Opthea Targets Vision Improvement

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Biopharmaceutical company Opthea is poised to undertake two phase-3 trials for its treatment to improve vision for those affected by macular degeneration

-OPT-302 designed to achieve broader suppression of wAMD
-Trial data anticipated in the second half of 2023
-Main catalyst will be securing a partnership
 

By Eva Brocklehurst

What is Opthea ((OPT)) doing? The biopharmaceutical company, recently listed on Nasdaq, is developing a treatment to improve visual acuity in wet age-related macular degeneration (wAMD), a condition that affects the eye.

This is a severe form of age-related macular degeneration and a leading cause of blindness in the developed world, whereby abnormal leaky blood vessels grow and cause bleeding, fibrosis and fluid accumulation within retinal layers.

Opthea expects to spend between US$130-135m on two concurrent phase-3 trials commencing in early 2021, with its OPT-302 inhibitor designed to achieve broader suppression and target a potential mechanism of clinical resistance to standard therapies.

The current standard of care is called an anti-VEGF-A inhibitor, such as aflibercept, ranibizumab and bevacizumab, that suppresses the pathway of the disease. Opthea's OPT-302 will be evaluated in one trial in combination with aflibercept and in the other in combination with ranibizumab.

Data from both is anticipated in the second half of 2023 and each will enrol 990 patients. If approved, Citi expects the product will gain meaningful share among wAMD patients that do not respond adequately to standard therapy.

This is estimated to be around 40% of patients. Citi models a 70% probability of success, given the positive phase-2b efficacy/safety data that demonstrated a statistically significant visual acuity benefit over ranibizumab alone.

If approved, OPT-302 is well-positioned as a first-line adjunctive therapy to minimise further vision loss, Wilsons asserts.Citi anticipates this will become the standard of care for such patients who do not respond adequately to initial treatments. A peak US risk-adjusted revenue is estimated at around US$1.2bn in the broker's base case.

Citi is not aware of any competitors, other than Roche's bi-specific faricimab, that have a late-stage development undergoing testing for a novel mechanism in combination with the standard for wAMD.

While OPT-302 has a unique mechanism of action, Bell Potter assesses the de-risking aspect is the fact it targets a well-validated pathway in wAMD treatment. In the current environment, the broker agrees there is a scarcity of novel approaches, with existing drugs facing patent expiry and biosimilar competition.

Valuation

Bell Potter moves its assumed timing for a partnership for OPT-302 to FY24 and forecasts a net loss for FY22. Earlier, the broker had assumed a cash injection in FY22 through a partnering deal but the US IPO and cash injection has now independently funded the business through to top-line results in 2023.

The stock has already delivered significant returns since Bell Potter initiated coverage in 2015 at $0.20. Despite the re-rating that occurred following a positive phase 2b wAMD trial in 2019, the broker envisages further upside to current valuation.

The stock was recently included in the ASX300 and Wilsons suggests the US IPO exposes the company to a broader investor audience that could drag the ASX valuation higher over time.

The near-term catalysts will be securing a partnership and, although not accounting for co-formulation revenue in base case estimates, Citi envisages substantial upside to valuation if partners can develop a single injection therapy. Opthea is guiding to a potential Investigational New Drug filing in the US in the second half of 2021.

Opthea is based in Melbourne and has raised US$128.2m for its Nasdaq IPO via the issue of American Depository Shares and pre-funded warrants. Citi derives a target price of US$48, with a bull case corresponding to a US$90 valuation, and a bear case, where only the cash value is assumed, yielding a target of US$4.00. The broker has a Buy/High Risk rating.

The listing is equivalent to $2.385, that Bell Potter calculates to be a -14% discount to the closing price on ASX before the stock went into trading halt. Bell Potter has a Speculative Buy rating with a $4.40 valuation.

Wilsons accounts for the equity dilution from the Nasdaq listing and the company's transition to an independent phase-3 development for OPT-302, retaining an Overweight rating with a $4.00 target.

Other Treatments

Bell Potter notes the main priority for the next three years will be centred on the wAMD program with the majority of funding directed there. Yet, a key question for investors that Wilsons poses surrounds the extent to which funding can allow parallel work in diabetic macular oedema.

Opthea has phase-1b/2a data for Opt-302 while the broker notes the phase-2a results early in 2020 in pre-treated patients were controversial. Opthea is evaluating the treatment as a sequential injection to standard treatment and has provided no timeline for initiating a subsequent trial.

Wilsons suspects the company may elect to initiate a phase-2b or even a phase-3 trial to strengthen future prospects in terms of the licensing scenario. Citi models a 30% probability of success in this area and envisages US$130m in peak US risk-adjusted revenue.

It has been estimated that diabetic macular oedema affects 3.8% of diabetics aged 40 and above in the US. This is a condition where elevated blood sugar levels result in damage to retinal blood vessels.

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