Dr. Peter Elias, one of world's leading academic dermatologists. These two founding physicians were the driving forces in establishing a company that had its roots firmly embedded in both the science and clinical aspects of dermatology. On the basis of technological progress made in the early years, Cellegy went public in August, 1995 and has been moving steadily upwards ever since. The company experienced an unfortunate setback in mid-1996 when the CEO of the company along with the Vice President of Corporate Development, were killed in a tragic automobile accident. The company was understandably slowed for a period of time as it paused to regroup and recruit another CEO. At the time there was a great deal of uncertainty on the part of investors as to what the company would do and what direction it would take under new leadership. I joined the company as the new CEO in November of 1996 and have continued on the basic pathway established by my predecessor, expediting certain programs, halting others and exploring a number of completely new possibilities. I am happy to say that the management team has been able to make very good progress during this time frame. Cellegy today is a company that has evolved from a focus on pure dermatology research into the exciting commercial areas of transdermal drug delivery, topical therapeutics, and high-end skincare products that address the needs of an affluent population. There are two underlying technologies which work either together or independently to provide platforms for the company's product development and commercialization efforts. These technologies are called PERMEATE and CELLEDIRM. The first, PERMEATE, is an innovative, patented drug delivery technology which allows us to slip larger molecules either into various levels of the skin itself for the treatment of various skin diseases, or all the way through the skin and into the bloodstream for the treatment of systemic conditions. The second technology CELLEDIRM, which stands for 'Cellegy's Dermal Inflammatory Response Modulators', is a novel technology that reduces the irritation and inflammation caused by foreign substances which are applied to the skin. CELLEDIRM is able to block the irritation and inflammation that's associated with either drugs or the solvents or other permeation enhancers that are needed to drive the drugs across the skin. CELLEDIRM expands the overall utility of a topical or transdermal drug delivery system to include a much larger number of drugs that can be applied to the skin. It also provides us a number of very interesting near-term commercial opportunities that I will comment on shortly. Cellegy is focused on applying its technologies to the development of products that can be quickly brought to market, particularly those that can be potentially marketed by Cellegy itself. Our feeling is that the faster we can develop and market our own products, the more quickly we will be able to provide the substantial returns that are demanded by investors in the high-risk biopharmaceutical industry. Once this is accomplished, we will then be able to engage in partnering activities with the major pharmaceutical companies for the delivery of their products using our two very novel and unique technologies. The difference is that when generating our own sales revenues we will be able to deal with potential partners from a position of strength, rather than from the survival mode in which so many biotech companies often find themselves. All of Cellegy's products, are designed to be applied topically and are based on Cellegy's extensive knowledge of skin biology. The three near term prescription products that we're focused on are Anogesic, a product for the treatment of chronic anal fissures and various disorders associated with hemorrhoids; a transdermal testosterone gel, which is useful in the treatment of males with hypogonadism as well as those who are getting a bit on in age and are beginning to suffer from decreasing libido as a result of their body's declining ability to produce the sex hormone testosterone; and, Glylorin (monolaurin), a product which we believe will be proven useful in the treatment of ichthyosis vulgaris, a severe skin disorder which afflicts some 1 million people in the United States and perhaps another 1 million in Europe. We are also developing an innovative line of non-prescription, high performance cosmeceutical products which significantly improve the appearance of photodamaged and aging, wrinkled skin. I'd like to give you a little flavor as to why we're so excited about the potential that our diversified portfolio of products provides to the company. First of all, our lead prescription product candidate, Anogesic, represents the first real innovation in the treatment of anal fissures and hemorrhoids in over forty years. Anogesic is a proprietary product containing nitroglycerin, a drug that has been used for many years in the treatment of various heart conditions. Recently it was discovered that nitroglycerin is capable of relaxing the smooth muscle of the internal anal sphincter, the mechanism of action required for treating fissures and hemorrhoids. From a financial standpoint, the product is really attractive to a small company like Cellegy. The worldwide prescription market for people suffering from both fissures and hemorrhoids is approximately a half a billion dollars. We believe that a novel product like Anogesic will not only be able to significantly expand the prescription market beyond its current level, but also will attract a large number of the patients who are dissatisfied with the performance of OTC products like Preparation- H. Anal fissures are small tears in the anal canal associated with increased contraction and spasm of the internal anal sphincter. As result of the contraction, the muscle tightens, there is reduced blood flow to the area, and if there is a minor trauma such as a hard bowel movement, this results in a crack or tear. A very, very painful condition. About 650,000 people in the United States, Europe and Japan suffer from anal fissures. The condition will self-resolve in about 50% of the cases. But the remaining 50% of the people who have fissures that don't resolve spontaneously have only one choice and that is to undergo surgery. Since the surgical procedure, which is expensive and very painful, sometimes results in the patient experiencing either partial or complete fecal incontinence, many patients will often first try any number of prescription and non-prescription medications before agreeing to submit to surgery. Unfortunately, none of these products are capable of providing anything more than temporary relief. By way of contrast, what we've seen in early clinical studies with Anogesic is that a simple, twice-daily intra-anal application of the product over an eight week period will actually cure anal fissures as effectively as the surgical procedure. And so far there have been no reports of incontinence following a course of therapy with the product. Our belief is that a new product as promising in its clinical potential as Anogesic will have the ability to make a very significant penetration into this marketplace and quickly take a large portion of the volume, and at higher price points than existing competitive products. We're very excited about the potential for commercial return to Cellegy and it's shareholders over the relatively near time frame. The product is currently in Phase III clinical trials in the United States and we're hopeful that the trial will be completed in a timeframe that will permit an NDA during 1999. On the basis of the historical review times by the FDA, we expect that the product could be approved within about a year from the date of the NDA filing, meaning, that we could potentially have the product on the market during the course of the year 2000. The product is protected by two very broad U.S. patents which do not expire until the year 2017. Patents have also been filed in all major international markets. We intend to commercialize this product by ourselves in the United States. We feel that the value that's to be gained by self marketing will accrue directly to our shareholders as opposed to having to be shared, as would be the case if the product were outlicensed to a major pharmaceutical company. On the other hand, we do plan to pursue an outlicensing strategy in Europe and Japan because it is beyond the company's capability, at least at this point in time, to embark upon sales activities outside of our home country. Interest by overseas companies in the product is high and we hope to be able to enter into licensing agreements with one or more major pharmaceutical companies in Europe and in Japan within the next twelve months. If you are interested in learning more about Anogesic and its commercial potential I encourage you to go to our web site www.cellegy.com and click onto a recent report prepared by the Delphi Group, a leading management consulting and market research firm that specializes in the biopharmaceutical industry. This report clearly illustrates the magnitude of the commercial returns that might be possible when and if this product comes to market. Our second product, a transparent testosterone gel, is a product which when applied to a small area of the body about the size of the back of the hand, is capable of delivering a therapeutic dose of testosterone which persists for 24 hours. It's a clear, transparent topical gel that's odorless, non-irritating, easy to apply and is completely discreet. As you might imagine, men who might be suffering from low testosterone levels may not choose to be branded as such by having to wear large patches which identify them as being testosterone deficient. We think that the unobtrusiveness and elegance of a topical gel formulation that is non-irritating and can deliver steady state levels of testosterone over a 24 hour period will be very attractive from a commercial perspective. There are about five million men in the United States that are estimated to be clinically deficient in testosterone. And there is a much larger number of people that have borderline or low levels of testosterone. Because of the recent success of products like Viagra, which deal with the mechanical aspects of impotence, there is a heightened awareness that solving the 'plumbing' problem does not provide a satisfactory solution for many men whose performance is affected by a lack of desire due to low levels of testosterone, a normally occurring sex hormone. We believe that if a product with the appropriate characteristics could be made available, the market for male hormone replacement therapy could, over a period of time, begin to rival the multi-billion dollar market that that we currently see for female hormone replacement products. So, this is another attractive market area that Cellegy has chosen to focus on. Our testosterone gel formulation is currently entering into advanced Phase II dose ranging studies in the United States at two world class institutions, Stanford University School of Medicine, and the University of Utah school of Medicine. If we're able to demonstrate in a statistically significant way that we can reproduce earlier studies that achieved constant 24-hour blood levels following a single topical application of our gel product, we should be able to move the product into Phase III trials quickly. The third product, Glylorin, has recently completed a Phase II clinical study for the treatment of a severe skin condition called ichthyosis vulgaris, which as I pointed out earlier, afflicts about a million patients in the United States. The results of the Phase II trial were compelling in that over a six week course of therapy Glylorin was able to produce a complete clearing in 56% of the patients treated with active drug; whereas only 33% of the patients who received a very sophisticated carrier formulation which was used as the placebo control were cleared of their condition. These are impressive results considering that there are very few treatment options available to physicians and patients for this difficult to treat condition. The trial results have been discussed with the FDA and a design for a phase III trial has been agreed upon. These are the three near-term prescription product opportunities being addressed by Cellegy. As we bring these products to the market and begin to generate revenues for the company, we will then follow up with the development of several other prescription product candidates that are in our pipeline. I would be happy to comment on our pipeline products perhaps at some future time. I would like to turn now to the second potential source of near- term revenues, our line of high performance cosmeceutical products. This area requires a little bit of explanation because most people have never before heard the term 'cosmeceuticals'. Cosmeceuticals, as the name implies, are a hybrid of products that have their origins in biopharmaceutical science and are designed to improve cosmetic function. The field that we have chosen to focus on is the development of scientifically advanced products for the management of photo-damaged and aging skin. The market is the affluent and rapidly growing group of people who are beginning to age and who are bothered by the appearance of fine lines and wrinkles brought about either by intrinsic or extrinsic aging, mostly by exposure to the sun's rays. There are a number of ingredients that are available, in prescription drugs and OTC products sold in doctors offices, that when delivered at very high concentrations are effective in reversing the signs of photo-aging. There is no question that these products provide benefit in improving the overall appearance of the skin. The problem, however, is that when you apply these products in concentrations that are high enough to produce the desired outcome, they achieve their results at the cost of very high irritation to the patient's skin. The patient will usually experience the usual minor stinging and tingling, but often also her (or his) skin will actually turn red and become blotchy, inflamed and unsightly for a prolonged period of time. Clearly not the desired outcome since it is known that inflammation may actually speed up skin aging. When examining this phenomenon, our scientists realized that if we were able to incorporate our anti-inflammatory technology, CELLEDIRM into formulations that were both cosmetically elegant and contained ingredients that that are known to be effective anti-aging agents, we would potentially have some very unique new cosmeceutical products that would perform at a much higher level than other products in the marketplace. This concept gave birth to an intensive effort to review all aspects of the science and the market potential for such products. The outcome of this investigation was very encouraging to the company. As a result, over the past two years Cellegy has developed an entire line of cosmeceutical products that have been tested in the clinic and demonstrated to be very effective in reducing fine lines and wrinkles, in reducing irregular pigmentation or age spots and in improving the clarity and the firmness of aging skin. We are now preparing for the launch of CELLEDIRM based products, which we expect to take place during 1999. The products will be marketed by a newly formed Cellegy subsidiary. Our intent is to develop sales forces that will be selling these products to dispensing dermatologists and cosmetic surgeons, on the one hand, and to the very high end department stores such as Saks Fifth Avenue, Nordstroms, Bloomingdales and Neiman-Marcus, on the other hand. The company has initially prepared eight products that are directed towards the physician market, and 20 products that are directed towards the prestige department store market. As I said, there should be an unveiling of this company during the course of 1999, at which time we will commence sales of our proprietary and innovative new products to these two channels of distribution. We're quite proud that we've been able to leverage a pharmaceutical technology which is useful in our drug delivery system by applying it to an innovative new area based upon exciting new principles and products that will be useful to people that have photo-damaged or aging skin.
Tickers included in this excerpt: CLGY
For more information call (212) 952 7433. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.