Sol-Gel Technologies Ltd. — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020; this is an annual report, not a standalone Q4 filing. The company is a clinical-stage dermatology drug developer reporting under U.S. GAAP. Its principal late-stage candidates are Twyneo for acne and Epsolay for subtype II rosacea; it also earns collaboration royalties from a generic acyclovir cream.
Financial results and liquidity
| Metric (US$ millions, except per-share data) | 2020 | 2019 | Change |
|---|---|---|---|
| Collaboration revenue | 8.8 | 22.9 | Down 61.7% |
| Research and development expense | 27.9 | 40.6 | Down 31.2% |
| General and administrative expense | 11.1 | 8.3 | Up 34.0% |
| Operating loss | 30.2 | 26.0 | Loss widened 16.5% |
| Net loss | 29.3 | 24.6 | Loss widened 19.0% |
| Basic and diluted loss per share | $1.30 | $1.26 | Loss per share increased |
| Net cash used in operating activities | 25.2 | 22.5 | Cash use increased |
Revenue consisted mainly of royalties from Perrigo’s sales of generic acyclovir cream. The reported amount declined from $22.8 million in 2019 to $8.7 million in 2020, attributed principally to another generic entrant and, to a lesser extent, COVID-19. The filing does not provide a meaningful product gross margin; the company remains loss-making.
At year-end, cash and cash equivalents were $7.1 million, bank deposits $21.4 million, and marketable securities $21.7 million, or about $50.2 million combined. Current assets were $53.4 million against current liabilities of $6.0 million. Total liabilities were $8.3 million, primarily lease and employee-related obligations; the filing reports no significant long-term borrowings. Total assets were $59.2 million and shareholders’ equity was $50.8 million.
Operating cash outflow was funded in part by $26.5 million of financing cash flow, including a February 2020 public offering and a $5.0 million private placement with the controlling shareholder. Management estimated existing resources would fund operations into Q3 2022; the financial-statement note separately says resources were expected to cover at least 12 months from the March 4, 2021 issuance date. These are estimates, not assurances.
Material changes and operating developments
- R&D expense fell by $12.7 million, mainly because pivotal Twyneo and Epsolay trials were completed in 2019; increased manufacturing costs partly offset the decline.
- G&A expense rose by $2.8 million, mainly from commercialization and patent-related costs.
- Accumulated deficit reached $181.4 million. The company has incurred recurring losses since inception and expects continued losses.
- In February 2020, Sol-Gel raised approximately $21.3 million net from a public offering of shares and warrants; the controlling shareholder’s concurrent private placement generated a further $5.0 million. The offering increased shares outstanding, and warrants are exercisable at an initial $14 per share through February 2023.
Outlook, risks, and unusual items
- At filing, FDA action on the Epsolay NDA had a PDUFA goal date of April 26, 2021, and action on the Twyneo NDA had a goal date of August 1, 2021. Neither candidate was approved at the reporting date.
- Management expected top-line Phase 1 proof-of-concept data for SGT-210 in Q3 2021; enrollment had been slowed by COVID-19. The filing also described plans to advance other early-stage candidates and generic products.
- The company anticipated a partnered generic launch in Q2 2021. Timing, approvals, launch performance, partner execution, and revenue impact remain uncertain.
- Sol-Gel intends to commercialize Twyneo and Epsolay through third-party partners and was in discussions with potential collaborators. It has limited in-house sales and marketing capability; building its own capability could materially increase costs and funding needs.
- COVID-19 reduced acyclovir revenue and created potential clinical-trial, manufacturing, supply-chain, inspection, and regulatory delays. The ultimate impact was uncertain.
- Patent litigation brought by Bausch Health against Perrigo relates to generic Bryhali and Duobrii ANDAs; a separate patent stay affects the ivermectin ANDA. These are partner-related matters; Sol-Gel stated it was not party to material legal proceedings.
- Other key risks include regulatory and clinical failure, product safety and tolerability, competition and pricing, reliance on Perrigo and other third parties, intellectual-property disputes, and the need for additional capital. The filing specifically notes local skin irritation events in Twyneo and Epsolay trials.
- The auditor issued an unqualified opinion on the financial statements. Management concluded internal control over financial reporting was effective at December 31, 2020; the auditor did not attest to that conclusion.
Most important facts for investors to verify
- Subsequent FDA decisions and any approval conditions for Twyneo and Epsolay, including labeling, manufacturing inspections, and launch timing.
- Actual cash burn and runway relative to management’s Q3 2022 estimate, including the impact of commercialization spending and any new financing.
- Perrigo’s reported sales, royalty calculations, generic competition, and the timing and economics of other partnered launches.
- Status and potential financial or timing effects of the Bryhali, Duobrii, and ivermectin patent matters.
- Whether COVID-19, market competition, reimbursement, or partner availability changes the development and commercialization assumptions in the filing.