Pelthos Therapeutics Inc. (PTHS) Earnings Call Transcript & Summary

Welcome, everyone, to this session of the March 2024 Small Cap Conference. I'm Alex Hantman, and I serve as an Equity Research Associate here at Sidoti & Company. Today, I'm pleased to be in conversation with Chromocell Therapeutics, Ticker CHRO and their CEO and CFO, Frank Knuettel. During the presentation, please feel welcome to submit questions using the Zoom Q&A interface at the bottom of your screen. After the presentation, we'll open to your questions. And with that, Frank, I'll turn it over to you.

Alex, thank you for the introduction and thank you for having me today. And welcome to all of you who are joining us. As Alex mentioned, I'm the company's Chief Executive Officer, Frank Knuettel. And I'll be taking you through the science behind our programs, the specific programs themselves and appreciate you taking the time to hear a little bit more about what we're doing. Before digging in, we have our forward-looking disclosure. I will not recite it, but I do want to mention it is available in both our SEC filing this morning with this presentation as well as on our website. So with that foundation laid, what is it that we are pursuing? So Chromocell therapeutics is pursuing a new class of drugs for the non-opioid treatment of various pain indications. The different indications, which we'll talk about in a moment, are all built on our proprietary compound, and it is patented through -- depending on the jurisdiction and with patent term adjustments, approximately 2040. So we have a very good IP protection portfolio around our critical compound. We'll go into the various stages of the programs, but for our clinical program, we've successfully negotiated a tox study in Phase I. And for our preclinical program, we're in the process of doing the formulation and finalizing that and the tox study following that. As a small company, long term, I want to say we're very cognizant of the realities of developing new drugs and are based on our evaluation of the market looking ongoing at any non-dilutive financing and monetization events. And as part of which following Phase II for any of the individual programs we'll chat about, I do expect that we would be considering out-licensing or sales programs. Finally, the overarching goal of the company is to build a platform of non-opioid pain treatment therapies. So we do not anticipate limiting it to just the programs that I'll be talking about today, but other indications as well. So why is this important? The arena of pain treatment therapy has not seen a whole lot of new developments in some time. And unfortunately, one of the primary treatments is the use of opioids. And as we're all familiar, opioids have considerable deleterious side effects with respect to addiction and mortality. Just in that regard, mortality has risen approximately fourfold from overdose in the last decade. So Chromocell is interested in chipping away the use of opioids for various pain indications to -- as part of developing a new class of drugs that is both efficacious and in our instance, does not have the euphoric or addictive properties of opioids. So we have 2 sort of lead programs. One is for the treatment of systemic chronic pain. That's divided into 2 parts, one for neuropathic pain and one for a condition known as erythromelalgia, which we'll talk about EM. And the other is for the treatment of acute and chronic eye pain. The eye pain is preclinical and the systemic pain programs are Phase II ready, and I'll talk a little bit more in detail about both of those. As I mentioned, I'm the company's CEO. My background is in early-stage life science and technology companies. I've had a long career in this arena with successful M&A transactions in both life science and in technology. More importantly, our Chief Medical Officer, Dr. Eric Lang, is a trained anesthesiologist, who spent approximately 25 years in the drug development sphere. So we work closely together in developing strategy and programming and have other folks in support of both of us that are very valuable to the overall success of the team. So why do we think our science will work? So we are specifically tackling sodium channel 1.7. The body has 8 sodium channels. And you can think of them as the body's electrical superhighway. Each of the different nerve, sodium channels has a different bodily target. So NaV1, NaV1.2 and NaV1.6 hit the central nervous system, NaV1.5-heart, NaV1.4-muscle and NaV1.7, NaV1.8 and NaV1.9 are peripheral. So we're working specifically on targeting the peripheral nervous system. And in doing so, we don't have any negative consequences associated with the heart, and we don't have any euphoric tendencies associated with a drug that might target the central nervous system. Unlike nonselective sodium channel blockers, the drug we have is particularly well suited for chronic use because the side effects or the lack thereof that we uncovered in our Phase I trial, I think, are very supportive of long-term use. Further to why we think it will work? So there's 2 indications that I'd like to point out that are on the complete opposite ends of the spectrum. One is something called congenital insensitivity to pain. And for -- and it's a very rare indication, but folks who suffer from this indication have 0 NaV1.7 activity. The flip side is a condition known as erythromelalgia, which I briefly referenced where people who suffer from this have an overabundance of NaV1.7 activity. So for the audience here today, we're all somewhere in the middle, right? I think of the bell curve, we're all somewhere in the middle or likely and don't suffer from either indication. But it stands to reason that if our compound dampens NAV1.7 activity -- receptor activity will have a successful pain reduction drug. And that's something we found in about a dozen mice and rat models in vitro that the drug compound specifically works to tamp down that 1.7% activity. So I think we've got a really strong science underpinning and understanding of the clinical nature of the program. Where we are in the development status. We'll talk about this with respect to each of the 2 programs in detail shortly, but we have plenty of API and tablets available to support both the dose study, which I'll reference in a moment as well as the full Phase II proof of concept. The -- I'll move directly into the specific plans now. So with respect to the systemic chronic pain program, again, for EM and neuropathic pain. We had a phase -- 3 Phase I studies involving approximately 160 patients. There was no liver or kidney toxicity, no central nervous system impact, no heart impact. The only outcome of which was an incidence of rashes in about 4% of the population. For this class of drug that is not an uncommon outcome and based on the type of rush we experienced and in conversations with experts in the field and the FDA, we believe strongly that a dose titration regime will address most or all of the rash conditions. Just as a sidebar with respect to the rashes, all retreatable all topically and only one had to ingest systemic steroids, but there were no lasting consequences and all reverted to normal quickly after receiving the -- either topical or ingestible steroids. So with respect to the dose regime specifically, we'll be doing an 8-week study, which we will conduct in Australia, which will allow us to take advantage of the very significant tax benefits there where we get a 43.5% tax credit. So we effectively doubled our R&D dollars by doing the study down there. But we'll do a small study escalating the dosage from 25 milligrams once a day to 800 milligrams done by 400 milligrams twice a day. We believe that the therapeutic range of our drug is in the 400-milligram range. So we believe we're actually dosing above what we believe will be therapeutic. But in doing it gradually like this, we believe that it will cure or solve the rash issue. So the 2 specific indications underlying our systemic chronic pain program is the first of which is small fiber neuropathy. The specific component we're going after is the idiopathic subcomponent, which comprise about half -- almost half of all patients with polyneuropathy. Generally, it hits patients 50 years older and is characterized by pain or tingling in your -- the extension of your limbs, some sensory loss and some weakness. We believe that there's upwards of 80,000 patients in the United States. And again, someone who suffers from this indication for our drug will be lifelong users. Also, we have patent protection, as I mentioned earlier, that covers patient population, approximately 6 to 7x that of the small fiber neuropathy patient population in the United States. So we will be doing following the dose study, a proof-of-concept study for this indication. We'll do a randomized double-blind across approximately 240 patients to reduce the effects of the impact of the placebo effect. And the endpoint is obviously to demonstrate pain reduction in this population. As there are approximately 80,000 in the U.S., it's designated orphan, we will be filing for an orphan designation, which will accelerate and reduce the cost of getting to market. Additionally, the secondary endpoints is to see if it will be effective in other pain models, and based on our preclinical work, believe that there is a high likelihood of having -- of hitting the secondary endpoint as well. The other major program in our chronic pain program is for EM, which we've chatted about. It's -- people who suffer from EM have steering pain in their extremities. It is a smaller orphan designated illness. So we'll be likely pursuing neuropathic pain first larger target market, easier access to patients. But in both -- for both EM and idiopathic small neuropathy, there's really no standard treatment of care. So people who suffer from these indications, don't have a very good therapeutic option. Obviously, they could use opioids, but opioids are not good for chronic conditions and have all kinds of deleterious side effects. So this is, I think, a really critical component with large unmet need. So this will be secondary to small fiber neuropathy, just based on the population -- patient population and whatnot, but critical to expanding the overall program. A little bit on the proof-of-concept study here for erythromelalgia. We'll do a small pilot program. As I said, it's a little harder to find the audience. So we'll do a smaller pilot program, induce the flare. And unfortunately, for folks who suffer from this, inducing a flare could be as simple as a 70-degree Fahrenheit room. So people who suffer from EM have oftentimes very restricted lives and experience flares of steering pain. So it ends up being a very disabilitating illness. The other major program we have is for the treatment of acute and chronic eye pain. This one is earlier stage. We are preclinical on this, developing the formulation and are just about completed with that and are lining up the tox program. So we'll do a tox study in rabbits to determine that it is tolerable by humans and in the eye. But the market here is quite large. Just as one example, corneal abrasion, there are approximately 5 million corneal abrasion cases per year in the United States. Specifically, we're targeting acute and chronic eye pain. So in addition to corneal abrasion think severe dry eye, PRK surgery as a subset of LASIK cataract surgery, trauma, some types of glaucoma. So the patient population here is quite large, unfortunately, divided between both acute and chronic. So in some instances, our drug will be a short-term drug and in other instances, will be a long-term chronic use. As I mentioned, we're in the process of developing the formulation now. We should be done for that in the next 30 or 45 days and then move into tox study in rabbits, and from there right into proof of concept in humans. Because the delivery mechanism is different and the FDA has different protocols for different indications and delivery mechanisms, this is actually a program that while in earlier stage, we do expect to move fairly quickly. Especially with respect to the proof of concept, we're specifically going to target initially acute eye pain. And because of the nature of acute eye pain and the local nature of it, we anticipate having a pretty quick early readout and understanding of the efficacy at a cost and lower than a chronic study. So we'll do the tox study and the move in a proof-of-concept study by the end of the year and expect to have at least some early indication in early 2025, about its efficacy and success. As I mentioned earlier, our goal really is to build a platform of non-opioid pain treatment therapies. As part of that, we've in-licensed a number of 505(b)(2) compounds, that were reformulated for sublingual delivery that target either acute headaches or migraines or secondarily, the nausea associated especially with migraines. So we have 3 different drugs that we've in-licensed that will support the build-out of our portfolio as a non-opioid pain medication company. So sublingual delivery will -- is expected to increase the time of action. And for someone with an acute migraine or severe headache, it's particularly helpful. Additionally, someone who's suffering from acute migraine, oftentimes experiences nausea and the ability to swallow a pill sometimes compromised. So sublingual delivery is faster method of action and avoids the requirement to swallow a pill at a time, sometimes they're enable. And as part of that also, we have a sublingual ondansetron for -- to tamp down that nausea. So these programs are earlier stage with respect to our working on them. Our focus for this year is really going to be primarily the dose study and launching the proof of concept for small fiber neuropathy and the talks in launching the proof of concept for acute and chronic eye pain. Just a little bit of background, and you can read more about this on our website, our Board of Directors and our Strategic Advisory Board. The only point I'd like to make here is that our Chairman is a fellow named Todd Davis, who's the CEO of Ligand Pharmaceuticals. He and I worked closely together in developing both our clinical and preclinical strategy program along with Eric and also in and out-licensing programs. Todd has a great deal of experience in building drug portfolios and he's an invaluable asset to our team. Finally, our Scientific Advisory Board is led by perhaps the godfather of sodium channel Research, Dr. Stephen Waxman. He's up at Yale University. And he's been involved in our program since its early days and his guidance and understanding has been invaluable as well. So I think we have a really robust team of management board and strategic advisory board members or scientific advisory board members and have, I think, well-developed and very specific programs. We anticipate getting through the year on our capital and are, as I mentioned earlier, very conscious of doing so. So we run a lean operation and believe we'll get through a couple of key milestones before absent other strategic needs, doing any further capital work. So that ends my prepared remarks. I am happy to open to Q&A. And again, appreciate your time and hearing about Chromocell today.

Great. Well, thanks very much, Frank, for walking us through all that great material. Maybe we could start with which of the indications you think might be first to market? Is it between the EM or neuropathic?

So I think it's really between systemic chronic and eye pain. With respect to systemic chronic pain, we're on a unitary path right now because we need to do the dose study as a precursor to either EM or small fiber neuropathy. Once we conclude that, we'll make a final decision on which one we will put first, but I do anticipate at this time that we'll put small fiber neuropathy first ahead of EM just because of the target market -- target market size, the availability of patient population, et cetera. So that's on one hand. On the other hand, we have the eye pain program. And while that's currently in an earlier stage because of the approval process and the indication that we're initially targeting, which is acute eye pain, we do believe that one will move more swiftly through the various stages to get to market. As to whether or not it moves more swiftly and not to supersede the systemic chronic pain remains to be seen, but I think there's a decent chance that would make it to market earlier.

Got it. Helpful context. And I think you mentioned no plans to raise anything additional this year. So could you give us a bit more context then around how your current resources align with the systemic chronic and pain to market?

Yes. So the work we're doing this year are -- is based on in the case of the chronic pain, smaller studies. So the dose study will be approximately 20 patients, 20 healthy patients. So -- and again, we're doing that in Australia. So we're tax-advantaged on a smaller program of healthy patients. So while there's certainly costs associated with that, initial study group is not going to be in the 100s. So we think that we've got a good pathway through there that's pretty cost-efficient. And for this year, for eye pain, the completion of the formulation is all that done and not very expensive. The tox study is rabbits and again, not really expensive. And then moving into proof of concept, we'll do a smaller subset for the proof of concept for just acute pain sufferers following a surgery. So because of the abundance of patient available -- patient population available and the fact that we don't need to do a very large initial study, I think we're doing things in a pretty cost-efficient manner. We don't have an enormous overhead. We have a pretty small in-house team and do as much as possible through consultants, CROs and other third-party organizations that allow us to dial up or down as either success or efficacy show or unfortunately don't, but we have a pretty good lever on those costs and despite running 2 parallel programs with different indications and methods of action.

Got it. And do you have any resources devoted to fast track or other FDA designations? Do you think these are good candidates?

I think for the systemic chronic pain, fast track -- they're both good candidates for Fast Track. We don't have any in-house resources. We do plan following our orphan drug application to file for fast-track status and believe there's a good likelihood of getting it for the systemic chronic pain programs. For the eye pain program, I don't reasonably expect that Fast Track will likely be granted. But again, for eye pain review under the FDA, it's a different group with a different set of protocols and procedures that I expect will actually move more swiftly than a systemic chronic pain on its own regard.

Understood. Maybe we could zoom out a little bit. Let's talk about development, distribution partnerships. I know you've announced the Benuvia partnership recently. So maybe how you're thinking about other sorts of development or distribution agreements?

Sure. Sure. So one of the things that, as I mentioned, we're very conscious of is our desire and need to expand the scope of our work and as capital-efficient manner as possible. One example of that is our work in Australia with the tax regime. Another component of which is that we are going to explore out-licensing programs potentially geographic. Specifically, our patents cover a little over 2 billion people -- and as a small company, we're clearly focused on North America. And if opportunities arise to joint venture with firms in Asia, for example, that are desirous of having proprietary compounds and to do so in a manner that brings in some capital and maybe even a joint venture with respect to the clinical process, we're going to look at that pretty seriously. So that's something I think that we've begun embarking on, and it's early days yet, but if the opportunity arises, we will certainly move to do so.

Got it. And could we talk a little bit about pricing? So I know opioids is a current standard of care. There's some more interventional nerve blocks and other pain management techniques. How do you think about pricing relative to standard of care?

Well, there's no question will be more expensive than opioids at least on the front end of which, right, Opioids have been around a long time. There's a bunch of different producers. It's a highly competitive market. So I don't expect we're going to undercut opioids in price. But I also don't feel we need to, right? Because based on the work we've done on safety and preclinical, there's 0 indication of euphoric effects. There's 0 indication of addictive properties associated with our drug. So over the longer term, our cost of treatment will potentially be lower than that of opioids because with opioids, the upfront cost is lower, but there are so many unfortunate secondary effects. In fact, this morning, I was chatting with one of our SAB members -- I'm sorry, Board members who informed me that approximately 15% of all knee replacement surgeries end up with an opioid addiction. So I mean if you think about the secondary treatment costs associated with some of the current standard of care, I think will be more expensive upfront, but don't have any of the negative consequences associated with the standard treatment of care.

Yes. Very helpful context. And maybe we could just end by taking a look out into the year and talking about some of the catalysts and inflection points that folks can get excited about.

Sure. So I think there's a couple of key ones. The first of which is the successful dose titration study for the chronic pain program, the launch of the proof of concept on the chronic pain program, the completion of the formulation, the completion of the tox and potentially an early readout for the eye pain program. I think those are the biggest ones we're currently aware of. As I mentioned, we are active in looking at other indications that might be addressable with our compound. So we may, from time to time, make disclosures about expanding the scope based on other indications as well as potentially in our out-licensing of additional compounds that might come along.

Great. Thank you. And with that, we are at time. So Frank, I'd like to thank you for sharing the story with us. And also thank everybody listening for spending time with us today.

Thank you for having me, and thank you, everyone, for listening today and learning more about Chromocell.

Absolutely. Take care.