Dermata Therapeutics, Inc. is a late-stage biotechnology company that is making significant strides in the field of medical and aesthetic dermatology. The company's unique approach leverages the power of a naturally occurring freshwater sponge, Spongilla lacustris, to develop novel topical products that address a wide range of skin conditions.

Business Overview and History

Dermata was founded in December 2014 as Dermata Therapeutics, LLC, a Delaware limited liability company. In March 2021, the company converted to a Delaware C-corporation and changed its name to Dermata Therapeutics, Inc. Since its inception, Dermata has been dedicated to developing innovative pharmaceutical product candidates that target unmet needs in the dermatology market.

The company's operations have focused on developing its two primary product candidates, DMT310 (now branded as Xyngari™) and DMT410. Dermata has also concentrated on organizing and staffing the company, raising capital, establishing its supply chain and manufacturing processes, further characterizing the multiple mechanisms of action of its Spongilla technology, building an intellectual property portfolio, and conducting non-clinical and clinical trials.

In March 2023, Dermata effected a 1-for-16 reverse stock split of its common stock, followed by another reverse stock split in May 2024 at a ratio of 1-for-15. These measures were taken to meet Nasdaq's minimum share price requirement, highlighting some of the challenges faced by the company as a publicly-traded entity.

As a clinical-stage company, Dermata has not generated any revenue or commercialized any product candidates to date. The company has incurred significant operating losses since inception, funding its operations primarily through the sale of its equity and debt securities. As of September 30, 2024, Dermata had an accumulated deficit of $62.5 million, reflecting the substantial investments made in research and development.

The company's lead product candidate, DMT310 (now branded as Xyngari™), is a once-weekly topical treatment for moderate-to-severe acne vulgaris. Dermata's second product candidate, DMT410, combines the Spongilla technology with a topical botulinum toxin for the treatment of various aesthetic and medical skin conditions, including hyperhidrosis and facial rejuvenation.

Dermata's Spongilla technology is the foundation of its product pipeline. The Spongilla sponge, which is sustainably harvested from select regions of the world, possesses unique mechanical and chemical properties that enable the delivery of active ingredients deep into the skin. This multifaceted approach allows Dermata to target the underlying causes of various dermatological conditions.

Financial Overview

Dermata is a clinical-stage company, and as such, it has not yet generated any revenue from commercialized products. The company has been funded primarily through the sale of its equity securities, raising approximately $68.8 million in gross proceeds since its inception.

For the fiscal year ended December 31, 2023, Dermata reported a net loss of $7.79 million, with no revenue generated. The company's net cash used in operating activities for the same period was $6.41 million. As of September 30, 2024, Dermata had $6.14 million in cash and cash equivalents, which the company believes will be sufficient to fund its operations into the second quarter of 2025.

It is important to note that Dermata is a development-stage company, and as such, it is expected to continue incurring significant expenses related to research, development, and clinical trials. The company's ability to achieve profitability will depend on the successful development and commercialization of its product candidates.

Financials

As mentioned in the Financial Overview, Dermata has not generated any revenue yet. The company's financial position is characterized by ongoing losses and reliance on equity financing. Key financial metrics include:

• Net loss of $7.79 million for the fiscal year 2023
• Net cash used in operating activities of $6.41 million in 2023
• Cash and cash equivalents of $6.14 million as of September 30, 2024

For the most recent quarter (Q3 2024), Dermata reported:

• Revenue: $0
• Net loss: $3.17 million
• Quarterly operating cash flow: Not available
• Quarterly free cash flow: Not available

Due to the company's pre-revenue stage, year-over-year growth metrics are not applicable. Additionally, as a small-cap company likely focused on the US market, Dermata does not report geographic performance segments.

Liquidity

Dermata's liquidity position is crucial for its ongoing operations and future development. The company's current cash reserves of $6.14 million are expected to fund operations into the second quarter of 2025. However, as a clinical-stage company with no revenue, Dermata will likely need to secure additional funding through equity offerings, debt financing, or strategic partnerships to support its long-term goals and ongoing clinical trials.

Key liquidity metrics as of September 30, 2024:

• Debt/Equity ratio: Not applicable
• Cash and available credit line: $6.14 million in cash and cash equivalents, with no reported available credit lines
• Current ratio: 3.44
• Quick ratio: 3.44

During the first nine months of 2024, Dermata used $8.25 million in cash for operations, compared to $5.26 million in the same period of 2023, indicating an increase in cash burn as the company advances its clinical programs.

Product Pipeline and Clinical Trials

Dermata's lead product candidate, Xyngari™ (DMT310), is currently in two pivotal Phase 3 clinical trials for the treatment of moderate-to-severe acne vulgaris. The first trial, known as the Spongilla Treatment for Acne Research (STAR-1) study, has recently completed enrollment of over 50% of the targeted 550 patients. Topline results from the STAR-1 study are expected in the first quarter of 2025.

Xyngari™ is a novel, once-weekly, topical product that combines the mechanical and chemical properties of the Spongilla sponge to target the multiple underlying causes of acne, including inflammation, bacteria, and sebum production. If approved, Xyngari™ could become the first once-weekly topical product for the treatment of moderate-to-severe acne, a market with an estimated 30 million patients in the United States alone.

DMT310 consists of powder processed from the naturally grown freshwater sponge, Spongilla lacustris. The mechanical components of the Spongilla powder create microchannels into the dermis, allowing for the delivery of DMT310's chemical compounds that have demonstrated anti-microbial and anti-inflammatory properties. In a previous Phase 2b study for acne, DMT310 achieved statistically significant improvements across all three primary endpoints. The company has also completed a Phase 1b proof-of-concept trial in psoriasis, which showed encouraging results warranting further investigation.

Dermata's second product candidate, DMT410, is a combination treatment that utilizes the company's Spongilla technology to topically deliver botulinum toxin for the treatment of various aesthetic and medical skin conditions. The company has recently entered into a clinical trial collaboration agreement with Revance Therapeutics, Inc. to evaluate the topical application of DMT410 with Revance's botulinum toxin product, Daxxify®, for the treatment of primary axillary hyperhidrosis.

DMT410 has shown promising results in early-stage trials. In a Phase 1 proof-of-concept trial for axillary hyperhidrosis, 80% of patients achieved a reduction in sweat production greater than 50% four weeks after a single treatment. The company also conducted a Phase 1 proof-of-concept trial of DMT410 with BOTOX for the treatment of various aesthetic skin conditions, which showed promising data warranting further investigation.

Potential Catalysts and Risks

Dermata's success will largely depend on the outcomes of its ongoing clinical trials, particularly the pivotal Phase 3 trials for Xyngari™ in acne. Positive results from these trials could provide a significant boost to the company's valuation and pave the way for regulatory approval and potential commercialization.

However, the dermatology market is highly competitive, and Dermata faces risks from both established players and other emerging therapies. Additionally, the company's reliance on its Spongilla technology and the availability of the raw material from its exclusive supplier in Russia could pose supply chain risks, especially in light of the ongoing geopolitical tensions.

Dermata's ability to secure strategic partnerships and additional funding will also be crucial to its long-term success. The company will need to continue to navigate the regulatory landscape and demonstrate the efficacy and safety of its product candidates to attract potential partners and investors.

Conclusion

Dermata Therapeutics is a promising late-stage biotechnology company that is leveraging its unique Spongilla technology to develop innovative topical treatments for a variety of dermatological conditions. With its lead product candidate, Xyngari™, in pivotal Phase 3 trials for acne and its combination therapy, DMT410, in development for aesthetic and medical skin conditions, Dermata is well-positioned to potentially disrupt the dermatology market.

However, the company faces a range of challenges, including the need for successful clinical trial outcomes, regulatory approvals, and the ability to secure strategic partnerships and additional funding. The company's limited operating history, lack of revenue, and increasing cash burn rate underscore the importance of closely monitoring its progress and financial position.

Investors should carefully consider Dermata's potential in light of its innovative technology platform and advancing clinical programs, while also weighing the risks associated with its pre-revenue status and the competitive landscape of the dermatology market. The outcomes of the ongoing Phase 3 trials for Xyngari™ and potential partnership developments for DMT410 will be critical milestones to watch in the near term.