Forget The Rumors: Why Pfizer Might Be Incentivized To Acquire Lpath Outright

 |  Includes: LPTN, PFE
by: Michael Morhamus

One of the things that makes what is happening at Lpath Inc. (NASDAQ:LPTN) so intriguing is the unique scope of the firm’s work in Lipid Signaling.

If you haven’t already heard, the scientific team there has recognized the value of identification and development of new regulating mechanisms involving lipid signaling molecules and modifiers.

Recent studies reveal striking changes in membrane lipids during aging and in age-related afflictions such as cancer, cardiovascular disease and neurodegenerative disorders.

Some feel this is a game changing approach to treating diseases and scientists writing in the recently published Science Translational Medicine journal agree that "Lipid signaling is dysregulated in many diseases with vascular pathology, including cancer, diabetic retinopathy, retinopathy of prematurity, and age-related macular degeneration.

It struck me that as I looked through the investor presentation for Lpath, it look very different than most others I’ve read in recent years. My bet is that most casual observers get lost in some of the slides heavily peppered with scientific data and charts. At times, even I felt like a lost student in a complex, graduate level bio-chemistry class trying to make heads or tails of the proposition being offered to investors by the firm.

While someone obviously felt some of this extreme data simply had to be presented to investors, they may have been better served to “dumb (at least part of) it down” for the rest of us.

Obviously, the important people, including some at world’s leading pharmaceutical companies, have taken notice of some of the developments at the San Diego, California based firm. With some key data and clinical results around the corner, it appears Wall Street may finally be catching up.

The company, whose trading chart looked like it had flat-lined prior to some recent write-ups and analyst coverage initiations is actually a small, yet potent leader in this emerging field of lipidomics, focusing on developing novel therapeutics based on the study of bioactive lipids.

These molecules have specific characteristics based on fatty compounds, which act as important signaling agents within the body and which have been implicated in a wide range of pathological and disease conditions.

Please know that Lpath is no “me-too” biotech play. In fact, LPTN has based its drug discovery and development engine on monoclonal antibodies, a particularly prized and relevant class of therapeutic agent that is unlikely to copied or easy to genericize.

Already the firm is working with Pfizer (NYSE:PFE) on a drug (iSONEP) that targets the rapidly expanding wet age related macular degeneration (wet AMD) market. While some of the existing drugs have already reached blockbuster status, they only focus on arresting blood vessel growth within the eye. Lpath's approach blocks inflammation and fibrosis, and apparently attenuates the permeability of the retina. These mechanisms alone change the game for the big pharma drug makers in the space and certainly impact parameters that their drugs cannot alleviate.

Is it any wonder that Pfizer paid an upfront option of $14 million just to get in bed with the relatively small firm? And forget the fact that the Pfizer deal has the potential for a total of close to half a billion in milestones if the Pharma giant decides to license the rights to iSONEP, the company also has a solid pipeline of other antibodies and they confirm publicly that they are talking to other potential partners or licensees.

Dr. Roger Sabbadini, currently a professor emeritus at San Diego State University, is Lpath’s founder. He has helped developed a unique way to screen bioactive lipids and develop monoclonal antibodies against them. This has enabled the small biotech to develop drugs against pathways which aren’t even being targeted by other companies.

As if that weren’t enough, Lpath is able to directly target the lipids themselves, as opposed to their receptors. This should give Lpath’s drug candidates much wider therapeutic activity compared to drugs and other therapies which simply block the receptors of the lipids in question.

While some biotech bloggers and analysts began touting the fact that Lpath is exactly the type of unique biotech company that Big Pharma would want to acquire, the reality is we will have to wait and see what upcoming clinical trial results prove first.

Still, the writing is on the wall and biotech speculators are starting to take long positions in the stock ahead of the pending catalysts. Volume is on the rise and the chart looks anything but flat these days.

One can’t blame them. As one leading analyst from Morgan Joseph puts it: “If initial clinical data with iSONEP proves encouraging, Pfizer might be incentivized to acquire Lpath outright or seek additional licenses to more of Lpath’s pipeline candidates ...”

Results are expected late Q1 or early Q2 2012 for Isonep Phase II clinical trials for RPE detachment (for which there is no current treatment) to be followed by the results for wet AMD.

In addition Lpath’s ASONEP, another leading candidate, is slated to begin Phase 2 clinical trials in 2012 as of yet undetermined cancer indications. Pfizer holds the right of first refusal on ASONEP until December 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.