Sol-Gel Technologies Ltd. — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone 2023 Q4 report. Financial statements are prepared under U.S. GAAP; amounts below are U.S. dollars unless stated otherwise.
Business context
Sol-Gel is an Israeli dermatology company with two FDA-approved products, Twyneo for acne and Epsolay for rosacea, and development-stage candidates SGT-610 and SGT-210. Galderma holds exclusive U.S. commercialization rights for Twyneo and Epsolay; Searchlight holds Canadian rights. The company relies on partners for commercialization and on third parties for manufacturing and clinical work.
Financial and operating performance
| Metric | FY2022 | FY2023 |
|---|---|---|
| Total revenue | $3.883 million | $1.554 million |
| Research and development expense | $12.682 million | $23.541 million |
| General and administrative expense | $7.445 million | $7.373 million |
| Operating loss | $16.244 million | $29.305 million |
| Net loss | $14.923 million | $27.238 million |
| Net loss per share | $0.65 | $1.01 |
| Net cash used in operating activities | $9.484 million | $17.730 million |
FY2023 revenue was primarily royalties and milestone payments under the Galderma and Searchlight licenses. Management attributes the year-over-year revenue decline mainly to a $3.5 million Galderma milestone recognized in 2022 upon Epsolay’s FDA approval. No clear gross profit or gross margin figure is provided in the filing.
Research and development expense rose by $10.9 million, principally reflecting SGT-610 acquisition-related expense, its pivotal Phase 3 trial, and generic-program clinical expenses. Financial income, net, increased to $2.067 million from $1.321 million.
At year-end, cash and cash equivalents were $7.513 million, bank deposits $10.012 million, and marketable securities $20.471 million, totaling approximately $38.0 million in these liquid resources. Current assets were $41.167 million and current liabilities $4.522 million. Total liabilities were $6.643 million, mainly accounts payable/accruals, employee obligations, and operating lease liabilities; the filing reports no material borrowings. Accumulated deficit was $220.303 million.
Financing activities provided $21.810 million in 2023, mainly from the registered offering and concurrent placement to the controlling shareholder, net of issuance costs. Investing activities used $9.742 million, largely reflecting purchases of marketable securities. The company had 27,857,620 ordinary shares outstanding at year-end.
Material changes and outlook
- Revenue fell approximately 60% from FY2022, while R&D expense increased approximately 86% and net loss widened.
- Management said lower-than-expected future revenue from Twyneo and Epsolay, together with delay in SGT-210 development, prompted cost-saving measures, including a workforce reduction of about 25 employees. The restructuring was completed in Q3 2023; management also delayed the planned SGT-210 clinical study.
- Management expects year-end cash, deposits, marketable securities, and offering proceeds to fund the operating plan for at least 12 months from the financial-statement issuance date. It also states that substantial additional funding will be needed to meet longer-term objectives; no committed external funding source is disclosed.
- SGT-610 Phase 3 screening began in November 2023. The planned study covers approximately 140 patients at approximately 40 centers in North America, the U.K., and Europe; results are expected by the end of 2025. The candidate has FDA and European orphan designation and FDA Breakthrough Therapy designation, but remains investigational.
- SGT-210’s prior Phase 1 work was described as supporting further development; the company expected to initiate another Phase 1 study in H1 2024. Its timing and progress should be checked against subsequent disclosures.
Risks, contingencies, and unusual items
- Funding and losses: The company has a history of losses, expects further losses, and cautions that liquidity may be insufficient to pursue all business objectives. Additional financing could dilute shareholders or require concessions on product rights.
- Partner dependence and revenue reporting: The company relies on Galderma and Searchlight for sales and royalty reporting. It disclosed that 2023 first- and second-quarter revenue was revised due to unusual Galderma wholesaler ordering ahead of an ERP implementation and related changes to forecasting and rebate accruals.
- Clinical and regulatory risk: SGT-610 and SGT-210 are unapproved candidates; clinical outcomes, patient enrollment, regulatory review, and development timelines are uncertain. Orphan and breakthrough designations do not assure approval or commercial success.
- Israel and operations: The company disclosed the October 2023 conflict and associated regional and supply-chain risks, but stated that it did not anticipate a material impact on ongoing operations as of the report’s issuance. It cautions that effects could change, including on funding, supply, personnel, and trials.
- Commercial and manufacturing risk: Product uptake, reimbursement, competition, third-party manufacturing capacity, product quality, and partner execution could constrain revenue and profitability.
- Ownership and dilution: Arkin Dermatology is the controlling shareholder, and the company relies on Nasdaq controlled-company exemptions. Warrants and future equity financing could dilute shareholders. No cash dividends are expected for at least several years.
- Other disclosures: The company expected to be a PFIC for U.S. tax purposes in 2023, potentially creating adverse tax consequences for U.S. holders. No material legal proceedings were reported. The auditor issued an unqualified opinion on the financial statements and reported no critical audit matters; management concluded internal control over financial reporting was effective, but the auditor did not attest to it.
Most important facts for investors to verify
- Current cash runway, quarterly cash burn, and whether additional financing has been secured since the filing.
- Latest U.S. sales, royalty receipts, and partner-reported performance for Twyneo and Epsolay; confirm the impact of the disclosed Galderma revenue revisions.
- SGT-610 Phase 3 enrollment, trial execution, costs, and timing relative to the end-2025 results target.
- SGT-210’s current development plan and whether the anticipated 2024 study proceeded after the disclosed delay.
- Potential dilution from outstanding warrants and equity awards, and the controlling shareholder’s voting position.