Earnings Call Transcript - QNRX Q3 2022

Operator, Operator

Good morning and welcome to the Quoin Pharmaceuticals Limited Third Quarter Financial Results and Business Update Call. All participants will be in listen-only mode. 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 your host today, Gordon Dunn. Please go ahead, sir.

Gordon Dunn, CEO

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 progress of the quarter and discuss Quoin Pharmaceuticals' Q3 2022 financial results. Please note that our operational and financial results press release is now available on Quoin's website. To begin with, Michael will provide a corporate, clinical and operational update. Following which I will review our Q3 2022 financial results. To close, I will hand the call back to Michael for further comments. We will also be pleased to answer any questions that you may have 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 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. Now my pleasure to turn the call over to our CEO, Michael Myers.

Michael Myers, CEO

Thank you, Gordon. And good morning, everyone. Quoin continues to make significant progress in the last quarter as we execute on our plan to build the organization into a global rare disease company. And I'm very pleased to provide an update of our most recent achievements on this call today. The key highlights of the quarter was the successful completion of the $16.8 million public offering, which was twice upsize and heavily oversubscribed. As a result of this capital raise, Quoin is now funded into 2024, which is well beyond a number of key inflection points for the company. During the quarter, we continue to make significant progress towards our goal of delivering a safe and effective treatment for Netherton Syndrome, a rare and devastating genetic disease for which there is currently no approved treatment or cure. Significantly, during this past quarter, we initiated a clinical trial under an open-IND to evaluate our lead product QRX003 in Netherton patients. As discussed previously, this trial is a randomized, double-blinded vehicle-control study. It will assess two different doses of QRX003 topical lotion versus a placebo lotion in 18 Netherton patients. The test materials will be applied once daily over a 12-week period to pre-designated areas of the patient's body. And as agreed with the FDA, a number of different clinical endpoints will be evaluated. This study will serve as the first cohort of a pivotal study for U.S. and EU approval. As previously noted, the FDA has indicated that approximately 20 Netherton patients tested with QRX003 at a commercial dose may be sufficient for regulatory approval in the U.S. Based on the positive and constructive feedback we previously received from the EMA, we believe a similar number will also enable us to obtain regulatory approval for QRX003 in Europe. I am pleased to inform you that a majority of clinical sites are now fully open with the remaining sites on target to open by year-end. In support of the study, this quarter we launched a dedicated website, www.nethertonsyndromeclinicaltrials.com, which provides details of the study design, the location of the clinical site, and a survey link for patients interested in participating in this study. We are also working closely with the Rothschild Foundation and our CRO, Therapeutics, Inc., to maximize awareness of the study in the Netherton community, aiding in patient recruitment, which is now actively underway. Interest in the study remains very high among the Netherton community, and in fact, just yesterday, a patient traveled almost the full length of the country to get to our Boston clinical site, where he will be screened today for participation in the study. We are seeing similar levels of willingness to travel great distances to participate in the study from across the country and also internationally, as we frequently receive requests from overseas patients who are extremely eager to be recruited into this important study. During the quarter, we also announced plans to initiate a second clinical trial to evaluate QRX003 in Netherton patients who are currently receiving off-label systemic therapy. This trial will also be conducted on Quoin's open-IND application and will run concurrently with our ongoing clinical trials. The clinical protocol has already been submitted to the FDA, and pending no comments from the agency, we will initiate patient recruitment next month. With no approved treatments for Netherton Syndrome, we are increasingly aware that some patients are being treated with investigational systemic therapies, including biologics, in an effort to provide any level of relief to some, but by no means all of the symptoms of this disease. To maintain the integrity of our currently ongoing clinical studies, patients must completely wash out of any systemic therapy in order to be eligible to participate. For many patients, this is a very difficult decision. Discontinuing a therapy that is providing even modest relief would result in the return of all of their symptoms just to enroll in a clinical trial, where there is a one in three chance that they'll receive a placebo. We fully understand how challenging of a decision that must be. So in order to accommodate those patients, we have announced our plans to run the second study. This will be an open-label study in approximately 10 Netherton patients who are currently receiving and will continue to receive off-label systemic therapy throughout the duration of the study. The trial will not be placebo controlled, and all patients will have a 4% dose of QRX003, which is the highest dose applied once daily to pre-designated sites on the body every day over a 12-week period. As I just mentioned, we anticipate that this study will run concurrently with our ongoing study. And we'll utilize the same clinical site and the same investigators. By availing ourselves of the infrastructure that we have already put in place for the current trial, we will be in a position to maximize the efficiency of this new study while minimizing incremental costs to the company. Fundamentally, we believe that assessing the safety and efficacy of QRX003 as adjuvant treatment with systemic therapy could potentially yield valuable clinical data, and possibly result in more treatment opportunities for patients and physicians. I would now also like to take a moment and mention that as we continue to deepen our engagement with the Netherton community of patients, family members, treating physicians, and supporting foundations, we find ourselves more and more in awe of the absolute strength and resilience that we see on a daily basis from this patient population. We are constantly humbled by the immense courage of this community, something which only serves to increase our determination to provide a safe and effective treatment for this absolutely devastating disease. Turning now to our research projects at Queensland University of Technology or QUT, we continue to make great progress and are hopeful that one or both programs will initiate clinical testing next year. While it's still at a relatively early stage of development, we view these products as important components of our Rare Disease portfolio. We are very pleased with the strength of this partnership and continue to be impressed with the quality and depth of the science being performed by the QUT researchers. The initial clinical testing will be performed in Australia, where Quoin will be able to take advantage of the very generous incentives offered by the Australian government, including but not limited to a rebate of 43.5% of all research dollars spent, making these highly cost-effective programs for the company. And finally, during the quarter, we continued to expand our list of international distribution partners of QRX003. On July 15, we announced that we entered into an exclusive license, distribution, and supply agreement for the Canadian market with Endo Ventures Limited, a subsidiary of Endo International PLC. Those affiliates, Paladin Labs will be responsible for the commercialization of QRX003 in Canada once approved. This latest agreement marks our eighth such partnership for QRX003 that now covers 60 countries, including Australia, New Zealand, China, Hong Kong, Taiwan, and the Middle East, Central and Eastern Europe, Turkey, and parts of Latin America. We continue to work closely with these partners to advance the development of QRX003 in their respective territories as they pursue the entry of the product into early access and compassionate use programs in their local markets. With that update on our operational progress, let me turn it over to our CFO, Gordon Dunn, to discuss the third quarter financial results.

Gordon Dunn, CFO

Thank you, Michael. As Michael outlined in August, we successfully completed a $16.8 million public offering, resulting in net proceeds of $14.9 million after costs. As of September 30, we had $15.2 million in cash and marketable securities, compared to $2.7 million in cash as of June 30. Like Michael also mentioned, we expect our current cash and investments to be sufficient to fund the company's operations into 2024. We reported research and development expenses of $750,000 for the third quarter, which is primarily attributable to expenses related to our clinical trial and associated manufacturing costs, as well as our research projects with QUT. General and administrative expenses were $1.6 million for the quarter, and we recorded an operating loss of $2.3 million and a net loss of $3 million for the quarter. I'll turn back to Michael to make some closing remarks and begin our Q&A. Michael?

Michael Myers, CEO

Thanks, Gordon. In closing, we are extremely pleased with Quoin's progress over our first 12 months as a publicly traded company. Our clinical trial evaluating our lead product candidate QRX003 for Netherton Syndrome has been initiated under an open-IND. And we look forward to updating everybody on the study's progress. Underscoring Quoin's leadership position in the Netherton Syndrome space, we're excited to announce our plans to initiate a second clinical trial that will enable patients who are not eligible for our current study to participate. Also, we increased the number of international licensing and distribution partnerships during the quarter with the signing of our latest deal for Canada. This now brings the total number of countries covered under these partnerships to 60. And we continue to work closely with each of these partners. Operator, we are now ready for questions.

Operator, Operator

Thank you. At this time, we will begin the question-and-answer session. The first question comes from Aydin Huseynov from Ladenburg Thalman.

Aydin Huseynov, Analyst

Good morning, everyone. Good morning, Michael, Gordon, thank you very much for the presentation and walking us through the achievements in the last quarter. So I have several questions. Michael, could you walk us through the inflection points in 2023? You mentioned that you have funding until 2024, but I wanted to understand how you would describe those inflection points in 2023?

Michael Myers, CEO

Thanks, Aydin. Good morning. I appreciate the question. The two key inflection points will be from the Netherton clinical trials. The first study, we anticipate will read out in the first half of next year, and the second study should read out around the same time. These will be the first clinical data from formal clinical studies for this disease, so those are two very important inflection points for the company.

Aydin Huseynov, Analyst

Yeah, this is helpful. It's obviously trial readouts that are huge inflection points. Regarding recruitment for these two trials, I know you have the survey asking patients about the disease and how they are being treated. Could you share any information on how many patients have actually uploaded their data, how many requests you've received so far? Overall, could you share your perspective about recruitment in both trials so far?

Michael Myers, CEO

We have not released any numbers yet regarding the number of patients that have been screened, or any patients that have been fully enrolled in the study. We intend to do so, but what I will tell you is that for this first study, we are taking a very systematic approach. Patients first go through the survey, then there are phone calls, and then they come to the site, where they are screened and must get genetic testing done, as we want to be sure that every patient who is enrolled actually has Netherton Syndrome and not some other related disease. Because misdiagnosis can be a problem here. So what you see is this systematic process to get patients into the study, and then you have this kind of hockey stick effect where once that time lag has elapsed, the patient recruitment starts to come in very quickly. While I’m not providing any numbers on this call, I am extremely pleased with the rate of the recruitment. And again, as we mentioned, the overall interest level is very high.

Aydin Huseynov, Analyst

Is this adult patients driving?

Michael Myers, CEO

All patients currently are adults. The FDA prefers that you start with adults before you move to children. So these two studies are adults only. The next cohort of the study will probably include adults and children, primarily children. Most of the children today have the genetic testing already done, which wasn't available back in the day; therefore, children will not have to go through that process, and we feel there will be faster entry ways into the study.

Aydin Huseynov, Analyst

Okay, understood. Would you envision at all that you would file an NDA for combinations that are not the combination like on top of biologics, not as a single agent? Would you envision that scenario?

Michael Myers, CEO

It's a really good question. It's something we're thinking about. It's something we're discussing with the appropriate experts. I'm not going to rule it out. I'm not going to say we're going to do it. But at this point, it's a little bit TBD. We expect QRX003 to be a frontline therapy for all Netherton patients. This study, the second study should hopefully show that it's safe and effective to be used in combination with biologics. Bear in mind that these biologics are not approved to treat Netherton anyway, so there would be a whole process we need to undertake. I'll answer it as a maybe, and we'll have further discussions about it.

Aydin Huseynov, Analyst

Got it. For publications for QRX003, can you give us any timelines? Are you planning to publicize any of the findings or any sort of reasons why you believe QRX003 will be good for any treatment, or any preclinical data that would be relevant for us to establish a proper probability of success for the drug?

Michael Myers, CEO

Absolutely. We will embark on a publication strategy once clinical data reads out. We’re not going to get ahead of ourselves here. There are competitive reasons we want to keep a lot of this under wraps. We will certainly publish our data and make it freely available once we have it.

Aydin Huseynov, Analyst

You have $15 million in cash, and then you have short-term and long-term liability due to officers, about $4.2 million or something. Could you explain to us what that is?

Gordon Dunn, CFO

Well, first, the cash is about $15.2 million when you look at cash and marketable securities or T-Bills. In terms of the liability to officers, the founders of the company essentially worked without pay and incurred expenses for years before the company finally got funded, first some pre-merger and then at the merger. So we agreed with the investors at the time that those liabilities would be repaid over time, and that's what we're doing at a rate of $50,000 per month to the two officers.

Aydin Huseynov, Analyst

Thank you very much for taking my questions.

Operator, Operator

Thank you. The next question is from Jason Butler at JMP Securities.

Unidentified Analyst, Analyst

Hey, it's Ryan for Jason. Thanks for taking our questions. Just a couple of quick ones for me. The patients that are on the off-label systemic therapy, what proportion of the patient population do you think that subgroup represents? It sounds like you believe those patients are getting minimal benefit from the systemic therapy. Are you hoping to see a signal from QRX003 over that?

Michael Myers, CEO

It's hard to quantify the percentage because, first of all, it’s not being reimbursed; it's money coming out of their pockets. And these biologics are very expensive, which is a limiting factor. For many of them, they don't see any benefit whatsoever, so they try more of them. I’m guessing there are probably less than 10% of patients using these biologics. Now, everybody's on something because they are willing to try anything, like steroids, to provide even minor relief. For patients who do get some relief from the biologics, it helps with the severe itching, and maybe a little bit with inflammation as well.

Unidentified Analyst, Analyst

Do you plan to have the two trials read out at the same time? Or do you think the ongoing trial can read out first? Are we going to see all the doses' results at the same time, or will you give us data from one dose before another?

Michael Myers, CEO

I suspect they will probably read out around the same time. The second trial has a smaller number of patients, which may read out a little bit faster, but I’m anticipating them to provide data from all doses at the same time.

Unidentified Analyst, Analyst

Thank you.

Michael Myers, CEO

Thanks. Great.

Operator, Operator

Thank you. The next question comes from Jim Malloy with Alliance Global Partners.

James Molloy, Analyst

Hey, Mike, thanks for answering my questions. Regarding the two Phase 3 trials that are underway, is it still expected that we will receive top-line results in the second half of '23, or will that depend on how quickly recruitment progresses?

Michael Myers, CEO

We're still tracking towards mid-'23. If that changes, we will alert you. So far, that seems to be the pace we are on.

James Molloy, Analyst

Excellent. Then, on the second Phase 3, you mentioned 10% are on biologics. Does that mean everyone is on something? Does the second Phase 3 include folks on steroids or really anything, including the 10% potential on biologics?

Michael Myers, CEO

Just to be clear, Jim, the second study is not a Phase 3; this is more of an investigational study. There is no placebo control. Patients will be on both systemic and topical therapy. If you're on topical therapy, you just have to wash off the topical therapy for the sites where the product will be applied. For patients who are on systemic therapy, they will stay on that systemic therapy throughout the course of the 12 weeks. We will see if there are any incremental benefits, hopefully with no safety signals, which we don't anticipate in any case.

James Molloy, Analyst

Understood, understood. Moving over to 004, are you looking to receive some positive data out? Krystal's looking for a PDUFA in February, and Amryt has faced setbacks with the FDA. Has the movement in the RDEB space changed your expectations for an IND for 004 RDEB? Really good question. First of all, Abeona produced positive data in the recent weeks, and we congratulate them on that because they are addressing a patient population in dire need of effective treatment. Amryt faced a setback with the FDA and is expecting an answer regarding approval by the end of February of next year. There isn't a one-size-fits-all opportunity here. Some of the other products can’t be used in all patients and have manufacturing challenges, which complicate things. Our product is very patient-friendly and easy to use in a topical lotion format. By the middle of next year, we'll be in a position to make a go/no-go decision. We are receiving very positive feedback from our pre-IND submission. The clinical protocol is ready and the product can be manufactured quickly. If we decide to move forward, we will do so quickly. However, we won't disclose anything that's not established yet, as there are still more developments to come next year. Excellent. Thank you for taking the questions.

Michael Myers, CEO

Thanks Jim.

Operator, Operator

Thank you. We do have a question from Naz Rahman with Maxim Group.

Naz Rahman, Analyst

Hey guys, thanks for taking my question. Just a quick question. The patients that are on biologics, do you know which biologics they're using? Are these like anti-TNF inhibitors or Jak inhibitors? What are they taking?

Michael Myers, CEO

It's primarily two drugs, Naz: Dupixent and Taltz. Those are by far the ones that are being used most frequently.

Naz Rahman, Analyst

Got it. For statistical purposes, how do you plan on addressing the fact that there are many patients that are on concurrent therapies alongside the systemic therapies?

Michael Myers, CEO

That's why for the first study, that they're running, they have to wash completely out of that. Nobody in the first study will be on any systemic therapy whatsoever. They can use topical therapy, but they have to wash off for the sites where our product will be applied. For the second study, obviously, patients can be on systemic therapy and they stay on that throughout the study's duration.

Naz Rahman, Analyst

Got it. Thank you.

Operator, Operator

Thank you. This concludes the question-and-answer session. I wanted to return the call to Dr. Myers for any closing comments.

Michael Myers, CEO

Thank you very much. I would just like to conclude by thanking everybody for their participation here today and their ongoing interest and support of Quoin. Please feel free to reach out to us with any questions or comments, either by email or by phone; we're always available. So thank you and good morning.

Operator, Operator

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