Dipexium Pharmaceuticals Inc (NASDAQ:DPRX) Could Recover Quicker Than Markets Think

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Dipexium Pharmaceuticals Inc (NASDAQ:DPRX) has had a rough week. The company put out data from its lead asset early week, and the trial didn’t come out as hoped. Share price literally tanked, falling from just shy of $13 a share pre-announcement, to barely $2 a share after the release. That’s an 85% decline practically overnight.

Dipexium may be down right now, but we think that the current share price is highly under-representative of the company’s underlying valuation, and that even without the potential of its lead asset in alternative therapeutic areas (which we will get to shortly) there’s room for a corrective upside bounce. With the latter mentioned potential in the equation, there’s room for far more than a bounce.

Here’s why.

First, a quick look at what happened in the trial. It was a phase III trial investigating the safety and the efficacy of the company’s lead asset, Locilex (pexiganan cream 0.8%) in patients with mild infections of diabetic foot ulcers (Mild DFI). The trial failed to meet its endpoint (wound closure rate) in two iterations of the trial, and further, failed to show any real benefit over placebo in terms of antibiotic activity. Even worse, the data showed that the cream had a slightly worse tolerability profile than the standard of care (SOC) treatment.

Looking at the cream specifically, it’s a pretty interesting makeup. It’s formulated from an amino acid peptide that the company has isolated from the skin of the African Clawed Frog. Dipexium takes the peptide, turns it into a cream, and that’s it. The fact that it is drawn from this frog has a couple of benefits, and we’ll get to these shortly. First, here’s what management had to say about the results of the trial:

Although we are disappointed with these results, we are continuing to evaluate the data and will consider potential regulatory pathways forward in other possible clinical indications based on an evaluation of all data emerging from the Phase 3 studies.

So, the company is looking into other possible indications. For the majority of other drugs, this would seem like a bit of a weightless statement. With this sort of antibacterial compound, however, it’s a little more meaningful.

Why?

Because the fact that it doesn’t work in foot ulcer closure doesn’t mean it won’t work when applied to some of the hard to treat infections, for which treatment options are becoming less prevalent. Specifically, infections with a high level of bacterial resistance. Things like MRSA are becoming increasingly difficult to treat because the underling condition is becoming resistant to the medication currently being used. The more it’s used, the more resistant strains develop, and the bigger the problem becomes.

If Dipexium can demonstrate its candidate can be effective in treating something like MRSA, then it could quickly become a second line based on what we think would qualify as limited efficacy data, purely because options are very thin beyond the first line blast of antibiotics that currently stands as SOC.

There’s also a good chance that, to get a green light from the FDA for an alternate indication, the company won’t have to go through the full development process. It’s got safety and tolerability data on hand, so it would only take a special protocol to jump straight in to a pivotal for an (as an example) MRSA indication.

In other words, yes, it’s a setback, but the potential treatment scope is huge for a compound that has not yet generated resistant bacteria systemically, and that has not generated cross resistance with other antibiotics.

Cash isn’t an issue right now, with $32 million on hand at last count.

We’re watching this one closely for a bounce (to bring the company back in line with its purely cash based valuation) and a recovery based on a fresh indication and a swift carry into a pivotal.

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Disclosure: We have no position in DPRX and have not been compensated for this article.

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