Quoin Pharmaceuticals, Ltd. (QNRX) Q4 2022 Earnings Report, Transcript and Summary

Good day and welcome to the Quoin Pharmaceuticals Limited Fourth Quarter Financial Results and Business Update Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Gordon Dunn, Chief Financial Officer. Please go ahead.

Thank you, and good morning. We appreciate you joining us on today's conference call. With me on the call are Dr. Michael Myers, CEO; and Denise Carter, COO. We're pleased to provide an update on our progress throughout the fourth quarter of 2022 and for the year as a whole and discussing Quoin Pharmaceuticals financial results. Please note that our operational and financial results press release is now available on Quoin's website. To begin, Michael will provide a corporate, clinical and operational update, following which, I will review our Q4 and full year 2022 financial results. I will then hand the call back to Michael for closing comments. We will also be pleased to answer any questions at the end of the call. 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 involve 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 financial results press release issued this morning for more information. It is now my pleasure to turn the call over to our CEO, Michael Myers.

Thank you, Gordon, and good morning, everyone. 2022, which was Quoin's first full year as a publicly traded company, was a truly transformational one for us as we successfully delivered across all of our key operational targets. Before I begin a review of the operational highlights for 2022, I want to take a moment and briefly comment on the public offering that Quoin completed last month which brought in net proceeds of approximately $6 million. I'm pleased to inform you that almost every investor from our previous raise in August of last year participated again with some new fundamental investors also contributing. As a result of this successful capital raise, Quoin's cash position is at its strongest ever and we now have a financial runway that extends well into the second half of 2024, which is beyond several key inflection points for the company, including the release of clinical data from our ongoing studies. Furthermore, we believe that in addition to enable us to advance the clinical development of our product pipeline, this strong cash position will also support our plans to pursue attractive M&A opportunities in the rare and orphan disease space. We are particularly interested in acquiring derisk late-stage assets. And while there can be no assurances of the deal being executed, I can tell you that we are actively exploring a number of potentially interesting opportunities. We look forward to providing further updates on our progress on this front at the appropriate time. One key highlight for Quoin in 2022 was the submission of an Investigational New Drug application, or IND, to the U.S. FDA for the development of QRX003 as a potential treatment for Netherton Syndrome. As a result of the successful opening of that IND, we subsequently initiated 2 clinical studies in Netherton patients last year. We also made substantial progress on the operational side by working very closely with our contract manufacturers, our CMOs, to advance the development and scale-up of both the active ingredient in QRX003 as well as for the finished product itself. We believe that this early and concentrated focus on CMC-related matters will ultimately pay dividends and reduce the risk of Quoin receiving a complete response letter, or CRL, from the FDA as a result of CMC-related deficiencies in a regulatory submission. As we have previously stated, Quoin intends to self-commercialize QRX003 and indeed all of our other pipeline products in both the U.S. and Europe, and we are actively working on plans to ensure that we will be fully prepared for a successful rollout of the product in those territories once approval has been obtained. To augment those commercial plans, we work diligently and successfully throughout the year to establish a broad-based infrastructure outside of those 2 territories. As a result of those efforts, we now have 8 different commercial partnerships established that cover 60 countries which is essentially all of the key countries for our products in the world. The combination of these distribution partnerships and the commercial infrastructure that we plan to establish in the U.S. and Europe, will enable Quoin to achieve what is effectively a global launch of QRX003 and the rest of our pipeline products. This is something that we believe is a key differentiating feature for the company among our peer group where the focus tends to be primarily on the U.S. market alone. It is also indicative of our commitment to ensuring that our product will be made available to every patient who needs them irrespective of where they are located. Turning now to the fourth quarter itself. During the quarter, we announced that the first patient in our vehicle control study for Netherton Syndrome was dosed. And since then, we have continued to make further progress with the enrollment and dosing of additional patients. Furthermore, 5 of our 6 planned clinical sites were fully opened by the end of the quarter and operationally ready to initiate patient recruitment and testing. Recall that this trial is a randomized double-blinded vehicle control study. 2 different doses of QRX003 topical lotion are being tested versus a placebo lotion in 18 Netherton patients. The test materials are applied once daily over a 12-week period to predesignated areas of the patient's body and in agreement with the FDA, 5 different clinical end points are being assessed in the study. This study will potentially serve as the first portion of a single pivotal study that we intend to conduct in the U.S. and Europe to obtain regulatory approval. As previously noted, the FDA has indicated that a total of approximately 20 patients tested with QRX003 at the commercial dose may be sufficient for approval in the U.S. In addition, based on the positive and constructive feedback we previously received from the EMA, we believe a similar number may also be sufficient to enable us to obtain regulatory approval in Europe. During the quarter, we also announced the initiation of a second clinical study to evaluate QRX003 in Netherton Syndrome patients. This trial is also being conducted under Quoin's open IND and is running concurrently with our other ongoing clinical trials using the same clinical sites and same investigators, resulting in a high degree of operational efficiency and cost savings. This second clinical trial is an open-label study in approximately 10 subjects who are currently receiving and will continue to receive throughout the duration of the study off-label systemic therapy, primarily systemic biologics. The trial is not placebo-controlled and all patients will be tested with a 4% dose of QRX003, which will be applied once daily to predesignated site on the body every day over a 12-week period. This is the same trial design as our other ongoing study and the same 5 endpoints are being assessed. Given that this is an open-label study, we will have ongoing access to the data as it is being generated, and we anticipate providing several updates during the course of the study, including potentially the release of interim data. We believe that the data package for both of these studies may be sufficient for a number of our distribution partners to either seek formal regulatory approval or inclusion of the product in early access programs in their respective territories. We are also working with our regulatory consultants to determine if QRX003 may qualify for conditional marketing approval in Europe which allows for the commercialization of a medical product in advance of formal regulatory approval. Conditional marketing approval is granted by the EMA in circumstances where there is no available treatment for a particular disease and where a clearly defined medical need exists. We believe that this is certainly the case with Netherton Syndrome and we are working to better understand the application requirements and timing so that we can prepare accordingly. Throughout the quarter, we also continue to deepen our engagement with Netherton community of patients, family members, treating physicians and supporting foundations. We believe that this level of outreach to the community at large, helps to establish an awareness of Quoin and our ongoing clinical programs. These early relationships have been critical in strengthening our understanding of the disease and has helped to build a network of communication channels that facilitate a regular broadly distributed update to community members of our progress and the anticipated timing of key events such as the release of clinical data. We believe that our engagement and integration into this network will be a vital foundation for the successful launch of our product once approved. Turning now to our research project at Queensland University of Technology in Australia, or QUT, both projects continue to make good progress. And based on the feedback from the scientists at QUT, we are hopeful that one or perhaps both programs could initiate clinical testing by the end of this year. This initial testing has been performed in Australia, where Quoin is able to take advantage of the varying generous incentives offered by the Australian government including a rebate of 43.5% of all research dollars spent rendering these highly cost-effective programs for Quoin. While still at a relatively early stage of development, we view these products as important components of our rare disease portfolio, and we look forward to keeping everybody updated on their progress. With that update on our operational progress, let me turn this over to Gordon to discuss our fourth quarter financial results.

Thank you, Michael. December 31, 2022, cash and marketable securities was $12.9 million as compared to $15.2 million cash and securities as of September 30. As Michael outlined, following our $16.8 million public offering completed last August. In February, we successfully completed a further $7 million public offering, which resulted in net proceeds of $6 million after costs. And we expect our current cash and investments to be sufficient to fund the company's operations well into the second half of 2024. We reported research and development expenses of $600,000 for the fourth quarter and $2.7 million for the year, primarily attributable to expenses related to our Netherton Syndrome clinical trials and associated manufacturing costs as well as our research projects with QUT. We expect R&D costs to increase in 2023 as we advance our programs. General and administrative expenses were $1.5 million in the fourth quarter and $6.6 million for the year. We recorded a net loss of $2 million for the fourth quarter and $9.4 million for the year. I will now turn the call back to Michael to make some closing remarks and begin our Q&A.

Thanks, Gordon. In closing, we are extremely pleased with Quoin's progress over our first 12 months as a publicly traded company, and we believe that we have positioned ourselves for a very exciting and productive 2023. We now have 2 clinical trials underway that are evaluating our lead product candidate, QRX003 for Netherton Syndrome under an open IND and we look forward to presenting data this year. We have had a strong start to 2023, and we are pleased with our progress so far in what we believe will become a pivotal year for our company. With that, operator, we are now ready for questions.

[Operator Instructions] Our first question comes from James Molloy from Alliance Global Partners.

Just wanted to touch base on the Phase III trial. I know that you disclosed back in December, you had 70 patients through initial screening. Obviously, you had first patient just been dosed. Can you talk a little bit about expectations for sort of hitting half the patients need to get in timing on that and what a reasonable expectation might be for completing the study?

Yes. Jim, thanks for your question. So look, I can tell you that this study has continued to recruit at a pace that is matching our expectations. And I'm not going to announce when we get halfway there or anything like that. But you should expect to see clinical data this year from this study. The interest that we are seeing is extremely high. We're working through patient screening in a systematic methodical fashion to ensure that we're not recruiting patients into the study, they shouldn't be in the study. And we are very happy with how things are going to date. So keep an eye out for updates and anticipate seeing data this year.

Maybe a quick follow-up on a bigger picture. Obviously, there's talk on the PRV program, Priority Review Voucher program, so the sunsetting in 2026, I think, is your expectation. You guys should be well ahead of that at the current pace -- at the current [indiscernible] basis for filing. But what -- do you guys have any insight on what's going on with the PRV and what the expectations might be in the rare disease space for that to potentially be reviewed -- renewed?

Yes. So first of all, you're correct. We will be well ahead of that anticipated sunset with our product. But I also believe, and this is true in-depth conversations with people who are far closer to the situation than I am, that it will be renewed. This is a really valuable program that where everybody benefits. So the small company that focuses on a rare disease gets a freely tradable priority review voucher and approval. So that's a big incentive for the company to go ahead and initiate clinical testing in a disease space that might otherwise be being neglected. For the big pharma company that buys the priority review voucher, it allows them to get to market faster with their next blockbuster product. And then the patients themselves benefit by having somebody focused on the disease that might otherwise have been neglected. So it's a win-win all around. And the general consensus is, this is not a program that will stop in 2026.

[Operator Instructions] Our next question comes from Aydin Huseynov from Ladenburg.

I have a question regarding the pace of both studies, randomized and open label. So if the physicians are essentially managing both trials in the same site, so which trial do you think will recruit faster?

So, Aydin. I think myself that the open-label trial will recruit faster than the other one with less patients for one. And plus the level of screening that we're doing to get into the first study, patients have to wash out of any systemic therapy that there are. So that takes some time, whereas for the open-label study, they can remain, indeed, they must remain on the systemic therapy throughout the course of the study. So I believe that will recruit faster for those reasons. And as we said, this is an open-label study. So we have access to the data on an ongoing basis, and we'll be in a position to potentially release interim data along the way.

Okay, makes sense. And in your view, Michael, so what is the percentage of severe patients and as patients who are not treated with off-label biologics? So I'm trying to understand that patient segment.

I think I missed part of that. Could you ask -- are you saying the percentage that are...

Yes, I'm trying to understand -- so the open label is essentially for patients who are being treated with off-label biologics. And I'm trying to understand what percentage of overall severe NS patients, Netherton patients are these -- what is the portion of these patients who are treated with off-label and what is the portion who are not being treated with off-label biologics?

Yes. So it's a really good question. So first of all, I think if we look at the big picture, Aydin, there is no approved treatment for this disease. So patients and physicians are really willing to try anything off-label. So there's a lot of different treatments being pursued with varying degrees of success. What we're seeing with regards to biologics is that it's probably somewhere in the region of 15% to 20% at this point. Bear in mind, these biologics are not reimbursed for this indication. And annual cost is around $60,000 out of pocket to the patient. So that's a heavy lift -- heavy financial burden for anyone. And plus not everybody sees the benefits. So I think 15% to 20% is a reasonable working estimate. It could vary a little bit around that.

Understood. I've got a couple of financial MBD [ph] question. So you mentioned that you are actively exploring multiple attractive M&A opportunities. You got -- you mentioned that you have a strong balance sheet. So what kind of deals are you looking for? Are you looking for dermatology assets, preclinical, clinical, 505(b)2 assets? I'm trying to get a sense of that. And how do you think that does this compare to your flagship Netherton Syndrome program. Just trying to understand how you're going to manage growth if you are to acquire new assets?

Yes. So great question. So first of all, our interest is solely focused in the rare and orphan disease space. We are, however, looking beyond rare skin diseases because we believe that in this space, you can successfully migrate across different indications without putting really undue burden on both your R&D activities and then ultimately, your commercial infrastructure. So we're not looking for anything that's preclinical or early-stage clinical. We have those types of assets in our portfolio ourselves. So we want assets that have been derisked where there is strong clinical data and a clear path to regulatory approval. And we want assets that we can have global rights to. Because, as we've said, between our own planned commercial infrastructure and the partnerships that we have put in place, we can effectively achieve global launches of any product. So there's a lot of opportunities out there. We see a lot of companies with what I would call misaligned portfolios where they have an orphan disease stuck in among a bunch of generic products or something like that. So we're very actively looking for products. We can't tell you the timing or even if we get a deal done, but it is something that's a very, very high priority for us, and we will certainly keep everybody posted on our progress.

Got it. Understood. And the last one I have regarding your expenses in 2022. So looking at R&D, it's $2.7 million, SG&A $6.6 million. Essentially, SG&A expenses are significantly higher, more than twice higher than R&D expenses, which is sort of unusual for clinical stage companies. So could you breakdown for us the S&A expenses just for us to better understand how this is going to be shaped going forward?

Yes. So before I hand it over to Gordon to give you that breakdown on G&A, we only started clinical testing in the second half of the year. So it's not unusual where you see that lag. And then as Gordon alluded, clinical spending will increase this year. So I'm not at all surprised that you see that difference between R&D spend and G&A spend, given the timing of when we got the clinicals up and running. And there is always a lag as well in terms of the actual spend itself. So nothing unusual there. Gordon, do you want to give the top line breakdown?

Yes, sure. I think just to reiterate Michael's comments, I mean, I think our G&A spend is not high for a company -- a listed company like us. It's -- but relative to the R&D, it looks high because our costs have been lower today, and they definitely will pick up. But these clinical studies that we're doing now are pretty compact studies, which is why you see relatively low R&D costs. On G&A, we don't have a central office or any sort of big overhead expenses. It's essentially -- we've got 4 employees in the company. So the compensation cost of the employees, including noncash compensation costs for equity incentives. And then we've got what you would expect from a public company in terms of legal, accounting, those kind of costs that you incur as a listed company. And you'll see in our 10-K, how that's all broken down, but those are the 2 main buckets of costs. It's essentially compensation costs and then legal and accounting and consultants.

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 Michael Myers for any closing remarks.

Thank you, operator, and thanks, everybody, for participating in the call today. We are always available to answer any questions offline, so feel free to reach out to us at any point in time. Thank you, and have a great day.

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