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4. INFORMATION ON THE COMPANY
A.
History and Development of the Company
Our
legal and commercial name is Sol-Gel Technologies Ltd. Our company was incorporated on October 28, 1997 and was registered as a
private company limited by shares under the laws of the State of Israel. Our principal executive offices are located at 7 Golda Meir
St., Weizmann Science Park, Ness Ziona, 7403650 Israel and our telephone number is 972-8-931 3433. Our website address is http://www.sol-gel.com.
The information contained therein, or that can be accessed therefrom, does not constitute a part of this annual report and is not incorporated
by reference herein. We have included our website address in this annual report solely for informational purposes. Our agent for service
of process in the United States is Cogency Global Inc., located at 10 E. 40th
Street, 10th Floor, New York, NY 10016, and its telephone
number is +1 (800) 221-0102.
In
February 2018 we completed our initial public offering on The Nasdaq Global Market, pursuant to which we issued 7,187,500 Ordinary Shares
for aggregate gross proceeds of approximately $86.25 million before deducting underwriting discounts and commissions and offering expenses
payable by us, including the full exercise by the underwriters of their option to purchase additional shares. Our Ordinary Shares are
traded on The Nasdaq Global Market under the symbol "SLGL".
Our capital expenditures for the years ended
December 31, 2019, 2020 and 2021 were approximately $597 thousand, $449 thousand and $143 thousand, respectively. Our current capital
expenditures involve equipment and leasehold improvements.
B.
Business Overview
We
are a dermatology company focused on identifying, developing and commercializing investigational and generic topical drug products for
the treatment of skin diseases. In addition to Twyneo®,
which has been approved by the FDA, our current product candidate pipeline consists of clinical stage and early-stage investigational
product candidates, some of which leverage our development platform, and several generic product candidates across multiple indications.
Our
FDA-approved product, Twyneo®, is a novel, once-daily,
non-antibiotic topical cream containing a fixed-dose combination of encapsulated benzoyl peroxide and encapsulated tretinoin, that we
developed for the treatment of acne vulgaris, or acne.
On
December 30, 2019, we announced top-line results from two pivotal Phase 3 clinical trials evaluating Twyneo® for the treatment
of acne. Twyneo® met all co-primary endpoints in both Phase 3 trials. The Phase 3 program enrolled an aggregate of 858 patients
aged nine and older in two multicenter, randomized, double-blind, parallel group, vehicle-controlled trials at 63 sites across the United
States. Twyneo® demonstrated statistically significant improvement in each of the co-primary endpoints of (1) the proportion
of patients who succeeded in achieving at least a two grade reduction from baseline and Clear (grade 0) or Almost Clear (grade 1) at Week
12 on a 5-point Investigator Global Assessment (IGA) scale, (2) an absolute change from baseline in inflammatory lesion count at Week
12, and (3) and an absolute change from baseline in non-inflammatory lesion count at Week 12. In addition, Twyneo® was found
to be well-tolerated.
Our
investigational product candidate, Epsolay®, is a
novel, once-daily investigational topical cream containing encapsulated benzoyl peroxide, that we are developing for the treatment of
papulopustular (subtype II) rosacea. On July 8, 2019, we announced positive top-line results from our Phase 3 program evaluating
Epsolay®. The program enrolled 733 patients aged 18 and older in two identical, double-blind, vehicle-controlled Phase
3 clinical trials at 54 sites across the United States. Epsolay® demonstrated statistically significant improvement in both co-primary
endpoints of (1) the number of patients achieving “clear” or “almost clear” in the Investigator Global Assessment
(IGA) relative to baseline at week 12 and (2) absolute mean reduction from baseline in inflammatory lesion count at week 12. In an additional
analysis, Epsolay® demonstrated rapid efficacy, achieving statistically significant improvements on both co-primary endpoints compared
with vehicle as early as Week 2. In addition, Epsolay® was found to be well- tolerated. Our NDA for Epsolay® was accepted for
filing by the FDA, which originally assigned a PDUFA goal date of April 26, 2021, which has since been delayed due to COVID-19 related
travel restrictions. The FDA conducted a pre-approval inspection of the production site for Epsolay® during the week of February
14, 2022.
In
June 2021, we entered into two five-year exclusive license agreements with Galderma pursuant to which Galderma has the exclusive
right to, and is responsible for, all U.S. commercial activities for Twyneo®, and, if approved by the FDA, Epsolay®.
Other
investigational product candidates are SGT-210 that we are developing for the treatment of various keratodermas; SGT-310, an investigational
aryl hydrocarbon receptor agonist; and SGT-510.
We
designed our proprietary, silica-based microencapsulation technology platform to enhance the tolerability and stability of topical drugs
while maintaining their efficacy. Topical drugs often struggle to balance achieving both high efficacy and high tolerability. Our technology
platform entraps active ingredients in an inert, inorganic silica shell, which creates an unnoticeable barrier between the active ingredient
and the skin. The resulting microcapsules are designed to allow the entrapped active ingredients to gradually migrate through the pores
of the shell and deliver active ingredient doses onto the skin in a controlled manner, resulting in improved tolerability and stability
without sacrificing efficacy. By separately encapsulating active ingredients within protective silica shells, our technology platform
also enables the production of novel fixed-dose active ingredient combinations that otherwise would not be stable. We believe that our
microencapsulation technology has the potential to be used for topical drug products to treat a variety of skin diseases. As a result
of the FDA having already approved silica as a safe excipient for topical drug products, both Twyneo® and Epsolay® were submitted
for approval through the FDA’s 505(b)(2) regulatory pathway.
In
November 2021, we announced that we had signed an agreement with Padagis, pursuant to which we sold our rights related to 10 generic collaborative
programs and retained the collaboration rights to two generic programs related to four generic drug candidates for skin diseases. Under
the terms of the agreement with Padagis, effective as of November 1, 2021, we are to unconditionally receive $21.5 million over 24 months,
in lieu of our share in ten generic programs, two of which were approved by the FDA, and eight of which were unapproved.
Twyneo®,
a novel, once-daily, non-antibiotic topical cream, developed for the treatment of acne, containing a fixed-dose combination of encapsulated
benzoyl peroxide, or E-BPO, and encapsulated tretinoin. Acne is one of the three most prevalent skin diseases in the world and is the
most commonly treated skin disease in the United States. According to the American Academy of Dermatology, acne affects approximately
40 to 50 million people in the United States, of which approximately 10% are treated with prescription medications. Tretinoin and benzoyl
peroxide, the two active components in Twyneo®, are
both widely-used therapies for the treatment of acne that historically have not been conveniently co-administered due to stability concerns.
On December 30, 2019, we announced top-line results from two pivotal Phase 3 clinical trials evaluating Twyneo®
for the treatment of acne. Twyneo® met all co-primary
endpoints in both Phase 3 trials. The Phase 3 program enrolled an aggregate of 858 patients aged nine and older in two multicenter,
randomized, double-blind, parallel group, vehicle-controlled trials at 63 sites across the United States. Twyneo®
demonstrated statistically significant improvement in each of the co-primary endpoints of (1) the proportion of patients who succeeded
in achieving at least a two grade reduction from baseline and Clear (grade 0) or Almost Clear (grade 1) at Week 12 on a 5-point Investigator
Global Assessment (IGA) scale, (2) an absolute change from baseline in inflammatory lesion count at Week 12, and (3) and an absolute change
from baseline in non-inflammatory lesion count at Week 12. In addition, Twyneo®
was found to be well-tolerated. Twyneo® was
approved for marketing by the FDA in July 2021.
Our
leading investigational product candidate, Epsolay®, is a topical cream containing 5% encapsulated benzoyl peroxide, which we are
developing for the treatment of papulopustular (subtype II) rosacea. Rosacea is a chronic skin disease characterized by facial redness,
inflammatory lesions, burning and stinging. According to the U.S. National Rosacea Society, approximately 16 million people in the United
States are affected by rosacea. According to a study we commissioned in 2017, approximately 4.8 million people in the United States experience
subtype II symptoms. Subtype II rosacea is characterized by small, dome-shaped erythematous papules, tiny surmounting pustules on the
central aspects of the face, solid facial erythema and edema, and thickening/overgrowth of skin. Subtype II rosacea resembles acne, except
that comedowns are absent, and patients may report associated burning and stinging sensations. Current topical therapies for subtype II
rosacea are limited due to tolerability concerns. For example, BPO, a common therapy for acne, is not used for the treatment of subtype
II rosacea due to side effects. As encapsulated BPO, Epsolay® is designed to redefine the standard of care for the treatment of subtype
II rosacea. If approved by the FDA, we expect Epsolay® to be the first product containing BPO that is marketed for the treatment
of subtype II rosacea. On July 8, 2019, we announced positive top-line results from our Phase 3 program evaluating Epsolay®.
The program enrolled 733 patients aged 18 and older in two identical, double-blind, vehicle-controlled Phase 3 clinical trials at
54 sites across the United States. Epsolay® demonstrated
statistically significant improvement in both co-primary endpoints of (1) the number of patients achieving “clear” or “almost
clear” in the Investigator Global Assessment (IGA) relative to baseline at week 12 and (2) absolute mean reduction from baseline
in inflammatory lesion count at week 12. In an additional analysis, Epsolay®
demonstrated rapid efficacy, achieving statistically significant improvements on both co-primary endpoints compared with vehicle as early
as Week 2. In addition, Epsolay® was found to be well-tolerated. On February 12, 2020, we announced positive topline results from
our open-label, long-term safety study, evaluating Epsolay® for a treatment duration up to 52 weeks. Our NDA for Epsolay®
has been accepted for filing by the FDA, which originally assigned a PDUFA goal date of April 26, 2021, which has since been delayed due
to COVID-19 related travel restrictions. The FDA conducted a pre-approval inspection of the production site for Epsolay® during the
week of February 14, 2022.
We maintain exclusive, worldwide commercial rights for our other investigational product candidates, which
consist of:
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SGT-210 that we are developing for the treatment of various keratoderma, such as PC, PPK, etc. a group
of skin conditions characterized by thickening of the skin. SGT-210 is designed to be used alone or in combination for the treatment of
hyperproliferation and hyperkeratinization disorders, including PPK. On January 2, 2020, we announced the initiation of a Phase 1
clinical study of SGT-210 in patients with palmoplantar keratoderma. The Phase 1 study SGT-84-01 is a single-center, single-blinded, vehicle-controlled
study designed to evaluate the bioavailability, safety and tolerability of SGT-210 as well as inform on potential efficacy. During
the third quarter of 2021, we reported that the study with respect to six (6) palmoplantar keratoderma (PPK) patients has been completed
and indicated modest improvement and a favorable safety profile. |
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We are conducting pre-clinical testing to explore the possible activity of SGT-210, SGT-310 and SGT-510
in various new pharmaceutical indications. A total of 25 provisional patent applications for these investigational drug candidates have
been submitted to date, including patent applications covering the use of tapinarof in ophthalmic disorders such as dry eye, uveitis,
and blepharitis with or without demodex involvement. |
We are also currently developing a portfolio of two generic programs related to four generic drug candidates
in collaboration with Padagis, by assignment from Perrigo.
In
June 2021, we entered into two exclusive license agreements with Galderma, each for a period of five years following Galderma’s
first commercial sale of the applicable product in the U.S., pursuant to which Galderma has the exclusive right to, and is responsible
for, all U.S. commercial activities for Twyneo®, and, if approved by the FDA, Epsolay®, including promotion and distribution,
and we are responsible for obtaining all regulatory approvals of the products until approval in the U.S. Following approval, Galderma
will assume responsibility for all filings and communications with regulatory authorities in the U.S. until expiration of the applicable
license agreement. In connection with the licenses, we and Galderma have entered into a three party supply agreement with Douglas Manufacturing
Limited, which will supply Galderma the Twyneo® product, and Galderma is responsible for entering into a supply agreement with a
third party for the supply of the Epsolay® product, once approved. In consideration for the grant of such rights, we are entitled
to of up to $11 million in upfront payments to us and regulatory approval milestone payments. We are also eligible to receive tiered double-digit
royalties ranging from mid-teen to high-teen percentage of net sales as well as up to $9 million in sales milestone payments.
The
following chart represents our current investigational and generic product candidate pipeline:
Our
Approved Product and Investigational Product Candidates
Twyneo®
for Acne
Using
our proprietary, silica-based microencapsulation technology platform, we developed Twyneo®
to become a preferred treatment for acne by dermatologists and their patients.
Twyneo®
is a novel, once-daily, non-antibiotic topical cream containing a fixed-dose combination of encapsulated benzoyl peroxide and encapsulated
tretinoin that we developed for the treatment of acne. Studies have shown that benzoyl peroxide and tretinoin are effective in treating
acne as monotherapies; moreover, according to an article in the American Academy of Dermatology (2009), dermatologists recommend
combining the two monotherapies as a first-line approach for acne, but a drug-drug interaction that causes the degradation of tretinoin
has previously prohibited the development of a combination therapy. By encapsulating the two agents separately through the use of our
technology platform, Twyneo® is designed to be a
fixed-dose combination that otherwise would not be stable. Similar to other combination drug products, such as clindamycin and benzoyl
peroxide, Twyneo® is required to be kept refrigerated
throughout the supply chain and then stored in ambient conditions upon its distribution to patients. Pre-clinical data suggests that Twyneo®
may be more tolerable than generic tretinoin gel 0.1% and Epiduo, a branded fixed-dose combination of benzoyl peroxide and adapalene,
without a corresponding loss in efficacy. In addition, Epiduo and its successor Epiduo Forte contain adapalene as opposed to tretinoin,
which is widely considered to be more effective than adapalene, but generally causes greater irritation. We expect that Twyneo® will
compete directly with Winlevi, Aklief, Epiduo and Epiduo Forte. We have utilized the FDA’s 505(b)(2) regulatory pathway in seeking
approval of Twyneo® in the United States.
On
December 30, 2019, we announced top-line results from two pivotal Phase 3 clinical trials evaluating Twyneo®
for the treatment of acne. Twyneo® met all co-primary
endpoints in both Phase 3 trials. The Phase 3 program enrolled an aggregate of 858 patients aged nine and older in two multicenter,
randomized, double-blind, parallel group, vehicle-controlled trials at 63 sites across the United States. Twyneo®
demonstrated statistically significant improvement in each of the co-primary endpoints of (1) the proportion of patients who succeeded
in achieving at least a two grade reduction from baseline and Clear (grade 0) or Almost Clear (grade 1) at Week 12 on a 5-point Investigator
Global Assessment (IGA) scale, (2) an absolute change from baseline in inflammatory lesion count at Week 12, and (3) and an absolute change
from baseline in non-inflammatory lesion count at Week 12. Twyneo®
was approved for marketing by the FDA in July 2021.
Acne
Market Opportunity
Acne
is a disease characterized by areas of scaly red skin, non-inflammatory blackheads and whiteheads, inflammatory lesions, papules and pustules
and occasionally boils and scarring that occur on the face, neck, chest, back, shoulders and upper arms. The development of acne lesions
is caused by genetic and environmental factors that arise from the interplay of the following pathogenic factors:
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blockage of hair follicles through abnormal keratinization in the follicle, which narrows pores;
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increase in oils, or sebum production, secreted by the sebaceous gland; |
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overgrowth of naturally occurring bacteria caused by the colonization by the anaerobic lipohilic bacterium
Propionibacterium acnes, or P. acnes; |
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inflammatory response due to relapse of pro-inflammatory mediators into the skin. |
Due
to the frequency of recurrence and relapse, acne is characterized as a chronic inflammatory disease, which may require treatment over
a prolonged period of time. Acne is one of the three most prevalent skin diseases in the world and is the most commonly treated skin disease
in the United States. According to the American Academy of Dermatology, acne affects approximately 40 to 50 million people in the United
States and approximately 85% of people between the ages of 12 and 24 experience some form of acne. Acne patients suffer from the appearance
of lesions on areas of the body with a large concentration of oil glands, such as the face, chest, neck and back. These lesions can be
inflamed (papules, pustules, nodules) or non-inflamed (comedones). Early effective treatment is recommended to lessen the overall long-term
impact. For most people, acne diminishes over time and tends to disappear, or at least to decrease, by the age of 25. There is, however,
no way to predict how long it will take for symptoms to disappear entirely, and some individuals continue to suffer from acne well into
adulthood.
Current
Treatment Landscape for Acne
The
treatment options for acne depend on the severity of the disease and consist of topical and oral drugs:
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Mild
acne: characterized by few papules or pustules (both comedonal and inflammatory);
treated with an over-the-counter product or topical prescription therapies. |
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Moderate
acne: characterized by multiple papules and pustules with moderate inflammation
and seborrhea (scaly red skin); treated with a combination of oral antibiotics and topical therapies. |
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Severe
acne: characterized by substantial papulopustular disease, many nodules
and/or cysts and significant inflammation and seborrhea; treated with oral and topical combination therapies and photodynamic therapy
as a third-line treatment. |
Topical therapies dominate
the acne market as physicians and patients often prefer therapies that act locally on the skin, while minimizing side effects. For more
pronounced symptoms, patients are typically treated with a combination of topical and oral therapies.
The
acne prescription treatment landscape is comprised of four classes of topical products and two classes of oral products:
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Topical
over-the-counter monotherapies such as adapalene 0.1%, benzoyl peroxide
and salicylic acid, in different concentrations, are the most commonly used therapies. These are generally tolerable first-line treatments
for mild acne, but less efficacious than prescription therapies. |
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Topical
prescription antibiotic monotherapies such as clindamycin and erythromycin
that are most commonly used as topical therapies in cases of mild-to-moderate acne. |
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Topical
prescription retinoid monotherapies such as tretinoin, adapalene 0.3% and
tazarotene. Physicians view retinoids as moderately efficacious, but they have high rates of skin irritation. |
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Topical
prescription combination products such as combinations of BPO/adapalene,
BPO/clindamycin, BPO/erythromycin and clindamycin/tretinoin. These target multiple components that contribute to the development of acne,
though topical side effects are common. |
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Oral
prescription antibiotics such as doxycycline and minocycline. These are
typically used as step-up treatments for more severe cases of acne, with risk of systemic side effects. |
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Oral
prescription isotretinoin, which is primarily used for severe cystic acne
and acne that has not responded to other treatments. The use of oral prescription isotretinoin is tightly controlled due to tolerability
issues. |
Twyneo®
Phase 3 Trial Design
The
pivotal Phase 3 clinical program evaluating the safety and efficacy of Twyneo®
in subjects with acne vulgaris enrolled an aggregate of 858 patients aged nine and older, with moderate-to-severe acne in two multicenter,
randomized, double-blind, parallel group, vehicle-controlled trials at 63 sites across the United States. Patients were randomized at
a 2:1 ratio to be treated once-daily with either Twyneo® (n=571) or vehicle cream (n=287) for 12 weeks.
The
primary and secondary efficacy endpoints were assessed at the end of the 12-week treatment period. Three primary efficacy endpoints were
defined for this trial:
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the proportion of subjects who achieve at least a two-grade reduction in the IGA score and either “clear”
or “almost clear” at week 12; |
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the mean absolute change from baseline in the number of inflammatory acne lesions at week 12; and
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the mean absolute change from baseline in the number of non-inflammatory acne lesions at week 12.
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Twyneo®
Phase 3 Trial Results
As
outlined below Twyneo® met all co-primary endpoints in both Phase 3 trials. Twyneo® demonstrated statistically significant
improvement in each of the co-primary endpoints described above.
In
trial SGT-65-04, 39.9% of patients treated with Twyneo® achieved success in IGA versus 14.3% in the vehicle treated group (P<0.001)
at week 12. In trial SGT-65-05, 26.8% of patients treated with Twyneo® achieved success in IGA versus 15.1% in the vehicle group
(P=0.017) at week 12. In trial SGT-65-04, the absolute mean change from baseline of inflammatory lesion count for Twyneo® was
-21.6 versus -14.8 for the vehicle group (P<0.001) at week 12. In trial SGT-65-05, the absolute change from baseline of inflammatory
lesion count for Twyneo® was -16.2 versus -14.1 for the vehicle group (P=0.021) at week 12. In trial SGT-65-04, the absolute
mean change from baseline of non-inflammatory lesion count for Twyneo® was -29.7 versus -19.8 for the vehicle group (P<0.001).
In trial SGT-65-05, the absolute mean change from baseline of non-inflammatory lesion count for Twyneo was -24.2 versus -17.4 for the
vehicle group (P<0.001) at week 12.
In
both trials, Twyneo® appeared to be generally safe and well-tolerated and the majority of local skin reactions, when reported, were
mild or moderate and improved over time. A total of 18 subjects discontinued treatment in both trials due to treatment emergent adverse
events. There were no treatment-related serious adverse events and four unrelated serious adverse events (one Twyneo® (depression),
three vehicle) were reported across both trials.
The
following chart presents the proportion of subjects in the ITT population in studies SGT 65-04 and SGT 65-05 who achieved a successful
improvement in the severity of their disease at week 12, as assessed using the IGA:
The
following chart presents the absolute mean change from baseline in the number of inflammatory acne lesions at week 12:
The
following chart presents the absolute mean change from baseline in the number of non-inflammatory acne lesions at week 12:
We
also assessed cutaneous tolerability by recording the erythema (redness), scaling, pigmentation, dryness, itching, burning and stinging
on a four-point scale from 0 to 3 at baseline and at each visit. These measurements are either measured by the physician or reported by
the subject. Overall, Twyneo® was generally
well tolerated. The majority of cutaneous adverse events were mild.
Out
of the 858 subjects who enrolled in both studies, 754 subjects were included in the safety population, and a combined total of 16 subjects
discontinued treatment due to an adverse event across both trials. The most common reasons for subjects not completing the study in both
groups (active and vehicle) were the withdrawal of informed consent (41 subjects, 4.8%), and loss to follow-up (39 subjects, 4.5%).
Epsolay®
for Subtype II Rosacea
Epsolay®
Overview
Epsolay®
is a once-daily investigational topical cream containing 5% encapsulated benzoyl peroxide that we have developed for the treatment
of papulopustular (subtype II) rosacea. We believe Epsolay® has the potential to become the first product to contain encapsulated
benzoyl peroxide for the treatment of subtype II rosacea and, if approved by the FDA, has the potential to redefine the standard of care
for the treatment of inflammatory lesions associated with subtype II rosacea. Subtype II rosacea is characterized by small, dome-shaped
erythematous papules, tiny surmounting pustules on the central aspects of the face, solid facial erythema and edema, and thickening/overgrowth
of skin. Subtype II rosacea resembles acne, except that comedones are absent, and patients may report associated burning and stinging
sensations. We expect that Epsolay®, if approved by the FDA, will compete directly with Soolantra. We utilized the FDA’s
505(b)(2) regulatory pathway in seeking approval of Epsolay® in the United States. On
July 8, 2019, we announced positive top-line results from our Phase 3 program evaluating Epsolay®. The program enrolled 733
patients aged 18 and older in two identical, double-blind, vehicle-controlled Phase 3 clinical trials at 54 sites across the United States.
Epsolay® demonstrated statistically significant improvement in both co-primary endpoints of (1) the number of patients achieving
“clear” or “almost clear” in the Investigator Global Assessment (IGA) relative to baseline at week 12 and (2)
absolute mean reduction from baseline in inflammatory lesion count at week 12. In an additional analysis, Epsolay® demonstrated rapid
efficacy, achieving statistically significant improvements on both co-primary endpoints compared with vehicle as early as Week 2. In addition,
Epsolay® was found to be well- tolerated. On February 12, 2020, we announced positive topline results from our open-label, long-term
safety study, evaluating Epsolay® for a treatment duration up to 52 weeks. Our NDA for Epsolay®
has been accepted for filing by the FDA, which originally assigned a PDUFA goal date of April 26, 2021, which has since been delayed due
to COVID-19 related travel restrictions. The FDA conducted a pre-approval inspection of the production site for Epsolay® during the
week of February 14, 2022.
Current
Treatment Landscape for Subtype II Rosacea
As
there is no cure for rosacea, treatment is largely focused on managing the disease. We believe that a significant market opportunity exists
for a subtype II rosacea treatment option that can provide both efficacy and higher tolerability than existing treatments. There are currently
five approved drugs for the treatment of subtype II rosacea: Soolantra, Metrogel, Oracea, Zilixi and generic metronidazole. In certain
cases, dermatologists often prescribe oral antibiotics either as monotherapies or in conjunction with approved medications.
Our
Solution for Subtype II Rosacea — Epsolay®
Benzoyl
peroxide is approved by the FDA for the treatment of acne and is widely considered to be safe and effective. Currently, there is no approved
benzoyl peroxide product in the rosacea treatment landscape as a result of potential tolerability issues, despite clinical studies showing
that treatment with benzoyl peroxide could be efficacious. According to a published study, benzoyl peroxide was found to be an effective
treatment for rosacea but caused irritation. Using our proprietary, silica-based microencapsulation technology platform, we believe our
Epsolay® candidate for the treatment of papulopustular (subtype II) rosacea can improve on current subtype II rosacea treatments
in the following ways:
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Epsolay® creates a silica-based barrier between benzoyl peroxide crystals and the skin and, as a
result, can reduce irritation typically associated with topical application of benzoyl peroxide, increasing the potential for more tolerable
application to rosacea-affected skin. |
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Epsolay®'s release of the drug can reduce irritation while maintaining efficacy. |
Epsolay®
is an innovative topical cream, and if approved by the FDA, would be the first product containing benzoyl peroxide for the treatment of
subtype II rosacea.
Epsolay® Phase
3 Trial Design
In
June 2018, we announced dosing of the first subject in our pivotal Phase 3 clinical program of Epsolay® in subjects with papulopustular
rosacea. The program enrolled 733 patients aged 18 and older in two identical, double-blind, vehicle-controlled Phase 3 clinical
trials at 54 sites across the United States. Patients were randomized at a 2:1 ratio to be treated once-daily with either Epsolay (n=493)
or vehicle cream (n=240) for 12 weeks. After the initiation of treatment, clinical and safety evaluations were performed at Weeks 2, 4,
6, 8 and 12.
The
primary efficacy endpoints for both trials were success in the IGA defined as two-grade reduction in IGA on a stage of 0 to 4 with a “clear”
(0) or “almost clear” (1) at week 12, and a reduction in mean inflammatory lesion count at week 12.
Epsolay®
Phase 3 Trial Results
As
outlined below, Epsolay demonstrated statistically significant improvement in both co-primary endpoints of (1) the number of patients
achieving “clear” or “almost clear” in the IGA relative to baseline at week 12 and (2) absolute mean reduction
from baseline in inflammatory lesion count at week 12. In an additional analysis, Epsolay® demonstrated rapid efficacy, achieving
statistically significant improvements on both co-primary endpoints compared with vehicle as early as Week 2. Epsolay® demonstrated
a favorable safety and tolerability profile similar to vehicle.
In
study SGT 54-01, patients in the Epsolay® and vehicle treatment groups had a baseline mean inflammatory lesion count of 25.7 and
26.3, respectively. The proportion of patients with “moderate” (3) or “severe” (4) IGA in the Epsolay® treatment
group was 86.4% and 13.6%, respectively, and 88.1% and 11.9%, respectively, in the vehicle treatment group. In study SGT 54-02,
patients in Epsolay® and vehicle treatment groups had a baseline mean inflammatory lesion count of 29.8 and 27.5, respectively. The
proportion of patients with “moderate” (3) or “severe” (4) IGA in the Epsolay treatment group was 90.8% and 9.2%,
respectively, and 91.8% and 8.2%, respectively, in the vehicle treatment group.
As
outlined below, Epsolay® met all co-primary endpoints in both Phase 3 trials. Epsolay® demonstrated statistically
significant improvement in each of the co-primary endpoints described above.
In
study SGT 54-01, 43.5% of patients treated with Epsolay achieved success in IGA versus 16.1% in the vehicle treated group (P<0.001)
at week 12. In Study 54-02, 50.1% of patients treated with Epsolay® achieved success in IGA versus 25.9% in the vehicle group
(P<0.001) at week 12. In study SGT 54-01, the absolute change from baseline of inflammatory lesion count for Epsolay was
-17.4 versus -9.5 for the vehicle group (P<0.001) at week 12. In study SGT 54-02, the absolute change from baseline of inflammatory
lesion count for Epsolay was -20.3 versus -13.3 for the vehicle group (P<0.001) at week 12.
The
following chart presents the proportion of subjects in the ITT population in studies SGT 54-01 and SGT 54-02 who achieved a successful
improvement in the severity of their disease at week 12, as assessed using the IGA:
The
following chart presents the absolute change from baseline in the number of inflammatory acne lesions at week 12:
The
following chart presents the percent change from baseline in the number of inflammatory acne lesions at week 12:
In
both studies, Epsolay® demonstrated a favorable safety and tolerability profile similar
to vehicle, with a low rate of cutaneous side effects (e.g., dryness, scaling, itching and burning/stinging) comparable to vehicle. Adverse
events were primarily mild to moderate in severity with the most frequently reported adverse events across both studies being application
site erythema and application site pain reported by less than 3.4% of subjects. There were no treatment-related serious adverse events,
with a combined total of two unrelated serious adverse events (1 Epsolay®, 1 vehicle) reported across both trials.
Out
of the 733 subjects who enrolled in both studies, 721 subjects were included in the safety population, and a combined total of 10 subjects
(9 Epsolay®, 1 vehicle) discontinued treatment due to an adverse event across both trials. The most common reasons for subjects not
completing the study in both groups (active and vehicle) were the withdrawal of informed consent (25 subjects, 3.4%), and loss to follow-up
(17 subjects, 2.3%).
Long-Term
Safety Study Results for Epsolay®
On
February 12, 2020, we announced positive topline results from our open-label, long-term safety study, SGT -54-07, evaluating Epsolay®
for a treatment duration up to 52 weeks. The study enrolled 547 subjects, all of whom had completed 12 weeks of treatment with Epsolay®
or vehicle in the preceding double-blind Phase 3 studies. Patients continued onto open-label treatment with Epsolay® once-daily for
up to an additional 40 weeks. The safety population of 535 subjects received Epsolay® therapy for an overall period of at least 28
weeks. Of these 535 subjects, 209 subjects completed 52 weeks of treatment with Epsolay, exceeding the sample size requirements previously
defined by the FDA for the Epsolay® one-year safety evaluation.
Non-cutaneous
adverse events were similar in frequency and type to those observed in the preceding Phase 3 trials. The most common adverse event reported
was nasopharyngitis (5.4%). Less than 3% of patients experienced application site adverse events that were considered to be drug-related,
and no serious drug-related adverse events were reported.
At
every study visit, the investigator conducted Local Tolerability and Cutaneous Safety Assessments. At the end of 52 weeks more than 90%
of subjects had “none” or “mild” signs or symptoms (burning or stinging, itching, dryness and scaling) and no
“severe” tolerability scores were recorded.
Although
the study was designed to evaluate long-term safety, subjects also continued to undergo evaluation according to the Investigator Global
Assessment (IGA) 5-point scale. Of the 209 patients treated with Epsolay for 52 weeks, 73.2% reported an IGA score of 0 ("clear") or 1
("almost clear") at 52 weeks.
SGT-210
for Keratodermas
SGT-210
that we are developing for the treatment of keratoderma, such as PPK, a group of skin conditions characterized by thickening of the skin.
SGT-210 is designed to be used alone or in combination for the treatment of hyperproliferation and hyperkeratinization disorders, including
PPK. On January 2, 2020, we announced the initiation of a Phase 1 clinical study of SGT-210 in patients with palmoplantar keratoderma.
The Phase 1 concept study SGT-84-01 is a single-center, single-blinded, vehicle-controlled study designed to evaluate the bioavailability,
safety and tolerability of SGT-210 as well as inform on potential efficacy. During the third quarter of 2021, we reported that the study
with respect to six (6) palmoplantar keratoderma (PPK) patients has been completed and indicated modest improvement and a favorable safety
profile
SGT-210,
SGT-310 and SGT-510 potentially for psoriasis and other medical conditions
We
are conducting pre-clinical testing to explore the possible activity of SGT-210, SGT-310, and SGT-510 in various new pharmaceutical indications.
Approximately 25 provisional patent applications for these project candidates have been submitted to date, including patent applications
covering the use of tapinarof in ophthalmic disorders such as dry eye, uveitis, and blepharitis with or without demodex involvement.
Generic
Drug Product Candidates
In
addition to our investigational product candidates, we are also currently developing a portfolio of two generic topical dermatological
related to four generic drug candidates in collaboration with Padagis by assignment from Perrigo. Padagis has significant experience in
the development of generic drugs.
We
previously had collaboration arrangements with Perrigo to develop a portfolio of 11 generic topical dermatological products. In November
2021, we announced that we had signed an agreement with Padagis, pursuant to which we sold our rights related to 10 generic collaborative
agreements between the parties. Under the terms of this agreement with Padagis, effective as of November 1, 2021, we are to unconditionally
receive $21.5 million over 24 months, in lieu of our share in the ten generic programs, two of which were approved by the FDA, and eight
of which are unapproved. Pursuant to the agreement, effective as of November 1, 2021, we ceased paying any outstanding and future
operational costs related to these 10 collaborative agreements.
We
currently have two collaboration agreements with Padagis for the development, manufacturing and commercialization of two generic product
candidates. Under such agreements, Padagis will conduct the regulatory (if relevant), scientific, clinical and technical activities
necessary to develop the generic product candidates and seek regulatory approval with the FDA for the generic product candidates. If approved
by the FDA, Padagis has agreed to commercialize the generic product candidates in the United States. We and Padagis will share the
development costs and the gross profits generated from the sales of the generic product candidates, if approved by the FDA.
Our
Proprietary Silica-Based Microencapsulation Technology Platform
Encapsulation
of a drug substance can be made using a variety of techniques, such as solvent evaporation, coacervation, and interfacial polymerization.
Most encapsulations involve organic polymers, such as poly-methyl methacrylate, chitosan and cellulose. The resultant encapsulated drug
substance can be an aqueous dispersion of varying payload and volume fraction or a dried powder. Control over the encapsulation process
when organic polymers are used is challenging and is mainly limited to shell thickness. Other properties of the organic polymer encapsulating
material are hard to control.
In
contrast, we use proprietary ‘sol-gel’ processes to shape silica on site to form microcapsule shells of almost any size and
release profile. Sol-gel is a chemical process whereby amorphous silica, or other metal oxides, are made by forming interconnections among
colloidal particles (the “sol”) under increasing viscosity until a rigid silica shell (the “gel”) is formed. The
drug substance that is added during the sol-gel reaction is encapsulated, using a patented technique, by which a core-shell structure
is formed. The drug substance is in the core and the silica is the capsule shell. At the end of the process, the microcapsules are in
the shape of small beads ranging from 1 – 50 micron in size. This process results in an aqueous suspension in which
the drug substances are entrapped in silica particles.
Intellectual
Property
Our
intellectual property and proprietary technology are directed to the development, manufacture and sale of Twyneo®, Epsolay®
and our other investigational product candidates, SGT-210, SGT-310, SGT-510 . We seek to protect our intellectual property, core technologies
and other know-how, through a combination of patents, trademarks, trade secrets, non-disclosure and confidentiality agreements, assignments
of invention and other contractual arrangements with our employees, consultants, partners, suppliers, customers and others.
We
will be able to protect our technology from unauthorized use by third parties only to the extent it is covered by valid and enforceable
patents or is effectively maintained as trade secrets. Patents and other proprietary rights are an essential element of our business.
If any of the below described applications are not approved, or any of the below described patents are invalidated, deemed unenforceable
or otherwise successfully challenged, such loss would have a material effect on the commercialization of our Investigational product candidates
and our future prospects.
Our
patent portfolio that is directed to Twyneo® Epsolay® and our other investigational product candidates includes 144 patents
and patent applications and claims processes for manufacture (including silica microencapsulation platform and other technologies), formulations,
composition of matter, and methods of use. Of these 144 patents and patent applications, 78 are granted patents (11 in the United States
and 67 in other countries) and 66 are pending applications (32 in the United States and 34 in other countries).
For
Twyneo®, we have obtained patent protection for the
composition of matter in the United States, Canada, Japan, Mexico (with a term until 2028) and we have an allowed application claiming
composition of matter in the European Patent Office. There are four patent families protecting the process for the encapsulation of the
active agents of our Twyneo® product (one patent
family has patents granted in Canada, India, Mexico, Europe (validated in France, Germany, Ireland, Italy, Spain, Switzerland and the
United Kingdom) and Japan (with a term until 2028) and applications pending in the United States; the second patent family has patents
granted in Mexico, Canada and the United States (with a term until 2029) and an application pending in the United States; the third patent
family has patents granted in Europe (validated in France, Germany, Ireland, Italy, Spain, Switzerland and the United Kingdom), China,
India, Japan, Canada, Mexico and the United States (with a term until 2030) and applications pending in the United States); and the fourth
patent family has patents granted in Canada, China, Israel, India, Mexico and the United States). We own pending patents for the formulation
of our Twyneo® product in the United States (with
a term until 2032), and patents granted in China, Japan, Canada, Mexico and Europe (validated in France, Germany, Ireland, Italy, Spain,
Switzerland, United Kingdom) (with a term until 2032). We have pending patent applications in the United States for the composition of
our Twyneo® product and one patent granted in the
United States for the method of treatment of Twyneo® (with a term until 2038). We have five trademarks registered for our Twyneo®
product in Israel, Europe, the United States and Canada.
For
Epsolay®, we have obtained patents in China, Canada, Japan, Europe, Mexico and the United States (with a term until 2032) covering
the composition for topical treatment of rosacea. We have further pending applications for this composition in the United States. There
are two patent families directed to the process for encapsulation of the active agents of Epsolay® (one patent family has granted
patents in Canada, India, Mexico, Europe (validated in France, Germany, Ireland, Italy, Spain, Switzerland and the United Kingdom) and
Japan (with a term until 2028) and pending applications in the United States; and the second patent family has patents granted in Canada,
China, Israel, India, Mexico and the United States). We also have 2 granted patents in the United States (with a term until 2040) and
14 patent applications pending covering the methods of use of Epsolay® for the treatment of rosacea.
We
have one published international application and 3 pending applications in the United States covering the compositions of Epsolay®
and Twyneo®, the processes for the encapsulation
of the active agents of our Epsolay® and Twyneo®,
and the methods of use.
We
have four registered trademarks in Europe, Canada, the United States and Israel. These registrations cover potential brand names for our
Epsolay® in Israel, Europe, Canada and the United States.
For
SGT-210, we have 16 pending applications in China, Canada, Japan, Korea, Europe, Mexico and the United States, the refer to methods and
compositions of use.
For
SGT-310, we have 15 pending applications in China, Canada, Japan, Korea, Europe, Mexico and the United States, that refer to compositions
per se, compositions for use, methods of treatments, regimens and kits.
For
SGT-510, we have nine pending applications in China, Canada, Japan, Korea, Europe, Mexico and the United States, that refer to refer to
compositions per se, dosage forms, methods of treatment, and regimens.
Competition
The
pharmaceutical industry is subject to intense competition as well as rapid technological changes. Our ability to compete is based on a
variety of factors, including product efficacy, safety, cost-effectiveness, patient compliance, patent position and effective product
promotion. Competition is also based upon the ability of a company to offer a broad range of other product offerings, large direct sales
forces and long-term customer relationships with target physicians.
There
are numerous companies that have branded or generic products or product candidates in the dermatology market. Among them are Aclaris Therapeutics,
Inc., Akorn, Inc., Almirall S.A., Aqua Pharmaceuticals LLC, Bayer HealthCare AG, Cassiopea SpA, Vyne Pharmaceuticals Ltd., Galderma
Pharma S.A., Glenmark Pharmaceuticals Ltd., G&W Laboratories, Inc., LEO Pharma A/S, Mylan N.V., Novan, Inc., Novartis AG, Novum Pharma,
LLC, Perrigo Company plc, Pfizer, Inc., Spear Therapeutics, Ltd., Sun Pharmaceutical Industries Ltd., Teligent, Inc., Teva Pharmaceutical
Industries Ltd. and Bausch Health Companies Inc.
In
order for our approved product candidates, if any, to compete successfully in the dermatology market, we will have to demonstrate that
their efficacy, safety and cost-effectiveness provide an attractive alternative to existing therapies, some of which are widely known
and accepted by physicians and patients, as well as to future new therapies. Such competition could lead to reduced market share for our
product candidates and contribute to downward pressure on the pricing of our product candidates, which could harm our business, financial
condition, operating results and prospects.
Many
of the companies, academic research institutions, governmental agencies and other organizations involved in the field of dermatology have
substantially greater financial, technical and human resources than we do, and may be better equipped to discover, develop, test and obtain
regulatory approvals for products that compete with ours. They may also be better equipped to manufacture, market and sell products. These
companies, institutions, agencies and organizations may develop and introduce products and drug delivery technologies competitive with
or superior to ours which could inhibit our market penetration efforts.
Twyneo®
and Epsolay® target the well-established acne and rosacea markets. We expect Twyneo®,
and if approved by the FDA, Epsolay®, to compete with current standard-of-care treatments, whether branded, generic or over-the-counter,
as well as with new treatments to be approved in the future. The current standard-of-care for acne includes topical anti-bacterial drugs
such as benzoyl peroxide that are broadly available over-the-counter, prescription drug products that are based on single retinoid drug
products such as Differin, Atralin, Retin-A, Retin-A Micro, Tazorac and Altreno, fixed-dose combinations of benzoyl peroxide and adapalene
such as Epiduo and Epiduo Forte, fixed-dose combinations of benzoyl peroxide and clindamycin such as Duac, Benzaclin, Onexton and Acanya,
fixed-dose combinations of tretinoin and clindamycin such as Ziana and Veltin, topical antiandrogen such as Winlevi and topical antibiotics
such as Aczone and Amzeeq. The current standard of care for rosacea includes Metrogel, Finacea, Soolantra and the recently launched Zilxi,
as well as oral Oracea (doxycycline embedded in a technology platform). As a fixed-dose combination product candidate, Twyneo® may
also compete with drug products utilizing other technologies that can separate two drug substances, such as dual chamber tubes, dual pouches
or dual sachets. In addition to these products, our generic drug product candidates are expected to face direct competition from branded
drugs and authorized generics which are prescription drugs produced by the branded pharmaceutical companies and marketed under a private
label, at generic prices.
Marketing, Sales and
Distribution
We
currently have limited sales, marketing and distribution capabilities. In June 2021, we entered into two five-year exclusive license agreements with
Galderma pursuant to which Galderma has the exclusive right to, and is responsible for, all U.S. commercial activities for Twyneo®,
and, if approved by the FDA, Epsolay®. Pursuant to the agreement, we are entitled to consideration of up to $11 million in
upfront payments to us and regulatory approval milestone payments. We are also eligible to receive tiered double-digit royalties ranging
from mid-teen to high-teen percentage of net sales as well as up to $9 million in sales milestone payments. We also expect to collaborate
with third parties that have sales and marketing experience in order to commercialize our other investigational product candidates, if
approved by the FDA for commercial sale, in lieu of our own sales force and distribution systems. If we are unable to enter into such
arrangements for our other product candidates on acceptable terms or at all, we may not be able to successfully commercialize them. In
other markets, we also expect to selectively pursue strategic collaborations with third parties in order to maximize the commercial potential
of our product candidates.
Manufacturing
For
the supply of current good manufacturing practice-grade, or cGMP-grade and clinical trial materials we rely on and expect to continue
to rely on third-party contract manufacturing organizations, or CMOs, or on in-house manufacturing capabilities. As of August 2018, our
in-house manufacturing operations have been audited for current good manufacturing, or cGMP, compliance, and were granted a cGMP certification
by the Israel Ministry of Health. This certification allowed us to manufacture Twyneo® and its intermediates to support Phase 3 clinical
trials. This cGMP certification expired in 2020, and since no other manufacturing for Phase 3 clinical trials is planned at the Company
during 2021, the Company and the Israel Ministry of Health have mutually concluded that the cGMP certification will be reassessed and
renewed for other products as they reach relevant stages of development. ISO 14001:2015 and ISO 45001:2018certifications continue to be
maintained and are due for renewal in May 2024 and March 2021, respectively. For commercial manufacturing of our products, we intend to
rely solely on CMOs. It is our policy to have multiple or alternative sources where possible for every service and material we use in
our products.
Government
Regulation
Regulation
by governmental authorities in Israel, the United States and other countries is a significant factor in the development, manufacture and
commercialization of our product candidates and in our ongoing research and development activities. Our business is subject to extensive
government regulation in Israel for its manufacturing activities involving drug products, drug product intermediates, and drug product
active substances to be used in Phase 1 and Phase 2 clinical trials.
Product
Approval Process in the United States
Review
and approval of drugs
In
the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug and Cosmetic Act, or
FDCA, and other federal and state statutes and implementing regulations govern, among other things, the research, development, testing,
manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting,
sampling, and import and export of pharmaceutical products. Failure to comply with the applicable U.S. requirements at any time during
the product development process, approval process or after approval may subject an applicant to a variety of administrative or judicial
sanctions and enforcement actions brought by the FDA, the Department of Justice or other governmental entities. Possible sanctions may
include the FDA’s refusal to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of
warning letters or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions,
fines, refusals of government contracts, restitution, disgorgement and civil or criminal penalties.
FDA
approval of a new drug application is required before any new unapproved drug or dosage form, can be marketed in the United States. Section
505 of the FDCA describes three types of new drug applications: (1) an application that contains full reports of investigations of safety
and effectiveness (section 505(b)(1)); (2) an application that contains full reports of investigations of safety and effectiveness but
where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the
applicant has not obtained a right of reference (section 505(b)(2)); and (3) an application that contains information to show that the
proposed product is identical in active ingredient, dosage form, strength, route of administration, labeling, quality, performance characteristics,
and intended use, among other things, to a previously approved product (section 505(j)). Section 505(b)(1) and 505(b)(2) new drug applications
are referred to as NDAs, and section 505(j) applications are referred to as ANDAs.
In
general, the process required by the FDA prior to marketing and distributing a new drug, as opposed to a generic drug subject to section
505(j), in the United States usually involves the following:
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• |
completion of pre-clinical laboratory tests, animal studies and formulation studies in compliance with
the FDA’s good laboratory practices, or GLP, requirements or other applicable regulations; |
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• |
submission to the FDA of an investigational new drug application, or IND, which must become effective
before human clinical trials in the United States may begin; |
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• |
approval by an independent institutional review board, or IRB, or ethics committee at each clinical site
before each trial may be initiated; |
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• |
performance of adequate and well-controlled human clinical trials in accordance with good clinical practice,
or GCP, requirements to establish the safety and efficacy of the proposed drug for its intended use; |
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• |
preparation and submission to the FDA of an NDA; |
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• |
satisfactory completion of an FDA advisory committee review, if applicable; |
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• |
satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at
which the product or components thereof are produced, to assess compliance with current good manufacturing practices, or cGMPs, and to
assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;
|
|
• |
satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the
integrity of the clinical data; and |
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• |
payment of user fees and FDA review and approval of the NDA. |
Pre-clinical
studies
Pre-clinical
studies include laboratory evaluation or product chemistry, formulation and toxicity, as well as animal studies to assess the potential
safety and efficacy of the product candidate. Pre-clinical safety tests must be conducted in compliance with the FDA regulations. The
results of the pre-clinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of
an investigational new drug application, or IND, which must become effective before clinical trials may commence. An IND is a request
for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is
on the general investigational plan and the protocol(s) for clinical studies. The IND automatically becomes effective 30 days after
receipt by the FDA, unless the FDA, within the 30- day time period, raises safety concerns or questions about the proposed clinical trial.
In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions
before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.
Long-term pre-clinical studies, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND application
is submitted.
Clinical
trials
Clinical
trials involve the administration of an investigational product to human subjects under the supervision of qualified investigators in
accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed
consent in writing before their participation in any clinical trial. Clinical trials are conducted under written trial protocols detailing,
among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be
evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the local institutional review
board, or IRB, and to the FDA as part of the IND.
An
IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it
commences at that institution, and the IRB must conduct continuing review at least annually. The IRB must review and approve, among other
things, the trial protocol information to be provided to trial subjects. An IRB must operate in compliance with FDA regulations. Some
studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety
monitoring board, which provides authorization for whether or not a study may move forward at designated check
points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety
risk for subjects or other grounds, such as no demonstration of efficacy. Depending on its charter, this group may determine whether a
trial may move forward at designated check points based on access to certain data from the trial. The FDA or the sponsor may suspend a
clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable
health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being
conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.
There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.
Clinical
trials are typically conducted in three sequential phases, which may overlap or be combined:
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• |
Phase
1: The drug is initially introduced into healthy human subjects or patients
with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if
possible, to gain an early indication of its effectiveness and to determine optimal dosage. |
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• |
Phase
2: The drug is administered to a limited patient population to identify
possible short-term adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases
and to determine dosage tolerance and optimal dosage. |
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• |
Phase
3: The drug is administered to an expanded patient population, generally
at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate
the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate
information for the labeling of the product. |
In
some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more
information about the product. These so-called Phase 4 studies, may be conducted after initial marketing approval, and may be used to
gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate
the performance of Phase 4 clinical trials as a condition of approval of an NDA.
Concurrent
with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry
and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with
cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among
other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug. In addition,
appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does
not undergo unacceptable deterioration over its shelf life.
While
the IND is active and before approval, progress reports summarizing the results of the clinical trials and nonclinical studies performed
since the last progress report must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the
FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to
humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting
a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that
listed in the protocol or investigator brochure.
In
addition, during the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points
may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested.
These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide
advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the meetings at the
end of the Phase 2 trial to discuss Phase 2 clinical results and present plans for the pivotal Phase 3 clinical trials that they believe
will support approval of the new drug.
Unlike
NDA products which must be shown to be safe and effective for their intended use, ANDA products must be shown to be the same as, and bioequivalent
to, a reference listed drug, or RLD. A product is considered bioequivalent if there is no significant difference in the rate and extent
to which the active ingredient in the generic product and in the RLD becomes available at the site of drug action when administered at
the same molar dose under similar conditions in an appropriately designed study. Accordingly, an applicant typically compares the systemic
exposure profile of the generic test drug product to that of the RLD at the same regimen and exposure period as the RLD to demonstrate
bioequivalence. For most ANDAs, bioequivalence must be shown in human clinical trials, but in some cases, FDA will accept in vitro data.
Specific requirements are typically outlined by FDA in product-specific bioequivalence guidance.
Submission
of an NDA to the FDA
Assuming
successful completion of all required testing with all applicable regulatory requirements, the results of the pre-clinical studies and
clinical trials, together with other detailed information, including information on the manufacture, control and composition of the product,
are submitted to the FDA as part of an NDA requesting approval to market the product candidate for a proposed indication. Under the Prescription
Drug User Fee Act, as amended, applicants are required to pay fees to the FDA for reviewing an NDA. These application user fees, as well
as the annual program fees required for approved products, can be substantial. The NDA application review fee alone can exceed $2.5 million,
subject to certain limited deferrals, waivers and reductions that may be available.
The
FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s
threshold determination that it is sufficiently complete to permit substantive review. The FDA may request additional information rather
than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information and is subject to payment of
additional user fees. The resubmitted application is also subject to review before the FDA accepts it for filing. If found complete, the
FDA will accept the NDA for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review.
Under
the PDUFA, the FDA has agreed to certain performance goals in the review of NDAs through a two-tiered classification system, Standard
Review and Priority Review. An NDA is eligible for Priority Review if the product candidate is designed to treat serious or life-threatening
disease or condition, and if approved by the FDA, would provide a significant improvement in the treatment, diagnosis or prevention of
a serious disease or condition compared to marketed products. For new molecular entities, or NMEs, such as those typically submitted in
505(b)(1) NDAs, the FDA endeavors to review applications subject to Standard Review within 10 months 60-day filing date, or within 6 months
of the 60-day filing date for Priority Review. For non-NMEs, such as those typically submitted in 505(b)(2) NDAs, FDA’s goal is
to review applications subject to Standard Review within 10 months of receipt, and those subject to Priority Review within 6 months of
receipt. The FDA, however, may not approve a drug within these established goals, as the review process is often significantly extended
by FDA requests for additional information or clarification, and its review goals are subject to change from time to time.
Before
approving an NDA, the FDA inspects the facilities at which the product is manufactured or facilities that are significantly involved in
the product development and distribution process and will not approve the product unless cGMP compliance is satisfactory. Additionally,
the FDA will typically inspect one or more clinical sites to assure compliance with GCP requirements. The FDA may also refer applications
for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee for review,
evaluation and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the
recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
After
the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. An approval
letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response
letter indicates that the review cycle for an application is complete and that the application is not ready for approval. A complete response
letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order
for the FDA to reconsider the application. Even with submission of this additional information, the FDA may ultimately decide that an
application does not satisfy the regulatory criteria for approval. If, or when, the deficiencies have been addressed to the FDA’s
satisfaction in a resubmission of the NDA, the FDA will issue an approval letter.
If
a product is approved, the approval will impose limitations on the indicated uses for which the product may be marketed, may require that
warning statements be included in the product labeling, may require that additional studies or trials be conducted following approval
as a condition of the approval, may impose restrictions and conditions on product distribution, prescribing or dispensing in the form
of a risk management plan, or impose other limitations. For example, as a condition of NDA approval, the FDA may require a risk evaluation
and mitigation strategy, or REMS, to ensure that the benefits of the drug outweigh the potential risks. If the FDA determines a REMS is
necessary during review of the application, the drug sponsor must agree to the REMS plan at the time of approval. A REMS may be required
to include various elements, such as a medication guide or patient package insert, a communication plan to educate healthcare providers
of the drug’s risks, limitations on who may prescribe or dispense the drug, or other elements to assure safe use, such as special
training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of
patient registries. In addition, the REMS must include a timetable to periodically assess the strategy. The requirement for a REMS can
materially affect the potential market and profitability of a drug.
Further
changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing
processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented, which
may require manufacturers to develop additional data or conduct additional pre-clinical studies and clinical trials. An NDA supplement
for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the similar procedures
in reviewing NDA supplements as it does in reviewing NDAs.
Any
drug products receiving FDA approval will be subject to continuing regulation by the FDA. Certain requirements include, among other things,
record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information
on an annual basis or more frequently for specific events, product sampling and distribution requirements, complying with certain electronic
records and signature requirements and complying with FDA promotion and advertising requirements. These promotion and advertising requirements
include standards for direct-to-consumer advertising, prohibitions against promoting drugs for uses or patient populations that are not
described in the drug’s approved labeling, known as “off-label use,” and other promotional activities, such as those
considered to be false or misleading.
Although
physicians may prescribe legally available drugs for off-label uses, manufacturers may not encourage, market or promote such off-label
uses. As a result, “off-label promotion” has formed the basis for litigation under the Federal False Claims Act, violations
of which are subject to significant civil fines and penalties. In addition, manufacturers of prescription products are required to disclose
annually to the Center for Medicaid and Medicare any payments made to physicians in the United States under the Sunshine Act of 2012.
These payments could be in cash or kind, could be for any reason, and are required to be disclosed even if the payments are not related
to the approved product. A failure to fully disclose or not report in time could lead to penalties of up to $1 million per year.
The
manufacturing of any drug products must comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations.
The FDA’s cGMP regulations require, among other things, quality control and quality assurance, as well as the corresponding maintenance
of comprehensive records and documentation. Drug manufacturers and other entities involved in the manufacture and distribution of approved
drugs are also required to register their establishments and list any products they make with the FDA and to comply with related requirements
in certain states. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented.
FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation
requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. These entities are further subject
to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers
must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.
Discovery
of problems with a product after approval may result in serious and extensive restrictions on a product, manufacturer or holder of an
approved NDA, as well as lead to potential market disruptions. These restrictions may include recalls, suspension of a product until the
FDA is assured that quality standards can be met, and continuing oversight of manufacturing by the FDA under a “consent decree,”
which frequently includes the imposition of costs and continuing inspections over a period of many years, as well as possible withdrawal
of the product from the market. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented.
Other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further
FDA review and approval. There also are continuing, annual program user fee requirements for any approved products, as well as new application
fees for supplemental applications with clinical data.
The
FDA also may require post-marketing testing, or Phase IV testing, as well as surveillance to monitor the effects of an approved product
or place conditions on an approval that could otherwise restrict the distribution or use of our product candidates.
Once
approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if
problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse
events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may
result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials
to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include,
among other things:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from
the market or product recalls; |
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fines, warning letters or holds on post-approval clinical trials; |
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refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation
of product approvals; |
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product seizure or detention, or refusal to permit the import or export of products; or |
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injunctions or the imposition of civil or criminal penalties. |
Pediatric
trials and exclusivity
Even
when not pursuing a pediatric indication, under the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data
that is adequate to assess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations,
and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. Sponsors must also
submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric trials the applicant
plans to conduct, including trial objectives and design, any deferral or waiver requests, and other information required by the statute.
The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other,
and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.
The
FDA may also, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until
after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.
Separately,
in the event the FDA makes a written request for pediatric data relating to a drug product, an NDA sponsor who submits such data may be
entitled to pediatric exclusivity. Pediatric exclusivity is a type of non-patent marketing exclusivity in the United States and, if granted,
provides for the attachment of an additional six months of marketing protection to the term of any existing non-patent exclusivity.
The
Hatch-Waxman Amendments
ANDA
Approval Process
The
Hatch-Waxman Amendments established abbreviated FDA approval procedures for drugs that are shown to be equivalent to proprietary drugs
previously approved by the FDA through the NDA process. Approval to market and distribute these drugs is obtained by submitting an ANDA
to the FDA. An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical
ingredient, drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process
validation data, and quality control procedures. Premarket applications for generic drugs are termed abbreviated because they generally
do not include pre-clinical and clinical data to demonstrate safety and effectiveness. Instead, a generic applicant must demonstrate that
its product is bioequivalent to the innovator drug. In certain situations, an applicant may obtain ANDA approval of a generic product
with a strength or dosage form that differs from a referenced innovator drug pursuant to the filing and approval of an ANDA Suitability
Petition. The FDA will approve the generic product as suitable for an ANDA application if it finds that the generic product does not raise
new questions of safety and effectiveness as compared to the innovator product. A product is not eligible for ANDA approval if the FDA
determines that it is not bioequivalent to the referenced innovator drug, if it is intended for a different use, or if it is not subject
to an approved Suitability Petition. However, such a product might be approved under an NDA, with supportive data from clinical trials.
505(b)(2)
NDAs
Section
505(b)(2) was enacted as part of the Hatch-Waxman Amendments, and permits the filing of an NDA where at least some of the information
required for approval comes from studies or trials not conducted by or for the applicant and for which the applicant has not obtained
a right of reference. Section 505(b)(2) typically serves as an alternative path to FDA approval for modifications to formulations or uses
of products previously approved by the FDA. If the 505(b)(2) applicant can establish that reliance on the FDA’s previous findings
of safety and effectiveness is scientifically appropriate, it may eliminate the need to conduct certain pre-clinical studies or clinical
trials for the new product. The FDA may also require companies to perform additional studies or measurements, including clinical trials,
to support the change from the approved branded reference drug. The FDA may then approve the new product candidate for all, or some, of
the labeled indications for which the branded reference drug has been approved, as well as for any new indication sought by the 505(b)(2)
applicant.
Orange
Book Listing
In
seeking approval for a drug through an NDA, including a 505(b)(1) and 505(b)(2) NDA, applicants are required to list with the FDA certain
patents whose claims cover the applicant’s product or method of using the product. Upon approval of an NDA, each of the patents
listed in the application for the drug is then published in the FDA’s publication of Approved Drug Products with Therapeutic Equivalence
Evaluations, commonly known as the “Orange Book.” Any applicant who submits an ANDA seeking approval of a generic equivalent
of a drug listed in the Orange Book or a Section 505(b)(2) NDA referencing a drug listed in the Orange Book must certify to the FDA (1)
that no patent information on the drug product that is the subject of the application has been submitted to the FDA; (2) that such patent
has expired; (3) the date on which such patent expires; or (4) that such patent is invalid or will not be infringed upon by the manufacture,
use, or sale of the drug product for which the application is submitted. This last certification is known as a Paragraph IV certification.
The applicant may also elect to submit a “section viii” statement certifying that its proposed label does not contain (or
carves out) any language regarding a patented method-of-use rather than certify to a listed method-of-use patent.
If
the applicant does not challenge one or more listed patents through a Paragraph IV certification, the FDA will not approve the ANDA or
Section 505(b)(2) NDA until all the listed patents claiming the referenced product have expired. Further, the FDA will also not approve,
as applicable, an ANDA or Section 505(b)(2) NDA until any non-patent exclusivity, as described in greater detail below, has expired.
If
the ANDA or Section 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice
of the Paragraph IV certification to the owner of the referenced NDA for the previously approved product and relevant patent holders within
20 days after the ANDA or Section 505(b)(2) NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate
a patent infringement suit against the ANDA or Section 505(b)(2) applicant. Under the FDCA, the filing of a patent infringement lawsuit
within 45 days of receipt of the notification regarding a Paragraph IV certification automatically prevents the FDA from approving the
ANDA or Section 505(b)(2) NDA until the earliest to occur of 30 months beginning on the date the patent holder receives notice, expiration
of the patent, settlement of the lawsuit, or until a court deems the patent unenforceable, invalid or not infringed. Even if a patent
infringement claim is not brought within the 45-day period, a patent infringement claim may be brought under traditional patent law, but
it does not invoke the 30-month stay.
Moreover,
in cases where an ANDA or Section 505(b)(2) application containing a Paragraph IV certification is submitted after the fourth year of
a previously approved drug’s five-year NCE exclusivity period, as described more fully below, and the patent holder brings suit
within 45 days of notice of the Paragraph IV certification, the 30-month period is automatically extended to prevent approval of the Section
505(b)(2) application until the date that is seven and one-half years after approval of the previously approved reference product that
has the five-year NCE exclusivity. The court also has the ability to shorten or lengthen either the 30-month or the seven and one-half
year period if either party is found not to be reasonably cooperating in expediting the litigation.
Further,
although applications submitted in a Section 505(b)(1) NDA are not subject to the same patent certification requirements as Section 505(b)(2)
applications or ANDAs, and are not associated with litigation under the Hatch-Waxman Act, applicants may still face non-Hatch-Waxman patent
litigation for products developed through the Section 505(b)(1) pathway.
Non-Patent
Exclusivity
In
addition to patent exclusivity, NDA holders may be entitled to a period of non-patent exclusivity, during which the FDA cannot approve
an ANDA or 505(b)(2) application that relies on the listed drug. For example, a pharmaceutical manufacturer may obtain five years of non-patent
exclusivity upon NDA approval of a new chemical entity, or NCE, which is a drug that contains an active moiety that has not been approved
by FDA in any other NDA. An “active moiety” is defined as the molecule or ion responsible for the drug substance’s physiological
or pharmacologic action. During the five year exclusivity period, the FDA cannot accept for filing any ANDA seeking approval of a generic
version of that drug or any 505(b)(2) NDA for the same active moiety and that relies on the FDA’s findings regarding that drug,
except that FDA may accept an application for filing after four years if the ANDA or 505(b)(2) applicant makes a Paragraph IV certification.
Another
form of non-patent exclusivity is clinical investigation exclusivity. A drug, including one approved under Section 505(b)(2), may obtain
a three-year period of exclusivity for a particular condition of approval, or change to a marketed product, such as a new formulation
for a previously approved product, if one or more new clinical investigations (other than bioavailability or bioequivalence studies) was
essential to the approval of the application and was conducted or sponsored by the applicant. Should this occur, the FDA would be precluded
from approving any ANDA or 505(b)(2) application for the protected modification until after that three-year exclusivity period has run.
However, unlike NCE exclusivity, the FDA can accept an application and begin the review process during the exclusivity period.
Review
and Approval of Drug Products Outside the United States
In
addition to regulations in the United States, if we target non-U.S. markets, we will be subject to a variety of foreign regulations governing
manufacturing, clinical trials, commercial sales and distribution of our future product candidates. Whether or not we obtain FDA approval
for a product candidate, we must obtain approval of the product by the comparable regulatory authorities of foreign countries before commencing
clinical trials or marketing in those countries. The approval process varies from country to country, and the time may be longer or shorter
than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement
vary greatly from country to country.
Under
European Union regulatory systems, marketing authorizations may be submitted either under a centralized, decentralized or mutual recognition
procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member
states. The decentralized procedure includes selecting one “reference member state,” or RMS, and submitting to more than one-member
state at the same time. The RMS National Competent Authority conducts a detailed review and prepares an assessment report, to which concerned
member states provide comment. The mutual recognition procedure provides for mutual recognition of national approval decisions. Under
this procedure, the holder of a national marketing authorization may submit an application to the remaining member states post-initial
approval. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize the approval.
Pharmaceutical
Coverage, Pricing and Reimbursement
Significant
uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In the
United States and other markets, sales of any product candidates for which we receive regulatory approval for commercial sale will depend
in part on the availability of coverage and reimbursement from third-party payors. Third-party payors include government health administrative
authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will
provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay
for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not
include all of the FDA-approved drug products for a particular indication.
Third-party
payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services,
in addition to their safety and efficacy. We or Galderma may need to conduct expensive pharmacoeconomic studies in order to demonstrate
the medical necessity and cost-effectiveness of Epsolay® and Twyneo®. For example, Epsolay® and Twyneo® may not be
considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that
an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price
levels sufficient to realize an appropriate return on our investment in product development.
In
the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may
be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies or trials
that compare the cost-effectiveness of a particular product candidate to currently available therapies. For example, the European Union
provides options for its member states to restrict the range of drug products for which their national health insurance systems provide
reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price
for a drug product, or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug
product on the market. Other member states allow companies to fix their own prices for drug products but monitor and control company profits.
The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, there are increasingly
high barriers to entry for new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive
pressure that may reduce pricing within a country. Any country that has price controls or reimbursement limitations for drug products
may not allow favorable reimbursement and pricing arrangements.
Healthcare
Reform
In
March 2010, the President of the United States signed the ACA, one of the most significant healthcare reform measures in decades.
The ACA substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the
pharmaceutical industry. The ACA contained a number of provisions, including those governing enrollment in federal healthcare programs,
reimbursement changes and fraud and abuse, which impacted existing government healthcare programs and will result in the development of
new programs, including Medicare payment for performance initiatives and improvements to the physician quality reporting system and feedback
program. Additionally, the ACA increased the minimum level of rebates payable by manufacturers of brand-name drugs from 15.1% to
23.1%, and imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs”
to specified federal government programs.
Since
its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S.
Supreme Court dismissed the most recent judicial challenge to the ACA without specifically ruling on the constitutionality of the ACA.
Prior to the Supreme Court’s decision, President
Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of
obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to
review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid
demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining
access to health insurance coverage through Medicaid or the ACA.
In
addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. For example, the Budget
Control Act of 2011 resulted in aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on
April 1, 2013 and, due to subsequent legislative amendments to the statute, will stay in effect through 2030, with the exception
of a temporary suspension from May 1, 2020 through March 31, 2022 and a 1% reduction from April 1, 2022 through June 30, 2022, unless
additional Congressional action is taken. Additionally, in January 2013, the American Taxpayer Relief Act of 2012 was signed into
law, which, among other things, further reduced Medicare payments to several providers and increased the statute of limitations period
for the government to recover overpayments to providers from three to five years. More recently, on March 11, 2021, the American Rescue
Plan Act of 2021 was signed into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s
average manufacturer price, beginning January 1, 2024.
The
cost of prescription pharmaceuticals in the United States has also been the subject of considerable discussion. There have been several
Congressional inquiries, as well as proposed and enacted legislation designed, among other things, to bring more transparency to product
pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies
for pharmaceutical products. For example, the Build Back Better Act, if enacted, would introduce substantial drug pricing reforms, including
the establishment of a drug price negotiation program within the U.S. Department of Health and Human Services that would require manufacturers
to charge a negotiated “maximum fair price” for certain selected drugs or pay an excise tax for noncompliance, and the establishment
of rebate payment requirements on manufacturers under Medicare Parts B and D. If the Build Back Better Act is not enacted, similar or
other drug pricing proposals could appear in future legislation. Individual states in the United States have also become increasingly
active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures,
and, in some cases, designed to encourage importation from other countries and bulk purchasing. We expect that additional state and federal
healthcare initiatives will be adopted in the future, any of which could impact the coverage and reimbursement for drugs, including Twyneo®,
and if approved by the FDA, Epsolay®.
Healthcare
Laws and Regulations
Our
current and future business operations may be subject to additional healthcare regulation and enforcement by the federal government and
by authorities in the states and foreign jurisdictions in which we conduct our business. Such laws include, without limitation, state
and federal anti-kickback, fraud and abuse, false claims, price reporting and physician and other healthcare provider payment transparency
laws. Some of our pre-commercial activities are subject to some of these laws.
The
federal Anti-Kickback Statute makes it illegal for any person or entity, including a prescription drug manufacturer or a party acting
on its behalf to knowingly and willfully, directly or indirectly solicit, receive, offer, or pay any remuneration that is intended to
induce the referral of business, including the purchase, order, lease of any good, facility, item or service for which payment may be
made under a federal healthcare program, such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted
to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers
on one hand and prescribers, purchasers, formulary managers, and beneficiaries on the other. Although there are a number of statutory
exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly.
Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject
to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable
statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality
of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several
courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration
is to induce referrals of federal healthcare covered business, the Anti-Kickback Statute has been violated. In addition, a person or entity
does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
The
federal civil False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented,
for payment to, or approval by, federal programs, including Medicare and Medicaid, claims for items or services, including drugs, that
are false or fraudulent or not provided as claimed, knowingly making, using or causing to be made or used, a false record or statement
material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay
money to a federal program. Persons and entities can be held liable under these laws if they are deemed to “cause” the submission
of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product
off-label. In addition, our future activities relating to the reporting of wholesaler or estimated retail prices for our product candidates,
the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state and third-party reimbursement
for our product candidates, and the sale and marketing of our product candidates, are subject to scrutiny under this law. Moreover, a
claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim
for purposes of the federal civil False Claims Act.
HIPAA
created new federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute,
a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing
from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully
falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection
with the delivery of or payment for healthcare benefits, items or services. Like the federal Anti-Kickback Statute, a person or entity
does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
The
civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented
or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was
not provided as claimed or is false or fraudulent.
The
Affordable Care Act imposed, among other things, new annual reporting requirements for covered manufacturers for certain payments and
other transfers of value provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain
non-physician practitioners (nurse practitioners, certified nurse anesthetists, physician assistants, clinical nurse specialists,
anesthesiology assistants and certified nurse midwives), and teaching hospitals, as well as certain ownership and investment interests
held by physicians as defined by statute and their immediate family members.
Also,
many states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payor, in addition
to items and services reimbursed under Medicaid and other state programs. Additionally, to the extent that any of our product candidates
are sold in a foreign country, we may be subject to similar foreign laws. Certain states also mandate implementation of compliance programs,
impose restrictions on drug manufacturer marketing practices, require reporting of marketing expenditures and pricing information and/or
require the tracking and reporting of gifts, compensation and other remuneration to physicians.
If
our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject
to penalties, including, without limitation, administrative, civil and criminal penalties, damages, fines, disgorgement, contractual damages,
reputational harm, diminished profits and future earnings, the curtailment or restructuring of our operations, exclusion from participation
in federal and state healthcare programs or similar programs in other countries or jurisdictions, integrity oversight and reporting obligations,
and imprisonment, any of which could adversely affect our ability to operate our business and our financial results.
Data
Privacy and Security Laws
Numerous
state, federal and foreign laws, regulations and standards govern the collection, use, access to, confidentiality and security of health-related
and other personal information, and could apply now or in the future to our operations or the operations of our partners. In the United
States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security
laws and consumer protection laws and regulations govern the collection, use, disclosure, and protection of health-related and other personal
information. In addition, certain foreign laws govern the privacy and security of personal data, including health-related data. Privacy
and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts,
and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on
data processing.
Innovation
Authority
We
have received royalty-bearing grants from the government of Israel through the IIA, for the financing of a portion of our research and
development expenditures in Israel.
Under
the Innovation Law and the IIA’s rules and guidelines, recipients of grants, or Recipient Company(ies), are subject to certain obligations
and restrictions with respect to the use of their IIA Funded Know-How, including, the following:
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Royalty
Payment Obligation. In general, the Recipient Company is obligated to pay
the IIA royalties from the revenues generated from the sale of products (and related services), whether received by the grant recipient
or any affiliated entity, developed (in all or in part), directly or indirectly, as a result of, an Approved Program, or deriving therefrom,
at rates which are determined under the IIA’s rules and guidelines (currently a yearly rate of between 3% to 5% on sales of products
or services developed under the Approved Programs, depending on the type of the Recipient Company — i.e., whether it
is a “Small Company,” or a “Large Company” as such terms are defined in the IIA’s rules and guidelines),
up to the aggregate amount of the total grants received by the IIA, plus annual interest based on LIBOR (as determined in the IIA’s
rules and guidelines); |
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Reporting
Obligations. The Innovation Law and the IIA’s rules and guidelines
impose on the Recipient Company certain reporting obligations (such as, periodic reports regarding the progress of the research and development
activities under the Approved Program and the related research expenses, and regarding the scope of sales of the Recipient Company's products);
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Local
Manufacturing Obligation. Products developed using the IIA grants must,
as a general matter, be manufactured in Israel. The Recipient Company is prohibited from manufacturing products developed using these
IIA grants outside of the State of Israel without receiving prior approval from the IIA (except for the transfer of less than 10% of the
manufacturing capacity in the aggregate which requires only a notice, while the IIA has a right to deny such transfer within 30 days following
the receipt of such notice). If the Recipient Company receives approval to manufacture products developed with IIA grants outside of Israel,
it will be required (except for certain cases) to pay increased royalties to the IIA, up to 300% of the grant amount plus interest at
annual rate based on LIBOR, depending on the manufacturing volume that is performed outside of Israel. The Recipient Company may also
be subject to an accelerated royalty repayment rate. A Recipient Company also has the option of declaring in its IIA grant application
its intention to exercise a portion of the manufacturing capacity abroad, thus avoiding the need to obtain additional approval following
the receipt of the grant and avoiding the need to pay increased royalties to the IIA; and |
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IIA
Funded Know-How transfer limitation.
Under the Innovation law and the IIA’s rules and guidelines, a Recipient Company is prohibited from transferring the IIA Funded
Know-How outside of Israel except under limited circumstances, and only with the approval
of the Research Committee and in certain circumstances, subject to certain payments to the IIA calculated according to formulas provided
under the IIA’s rules and guidelines (which are capped to amounts specified under such rules and guidelines, generally up to 6 time
the grants received plus interest). The scope of the support received, the royalties that have
already paid to the IIA, the amount of time that has elapsed between the date on which the know-how was transferred and the date on which
the IIA grants were received and the sale price and the form of transaction will be taken into account in calculating the amount of the
payment to the IIA in the event of a transfer of IIA Funded Know-How outside of Israel. A transfer for the purpose of the Innovation Law
and the IIA rules means an actual sale of the IIA-funded know-how, or any other transaction which in essence constitutes a transfer of
the know-how (such as providing an exclusive license to a foreign entity for R&D purposes, which precludes the IIA funded company
from further using such IIA Funded Know-How). A mere license solely to market products resulting from the IIA Funded Know-How would not
be deemed a transfer for the purpose of the Innovation Law. Upon payment of such redemption fee, the IIA Funded Know-How and the manufacturing
rights of the products supported by such IIA funding cease to be subject to the Innovation Law.
Subject to the IIA’s prior approval,
a grant recipient may transfer IIA Funded Know-How to another Israeli company. If IIA
Funded Know-How is transferred to another Israeli entity, the transfer would still require IIA approval but will not be subject to the
payment of the redemption fee (we note that there will be an obligation to pay royalties to the IIA from the income of such sale transaction
as part of the royalty payment obligation). In such case, the acquiring company would have to assume all of the selling company’s
responsibilities towards the IIA as a condition to IIA approval.
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IIA Funded Know-How
license limitation. The IIA has published certain rules and guidelines with respect to the grant to a foreign entity of the right
to use the IIA Funded Know-How for R&D purposes. According to these rules, the grant to
a foreign entity of a right to use the IIA Funded Know-How (which does not entirely prevent the IIA funded company from using the Funded
Know-How) is subject to receipt of the IIA’s prior approval. This approval is subject to payment to the IIA in accordance with the
formulas stipulated in these rules (such payment shall be no less than the amount of the IIA grants received (plus annual interest), and
no more than the cap stated in the IIA rules and will generally be due only upon the receipt of the license fee from the licensee).
The abovementioned rules include a mechanism with respect to the grant of a license
by a Recipient Company (which is part of a multinational corporation) to its group entities to use its IIA Funded Know-How. Such license
is subject to the IIA’s prior approval and to the payment of 5% royalties from the income deriving from such license, with the cap
of the royalties increasing to 150% of the grant amount. Such mechanism includes certain restrictions which must be met in order to be
able to enjoy such lower royalty payment. |
We
have received grants from the IIA in connection with our research and development of a peripheral line of product candidates, which forms
a negligible part of our activities, and therefore, we are subject to the aforementioned restrictions with respect to such product candidates.
Such restrictions continue to apply even after payment of the full amount of royalties payable pursuant to the grants.
Even
if our IIA funded know-how is transferred to another Israeli entity, the transfer would require the IIA’s approval but will not
be subject to the payment of a redemption fee (we note that there will be an obligation to pay royalties to the IIA from the income of
such sale transaction as part of the royalty payment obligation). In such case, the acquiring company would have to assume all of our
responsibilities towards the IIA as a condition to the IIA’s approval.
The
government of Israel does not own intellectual property rights in technology developed with IIA funding and there is no restriction on
the export of products manufactured using technology developed with IIA funding. However, the IIA Funded Know-How is subject to transfer
of know-how and manufacturing rights restrictions as described above. The IIA’s approval is not required for the export of any products
resulting from the IIA research or development grants.
We
may not receive from the IIA the required approvals for any actual proposed transfer and, if received, we may be required to pay the IIA
certain payments calculated according to formulas provided under the IIA’s rules and guidelines.
Environmental,
Health and Safety Matters
We
are subject to extensive environmental, health and safety laws and regulations in a number of jurisdictions including Israel. These laws
and regulations govern, among other things, (i) the use, storage, registration, handling, emission and disposal of chemicals, waste materials
and sewage and (ii) chemical, air, water and ground contamination, air emissions and the cleanup of contaminated sites, including any
contamination that results from spills due to our failure to properly dispose of chemicals, waste materials and sewage. Our operations
at our Ness Ziona facility use chemicals and produce waste materials and sewage. Our activities require permits from various governmental
authorities, including local municipal authorities, the Ministry of Environmental Protection and the Ministry of Health. The Ministry
of Environmental Protection and the Ministry of Health, local authorities and the municipal water and sewage company conduct periodic
inspections in order to review and ensure our compliance with the various regulations. Our business permit is currently in effect until
December 31, 2026.
These
laws, regulations and permits could potentially require the expenditure by us of significant amounts for compliance or remediation. If
we fail to comply with such laws, regulations or permits, we may be subject to fines and other civil, administrative or criminal sanctions,
including the revocation of permits and licenses necessary to continue our business activities. In addition, we may be required to pay
damages or civil judgments in respect of third-party claims, including those relating to personal injury (including exposure to hazardous
substances we use, store, handle, transport, manufacture or dispose of), property damage or contribution claims. Some environmental, health
and safety laws allow for strict, joint and several liability for remediation costs, regardless of comparative fault. We may be identified
as a responsible party under such laws. Such developments could have a material adverse effect on our business, financial condition and
results of operations.
In
addition, laws and regulations relating to environmental, health and safety matters are often subject to change. In the event of any changes
or new laws or regulations, we could be subject to new compliance measures or to penalties for activities which were previously permitted.
The
operations of our subcontractors and suppliers are also subject to various Israeli and foreign laws and regulations relating to environmental,
health and safety matters, and their failure to comply with such laws and regulations could have a material adverse effect on our business
and reputation, result in an interruption or delay in the development or manufacture of our product candidates, or increase the costs
for the development or manufacture of our product candidates.
Properties
Our
principal executive offices are located in a leased facility in Weizmann Science Park, Ness Ziona 7403650, Israel. The facility is 2,040
square meters, and houses our offices, warehouse, laboratories and production area. Our lease will expire on December 31, 2023.
Legal
Proceedings
We
are not subject to any material legal proceedings.
C. Organizational
Structure
Not applicable.
D. Property,
Plant and Equipment
See
“Item 4. Information on the Company—B. Business Overview—Properties”.
