Seeking Alpha
IPOdesktop, IPOpremium (431 clicks)
Value, IPOs, long only
Profile| Send Message| ()  

Based in New York, NY, Ophthotech (OPHT) scheduled a $100 million IPO with a market capitalization of $495 million at a price range mid-point of $17.50, for Wednesday September 25, 2013.

Twelve IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

S-1 filed September 9, 2013.

Manager, Joint Managers: Morgan Stanley; JPMorgan
Co Managers: Leerink Swann; Stifel

Summary

OPHT is a biopharmaceutical company specializing in the development of novel therapeutics to treat diseases of the eye.

OPHT's Phase 2b clinical trial demonstrated a 62% comparative benefit from baseline. Sales of products which don't meet OPHT's comparative benefits (from the Phase 2 clinical trial) are $4.8 billion per year.

OPHT has well-known, significant shareholders. See "5% stockholders pre-IPO" below.

Valuation

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing June 6 mos '13

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Ophthotech

$495

n/a

-17.7

4.2

4.2

20%

Accumulated deficit of -$147 million.

Conclusion

Buy OPHT on the IPO based on the above summary and the 4.2 times book value, which is attractive given the Phase 2b trial results.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

OPHT is a biopharmaceutical company specializing in the development of novel therapeutics to treat diseases of the eye.

The most advanced product candidate is Fovista, which OPHT is developing for use in combination with anti-VEGF drugs that represent the current standard of care for the treatment of wet age-related macular degeneration, or wet AMD.

About Wet AMD

Wet AMD is a serious disease of the central portion of the retina, known as the macula, which is responsible for detailed central vision and color perception. It is characterized by abnormal new blood vessel formation and growth, referred to as neovascularization, which results in blood vessel leakage, retinal distortion and scar formation.

If untreated, the progressive retinal damage results in rapid, irreversible and severe vision loss. Wet AMD is the leading cause of blindness in patients over the age of 55 in the United States and the European Union. In the United States, according to a study on the burden of AMD published in 2006 in the peer reviewed journal Current Opinion in Ophthalmology, there are approximately 1,250,000 cases of wet AMD.

According to AMD Alliance International, approximately 200,000 new cases of wet AMD arise in the United States each year. The percentage of individuals with wet AMD increases substantially with age, and we expect that the number of cases of wet AMD will increase with growth of the elderly population in the United States.

Current treatment standard

The current standard of care for wet AMD is monotherapy administration of drugs that target vascular endothelial growth factor, or VEGF, one of several proteins involved in neovascularization.

The anti-VEGF market for the treatment of wet AMD consists predominantly of two drugs that are approved for marketing and primarily prescribed for the treatment of wet AMD, Lucentis and Eylea, and off-label use of the cancer therapy Avastin.

In 2012, annual worldwide sales of Lucentis and Eylea for all indications totaled approximately $4.8 billion. Avastin was used off-label to treat approximately 60% of Medicare beneficiaries in 2008 who received anti-VEGF therapy for wet AMD. Retinal specialists in the largest markets in the European Union use off-label Avastin to treat approximately 27% of patients with wet AMD.

Clinical trials

OPHT has completed a large Phase 2b clinical trial in which 1.5 mg of Fovista administered in combination with one of the standard of care drugs, Lucentis, demonstrated statistically significant superiority compared to Lucentis monotherapy based on the primary endpoint of mean change in visual acuity from baseline at 24 weeks, providing a 62% comparative benefit from baseline.

OPHT has initiated a pivotal Phase 3 clinical program to evaluate the safety and efficacy of Fovista combination therapy for the treatment of newly diagnosed wet AMD patients compared to current standard of care monotherapy.

OPHT has begun treating patients in the United States in two of three Phase 3 clinical trials in this program, both of which are evaluating the safety and efficacy of 1.5mg of Fovista administered in combination with Lucentis.

The company expects to have initial, top-line data from its Phase 3 clinical program available in 2016. If the results of this Phase 3 clinical program are favorable, OPHT plans to submit applications for marketing approval for Fovista in both the United States and the European Union before the end of 2016.

Intellectual Property

As of August 31, 2013, OPHT owned or exclusively licensed a total of 106 U.S. patents and 18 U.S. patent applications, including original filings, continuations and divisional applications, as well as numerous foreign counterparts of many of these patents and patent applications.

Competition

There are a variety of therapies used for the treatment of wet AMD, principally Avastin, Lucentis and Eylea. These anti-VEGF drugs are well established therapies and are widely accepted by physicians, patients and third-party payors as the standard of care for the treatment of wet AMD.

Physicians, patients and third-party payors may not accept the addition of Fovista to their current treatment regimens for a variety of potential reasons, including:

if they do not wish to incur the additional cost of Fovista;

if they perceive the addition of Fovista to be of limited benefit to patients; or

if they wish to treat with anti-VEGF drugs as monotherapy first and add Fovista only if and when resistance to continued anti-VEGF therapy limits further enhancement of visual outcome with anti-VEGF monotherapy.

5% stockholders pre-IPO

Clarus Lifesciences II, L.P., 13.6%
Entities Affiliated with SV Life Sciences, 26.8%
HBM Healthcare Investments (Cayman) Limited, 15.2%
Novo A/S, 28.7%

Use of proceeds

OPHT expects to net $90 million from its IPO.

In June '13 OPHT has $39.9 million in cash. In August 2013, OPHT received $33.3 million in additional proceeds from the sale of 13,333,333 shares of our series C preferred stock.

OPHT also has aggregate expected funding under a royalty agreement with Novo A/S of $83.3 million, subject to enrollment of specified numbers of patients in Phase 3 clinical trials of Fovista and satisfying additional closing conditions and other obligations.

OPHT currently estimates that it will use the net proceeds from this offering, together with cash and cash equivalents as of June 30, 2013, the proceeds from the sale of shares of series C preferred stock in August 2013 and the expected funding under the royalty agreement, as follows:

$175 million to fund, and obtain initial, top-line data from the Phase 3 clinical program for Fovista administered in combination with anti-VEGF drugs for the treatment of wet AMD and to fund pre-approval commercialization efforts for Fovista;

$5 million for smaller exploratory trials of Fovista for the treatment of additional indications and for other patient populations;

$5 million to pursue the clinical development of ARC1905 for the treatment of AMD; and

The balance for working capital and other general corporate purposes, which may include the acquisition or licensing of other products or technologies.

Disclaimer: This OPHT IPO report is based on a reading and analysis of OPHT's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Ophthotech