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Item 7. Management’s Discussion and Analysis

2025-03-27 compared with 2024-03-29 · 115 added, 91 removed, 105 unchanged (66% of the section changed)

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As used below, the words “we,” “us” and “our” refer to Journey Medical Corporation and its consolidated subsidiaries.

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 two 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.

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 field sales organization.

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 field sales force, will position our business for growth.

We are a majority-owned subsidiary of Fortress.

We are a commercial-stage pharmaceutical company founded in October 2014 that primarily focuses on the selling and marketing of U.S.

Food and Drug Administration (“FDA”) approved prescription pharmaceutical products for the treatment of dermatological conditions.

Our current portfolio includes eight FDA-approved 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 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 Biotech, Inc.

(“Fortress” or “Parent”).

Recent Corporate Highlights

FDA Approval of Emrosi

On November 1, 2024, the FDA approved Emrosi TM (Minocycline Hydrochloride Extended Release Capsules, 40 mg), formerly referred to as DFD-29 (“Emrosi”) for the treatment of inflammatory lesions of rosacea in adults.

Emrosi was developed by Journey in collaboration with Dr.

Reddy’s Laboratories, Ltd (“DRL”).

Our initial supply became available in March 2025.

In addition, the initial distribution of Emrosi to pharmacies is ongoing and the first Emrosi prescriptions have been filled.

We anticipate sales promotion of Emrosi beginning in April 2025.

We intend to commercialize Emrosi in the U.S.

with our existing commercial team.

Critical Accounting Policies and Uses of Estimates

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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.

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

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The following table summarizes our results of operations for the years ended December 31, 2024 and 2023:

For the Years Ended December 31,

($ in thousands, except per share data)

Year Ended December 31,

Product revenue, net

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Operating expenses

Cost of goods sold - product revenue

Cost of goods sold – (excluding amortization of acquired intangible assets)

Amortization of acquired intangible assets

Research and development

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Loss on impairment of intangible assets

Loss recovery

Total operating expenses

Loss from operations

Other expense

Other expense (income)

Interest income

Interest expense

Gain on extinguishment of debt

Foreign exchange transaction losses

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($in thousands)

Other / legacy

Total net product revenue

Total net product revenues decreased $11.3 million, or 16%, to $59.7 million for the year ended December 31, 2023, from $71.0 million for the year ended December 31, 2022.

The decrease is primarily due to lower unit volumes from our legacy products, Targadox, Ximino and Exelderm driven specifically by continued generic competition for Targadox and the winding down, and ultimate discontinuation of Ximino, during the third quarter of 2023.

Despite unit volume increases from period-to-period for Qbrexza, Amzeeq and Zilxi, net revenues for these products were negatively impacted by higher managed care rebates due to higher managed care program costs.

In addition, Qbrexza net revenue was negatively impacted by coupon deductible rate resets in the beginning of 2023, and isolated charges in the first quarter of 2023 for higher-than-anticipated returns from the Dermira product lots purchased in 2021, as well as higher government rebates from increases in certain state rebate programs.

As of July 1, 2023, we no longer participate in these programs.

Accutane net product revenue increased $1.8 million from 2022 due to increased unit volume resulting from our focused sales and marketing efforts.

Total net product revenues decreased by $4.5 million, or 8%, to $55.1 million for the year ended December 31, 2024, from $59.7 million for the year ended December 31, 2023.

The decrease is primarily due to overall higher rebate costs across our product portfolio and lower unit volumes, mainly from our legacy products Targadox, Ximino and Exelderm, driven specifically by continued generic competition for Targadox.

In addition, Amzeeq net product revenues decreased by approximately $1.2 million, due to both higher rebates and decreased unit sales volumes from 2023.

Increases in unit sales volumes for Qbrexza, Accutane and Zilxi were offset by higher rebate costs compared to 2023.

Other revenue

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($in thousands)

Milestone payment from Cutia

Non-refundable upfront payment from Maruho

Net milestone payment from Maruho

Royalties on sales of Rapifort® Wipes 2.5%

Total other revenue

Other revenues increased approximately $16.8 million, to $19.5 million for the year ended December 31, 2023, from $2.7 million for the year ended December 31, 2022.

Other revenue for the year ended December 31, 2023 includes a $19.0 million non-refundable upfront payment from Maruho under the New License Agreement.

Royalties on sales of Rapifort Wipes 2.5% in Japan were $0.5 million for the year ended December 31, 2023 as compared to $0.2 million for the year ended December 31, 2022.

Other revenue for the year ended December 31, 2022 includes a net $2.5 million milestone payment from Maruho.

In January 2022, Maruho received manufacturing and marketing approval in Japan for Rapifort Wipes 2.5% (Japanese equivalent to U.S.

FDA approved QBREXZA®), for the treatment of primary axillary hyperhidrosis, triggering the one-time net payment.

Sales of Rapifort in Japan will no longer be subject to a royalty after October 1, 2023 in accordance with the Second A&R License 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 People’s Republic of China.

Other revenue for the year ended December 31, 2023 reflects a $19.0 million non-refundable upfront payment from Maruho under the New License Agreement and $0.5 million in royalties on the sale of Rapifort Wipes 2.5%.

Gross - to - Net Sales Accruals

We record gross-to-net sales accruals for chargebacks, distributor service fees, prompt pay discounts, sales returns, coupons, managed care rebates, government rebates, and other allowances customary to the pharmaceutical industry.

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, 2024, 2023 and 2022 were as follows:

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Balance as of December 31, 2024

The increase in our reserves for gross-to-net sales accruals from period-to-period is driven by increases in our reserves for coupons and managed care rebates of $1.7 million and $1.6 million, respectively.

Our provision for coupons was $3.4 million at December 31, 2023 compared to $1.7 million at December 31, 2022.

The increase in the coupon reserve is primarily due to an increase in our channel reserve at December 31, 2023 for rebates not credited at the end of the year as a result of the timing of receipt.

Our provision for managed care rebates was $5.2 million at December 31, 2023 compared to $3.6 million at December 31, 2022.

The increase in the managed care rebate reserve is primarily due to the timing of invoices received.

Our reserves for gross-to-net sales allowances were $9.3 million at December 31, 2024, compared to $14.1 million at December 31, 2023, a decrease of $4.8 million.

The decrease in the returns reserve reflects lower units on hand in the wholesaler channel.

The decrease in the coupon and managed care reserves is primarily a result of the timing of credits and invoices received at the end of 2023.

Cost of Goods Sold

Cost of goods sold decreased by $4.1 million, or 13%, to $26.7 million for the year ended December 31, 2023, from $30.8 million for the year ended December 31, 2022.

The decrease is mainly due to lower-than-prior-year product royalties driven by lower sales of products from period-to-period, and a permanent contractual decrease in the Qbrexza royalty percentage from the prior-year period.

Cost of goods sold decreased by $2.0 million, or 9%, to $20.9 million for the year ended December 31, 2024, from $22.9 million for the year ended December 31, 2023, mostly due to lower product royalty payments.

Product royalties were lower by $1.7 million compared to the same period in 2023 due to the contractual expiration of our Exelderm product royalty in November 2023, the contractual decrease in our Qbrexza royalty in the second quarter of 2023, and the discontinuation of Ximino in September of 2023.

In addition, the discontinuation of Ximino has resulted in lower drug-user fees of $0.8 million.

These decreases were offset, in part, by an increase in product-related cost of goods sold of $0.5 million, as a result of product mix, mainly driven by the higher Accutane and Qbrexza unit volumes.

Amortization of acquired intangible assets

Amortization of acquired intangible assets decreased by $0.4 million, or 9%, to $3.4 million for the year ended December 31, 2024, from $3.8 million for the year ended December 31, 2023 as the discontinuation of Ximino in 2023 has resulted in lower amortization.

Research and Development

Research and development expense decreased by $3.4 million, or 31%, to $7.5 million for the year ended December 31, 2023 from $10.9 million for the year ended December 31, 2022.

The decrease is related to lower clinical trial expenses to develop our DFD-29 product as the project winds down and eventually concludes.

Research and development expense increased by $2.3 million, or 31%, to $9.9 million for the year ended December 31, 2024 from $7.5 million for the year ended December 31, 2023.

The increase was driven by the $4.1 million filing fee payment to the FDA for Emrosi in January 2024 and a $3.0 million payment for the contractual milestone payment owed to DRL triggered by the FDA’s acceptance of the NDA application for Emrosi in March 2024, partially offset by lower clinical trial expenses to develop Emrosi compared to 2023, as the clinical phase of the project has concluded.

Selling, General and Administrative Expenses (“SG&A”)

Selling, general and administrative expenses decreased by $15.6 million, or 26%, to $43.9 million for the year ended December 31, 2023, from $59.5 million for the year ended December 31, 2022.

The decrease is mainly due to our expense reduction efforts primarily in sales and marketing and other SG&A areas.

During the last quarter of 2022, we began implementing a cost reduction initiative designed to improve operational efficiencies, optimize expenses, and reduce overall costs.

The initiative is intended to reduce selling, general, and administrative expenses to better align costs with their revenue-generating capabilities.

In connection with the cost reduction initiative, during the last quarter of 2022 and the first two quarters of 2023, we executed a headcount reduction to our sales force and implemented marketing and other cost cuts.

SG&A expenses decreased by $3.7 million, or 8%, to $40.2 million for the year ended December 31, 2024, from $43.9 million for the year ended December 31, 2023.

The decrease is due to our continued expense management efforts, partially offset by non-cash share-based compensation, the commencement of our launch efforts for Emrosi, and the expansion of our access and coverage platforms.

SG&A in the areas subject to our continued expense management efforts, primarily in sales and marketing and other SG&A areas, decreased by $8.7 million compared to 2023.

This decrease is partially offset by a $1.7 million increase in SG&A expenses from 2023 due to the commencement of our launch efforts for Emrosi related mainly to market research and access and to a lesser extent, the expansion of our access and coverage platforms for our current product portfolio.

In addition, non-cash share-based compensation expense increased by $3.1 million compared to 2023 as a result of an increase in outstanding equity awards from 2023.

Loss on impairment of intangible assets

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We discontinued selling Ximino on September 29, 2023.

We recorded no losses related to the impairment of assets in the year ended December 31, 2024.

Loss Recovery

We recorded a loss recovery benefit to income of $4.6 million in connection with the recovery of funds related to the previously disclosed September 2021 cybersecurity incident.

We received the $4.6 million cash in December of 2024.

See Note 17 to our consolidated financial statements for further details.

Interest Income

Interest income increased $0.5 million to $0.8 million for the year ended December 31, 2024, from $0.3 million for the year ended December 31, 2023.

Interest income reflects the income earned on our high yield money market account.

The increase is due to a higher invested balance compared to the prior year resulting from cash received upon entering into the SWK Credit Facility in December 2023, and to a lesser extent, a slight increase in investment yield.

Interest Expense

Interest expense decreased $0.3 million to $1.7 million for the year ended December 31, 2023, from $2.0 million for the year ended December 31, 2022.

This decrease was driven in part by the total repayment of our prior credit facility with East West Bank during the third quarter of 2023 and no additional borrowing of funds until entering into the Credit Facility with SWK in December 2023.

As we utilize this Credit Facility during 2024 to help us fund our operations, we expect interest expenses may increase year-over-year from the fiscal year ended December 31, 2023.

Income tax expense

Income tax expense increased by $0.2 million during 2023 due to an increase in certain state taxes driven by the Maruho New License Agreement.

Interest expense increased $1.0 million to $2.7 million for the year ended December 31, 2024, from $1.7 million for the year ended December 31, 2023 as a result of interest payments we made under the SWK Credit Facility.

In July 2023, we satisfied all of our outstanding debt obligations with East West Bank (“EWB”) by voluntarily repaying the outstanding balance on our term loan under the Loan and Security Agreement with EWB.

As such, we had no additional debt or borrowing of funds until entering into the Credit Facility with SWK in December of 2023.

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 Pharmaceutical Industries, Inc.

(“Sun”) pursuant to the Ximino Asset Purchase Agreement.

See Note 9 to our consolidated financial statements for further details.

Liquidity and Capital Resources

On December 27, 2023, we entered into the Credit Agreement with SWK.

The Credit Agreement provides for a term loan Credit Facility in the original principal amount of up to $20.0 million.

On the closing date, we drew $15.0 million.

The remaining $5.0 million may be drawn upon our request within 12 months after the closing date.

The Term Loans mature on December 27, 2027, and bear interest at a rate per annum equal to the three-month term SOFR (subject to a SOFR floor of 5%) plus 7.75%.

The interest rate resets quarterly.

Interest payments begin in February 2024 and are paid quarterly.

Beginning in February 2026, we are required to repay the outstanding principal of the Term Loans quarterly in an amount equal to 7.5% of the principal amount of funded Term Loans.

If our total revenue, measured on a trailing twelve-month basis, is greater than $70.0 million as of December 31, 2025, principal repayment is not required until February 2027, at which point we are required to repay a portion of the outstanding principal of the Term Loans quarterly in an amount equal to 15% of the principal amount of funded Term Loans.

The SWK Credit Facility also includes both revenue and liquidity covenants, restrictions as to payment of dividends, and is secured by substantially all assets of the Company.

As of December 31, 2023, and as of the date of this Annual Report on Form 10-K, the Company was in compliance with the financial covenants under the SWK Credit Facility

At December 31, 2024, we had cash and cash equivalents on hand of approximately $20.3 million as compared to $27.4 million of cash and cash equivalents at December 31, 2023, and working capital of $13.0 million at December 31, 2024, compared to $14.6 million at December 31, 2023.

We rely primarily on cash on hand generated from the sales of our pharmaceutical products to our customers to fund our core operations.

In addition, we have relied on the proceeds from our term loan Credit Facility (as defined below) with SWK and our at-the-market sales program with B.

Riley to meet additional capital and liquidity needs, specifically to fund the research and development and commercialization of Emrosi, formerly referred to as DFD-29, which received marketing approval by the FDA on November 1, 2024.

We also actively pursue licensing opportunities to raise non-dilutive capital.

On August 31, 2023, we entered into the New License Agreement with Maruho, whereby we granted an exclusive license to Maruho to develop and commercialize Qbrexza® for the treatment of primary axillary hyperhidrosis in South Korea, Taiwan, Hong Kong, Macau, Thailand, Indonesia, Malaysia, Philippines, Singapore, Vietnam, Brunei, Cambodia, Myanmar and Laos (the “Territory”).

Under the terms of the New License Agreement, in exchange for the exclusive rights to Qbrexza® in the Territory, Maruho paid us $19.0 million as a non-refundable upfront payment.

In July 2023, we satisfied all of the outstanding debt obligations we had with East West Bank (“EWB”) by voluntarily repaying the outstanding balance on the term loan under the Loan and Security Agreement, dated March 31, 2021 (as Amended, the “EWB facility”).

On December 30, 2022, we filed a shelf registration statement on Form S-3 (File No.

333 - 269079), which was declared effective by the SEC on January 23, 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”).

In connection with the 2022 shelf, we have entered into the Sales Agreement with B.

Riley relating to shares of our common stock in an at-the-market sales program.

In accordance with the terms of the Sales Agreement, we may offer and sell up to 4,900,000 shares of our common stock, from time-to-time through B.

Riley acting as our agent or principal.

During 2023, we issued 748,703 shares of common stock under the 2022 Shelf, generating net proceeds of $4.5 million.

At December 31, 2023, 4,151,297 shares remain available for issuance under the 2022 Shelf.

In December 2024 we received additional cash of $4.6 million as a result of the recovery of funds from the previously disclosed cybersecurity incident that impacted us in September of 2021 prior to our IPO.

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, to expand our product portfolio, and for other strategic initiatives, which may include sales of securities under either our 2022 Shelf or a new registration statement or drawing on the SWK Credit Facility.

We cannot make any assurances that such additional financing will be available to us and, if available, the terms may negatively impact our business and operations.

At December 31, 2023, we had cash and cash equivalents of approximately $27.4 million.

Our current assumptions, projected commercial sales of our products, clinical development plans and regulatory submission timelines are uncertain and may not emerge as expected.

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.

Additionally, as a result of recurring losses, primarily a result of the research and development of Emrosi, 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.

Sources of Liquidity

SWK Credit Facility

On December 27, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”) with SWK.

The Credit Agreement provides for a term loan facility (the “Credit Facility”) in the original principal amount of up to $20.0 million.

On the closing date, the Company drew $15.0 million.

On June 26, 2024, the Company drew the remaining $5.0 million under the Credit Facility.

Loans under the Credit Facility (the “Term Loans”) mature on December 27, 2027, and bear interest at a rate per annum equal to the three-month term Secured Overnight Financing Rate (“SOFR”) (subject to a SOFR floor of 5%) plus 7.75%.

The interest rate resets quarterly.

Interest payments began in February 2024 and are paid quarterly.

Beginning in February 2026, the Company is required to repay a portion of the outstanding principal of the Term Loans quarterly in an amount equal to 7.5% of the principal amount of funded Term Loans.

On July 9, 2024, the Company entered into an amendment (the “Amendment”) to the Credit Agreement.

The Amendment increased the original principal amount of the Credit Facility from $20.0 million to $25.0 million.

The $5.0 million of additional principal added in the Amendment is contractually required to be drawn upon FDA approval of Emrosi, subject to the Company 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.

At-the-Market Offering

On December 30, 2022, the Company filed the 2022 Shelf, which was declared effective by the Securities and Exchange Commission on January 26, 2023.

This shelf registration statement covers the offering, issuance and sale by the Company of up to an aggregate of $150.0 million of the Company’s common stock, preferred stock, debt securities, warrants, and units.

In connection with the 2022 Shelf, the Company entered into the Sales Agreement relating to shares of the Company’s common stock with B.

The Company may offer and sell up to 4,900,000 shares of its common stock, from time to time, under the Sales Agreement.

During the fiscal year ended December 31, 2024, the Company issued and sold 1,564,310 shares of common stock under the 2022 Shelf, generating net proceeds of $7.9 million.

At December 31, 2024, 2,586,987 shares remain available for issuance under the Sales Agreement.

Cash Flows for the Years Ended December 31, 2024 and 2023

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Operating Activities

Net cash from operating activities changed by $18.8 million from period-to-period, from $13.5 million cash used in operating activities for the year ended December 31, 2022 to $5.2 million net cash provided by operating activities for the year ended December 31, 2023.

The change was driven primarily by the lower net loss from period-to-period, driven by our lower expense base and the $19.0 million payment from Maruho.

This was offset by vendor payments as we utilized operating cash and the proceeds of the SWK facility to aggressively pay down our current liabilities.

Net cash flows used in operating activities for the year ended December 31, 2024 were $9.1 million compared to $5.2 million of net cash flows provided by operating activities for the year ended December 31, 2023, reflecting a change of $14.4 million from period-to-period.

Cash provided by operating activities for the year ended December 31, 2023 includes cash received pursuant to the New License Agreement, where Maruho paid us $19.0 million as a non-refundable upfront payment.

In 2024, we made cash payments of $4.1 million related to the filing fee paid to the FDA for Emrosi in January 2024, and $3.0 million for the contractual milestone payment owed to DRL triggered by the FDA’s acceptance of the NDA for Emrosi in March 2024.

The remainder was driven primarily by the changes in net working capital, which includes a one-time loss recovery payment of $4.6 million from the previously disclosed September 2021 cybersecurity incident.

Investing Activities

Net cash used in investing activities decreased by $15.0 million, to $5.0 million for the year ended December 31, 2023, from $20.0 million for the year ended December 31, 2022.

Net cash flows used in investing activities for the year ended December 31, 2024 were $15.0 million compared to $5.0 million for the year ended December 31, 2023, reflecting a change of $10.0 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.

The year ended December 31, 2023 reflects the $5.0 million deferred cash payment paid in January 2023 related to the VYNE Product Acquisition.

The year ended December 31, 2022 reflects the upfront $20.0 million payment for the VYNE Product Acquisition.

Financing Activities

Net cash used in financing activities increased by $21.3 million, to $4.8 million for the year ended December 31, 2023, from $16.5 million of cash flows provided by financing activities for the year ended December 31, 2022.

The increase reflects a cash outflow of $20.0 million for the repayment of principal on the EWB term loan and net cash outflows of $2.9 million from the repayment of the EWB revolving line of credit, offset by net proceeds of $14.6 million from the SWK Term Loan and $4.5 million from the issuance of common stock under the 2022 Shelf.

Net cash provided by financing activities for the year ended December 31, 2022 reflects net proceeds of $19.8 million from the EWB term loan and net proceeds of $2.1 million from the EWB revolving line of credit, offset by $5.0 million in payments of the installment notes related to our previously acquired products.

Net cash flows provided by financing activities for the year ended December 31, 2024 were $17.0 million compared to $4.8 million of net cash flows used in financing activities for the year ended December 31, 2024, reflecting a change of $21.8 million from period-to-period.

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 Sales Agreement of $7.9 million.

Net cash used in financing activities for the year ended December 31, 2023 reflects the voluntary repayment of the outstanding balance on our term loan under the Loan and Security Agreement with EWB.

Material Cash Requirements

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($’s in thousands)

Should we elect to borrow the remaining $5.0 undrawn balance under the SWB facility, we would expect to repay additional amounts each year until maturity.

● Pursuant to the Vyne Product Acquisition Agreement, upon the achievement of net sales milestones with respect to the products purchased in the Vyne Product Acquisition, we are also required to pay contingent consideration consisting of a one-time payment, per product, of $10.0 million and $20.0 million upon each product reaching annual net sales of $100 million and $200 million, respectively.

● Pursuant to the Vyne Product Acquisition Agreement, upon the achievement of net sales milestones with respect to the products purchased in the Vyne Product Acquisition, we are required to pay contingent consideration consisting of a one-time payment, per product, of $10.0 million and $20.0 million upon each product reaching annual net sales of $100 million and $200 million, respectively.

Each required payment must only be paid one time following the first achievement of the applicable annual net sales milestone amount.

● On June 29, 2021, we entered into the DFD-29 Agreement to obtain the global rights for the development and commercialization of DFD-29 with DRL.

Based on the development and commercialization of DFD-29, additional contingent regulatory and commercial milestone payments totaling up to $158.0 million may also become payable.

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

Additionally, the Company was required to fund and

oversee the Phase 3 clinical trials beginning upon the license of DFD-29 in 2021.

The two Phase 3 clinical trials substantially concluded in July 2023 upon the receipt of positive topline results from the trials.

In January 2024, the Company paid a $4.0 million filing fee to the FDA upon filing of an NDA for DFD-29.

The Company is obligated to make a $3.0 million milestone payment to DRL in April 2024 based on the FDA’s acceptance of the NDA filed in January 2024.

● We are contractually obligated to make installment milestone payments of $3.0 million on Ximino, all of which is classified as current as it is due within a year of December 31, 2023.

● We are contractually obligated to make sales-based royalty payments to Dermira (for Qbrexza), Sun Pharmaceutical Industries (for Exelderm) and PuraCap Caribe (for Targadox).

● On June 29, 2021, we entered into the Emrosi Agreement to obtain the global rights for the development and commercialization of Emrosi with DRL.

On November 1, 2024, we received FDA approval for Emrosi, which triggered a $15.0 million milestone payment to DRL in 2024.

Based on the development and commercialization of Emrosi, additional contingent regulatory and commercial milestone payments totaling up to $150.0 million may become due.

The Company is required to pay royalties ranging from approximately ten percent to fourteen percent on net sales of Emrosi, subject to certain reductions.

● In August 2024, we executed a settlement agreement (the “Settlement Agreement”) to settle amounts owed by us to Sun Pharmaceutical Industries, Inc.

(“Sun”) pursuant to the Ximino Asset Purchase Agreement.

We owed $3.0 million of license installment payments to Sun associated with the license of Ximino.

Pursuant to the Settlement Agreement, we agreed to settle the total outstanding obligation owed to Sun for a total of $1.9 million, payable in three installments:

(i) $625.0 thousand upon execution of the Settlement Agreement, (ii) $625.0 thousand on December 1, 2024, and (iii) $625.0 thousand on January 15, 2025.

● We are contractually obligated to make sales-based royalty payments to Dermira (for Qbrexza) and DRL (for Accutane and Emrosi).

Due to the contingent nature of these obligations, the amounts of these payments cannot be reasonably predicted as of the date of this Annual Report on Form 10-K.

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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 7. Management’s Discussion and Analysis