Ophthotech - Buy This Multibagger Today

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 |  About: Ophthotech Corporation (OPHT), Includes: BAYRY, NVS, REGN, RHHBY
by: Vishal Manchanda

Investment Thesis

Ophthotech (NASDAQ:OPHT) lead drug candidate Fovista currently in Phase 3 trials may be the first disease modifying drug for the treatment of wet AMD to reach the market.

In the Phase 2b study, Fovista when added to Roche's (OTCQX:RHHBY) Lucentis was able to demonstrate notable improvement compared to Lucentis alone on all visual acuity related endpoints. There were no safety concerns and more importantly the drug also demonstrated disease modification as measured by changes in the size of neovascular complex.

The drug addresses a $5 billion market which is currently growing is double digits. Ophthotech hold worldwide commercialization rights for the drug. We see Ophthotech as a very likely take-out candidate.

About Wet AMD

Wet AMD affects about 10-15 percent of those who suffer from AMD and results in severe vision loss. Hence it needs to be treated. In wet AMD, the membrane below the retina thickens and eventually breaks, disrupting the oxygen supply to the macula. As a response to the situation the body begins to grow new abnormal blood vessels from the breaks of the membrane behind the retina towards the macula

With this type, the membrane underlying the retina thickens, then breaks. The oxygen supply to the macula is disrupted and the body responds by growing new, abnormal blood vessels. These begin to grow through the breaks of the membrane behind the retina towards the macula. This leads to blood vessel leakage, fluid build up and retinal distortion leading to scar formation. If untreated the retinal damage worsens and can lead to blindness.

Market Opportunity and Positioning of Fovista

There are potentially > 4mn patients with wet AMD globally, with only 1+mn currently diagnosed and treated. The existing treatments for Wet AMD include Roche's / Novartis (NYSE:NVS) Lucentis and Bayer (OTCPK:BAYRY) / Regeneron's (NASDAQ:REGN) Eylea. Roche's Avastin which also has the same mechanism of action as Lucentis and Eylea is also used as an off label treatment.

These treatment work by inhibiting vascular endothelial growth factor, while Fovista has a synergistic mechanism of action and works by inhibiting platelet derived growth factor (anti-PDGF). Hence when Fovista is combined with Lucentis, it results in a superior response.

Lucentis currently sells $4 billion in US and EU combined, while Eylea which was launched recently is expected to gross $1.5 billion in 2013. Majority of sales of Lucentis and Eylea put together is from Wet AMD and the combined market of these drugs is growing in double digits.

The best thing about Fovista is that it is not a competing therapy, but is being tested as an add on therapy to Lucentis and Eylea, which would help it gain a larger share of the potential market than Eylea or Lucentis alone.

Does Fovista address the current Unmet need in the Market?

The current standard of care which is Lucentis and Eylea do offer reasonable benefit but there is still an immense scope for improvement. Both Lucentis and Eylea work well, but the visual benefit is still limited. About 20 percent of patients loose vision over a course of one year and majority of patients do not return to normal vision and end up progressing.

With Fovista showing evidence of disease modification and significant improvement in visual acuity, Fovista would not be an option for physicians, but rather a preferred choice as they would not like any patient to be compromised in terms of the potential treatment benefits that are available. The clinical benefit that Fovista has demonstrated as add on to Lucentis are very much tangible and make a lot of difference in the quality of life for patients.

Cost of Treatment - Fovista in combination with existing standard of care

The cost of the combination therapy although would be a deterrent to use, but with such a compulsive benefit that Fovista as shown, payers would be left with not choice but reimburse for it.

Depending upon how frequently Lucentis or Eylea (monthly or on an as needed basis) is used, they an cost anywhere from $12000 to $24000 for annual treatment to a patient. Assuming Fovista s priced a 30 percent discount, the cumulative annual cost would shoot up to $40k, which is pretty significant.

A Quick Look on the Phase 2b data on Fovista

The Phase 2b trial met the primary endpoint of superiority (mean change in visual acuity at 24 weeks) with statistical significance in patients receiving the combination of Fovista™ (1.5 mg) and Lucentis. No differences were seen in any of the treatment groups with respect to ocular and systemic adverse events or persistent intraocular pressure elevation

Phase 2b Study Data - Lucentis Versus Lucentis + Fovista
Lucentis 0.5mg Lucentis 0.5mg + Fovista 0.3 mg Q4W Lucentis 0.5mg + 1.3 mg Fovista Q4W
N 147 147 151
Baseline VA 50.6 50.6 49.3
Mean change is visual acuity at 6.5 8.8 10.6
Mean change in visual acuity at week 24 5.1 7.2 8.7
Proportion of pts gaining ≥15 letters at week 12 34% 33% 39%
Proportion of pts gaining ≥20 letters at week 24 11.6% __ 19.9%
Proportion of pts gaining ≥25 letters at week 24 4.1% __ 11.9%
Proportion of pts losing ≥5 letters at week 24
Proportion of pts gaining ≥5 letters at week 24
Click to enlarge
Click to enlarge

The Phase 3 trial Design is Robust and Fovista would repeat the Phase 2b Success

Fovista has been evaluated in reasonably large sized Ph 2b trial which enrolled 450 patients. The size of the trial and the dose response lends credibility to the results and we are very much hopeful of a similar outcome in the planned Phase 3 trials. The relative magnitude of visual benefit produced by Fovista in combination with continued to increase over time also supports the positive benefits of Fovista

The Phase 3 trials have for Fovista has been designed with minimum changes from what we saw in the Phase 2 trial and hence the Phase 3 is significantly derisked. The inclusion criteria, dosing regimen essentially remains the same.

Ophthotech has begun treating patients in two of three Phase 3 clinical trials for Fovista. The trials will recruit 1866 patients. There will be three trials, of which two will evaluate efficacy and safety of Fovista as add on to Lucentis, while the third will look at Fovista in combination with Avastin or Eylea. The primary endpoint (mean change in visual acuity remains the same, except that the duration has been extended from 24 weeks to 52 weeks

Fovista is way ahead of Competition

There are many pipeline PDGF inhibitor competitors in development,

but are years behind. The most advanced is still in Phase 1. Regeneron also has an anti PDGF, which it is planning to develop in combination with Eylea is yet to enter the clinic.

Forecasting Peak Sales for Fovista

We forecast $3b in peak sales for Fovista, assuming a 20 percent discount to Lucentis pricing. With Phase 3 trials expected to complete in 2016, Fovista should reach the market by 2017. We assume 4 years to reach peak sales and expect it to capture 50 percent of Lucentis and Eylea market, which together should be around $8billion around 2021.

There is an upside to our peak sales estimate, if Fovista also finds success in other indication, for which we are yet to see any preliminary data.

Other probable indications for Fovista

Proliferative vitreoretinopathy (NYSE:PVR): PVR is a complication that occurs in ~5-10% of cases of retinal detachment. We estimate there are ~2-3K cases of PVR per year in the US.

Retinal manifestations of von Hippel Lindau disease - vHL is an inherited disease characterized by tumors (both benign and malignant) and cysts in the eye or other organs. This disease affects ~5-10K individuals in the US.

Net Present Value Calculation

We assume a cumulative R&D burn of $300m to bring the drug to the market. Once it is launched we assume 4 years for it to reach peak sales of $3billion. Assuming a post tax net margin of 50 percent, and a patent protected life of 14 years, and a 20 percent cost of capital, we arrive at a net present value of $2.5 billion. This equates to price target of $80 per share.

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.