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Ophthotech (NASDAQ:OPHT) made its public debut on Wednesday, September 25. Shares of the biopharmaceutical company ended their first day with gains of 19.5% at $26.30 per share.

Essentially the company is a well-financed one-trick pony trying to make progress in the treatment of the serious Wet AMD disease. Even though things look bright, given that the company has already started the third phase testing, has sufficient capital and has only signed low royalty payments, I remain on the sidelines.

The uncertain development progress, competitive position and long time until a product launch, makes me cautious in an otherwise successful public offering.

The Public Offering

Ophthotech is a biopharmaceutical company focused on novel therapeutics to treat eye diseases. The company's product candidate is Fovista, being developed to use in combination with anti-VEGF drugs for the treatment of wet age-related macular degeneration.

Ophthotech sold 7.6 million shares for $22 apiece, thereby raising $167 million in gross proceeds. All shares were sold by the company with no shares being offered by selling shareholders.

Bankers and the firm set an initial price range of $19 to $20 per share. Shares were eventually sold above the midpoint of the range. Just two weeks ago, the company sought to sell 5.7 million shares at $16-$19 per share, in an attempt to raise $100 million.

Some 20% of the total shares were offered in the public offering. At Wednesday's closing price of $26.30 per share, the firm is valued at $742 million.

The major banks that brought the company public were Morgan Stanley (NYSE:MS), Leerink Swann, Stifel and J.P. Morgan (NYSE:JPM).


Ophthotech has completed a large Phase 2b clinical trial in which 1.5 mg of Fovista has been administered in combination with the standard drug Lucentis, which resulted in superior outcomes compared to solely administering Lucentis.

A Phase III clinical program has begun to evaluate the safety and efficacy. Initial data from this program is expected to become available in 2016. If results are favorable, the company aims to submit an application for marketing approval for the drug in the U.S. and Europe before the end of that year.

Wet AMD is a disease of the central portion of the retina resulting in abnormal new blood vessel formation and growth. The disease can result in rapid and irreversible vision loss, being a leading cause of blindness, with an estimated 200,000 new cases in the US every year.

The current treatment is done by Lucentis and Eyla which combined generated annual revenues of $4.8 billion in 2012, according to Ophthotech's S1-filing. Fovista has superior characteristics serving the needs much better in a better total treatment. More important, the company holds on to all the rights on a worldwide basis to Fovista.

As the company has no real partnerships and no working products, Ophthotech does not generate any revenues. The company reported a net loss of $21.6 million for the full year of 2012, as losses increased to $18.2 million in the first half of 2013.

Ophthotech holds $39.9 million in cash and equivalents at the moment, operating without the assumption of debt. Factoring in gross proceeds of $167 million from the offering, and the company should operate with a net cash position of around $180-$190 million after the offering.

Investment Thesis

As noted above, the offering of Ophthotech has been a huge success. The company raised the preliminary offering range and priced the offering above the already raised price, while boosting the offering size as well.

Shares rose some 19.5% on their opening day after shares were priced some 25.7% above the midpoint of the first guided offering range.

Ophthotech is a one-trick pony, yet the company has some things going for it. Fovista is in quite an advanced stage and initial results are quite promising. Furthermore, the company holds all the worldwide rights and has only given away low royalty percentages to Novo A/S. As a result the company anticipates, especially after the successful public offering, that it has sufficient cash to run through the remainder of most of the development process. At the current trajectory, there should be enough cash until the first half of 2016.

The company received a total of $125 million from Novo A/S (NYSE:NVO) in exchange for royalties of low to mid single-digit percentages of worldwide sales. Total future incurred cost for the Phase III program are estimated at $175 million.

So the valuation seems hard to judge at this point as it is all or nothing for shareholders. Key probabilities for the valuation are chances that Fovista gets approved, and then how the product is received given that there are competing products out there, although they are inferior to Fovista according to the company.

Judging these probabilities, thereby making an informed investment for an outsider like me is hard to do. Therefore I remain on the sidelines, awaiting more information about the development progress and data results in three year's time.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.