Sol-Gel Technologies Ltd. (SLGL) Earnings Call Transcript & Summary

Hello, everyone. Welcome to the Raymond James 2020 Virtual Human Health Innovation Conference. Our next present in company is Sol-Gel Technologies, a clinical-stage specialty pharmaceutical company focused on developing and commercializing topical dermatological drug products currently under our coverage as Strong Buy rated. My name is Lucas Lee, and I'm on the specialty pharma team here at Raymond James, and we're delighted to have with us the management team of Sol-Gel: CEO and Co-Founder; Alon Seri-Levy; and CFO, Gilad Mamlok. Alon will be giving us an overview of the company, and we'll have a Q&A after the presentation if we have any time left. Thank you guys for joining our conference. And Alon, the floor is yours.

Hello. It's going to be Gilad this time. Gilad, please.

Okay. Hello. So good morning, good afternoon, everybody, and thank you for coming to listen to my talk about Sol-Gel. Together with me is our CEO, Alon Seri-Levy, and both of us will be happy to answer any questions you may have at the end of my talk. Before I start, please pay attention to this cautionary note on forward-looking statements. I would like to start with the COVID-19 update. Let me start with a brief update regarding the time lines for our late-stage investigation drugs, Epsolay and Twyneo. We completed the clinical programs required for the submission of our NDAs for Epsolay and Twyneo. We also met with the FDA for pre-NDA meetings. Exhibit batches for Epsolay were produced, full commercial scale. And the next production step is the manufacture of the commercial validation batches. Exhibit batches for Twyneo were produced on a 200-kilo scale, and our contract manufacturers' organization for Epsolay and Twyneo are open despite the COVID-19. We therefore do not anticipate any delays in the submission of the NDAs of the -- or the production of the commercial batches for both Epsolay and Twyneo. This is, of course, a dynamic situation which we monitor closely. As for our current modus operandi, business continuity plan and disaster recovery plan were in place ahead of the COVID-19 crisis. And our IT infrastructure allows recovery in case of disaster including secured remote access to services. So we all kept working at home when we faced the COVID-19. Purchase orders were placed to increase our current inventory. The company is following, of course, all the restrictions published by the Israel Ministry of Health. And SGT-210 Phase I proof-of-concept clinical study, which is our study for erlotinib in palmoplantar keratoderma, is ongoing, subject to the guidelines for COVID-19. All employees returned to work, returned to the office. And our company is taking all measures to ensure the well-being of the employees, including frequent on-site cleaning and sanitary measures. All business travel abroad was canceled and replaced with telecoms and video conferences as we do right now. For those of you who don't know us, here is a brief introduction to our dermatology company. Sol-Gel has 2 pipelines of topical drugs, a branded pipeline and a generic pipeline. Our branded pipeline is based mainly on a proprietary microencapsulation in silica platform technology. In July 2019, we announced positive Phase III pivotal trials results for the branded drug candidate Epsolay for papulopustular rosacea, with NDA submission expected this month. If approved, Epsolay has the potential to be the first single active BPO approved by the FDA as a prescription drug product. In December 2019, we announced positive Phase III pivotal trials results for our branded drug candidate Twyneo for acne vulgaris with NDA submission expected in the second half of the year. If approved, Twyneo has the potential to be the first FDA-approved acne treatment that contains a fixed-dose combination of benzoyl peroxide and tretinoin. In March 2020, we updated that our proof-of-concept -- our study for erlotinib gel was expanded for patients with any type of palmoplantar keratoderma and that results are expected next year. We also announced that we intend to investigate tapinorof and roflumilast for various skin condition. Our generic pipeline benefits from expertise in topical drugs. As a result, we have 7 50-50 gross profit-sharing collaboration with Perrigo. This collaboration generated $22.8 million net revenues last year and $3.4 million in net revenues in the first quarter of this year. A pharmaceutical indication we are focused on is papulopustular rosacea. Papulopustular rosacea is a chronic inflammatory skin condition that most often affect the face. As you can see in the slide, it resembles acne vulgaris except that comedones, both whiteheads and blackheads, are absent and only inflammatory lesions exist. Regretfully, all current treatments have insufficient efficacy, resulting in poor patients adherence. Benzoyl peroxide is an effective anti-bacterial drug that is not associated with bacterial resistance. It's widely used in the treatment of acne patients but not for rosacea patients because it's assumed that rosacea patients cannot tolerate benzoyl peroxide. The skin is too sensitive for such a strong oxidizing drug. We therefore thought that if we can manage using our encapsulation technology to reduce the irritancy of BPO, then it would be highly effective in the treatment of papulopustular rosacea patients. So we developed Epsolay, a cream containing encapsulated benzoyl peroxide at 5%. Our 2 pilot Phase III clinical studies for Epsolay, the multicenter, double-blinded, randomized, vehicle-controlled on patients with moderated to severe papulopustular rosacea. Patients who were randomized 2:1 to receive either Epsolay or vehicle, 2 out of 3 received the active, 1 received the vehicle, and it was applied once daily over a 12-weeks treatment period. The studies were designed with 2 primary endpoints at week 12: percentage of patients achieving clear or almost clear in a 5-points Investigator Global Assessment scale and absolute mean change from baseline in inflammatory lesion count. This slide shows that the rosacea severity at baseline was similar between the active and the vehicle arms in both studies, and the discontinuation rates were very low. The intention to treat population in the active arms was 242 subjects in study 54-01 and 250 subjects in study 54-02. At the end of the pivotal studies, 43.5% and 50.9% of the patients treated with Epsolay reached clear or almost clear compared to 16.1% and 25.9% of the patients who apply the vehicle. These were highly statistically significant differences. In addition, at the end of the studies, patients tracked -- treated with Epsolay had a mean reduction for baseline of 17.4 and 20.3 inflammatory lesions compared to a mean reduction from baseline of 9.5 and 13.3 inflammatory lesions in patients who applied the vehicle. Again, these were highly statistically significant differences. We are very much excited about the efficacy results shown on this slide as the data demonstrated -- demonstrates what we believe will be a true differentiating factor for Epsolay, namely, how quickly it gets patients to the stage of clear or almost clear. The slide shows that Epsolay demonstrated statistically significantly higher success in IGA compared with the vehicle at every visit and as early as of week 2. And also, you may see in this slide that 25% of the patients treated with Epsolay already reached clear or almost clear as early as of week 4. The same applies for the mean reduction from baseline in inflammatory lesion count. Epsolay demonstrated statistically significant higher reduction compared with the vehicle at every visit and as early as of week 2. These are very nice example of how fast and how well Epsolay works. This patient at moderate rosacea at baseline, as you can see on the left-hand side, improvement is noticed at every visit starting at week 2. And as you may see, at the end of the study, the patient face was almost clear of rosacea. Here is another exciting finding. At the end of a 52-week long-term safety study, 73.2% of the subjects treated with Epsolay reached IGA of clear or almost clear, only 4.8% at moderate rosacea and none at severe rosacea. So not only does Epsolay work fast, but the improvement continued beyond the 12-weeks treatment of the pivotal trials. There are clear limitations in comparing data sets across clinical studies, and we acknowledge that, that we did not conduct any head-to-head studies for Epsolay. Therefore, the chart of this slide and also on the next slide is for the illustrative purposes only. That being said, when we look side by side at the success in IGA with Epsolay and of Soolantra, which is considered to be the current market leader, Epsolay distinguishes itself early and clearly. This is important as patients do not want to wait months for a response. And we therefore believe that the rapid onset of action of Epsolay will be very well perceived. This time, we wanted to look at the Phase III efficacy results that we got for Epsolay side by side with the efficacy results reported for all 5 branded drugs approved by the FDA for the treatment of papulopustular rosacea. Here again, we did not conduct head-to-head trials for Epsolay compared to any of these trials. What we're looking at here is the difference between the active and the vehicle. The vehicle effect has been separated out. We are not surprised to find that after deducting the vehicle effect, Epsolay has favorable results compared to other drugs. Another pharmaceutical indication we are focused on is acne vulgaris. Acne is a multifactorial disease often treated with benzoyl peroxide or tretinoin. Even though benzoyl peroxide and tretinoin are complementary mechanism of action, as of today, no such combination has been approved by the FDA because benzoyl peroxide decomposes tretinoin rapidly, so patients cannot use both drugs concurrently. So we developed Twyneo, which is a cream containing a fixed-dose combination of encapsulated benzoyl peroxide 3% and encapsulated tretinoin 0.1%, in which encapsulation has 2 roles: to prevent the decomposition of tretinoin by BPO; and to reduce the irritancy of both active substances. Following a successful Phase II study, in which we addressed the combination rollout, namely we showed that both encapsulated BPO and encapsulated tretinoin contribute to the efficacy of Twyneo. We initiated 2 multi-center, parallel, double-blinded, randomized, vehicle-controlled Phase III trials on patients with moderate to severe acne vulgaris. Patients were randomized 2:1 to receive either Twyneo or vehicle, applied once daily over a 12-week treatment period. The studies were designed with 3 primary endpoints at week 12: percentage of patients achieving clear or almost clear in a 5-point IGA scale; an absolute change from baseline inflammatory lesion count; and an absolute change from baseline in non-inflammatory lesion count. This slide shows that the acne severity at baseline was similar between the active and the vehicle arms in both trials. Only 16 subjects treated with Twyneo discontinued the studies due to adverse events. The intention to treat population in the active arm was 281 subject in study 65-04 and 290 subjects in study 65-05. At the end of the pivotal studies, 38.5% and 25.4% of the patients treated with Twyneo reached clear or almost clear compared to 11.5% and 14.7% of the patients applied with vehicle. These were statistically significant differences. Strategically significant differences were also achieved for both reductions in inflammatory and non-inflammatory lesions. This is an example of how well Twyneo works. The patient, as you may see, a severe acne at baseline and according to Dr. Hilary Baldwin was eligible for active testing. Significant improvement is noticed after 12 weeks of treatment with Twyneo, and the patient is no longer eligible for active testing according to Dr. Hilary Baldwin. This time, we wanted to look at the highest success in IGA achieved by Twyneo side by side with the highest success in IGA achieved by 3 branded drugs recently approved by the FDA for the treatment of acne vulgaris and an investigational drug we levied and has a PDUFA target action date. I would like to emphasize again that we did not conduct head-to-head trials for Twyneo compared to any of these drugs. After deducting the vehicle effect, Twyneo achieved favorable efficacy in IGA. And also a favorable efficacy when compared to Epiduo Forte, the current market leader. To remind you, Epiduo reached peak sales of $400 million. Epiduo Forte is the fixed-dose combination -- is a fixed-dose combination of benzoyl peroxide and adapalene. In contrast of tretinoin, adapalene is stable in the presence of BPO but is considered less effective than tretinoin. This is why tretinoin is prescribed more often than adapalene. In conclusion, as acne is a multifactorial disease and as tretinoin is considered to be more effective than adapalene, we believe that clinicians with favorable treating acne with Twyneo. Our encapsulation system and branded drug product candidates are extensively patent protected by branded patents until 2032 for Epsolay and until 2038 for Twyneo. We have submitted patent application and, if accepted, will protect us, will protect both drug candidates until 2040. In terms of the rosacea market, it's important to note that even with the availability of systemic treatments and generic alternatives, branded topicals remain a large and important segment of the rosacea market. This support our aspiration that Epsolay, with its favorable safety and efficacy data, will be well received by prescribers and patients if approved by the FDA. As for acne, branded topical combinations are mainstay therapies, reaching almost $700 million in sales last year. And the sales of tretinoin were more than 7x than the sales of adapalene last year. This supports our aspiration that Twyneo, which contains 2 preferred APIs, BPO and tretinoin, with a complementary mechanism of action, will also be well received by doctors and patients if approved by the FDA. We commissioned 2 market researchers regarding Epsolay and Twyneo, with national, regional and state-level commercial payers representing more than 100 million covered lives. The vast majority of respondents found both products compelling enough to drive formulary consideration. There was near-unanimous recognition of Epsolay as an additional option for rosacea. And responses were that if Epsolay is priced and rebated similarly to the covered products, coverage seems likely. There was also recognition that Twyneo will be qualified for formulary addition and that the price will determine its position. If you price it like Epiduo, it will be managed like Epiduo. We'll continue, of course, with pre-discussion as we move towards launch, and we will refine our go-to-market pricing and access strategy as needed in order to maximize the market potential of both products. We are progressing target commercialization of Epsolay and Twyneo in 2021 either ourselves or by partnering with a dermatology company that has a strong market presence. We estimate, based on market research that we have done, that no more than 45 to 62 sales reps are required in order to access 3,300 dermatology practices, representing approximately 6,500 dermatologists and 6,000 nurse, practitioners and physician assistants, who prescribe about 80% of the prescriptions by dermatologists in acne and rosacea. Our generic pipeline benefits from expertise in topical drugs. As a result, we have 7 50-50 gross profit-sharing collaboration with Perrigo. In February 2019, Perrigo launched acyclovir cream, 5%, developing collaboration with Sol-Gel. As of today, this is the only generic product in the U.S. market other than the authorized generic. This product generated $22.8 million in net revenues for us last year and $3.4 million in net revenues in the first quarter of this year. In January 2018, Perrigo received tentative approval from the FDA for ivermectin cream, 1%, developed in collaboration with Sol-Gel. The other thing is Soolantra of Galderma, and Perrigo was second to file here. Earlier this year, we closed a follow-on of $23 million. That took place in February. Additional $5 million was invested in the company in the same terms by our controlling shareholder in April. As of the end of the first quarter, we had $66.2 million in cash and investments. This cash and investments that we have is expected to be sufficient to finance until mid-2021. Since the IPO and as of today, we have achieved all of our milestones on time. Two inflection points for this year are the NDA submissions of Epsolay and for Twyneo. Two important inflection points for us next year are the launching of Epsolay and Twyneo. Thank you very much for your attention.

Great. Thanks. So now I would like to ask a few questions, and we'll also take some questions from the audience. So I want to start off with the question around time line. You've indicated that the NDA filing for Epsolay should occur this quarter, Twyneo in the second half, and COVID-19 hasn't impacted your time line at all. So should we be looking at a standard 10-month review time for both products? Also, regarding launch timing, will you be launching them immediately after each approvals or wait for both approvals then launch them simultaneously?

So first, for the NDA application of Epsolay, we said we are going to do it by the end of the quarter. So you can assume it's going to be very close. We have 2 weeks to accomplish this task -- this important task, and we are going to do it; and for Twyneo, in the second half, as we stated. And we do expect 10 months' approval. In terms of launching, we are thinking of launching first Epsolay and then launching Twyneo. And of course, we're not going to have the maximum 62 people in the first day. We're going to do it gradually, but we are not going to wait for Twyneo in order to be able to launch Epsolay.

Okay. Great. So I want to shift gears to pre-commercialization activity. So as you're on track to file 2 NDAs, what type of pre-commercialization activities are you currently working on right now?

So we are focusing in a few areas. One, we spend a lot of time and resources on all the supply chain to be ready, to make sure that our products will be commercialized on time and as soon as possible after we get the PDUFA approval. So that's one major effort. Second, we have a facility at New Jersey. We closed a lease agreement. We are going to enter into this facility once the COVID-19 guidelines allow that in New Jersey. Third, we are going to hire key employees in -- for our U.S. subsidiary. Job description have been defined, and we are in the process of interviewing candidates.

Okay. Great. So as a follow-up to that, how and when will that start impacting your sales and marketing expenses? We've modeled sales and marketing expenses start ramping in second half of this year and continue to increase in the foreseeable future. Is that the right way to think about the trend?

Correct. So you're going to see the effect of that in the second half because we are going to hire key employees to our U.S. subsidiary. But we are thinking of hiring about 10 key employees with the U.S. subsidiary. And then it's going to continue to ramp up in 2021 as we hire our sales force, which we are going to do through a contract sales organization.

Okay. So you've mentioned 45 to 62 sales force to support the launch. So I was just wondering, how does that number compare with some of the larger derm players in the space?

That's in line. When we looked at the sales force, for example, that launched of Epiduo and we looked at other similar products, that's in alignment with the sales force that was used to launch similar products like Epiduo, for example.

Great. So the next question I have is regarding peak sales opportunity. I believe it was alluded during your Analyst Day from last year that you were expecting combined peak sales of around $450 million for both products. So that number was before Twyneo's positive Phase III data, and just wanted to know where your expectation around this number has, whether that's changed.

So just to take you back to the presentation, we mentioned -- I mentioned in the presentation that Epiduo reached peak sales of $400 million. And I also mentioned that tretinoin is prescribed 7x more than adapalene. And as you know, Twyneo is a combination of tretinoin and BPO. So we -- in light of that, we expect peak sales of Twyneo to be between $300 million to $400 million. And with regards to Epsolay, again, if I look at the benchmark, Soolantra, Soolantra reached $200 million in 3 years, peak sales. Given the results of Epsolay, given the rapid onset, we expect Epsolay to reach peak sales between $100 million to $200 million.