Edesa Biotech (EDSA) is having a good 2019 so far. That's because it received the go-ahead from the FDA to initiate a phase 2b study using its treatment EB01 for patients with chronic contact dermatitis. The stock has made remarkable progress gaining about 592% year to date. It is using its topical treatments to target other skin disorders at the root cause of the disease and then possibly branch out its treatment to gastrointestinal diseases as well. Most of the pipeline is in the early stage of clinical development, but for now, this contact dermatitis indication is enough to get investors excited for the company's future.
Massive Potential Based On Mechanism Of Action
The FDA allowing Edesa to proceed with the phase 2b study using EB01 is very good news. It was all made possible when the FDA sent a "safe to proceed' letter, letting the biotech know the protocol to begin the study has been authorized. That's the good news that was laid out. The only minor issue is that the study won't begin immediately. That's because the first patient is not expected to be enrolled until the coming quarter. The way I view it is that the start of the study is not just only good for Edesa and its investors. This trial starting is simply amazing for all the patients who suffer with the problem. Contact dermatitis involves a red itchy rash that a person gets from contact with an item or allergic reaction to it. This is where I believe the biotech holds massive potential. It is important to find the culprit or item in question causing the allergic reaction. The problem is that, even if the culprit is avoided, it takes about 2 to 4 weeks for the rash to clear up. Then, you have this phase 2b study, which is going to explore patients with chronic allergic contact dermatitis. Current treatment options are not ideal at all. Consider that they only treat the symptoms of the disease. In essence, drugs like corticosteroids are used to reduce inflammation. Then, you have topical creams to handle the rash. At times even antibiotics are thrown in, because the itching might be so intense that scratching it causes bacteria to come about. On the flip side, EB01 is far more substantial because it can potentially treat the root cause of the disease. Those other drugs only work after the fact, while EB01 stops the inflammatory process at the source.
It is important to note that Edesa Biotech was the subject of a reverse merger in June of 2019. This is where Stellar Biotechnologies completed a reverse merger with privately held Edesa. The newly formed company started trading under the ticker symbol "ESDA". Before the merger, Stellar released its 10-Q SEC filing for the period ending March 31, 2019. It was noted that Stellar ended with $7.68 million in cash for the quarter. This cash does seem low, and it's possible that it might raise more cash in the coming months. Considering the company just merged last month, the next SEC financial filing will shed more light on the cash position of the combined company. Another item to note is that there was a 1 for 6 reverse stock split enacted on June 7, 2019, as well. This newly merged biotech brings about some significant risks to be aware of. The first is that it has a tiny market cap of only $46 million. That means the stock can be easily manipulated. This can be evidenced by the fact that the stock has fallen by 14.63% in the last 5 trading days. On the flip side, there are only about 7.5 million shares outstanding. That means any positive news or pipeline update could possibly send shares soaring higher. Another risk is that the stock is not that liquid, because it trades with a daily average trading volume of only 321,000 shares.
The ability to advance EB01 for chronic contact dermatitis is very good news for Edesa. Especially, since it will be a phase 2b study that is going to be testing the clinical product for this patient population. More importantly, this is a large market opportunity. That's because there are an estimated 13.2 million people with contact dermatitis in the United States. The ability to develop a treatment for this market would be ideal. In addition, as I noted above, EB01 is not just looking to be another treatment after the fact. Instead, it is looking at treating contact dermatitis at the source. The risk is that while early evidence shows the product to be solid for treating this condition, there is no guarantee that the phase 2b study will ultimately end up being successful.
This article is published by Terry Chrisomalis, who runs the Biotech Analysis Central pharmaceutical service on Seeking Alpha Marketplace. If you like what you read here and would like to subscribe to, I'm currently offering a two-week free trial period for subscribers to take advantage of. My service offers a deep-dive analysis of many pharmaceutical companies. The Biotech Analysis Central SA marketplace is $49 per month, but for those who sign up for the yearly plan will be able to take advantage of a 33.50% discount price of $399 per year.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.