On May 9, 2017 Foamix Pharmaceuticals Ltd. (NASDAQ: FOMX) ("Foamix Pharmaceuticals" or the "Company"), a clinical stage specialty pharmaceutical company focused on developing and commercializing proprietary topical foams to address unmet needs in dermatology, reported financial results for the three months ended March 31, 2017 (Press release, Foamix, MAY 9, 2017, View Source [SID1234518982]).

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Clinical, business and corporate developments for the three months ended March 31, 2017 and to date:
On March 27, 2017, we provided the top-line data from our two Phase 3 clinical trials (Trial 04 and 05) for FMX101 in the treatment of moderate-to-severe acne. In the intent-to-treat analysis, FMX101 demonstrated statistical significance compared to vehicle on both co-primary endpoints in Trial 05 (specifically the absolute reduction in inflammatory lesions at week 12, and investigator global assessment (IGA) treatment success at week 12 compared to baseline). In Trial 04, statistical significance was demonstrated for FMX101 compared to vehicle in the co-primary endpoint of absolute reduction in inflammatory lesions, however, statistical significance was not achieved in the co-primary endpoint of IGA treatment success.

On May 3, 2017, we provided new data from our two Phase 3 clinical trials for FMX101, including pooled analysis of our co-primary endpoints and certain secondary clinical endpoints (absolute reduction of non-inflammatory lesions at week 12; and percent change in inflammatory lesions at weeks 3, 6, 9 and 12). Highlights from our further analyses included:
Statistical significance was demonstrated for FMX101 compared to vehicle in the pooled analysis of both co-primary endpoints – absolute reduction of inflammatory lesions and Investigator’s Global Assessment (IGA)
% Change in inflammatory lesion count was statistically significant in both Trials 04 and 05 at all timepoints (beginning at Week 3)
Non-inflammatory lesion count reduction at Week 12 was statistically significant in both Trials 04 and 05
Overall high level of patient satisfaction with FMX101 (based on patient satisfaction questionnaires).
FMX101 was generally safe and tolerable. No serious adverse events drug-related systemic side effects were recorded.

Further to sharing the detailed analyses, we announced that based on the results of the first two pivotal trials (Trial 04 and 05), we intend to conduct a third U.S. Phase 3 trial in patients with moderate-to-severe acne. This double-blind, vehicle-controlled trial is planned to enroll 1,500 patients who will be randomized 1:1 (FMX101 vs vehicle) across an estimated 80 investigator sites. The trial is expected to commence mid-year. If the results are positive, this trial will form the basis for a New Drug Application (NDA) which the company plans to submit in the second half of 2018.

The two Phase 3 clinical trials for FMX103 in patients with moderate-to-severe papulopustular rosacea are expected to commence mid-2017. We also announced on May 3, 2017, that we plan to increase the sample size for each of the two Phase 3 trials from 600 to 750 patients (total of 1,500 patients) randomized 2:1 (FMX103 vs vehicle) across an estimated 80 investigator sites in the U.S. FMX103 demonstrated clinically and statistically significant efficacy in treating moderate-to-severe rosacea in a Phase 2 trial which enrolled 233 patients across 18 sites in Germany.
During the first quarter of 2017 we successfully manufactured three registration-quality batches for FMX101.
U.S. Sales of Finacea Foam, azelaic acid 15% for the treatment of rosacea, continue to grow.

Based on sales of Finacea Foam reported by Bayer HealthCare AG for Q1, 2017 Foamix is entitled to royalty payments of $927,000, up 26% from the fourth quarter of 2016.

Finacea Foam was developed through a research and development collaboration between Foamix and Bayer, utilizing Foamix’s proprietary foam technology platform. The drug was launched by Bayer in the USA in September 2015.

Financial highlights for the three months ended March 31, 2017:
Total revenues were $927,000 compared with $745,000 for the three months ended March 31, 2016. The increase is due to increase in sales of Finacea Foam by Bayer HealthCare AG.

Research and development expenses were $12.7 million, compared with $3.6 million in the three months ended March 31, 2016. This increase resulted primarily from an increase in costs relating to the FMX101 and FMX103 clinical trials as well as an increase in payroll and related expenses due to an increase in the number of R&D employees.

Selling, general and administrative expenses were $2.8 million, compared with $1.7 million in the three months ended March 31, 2016. The increase in selling, general and administrative expenses resulted primarily from increases in payroll and other payroll-related expenses, market research costs, advisors, maintenance and office expenses.

Operating expenses totaled $15.5 million, compared with $5.3 million in the three months ended March 31, 2016.
Net loss was $14.4 million or $0.39 per share, basic and diluted, compared with a loss of $4.5 million or $0.15 per share, basic and diluted, for the three months ended March 31, 2016.

Cash and investments as of March 31, 2017 totaled $118.7 million, compared with $131.0 million as of December 31, 2016.

Management overview
On March 27, 2017, we provided the top-line data from our two Phase 3 clinical trials (Trial 04 and 05) for FMX101 in the treatment of moderate-to-severe acne. In the intent-to-treat analysis, FMX101 demonstrated statistical significance compared to vehicle on both co-primary endpoints in Trial 05 (specifically the absolute reduction in inflammatory lesions at week 12, and investigator global assessment (IGA) treatment success at week 12 compared to baseline). In Trial 04, statistical significance was demonstrated for FMX101 compared to vehicle in the co-primary endpoint of absolute reduction in inflammatory lesions, however, statistical significance was not achieved in the co-primary endpoint of IGA treatment success. On May 3, 2017, we provided new data from our two Phase 3 clinical trials for FMX101, including pooled analysis of our co-primary endpoints and certain secondary clinical endpoints (absolute reduction of non-inflammatory lesions at week 12; and percent change in inflammatory lesions at weeks 3, 6, 9 and 12). Statistical significance was demonstrated for FMX101 compared to vehicle in the pooled analysis of the co-primary endpoints as well as the secondary endpoints presented.

Co-primary endpoint – Absolute change from baseline in inflammatory lesion count at week 12:
Trial 04: reduction of 14.16 lesions (or -14.16) for FMX101 and reduction of 11.17 lesions (or -11.17) for the vehicle (p<0.01)

Trial 05: -13.46 for FMX101 and -10.72 for vehicle (p<0.01)
Pooled Analysis: Absolute change in inflammatory lesion count was -13.79 for the FMX101, 4% treatment group and -10.94 for vehicle (p=0.0001)

Co-primary endpoint – Proportion of patients with Investigator’s Global Assessment (IGA) success at week 12:
Trial 04: IGA treatment success for FMX101, 4% treatment group was 8.09% versus 4.77% in vehicle (p=0.2178)
Trial 05: IGA treatment success for FMX101, 4% treatment group was 14.67% versus 7.89% in vehicle (p<0.05)
Pooled Analysis: IGA treatment success was 11.51% for FMX101, 4% treatment group and 6.34% for vehicle (p<0.05)

Secondary efficacy endpoint – Percent change from baseline in inflammatory lesion count at weeks 3, 6, 9 and 12:
Trial 04: reduction of 29% for FMX101 vs. reduction of 19% for vehicle, or -29% vs. -19%, at week 3 (p<.001); -37% vs. -26% at week 6 (p<.001); -42% vs. -28% at week 9 (p<.0001); and -44% vs. -34% at week 12 (p<0.01)

Trial 05: reduction of 34% for FMX101 vs. reduction of 21% for vehicle, or -34% vs. -21%, at week 3 (p<.0001); -39% vs. -27% at week 6 (p<.0001); -43% vs. -31% at week 9 (p<.001); and: -43% vs. -34% at week 12 (p<0.01)

Secondary efficacy endpoint – Absolute change from baseline in non-inflammatory lesion count at week 12:
Trial 04: reduction of 16.45 lesions (or -16.45) for the FMX101, 4% treatment group and reduction of 10.30 lesions (or -10.30) for the vehicle (p<0.01)

Trial 05: reduction of 13.20 (or -13.20) for the FMX101, 4% treatment group and reduction of 7.00 (or -7.00) for the vehicle (p<0.05)

Pooled Analysis: Absolute change in non-inflammatory lesion count was -14.76 for the FMX101, 4% treatment group and -8.64 for vehicle (p<0.01)

As we announced on May 3, 2017, based on the results of the first two pivotal trials (Studies 04 and 05), the company intends to conduct a third U.S. Phase 3 trial in patients with moderate-to-severe acne. If the results are positive, this trial will form the basis for an NDA which the company plans to submit in the second half of 2018. This planned clinical trial will be conducted at approximately 80 investigator sites in the U.S. In order to achieve the necessary statistical power compared with the prior Phase 3 trials, the target patient enrollment number has been increased to 1,500. Patients will be randomized 1:1 to receive either FMX101 (minocycline foam 4%) or vehicle foam once daily over 12 weeks. The co-primary efficacy endpoints will be identical to the prior Phase 3 trials: (1) mean change from baseline in the inflammatory lesion count, and (2) proportion of patients with IGA scores of "Clear" or "Almost Clear", with improvement of at least two grades from baseline. The inclusion criteria will be consistent with the prior Phase 3 trials.

We intend to meet with the FDA to review the results of our Phase 3 clinical trials for FMX101 (Trial 04 and 05) and our third Phase 3 trial, which we expect to commence mid-year.

Following the results of the first two pivotal trials for FMX101 in moderate-to-severe acne, we have also reviewed our Phase 3 program for FMX103 in papulopustular rosacea, which is expected to commence around mid-2017. Based on the outcome of the Phase 3 studies for FMX101, and the planned increase in the number of patients to be enrolled in the third Phase 3 trial in acne, we also intend to increase the sample size for the two planned Phase 3 studies for FMX103 in papulopustular rosacea. The sample size will be increased from 600 patients per trial to 750 patients per trial, for a total of 1,500 patients across the two studies.

Regarding manufacturing, we have successfully completed the scale-up process for FMX101 to a commercial batch size of one-ton. The production of three registration batches has been completed.

In addition to our internal drug development pipeline, we have development and license agreements relating to our proprietary foam technology with other pharmaceutical companies, including Bayer Healthcare and others, in various stages of development and commercialization. Our agreements with these licensees entitle us to development fees, contingent payments and royalties upon commercialization.

In September 2015, Bayer Healthcare began selling Finacea Foam (azelaic acid 15% for the treatment of rosacea) in the U.S. Finacea foam is a prescription foam product which was developed as part of a research and development collaboration between Foamix and Bayer, utilizing Foamix’s proprietary foam technology platform.

According to our license agreement with Bayer, we are entitled to royalties upon commercialization of Finacea Foam.

For the three months ended March 31, 2017, we were entitled to royalties from Bayer in an amount of $927,000, up 26% from the fourth quarter of 2016.

The Company is currently well-capitalized and has sufficient cash to fund our key development programs (FMX101 and FMX103) through NDA registration.
Financial results for the three months ended March 31, 2017

Revenues
Total revenues for the three-month ended March 31, 2017 were $927,000 compared with $745,000 for the three months ended March 31, 2016. The increase is due to increase in sales of Finacea Foam by Bayer HealthCare AG.

Operating Expenses
Our operating expenses for the three months ended March 31, 2017, and three months ended March 31, 2016, were as follows:

Research and Development Expenses
Research and development expenses increased by $9.1 million, or 255%, from $3.6 million in the three months ended March 31, 2016, to $12.7 million in the three months ended March 31, 2017. The increase in research and development expenses resulted primarily from an increase of $7.9 million in costs relating to the FMX101 and FMX103 clinical trials and an increase of $1.1 million in payroll and payroll related expenses (including bonuses and equity-based compensation) due to an increase in the number of R&D employees.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $1.1 million, or 65%, from $1.7 million in the three months ended March 31, 2016, to $2.8 million in the three months ended March 31, 2017. The increase in selling, general and administrative expenses resulted primarily from an increase of $300,000 in payroll and other payroll-related expenses (including bonuses and equity-based compensation), an increase of $250,000 in advisors, consultants and other professional services, $102,000 in market research costs and $122,000 in rent, maintenance and office expenses.

Finance Income, Net
For the three months ended March 31, 2017, we recorded financial income of $257,000 compared to financial income of $174,000 recorded for the three months ended March 31, 2016. The financial income for the three months ended March 31, 2017 and 2016 resulted mostly from interest and financial gains from our cash investments.

Net Loss
For the three months ended March 31, 2017, we recorded a loss of $14.4 million or $0.39 per share, basic and diluted, compared with a loss of $4.5 million or $0.15 per share, basic and diluted, for the three months ended March 31, 2016.

Liquidity and Capital Resources
As of March 31, 2017, we had cash and investments of $118.7 million, compared with $131.0 million as of December 31, 2016. The decrease was mostly due to operating expenses primarily relating to the clinical trials. During the three months ended March 31, 2017 we used $12.1 million in cash in our operations compared to $7.0 million used in operating activities in the three months ended March 31, 2016.