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

Good day, everyone, and thank you for joining the H.C. Wainwright 2021 Global Life Sciences Conference. My name is Boobalan Pachaiyappan. I'm H.C. Wainwright research associate. While we are virtual this year, we are confident of providing value to you through presentations and one-on-one meetings. H.C. Wainwright is a full-service investment bank dedicated to providing corporate finance, strategic advisory and related services to public and private companies across multiple sectors and regions. We have a total of 18 publishing senior analysts and 493 companies covered across all sectors. Please visit hcwco.com for more information. From a logistics standpoint, please make sure to reference your virtual conference online portal that provides your individual links to meetings and presentations. Panels and all presentations are live and on-demand online from March 9 to 10. With that said, have a productive and enjoyable day, and I'd like to introduce our next presenter. I would like to welcome Gilad Mamlok, Chief Executive Officer of Sol-Gel Technologies. Sol-Gel is focused on developing branded and generic topical drugs for the treatment of skin diseases using its proprietary microencapsulation technology platform. Gilad, the floor is yours.

Thank you very much, Boobalan, and thank you for the promotion, but I am the Chief Financial Officer. And thank you, H.C. Wainwright, for the hospitality. And hello, everybody, and thank you for coming to listen to my talk about Sol-Gel. Before I start, please pay attention to this cautionary note on the forward-looking statements. I would like to start with a brief introduction to our dermatology company. Sol-Gel has 2 pipelines of topical drugs: branded pipeline and generic pipeline. Our branded pipeline is based mainly on our propriety microencapsulation silica platform technology. Last September, our NDA for our branded drug candidate, Epsolay, for papulopustular rosacea was accepted for filing by the FDA. The PDUFA goal date was set for April 26 of this year, 2021. If approved, Epsolay has the potential to be the first single active benzoyl peroxide approved by FDA as a prescription drug product. Last November, our NDA for our branded drug candidate, Twyneo, for acne vulgaris was also accepted for filing by the FDA. The PDUFA goal date was set for August 1 of this 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. We are in discussions with potential partners regarding the commercialization of Epsolay and Twyneo in the United States to take place once our product candidates receive regulatory approval from the FDA. Last March, we updated that our Phase I proof-of-concept study for erlotinib gel was expanded for patients with any type of palmoplantar keratoderma. Results are expected in the third quarter of this year. We are testing erlotinib, tapinarof and roflumilast in animal models for various pharmaceutical indications. We are also testing in an animal model if the combination of tapinarof and roflumilast might be more effective in psoriasis than each active ingredient alone. Our generic pipeline benefits from our expertise in topical drugs. And as a result, we have 12 50-50 gross profit sharing collaborations with Perrigo. This collaboration generated for us $8.7 million in net revenues last year. I'd like now to focus in the next 2 slides and to talk about our proprietary microencapsulation and silica platform technology that aims to provide effective and more tolerable topical therapies to achieve local action. Benzoyl peroxide is an active ingredient used in both Epsolay and Twyneo. And here, what you can see is a cryo SEM picture and its corresponding EDS map of benzoyl peroxide crystals entrapped in our silica-based microcapsules. As you can see in these pictures, the microcapsule silica shells wraps around the benzoyl peroxide crystals, and therefore, it can serve as a barrier between the benzoyl peroxide crystals and the skin. Yet, as our microencapsulation is being conducted on site, we can modify the properties of the microcapsules to allow slow release of the benzoyl peroxide over time after it is applied on to the skin. Tretinoin is an active ingredient used together with BPO, with benzoyl peroxide in Twyneo. And here, you can see 2 same pictures of tretinoin encapsulated in our silica shell. On the left-hand side, you can see a slightly damaged silica shell. And if you take a closer look, you can see a tretinoin crystal entrapped inside. In the picture on the right, you can see these microcapsules have a core shell structure. While our silica shells are too small to be felt, the complete encapsulations allow us to stabilize tretinoin independent of BPO. The silica shells serve as a barrier between the tretinoin and the skin. And the release of tretinoin is tuned by modifying the properties of the silica-based shells to allow continuous flow of tretinoin over time after it is applied on to the skin. A pharmaceutical indication we are focused on is papulopustular rosacea. Papulopustular rosacea is a chronic inflammatory skin condition that most often affect the face. And as you can see in this photo, it resembles acne vulgaris except that comedones, both blackheads and whiteheads, are absent and you see only inflammatory lesions. Regretfully, all current treatments are insufficient efficacy, resulting in a poor patient's adherence. Benzoyl peroxide is known as an effective antibacterial drug that is not associated with bacteria resistance. It is widely used in the treatment of acne patients, but not for rosacea patients. And the reason is that rosacea patients cannot tolerate benzoyl peroxide. Their skin is too sensitive for such a strong oxidizing drug. We, therefore, believe that if we can manage using our encapsulation technology to reduce the efficacy of benzoyl peroxide, then it will be highly effective in the treatment of papulopustular rosacea patients. And we decided to develop Epsolay, a cream containing encapsulated benzoyl peroxide 5%. Our 2 parallel Phase III clinical studies for Epsolay were multicenter, double-blinded, randomized vehicle control on patients with moderate to severe papulopustular rosacea. Patients were randomized 2:1 to receive either Epsolay or vehicle, applied once daily over 12 weeks treatment period. And here you can see the results. At the end of the pivotal studies, 43.5% and 50.1% of the patients treated within Epsolay, which clear or almost clear compared to 16.1% and 25.9% of the patients who applied the vehicle. These were highly statistically significant differences. In addition, at the end of the study, patients treated with Epsolay had the main reduction from basin 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 with vehicle. Again, these were highly statistically significant results. We are very excited about the efficacy results shown on this slide. What you see here is that the data demonstrates what we believe can be a true differentiating factor for Epsolay, namely, how quickly it gets patients to the stage of clear or almost clear. What you see here is that Epsolay demonstrated statistically significant higher success in IgA compared with a vehicle like every visit and as early as of week 2. And also, you can see that 25% of the patients treated with Epsolay already reached clear, almost clear -- or almost clear as early as of week 4. The same applies for mean reductions from baseline inflammatory lesion count. Epsolay demonstrated statically significant high 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 had moderate rosacea at baseline. You can see improvement as -- at every visit already starting as of week 2. And at the end of the study, as you can see in the right-hand photo, you can see that the patient's face was almost clear of rosacea. Here, you can see another exciting finding. At the end of a 52-week long-term safety study, 73.2% of the subject treated with Epsolay reached IgA of clear or almost clear. Only 4.8% had moderate rosacea and none had severe rosacea. So not only does Epsolay work fast, but improvement continued beyond the 12-week treatment of the pivotal trials. Another pharmaceutical indication we are focused on is acne vulgaris. Acne is a multifactorial disease, often treated by benzoyl peroxide or tretinoin. While benzoyl peroxide slowed the proliferation of acne's bacteria, tretinoin opens up closed pores. Even though benzoyl peroxide and tretinoin have a complementary mechanism of action, as of today, no such combination has been approved by the FDA. And the reason is that benzoyl peroxide decomposes tretinoin rapidly. So patients cannot use both drugs concomitantly. So we decided to develop Twyneo, which is a cream containing a fixed-dose combination of encapsulated benzoyl peroxide 3% and encapsulated tretinoin 0.1%. Initial encapsulation has 2 roles: one, to prevent decomposition of tretinoin with BPO; and second, to reduce irritancy of both active substances. Following a very successful Phase II study, in which we addressed the combination of all that, namely we showed that both encapsulated BPO and encapsulated tretinoin contribute to the efficacy of Twyneo. We initiated 2 multicenter, parallel, double-blinded, randomized vehicle-controlled Phase II trials on patients with moderate to severe acne vulgaris. Patients were randomized 2:1 to receive either Twyneo or the vehicle, applied once daily over a 12-week treatment period. At the end of the vehicle 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 who applied the vehicle. These were, of course, statistically significant differences. Strategically significant differences were also achieved for both reductions in inflammatory and noninflammatory lesions. This is a great example of how well Twyneo works. This patient had severe acne baseline and according to Dr. Hilary Baldwin was eligible for Accutane. Significant improvement is noticed after 12 weeks of treatment with Twyneo. And according to Dr. Hilary Baldwin, this patient is no longer eligible for Accutane.. Our encapsulated system and branded drug product candidates are extensively patent-protected by allowed patents until 2040 for Epsolay and by branded patents until 2038 for Twyneo. We also commissioned 2 market researches 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 that if Epsolay is priced and rebated similarly to the covered product, coverage seems likely. There was also recognition that Twyneo will be qualified for formulary addition, and that applies to determine its position. And if you can see in one of the statements in this slide, if you buy it like Epiduo, it will be managed like Epiduo. Our current operational model assumes that we will partner with the dermatology company that has a strong market presence. This should allow us to quickly capture market share without the need to invest in building our own marketing and sales force. We are exploring a few opportunities, and we will announce if these discussions mature. Another alternative is to grow alone. Based on the market research that we have done, no more than 45 to 62 sales representatives 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 prescriptions by dermatologists in acne and rosacea. Our generic pipeline benefits from our expertise in topical drug. And as a result, we have 12 50-50 gross profit sharing collaboration with Perrigo. In March 2017, Perrigo filed a Paragraph IV certification for Soolantra. In February 2019, Perrigo launched acyclovir cream, 5%, developed in collaboration with Sol-Gel. And this generated us revenues of $22.8 million in 2019 and $8.7 million in 2020. In January 2020, Perrigo filed a Paragraph IV certification for Bryhali. And in June 2020, Perrigo was first to file a Paragraph IV certification for the Duobrii. All in all, we consider our generic pipeline as a source of nondilutive income to fund the development of our innovative branded drug product candidates. In terms of our financials at the end of 2020, we had $50.2 million in cash and investments. Assuming collaborations with third parties with sales and marketing experience, the cash we have is expected to be sufficient to fund us into the third quarter of 2022. Last March, we updated that our Phase I proof-of-concept study for erlotinib gel was expanded for patients with any type of palmoplantar keratoderma. If successful, this will pave the way for using erlotinib topical drug products for other rare and common skin conditions. Results are expected in the third quarter of this year. We also announced that based on extensive partner analysis and 25 provisional patent applications that we have submitted, we intend to investigate erlotinib, tapinarof and roflumilast for various pharmaceutical indications. And also that we are testing in an animal model is the combination of tapinarof and roflumilast might be more effective in psoriasis than each active ingredient itself. Since the IPO and as of today, we have achieved all our milestones on time. NDA for Epsolay was accepted by the FDA, and the PDUFA goal date is set for April 26 this year. NDA for Twyneo was also accepted by the FDA, and the PDUFA goal date is set for August 1 this year. I would like to thank you all for your attention.

I want to thank all our presenters for taking part in what has been a very productive and informative series of presentations. We appreciate the time and effort that went into preparing them. Hopefully, our next conference will be one that we can hold in person rather than virtually. But in the meantime, we are very grateful for your flexibility and your presence online this year. Thank you again from the H.C. Wainwright team. Thank you, Gilad.

Thank you very much, Boobalan. And H.C. Wainwright, thank you.