Editor's Note: A previous version of this article asserted that GlaxoSmithKline's pazopanib for wet AMD is in Phase II trials. This is not true. A Phase II trial of pazopanib for wet AMD failed to show efficacy in 2013.
Ohr Pharmaceutical, Inc. (NASDAQ:OHRP) has had a rocky start to 2014. A close to 130% gain during the first eight weeks of the year preceded a 50% decline during the following eight, and the company's stock now sits relatively close to where it all began. What's driving the volatility, and what's next for Ohr?
Founded in late 2008, Ohr is a development stage biotech headquartered in New York. During 2009, the company acquired two late stage clinical programs; one that addresses wet age-related macular degeneration [AMD] and ovarian cancer, and another that addresses cancer cachexia.
Squalamine, the wet AMD and ovarian cancer candidate, is the most advanced candidate, and will be the primary focus of this piece. There are compelling reasons to be excited about Squalamine, as there are 2 other similar blockbuster drugs already approved. There are also strong reasons to stay cautious here. Taken together, if Squalamine attains approval, OHRP will jump in the short term, but there are serious issues facing the treatment in the longer term, reasons below.
AMD is a painless eye condition that generally leads to the gradual loss of central vision, but can also sometimes cause a rapid reduction in vision. As its name suggests, central vision is the vision used to see what's directly in front of the eye, and as such, symptoms include reading difficulty, a loss of color vibrancy and difficulty with things such as facial recognition.
There are two types of AMD - dry and wet. Dry AMD is the slow deterioration of cells in the macula, which is a spot near the center of the retina responsible for high-resolution central vision. The progression of dry AMD is usually painless and slow. Wet AMD occurs as the result of blood vessels forming underneath, and damaging the cells of the macula. Although wet AMD accounts for only about 10 percent of overall cases, it often has devastating effects on quality of life because it progresses so quickly. The disease affects approximately 1.3 percent of people over 50 years old. In people over 50, the global incidence of wet AMD is approximately 1.5M, with approximately 600,000 cases of wet AMD diagnosed annually. Analysts forecast this to rise to approximately 3M by 2020.
Where does Squalamine come in? Squalamine is a first-in-class, small molecule, anti-angiogenic drug with an intracellular mechanism of action, meaning the drug does its work inside the cell instead of between cells. Angiogenesis is the process through which the abnormal blood vessels develop in the eye, and it occurs when angiogenic proteins and a number of growth factors chemically stimulate cell reproduction in existing blood vessels. Squalamine inhibits a number of the most aggressive of these growth factors, including vascular endothelial growth factor [VEGF], platelet-derived growth factor [PDGF] and basic fibroblast growth factor [bFGF]. Simply put, it stops the chemical process from taking place using a number of targets, meaning the new blood vessels don't grow, and in turn, cannot damage the macular cells.
Is it unique? Yes and no. There are currently two FDA approved angiogenesis-inhibitors on the market. These are Lucentis, marketed by Genentech/Roche (OTCQX:RHHBY), and Eylea, marketed by Regeneron (NASDAQ:REGN). Both treatments are chemically similar to that of Squalamine. However, Squalamine differs in a couple of key areas. First, Lucentis and Eylea are extracellular, meaning the mechanism of action takes place outside the cell, while Squalamine is intracellular. The practical difference is that extracellular treatments take longer to achieve efficacy, and require chronic administration. Intracellular takes place inside the cell, is faster acting, and requires fewer dosings.
Second, the two approved treatments are delivered intravitreally, meaning they are injected directly into the eye, a painful and costly process. Squalamine is delivered via an eye drop formulation, and as such, can be self-administered. A final difference is that Lucentis and Eylea inhibit VEGF only, while Squalamine, as mentioned, inhibits a range of growth factors.
This sounds impressive, but it should be pointed out that as yet there is no proven benefit of extra inhibition of these additional growth factors. Additionally, intracellular drug action may yet prove to cause more unwanted side effects than an extracellular approach. We don't know yet, and phase 2 trials are proceeding, but more on that below.
One final point of note regarding the three treatments is that the eye drop administration process vastly reduces the cost of the treatment. While Ohr has not yet reported a potential sale cost for its drops, it has stated that treatment would be far below the current $1,850/$2,000 cost of Lucentis and Eylea.
Trial Progress and Near Term Catalysts
Because Squalamine is a reformulation of current approved FDA excipients, the approval process is greatly reduced in terms of both time and cost. A look at the FDA's proprietary reformulation guidelines, with a specific reference to ocular delivery treatments, reveals that:
"If the active ingredient has not been used by the ocular route, then toxicity studies in two species with complete eye and systemic evaluation for the appropriate duration should be carried out with the new formulation. In certain cases, studies in one most appropriate species may be adequate."
Ohr has taken advantage of the latter of these two cases, and having achieved fast track designation by the FDA in 2012, conducted in-vivo studies of Squalamine in Dutch belted rabbits. The study demonstrated safety and tolerability at 28 days, the same at six months, and peak concentrations at 8x the threshold limit to inhibit choroidal neovascularization. In short, the preclinical trial was a success.
Phase II trials are well underway, reaching 50% enrollment in July last year, and interim results are expected during this quarter. The volatility seen in the stock year-to-date is likely a preemptive push-and-pull response to this near term catalyst.
Genentech and Regeneron currently generate $4B globally and $838M in the US annually, respectively, for their respective wet AMD treatments. However, if approved, the figures for Ohr would be smaller due to squalamine being much cheaper. In terms of potential market size, while there is no cost reported as yet, a comparison with an already approved Swiss eye drop offers a loose insight. Ethos' Bright Eyes eye drops are designed to treat cataracts, but the company's website suggests efficacy in the treatment of AMD. A six week round of treatment consists of six boxes of solution, at a price of $100 per box. If Ohr can penetrate a conservative 10% of the wet AMD market, it could generate $90M annual revenues from Squalamine. A 30% penetration would generate $270M revenues, rising to more than half a billion by 2020.
At December 31, 2013, Ohr had a little over $4M cash in the bank. At the beginning of this month, the company announced the closings of a registered direct offering that raised $18M, through the sale of 1.8M shares of common stock at $10 per share. At a burn rate of approximately $600,000 per quarter, the cash at hand and the proceeds of the latest offering should see the company financed well into 2016, even with the expansion of its pipeline and the inevitable increase in burn rate that ensues.
The obvious risk with Ohr is that it fails to demonstrate efficacy for Squalamine in its ongoing phase II trial. Such a failure would set the company back, and offer up a potential 5-6 year delay before it could hope to gain approval for another Squalamine incidence, or for one of its other pipeline candidates. We all just saw what happened to Athersys' phase 2 trial for MultiStem. The same could happen with Ohr, though the chances in my view are a bit better because we're not dealing with revolutionary technologies like stem cells, but rather a reformulation and upgrade of already approved treatments.
The second major risk is volatility. As demonstrated over the past four months, the stock of development stage biotechs is at the mercy of investor sentiment. Shifting sentiment can cause wide swings in market valuation, regardless of any fundamental drivers. As such, an early stage investor should be prepared for the proverbial wild ride.
Finally, big pharma incumbent GlaxoSmithKline (GSK) has already attempted to develop a treatment that would serve as a direct competitor to Squalamine. Pazopanib, the company's Wet AMD candidate that ended up failing, is almost identical to Squalamine, in that it is an intracellular angiogenesis inhibitor designed for eye drop delivery. Pazopanib's failure raises the chances the Squalamine may as well. Or it may simply be that eyedrop delivery is not efficacious enough and injections could be necessary, which would defeat some of the cost cutting advantages. Nevertheless, even if injection is necessary, Squalamine may still end up being cheaper than Eylea or Lucentis because it is intracellular rather than extracellular and could require future treatments.
Bottom line, it is unclear if the phase 2 in its current form will succeed or not. The potential for big gains should phase 2 succeed is definitely there, but the risks are clear as well. A straddle going out to October could be the best option here.
All said, Ohr's Squalamine looks like a promising candidate for the treatment of a disease that, at present, is costly, drawn out and painful to treat. If the company can demonstrate efficacy in its ongoing phase II trials, accelerated approval could see Squalamine hit the market before the end of 2015, and allow Ohr to begin to build market share through what, from the outside, looks to be a superior product to the currently available alternatives. As there are several reasons for caution and we don't know what the fate of the ongoing phase 2 will be, a put/call spread or straddle on October OHRP options seems to be the most prudent course of action here.