Is Opthea Ltd a buy on today’s results?

Shares in Opthea Ltd (ASX: OPT) surged this morning after the junior biotech reported positive data for its Phase I clinical trial targeting wet age-related macular degeneration (wet AMD). In early afternoon trading stock was changing hands for 64.5 cents, 21.7% above yesterday’s closing price.

Wet AMD is a chronic eye disease that causes blind spots in the centre of the field of vision and is the leading cause of blindness for people over 50 years old in the developed world. The disease is caused by the growth of abnormal blood vessels that leak fluid into the macula in the middle of the retina.

Two drugs currently approved for the treatment of wet AMD are Lucentis and EYLEA. These work by inhibiting Vascular Endothelial Growth Factor (VEGF) A, a protein that signals the formation of blood vessels. Combined sales of these drugs were more than US$7.1 billion in 2015 yet they do not work for half of patients, highlighting the commercial opportunity for Opthea.

Unlike Lucentis and EYLEA, Opthea’s leading drug candidate OPT-302 blocks the activity of proteins VEGF-C and VEGF-D which can also cause blood vessels to grow and leak. The company hopes that the use of OPT-302 in combination with a VEGF-A inhibitor will improve outcomes for patients.

The phase I trial reported today was completed by just 19 patients separated into four cohorts. 13 of the participants had previously responded poorly to anti VEGF-A treatment and the remaining six had received no previous therapy. Five of the patients were only administered OPT-302 and the rest received a combination of OPT-302 and Lucentis over a three-month period.

The primary aim of the study was to demonstrate the safety of OPT-302 and no adverse events were recorded during the twelve weeks.

Unsurprisingly, the four previously untreated patients that received both OPT-302 and Lucentis experienced the greatest increase in their vision. However, the ten patients who had previously responded poorly to VEGF-A inhibitors also showed some improvement when treated with OPT-302 and Lucentis.

Only three of the five patients that received just OPT-302 completed the trial as the other two were given Lucentis as their condition deteriorated during the study.

Foolish takeaway

Whilst today’s results are encouraging, it is not possible to draw any definitive conclusions from such a small study. Regulatory approval is still some years away and achieving it is likely to require all of the $17.8 million in cash that was sitting on Opthea’s balance sheet at 31 December 2016. Most drugs that reach phase II do not ultimately get approved but certainly the company will be worth much more than its current $93.1 million market capitalisation if it is successful with OPT-302.

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Motley Fool contributor Matt Brazier has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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