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

So we are practically wrapping up everything that is needed to be submitted to the FDA, and we will submit the NDA in the next few months.

Okay. And coming back to my question before with Epsolay, but you could lump it in together with Twyneo. Your dialogue with FDA, has that been completely smooth? Whenever you need to schedule a meeting, you're doing calls like this essentially, and they've been doing a good job of trying to meet whatever the schedule is in the time line.

So as of today, we can only appreciate the collaboration that we've got from the FDA. All meetings we are on time, either through video conferences or in person. Of course, as of COVID-19, there have been 2 video conferences. But we got them on time, we have the responses arrive on time, and we hope the same will be regarding our NDA submissions.

Okay. Back to you, John. So let's hit the market opportunity for Twyneo and how you think this one is going to fit in. And here, there's certainly not a derth of different topical treatments out there for acne. A lot more that's available than there is for rosacea. So -- and there are a number of combination treatments. So how are you going to sort of wedge this one in? Is it strictly data driven, the data that Alon mentioned? Or is it that physicians are so excited to have these 2 actual compounds together for the first time?

Well, I think it's a few things. I mean, let me start out with 15 million patients who are -- who struggle with acne on a regular basis, and in many cases, in a recurrent situation. So we have -- while we have -- clearly, there's a lot of options available for acne. There's a lot of patients who continuously struggle with their condition. As -- I think, as Alon had mentioned at the beginning, it's -- acne is a multifactorial disease. And as I said, with Epsolay in rosacea, in many cases, physicians are looking at multiple products in order to sort of push the efficacy boundary, and that's exactly what we see in a combination, why we selected a combination like tretinoin and BPO, both products of which are used extensively in dermatology, clearly, BPO and tretinoin. As a retinoid, it's used at a rate of 7x that you see with adapalene, so it's by far a favorite of dermatologies. So on one hand, you have physicians who would clearly like to use these products effectively in combination but are limited today because these products have to be used as separated in a regimen. Now if you have a teenager, and I have several -- clearly impossible for them to do this effectively. So that's a no go. So we really are solving a major hurdle in a major problem that dermatologists have faced in trying to get to more effective treatments. So it's remembering that this market is very large. The other thing I think that's important is we tested -- the results that Alon gave you were tested on really some of the more challenging patients that, in their treatment, in moderate and severe patients. And we expect that Twyneo to being very effective in these more challenging patient group, will be an extremely welcome part of the new treatment options in acne. And we see this, really, as -- ultimately, as a go to first-line option in a broad range of acne patients. We've had -- and also, as we have with Epsolay, we've had an opportunity to share this information with the thought leaders in the -- across the broader dermatology community since we've had the data. And again, it's as we expected. I think they've both been impressed by the clinical data and are very optimistic about what the clinical experience will look like when they actually start to adopt these products at some point next year.

Okay. Alon, maybe you could put that in a little bit more context, what John was talking about in terms of the patient population. So the results that you've highlighted, if that was in more moderate-to-severe patients, then -- and you still have pretty good results, how would that stack up against the market leader, Epiduo -- Epiduo Forte, understanding that you haven't done head-to-head studies. But I know you have slides where you highlight how those data might compare because I think that's an important point.

So when you look side-by-side, the result that we got and the results that are reported for any other drug that was -- the drugs that were recently approved by the FDA for the treatment of acne, as well as the effectual results reported for Epiduo Forte. And you're that in the case of Epiduo Forte, there were 50% severe patients and 50%, moderate patients. And you normalize the results or you focus only on the moderate patients. And you normalize the results to the vehicle effect, then you may conclude that combinations of retinoids and benzoyl peroxide, whether adapalene or tretinoin work much better than each of the single API. We believe that the reason for that is that acne is a multifactorial disease. And in order to get high efficacy, you should treat both the increase in the amount of the acne bacteria as well as the hyperkeratinization and the clogging of the hair follicles. So both Epiduo Forte and Twyneo contain a combination of the benzoyl peroxide and retinoids. In our case, the retinoid is tretinoin. In the case of Epiduo Forte, the retinoid is adapalene. Adapalene, in contrast to tretinoin, is stable in the presence of benzoyl peroxide. It is also considered by physicians to be more tolerable than tretinoin. This is why we are to encapsulate tretinoin. But it is also considered to be less effective. And if you look at the sales of tretinoin per se and the sales of adapalene per se, the sales of tretinoin per se, if I remember it correctly, 7x the sales of adapalene per se, both in dollars and units. So all in all, we believe that physicians are waiting for a combination of benzoyl peroxide and tretinoin, so they can prescribe it to their patients. And hopefully, we'll be able to address or to get a clear response to this question within -- once Twyneo will be approved by the FDA and launched to the market.

Okay. And Gilad, here, are you still comfortable with the greater than $300 million type peak sales target that you've talked about. I guess, you could mention what Epiduo has done at its peak?

And for the same reasons Alon just referred to, Epiduo Forte reached peak sales of $400 million. Now when you look at tretinoin and adapalene, you see it's subscribed 7x more than adapalene and the same applies for the revenue. So taking into account what we hear from dermatologists that the combination is the holy grail, the combination of BPO tretinoin, we feel very confident with the peak sales, which are lower than what Epiduo Forte managed to achieve.

Okay. All right, good. Let's move on, John, in terms of building out the commercial organization, you almost have your office in place. So that's going to be great. So talk about what you're doing to get ready sales force, working with a CSO and sort of the number of reps. I know that stays within a range, but it bounces around a little bit and maybe the dynamics, with COVID, has changed how you think about what you'll need to effectively promote the products?

Yes. That's great, Gary. So yes, there's been 2 things -- 2 broad areas we've been very much focused on in 2020. One has been operational readiness. So you mentioned, obviously, establishing our U.S. headquarters, outfitting that with our resources and sourcing personnel as well. And then there's been setting the stage and, really, the market preparation activities. Both of these things have been challenged by COVID. Clearly, conferences and the usual events, outreach events have been more challenging, but we've been able to use virtual activities, which have been rapidly adopted as they have here. And on the operational readiness side, this poses some challenges, but we've been able to get through. We're making a lot of progress on our commercialization launch plans. We continue to analyze the data and look at the market situation with COVID. We've been in that in between period, obviously, since our clinical trials were completed prior to the -- our key clinical trials were completed prior to the COVID onset. And we're not -- we don't have to be in the field until we have approval. So we have some time, and we'll see, hopefully, the situation will have improved dramatically by mid-2021 when we expect to actually launch these products. Our analysis estimates, though, that on the sales rep side, we would need about 45 to 62 sales reps to cover about 75% to 80% of the market volume, where we feel the greatest opportunity is. Luckily, rosacea and Twyneo are highly efficient in that they overlap in same target market. You mentioned CS -- contract sales organization, or CSO, which is our likely our entry point into the market in terms of establishing our sales force, and it will be part of our strategic deployment strategy. And this gives us a lot more flexibility and speed to market upon approval as well as minimizing our risk exposure. So we continue to watch COVID-19. Can't really predict how things will roll out next year, but we'll be prepared and ready to launch, basically, on our approval timing. The other thing I think it's done is it's put an acute focus on our capabilities in terms of virtual and remote selling. Recall, our initial feedback from the dermatology community, and while they haven't been seeing a lot of sales reps in person, they've been quite comfortable, actually, with a lot of the virtual activities that have been going on. And so we'd like to kind of build that from the ground up, whether COVID stays and, hopefully, it goes away. I think we can recognize that it's really a trend that was already building in the past and something that we want to have as a foundational element for our commercial activities as we move forward.

Okay. Where do you think the physician practices are right now in terms of patient volumes? I mean, we track the prescriptions across categories pretty religiously. And dermatology has actually made its way back, it seems, perhaps faster than some other categories. So curious what you're hearing in the field. Understanding, you're not going to launch for another close to a year or 8 months or so. But what are you hearing in the field about how that's been coming back?

Yes. Well, when we look at a lot of reports on a regular basis. And I think I agree with you, what we've seen of all the specialties, dermatology has been one of the areas that has been able to make a return to, not quite at pre-COVID levels, but closer to the pre-COVID levels. And I think part of the reason for that is telemedicines have -- has had to pick up a lot of the weight when it comes to this. And dermatology, to a large degree, is a visual diagnostic area. And so the adoption of telemedicine is easier in some ways for dermatologists than it would be, potentially, for other areas. I think one of the things you see is that newer brands or products that require any device or any more challenging prescribing requirements around it have been struggling a little bit more in this environment. Part of the feedback I've heard is that physicians may not be as comfortable prescribing those newer medications or devices or things because it's harder to do that in the telemedicine environment with patients. That's one of the things I think we'll benefit from and that these products are used. There's nothing particularly challenging about how to use our products. And so I think new-to-brand or new products in this category will have an advantage that they might not have in other more challenging areas. So we're hearing a lot, and we're listening a lot, and we're ensuring that we'll be able to adapt to that new environment as we move forward into next year.

Okay. That was a great overview. And what sort of pricing work have you been doing for both Epsolay and Twyneo? We know well of the challenges in the managed care environment and the hurdles that they've put in place and the step at its prior authorization. So that's going to be key. Regardless of what the physicians think about the products, you got to get in there and make these products available. So what are you hearing? Can you talk about a pricing range relative to other brands out there and the types of gross to nets that we should expect for the first few years into the launch?

Sure. I'll share some of what we've done. I think the -- first and foremost, the most important place we're coming from is one of the commitments that we have as a company is to make sure that patients who need these products will get these products. And so we start there and work our way back into what our pricing and access strategies are going to be. We've had a chance to do some pretty extensive market research over 2020 when we got the Epsolay data and when we got the Twyneo data with payers. And kind of cut to the chase, the conclusion is that the access environment, for sure, is very challenging today across the board in pharma, including in dermatology, and payers remain open. I think in the case of Epsolay, in the case of rosacea, there's certainly less options available. And part of the feedback we've received is that they see this, despite being an active ingredient that's been around for many years, as a new class of therapy for treatment, which gives us a real opportunity, and they really like the data that they see. In acne, it is a little bit more challenging. But our general feedback has been that they will be open to considering both of these products for formulary inclusion if we come in with a reasonable pricing and contracting strategy. They did see value in the products that we will be bringing to the market. And I think it really -- it starts there with the clinical data and then on what our pricing and contracting strategies will be. We believe that if we price it appropriately and we contract strategically, we can leverage a variety of programs to ensure that these products will be able to get to patients. And Gilad, I don't know if you might want to add anything a little bit on the gross to nets.

So in terms of gross to net, as you probably assume, we watch closely other products. And we assume that we initially have to start with 80% gross to net, which is going to be normalized over time when we get more coverage.

Okay. And normalized means getting into the 50% range...

60% range.

60% of gross to net discount off of the list price?

Yes.

Okay. Yes, it's amazing how much pressure there is. It keeps coming down. But remind us also about just your gross margins, I mean, the fact that you're manufacturing in-house, does that give you a little bit more flexibility? Because I'm assuming that the cost of goods is relatively low for you guys.

Yes. First, you're right. I mean gross margin is north of 90%. We're not manufacturing now. We are working with CMOs who have produced already for Phase III. And we have one for Epsolay, one for Twyneo, and we're also working on a third vendor. So we're going to face very high north gross margins.

Okay. Okay, let's shift over to your generic partnerships, which doesn't get a lot of airtime, but actually has a fair amount of value, and you continue to create more value with some of the products coming out of the pipeline. So I guess -- I mean, let's start with the fact that most of the drugs that you're partnered with on the generic side is with Perrigo. And Perrigo has been trying to sell its generic drug business for a while. So how is that relationship working with them? And you just added, I think, a few more products, right, into the portfolio. And if they sell their business, what happens? Do you get the products back? Or do they just go to the new owner? Is there any sort of risk associated with what Perrigo decides to do with that generic business?

So I don't think we can think of a better partner than Perrigo. These relations go way back also from the days even before when [indiscernible] was sold to Perrigo. So the teams know each other very well. And the evidence talks for itself. We have a growing number of joint projects. And so Perrigo keeps being interested in more projects -- more generic products with us. Now if Perrigo sells the business, then we expect that these partnerships are good partnership, and we expect it to continue with the new partner.

Okay. And then in terms of time line, generics of Rx has been a very nice contributor of revenue. Maybe for people not familiar, Gilad, in aggregate, you could mention how much revenue that's contributed to the company so far. I think that gets overlooked. You don't want to talk about the timing for generics launch, and I understand that. And then just other milestones that you've highlighted coming out of that pipeline?

Sure. The generic -- the generic version of Zovirax was extremely successful for us, $22.8 million in 2019, which is net revenues and net income. So 100% of the bottom line. In the first half of 2020, we had $4.5 million in revenues. We did face some slowdown in second quarter due to COVID-19, where we see a bounce back now in July. In terms of future developments, we announced that we're going to have a second generic launch in the second quarter of next year, of 2021. We also -- we'll build the name of another name, Bryhali, where Bausch -- prepared also by Bausch, and we are going to report more. I can tell you maybe ins the coming week about future developments in our generic collaborations.

Okay. That's great. And that leads into the cash question. So that's been a nice contributor. You had $66 million, I think, at the end of June. So how you're thinking about the cash runway? And how much flexibility you have because I'm going to emerge next to a loan on some of the other pipeline programs. And in terms of investment, how much you're willing to put towards the pipeline versus how much is just going to be -- basically giving it to John, so he could expound the commercial organization and launch of the 2 products successfully.

So as you said, we had $56.2 million as of end of June, and that is enough that takes us until mid-2021. And if everything goes well, that's going to be post the launch of Epsolay. We do have some savings, by the way, due to COVID-19. We have no travel, no conferences abroad, which we don't complain about. And in this -- when you ask about this framework, that also allows us to spend money on our pipeline. We have -- I don't refer to the patents we filed for formulas in tapinarof. And we do early-stage spend to check about the new pipeline. So we have some flexibility in our budget to allow that.

Okay. And we're running up on time. We're going only a few more minutes here. So Alon, maybe spend a couple more minutes. I mean, you've obviously done a great job, getting Epsolay through development, Twyneo through development. Now you're in the regulatory process. So what we should be looking for in terms of the earlier-stage pipeline now that you're gaining a little bit more credibility in terms of your capabilities? Just in terms of data points and catalysts over the next, I don't know, 1 to 2 years?

Yes. So we made 2 announcements. One is regarding our Phase I clinical trial for erlotinib in palmoplantar keratoderma. We were hoping to be able to report results early next year. But as we -- what we see now is that enrollment might be affected due to COVID-19, and we may consider time line for results too at the end of this year. We also announced that we are investigating tapinarof and roflumilast. We are still in exploration for a clinical stage regarding these 2 APIs. We will make additional announcements once we move to clinical stage or possibly earlier. As for now, we follow the -- I'm sure that like you, we saw the Phase III trial results of derma plants for tapinarof or their tapinarof cream. And we are even more convinced that the combination of tapinarof and roflumilast has put the potential to provide these patients with their efficacy than each of the single actives, and we are considering this opportunity. Again, we are talking about preclinical studies, and we will make announcement as soon as we have something more robust.

Okay. In the last minute, why don't we end with what types of partnerships are you considering, whether it's outside the U.S., maybe in the U.S. with someone that has a good dermatology presence or a primary care presence? And then it speaks to maybe a bigger strategic question. If -- now that you guys are probably maybe not as much on the map in the investment community, as you'd like to be, which is why we're doing this. But within the dermatology pharma community, if you're seeing interest where people are like, oh, these guys have a good technology, we want to be involved. So there's a couple of specific questions and then a broader question in terms of what type of interest there is.

So there is -- now that we have the Phase III results in hand, there is definitely an interest in our technology and in our 2 most advanced products -- product candidates, Epsolay and Twyneo. Of course, we cannot get into the details of such an interest, but there is an interest of the -- of those companies [indiscernible] dermatology and the presence in the dermatology market. We said and we continue saying that in parallel to us establishing our own marketing and sales force, and John is doing a great job in this regard, and we will be ready to launch the 2 products on time. We are also considering, and we continue to seriously consider other opportunities, including collaborating with companies that already have established presence on the market. So we -- the idea is to maximize the potential of Epsolay and Twyneo. So we are not committed to only 1 commercialization round. We are committed to commercialize the 2 products and to bring them -- to offer them to patients in the best possible way.

Excellent. So John, did you want to add something on the partnership side?

Well yes, just internationally, I think important to note, we won't be spending up operations internationally, but we are also pursuing other opportunities to globalize the value of these products as well.

Okay. All right. I think we're up on time, Thomas, Benny. So guys, it was great chatting with you. Solebury Trout, thank you for the opportunity, and look forward to chatting again sometime soon.

Thank you very much, Gary.

Take care, guys.

Bye-bye.

Okay. Bye-bye.