Brickell Biotech, Inc.

Welcome everyone to the breakout biotech second quarter 2022 financial results conference call. At this time, all participants are in a listen-only mode. Following some prepared remarks from the company, we will open up the call to Q&A. As a reminder, this conference call is being recorded. I would now like to turn the call over to Garth Russell from Life Science Advisors. Garth?

Thank you, Operator, and good afternoon, everyone. Joining me on today's call are Brickville's Chief Executive Officer, Rob Brown, President and Chief Operating Officer, Andy Scholar, Chief Financial Officer, Bert Marcio, Chief Medical Officer, Dr. Monica Lucchi, and Chief R&D Officer, Deepak Chadha. Before we begin, I would like to remind everyone that this conference call and webcast will contain forward-looking statements about the company. These statements are subject to risks and uncertainties that could cause actual results to differ. Please note that these forward-looking statements reflect our opinions only as of the date of this call. We will not undertake obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. Factors that could cause actual results or outcomes to differ materially from those expressed or implied by such forward-looking statements are discussed in greater detail in our most recent filings on Form 10-K and other periodic reports on Form 10-Q and 8-K filed with the SEC. It is now my pleasure to turn the call over to the company's Chief Executive Officer, Rob Brown. Rob, the floor is yours.

Thanks, Garth. Good afternoon, everyone, and thanks for joining our call today. This is an exciting time for us as a company as we continue to advance our development pipeline of cutting-edge autoimmune and inflammatory therapies. This is highlighted by BBI-02, our potent first-in-class DERK1A inhibitor, BBI-10, a novel sting inhibitor, and our platform of next-generation kinase inhibitors. These programs now define our company as we strive to transform patients' lives by developing innovative therapeutics and generate value for our shareholders. During the second quarter, we initiated and announced dosing of the first patient in a Phase I study of our lead DERK1A inhibitor program, BBI-02. Advancement of BBI-02 into the clinic is a significant milestone for both our company and this novel target, as it marks the first time a DERK1A inhibitor intended for patients with autoimmune diseases has been orally administrated in humans. We are pleased with the progress in this study thus far and remain on track to report sad and mad top-line results by early 2023. In addition, preclinical development activities are underway for BBI-10, our lead sting inhibitor candidate that we acquired earlier this year. Finally, I'd like to briefly touch on soft-running bromide, or SB for short, for the treatment of primary axillary hyperhidrosis, which we sold to Botanics this past May. Botanics recently publicly stated that it plans to submit the NDA for SB gel 15% to the FDA in the third quarter of 2022. This is of course relevant to BRICL as we are eligible to receive various regulatory and sales milestone payments, as well as tiered earn out payments ranging from high single digits to midteen digits on net sales of Sophrony and Bromide gel. We look forward to sharing any additional updates regarding this program as they become available. Now I'll pass it over to Monica to provide an update on our ongoing pipeline development activities. Monica?

Thanks, Rob, and good afternoon, everyone. We've had a very productive first half of 2022, and we look to continue delivering on this trend in the second half of the year. As Rob just mentioned, during the second quarter, we initiated the Phase I clinical trial of Bbio2, our potent, highly selective, and orally bioavailable DERK1A inhibitor. This randomized, double-blind, placebo-controlled trial is designed to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of Bbio2 capsules in both healthy volunteers and subjects with atopic dermatitis or AD for short. The first part of the study consists of a single ascending dose or SAD assessment of Bbio2 capsules or placebo, which is expected to enroll up to 56 healthy volunteers followed by a multiple ascending dose or MAD assessment of Bbio2 capsules or placebo administered once daily over 14 days in approximately 33 healthy volunteers. The study is progressing as planned. As such, we expect to initiate the MAD part of the Phase 1 study next month and remain on track to report top-line results from both the SAD and the MAD parts of the study by early next year. In the second part of the Phase 1 study, we plan to compare Bbio2 to placebo in approximately 40 patients with moderate to severe atopic over 28 days of dosing. This part of the study is expected to include a preliminary assessment of efficacy, which will serve as an initial model for the treatment of Bbio2 in immune-mediated disease. This design fits with our broader strategy for this program, considering the potential to develop Bbio2 for the treatment of a broad range of autoimmune and inflammatory diseases. Based on the scientifically robust data package and promising preclinical validation that's been observed with this compound to date, we believe that BVO2's dual mode of action modulating both the adaptive and the innate immune systems could represent a paradigm shift in the way we currently treat these debilitating diseases. We are excited to continue to progress this program in the ongoing Phase I clinical study over the next coming months. With respect to our novel sting inhibitor program, BBI-10, in the first quarter we acquired exclusive global rights to BBI-10 and a portfolio of other novel, potent, and orally available sting inhibitors from Karna Biosciences, an established drug discovery company in Japan. Sting, which stands for stimulator of interferon gene, is a well-known mediator of the need immune responses. Excessive signaling through sting is linked to a number of high unmet needs, such as systemic lupus erythematosus, non-alcoholic steatohepatitis, or NASH, and dermatomyositis, as well as a series of rare genetic interferonopathies. Several established pharmaceutical companies are currently investing in this space, and we are looking forward to developing these next-generation sting inhibitors that we believe are differentiated through their potent covalent inhibition of sting palmitoylation. Preclinical development activities are already underway for BBI-10, which has shown strong proof of mechanism resulting in significant reduction in key pro-inflammatory cytokines and a favorable initial pharmacokinetic, toxicology, and safety pharmacology profile. We expect to continue to conduct these development activities throughout the rest of this year to support starting IND-enabling studies thereafter. Before I hand the call over to Bert to review the financials, I would like to briefly touch on our library of next-generation kinase inhibitors. This includes hundreds of new chemical entities that inhibit DERK1, LRK2, TTK, and CLK kinases. Importantly, inhibiting these kinases has shown promising outcomes in numerous models designed to mimic a broad range of different conditions within the autoimmune, neuroinflammatory, oncology, and rare disease spaces. We are conducting research to identify, characterize, and optimize both brain-penetrant and non-brain-penetrant novel kinase inhibitors with the goal of progressing them as potential treatment options for debilitating diseases within some of these high-impact fields. I'd now like to pass the call over to Bert to provide a financial review for the quarter. Bert?

Thanks, Monica, and good day to everyone on the call. Before I provide a summary of the second quarter 2022 financial results, I want to encourage you to read our full consolidated financial statements and MD&A contained in our report on form 10Q, which can be accessed through the investor section of our website once filed with the SEC. Starting with cash, the company reported $14.5 million in cash and cash equivalents as of June 30, 2022. We expect that our cash and cash equivalents combined with 2 million from expected near-term payments under the asset purchase agreement with Botanics will support our operations for at least the next 12 months. Revenue for the second quarter of 22 was approximately 4.3 million compared to 0.2 million for the second quarter of the prior year. Revenue for the second quarter of this year consisted primarily of contract revenue recognized under the asset purchase agreement with Botanics, which includes an upfront payment from Botanics of 3 million, reimbursement from Botanics of 0.6 million in development expenditures, Fees for consulting services the company provided under the transition services agreement of $0.4 million and sub-license income under the asset purchase agreement of $0.3 million. Revenue for the same period last year consisted of royalty revenue we recognize from the sales of E-Clock or SB Gel 5% in Japan by Kaken Pharmaceuticals. R&D expenses were $1.9 million for the second quarter of 22 compared to $8.8 million for the second quarter of 21. This decrease was driven primarily by significant clinical expenses related to U.S. Phase III clinical program for SbGel 15%, which concluded in the fourth quarter of 21, versus the substantially lower clinical costs that relate to the start of our phase one clinical trial of BBI-02 during the second quarter of 22. G&A expenses were 3.9 million for the second quarter of 22, compared to 2.9 million for the same quarter of the prior year. The increase was primarily related to the sale of SBA and higher legal compensation and other administrative fees. Our net loss for the second quarter was $1.1 million compared to $11.1 million for the same period last year. And with that, I'll turn the call back over to Rob for closing remarks.

Rob? Thanks for the financial recap, Bert. The first half of 2022 proved to be a defining period in our company's evolution. as we shifted our focus towards the development of an exciting pipeline of novel candidates with broad potential in the fields of immunology and inflammation. As we look ahead to the next few quarters, there are several important milestones planned that we believe present a significant opportunity to start building value for our shareholders. This is highlighted by the SADMAD top line results from the BBI-02 phase one study, which we expect to announce in early 2023, and the continued development and characterization of our other novel therapeutic candidates, including BBI-10 and our next-generation kinase inhibitor platform. This concludes today's prepared remarks. I'll now ask the operator to open the call up for questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question comes from Tim Lugo of William Blair. Please go ahead.

Hey, guys. Locked on for Tim. Thanks for taking the question, and congrats on the progress in the quarter. So I was wondering, you know, obviously BBI 02 is the priority and sounds like BBI 10 is the next priority, but beyond that, how are you thinking about sort of prioritizing resources across the platforms and the various, you know, early stage kinase inhibitors that you've gotten over, you know, through both the DERK1A and Sting deals you've done in the past year? And then second of all, you know, after you get the SADMAD data, early next year? What kind of turnaround is it to then initiate part two of the study in patients with atopic derm?

Great. Well, thanks for the questions. Let me answer the second one first, and then we can talk in broad terms about the early pipeline. The real answer is We're going to need the data from the SADMAD portion of the study to inform us about our future plans and the timelines. You've got to remember, this is the first time this drug's been in man. It's the first time an oral DIRC-1A has been studied in man for autoimmune diseases. And that just leads to a series of questions you've got to answer as you go forward. So we're not giving guidance at this time on when we'll start. part two of that study. Obviously, we'd like to start it as soon after as we can, but we need to take the time to understand the data that we generate in the SADMED so we can, you know, do the best work we can in making that next study really, really valuable. On the first question about the, you know, the pipeline, maybe I'll ask Monica to opine on that a little bit, but needless to say, the vast majority of our time and our focus and our resources as a organization are on BBI 02 and then BBI 10. We are starting to characterize, you know, the library of assets we acquired through the two transactions. But again, the majority of our time is being spent on those first two assets. Monica, would you like to add any color to the pipeline?

Sure, I can add a bit. And then, of course, Deepak can add some as well. So we've been sorting through the various molecules that we have in that pipeline. Quite a bit of characterization work has been done already, but not quite enough to move completely into the... I'm sorry, there was a bit of feedback there, so I apologize for that. Actually, Deepak and his team are actively evaluating the various molecules... we'll identify which of these has the most favorable characteristics for going forward. Deepak, do you want to give any extra information on that?

I think, Monica, you provided the highlights, but just to add, so our focus right now is in terms of understanding physical and chemical aspects of our next-gen kinases. We are very much interested because, you know, during our update, We mentioned that really neuro-inflammatory side of things. So based on our next-gen kinases, we are really focused on understanding whether those compounds, they even have the blood-brain barrier penetrating properties. So we are very focused in exploring that aspect, which opens up the whole neuro-inflammatory side of things. And again, we are planning to first understand the chemical and physical characteristics of these compounds. But the next step will be we will be doing some PK exposure studies, and we'll be very interested to understand the blood-brain barrier penetrating properties. And then we will, you know, look into starting some of the in vitro preclinical work. So there's a lot on the table for the next 12 to 18 months on the next gen kinase as part of the pipeline.

Thanks for the call.

The next question comes from Ram Salvaraju of HC Wainwright. Please go ahead.

Hi, everyone. This is Mitchell on for Ram. Thank you for taking the questions. The first one is on the Bbio2 program and the strategy there. Could you just give us an update on what you're thinking after atopic dermatitis? What goes into the decision to pick an indication? I know you'll have to look at a bunch of different cytokines and other markers, but is there decision tree you can kind of walk through that, broadly speaking, you're analyzing and thinking about as you go forward with this program.

Sure. Thanks, Mitchell. And let me start with that. Then, Monica, let me ask you to jump in as well. First, it's important to remember that we have picked atopic dermatitis as the indication that we're going to look at in this part two of the study. But it doesn't necessarily mean we're going to focus on atopic dermatitis long term. We think that it's the ideal vehicle, if you will, to help us with a proof of mechanism, if you will, of the drug and see how it's working because it's a skin disease and we can measure a variety of different endpoints and understand we think what's happening in the human body in atopic dermatitis patients better. That's really why we're focusing on that. That data is really what drives how we decide what to do next. And maybe, Monica, if I can turn it over to you for a minute to share a little more insight into that.

Sure. So because this molecule is the first time in humans, as you know, and I've learned more about the pharmacokinetics and the pharmacodynamics and safety, we're going to be assessing a wide variety of endpoints in the AD study that would be extrapolatable to other autoimmune disorders. So, of course, we're going to be measuring cytokine trends. That's going to be important to us. We'll also be looking at various cellular markers. We'll be looking at cell markers ex vivo. We'll be also looking at in situ cellular populations in the actual space of inflammation via biopsies that I'm talking about. So we'll be able to identify what types of cells are present pre-treatment, what types of cells are present after treatment, and inform ourselves about how Dirk Wenning inhibition actually affects this chemotaxis into the tissues. We'll also be looking at tape stripping, which will give us some idea about any impact on RNA. So, we have a wide variety of information, which will give us data on both inflammatory disease applicability and autoimmune disease applicability. And depending on the trends and what we see in that data, that's going to probably shift us one way or the other as being the most beneficial. There's so much information that we're going to be getting in. I can't stress that enough. And it will help to shape the future direction. If the AD data is stellar, of course, we'll think about that as well.

Does that help? Thank you very much. Yes, absolutely. That was very thorough. Thanks. And then on BBI-10, could you just talk about the strategy there and what are the next updates we can expect as you move towards the clinic?

Sure. Deepak, would you like to talk about that?

Sure, sure. Happy to answer. So as mentioned, BBI-10 or the sting inhibitor compound is just getting, you know, out of discovery into preclinical over focus for next 12 months. is very much in understanding more into the in vitro side of things. So we have already planned to carry out some of the in vitro metabolism study, solubility. We are really interested to get an early read on SIP inhibition, induction, plasma protein binding. So that's just the gamut of data is going to help us starting the IND enabling study next year. So short answer, next six months, in vitro work. And then once we moved into 2023, we are going to embark on the IND enabling talk studies. And then, you know, subsequently, as we move the asset forward, clearly, you know, like sometime around 2024, we will be looking into, you know, starting first in humans. A lot of preclinical work to be done in the next 12 to 18 months.

Great. Thank you. And last question for me, just want to ask about what, what more needs to be done on the botanic side to get that submission into the, that NBA submission and for soft peronium.

Yeah, this is Rob, you know, obviously we're excited that they're, you know, they're on the cusp of getting that done and they're there. They've, they've stated publicly that they'll get it done in this quarter. And I think we probably ought to leave it for them to provide any, any more information on that. But, Obviously, we're tracking, we're working with them. Our team is helping in the preparation of that submission, but I'll leave it to them to provide any more guidance on timing.

Great. Thank you for taking all the questions.

The next question comes from Leland Gerschel from Oppenheimer. Please go ahead.

Hi, this is Ron Mathers speaking on behalf of Leland. Congrats on another great quarter and appreciate you taking my question. Just a couple of questions on the DBI-10 portfolio. So in light of the recent carna sting inhibitor portfolio acquisition, have you made any progress in determining what kind of indications in neuroinflammation might be of interest and what particular stages of the disease would you be looking at? And moreover, are there any diseases you feel sting inhibitors would have a competitive advantage over other therapeutics? And just to follow up on that, How do we think R&D expenses will look as trials pick up and we move into the clinic? And also, are there any plans to get some kind of partnership funding involved? Thank you.

Great. Well, let me answer the first part, the first questions on R&D expenses first, and then we'll talk about BBI 10 briefly. I think the quarter, as you see, is far more representative of what our spend going forward will look like, you know, we already expenses 1.9 million in the second quarter. And that's far more representative of what it'll look like, you know, plus or minus, you know, some as we do this phase one work. So very, very different, obviously, than the soft running bromide expenses we were spending a year ago or even a couple quarters ago. So this last quarter is probably not a bad barometer to use for the next few quarters. On the BBI 10 portfolio, you know, it's really too early, I think, for us to opine on which indications and what stages of the diseases that might make sense for this at this time. You know, we're excited about the broad potential for this product. There's a number of really interesting diseases with unmet needs. But it's probably still a little too early for us to opine too much. In terms of advantages, Monica, I don't know if you have any sense for where the stings might have an advantage versus other treatments that are out there, and provide any thought on that.

Well, it seems very clearly related to the interferon pathway, and particularly in autoimmune diseases, but also in autoinflammatory diseases. There's clear overdrive of the interferon pathway, so I think because these are so focused on the interferon pathway, that gives us an advantage over the more broad-based immunomodulatory modalities. more focused can be targeted.

Great. Thank you so much.

The next question comes from Thomas Flatton of Lake Street. Please go ahead.

Hey, good afternoon. Thanks for taking the questions. Just a quick one for Bert. The cash runway of at least 12 months, is that an accounting at least 12 months or should we think 12 to 15 months from that perspective?

That's at least 12 months. from an accounting perspective, which also means we've got to have the cash to go out that far.

Right.

And, Monica, I'm struggling with how to really word this question intelligently, so please bear with me. So given that you're taking a look at atopic dermatitis for Bbio2, Is there a kind of decision tree that you already have in mind if you see certain PD dynamics that will drive you towards a certain other autoimmune indication versus a different one? I'm trying to understand how that decision tree really works once you get that data in hand. Are there particular pathways that are pre-established if you see a certain If you see a certain grouping of PD markers, you'll know that you should go down this path versus that path, or do you have to wait to see what the totality of the data is before really making up your mind on that?

Yeah, it's a difficult question to answer specifically. The DERC-1A pathway is a new target, as you know, so we're learning about how intervention with that target actually behaves in the human. Obviously, we're going to need to take safety in regards and what kinds of risk-benefit ratios that we have when we're deciding on different diseases. That's one thing we need to think about. We'll need to see how well we do in terms of being able to shift the cytokine flow from pro-inflammatory cytokines to lower levels of inflammatory cytokines if we hit some more than others. Obviously, there are some diseases that are driven a little bit more more by some cytokines you look at il-6 diseases for instance the tnf alpha driven diseases which often overlap but differentiate slightly if we see an impact on th2 cells when we look at our cellular populations that might take us down one path if we have more of an impact on th17 that might take us down a different pathway so there unfortunately there are so many unknowns that i can't say that we have a definitive path right now to say if we see this and then we say that there's just too many different balls in the air. We'll have to see how they all line up and then I guess see where they lay and make our decisions then. I'm sorry I can't be more specific. It's a little bit early.

Yeah, no, that's absolutely fine. And then one final one. What is the risk, if any, that 28 days of treatment simply isn't enough to see an early efficacy signal or see the pharmacodynamics that you'd be hoping for or some of the downstream consequences of treatment?

It's a great question, a really good question and one I can't answer. As you well know, there are drugs that will give you an impact already two to four weeks, and there are some that you have to wait eight to 12 weeks. And ultimately, it's chronic long-term diseases, and if you get the the best outcome and it takes you a little bit longer to get there. Sometimes patients are waiting to wait for that in order to get to the better outcome. So we don't know how quickly DERC-1A is going to show its impact. And we'll learn a little bit about that with the AD program. But we were sensitive to that question. And that's why we very consciously have said all along that this will give us a preliminary assessment of efficacy. We don't want For ourselves, we don't want to think that if we don't get the biggest bang for the buck after four weeks that this is not a good way to go. So we're very conscious of the fact that 28 days is a limiting factor, and that's why we're going to be starting our – actually, our subclinical talks is going to be starting imminently.

Thanks so much for taking the questions. I appreciate it.

We've reached the end of our question and answer session. I'd like to turn the call back over to Mr. Rob Brown for closing remarks.

Thank you for taking the time this afternoon to listen to our update. We're enthused about what the future holds for BRICL as a biotech exploring cutting-edge treatment alternatives for patients suffering from debilitating, autoimmune, and inflammatory conditions. We look forward to sharing additional updates on our development progress moving forward. As always, please feel free to reach out to us at any time if you have further questions. Have a great day.

Thank you. That concludes today's teleconference. You may now disconnect your line at this time. We thank you for your participation today.