Sol-Gel Technologies Ltd. — FY2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone Q4 filing; quarterly results are not provided in the supplied filing text. Financial statements are prepared under U.S. GAAP and audited by PwC (Kesselman & Kesselman), which issued an unqualified opinion.
Business context and operating progress
Sol-Gel is a clinical-stage dermatology company developing branded and generic topical drugs. Its lead branded candidates, Twyneo for acne and Epsolay for subtype II rosacea, use the company’s silica-based microencapsulation platform. The first generic version of Zovirax cream, developed with Perrigo, received final FDA approval and launched in February 2019; Sol-Gel receives 50% of Perrigo’s defined gross profits under the agreement.
Key financial metrics
| Metric (US$ millions, except per-share data) | 2019 | 2018 |
|---|---|---|
| Collaboration revenue | 22.904 | 0.129 |
| Research and development expense | 40.578 | 28.146 |
| General and administrative expense | 8.276 | 5.504 |
| Operating loss | 25.950 | 33.521 |
| Net loss | 24.609 | 32.203 |
| Basic and diluted loss per share | $1.26 | $1.80 |
| Net cash used in operating activities | 22.500 | 23.467 |
Revenue was primarily Perrigo royalties: $22.8 million in 2019, compared with approximately $0.1 million in 2018. R&D expense rose $12.4 million, principally because of higher Twyneo and Epsolay clinical-trial costs; G&A increased $2.8 million, including higher legal and pre-commercialization costs. The operating loss narrowed as collaboration revenue increased, while the company remained loss-making. Gross margin is not clearly presented in the filing text and is not a useful reported measure for this development-stage business.
At year-end, cash and cash equivalents were $9.412 million and marketable securities were $40.966 million, for approximately $50.378 million in those two liquid-asset categories; an additional $0.350 million was restricted. Total assets were $61.301 million, current assets $55.791 million, current liabilities $6.505 million, total liabilities $8.836 million, and shareholders’ equity $52.465 million. The filing reports no significant borrowings; lease liabilities were $2.045 million in total. Accumulated deficit was $152.073 million.
Net cash from investing activities was $16.024 million, mainly reflecting maturities and sales of marketable securities; financing activities provided $10.613 million from the August 2019 offering. The company reported no off-balance-sheet arrangements. Contractual operating lease payments totaled $2.273 million, including $0.672 million due within one year.
Material changes and outlook
- 2019 collaboration revenue increased substantially after Perrigo launched generic acyclovir cream. R&D and G&A spending also increased, but total operating loss and net loss declined year over year.
- Twyneo met all co-primary endpoints in two Phase 3 trials enrolling 858 patients. Management planned to submit an NDA in the second half of 2020.
- Epsolay met its co-primary endpoints in two Phase 3 trials enrolling 733 patients. A long-term safety study reported positive topline results in February 2020; management planned an NDA submission in the second quarter of 2020.
- A Phase 1 proof-of-concept study of SGT-210 began in January 2020; topline data were expected in the first half of 2021. Tapinarof and roflumilast remained development candidates.
- After year-end, the company completed a February 2020 public offering that generated approximately $21.5 million net and agreed to a proposed approximately $5 million private placement with its controlling shareholder, subject to disinterested shareholder approval. The filing’s liquidity discussion estimated existing resources plus the public offering proceeds would fund operations into Q2 2021, excluding the contingent private placement; the financial-statement note separately says funding would cover at least the next 12 months from issuance.
Risks, contingencies, and unusual items
- The company has a history of recurring losses, expects further losses, and states it will need substantial additional funding. Its liquidity runway depends on spending, development progress, regulatory timing, and access to financing.
- Neither Twyneo nor Epsolay had received marketing approval as of the filing. FDA review, manufacturing inspections, clinical results, patent disputes, reimbursement, market acceptance, and commercialization execution could delay or prevent revenue growth.
- The company had limited sales and marketing capabilities and relied on third parties for clinical activities, manufacturing, and collaboration commercialization. The generic ivermectin cream ANDA faced patent litigation and a 30-month stay, as well as potential competition-related timing constraints.
- COVID-19 could disrupt clinical trials, suppliers, travel, and regulatory inspections. The filing also discusses currency exposure: a 5% change in the U.S. dollar/NIS rate would have changed 2019 operating expenses by approximately 1.3%.
- Sol-Gel identified no material legal proceedings. It disclosed royalty and know-how restrictions connected with Israeli Innovation Authority grants and ongoing obligations under collaboration and licensing agreements.
- Arkin Dermatology controlled approximately 60.5% of voting power as of March 18, 2020. The company relied on Nasdaq controlled-company exemptions, including not requiring a majority-independent board or an entirely independent nominating committee.
Important facts for investors to verify
- Confirm regulatory progress and actual FDA decisions for Twyneo and Epsolay, including any review delays, labeling conditions, or additional study requirements.
- Track Perrigo product sales, the calculation and timing of Sol-Gel’s royalty income, and whether collaboration revenue remains substantial.
- Reconcile cash, marketable securities, restricted cash, and the company’s stated runway; assess actual cash burn against planned clinical and launch spending.
- Check approval status and final proceeds of the proposed controlling-shareholder private placement, and account for dilution from the February 2020 shares and warrants.
- Monitor the ivermectin patent litigation and FDA approval restrictions, as well as manufacturing, supply, reimbursement, and commercialization readiness.