Opthea’s Phase 3 trial for its wAMD treatment (OPT-302) is well underway. The science is working, and now OPT has matched that success by securing funding that will not only get the product ready for commercialisation but keep control of the process.
The Carlyle Group (CG), a giant US private equity group, has seen the commercial opportunity at OPT. CG has agreed to provide OPT with non-dilutive ‘at-risk’ funding of up to US$170 million comprising:
US$120 million, paid in three instalments. CG retains an option to commit a further US$50 million.
CG is eligible to receive fixed success payments and variable success payments of 7% on annual net sales if OPT-302 is approved in any major market (US, Europe, or UK)
The payments will terminate after reaching four times the funded amount of either US$120 million or US$170 million.
OPT has also raised US$90 million through a private institutional placement of new shares at $1.15 per share. An SPP (share placement program) of up to A$5 million is also being offered.
Securing the funding for commercialisation will enable OPT to be ready from ‘day 1’ if regulatory approval is attained in CY25. This should maximise the timeframe from which OPT can capitalise on the opportunity during its market exclusivity period.
Our risk adjusted valuation of OPT is $4.34 per share. We include the US$120 million CG contribution and the US$90 million capital raising but exclude the A$5 million SPP and the additional US$50 million discretionary funding. OPT’s nominal net cash at FY22 including the new finding is approximately US$255 million.
Investment view
Importantly, the funding now allows OPT to retain control of the commercialisation of OPT-302, avoiding a licencing deal. This greatly reduces the risk of being subject to changes in priorities by the licensee or even being mothballed. Under the CG deal, OPT will retain full worldwide commercial rights to OPT-302 and control of its development.
The SOC (standard of care) for wAMD is provided by treatments from Eylea and Lucentis. OPT-302 is a combination drug (a secondary injection) and does not compete directly against these treatments. But new competitors are beginning to emerge as the patent expiries for Lucentis and Eylea approach. OPT-302 could potentially partner with these new competitors as well.
The Phase 3 trials are well advanced with top line results planned for mid CY24. The Phase 2B trials in wAMD produced statistically significant visual acuity gains over the SOC treatments. They also saw meaningful results in a sub-group of patients with PCV (Polypoidal Choroidal Vasculopathy) that did not respond well to the SOC. This could expand the addressable market.
The potential size of the wAMD market is currently about US$8 billion. But about half of the wAMD market by volume is treated with unapproved generic versions of Avastin. This market represents another potential opportunity for OPT-302.
The key advantage to OPT-302 is its ability to improve efficacy (vision regained) as opposed to the durability focus of other treatments. The gain in vision factor could see endorsement from health care payers. Additionally, OPT is planning a co-formulation that would require only a single eye injection leading to increased compliance levels. It is worth noting that of the 400+ patients in the clinical trials, there have been no reports of serious adverse effects.
The funding now removes a key financial uncertainty for investors.
Risks To Investment View
The COVID pandemic may impact the clinical trial progress. Patients may reject the need for two injections per eye. New competitor products may become more successful than OPT’s product. Regulatory approval may not be forthcoming leaving the company with no commercial pathway.
Recommendation
We have retained our Buy recommendation.
