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

Greetings. Welcome to the Sol-Gel Technologies Asset Acquisition Call. [Operator Instructions] Please note, this conference is being recorded. I'll now turn the conference over to your host, CEO, Alon Seri-Levy. You may begin. And Alon Seri-Levy, you may begin. Alon, is your phone on mute?

Thank you. Hello, everybody, and welcome to today's investor update call. Today, we announced the recent acquisition by Sol-Gel of a Phase III-ready new chemical entity orphan drug candidate, Patidegib gel 2%, for the prevention of new basal cell carcinomas or BCC in Gorlin Syndrome patients. We acquired this novel candidate from the California company PellePharm for $4.7 million upfront payment, up to $70 million in regulatory and commercial milestones and the single-digit sales royalties. Together with me are our Executive Board Chairman, Mori Arkin; and our Chief Financial Officer, Gilad Mamlok. We are all very excited to share details with you about this acquisition, which we believe will drive significant value for all our stakeholders and more than anyone else for Gorlin Syndrome patients. I would like to invite Mori to give you his perspective on this recent acquisition. Mori?

Thank you, Alon. I'm very pleased to be part of this great enterprise and this great project of acquiring the Patidegib assets. We are -- instead of developing simple products, dermatological products in a very crowded market, we decided to push for more unique products, for more lucrative products that cater to rare disease and to real problems that are unmet medical need as of now. And this would be also our strategy for the future to develop only sophisticated products that provide new hope for patients in unmet medical need. I'm very happy to provide my own capital to this project and to continue the support of the company all the way until it's -- until the success of this project and some others that I'm sure will follow. I'm sure that this new strategy we are now applying will be in the best interest of all our stakeholders, shareholders, management and most importantly, the patient community that are suffering from this debilitating disease. Thank you.

Is this all the prepared remarks?

Alon, are you on mute?

I'm on. And just to make a remark that before we begin, we wanted to remind all listeners that this presentation may contain certain forward-looking statements concerning the financial condition, results of operations and other business of Sol-Gel Technologies. All statements are other than statements of historical fact are -- or may be deemed to be forward-looking statements. Before you make any investment decisions about Sol-Gel, please read the company's full safe harbor statements about forward-looking statements, which can be found in our filing with the SEC online, www.sec.gov or via company website, www.sol-gel.com. And let's now focus on the Gorlin Syndrome patient. Let me begin by referring you, and Gilad, you could please switch to the right slide, Gorlin Syndrome patients. Let me begin by referring you all to these 2 photos of Gorlin Syndrome patients who suffer from this disease. I can assure you that there are many patients with far more complex situation than the patients shown here. But I believe they clearly demonstrate the need for prevention of new BCCs. Gorlin Syndrome is also called Nevoid Basal Cell Carcinoma Syndrome because most patients with this syndrome will develop a few to many thousands of BCC lesions. The current standard of care is most surgery for the removal of BCCs. However, this is a painful solution. And repeated surgical procedures lead to disfiguration and later become impossible. Therefore, preventing the development of new BCCs is critical for people with Gorlin Syndrome.Next slide, please. It is estimated there are approximately 17,000 adult Gorlin Syndrome patients worldwide. If we see market penetration for a product preventing new BCC at 44% to 55% and patient adherence of around 65%, the annual net revenue opportunity is over $300 million. We believe that these estimates are attainable and realistic, given how vital presentation of new BCCs is for these patients. The lack of other approved therapeutic treatment options, the convenience of topical administration and we expect several tolerability of our new drug candidate. Next slide, please.

It's on. Slide 6.

The Patidegib formulation, which we had acquired was originally licensed by PellePharm to LEO Pharma. In November 2018, LEO valued this asset at $760 million plus double-digit royalties. In 2021, BridgeBio announced that PellePharm pivotal trial did not succeed, and LEO returned the asset. Next slide, please. Patidegib is a Hedgehog inhibitor, and the mechanism of action of Hedgehog inhibitors is well established. These drugs work by antagonizing a transmembrane protein called Smoothened, which under ordinary condition is antagonized by another transmembrane protein called Patched Homolog 1, which is encoded by the tumor suppressor gene PTCH1. Gorlin Syndrome is mainly caused by inheritance of one defective copy of PTCH1. When the PTCH1 gene is mutated, the smoothened protein is released excessively, and BCC tumor cells divide uncontrollably. Currently, our Hedgehog inhibitors are approved to treat certain patients with BCC, but Hedgehog inhibitors have never been approved for the prevention of new BCCs. In addition, these oral therapies often cause other reactions such as muscle spasms, Taste disorder, Hair loss as well as other adverse reactions, which result in patient noncompliance. Next slide, please. Patidegib was found to penetrate well into the skin but not into the plasma. It was, therefore, decided to formulate it as a topical gel with the objective of producing local efficacy, specifically preventing new BCCs while avoiding systemic adverse events associated with oral Hedgehog inhibitors. It has been granted orphan drug designation in both the U.S. and the EU. Namely if approved, it will have 7 years of exclusivity in the U.S. and 10 years of exclusivity in the EU. It also has FDA breakthrough therapy designation, which provides for faster review and additional FDA guidance through the development process. We have designated the Patidegib topical formulation as investigational compound SGT-610. Next slide, please. PellePharm failed in Phase III for Patidegib 2% despite achieving, as you can see here, a difference of 30% in prevention of new BCCs between the treated and the vehicle arms. When we built into the design of PellePharm's Phase III study, we learned that the study had included symptomatic patients without testing them for positive PTCH1 mutation even though we know the Patidegib like other Hedgehog inhibitor works only when PTCH1 is mutated. In addition, the inclusion criteria for the study specified that patient must have at least 2 BCCs at baseline, which is clearly not enough BCC burden to demonstrate efficacy, particularly as the primary endpoint was prevention of new BCC. We plan to conduct a new Phase III study and to only include Gorlin patients with PTCH1 mutations and with a greater number of BCC lesions at baseline. We believe that with this type of inclusion criteria, we would be able to detect statistically significant prevention effect. Next slide. Our plan is supported by post-hoc analysis in which we identified those participants that had PTCH1 mutations and more than 10 BCCs at baseline. In this group, we saw 48% fewer new BCCs in the treatment arm and a statistically significant difference from vehicle-treated patients. Next slide, please. The actual correspondence we reviewed as part of our due diligence process indicated that the agency advised PellePharm to explore the impact of baseline disease characteristics on outcomes in future design study -- in future study design, which is exactly our plan. Next slide. Based on our post-hoc analysis, if we narrow the patient screening criteria to those with a PTCH1 mutation and a higher BCC burden at baseline, we expect that we also see early onset of action. Next one, please. In terms of Phase III study, the Patidegib arm was found to have similar tolerability to the vehicle. So we are optimistic that this drug candidate if approved will have no compliance issues associated with systemic adverse events or skin intolerability. Next one, please. The FDA and EMA have both agreed to a single Phase III trial. And we plan for 100 to 150 subjects for a study powered at 90%. Our goal is to initiate the study in the second half of this year and finish the study with last patient last visit by the end of 2025. And now let me hand over to Gilad.

Hi, everyone. With regards to the payment to PellePharm, we are going to pay PellePharm $4.7 million upfront. We'll also pay them after $6 million in total development and regulatory milestones and up to $64 million in commercial milestones and single-digit royalties for new sales. We are very happy that we have managed to quickly finance the production via private placement of public equity investments from our controlling shareholder, Mori Arkin as well as a regulatory direct investment from a new investor Armistice Capital. In total, we have raised $22.8 million. And we expect that with this additional capital, we can now finance our activities till mid-2025. In [indiscernible], we will seek to out-license international rights with TWYNEO and EPSOLAY as well as monetizing rights to SGT-310 and SGT-510, which could extend our cash runway even further.

Thank you, Gilad. Next slide, please.

It's on. Slide 15.

We are entirely focused on advancing SGT-610 as well as SGT-210 for the treatment of pachyonychia congenita and other rare skin care [Atodermas] as they both represent what Mori already mentioned, underserved market opportunities in which pricing and gross to net are attractive. In parallel, we are suspending development of SGT-310 and SGT-510 in Psoriasis, a market that has become crowded and competitive. As for SGT-210, Phase I study is ongoing and is expected to be completed during this quarter. And as for EPSOLAY and TWYNEO, they have made significant market penetration since their launch in June and April last year. And more than 10,000 units of TWYNEO and more than 3,000 units of EPSOLAY were sold in the U.S. last month. To remind you, we have the option to regain the commercialization rights for EPSOLAY and TWYNEO in 2027 without any financial or other considerations. Next slide, Please ,Let me now wrap up our call. We spent a significant amount of time identifying the perfect next asset for Sol-Gel. SGT-610, if approved, is expected to be the first therapy for preventing new BCC lesions in Gorlin Syndrome patients. And it will have 7 years of exclusivity in the U.S. and 10 years of exclusivity in the EU. We estimate that these assets represent an annual net revenue opportunity with the potential to exceed $300 million. And we expect to initiate Phase III study for SGT-610 this year with results by the end of 2025. SGT-210 in pachyonychia congenita, another underserved disease, is about to complete Phase I. EPSOLAY and TWYNEO have made significant market penetration, and we have the option to regain the commercialization rights in 2027 without any considerations. The transaction with PellePharm was supported by our controlling shareholder, Mori Arkin and by Armistice Capital. So we are well positioned to run our programs and have cash runway through mid-2025. Thank you so much for joining us on today's conference call. We look forward to keeping you updated on the progress of SGT-610 as well as our other programs. We will now take questions.

[Operator Instructions] Our first question comes from the line of Elliot Wilbur with Raymond James.