Quoin Pharmaceuticals, Ltd. (QNRX) Q2 2022 Earnings Report, Transcript and Summary

Good morning and welcome to the Quoin Pharmaceuticals Limited Second Quarter Financial Results and Business Update Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Gordon Dunn. Please go ahead.

Thank you and good morning. We appreciate you joining us on today's conference call. With me on the call today are Dr. Michael Myers, CEO; and Denise Carter, COO. We're pleased to provide an update on Quoin’s operational progress and to discuss our Q2 2022 financial results and recent capital raise. Please note that a press release regarding our operational update and financial results is now available on our website. Today's call will begin with Michael and Denise providing a corporate, clinical and operational update, following which I will review our Q2 2022 financial results. To close, I will hand the call back to Michael for further comments. And after those, we will be pleased to answer any questions. Before we begin, I'd like to remind everyone that statements made during this conference call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which will involve -- which involves risks and uncertainties that can cause actual results to differ materially from the information expressed or implied by these forward-looking statements. For more information regarding such risks and uncertainties, please see the risk factors outlined in the company's filings with the SEC. Any forward-looking statements are made only as of today, and we disclaim any obligation to update these forward-looking statements, other than as required by law. Please see the forward-looking statements section in our release issued this morning for more information. It's now my pleasure to turn the call over to our CEO, Michael Myers.

Thank you, Gordon, and good morning everyone. I am pleased that you're joining us on this call today. As this is our first call since going public at the end of October of last year, we will provide an operational update on our progress since then. I'm very proud to say that we have made tremendous progress on multiple fronts since going public. I would now like to take a few moments to highlight some of our key achievements and then Denise and I will provide a more detailed overview. First, I'm very pleased to say that our lead asset QRX003 for Netherton Syndrome is now in clinical testing under an open IND. This is a major step forward for Quoin as we strive to develop an effective treatment for this devastating disease. We have also made considerable progress in Europe, earlier this year we submitted a comprehensive briefing document to the European Medicines Agency or EMA and received very constructive scientific advice from the agency, which will allow us to coordinate the simultaneous development of QRX003 as a single program for both US and EU, which are territories where we intend to start commercialize our products. Outside of those core US and EU territories since going public last year we have now established a global network of eight commercialization partnerships that span 60 different countries. In addition to expand our pipeline of innovative products we have in-licensed two additional rare disease assets. And earlier this month, we successfully closed a heavily oversubscribed and twice upsize capital raise, which will provide sufficient runway for us into 2024 beyond several key inflection points for the company. Turning now to the clinical update. As a reminder, Netherton Syndrome or NS is a devastating rare and sometimes fatal genetic disease that currently has no approved treatment or cure. It is estimated to affect between 2,000, 4,000 people here in the United States and a similar number in Europe. NS is caused by mutation of the SPINK5 gene. This gene cause for the production of a specific protein called LEKTI or LEKTI, which in turn regulates the activity of serine proteases in the skin, which are called Kallikreins that are responsible for skin shedding. As a result of the mutation of the SPINK5 gene for people with NS, there is no LEKTI protein produced, which results in hyperactivity of the Kallikreins that causes excess skin shedding and leads to the highly porous and ineffective skin barrier that NS patients have. This in turn renders NS patients highly susceptible to severe allergies, severe infections, skin cancer, pruritis and many other problems. When QRX003 is applied to the skin, the active ingredient, which is a broad spectrum serine protease inhibitor is anticipated to penetrate into the skin and subsequently perform the function of the missing LEKTI protein by down regulating the hyperactivity of the skin Kallikreins, leading to the formation of a more normally functioning skin barrier. In addition, the delivery technology in QRX003 provides an effective barrier protection over the skin, whilst simultaneously moisturizing it, a feature which we believe is unique to this particular delivery system. The ongoing clinical trial itself is a randomized double-blinded placebo controlled study which will assess two different doses of QRX003 topical lotion versus a placebo lotion in Netherton patients. The test materials will be applied once daily over a 12 week period, to pre-designated areas of the patient's body. A number of different endpoints will be assessed in this study, including an Investigators Global Assessment or IGA, a Patient Global Assessment and Pruritis among others. The FDA has indicated to us that a total of approximately 20 Netherton patients tested with QRX003 at the commercial dose may be sufficient for approval. The FDA has also informed us that QRX003 potentially qualifies for one or more expedited approval pathways. And furthermore, QRX003potentially qualifies for rare pediatric drug designations and regulatory approval could result in the company receiving a freely tradable priority reviewed voucher with an estimated non-dilutive cash value to Quoin of approximately $100 million or so upon its sale. As I mentioned earlier, we have made significant progress regarding the development of QRX003 for NS in Europe. On July 28, we announced that the receipt of a highly -- of a highly constructive and comprehensive scientific advice from the EMA in response to a briefing submission we had filed earlier this year. This advice now enables us to coordinate the development of QRX003 into a single program that could potentially lead to approval in both the US and EU at approximately the same time. While traditionally small biotechs tend to focus on the US market only initially, we believe this forward-looking strategy of equally prioritizing both the US and EU development will ultimately lead to a more efficient and streamlined rollout of QRX003 once it is approved. Denise will provide more color on our commercialization strategy later in the call. As a result of the rapid progress that has been made with the development of QRX003, Quoin is now positioned to potentially deliver the first approved treatment for Netherton Syndrome. On a personal note, I want to say how moved we have been by the level of outreach we have received from the Netherton community and the overall global interest there is in this product. I recently received an e-mail from father in India, whose newborn has been diagnosed with NS and must be kept in a humidity chamber to prevent her from dying of dehydration. The same family had tragically lost another to NS just a couple of years ago. Another father, this time from England contacted me about his son who has NS and he is so sick that he has to be fed by a tube in his stomach. A parent from Germany told me of the amount of pain his own daughter is in as a result of her NS, and just last week here in the US I spoke with a mother of a boy who has NS [indiscernible] their struggles as they try to live with this devastating disease. We also frequently received inquiries from physicians who are treating NS patients and looking to see if those patients could be enrolled in our ongoing clinical study, because they are so desperately in need of a treatment. The advocacy groups and foundations have told us that they are carefully monitoring our progress with the product, so they can share updates with their communities. And lastly patients themselves have reached out to us to see if they could enroll in the study, irrespective of how far and how often they would have to travel to participate. In my 35 years of developing pharmaceutical products, I can honestly tell you I have never experience such eagerness, anticipation and emotional involvement for a treatment. And each and every one of those individual contacts touch us personally and serve to reinforce our commitment to developing this product as efficiently as possible, so that we may be in a position, if approved, to offer a potentially effective treatment option to a vastly underserved community of patients who currently have none available to them. In addition to NS, we also plan to evaluate QRX003 in the number of ichthyosis related disorders including peeling skin syndrome, Peeling Skin Syndrome, Palmoplantar Keratoderma and SAM Syndrome. We are targeting generating some initial clinical data for these additional indications within the next 12 to 18 months. Note, that there are currently no approved treatments or cures for each of these indications. And there is very limited or normal ongoing clinical development by other companies rendering them very attractive opportunities for Quoin to pursue. In keeping with our goal of expanding our product pipeline, we also announced the in-licensing of two additional rare disease assets from Queensland University of Technology or QUT in Australia. One is a biologic for the treatment of Netherton Syndrome and the other is a treatment for scleroderma. Both products are preclinical with active research programs currently ongoing and the potential to move into clinical testing as early as next year. For both assets, Quoin paid no upfront fees, nor any ongoing clinical, regulatory, nor any sales-related milestones. In both cases, Quoin will pay QUT a mid-single digit royalty on all sales once the products have been approved. Furthermore, all of the initial research and clinical testing will be performed in Australia, allowing Quoin to take advantage of significant financial incentives afforded by conducting these activities there, including a rebate of 43.5% of all research expenditure. We are frequently asked a question as to why we are developing a second treatment for Netherton Syndrome and if it's somehow reflects a lack of conviction about the efficacy of our lead product QRX003. Nothing could be further from the truth, we believe this second Netherton asset, which is at a far earlier stage of development than QRX003 could potentially be used in combination with [QRX003], thereby providing an even greater treatment option for patients. We are also very excited by the potential of the second asset, which we recently in-licensed from QUT. This product is being development -- is being developed as a potential treatment for scleroderma, a rare and sometimes fatal autoimmune disease. Scleroderma is caused by the over-production of collagen, leading to a hardening of the skin and connective tissue. We're very impressed by the strength of the underlying science behind this product. Proof of concept has already been established in a robust mouse model and studies are currently underway to select a candidate for initial clinical testing, which has mentioned earlier could begin as early as next year. While these are earlier stage programs, we believe their in-licensing underscores this management team's commitment to Quoin becoming a premier global rare disease company. We will continue to look for additional opportunities to expand our pipeline, both in rare skin and other indications. Denise, will now provide an update on our planned commercialization strategy for our products. Denise?

Thank you, Michael. Living with a rare disease is extremely isolating and stressful for patients and their families, and we are 100% committed to doing everything we can to try to make our products available to every patients, everywhere who need them. Since going public last year, we've been actively laying the groundwork for our commercial plans for QRX003 and our other pipeline products. We intend to establish a sales and marketing infrastructure and self-commercializing in the US and Europe. We believe that a compact sales force of approximately 30 to 40 people, heavily weighted with a strong medical affairs team rather than traditional boots on the ground sales force will be more than capable of effectively covering both of those markets. In addition to the patient population being quite small, as Michael mentioned, there are approximately 2,000 to 4,000 patients in the US and about the same in Europe. The number of treating physicians is also very low. There are fewer than 300 Board certified pediatric dermatologists in the US and they tend to be clustered around the fellowship programs. In Europe, Netherton patients are exceeding the treating centers, there are 26 across Europe, and we know exactly where they're located. So we know where to place our reps to be most effective. But also important of the foundations and the advocacy groups for Netherton Syndrome, which are incredibly strong and active in the patient community. Through then, we have access to a patient registry which is helpful not only for the recruitment of the clinical trial, but also for getting product messaging out to patients once we have approval. These groups hold regular conferences and have very active social media networks to keep patients connected and up to date about current therapies and development. For all those reasons, we think the size of our sales team will stay very compact. Outside of the US and Europe, we've been actively establishing a network of partnerships to ensure that we have global reach for QRX003 and our subsequent products. We've already announced eight partnerships, which cover 60 countries including Greater China, the Middle East, Canada, Australia, New Zealand, Latin America as well as Central and Eastern Europe and Turkey. We made the strategic decision to partner early in these territories and there are several reasons for that. First of all, the specialized treating physicians in the well-established patient advocacy groups are critical to finding and serving the patient groups and communities. It's important to start to build relationships with those stakeholders now on a global basis, so that once the products are approved our partners can efficiently and effectively get them to patients who need them. In addition to building these critical relationships early, it's also important to remember that while we anticipate approval in the US and Europe in 2024, the data from our ongoing clinical study may provide us an opportunity to access a number of these other regions earlier. Some territories may accept the initial dataset is sufficient for filing and approval in their local market, given the small patient population and the distinct lack of alternative approved treatment. Other territories may accept the data from the ongoing study to support early access programs, which are often extremely robust and well supported financially in many local markets where we have already established commercial partnerships. This is another reason why we feel that partnering and establishing our global network now is so important. And keep in mind, once this infrastructure is established we can leverage it for our other pipeline products as we gain future approvals. The treating physicians for our other pipeline products are the same and many of the advocacy groups also crossover in the rare derm space. We had already established a strong partnership with these stakeholders to the list for additional products should not be disclosed. With that update on our commercialization plan, I'll now hand the call over to Gordon for the financial update.

Thank you, Denise. As of June 30, we reported approximately $2.7 million in cash and we reported a net loss of approximately $2.7 million in the quarter. Turning to our recent offering, on August 9, we successfully completed a public offering of American Depositary Shares or ADSs and pre-funded warrants to purchase ADS's with each ADS and pre-funded warrants accompanied by a common warrant. The pre-funded warrants were exercised on the offering closing date, and as a result, we issued $3.36 million ADSs at a purchase price of $5 per ADS, for aggregate gross proceeds of $16.8 million. The common warrants have a five year term and an exercise price of $5 per ADS. The offering which was twice upsized and heavily oversubscribed resulted in net proceeds of approximately $15 million after deducting the placement fees and estimated offering expenses payable by us, excluding the proceeds, if any, from the subsequent exercise of the common warrants. As Michael mentioned, this provides us a cash runway to sufficiently fund our operations into 2024, which is beyond several important inflection points to the company. I'll now turn the call back to Michael for some closing remarks and to begin our Q&A.

Thank you, Gordon. In closing, it's been an extremely busy and exciting initial nine months as a publicly traded company for Quoin, and I'm very proud of what my colleagues have accomplished in such a brief time. As mentioned, the highlights of the year include initiating our Netherton Syndrome clinical trial under an open IND, the establishment of a global network of marketing and distribution agreements spanning 60 countries, the in-licensing of two additional rare disease assets to complement our current pipeline, and finally, as Gordon just mentioned, secure sufficient funding for us to take the company into 2024, which is beyond several key inflection points. Operator, we are now ready for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Naz Rahman from Maxim Group. Please go ahead.

Hi guys, thanks for taking my question and congrats on all the progress. So I have a couple of questions. I just wanted to start on the European development plan. Based on your feedback, are you able to just use the data generated in the United States for the FDA for European submission or would you have to conduct an additional study in Europe?

Hi, Naz. How are you doing? Thanks for joining, and thanks for the question. We will be able to use the data from the current clinical trial and future clinical trials in the US to secure approval in Europe as well. So there is no additional clinical testing required. There is some preclinical differences, which is pretty minor, but overall, it's going to be the same program that will allow us to achieve approval, both here in the US and in Europe, and actually beyond Europe as well. So Canada, Australia and a number of other countries, the current program will suffice for those as well.

Thank you. So my next couple of questions are just on the trial design on the endpoint. So for the primary endpoint you're using a composite [indiscernible] you just had to show statistically significant difference on the composite endpoint and you don't have to show a static different on each of the sub-domains? Or do you have to, like, show stats difference in very specific sub domains for an approval?

So actually for the trial design, Naz, we have five points. And at this point, we don't have to designate any of them as a primary endpoint. So really because this is we believe the very first clinical trial for Netherton patients under an open IND, there is a lot of scope here and a lot of exploratory science that's been undertaken. So for us, really whichever of the endpoints that we're pursuing provides the best clinical outcome that really by default almost becomes the primary endpoint. So good news here is that, we have a lot of opportunity to develop this product based on endpoints that are being developed right now.

Got it. So my final question has just to do with one of the endpoints. You have a like a global assessment endpoint, I think, you have a couple on there, is this similar to like [ACNE] (ph) trials where you need to show like two or more point improvement and complete clearance for it to be success or is that defined different? Could you just kind of give me more color on that?

Yeah. So, yes, it is similar to the end -- an IGA for ACNE or other skin trials. But we don't have to get to a two grade improvement from baseline in order for the results to be deemed clinically significant. So a single grade improvement, we believe would be sufficient for the FDA to deem the results to be clinically meaningful.

And just on that point, in single grade improvements finding, you don't have to show complete clearance rate or like complete resolution [indiscernible].

That's correct, that's correct.

Okay. Got it. Thank you. Thanks for taking my questions.

Thanks, Naz.

[Operator Instructions] Our next question comes from James Molloy from Alliance Global Partners. Please go ahead.

Hi. Good morning. Thank you for taking my questions. I was wondering if you could walk a little bit through the difference between 003 and 007? I know it's early yet [indiscernible] still way to go. But what do you expect down the road should 003 work and get approved and 007 sort of be a next generation, could you walk through sort of the key differences between the two?

Yeah. Hi, James. Thanks for the question. Well, first of all, major difference between them is the active ingredient in 03 is a smaller molecule, the active ingredient in 07 is a biologic. So it's a large molecule. The mechanism of action for 03 targeting the skin kallikreins is pretty well defined. The mechanism of action for 07 at this stage is a little less defined. And so we believe that ultimately the two products could be used in combination provide for a more effective treatment. So look 07 is many years away from commercialization. There is a lot of clinical work to be done. Yes, but the early stage data shows that it has potential to be an effective treatment for NS and one that we believe in conjunction with 03 could even provide more benefit to patients down the road.

Understood. Thank you. And could you maybe talk a little bit about the voucher, the priority review voucher. Certainly a huge asset, should you receive one most recently [indiscernible] $112 million. Can you walk through a little bit about how that process unfolds and are party's lining up now with seeing the potential for this to come down the road or does that not really start until you actually receive the thing?

Yeah. So look, we will file for pediatric rare disease designation later this year or early next year. And once we get that designation from the FDA. As you know, then when the product is approved, we'll get that priority review voucher. So we're not really having conversations with anybody at this stage. And to be honest, I don't expect that we will have any conversations until the product is approved. Companies tend to wait until they know that the voucher has been secured before they enter into discussions. So there's plenty of time for that. We're looking forward to having those discussions once we receive the voucher. And then hopefully that price will stay as high as it is currently.

Thank you for taking the questions.

Thanks, Jim.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Michael Myers for any closing remarks.

Thank you everybody for participating in today's call. If you have any further questions, please feel free to reach out to any of us at any point in time. So good morning and thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.