Special Report

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Dipexium Pairs the African Clawed Frog and Business Savvy for an Antibiotic Wound Care Solution

David Luci David Luci, CEO of Dipexium Pharmaceuticals Inc., tells The Life Sciences Report why he believes his firm's new skin-healing product may soon dominate a broad international market niche. Investors take note: Not only is the company's product promising, its top management also spearheaded a successful initial public offering—a combo that could prove a potent addition to a biotech portfolio.

Management Q&A: View From the Top

The Life Sciences Report: Dipexium Pharmaceuticals Inc.'s (DPRX:NASDAQ) pipeline product, Locilex, is being tested on mild diabetes-related foot infections. What is the nature of that bacterial infection?

David Luci: Diabetic foot infections are caused by different types of bacteria, including gram-positive and gram-negative, aerobic and anaerobic. Our broad-spectrum antibiotic works particularly well for diabetic foot infections. Locilex is a topical cream that does not enter the bloodstream, meaning that it avoids meeting systemic antibiotic resistance, the looming public health crisis caused by the use of oral antibiotics. Our cream does not introduce toxic side effects in vital organs, which is always a concern when treating diabetic patients with compromised kidney and liver function. Locilex is now being tested in two Phase 3 clinical trials against a placebo cream. In H2/15 we will know if we can beat the placebo—which is a major milestone in moving toward FDA approval.

TLSR: What is the molecular science behind the topical cream?

DL: The formulation is a 22-amino acid sequence peptide, or a short-chain peptide, called pexiganan. The molecule is too large to be absorbed into the bloodstream, even when applied to an open wound. It was medically resequenced in the lab from peptides discovered on the skin of the African clawed frog. Basically, it affects cell membrane permeability. The medicine is positively charged. It has a predilection to attach to negatively charged pathogen cell walls, bypassing healthy cells that do not have a negative charge. The medicine takes the form of an alpha helix that penetrates the lipid bilayer and kills the bacterial cell.

TLSR: What's the story with the clawed frog?

DL: In 1987, there was a school of African clawed frogs sitting in a tank at the National Institutes of Health (NIH). A researcher named Mike Zasloff was removing organs from the frogs as part of a genetic testing project. Zasloff was having difficulty figuring out which of the frogs he had already operated on; he could not find the incisions on the skin; even the scar tissue was gone. Suspecting the existence of an antibody, Zasloff took a culture and discovered the presence of infection-fighting "magainin peptides," which he patented in the early 1990s. He left the NIH and cofounded his own company, Magainin Pharmaceuticals Inc., which did not survive after the U.S. Food and Drug Administration (FDA) rejected its approval application after clinical trials.

"In H2/15 we will know if we can beat the placebo—which is a major milestone in moving toward FDA approval."

We bought Zasloff's old formulation in 2010, and enhanced it with a novel formulation. The product, Locilex, is new from a manufacturing, regulatory and clinical point of view. Dipexium Pharmaceuticals now has a special protocol assessment agreement with the FDA on our new formulation, as well as a new set of patents. By the end of 2015, we expect a signal on the Phase 3 placebo-controlled studies. At that point, we will morph from a research and development (R&D)-based company into a more traditional sales and marketing-based company.

TLSR: Is the fact that Zasloff's original venture failed a plus or a minus for Dipexium?

DL: With Dipexium's reformulated product, we enjoy an unfair advantage in getting it FDA approval. As a result of Zasloff's original efforts, the FDA advisory committee said it wanted a placebo-controlled study. We said, "Well, shoot, we have a reformulated peptide that can easily go up against placebo in Phase 3." Unlike other antibiotics companies that are forced to go against an active drug in Phase 3, we have the advantage of going up against a placebo. Over time, we have eliminated the science risk and the manufacturing risk. We are in a happy place.

TLSR: Why did you start with diabetes? Does Locilex have applications for other types of infections besides diabetes?

DL: Diabetic foot infection is the low-hanging fruit in this case, because the prior sponsor did so many clinical trials on that aspect. The pathogens that cause diabetic foot infection are the same pathogens that cause all skin infections. It is just a question of what ratio of gram-positive to gram-negative there might be, depending on where the infection is located. Our microbiology studies show that virtually all classes of pathogens are susceptible and sensitive to Locilex. We have reason to believe that the product will be used broadly in all classes of skin structure infections in superficial wounds. The product does not penetrate beneath the subdermal layer. By their very nature, pathogens try to burrow inside a body. A pathogen aims to travel through the bloodstream into bone. Locilex can annihilate the pathogen before it digs beneath the skin.

TLSR: Are there a range of delivery options?

DL: Right now, there is just the topical formulation. But we have an ongoing intravenous (IV) formulation pilot project. We will have more information on that development by the end of 2015.

"Over time, we have eliminated the science risk and the manufacturing risk. We are in a happy place."

As for the cream, we expect an important decision from the European Medicines Agency in Q2/15. We assess that our clinical growth areas are in treating skin structure infections in superficial wounds, infected burns, infected surgical wounds and bedsores, or decubitus ulcers, which are a big problem in nursing homes.

TLSR: Don't infected bedsores burrow into the body and open it up? Can Locilex treat them at that point?

DL: It's easy to catch bedsores before they get too deep, especially in the nursing home setting. Patients are monitored so frequently that a bedsore infection can be caught before it slithers into the blood and bone. If your loved one in a nursing home gets osteomyelitis, which is a bone infection that starts as a bedsore, 1) you need to take your parent or grandparent out of that nursing home, and 2) you need to find a very potent systemic antibiotic to close the wound.

TLSR: Can Locilex close the wound?

DL: In the double-blinded data from the Phase 3 program, we are seeing a relatively high proportion of patients with closed wounds. But no diabetic foot ulcer will close if it's infected. Infected wounds don't close. Wound measurement is a secondary endpoint in our Phase 3 program. Locilex may help to close diabetic foot ulcers by preventing infection.

TLSR: How does the formulation deal with resistance to antibiotics?

DL: Resistance happens through overuse of antibiotics. Systemic antibiotics are exposed to many more millions of pathogens, or bugs, than are topical creams.

As a cream, Locilex only deals with pathogens on the outside of the body. But when a topical drug like mupirocin enters the bloodstream, the bugs essentially share their memories of encountering mupirocin and learn how to thwart it. Mupirocin resistance builds up exponentially compared to our product, which has no systemic involvement at all.

TLSR: What distinguishes Locilex from the many products available for treatment of diabetic foot infections?

DL: The current treatments all cause superbugs to proliferate in the human body. Using an oral antibiotic to cure an infection today can create an environment that will support a more severe infection in the future. President Obama has appointed a task force to address this superbug problem; Prime Minister David Cameron in the United Kingdom has done the same.

"Locilex does well with gram-negative bacteria, so that is a nice niche."

Locilex has shown the same clinical efficacy as a fluoroquinolone in a noninferiority Phase 3 study, but without the drawbacks associated with using systemic antibiotics—toxicity, generating superbugs while curing the direct infection, pressure on the kidney and liver in diabetic patients. All of those things can be avoided by using a less invasive topical antibiotic, and using oral or intravenous antibiotics for more serious infections.

TLSR: Are there any potential competitors to Locilex, including for off-label product uses?

DL: Not that we can see. And there is no other antibiotic being tested in mild diabetic foot infection, as far as we know.

TLSR: Who invented Locilex?

DL: It was initially formulated at Dow Pharmaceutical Sciences Inc. We had contracted Dow to fix the physical instability from Zasloff's old formulation, so that we could avoid the FDA rejection that his company experienced. The advanced formulation was a novel discovery made on our behalf by Dow Pharmaceutical.

By the way, we still have the old formulation up on stability testing, and it is still a failure. If we had just redone the old formulation, we would be on track to fail again.

TLSR: Do you own the patent rights?

DL: Dow Pharmaceutical's patent extends out to June 2032. It has 17 claims in it: We consider it to be quite strong. That patent was assigned to us under our contract with Dow to develop a new patentable formulation. In essence, we own the patent and all of the worldwide rights to the underlying peptide chain, pexiganan, on which Locelix is based. There is no royalty stacking. There are no undue economic interests. We are securing patents in all the major markets around the world—Europe, China, Australia.

TLSR: Is Dow Pharmaceutical still playing a role?

DL: Dow Pharmaceutical is now a division of Valeant Pharmaceuticals International Inc. (VRX:NYSE; VRX:TSX). Dow does not do third party work anymore, so we are working with DPT Labs in San Antonio, which is a division of Smith & Nephew (SNN:NYSE), to meet our commercial manufacturing needs.

TLSR: Where is the drug in the FDA approval process? Are there are any regulatory impediments to be resolved, such as manufacturing issues?

DL: We see no impediments on the horizon. The manufacturing method is mature. We have the required three clinical-grade batches needed to file for FDA approval. We are currently tracking at 24 months-plus on the clinical-grade batches that we will file for shelf-life approval for two years-plus at room temperature. That's all good. Our clinical program is made clear by our special protocol assessment agreement on the Phase 3 program.

All we have to do is finish the two placebo-controlled studies and include that clinical data in our new drug application amendment package, which we've already started working on. Then we file for final approval. At that point in time, we start morphing from an R&D company into a sales and marketing company.

TLSR: If all goes as planned, when do you expect Locelix to enter the market?

DL: We expect it will hit the market in 2016 pending FDA approval, our transition year. As the R&D burn goes to almost zero, the sales and marketing expenses will go up, alongside revenue growth. We will quickly expand from five employees to a dozen.

TLSR: What is the size and shape of the international market for Locilex and any related products? What countries and medical systems will demand this product? How will it be priced?

DL: It is premature to quote pricing until launch. But I can say that the European commercial opportunity is about 75% of the U.S. opportunity. The price should reflect the innovative nature of this new class of antibiotics, not just a new penicillin-based medicine or a new cephalosporin or a new fluoroquinolone.

We don't expect any major problems with pricing because we have more clinical data and microbiology data than drugs that are used off label. Instead of being approved in Europe for mild diabetic foot infection, we could receive approval to treat skin and soft tissue infections, including diabetic foot infection, which would make the European commercial opportunity much bigger than the U.S. piece.

TLSR: Does approval to treat the diabetes-related foot infection automatically translate into treating other types of infections, or do new trials have to be undertaken?

DL: Approval by the FDA does not mean that a drug can automatically be used for off-label treatments. But it also does not mean that trials are required before using the drug for non-approved treatments.

"It's possible to have financial security and to also leave the world a better place."

For example, the diabetic foot infection treatment guidelines promulgated by the Infectious Disease Society of America (IDSA) are used by the FDA in its clinical guidance on how to run our current Phase 3 trials. The guidelines recommend a dozen antibiotics for diabetic foot infection. Three of them are clinically tested and FDA-approved. The rest are recommended by the IDSA treatment guidelines based on empirical evidence in the microbiology data, which shows that infectious bugs are treatable by these other antibiotics. A few antibiotics can be used in a lot of places. The best practice, of course, is to get them approved, particularly for treating areas of high incidence or prevalence, like infected surgical wounds. But, for example, the American Medical Association recommends not using antibiotics for bedsores, because they are caused by gram-negative bacteria, and most antibiotics do not treat that type. Locilex does well with gram-negative bacteria, so that is a nice niche.

TLSR: Is diabetes on the rise around the world?

DL: Yes. The Centers for Disease Control estimate for the prevalence of diabetes in America recently increased from 8.8% to 9.3%.

TLSR: What's your background?

DL: I am an accountant and a lawyer. I set up the commercial infrastructure at Bioenvision Inc.; we sold that company to Genzyme Corp. (a Sanofi SA [SNY:NYSE] company). Our chairman and cofounder, Bob DeLuccia, is a product development and marketing guy with a scientific background. He started at Pfizer Inc. (PFE:NYSE) in 1971. Together, we split up the vocational needs.

TLSR: What's your plan for managing the rapid growth curve you are expecting?

DL: I plan to have fun! When I set up the commercial organization for Bioenvision, I was nervous. This time around, I already know a lot of great sales and marketing guys, so the pressure is eased. The heads of the sales and marketing functions will work for us directly, both in the U.S. and Europe. A European office will house a half-dozen people with a contract sales organization (CSO) to support them. The CSO folks will be fully dedicated to our sales and marketing function. They will report to our people and carry our business cards, but administratively, they'll work for the CSO. That is the same type of the virtual company model that worked for Bioenvision.

TLSR: These sales reps will be making the rounds to doctor's offices, hospitals, HMOs?

DL: Initially, it won't be hospitals. It will be mostly podiatry and endocrinology offices, and wound care centers.

TLSR: When you raised the $38M in your initial public offering, did any big investors buy?

DL: Thirty institutional investors took 90% of the Dipexium stock. The IPO was three times oversubscribed, and we closed at the bottom end of the range. The investors include Kingdon Capital Management, Broadfin Capital, Pine River Capital Management, Timpani Capital Management and others.

TLSR: Let's talk about your balance sheet. What's your debt leverage and cash situation?

DL: We do not have any long-term debt and we do not intend to carry any debt. We burn about $1 million per month ($1M/month). At the beginning of the year, we started with $27M. Our cash will take us into H2/16.

TLSR: The $1M/month is funding the clinical studies?

DL: Yes, as well as paying for manufacturing and for the folks who are managing those projects on our behalf.

TLSR: Are you looking to raise more capital as you go along, or are you confident you can reach the sales phase on what you have?

DL: The next value inflection point is the European regulatory decision in Q2/15, followed by reaching 50% enrollment and then 100% enrollment in the Phase 3 trial. We have not discussed raising any additional capital. Positive results from the Phase 3 data, and the results of the European regulatory piece, should generate sufficient enthusiasm for the product as we approach the marketing launch, so we do not expect to need more capital.

TLSR: As you go forward, do you envision having an organic growth process, or are you looking for partners and possibly a takeover?

DL: I am a mergers-and-acquisitions guy, with the successful sale of Bioenvision to Genzyme in my background. It makes a lot of sense to do a deal with an established company that has a podiatry sales force. But we cannot count on that happening. We plan to address our needs six to 12 months ahead and continue our operating build-out strategy until somebody makes us an offer that we can't refuse. If that does not happen, current shareholders are likely to be quite satisfied by the time the patents expire in 2032.

TLSR: How has the Street treated your stock since the IPO?

DL: Fairly well. It's been rocky in the market for biotechs, but our stock spends a lot of time above the IPO price of $12/share. A small company a year out from an IPO has to earn the benefit of the doubt. The Street will get increasingly comfortable as Dipexium keeps hitting the value inflection points.

TLSR: What inspired you to undertake this venture? With your background, you probably could have gone in any number of directions.

DL: Most drugs are developed by biotech companies, not by pharma companies. Pharma companies do not want to carry that kind of overhead. They'd rather buy up successful, late-stage biotechs or their products. At Bioenvision, we had a late-stage leukemia product for children with an average of seven weeks to live. We stabilized the cancers long enough for them to get bone marrow transplants, thereby getting rid of the leukemia and allowing them to live normal lives. After the Bioenvision experience, I realized it's possible to have financial security and to also leave the world a better place.

TLSR: Thanks for your time, David.

David Luci is cofounder of Dipexium Pharmaceuticals Inc., and currently serves as president, CEO, secretary and director. From January 2010 to March 2014, Mr. Luci served as managing partner of the company. From 2007 to January 2010, he served as a member of the board of directors of Access Pharmaceuticals Inc., where he also served as chairman of the Audit Committee and the Compensation Committee, and served in a consulting capacity following the acquisition of MacroChem Corp. From December 2007 through February 2009, Mr. Luci served as a member of the board of directors and in several management capacities at MacroChem, including president, CFO and general counsel. Prior to that, he served as executive vice president, CFO, general counsel and corporate secretary of Bioenvision Inc., an international biopharmaceutical company engaged in the development, marketing and commercialization of oncology products. Mr. Luci was instrumental in creating Bioenvision's international commercial enterprise; managed the worldwide development of Evoltra (clofarabine) as a member of the product's joint steering committee partner, Genzyme Corp.; and orchestrated, structured and negotiated the sale of Bioenvision in 2007 to Genzyme for $345M. He began his career with Ernst & Whinney LLP (now Ernst & Young LLP) as a certified public accountant working in the Healthcare Practice Group. He later practiced corporate law at Paul Hastings LLP in New York, where his practice encompassed all aspects of public and private mergers and acquisitions, corporate finance, restructurings and private equity transactions, with a core focus in the healthcare industry. Mr. Luci graduated from Bucknell University with a bachelor of science degree in business administration with a concentration in accounting, and graduated from Albany Law School of Union University. He became a certified public accountant in Pennsylvania in 1990 (inactive) and is a member of the New York State Bar Association.

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DISCLOSURE:
1) Peter Byrne conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the company mentioned in this interview: None.
2) Dipexium Pharmaceuticals Inc. paid Streetwise Reports to conduct, produce and distribute the interview.
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