BST Trade Alert: March 7, 2014
March 7, 2014
Recommendation:
Buy Lpath (NASDAQ: LPTN) up to $5.30 per share.
About the Company:
Lpath is a fascinating biotech that has enormous potential. With its unique technology and scientific expertise, this tiny company is pioneering an entirely new approach to drug development.
And if this new approach bears fruit, Lpath could become a new leader in the biotech industry.
For decades, the biotech industry has focused its drug development efforts on proteins. As a result, most drugs on the market (and most drug candidates in clinical trials) target a protein.
But in recent years, a new field has emerged thanks to the efforts of Roger Sabbadini, Ph.D., the founder of Lpath. This new field is called lipidomics, which targets bioactive signaling lipids to treat a wide range of human diseases.
According to an article that appeared in a 2006 issue of the British Journal of Cancer…
“Now, the field of lipidomics (a subset of ‘metabolomics) has emerged… and provides new opportunities for drug discovery… we now believe there are over 1,000 members of the lipidome, opening up an entire array of new potential targets for therapeutic interventions.”
The article went on to explain…
“It has been recognized that alterations in lipid metabolism can lead to cancer, cardiovascular disease, diabetes, neurodegenerative disorders, immune function, pain, mental disorders, and inflammation.”
But identifying a disease-causing lipid is just half the battle. Once a target has been identified, the next major challenge is generating a compound that neutralizes the relevant bioactive lipid.
This is where Lpath has a huge head lead on the competition…
The company has already developed a robust patent estate as well as a proprietary drug discovery engine called ImmuneY2. And by leveraging this unique platform technology, Lpath has developed monoclonal antibody drug candidates against two bioactive lipids that are well validated targets.
In fact, Lpath believes it is the only company to have developed functional therapeutic monoclonal antibodies against any bioactive lipid.
We’ll dig into the company’s leading drug candidate in just a moment. But first, let’s take a look at Lpath’s financial condition.
Despite its small size, Lpath is in solid financial shape.
The company estimates it needs $24 million total to fund its operations and clinical trials through the end of 2014. It had $14.9 million in cash at the end of September 2013. And management believes this cash position together with funds to be received under an agreement with Pfizer will be sufficient to fund Lpath’s activities through the third quarter of 2014.
This should be fine for our purposes. The trial results we’re counting on to drive the stock higher are expected before the end of the third quarter.
Let’s now take a closer look at the company’s leading drug candidate.
About the Drug:
Lpath’s leading drug candidate is called iSONEP. It’s a monoclonal antibody against sphingosine-1-phosphate (S1P), a bioactive lipid implicated in the progression of many diseases, including multiple sclerosis and several types of cancer.
The company is currently developing iSONEP as a treatment for “wet” age-related macular degeneration (wet AMD).
In 2009, Lpath completed a phase 1 study of iSONEP in patients with wet AMD. The drug met the trial’s primary endpoint of being well tolerated in all 15 patients. And no drug-related serious adverse events were reported in any of the patients.
What’s more, positive biological effects were also observed in most patients.
The most common of these was a regression in choroidal neovascularization (CNV), which is the underlying cause of the disease that eventually leads to degeneration of the macula. And most of these positive effects appeared to be largely independent of the effects seen when patients are treated with the drugs currently used to treat wet AMD.
Following the successful phase 1 trial, Pfizer purchased an exclusive worldwide license from Lpath to develop and commercialize iSONEP.
Under the December 2010 agreement, Pfizer paid Lpath an upfront option payment of $14 million and agreed to share the costs of the planned phase 1b and phase 2a trials of iSONEP.
In October 2011, Lpath began a phase 2a trial (Nexus) to test iSONEP as a treatment for wet AMD. The trial involves 160 subjects with wet AMD that have not responded completely to a VEGF inhibitor (either Lucentis® or Avastin®).
The trial subjects have been divided randomly into four treatment arms: (1) VEGF inhibitor alone, (2) combination of VEGF inhibitor and iSONEP (lower dose), (3) combination of VEGF inhibitor and iSONEP (higher dose), and (4) iSONEP alone (higher dose).
The trial’s endpoints include changes in best corrected visual acuity (BCVA), retinal thickness, and lesion size.
The study’s purpose is to determine how iSONEP can best be used to treat wet AMD. According to CEO Scott Pancoast…
“Whether as first-line single agent, as first-line in combination with anti-VEGF therapies, or as second-line, a drug that can provide additive benefits in the treatment of wet AMD would have significant market potential.”
Lpath expects to complete dosing the last Nexus trial patient during the first half of 2014. And as I mentioned earlier, results from this trial are estimated to arrive by the end of the third quarter of 2014.
The latest development with Pfizer’s iSONEP option…
In October 2013, Pfizer notified Lpath it is seeking to divest certain ophthalmology R&D assets, including its exclusive option for iSONEP. Pfizer’s decision appears to have nothing to do with iSONEP, but rather, is part of a larger strategy to refocus on the company’s core areas of expertise.
Lpath initially tried to reacquire the iSONEP option from Pfizer, but it has since withdrawn from the process. Pfizer informed Lpath that its offer was not competitive with other offers Pfizer has received for the drug.
The key point to understand with regard to the iSONEP option is this…
Whoever owns the option (Pfizer or a third party who acquires Pfizer’s rights), will have the right to exercise it after completion of the Nexus trial. If the option is exercised, Lpath will receive an undisclosed option fee and will be eligible to receive development, regulatory, and commercial milestone payments that could total up to $497.5 million!
In addition, Lpath will be entitled to receive tiered double-digit royalties based on sales of iSONEP.
About the Market for This Drug:
AMD is the leading cause of severe vision loss and blindness among older Americans. Although wet AMD affects only 10% of patients with AMD, it is responsible for about 80% of the cases among patients with severe vision loss.
Some estimates show that nearly one-third of all Americans aged 75 years or older have at least some form of AMD. And according to a study published in 2008 by the National Eye Institute (NEI), more than 2 million Americans aged 50 and older have wet AMD.
What’s more, the NEI expects the number of patients with wet AMD in the US will increase to almost 3 million by 2020.
The current market leaders for treatment of wet AMD are the VEGF inhibitors, including Lucentis®, Eylea®, and (off-label) Avastin®. In 2012, annual revenue worldwide was approximately $4 billion for Lucentis and $0.8 billion for Eylea.
Lpath estimates the total 2012 market opportunity for the treatment of wet AMD was more than $11 billion.
No question about it, iSONEP could one day become a blockbuster drug for Lpath. Of course, the drug has a long way to go before it can be approved by the FDA. But it stands to reason that investors will drive Lpath shares higher if results of the Nexus trial are positive.
About the Potential Catalyst:
Results from the phase 2a trial of iSONEP in wet AMD are expected by the end of the third quarter of 2014.
About the Shares:
LPTN has declined a bit from the 52-week high of $6.70 set in July of last year. The fall appears to coincide with Pfizer’s announcement that it plans to divest its exclusive option for iSONEP.
We think the selloff is an overreaction as the option will most likely be acquired by another drug maker.
As such, we believe this drop in share price is a golden opportunity to pick up LPTN at a reasonable price. At the recent price of $4.82, the stock’s trading at a 28% discount to the 52-week high.
And if the Nexus trial results are positive, we expect the shares to surge well beyond that level.
Remember, the iSONEP option provides for up to nearly $500 million in development, regulatory, and commercial milestone payments for Lpath. With a market cap of just $63.5 million currently, LPTN could increase five-fold in value and still be worth less than the total value of the iSONEP option.
While we don’t expect the stock to quintuple anytime soon, it certainly could double or triple on positive Nexus trial results.
Grab your shares of LPTN today. Don’t miss out on this unique biotech’s massive upside potential.
Key Facts:
| Company: | Lpath |
| Ticker: | LPTN |
| Recent Price: | $4.82 |
| Market Cap: | $63.5 million |
| Avg. Daily Volume: | 44,982 shares |
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Category: BST Trade Alert
