When Big Pharma veteran Robert Doman joined tiny Wilmington, MA-based Dusa Pharmaceuticals (NASDAQ: DUSA) in 2005, he found a company struggling to capitalize on a massive market opportunity. Dusa had won FDA approval in 2000 for a drug-device combination to treat actinic keratoses (AK), pre-cancerous skin growths. There are about 5 million cases of AKs treated each year—a number that’s growing more than 6 percent a year, says Doman, Dusa’s CEO.
But Dusa’s device—which uses blue light to activate a drug called aminolevulinic acid HCl—wasn’t catching on with dermatologists. “The initial launch didn’t go well because it didn’t have good [insurance] reimbursement,” Doman says. And Dusa had just “a handful” of sales reps, he says. The company lost $20 million in 2005.
Contrast that scenario with today, and it’s clear Dusa has gained some respect in the dermatology market. The company, which will be announcing its third-quarter earnings this morning, is expected to bring in about $44 million in revenues this year. Sales of the treatment, which the company brands Levulan Kerastick, have grown 34 percent on a compounded annual basis over the last five years. Dusa turned profitable last year, and in the first six months of this year it was cash-flow positive to the tune of $4.5 million.
Doman has spent the last six years building Dusa’s salesforce up to include 45 reps, and working to ensure physicians would get properly reimbursed for doing the procedure.
Doman estimates Dusa has grabbed about 5 percent of the market for AK treatments—not bad, but he wants much more. So later this month, Dusa will be starting a Phase 2 trial in more than 200 patients that’s designed to prove the company’s device can not only remove large quantities of AKs quickly, but it can also prevent them from recurring.
Dusa’s treatment was originally developed as a rather involved two-step process. Dermatologists must apply the drug to the AK lesions and then send patients home for the night. The next day, patients come back to the office, where they are outfitted with special glasses and exposed to the blue light for 17 minutes.
It works, but it’s much more of a hassle than the more commonly used treatment, cryosurgery, during which doctors use liquid nitrogen to freeze off the AKs. Cryosurgery can burn and leave white marks, but concedes Doman, “the positive to it is that it’s fast.”
Dusa’s new study is designed to test whether applying the drug to the entire face and then treating it with the blue light after one, two, or three hours will remove AKs effectively and prevent them from recurring. The idea came from dermatologists in the field, who tried the product that way and then reported to Dusa that they were getting positive results. Then, last year, an independent study was published in the British Journal of Dermatology showing that applying the drug to the entire face prevented the recurrence of AKs for up to 12 months.
But marketing products for anything other than what the FDA sanctions—so called “off-label” marketing—is illegal. So Dusa’s salespeople couldn’t tell doctors about the positive results others were seeing when they covered the face with the drug and then left it on for a shorter period of time than what the label instructed. “We think the new trial will allow us to get that on our label,” says Doman, whose previous experience includes stints at Johnson & Johnson and Bristol-Myers Squibb.
If all goes well, Dusa will complete the Phase 2 study a year from now and proceed to a pivotal, Phase 3 study, Doman says. At that point, the company will need to decide whether to use the currently marketed drug in the trial or to start investigating a new formulation. Dusa’s scientists are working on ways to make the drug more effective and even faster, Doman says.
AKs stem from sun damage and generally start appearing when people hit their 50s. The market for effective treatments, therefore, is growing in step with the aging of the population. Roth Capital Partners analyst Scott Henry estimates that the total market for AK treatments is $700 million a year. He predicts that the combination of a demographics and inflation will continue to drive Dusa’s growth. In a May report Henry declares, “the DUSA business model remains in the early innings.”
Dusa’s stock has seen some volatility over the last year—jumping from $2 to $7 and then falling back to around $4.25. Henry has a 12-month price target on the stock of $6.50.
Doman says Dusa is actively looking for acquisition or licensing candidates to fill out its pipeline. “We’re in a good position to bring something in to leverage our sales and marketing capabilities,” he says, adding that the company will most likely stay in field of medical dermatology. But he also suspects that Dusa itself could become an acquisition target and fetch a decent premium—a scenario that he believes would validate the turnaround effort he started more than a half-decade ago. “We’re finally getting rid of the old baggage,” Doman says. “We’re not a science project anymore. We’re a real company.”