By Jake King
Wet macular degeneration is a chronic eye disease that causes vision loss and generally occurs later in life (50+), as blood vessels leak fluid or blood into the macula. With an aging baby-boomer generation, treatments for wet AMD have been highly lucrative for leading developers Roche/Novartis (OTCQX:RHHBY)(NYSE:NVS) and Regeneron (NASDAQ:REGN), with a current $3.4B annual treatment market that is anticipated to grow 22% this year. The treatments are effective, but their biggest downside is that they require injection on a monthly or bi-monthly basis; this dosing regimen is invasive and not optimal for patients.
As an alternative, Ohr Pharmaceuticals (NASDAQ:OHRP) is developing an eye-drop for wet-AMD, and although the new formulation has yet to complete a human proof-of-concept trial, the active ingredient, squalamine, has shown efficacy against neovascularization and angiogenesis (the underlying causes of wet AMD) in previous trials as an intravenous (IV) preparation. Clearly, a successful Phase II trial for this drug candidate could be worth a substantial sum, hence the tremendous upside potential in OHRP stock. Interestingly, investors may not need to take on as much risk as this kind of trade might imply, as the company is approaching several other milestone events that may protect against downside into the squalamine eye drop Phase II interim results anticipated by year-end. The company's other development-stage compound, OHR-118, is also undergoing Phase II development as a treatment for cachexia (or patient "wasting") associated with cancer. Importantly, minimal value, if any, is being factored into OHRP stock for this drug candidate. Results are expected before the end of this month, and if positive, expect the stock to rise substantially. Additionally, shares of OHRP are likely to up-list to the NASDAQ (from the OTC Bulletin Board) in the next couple of months as a considerable amount of "in-the-money" warrants convert to common stock, which could bring in up to $14.3M in cash and boost the company's shareholder's equity to a level that enables a NASDAQ listing. The up-listing is a clear positive, and the two Phase II trials for both squalamine eye drops and OHR-118 enable investors to own OHR with two chances to win. Should the cachexia candidate, OHR-118, succeed in Phase II, value will be created in short order, while a poor result for this drug candidate shouldn't impact OHRP all that much given that the story remains about squalamine for wet AMD. As a result, we expect shares of OHRP to become significantly more visible over the next several weeks -- and into the 2nd half of the year with an up-listing -- with speculative investors taking positions in the name ahead of these key events.
Squalamine eye drop has potential to tap huge market with clear differentiation. Macular degeneration causes damage to the macula, the central part of the retina at the back of the eye that picks up fine detail in the center of the visual field. In wet AMD, abnormal blood vessels under the retina begin to grow toward the macula, and because these blood vessels are abnormal, they tend to break, bleed, and leak fluid, damaging the macula and causing it to lift up and pull away from its base. This can result in a rapid and severe loss of central vision. Anti-angiogenic drugs, like Roche/Novartis' Lucentis and Regeneron's Eylea, have proven to be the most effective treatments for wet AMD, and both inhibit VEGF (vascular endothelial growth factor) to prevent new blood vessel growth, thereby reducing breaks, leaks and the common "spotting" that occurs in patients suffering from wet AMD. Squalamine, like these leading treatments, is an inhibitor of VEGF, but also inhibits platelet-derived growth factor (PDGF) and basic fibroblast growth factor (bFGF). While current treatments are monthly or bi-monthly injections, squalamine, as it is being tested by Ohr, is a twice-daily eye drop. Squalamine is a small molecule (Lucentis and Avastin are monoclonal antibodies) and has already demonstrated clinical efficacy in wet AMD through IV administration. In Phase I and II studies, the drug showed improvements in visual acuity and lesion response with no major adverse events. But in 2007, this IV formulation was dropped for lack of commercial viability by Genaera Corp. (which went bankrupt shortly thereafter) because treatment with IV squalamine necessitated IV infusions on a weekly basis, a very inconvenient proposition due to the drug's short half-life. Additionally, IV squalamine generated infusion site reactions, and the availability and rapid acceptance of other treatments that improve vision in AMD patients made IV squalamine a non-starter.
Since then, Ohr, which picked up the candidate in 2009, has reformulated squalamine as an eye drop and has advanced it into an ongoing Phase II efficacy and safety study for wet AMD. Pre-clinical work utilizing the Dutch Belted Rabbit (arguably ideal for human comparison) demonstrated that at "trough" levels, the eye drop "exceeded concentrations of squalamine that are known to block the choroidal neovascularization process in Wet-AMD." That threshold, according to Ohr, is 11ng/g, and researchers saw squalamine concentrations at the back of the eye of 60ng/g+ at all time-points and dosing regimens in the animal study. This is key, as the skeptics of squalamine eye drop would like proof that sufficient concentrations of the drug can travel to the back of the eye, and this preclinical "distribution" data suggest that it can. With evidence in hand that squalamine was making it to the macula, the company initiated a randomized, double blind, placebo controlled Phase II study (n=120) in treatment naïve wet AMD patients, with fast-track status granted by the FDA. The trial is evaluating squalamine eye drops in-part as a concomitant therapy with standard of care; patients receive an initial injection of Lucentis prior to randomization and are then evaluated monthly for their need for further injections. A home-run would be improvement or stabilization using squalamine eye drop as a monotherapy, but even if the drops reduce the frequency of Lucentis injections, which are expensive, invasive and slightly risky, there's a clear commercial opportunity. An interim read-out is due upon the completion of the treatment period in 50% of patients, which the company expects by the end of this year. If positive, squalamine eye drops could be highly disruptive to the current, invasive wet AMD treatment paradigm, as a standalone therapy or as an adjunct to existing injections. With an aging baby boomer generation and 10% of the 3 million American AMD sufferers (by 2020) eventually digressing to the wet form of AMD, the patient population is substantial. Analysts anticipate that Regereron's Eylea could have peak sales of $4B, and if Squalamine Eye Drops prove to benefit wet AMD patients and become an FDA-approved product, this drug could also be a multibillion-dollar seller.
OHR-118 Phase II data approaching, perhaps a free "call option" for OHRP shareholders. In the next couple of weeks, Ohr expects to release top-line data for OHR-118, a Phase II candidate for the treatment of cancer cachexia. What's most important to note, however, is that OHR-118 could be a free "call option" in the OHRP story, as it currently plays a negligible role in the company's valuation. Investors have exposure to considerable upside surprise if the Phase II results this month demonstrate quality outcomes for cachectic patients, as we believe that with the focus on squalamine eye drops, a poor result for this cachexia product won't have a crushing impact on the stock. Cancer cachexia is a severe wasting disorder that usually affects late-stage cancer patients and is characterized by muscle atrophy, fatigue, weight loss, weakness, and loss of appetite. Severe cachexia not only lowers patient quality of life -- often during the times when quality is most crucial -- but can hamper proper cancer treatment, as weakened patients simply can't tolerate further chemotherapy. A 2009 study claims that as many as 23% of all cancer patients will have cancer cachexia at some point during treatment, and that cachexia is the immediate cause of death in 20% to 40% of cancer patients; thus, the opportunity for an effective treatment is quite large. Par Pharmaceutical's Megace ES product (a long-acting reformulation of generic megestrol acetate) generates about $100M in annual sales for cachexia. However, because it competes with cheaper generics, the Megace market, at branded prices, is actually much larger than Par's sales indicate (Megace ES has only ~15% of the megestrol acetate market according to IMS Health prescription data). Nevertheless, if OHR-118 could generate the same $100M that Megace ES generates, using a 3x multiple on peak sales would indicate a $300M value for OHR-118, if approved. Those kind of numbers suggest that if the Phase II cachexia trial is a success, OHRP shares will climb significantly higher.
OHR-118 has already demonstrated beneficial effects in mitigating symptoms of AIDS cachexia, and while the ongoing Phase II study is small and open-label, interim results from the same trial - although at a different location - were favorable with statistical significance. Weight stabilization or gain was observed in 7 of 11 patients., and Total Patient Generated Subjective Global Assessment scores improved significantly (p=< 0.01); appetite (p=< 0.01) and depression (p=0.05) scores improved on the Edmonton Symptoms Assessment Scale; and frequent burping/belching (p=0.02), feeling full (p=0.04) and stomach distention (p=0.03) improved on the Dyspepsia Symptom Severity Index. And, Simmonds Functional Assessment tests showed improvement on time to sit and stand (p=0.01). OHR-118 was well tolerated with no serious side effects, and while the candidate is not a crucial part of the OHRP story, it may offer surprise upside yet in the first quarter of this year. We consider it a free call option for OHRP investors, and quality data from this product alone is enough to justify the stock's current valuation and more.
Company quietly and efficiently advanced its pipeline in 2012. We met with OHRP a little over a year ago, and the company had little to show at the time, with squalamine just reformulated as an eye drop and undergoing pre-clinical proof-of-concept trials, and OHR-118 more than a year away from Phase II data. The company spent less than $2M last year, but management was able to move the ball significantly forward. OHR received FDA approval to go directly into a Phase II trial with its squalamine eye drop formulation; FDA also granted the program "Fast Track" status; the company completed its Phase II cancer cachexia study for OHR-118; and initiated and enrolled patients in the squalamine eye drop wet AMD Phase II trial. Additionally, OHRP has assembled a top-tier Scientific Advisory Board with key opinion leaders that have previously served as investigators and advisors for all of the major commercial wet AMD treatments: Visudyne, Macugen, Lucentis, and Eylea (see OHRP's SAB here ). The company has also conducted early business development discussions with larger pharmaceutical companies, although Phase II data for each asset are needed to take these activities to the next level. Ohr has accomplished all of this on a shoe-string budget by controlling spending carefully and using stock options instead of cash in many cases, for R&D resources and Management/Board compensation. Management's salaries are well below industry norms, suggesting that these individuals are incentivized to be aligned with shareholder interests. A key to the company's success is CEO Dr. Irach Taraporewala, who has over 30 years of experience in drug development and regulatory affairs. Dr. Taraporewala was a senior drug development consultant for leading contract research organization (CRO), PAREXEL International, and this experience enables OHRP to conduct its clinical programs efficiently, effectively, and with minimal resources. In addition to successfully developing many drugs through FDA approval for pharmaceutical companies that contracted with PAREXEL, Dr. Taraporewala also consulted for companies with ophthalmology assets and led ophthalmic drug development for Mystic Pharmaceuticals.
Cash infusion and NASDAQ up-listing expected to raise visibility and stock price. A nice bonus in the OHRP story is the potential for the company to list its shares on the NASDAQ, an improvement from their current OTC Bulletin Board listing. The pathway for a NASDAQ listing has become clear as the company moves closer to the exercise of warrants that could bring in a substantial amount of cash and increase shareholder equity to satisfy NASDAQ requirements. Approximately 11.99 million warrants for OHRP are set to expire on April 30th, and given their exercise price of $1.19, most, if not all, of these warrants will likely be exercised, bringing in cash to the company of about $14.26 million (if 100% are exercised). These warrants are from a prior financing conducted to inject funding into the public vehicle that later became Ohr Pharmaceuticals. Importantly, most investors in that round of financing remain active with the company and have continued to participate in subsequent financings for OHRP (5 financings each at sequentially higher valuations). This means that most of the warrants are likely to be exercised on or before April 30th, and that the company should meet shareholder capital requirements for the NASDAQ up-listing in tandem. If any of these "in-the-money" warrants are not exercised by April 30th, they expire worthless and the company's fully diluted share count will be reduced. Additionally, the company plans to remove a separate "non-cash warrant derivative liability" on its balance sheet through a vote of certain warrant holders to eliminate an anti-dilution provision. The company already has the more-than 50% of the votes necessary to remove this weighted average anti-dilution provision, hence, the balance sheet should look even better to NASDAQ once the derivative liability has been removed. Overall, the influx of significant cash and expected up-listing of the stock should have a positive impact on OHRP shares. Depending on the outcome of the Phase II cancer cachexia trial for OHR-118, the company may or may not need to reverse-split its stock to achieve the $3.00 closing price for a NASDAQ listing under the shareholder capital standard. The good news is that in cases where a reverse split is conducted by a company to initially list on NASDAQ, investors usually welcome the action with a higher stock price, as opposed to companies that reverse split simply to maintain their NASDAQ listing. Once listed, OHRP shares will become visible to a much wider range of investors and certain index funds may also start to pick up the stock, hence upside to the current valuation.
Several reasons to own OHRP. OHRP is heading towards a number of events, and a positive result for OHR-118 may set the stage for the shares to trade sharply higher over the next few months. We believe investors can play the OHR-118 Phase II results with little risk given that the key reasons to own the stock will still exist, no matter the cachexia outcome, including a potential NASDAQ up-listing for OHRP shares and Phase II results for squalamine eye drops expected later this year. With an immense market for effective wet AMD treatments, particularly from a disruptive technology like an eye drop, the risk/reward with OHRP appears favorable, and even as a short-term trade, investors can take advantage of two potentially positive catalysts within the next few months, squalamine Phase II results aside.
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