Lpath's Q3 Filing Shines The Way For A Catalyst Filled 2013

| About: Apollo Endosurgery (APEN)

In my recent article, Q3 2012 Company Updates Indicate Upcoming Catalysts, I summarized three companies whose Q3 2012 filings indicated upcoming catalysts that have the potential to positively affect share prices if the events had positive outcomes. Conversely, alternative outcomes were also mentioned as possibilities and must be taken into consideration when making investment decisions. Continuing my series on recent Q3 filings, I now present another promising small pharma with an exciting 2013 ahead for consideration, Lpath, Inc (LPTN). As I briefly delve into the company's platform and Q3 filing, please realize that this evaluation is far from complete. I recommend interested investors perform additional research into this promising company and take into consideration its market capitalization versus its pipeline progression, financial condition, targeted market groups and the chances of regulatory approvals (or clinical data success depending on the drug's stage of development).

Lpath released its Q3 financials on November 9th. The company's pipeline is based on its ImmuneY2™ platform. Using this technology, it has developed monoclonal antibodies used to target and neutralize (or bind) bioactive lips involved in signaling mechanisms believed to affect the growth of cancerous tissues. The company is currently developing three candidates using its ImmuneY2™ platform: iSONEP™, a monoclonal antibody against sphingosine-1-phosphate (S1P), ASONEP™ another formulation of the same S1P-targeted antibody being developed to fight cancer, and Lpathomab™, an antibody against lysophosphatidic acid (LPA), a bioactive lipid targeted for multiple indications.

Lpath is developing iSONEP™ alongside Pfizer (NYSE:PFE) in a phase 2 trial to treat wet AMD, an ocular disease often leading to blindness in advanced stages. S1P, iSONEP™'s primary target, has been implicated in initiating mechanisms that promote inflammation and dysregulated angiogenesis. It additionally supports the survival of multiple cell types including fibroblasts, endothelial and inflammatory cells that participate in the dysfunctional processes of wet AMD and other eye diseases. The iSONEP™ phase 1 trial met its primary endpoint of having an acceptable safety profile but with surprising biologic effects. Many treated patients had favorable biologic responses of lesion regression, reduction of retinal thickness and resolution of pigment epithelial detachment. These biologic responses were promising, but another response could indicate real hope for patients dealing with this dreaded disease. Clinical observations noted that iSONEP™ mitigated fibrosis (scarred tissue) and inflammation, two key areas that would actually improve vision rather than only stopping its regression. If this observation continues as a potential secondary effect in the phase 2 trial now underway, iSONEP™ would not only be seen as a means to treat and stop wet AMD, but it could also be construed as a cure depending on how robust the effect is and how many patients actually experience the effect. Pfizer sees hope not only in iSONEP™ via its partnership, but it has also signed an agreement that gives it the first right of refusal to license Lpath's cancer drug, ASONEP™, which utilizes the same bioactive lipid signaling approach as iSONEP™.

Catalysts mentioned in the company's Q3 financials will greatly shape the company's future, as well as its share price movement throughout 2013. The most important will be the continuation of Pfizer's partnership with the company. The filing noted "If Pfizer exercises its option to continue the clinical development of iSONEP™, we will receive an option fee as well as potential development, regulatory, and commercial milestone payments and royalties." The continuation of the agreement with Pfizer has two major implications. First would be the obvious financial impact of Lpath having to complete the development of iSONEP™ on its own. Secondly, investors would be concerned about the effectiveness of the drug on wet AMD suffers if Pfizer was to abandon the large targeted market indication drug. Renewal of this partnership will likely be the largest price mover for 2013, unless positive results were reported on iSONEP™'s phase 2 trial sometime in the year, which would also be a significant share price mover.

Lpath is also planning on initiating a phase 2a trial on ASONEP™ to treat cancer, although the company didn't note which type in the filing. It is also planning on filing an Investigational New Drug ("IND") application for Lpathomab™, its third promising candidate, also with no indication of disease it plans on targeting initially. The company had $16 million in cash and equivalents as of September 30th. Relating back to the importance of the Pfizer partnership, the company noted "We believe our cash on hand as of September 30, 2012, together with amounts to be received pursuant to the Pfizer Agreement and NIH grants, should be sufficient to fund our ongoing research and development activities, through the end of 2013." Although the company could likely raise funds to develop iSONEP™ on its own, the company's share price would best be served by the partnership. However, all would not be lost if Pfizer decided to instead partner with Lpath on ASONEP to target the ImmuneY2™ platform's cancer fighting promise.

The year ahead looks to be a promising one for Lpath. Interested investors are advised to perform considerable research into the company's platform, its pipeline progression, Pfizer's interest in the company (an agreement renewal certainly increases the company's buyout potential by Pfizer or others), the company's cash position and cash burn rate and any other developments possibly coming along. The company's share price is down YTD about 30% on an adjusted-for-split basis. Shares are now trading just above the $6.00 support with little reason for additional downside evident due to upcoming catalysts. However, as with all positions, I recommend an entry and an exit plan with stop limits utilized in the event the $5.75 or $6.00 supports fail. Downside is always possible with development-phase companies, especially in an uncertain economy. However, patience and research can yield great returns with a solid stock pick made at a good entry position in advance of the masses' interest in the company. 2013 could be a "make or break" year for Lpath, and now could be a good time for entry in this under-the-radar company with a novel approach to fighting many diseases with its ImmuneY2™ platform. The wet AMD indication is significant with a large market group targeted. The worldwide incidence is about 30-50 million people with about 8 million in the United States alone. Finally, although I do not believe in investments based on buyout potential alone, Lpath could be in such a position if Pfizer continues its agreement with the company via iSONEP™ or ASONEP™.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in LPTN over 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.

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