Sol-Gel: Slow And Steady Topical Technology

Sol-Gel Technologies Ltd. (SLGL) is a clinical-stage company developing topical drug products for the treatment of skin diseases. The Israel-based company has a proprietary technology platform that utilizes a microencapsulation process to develop topical formulations. Sol-Gel has a diverse pipeline of topical skin medications, with two in late stage. The company also is partnering on 10 50/50 gross profit sharing collaborations with Perrigo Company (NYSE:PRGO).

Pipeline

(Image source: company website)

The candidate on our radar today is Epsolay (benzoyl peroxide, 5%) indicated for the treatment of papulopustular rosacea. “Epsolay utilizes a patented technology process that is designed to slowly release benzoyl peroxide over time to the skin.” The company’s New Drug Application (“NDA”) for Epsolay has been accepted by the U.S. Food and Drug Administration (“FDA”) with a Prescription Drug User Fee Act (“PDUFA”) goal date of 4/26/2021. If approved, Epsolay will potentially be the first single-active benzoyl peroxide prescription drug to be approved by the FDA.

The next late stage candidate is Twyneo, an antibiotic-free cream for the treatment of acne vulgaris, with fixed-dose combination of benzoyl peroxide, 3%, and tretinoin, 0.1%. Each ingredient is encapsulated in a silica shell designed to release them slowly over time, utilizing Sol-Gel’s proprietary drug delivery technology, which overcomes the degradation of tretinoin when combined with benzoyl peroxide. The two ingredients are approved as single-agent products for the treatment of acne, but are frequently prescribed together. Twyneo will potentially be the first approved product combining the two ingredients. The company awaits the acceptance of the NDA submitted in early October.

Other candidates in the pipeline include:

• SGT-210 (erlotinib), an early-stage topical epidermal growth factor receptor (“EGFR”) inhibitor, which is being investigated for the treatment of palmoplantar keratoderma;

• SGT-310 (tapinorof), research stage formulation for the treatment of psoriasis and other dermatological indications;

• SGT-510 (roflumilast), research stage formulation for the treatment of psoriasis and other dermatological indications.

Papulopustular rosacea

The company notes in its PR dated 9/10/2020,

“Papulopustular rosacea is a chronic and recurrent inflammatory skin disorder that affects nearly 5 million Americans. The condition is common, especially in fair-skinned people of Celtic and northern European heritage. Onset is usually after age 30 and typically begins as flushing and subtle redness on the cheeks, nose, chin or forehead. If left untreated, rosacea can slowly worsen over time. As the condition progresses the redness becomes more persistent, blood vessels become visible and pimples often appear. Other symptoms may include burning, stinging, dry skin, plaques and skin thickening.”

Market and Competition

The global rosacea treatment market is estimated to reach $2.6 billion by 2025. Major share is expected to be of topical therapies that had over 60% market share in 2017. Major players include (in alphabetical order) AbbVie Inc., Aclaris Therapeutics, ALLERGAN, Bausch Health, Bayer AG, Colorescience Inc, Croda International Plc, Dr. Reddy's Laboratories Ltd., Foamix Pharmaceuticals Ltd., Lupin Pharmaceuticals Inc., Merck & Co., Mylan N.V., Nestle, Perrigo Company plc, PRUGEN, Sol-Gel Technologies Ltd., Supernus Pharmaceuticals Inc, and Unilever Inc., among others.

Sol-Gel will have to compete heavily with current standard-of-care treatments, whether branded, generic or over-the-counter, as well as with new treatments to be approved in the future.

Trial summary

The NDA filing for Epsolay in the treatment of inflammatory lesions of rosacea is based on -

“Two positive, identical Phase 3 randomized, double-blind, multicenter, 12-week, clinical trials that evaluated the safety and efficacy of Epsolay compared to vehicle in patients with papulopustular rosacea (N = 733). In both trials, Epsolay demonstrated a statistically significant improvement in both co-primary endpoints of (i) the number of patients achieving “Clear” or “Almost Clear” in the Investigator Global Assessment (IGA) scale and (II) absolute mean reduction from baseline in inflammatory lesion count starting as early as Week 2, and continued through Week 12. Epsolay also demonstrated a favorable safety and tolerability profile similar to vehicle. The most common adverse reactions occurring in >1% of subjects treated with Epsolay and more frequently than in subjects treated with vehicle was application site erythema (2.3% vs. 0.9%), application site pain (2.3% vs. 0.9%), and application site pruritis (1.2% vs. 0.4%). Most subjects experienced adverse reactions that were mild or moderate in severity.”

Intellectual property

From the company’s SEC filing form 20-F,

“As a result of the FDA having already approved silica as a safe excipient for topical drug products, we expect the review process for Twyneo® and Epsolay® to be conducted according to the FDA’s 505(B)(2) regulatory pathway, which may provide for a more efficient regulatory process by permitting us to rely, in part, upon the FDA’s previous findings of safety and efficacy of an approved product.”

For the Epsolay product candidate, the company has patents with terms until 2028 and up to 2032.

For the Twyneo product candidate, the company has patents with terms until 2028 and up to 2038.

Financials

Sol-Gel’s market capitalization is ~$196 million at a stock price of $8.56 (as of 11/11/2020). The stock price is in the lower half of the 52-week range between $5 and $21. The 23 million shares outstanding are held majorly by insiders with 61.55% shares followed by institutions with 29.81%, and the public with 8.64% shares. Wall Street analysts set a price target of $20.25 with an average very bullish rating of 4.5/5.

As of 9/30/2020, Sol-Gel had $27.4 million in cash, cash equivalents and deposits, and $29.9 million in marketable securities, a total balance of $57.3 million. The company expects the existing cash resources to fund operations into the third quarter of 2021. Sol-Gel has revenue from its generic products partnerships. Revenue in fiscal 2019 was $22.90 million, however the 2020 estimate is less than $9 million as generic competition has increased. 2021 estimate is ~$32 million as a new generic product is expected to be launched in mid 2021.

Risks

This is a micro cap stock and therefore it's inherently risky. Its cash position also is pretty weak, and the trading volume is terrible. Moreover, SLGL will face strong competition from generics, and will be entering a highly differentiated market. Investors should keep all these factors in mind before investing in this stock.

Bottom line

The company seems set to get the approval for Epsolay, however the candidate is pitted against heavy competition from generics, OTC and prescription products - present and future. The game changer for the company will be the lead candidate Twyneo combination therapy for which the submitted NDA is yet to be accepted. The current price levels offer a decent upside.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.