-office functions, provided us with $9.5 million to ensure our accounts payable operations continued to function smoothly.

The $9.5 million of support was in the form of a related party note which the boards of both companies have agreed and converted into 1,476,044 shares of our common stock upon the consummation of our IPO at the IPO price.

See “ Risk Factors — Risk s Related to our Platform and Data — Our business and operations would suffer in the event of computer system failures, cyber-attack s, or deficiencies in our or third parties’ cybersecurity .”

● As of July 18, 2021, we privately offered and issued 750,680 shares of our Class A Preferred Stock at a price of $25.00 per share, for gross proceeds of $19.0 million (the “Class A Preferred Offering”).

In connection with the closing of our IPO on November 16, 2021, we issued 2,231,346 shares of common stock resulting from the conversion of all of the Class A Preferred Stock.

● In June 2021, we entered into an agreement with Dr.

Reddy’s Laboratories, Ltd.

(“DRL”) for the development of DFD-29, a modified release oral minocycline that is being evaluated for the treatment of inflammatory lesions of rosacea.

We and DRL intend to conduct two Phase 3 clinical trials to assess the efficacy, safety and tolerability of DFD-29 as a treatment for rosacea for regulatory approval.

In connection with the DFD-29 Agreement, we agreed to pay DRL additional consideration of $5.0 million in our common stock upon our IPO.

In addition, in connection with the closing of our IPO, we issued 545,131 unregistered shares of common stock in the Company to DRL.

The restrictions on the unregistered shares of common stock are governed by the terms set forth in the DFD-29 Agreement and applicable securities laws.

● In May 2021, we acquired Qbrexza from Dermira, Inc., a wholly owned subsidiary of Eli Lilly and Company (“Dermira”).

● In March 2021, we launched Accutane® (isotretinoin) for the treatment of recalcitrant nodular acne.

● On March 31, 2021, we entered into an agreement with East West Bank (“EWB”) to provide us with a $7.5 million working capital line of credit.

Other Subsequent Highlights

On January 12, 2022, we entered into a third amendment (the “Amendment”) of our loan and security agreement with EWB, which increased the borrowing capacity of our revolving line of credit to $10.0 million, from $7.5 million, and added a term loan not to exceed $20.0 million.

Both the revolving line of credit and the term loan mature on January 12, 2026.

The term loan includes two tranches, the first of which is a $15.0 million term loan and the second of which is a $5.0 million term loan.

On January 12, 2022, we borrowed $15.0 million against the first tranche of the term loan to facilitate the VYNE Product Acquisition.

The term loan bears interest on its outstanding daily balance at a floating rate equal to 1.73% above the prime rate and is payable monthly, on the first calendar day each month.

The term loans contain an interest only payment period through January 12, 2024, with an extension through July 12, 2024, if certain covenants are met, after which the outstanding balance of each term loan is payable in equal monthly installments of principal, plus all accrued interest, through the term loan maturity date.

We may prepay all or any part of the term loan without penalty or premium, but may not re-borrow any amount, once repaid.

Any outstanding borrowing against the revolving line of credit bears interest at a floating rate equal to 0.70% above the prime rate.

The Amendment includes customary financial covenants such as collateral ratios and minimum liquidity provisions as well aa audit provisions.

On February 11, 2022 we announced that our exclusive licensing partner in Japan, Maruho Co., Ltd.

(“Maruho”), received marketing and manufacturing approval for Rapifort® Wipes 2.5% (QBREXZA®), for the treatment of primary axillary hyperhidrosis, triggering a net $2.5 million milestone payment to us.

The net payment reflects a milestone payment of $10 million to us from our exclusive licensing partner Maruho, offset by a $7.5 million payment to Dermira, pursuant to the terms of the Asset Purchase Agreement between us and Dermira.

In conjunction with the terms of the licensing agreement with Maruho, the milestone payment was due from Maruho within 30 days of the approval.

We acquired global rights to QBREXZA® from Dermira in 2021.

On March 17, 2022, we dosed the first patient in our Phase 3 clinical trial evaluating DFD-29 (Minocycline Modified Release Capsules 40 mg) for the Treatment of Rosacea.

In addition, the published phase 2 clinical data showed that DFD-29 had approximately double the efficacy compared to Doxycycline capsules 40 mg on reducing total inflammatory lesions and IGA treatment success.

The trial will encompass two multicenter, randomized, double-blind, parallel-group, active and placebo-controlled Phase 3 clinical trials will each enroll up to 320 adult patients with moderate to severe papulopustular rosacea (“PPR”).

One trial is enrolling patients in the United States and the other is enrolling in the United States and Europe.

The studies will be randomized in a 3:3:2 ratio to DFD-29 (Minocycline Hydrochloride Modified Release Capsules, 40 mg), Oracea® (Doxycycline capsules 40 mg) or placebo once daily for 16 weeks.

The primary objective of the studies is to evaluate the safety, efficacy and tolerability of DFD-29 compared to placebo for the treatment of PPR.

The secondary objective is to evaluate the safety, efficacy and tolerability of DFD-29 compared to Oracea® (Doxycycline capsules 40 mg).

● doxycycline hyclate immediate release tablets, launched in May 2018.

Our Products and Relevant Disease States

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When excessive sweating occurs as part of some other disorder, it is said to be secondary hyperhidrosis, which is a more commonly encountered condition than is primary hyperhidrosis.

According to a 2016 article published in the Archives of Dermatological Research, there are about 10 million people who suffer from PAH in the United States.

According to a 2016 article published in the Archives of Dermatological Research, there are approximately 10 million people who suffer from PAH in the United States.

The symptoms of PAH typically begin during childhood or puberty and may often, although not always, persist throughout a person’s life.

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Qbrexza® (glycopyrronium 2.4% cloth) for the Treatment of Primary Axillary Hyperhidrosis

Qbrexza® (glycopyrronium 2.4%), a topical, once-daily anticholinergic cloth that was approved by the FDA in June 2018 for the treatment of PAH in adult and pediatric patients nine years of age and older.

PAH is a medical condition with no known cause that results in underarm sweating beyond what is needed for normal body temperature regulation.

Anticholinergics are a class of pharmaceutical products that exert their effect by blocking the action of acetylcholine, a neurotransmitter that transmits signals within

the nervous system that are responsible for the activation of sweat glands.

Our Qbrexza® (glycopyrronium 2.4%) product is a topical, once-daily anticholinergic cloth that was approved by the FDA in June 2018 for the treatment of PAH in adult and pediatric patients nine years of age and older.

Anticholinergics are a class of pharmaceutical products that exert their effect by blocking the action of acetylcholine, a neurotransmitter that transmits signals within the nervous

system that are responsible for the activation of sweat glands.

Qbrexza is applied directly to the skin and is designed to block underarm sweat production by inhibiting sweat gland activation.

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Accutane® for the Treatment of Severe Recalitrant Nodular Acne

Accutane® (isotretinoin 20mg, 30mg, and 40mg capsules USP) is indicated for the treatment of severe recalcitrant nodular acne.

Accutane® (isotretinoin 10mg, 20mg, 30mg, and 40mg capsules USP) is indicated for the treatment of severe recalcitrant nodular acne.

Accutane is used to treat a type of severe recalcitrant nodular acne that has not been helped by other treatments, including antibiotics.

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Accutane has achieved a strong market position and is well known in the dermatology community.

The oral isotretinoin market had just under 2 million prescriptions in 2020, according to Symphony Health.

The oral isotretinoin market had over 2 million prescriptions in 2022 according to Symphony Health.

Targadox® for the Treatment of Severe Acne

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The tetracycline class, which includes minocycline, doxycycline, sarecycline and tetracycline, is particularly effective in treatment for more severe forms of acne due to its antibacterial and anti-inflammatory properties.

Targadox is the smallest doxycycline tablet and is considered easy to swallow, which is beneficial for the 40% of American adults with dysphagia, a condition in which patients experience difficulty swallowing pills.

Targadox is gluten-free, lactose-free, animal byproduct-free, and GMO-free.

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Amzeeq utilizes proprietary MST™ technology and is the first topical minocycline to be approved by the FDA for any condition.

We believe that the combination of a well-established antibiotic in a well-tolerated, easy to use foam makes AMZEEQ a very attractive treatment option for patients.

The topical acne market had 15 million prescriptions in 2021 according to Symphony Health, presenting significant unmet needs of patients and healthcare providers to be addressed.

that the combination of a well-established antibiotic in a well-tolerated, easy to use foam makes Amzeeq a very attractive treatment option for patients.

The topical acne market had almost 20 million prescriptions in 2022 according to Symphony Health, presenting significant unmet needs of patients and healthcare providers to be addressed.

As the first topical minocycline to be approved by the FDA for any condition, we believe that Amzeeq may provide a new treatment alternative for patients and healthcare providers who are unsatisfied with their current therapies.

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Ximino has Orange Book-listed patents that extend through April of 2027.

The oral minocycline market had more than 3 million prescriptions in 2021, according to Symphony Health.

The oral minocycline market had just under 3 million prescriptions in 2022 according to Symphony Health.

Fungal Infections of the Skin and the Current Standard of Care

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Pruritus may be localized or generalized and can occur as an acute or chronic condition.

Itch can be caused by a number of conditions, including skin conditions such as dry skin, eczema, psoriasis, scabies, parasites, burns, scars, insect bites and hives.

Itch can be caused by a number of conditions, including skin conditions such as dry skin, eczema, psoriasis, scabies,

parasites, burns, scars, insect bites and hives.

Depending on the cause of itchiness, skin may appear normal, red, rough or bumpy.

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Anti-Itch Product for the Treatment of Pruritus

Our recently acquired anti-itch product is indicated to treat pruritis, scabies, and other skin itch conditions (“Anti-itch Product”).

Our acquired anti-itch product is indicated to treat pruritis, scabies, and other skin itch conditions (“Anti-itch Product”).

Our Anti-itch Product delivers prescription relief and is non-steroidal and antihistamine free.

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Antihistamines are also effective in treating some types of itch, but they too have drawbacks with continued use.

We plan on launching our Anti-itch Product through our field sales force during the second quarter of 2022.

ZILXI for Papulopustular Rosacea

We plan on launching our Anti-itch Product through our field sales force during the second half of 2023.

Rosacea and the Current Standard of Care

Rosacea is a chronic, relapsing, inflammatory skin condition that most commonly presents with symptoms such as deep facial redness, acne-like inflammatory lesions (papules and pustules) and spider veins (telangiectasia).

According to The National Rosacea Society, it is estimated that rosacea affects well over 16 million Americans and as many as 415 million people worldwide.

Rosacea is most frequently seen in adults between 30 and 50 years of age.

Surveys conducted by The National Rosacea Society report more than 90% of rosacea patients said their condition had lowered their self-confidence and self-esteem, and 41% reported that it had caused them to avoid public contact or cancel social engagements.

Among rosacea patients with severe symptoms, 88% said the disorder had adversely affected their professional interactions, and 51% said they had missed work because of their condition.

The rosacea market had 3.6 million prescriptions in 2022 and 3.4 million prescriptions in 2021 according to Symphony Health.

The tetracycline class of antibiotics (minocycline and doxycycline) are considered to be effective options for treatment of papulopustular rosacea, likely due to anti-inflammatory activities that are usually manifested at doses much lower than those prescribed for treatment of bacterial infections.

A sub-antimicrobial dose of doxycycline (i.e., 40 mg taken once daily) as oral formulation has been approved for the treatment of only inflammatory lesions (papules and pustules) of rosacea and is available under the proprietary name Oracea® in the US.

Oracea is generally considered to be the current standard of care.

Minocycline, first introduced in 1971, is widely believed to be the most effective tetracycline agent due to its high lipophilicity, which is anticipated to permit greater permeation into, and accumulation in, the sebaceous follicles and layers of the epidermis.

We offer two products, Zilxi and, if approved, DFD-29, that we believe provide a new treatment alternative for patients and healthcare providers who are unsatisfied with their current rosacea therapies.

Zilxi® for the Treatment of Papulopustular Rosacea

Zilxi® (1.5% minocycline foam), was approved by the FDA in May 2020 and became available in pharmacies nationwide in October 2020.

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Zilxi has Orange Book-listed patents that extend through October of 2030.

The rosacea market had 3 million prescriptions in 2021 according to Symphony Health, and we believe that ZILXI provides a new treatment alternative for patients and healthcare providers who are unsatisfied with their current therapies.

DFD-29 for the Treatment of Rosacea

DFD-29, is a low-dose minocycline (40 mg) extended release capsule formulation for oral use, for the treatment of papulopustular rosacea.

The rationale of selecting DFD-29 doses lower than the approved minocycline dose, is based on the lower protein binding and higher lipophilicity of minocycline.

A Phase 1 PK study (DFD-29-CD-001) in 24 healthy subjects demonstrated the systemic exposure of minocycline from DFD-29 (minocycline HCl) ER capsules 40 mg was much lower than that seen with the approved antibiotic dose of minocycline (not a head-to-head study).

A Phase 2 study (DFD-29-CD-002) in 205 subjects with papulopustular rosacea, demonstrated that DFD-29 (40 mg) was significantly superior to placebo and Oracea®, on the co-primary endpoints of IGA treatment success and absolute inflammatory lesion count reduction.

The study also showed DFD-29 was well-tolerated and safe.

DFD-29 is currently in advanced stages of Phase 3 clinical studies for papulopustular rosacea.

We are a highly focused, pharmaceutical company dedicated to developing and commercializing therapies for the treatment of dermatologic conditions that seeks to deliver value to patients, physicians and the healthcare system, as well as to our stakeholders.

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This will consist of both commercial execution on our existing product portfolio, including lifecycle management, as well as investing in additional growth strategies through product and company acquisitions, licensing, or developing new products.

For the year ended December 31, 2021, we generated net product revenue of $63.1 million, compared to $44.5 million for the year ended December 31, 2020.

An important part of our growth strategy is to identify new business development opportunities, including development stage and commercial drugs that we may acquire from other pharmaceutical companies.

On June 29, 2021, we entered into an agreement with DRL to license and acquire global ownership rights, title, and interest to DFD-29, a modified release minocycline late-stage development product that is being evaluated to treat inflammatory lesions of rosacea.

Additionally, we recently acquired two FDA-approved drugs.

In May 2021, we acquired global ownership rights, title, and interest to Qbrexza® (a medicated cloth towelette for the treatment of primary axillary hyperhidrosis) from Dermira.

In December 2020, we acquired an anti-itch product from Sun, which we plan to launch in the U.S.

during the second quarter of 2022.

We are in various stages of discussion for other opportunities, both commercial and development stage, that could drive additional growth in the business.

Successful development and commercialization of any future in-licensed development stage or commercial drugs will require us to navigate the many laws and regulations of governmental authorities and regulatory agencies around the world, including the FDA, relating to the manufacture, development, approval and commercialization of investigational drugs.

For development stage drugs, we may require financial resources significantly in excess of those received by

the Company upon completion of its IPO, and it may take many years for us to receive marketing approval, if ever, for any in-licensed or acquired product candidate.

For development stage drugs, we may require financial resources significantly in excess of those received by us upon completion of our IPO in November 2021 and our current cash on hand, and it may take many years for us to receive marketing approval, if ever, for any in-licensed or acquired product candidate.

Competitive Strengths

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We have a highly skilled and customer-focused management team in critical leadership positions across our Company.

Our senior management team has over 135 years of sales and marketing experience in the pharmaceutical industry and a proven track record of developing businesses and creating value.

We have developed, launched, commercialized, and managed brands, generating over $3 billion in peak sales, collectively, at leading dermatology organizations.

Our senior management team has over 135 years of collective sales and marketing experience in the pharmaceutical industry and a proven track record of developing businesses and creating value.

Members of our management team have developed, launched, commercialized, and managed brands, generating over $3 billion in peak sales, collectively, at leading dermatology organizations.

This experience includes improving business performance through organic revenue growth, maximizing operational efficiencies and through the identification, consummation and integration of licensing and acquisition opportunities.

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● Performance and experience of our accomplished field sales force .

Our seasoned field sales force includes 70 professionals with an average tenure of over 11 years of experience in dermatology sales.

Our current seasoned field sales force includes approximately 65 professionals with an average tenure of over 11 years of experience in dermatology sales.

Each of these individuals have deep-rooted and longstanding customer relationships in their respective territories.

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Additionally, we believe that consolidation in the medical dermatology industry has resulted in an enhanced opportunity for a medical dermatology-focused company to build relationships with these stakeholders and has made available a large and growing talent pool of experienced individuals who can make significant contributions to our Company.

Unique and differentiated access and distribution model.

We have a unique and differentiated access and distribution network of over 600 specialty pharmacies and wholesalers, where we directly sell our products, with limited distribution through traditional national wholesalers.

● Specialized and differentiated access and distribution model .

We have a specialized and differentiated access and distribution network of over 600 specialty pharmacies and wholesalers, where we directly sell our products, with limited distribution through traditional national wholesalers.

This decentralized approach allows us to maximize our brand equity across our product portfolio through strategic relationships directly with pharmacies and allows us to provide exceptional customer service and access to patients and physicians.

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business development, legal, accounting, regulatory affairs, clinical operations and manufacturing.

In November 2021, we entered into a shared services agreement with Fortress for them to continue to provide consulting services and for the continued use of their personnel.

In November 2021, we entered into a shared services agreement with Fortress whereby Fortress would continue to provide consulting services and for the continued use of its personnel.

As part of our emphasis on cost effectiveness with our resources, we endeavor to structure licenses and product acquisitions for future product opportunities in a capital efficient manner that allows us to minimize indebtedness and compensate partner companies through future profits and commercial benchmarks.

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Employees and Human Capital Management

As of December 31, 2021, we had 90 employees and contractors.

These employees and contractors include 70 in sales as well as 20 in marketing, general and administrative positions.

Our current headcount is 80 employees and contractors.

Of these, we employee a total of 20 employees, of which 20 are full-time employees.

These employees and contractors include 65 in sales as well as 13 in marketing, general and administrative positions, and 2 in research and development positions.

We currently rely, and may continue to rely, on professional employer organizations and staffing organizations for the employment of our field sales force.

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Our human capital management objectives include, as applicable, identifying, recruiting, retaining, incentivizing, and integrating our new and existing employees.

The principal purpose of our equity incentive plan is to attract, retain, and motivate selected employees, consultants, and directors through the granting of stock-based compensation awards and cash-based bonus awards.

Additionally, we have access to over 30 Fortress employees and consultants, who possess significant expertise in one or more of the following areas:

The principal purpose of our equity incentive plan is to attract, retain, and motivate selected employees, consultants, and directors through the granting of share-based compensation awards and cash-based bonus awards.

Additionally, we have access to Fortress employees and consultants, who possess significant expertise in one or more of the following areas:

business development, legal, accounting, regulatory affairs, clinical operations and manufacturing.

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All of our product revenues are generated from operations or otherwise earned within the U.S.

We receive royalties for Rapifort® Wipes 2.5% (Qbrexza®), for the treatment of primary axillary hyperhidrosis, from our exclusive licensing partner in Japan, Maruho Co., Ltd.

We do not consider royalty revenue to be a material source of our consolidated revenue.

Seasonality of Business

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Relationship with Fortress

We have a seven-year operating history.

We have an eight-year operating history.

We are a majority owned subsidiary of Fortress.

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Fortress Note

Since the Company’s inception in October 2014, Fortress has funded the Company’s operations through a working capital loan future advance promissory note (the “Fortress Note”).

From the Company’s inception in October 2014 until its initial public offering (“IPO”), Fortress funded the Company’s operations through a working capital loan future advance promissory note (the “Fortress Note”).

In connection with the closing of our IPO on November 16, 2021, the balance of the Fortress Note reflecting $14.8 million converted into 1,476,044 shares of Journey common stock.

Research & Development Opportunities

We recently entered into an agreement with DRL, in which we agreed to fund the Phase III studies for the DFD-29 development program and subsequently seek approval for a New Drug Application (“NDA”) with the FDA.

In addition, we are also required to pay for certain regulatory costs and expenses for services to be provided by DRL.

Our near-term focus may also be to acquire and sponsor, co-sponsor and/or invest in additional clinical-stage or preclinical programs that have a strategic fit with our corporate strategy.

We actively and routinely evaluate development-stage opportunities in the ordinary course of our business development activities.

Product Licensing Agreements and Acquisitions

The Fortress Note is no longer outstanding.

Product Licensing Agreements and Asset Acquisitions

Rapifort® Wipes 2.5% (Qbrexza)

On February 11, 2022, we announced that our exclusive licensing partner in Japan, Maruho Co., Ltd.

The net payment reflects a milestone payment of $10 million to us from our exclusive licensing partner in Maruho, offset by a $7.5 million payment to Dermira, pursuant to the terms of the Asset Purchase Agreement between us and Dermira.

In conjunction with the terms of the licensing agreement with Maruho, the milestone payment was due from Maruho within 30 days of the approval.

We acquired global rights to Qbrexza® from Dermira in 2021.

Amzeeq, Zilxi, FCD105 and the Molecule Stabilizing Technology Platform

On January 12, 2022, Journey Medical Corporation (“Journey” or the “Company”) entered into an Asset Purchase Agreement (the “APA”) with VYNE Therapeutics, Inc.

On January 12, 2022, we entered into an Asset Purchase Agreement (the “APA”) with VYNE Therapeutics Inc.

(“VYNE”) to acquire VYNE’s Molecule Stabilizing Technology™ franchise (the “Acquisition”) for an upfront payment of $20.0 million, with an additional $5.0 million payment due on the one-year anniversary of the closing of the Acquisition.

The APA also provides for contingent net sales milestone payments:

in the first calendar year in which annual sales reach each of $100 million, $200 million, $300 million, $400 million and $500 million, a one-time payment of $10 million, $20 million, $30 million, $40 million and $50 million, respectively, will be paid in that year only, per product, totaling up to $450.0 million.

In addition, Journey will pay VYNE 10% of any upfront payment received by Journey from a licensee or sublicensee of the products in any territory outside of the United States, subject to exceptions for certain jurisdictions as detailed in the APA.

in the first calendar year in which annual sales reach each of $100 million, $200 million, $300 million, $400 million and $500 million, we will be required to make a one-time payment of $10 million, $20 million, $30 million, $40 million and $50 million, respectively, in that year only, per product, totaling up to $450.0 million.

In addition, Journey will pay VYNE 10% of any upfront

payment received by Journey from a licensee or sublicensee of the products in any territory outside of the United States, subject to exceptions for certain jurisdictions as detailed in the APA.

There are no subsequent milestone payments or royalties beyond the aforementioned payments.

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DFD-29 Agreement

On June 29, 2021, we entered into a license, collaboration, and assignment agreement with DRL to obtain the global rights for the development and commercialization of DFD-29, a late-stage development modified release oral minocycline that is being evaluated for the treatment of inflammatory lesions of rosacea (the “DFD-29 Agreement”).

On June 29, 2021, we entered into a license, collaboration, and assignment agreement with Dr.

Reddy’s Laboratories, Ltd.

(“DRL”) to obtain the global rights for the development and commercialization of DFD-29, a late-stage development modified release oral minocycline that is being evaluated for the treatment of inflammatory lesions of rosacea (the “DFD-29 Agreement”).

We acquired global rights to DFD-29, including in the U.S.

and Europe, except that DRL has retained certain rights to the program in select markets including Brazil, Russia, India and China.

Pursuant to the DFD-29 Agreement, we agreed to pay an upfront payment of $10.0 million, comprised of a $2 million payment upon execution and $8 million which was paid on September 29, 2021, 90 days following execution, with additional contingent regulatory, commercial, and corporate-based milestone payments, totaling up to $163.0 million.

Pursuant to the DFD-29 Agreement, we agreed to make an upfront payment of $10.0 million, comprised of a $2 million payment upon execution and $8 million which was paid on September 29, 2021, 90 days following execution, with additional contingent regulatory, commercial, and corporate-based milestone payments, totaling up to $158.0 million.

Royalties ranging from ten percent to twenty percent are payable on net sales of the product.

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Royalties are subject to a 50% reduction in the event that a generic competitor launches in an applicable country where we market and sell the product.

We are responsible for the prosecution and enforcement of patents licensed under the agreement.

The agreement contains customary representations, warranties, and indemnities, and title transfers to us on the date of achievement of certain regulatory milestones set forth in the agreement, after which our licenses become our acquired assets.

We are responsible for the prosecution and enforcement of patents licensed under the DFD-29 Agreement.

The DFD-29 Agreement contains customary representations, warranties, and indemnities, and title transfers to us on the date of achievement of certain regulatory milestones set forth in the agreement, after which our licenses become our acquired assets.

Each party may also terminate the DFD-29 Agreement for material breach by the other party or for certain bankruptcy or insolvency related events.

Additionally, we

agreed to fund and oversee the Phase III clinical trials, approximating $24.0 million, based upon the most recent development plan and budget, which is subject to change.

Additionally, we agreed to fund and oversee the Phase III clinical trials, approximating $24.0 million, based upon the most recent development plan and budget, which is subject to change.

The DFD-29 Agreement will remain in effect on a country-by-county basis until the expiration of the revenue percentage term in the relevant country, which period begins on the first commercial sale of a product in that country and ends upon the expiration or invalidation date of the last revenue generating patent in such country.

The DFD-29 Agreement terminates in its entirety upon the expiry of the revenue percentage term in the last country covered under the DFD-29 Agreement.

Either party may terminate the DFD-29 Agreement upon material breach, subject to the cure period applicable to the relevant breach.

Qbrexza Agreement

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The transaction closed on May 14, 2021, and pursuant to the Qbrexza APA, we made an upfront $12.5 million cash payment to Dermira.

Dermira is eligible to receive cash payments of up to $144 million in the aggregate upon the achievement of certain milestones.

We are obligated to make payments to Dermira of up to $144 million in the aggregate upon the achievement of certain milestones.

For the first two years, we are required to pay royalties on sales ranging from the mid-thirty to the mid-twenty percent and, thereafter royalties ranging from the lower teen digits to the upper teen digits are payable on net sales of Qbrexza products.

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We may terminate the license agreement if Rose U experiences certain insolvency events or if Rose U commits a material breach of the license agreement, subject to applicable cure provisions.

Rose U may terminate the license in certain circumstances if we experience certain insolvency events or if we commit a material breach of the license agreement or if we cause Rose U to be in material breach of its license agreement with Stiefel, subject in each case to applicable cure provisions.

Rose U may terminate the license in certain

circumstances if we experience certain insolvency events or if we commit a material breach of the license agreement or if we cause Rose U to be in material breach of its license agreement with Stiefel, subject in each case to applicable cure provisions.

Subject to earlier termination, the license agreement remains in effect until 15 years following the first commercial sale of a licensed product have elapsed or, if later, the date that the last patent or patent application in the licensed patent rights has expired or been revoked, invalidated or abandoned.

As of December 31, 2022, the last-to-expire issued patent relating to Qbrexza that we license under the license agreement with Rose U expires in 2029.

On February 11, 2022 we announced that our exclusive licensing partner in Japan, Maruho Co., Ltd.

In conjunction with the terms of the licensing agreement with Maruho, the milestone payment was due from Maruho within 30 days of the approval.

We acquired global rights to QBREXZA® from Dermira in 2021.

Accutane Agreement

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We commenced sales of this product in April 2021.

Targadox Agreement

On March 10, 2015, we entered into a license and supply agreement (as amended) for Targadox® (the “Targadox Agreement”) with PuraCap International LLC n/k/a Caribe Holdings, Inc.

We made an upfront payment of $1.3 million.

Further payments will be made based on a revenue sharing arrangement, no additional licensing or milestone payments are required.

The term of the Targadox Agreement is ten years and automatically renews for three-year periods unless either party provides notice of its intent not to renew at least 180 days prior to the expiration of the applicable term.

Under our revenue sharing arrangement, we are entitled to retain a majority of the net profits and pay Caribe portion of the net profits after deducting certain commercial, marketing and sales expenses during the term of the Targadox Agreement.

The Targadox Agreement contains customary representations, warranties, and indemnities.

Each party may also terminate the Targadox Agreement for material breach by the other party or for certain bankruptcy or insolvency related events.

We commenced sales of this product in October 2016.

Anti-Itch Product Agreement

On December 18, 2020, we entered an asset purchase agreement for our Anti-itch Product (the “Anti-itch APA”) with Sun Pharmaceutical Industries, Inc.

Pursuant to the Anti-itch APA, total consideration is $4.0 million, comprised of an upfront payment of $2.0 million, payable upon execution.

Through December 31, 2022, we have paid $4.0 million and have no additional payments.

The Anti-itch APA contains customary representations, warranties, and indemnities.

There are no subsequent milestone payments or royalties beyond the aforementioned payments.

We intend to launch this product during the second half of 2023.

Ximino Agreement

On July 22, 2019, we entered into an asset purchase agreement for Ximino® (the “Ximino APA”) with Sun Pharmaceutical Industries, Inc.

Pursuant to the Ximino APA, total consideration is $9.4 million, with an upfront payment of $2.4 million, payable within 60 days after execution on September 22, 2019.

On July 22, 2019, we entered into an asset purchase agreement for Ximino® (the “Ximino APA”) with Sun.

Pursuant to the Ximino APA, total consideration is $9.4 million, with an upfront payment of $2.4 million, which was payable within 60 days after execution on September 22, 2019.

The remaining $7.0 million will be made starting on the second anniversary and for the next four anniversaries of the Ximino APA thereafter.

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On August 31, 2018, we entered into an asset purchase agreement for Exelderm® (the “Exelderm APA”) with Sun.

Pursuant to the Exelderm APA, total consideration is $1.6 million, comprised of an upfront payment of $1.2 million payable within 60 days after execution on October 31, 2018.

Pursuant to the Exelderm APA, total consideration is $1.6 million, comprised of an upfront payment of $1.2 million, which was payable within 60 days after execution on October 31, 2018.

The remaining milestone payment was contingent upon net sales reaching a certain threshold, at which point a $0.4 million payment became due.

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We are obligated to pay royalties in the low-double digits based on net sales of Exelderm until the end of 2023, and no additional licensing or milestone payments are required.

Each party may also terminate the Exelderm APA for material breach by the other party or for certain bankruptcy or insolvency related events.

We commenced sales of this product in August 2018.

Anti-Itch Product Agreement

On December 18, 2020, we entered an asset purchase agreement for our Anti-itch Product (the “Anti itch APA”) with Sun.

Pursuant to the Anti-itch APA, total consideration is $4.0 million, comprised of an upfront payment of $2.0 million, payable upon execution.

Through December 31, 2021, we have paid $3.0 million and have additional future payments of $1.0 million.

The Anti-itch APA contains customary representations, warranties, and indemnities.

Each party may terminate the Anti-itch APA for material breach by the other party.

There are no subsequent milestone payments or royalties beyond the aforementioned payments.

We intend to launch this product during the second quarter of 2022.

Targadox Agreement

On March 10, 2015, we entered into a license and supply agreement (as amended) for Targadox® (the “Targadox Agreement”) with PuraCap International LLC n/k/a Caribe Holdings, Inc.

We made an upfront payment of $1.3 million.

Further payments will be made based on a revenue sharing arrangement and no additional licensing or milestone payments are required.

The term of the Targadox Agreement is ten years and automatically renews for three-year periods unless either party provides notice of its intent not to

renew at least 180 days prior to the expiration of the applicable term.

Under our revenue sharing arrangement, we are entitled to retain a majority of the net profits and pay Caribe a portion of the net profits after deducting certain commercial, marketing and sales expenses during the term of the Targadox Agreement.

The Targadox Agreement contains customary representations, warranties, and indemnities.

Each party may also terminate the Targadox Agreement for material breach by the other party or for certain bankruptcy or insolvency related events.

We commenced sales of this product in October 2016.

Research and Development

We acquired global rights to DFD-29, including in the U.S.

and Europe, except that DRL has retained certain rights to the program in select markets, including Brazil, Russia, India and China.

Through this collaboration, the parties will work together to complete the development of DFD-29, which includes conducting two Phase III studies to assess the efficacy, safety and tolerability of oral DFD-29 for the treatment of rosacea and the regulatory submission of an NDA under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act (“FDCA”).

As discussed above, on June 29, 2021, we obtained the global rights for the development and commercialization of DFD-29, a late-stage development modified release oral minocycline that is being evaluated for the treatment of inflammatory lesions of rosacea.

Through this collaboration, the parties will work together to complete the development of DFD-29, which includes conducting two Phase III studies to assess the efficacy, safety and tolerability of oral DFD-29 for the treatment of rosacea and the regulatory submission of a new drug application (“NDA”) under Section 505(b)(2) of the United States Federal Food, Drug and Cosmetic Act (“FDCA”).

DRL will provide development support, including the monitoring of two Phase III clinical trials.

The Phase III trials have not yet begun;

however, the planned design Phase III trial is consistent with the Phase II study.

Additionally, we plan to initiate the Phase III trials in the first quarter of 2022 with top-line data expected in the second half of 2022 and an anticipated NDA filing in the second half of 2023.

On March 17, 2022, we dosed the first patient in our Phase 3 clinical trials evaluating DFD-29 (Minocycline Modified Release Capsules 40 mg) for the Treatment of Rosacea.

As of January 10, 2023, we achieved 100 % enrollment in the trials, with a top-line data readout expected in the second quarter of 2023.

We plan to submit the NDA for DFD-29 in the second half of 2023 and FDA approval is anticipated in the second half of 2024.

In the Phase 2 clinical trials, DFD-29 (40mg) demonstrated nearly double the efficacy when compared against Oraycea® (European equivalent of Oracea®) on both co-primary endpoints.

For the first co-primary endpoint, IGA treatment success, Oraycea only had a 33.33% IGA treatment success rate, while DFD-29 achieved a 66.04% IGA treatment success rate.

The Phase II study, conducted in Germany, was a multi-center, randomized, double-blinded, parallel group, controlled study that assessed the efficacy, safety and tolerability of oral DFD-29 (20mg and 40mg) extended release minocycline hydrochloride capsules for the treatment of inflammatory lesions of rosacea over 16 weeks.

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The study showed that DFD-29 40mg had statistical significance to both placebo and the active control, Oraycea® (German equivalent of U.S.

marketed Oracea®), on both co-primary endpoints - proportion of subjects with Investigator’s Global Assessment (“IGA”) treatment success (grade 0 or 1 with at least a two grade reduction from baseline at week 16 and total inflammatory lesion count reduction from baseline to week 16.

marketed Oracea®), on both co-primary endpoints - proportion of subjects with IGA treatment success (grade 0 or 1 with at least a two grade reduction from baseline at week 16 and total inflammatory lesion count reduction from baseline to week 16.

More information on the DFD-29 Phase II study can be found at clinicaltrials.gov.

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There were no related serious adverse events reported during the study for those subjects who were studied with DFD-29 40mg.

We rely on, and partner with, other companies to develop product candidates and third-party contract research organizations (“CROs”) to conduct clinical trials on our behalf.

For example, our agreement with DRL for the regulatory submission and approval for DFD-29 is heavily reliant on DRL’s ability to conduct clinical manufacturing for clinical supply of product, attending FDA meetings, advising on the Phase III study design, assisting in identifying third-party CROs, and drafting and advising on the NDA and other regulatory submissions.

Our reliance on third-party CROs may adversely affect our development timelines if the third-party CROs do not meet the requirements or satisfy the obligations required to obtain regulatory approval.

Any significant delays caused by our collaboration partner or third-party CROs may have an adverse effect on our development timelines or otherwise may delay approval and commercialization of DFD-29.

Intellectual Property

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and foreign patent applications relating to Zilxi will expire between 2030 and 2037.

● Other Patents related to MST but not products directly are 11 issued U.S.

● Other Patents related to molecular stabilizing platform but not products directly are 11 issued U.S.

patents, 3 pending U.S.

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With regard to DFD-29, we have an exclusive license to one U.S.

patent family including two issued U.S.

patents, one allowed U.S.

patent application, and one soon-to-be-filed U.S.

continuation application, as well as eight foreign pending patent applications (one in each of Australia, Canada, Europe, Japan, Korea, Mexico, New Zealand, and South Africa) covering methods of treating an inflammatory skin condition by selecting and administering an oral composition comprising reduced dose of minocycline and the relevant pharmacokinetic parameters, and we intend to pursue composition-of-matter patents, where possible, and dosage and formulation patents, as well as method-of-use patents on novel indications for known compounds.

patent family including 2 issued U.S.

patents, 1 allowed U.S.

patent application, and one U.S.

continuation application, as well as 8 foreign pending patent applications (one in each of Australia, Canada, Europe, Japan, Korea, Mexico, New Zealand, and South Africa) covering methods of treating an inflammatory skin condition by selecting and administering an oral composition comprising reduced dose of minocycline and the relevant pharmacokinetic parameters, and we intend to pursue composition-of-matter patents, where possible, and dosage and formulation patents, as well as method-of-use patents on novel indications for known compounds.

The two issued U.S.

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Ximino Patents

In addition, we have an exclusive license to patents related to Ximino, including six issued U.S.

We have an exclusive license to patents related to Ximino, including 6 issued U.S.

These patents cover the Ximino, methods of treatment, and related dosage forms and strengths, and will expire between 2025 and 2027.

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To this end, we require all employees, scientific advisors, consultants, collaborators and other contractors, upon commencement of a relationship with us, to enter into confidentiality agreements, which prohibit the disclosure of confidential information and, in the case of parties other than our research and development collaborators, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business.

These agreements are designed to protect our proprietary information and to grant us ownership of technologies that are developed in connection with their relationship with us.

These agreements may not;

however, provide protection for our trade secrets in the event of unauthorized disclosure of such information.

These agreements are designed to protect our proprietary information and to grant us ownership of technologies that are developed in connection with their relationship

These agreements may not, however, provide protection for our trade secrets in the event of unauthorized disclosure of such information.

There can be no assurance that any of our patents, licenses or other intellectual property rights will afford us any protection from competition or that our confidentiality agreements will not be breached, that we will have adequate remedies for any breach, that others will not independently develop equivalent proprietary information or that other third parties will not otherwise gain access to our trade secrets and other intellectual property.

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Accordingly, we face pressure to continually seek out technological innovations and to market our products effectively.

Our major competitors, including Galderma Laboratories, Sol-Gel Technologies, Almirall, Verrica Pharmaceuticals, Cassiopea, MC2 Therapeutics, EPI Health, Sun Pharma, Leo Pharma, Arcutis Biotherapeutics, Mayne Pharma, and Ortho Dermatologics, among others, vary depending on therapeutic and product category, dosage strength and drug-delivery systems, among other factors.

Our major competitors, including Galderma Laboratories, Almirall, Verrica Pharmaceuticals, MC2 Therapeutics, Novan Therapeutics, Sun Pharma, Leo Pharma, Arcutis Biotherapeutics, Mayne Pharma, Dermavant Sciences, Botanix Pharmaceuticals, and Ortho Dermatologics, among others, vary depending on therapeutic and product category, dosage strength and drug-delivery systems, among other factors.

Generic Competition

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Accordingly, when a branded product loses its market exclusivity, it normally faces intense price competition from generic forms of the product.

To successfully compete for business with managed care and pharmacy benefits management organizations, we must often demonstrate that our products offer not only medical benefits, but also cost advantages as compared with other forms of care.

To successfully compete for business with managed care and pharmacy benefits management organizations, we

must often demonstrate that our products offer not only medical benefits, but also cost advantages as compared with other forms of care.

Generic products generally face intense competition from other generic equivalents (including authorized generics) and therapeutically similar branded or generic products.

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Third-party payors are increasingly challenging the prices charged, examining the medical necessity and reviewing the cost effectiveness of pharmaceutical products, in addition to questioning their safety and efficacy.

Adoption of price controls and cost-containment measures, and adoption of more restrictive

policies in jurisdictions with existing controls and measures, could further limit sales of any product.

Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product.

Decreases in third-party reimbursement for any product or a decision by a third-party payor not to cover a product could reduce physician usage and patient demand for the product.

At the state level, there are also new laws and ongoing ballot initiatives that create additional pressure on drug pricing and may affect how pharmaceutical products are covered and reimbursed.

A number of states have adopted or are considering various pricing actions, such as those requiring pharmaceutical manufacturers to publicly report proprietary pricing information, limit price increases or to place a maximum price ceiling or cap on certain products.

A number of states have adopted or are considering various pricing actions,

such as those requiring pharmaceutical manufacturers to publicly report proprietary pricing information, limit price increases or to place a maximum price ceiling or cap on certain products.

Existing and proposed state pricing laws have added complexity to the pricing of pharmaceutical drug products.

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§ 1320a-7b, a person or entity need not have actual knowledge of this statute or specific intent to violate it in order to have committed a violation.

In addition, the government may

assert that a claim, including items or services resulting from a violation of 42 U.S.C.

In addition, the government may assert that a claim, including items or services resulting from a violation of 42 U.S.C.

§ 1320a-7b, constitutes a false or fraudulent claim for purposes of the civil False Claims Act (discussed below) or the civil monetary penalties statute, which imposes fines against any person who is determined to have presented or caused to be presented claims to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

The federal Anti-Kickback Statute and implementing regulations provide for certain exceptions for “safe harbors” for certain discounting, rebating or personal services arrangements, among other things.

However, the lack of uniform court interpretation of the Anti-Kickback Statute, coupled with novel enforcement theories by government authorities, make compliance with the law difficult.

However, the lack of uniform court interpretation of the Anti-Kickback Statute, coupled with novel

enforcement theories by government authorities, make compliance with the law difficult.

Violations of the federal Anti-Kickback Statute can result in significant criminal fines, exclusion from participation in Medicare and Medicaid and follow-on civil litigation, among other things, for both entities and individuals.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business