LPath's Form / Fill Delay Disappoints Investors: Long-Term Buying Opportunity?

Upcoming events: PEDigree phase Ib/2a preliminary data now expected late Q3 2012 or early Q4 2012

LPath, Inc. (LPTN.OB) - based in San Diego, CA engages in the development of lipidomic-based therapeutics. Utilizing its proprietary ImmuneY2™ discovery engine, the company aims to leverage its technology platform to provide monoclonal antibodies targeting bioactive lipids in a safe, efficacious, and reliable manner. LPath is an early stage biotechnology company currently involved in two efficacy trials with its partner, Pfizer (PFE), for its ocular formulation of the humanized monoclonal anti-S1P antibody (Sphingomab™). In addition, the company plans to begin its long-planned Asonep trials, the systemic formulation of its humanized monoclonal anti-S1P antibody (Sphingomab™) in renal cell carcinoma (RCC) in the next few months.

Unfortunately for holders of LPath stock, the clinical trials ground to an abrupt halt as LPath announced late last week that dosing of iSONEP will stop due to cGMP compliance issues at its contract fill / finish source, Formatech, now in chapter 7 bankruptcy. The next morning, the CEO (Scott Pancoast) hosted a conference call and spent a lot of time (nearly an hour!) fielding questions from analysts and investors. I would like to highlight some of the points addressed in the conference call.

Highlights - Listed From Good to Bad

1. ISONEP is safe and well tolerated (approximately 20 patients dosed and most of them multiple times in Nexus and Pedigree trials) and does not appear to be affected by the "environmental" issues faced at Formatech. All patients who were dosed will continue to be monitored for safety. Patients who did not complete the full program will not be given as much weight statistically in the final analysis (details not determined).
2. Pfizer is responsible for cost overruns in the iSONEP program and remains supportive of the iSONEP program.
3. Asonep is unaffected and on schedule, with the trial set to begin in July.
4. Delay will be between 4 to 6 months, and the FDA has promised it will respond to LPath's request to resume dosing within 30 days.
5. A 4 month delay would involve the deformulation of the Asonep vials (same monoclonal antibody) and reformulation to iSONEP. 6 month delay would involve new production and fill / finish. If the longer 6 month route is chosen, the more conservative route, LPath will use its tried and true, lower yielding procedure (4 successful batches run at this scale).
6. There exists the possibility for data release from the 9 patients who completed the PEDigree protocol (it is open label), but LPath will need to discuss with Pfizer. Pfizer is not big on public announcements, so LPath may be in the situation where they will be holding onto positive interim data.
7. The planned $10 MM capital raise to increase the cash runway through 2013 ($3 MM out of the 10) and to move LPathomab into the clinic (the remaining $7 MM) appears to be temporarily shelved. Management is sensitive to dilution (most likely wouldn't raise equity capital at $0.50-0.70/share) but wants to move the program forward. Other sources of income potentially include grants and partnerships.
8. Core burn rate puts the company out of cash in mid 2013, when Nexus may or may not be complete.
9. With respect to the blame game, when iSONEP was filled / finished the system was completely enclosed and LPath's highly paid CMC consultant was on site and determined that the facility was in compliance roughly a week before, during, and a week after LPath's drug was on site. It was not until recently did the FDA alert LPath that Formatech was out of compliance over a 3 year period which included the time Lpath filled / finished. Furthermore, a few months ago the FDA signed off on LPath's clinical trials, giving LPath confidence to move forward.
10. Share price is back down around $0.90/share, far below the $1.29 it traded at prior to the announcement.

Conclusion and Future Directions - As an early stage biotechnology company beginning efficacy trials, many people invested in LPath for the strong efficacy signals and excellent safety profile see in the phase 1 trial. Even with this 4 to 6 month delay (in biotech, time is money), the science is still intact, and the impressive phase 1 results still stand. As stated previously:

"No drug is currently approved for RPE detachment, and Lucentis only appears to resolve~10% of RPE detachments with multiple doses, and importantly, causes a tear in approximately the same percentage. In fact, the Lucentis trials excluded these patients. Given the strong results in LPath's phase 1 (both patients with RPE detachment experienced resolution with a single dose), this is encouraging for the upcoming PEDigree trial."

Overall, I believe the glimpse of excellent efficacy data (with both non-Lucentis and Lucentis-type benefits) for iSONEP in a tough set of eyes still warrants a deeper look at this still fundamentally undervalued stock, even with the potential for a more dilutive capital raise and this 4-6 month delay.

Disclosure: I am long LPTN.OB.