Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
Opthea is a Melbourne biotechnological company that focuses on developing a treatment for eye diseases. Opthea’s drug OPT 302 focuses on improving vision for two groups. The elderly who suffer from Wet Age Macular Degeneration (WMD) and for diabetic patients who experience Diabetic Macular Oedema (DME). OPT 302 is an injection into the patient’s eye that mops up any vessel leakages or growth. Opthea aims to combine existing therapies with OPT 302 to ensure that patients respond positively to the treatment. Ultimately improving their quality of life.
WMD relates to the back of the eye and is the leading cause of blindness for people over 50. However, there are only a few approved drugs available to patients. With most patients responding negatively to the treatment. For example, 50% of patients do not achieve significant vision improvements, 66% will still have fluid behind their eye, and 25% will still have vision loss after 12 months. Moreover, 66% of patients receiving treatment for DME do not achieve vision improvements, and 25% continue to have muscular thickening. These horrifying statistics allow Opthea to enter the market with OPT 302 and meet this unmet medical need.
Key price-sensitive movements
Between 2nd of August and 2nd of September OPT surged by 365%. OPT’s increase instantly caught the attention of investors. But why did OPT suddenly skyrocket?
Pivotal price-sensitive event 1: Opthea provides timing update on OPT 302 Clinical trials – 22nd July 2019
Opthea announced that the data for their Phase 2b trial of OPT-302 for WMD is to be released one quarter earlier. Instantly, investors added OPT to their watchlists. Because often, positive clinical results produce an increase in the share price.
Key price-sensitive event 2: Opthea’s Patent Application Covering OPT-302 to be granted by the European Patent Office -30th July
The European Patent Office granted a patent for OPT-302 products that treat wet AMD and DME. The license extends to 2034. Additionally, patents for OPT products have been grated in the U.S.A, Japan, Australia, South Africa, and Singapore. The patent from the European office indicates a strong IP position. Also, an excellent market opportunity as Europe represents 30% of the global market in need of wet AMD and DME treatment. Consequently, investors saw the growth potential, and thus the sudden surge of OPT began.
Essential price-sensitive event 3: Opthea meets primary endpoint in Phase 2b study of OPT 302 in Wet AMD
On 7th August, Opthea announced positive Phase 2b clinical trial results. The clinical trial consisted of 366 patients taking 2.0 mg of OPT-302 in combination with Lucentis over 24 weeks in contrast to a group that only received Lucentis. Patients who received the combination gained 14.2 letters of vision as opposed to the 10.8 letters gained for Lucentis alone. Moreover, OPT-302 combination resulted in a more stable vision and higher visual sharpness. The excellent clinical data indicated not only market superiority but also highlighted the efficacy of the OPT-302 combination. In turn, the OPT investment train continued to operate at full speed as the share price climbed even higher.
Key price-sensitive event 4: Opthea presents positive Phase 2b Data at the EURETINA Congress in Paris – 6th September
Opthea announced a successful presentation of the above data to the European Society of Retina Specialists EURETINA 2019 Congress in Paris. Consequently, Opthea bolstered its international reputation as a credible biotechnological company.
Based on the key ASX announcements and the recent surge, investors may view OPT as a biotech company with significant upside potential. However, here at YIG, we like to provide young investors with a balanced perspective. So, let us examine the risks (negatives).
The immediate negative is the gradual decline in share price since the companies high of $4.00 back on 4th September. The quick surge and steady decrease do indicate a level of volatility.
Also, OPT is unprofitable. A lack of profit should instantly send alarm bells inside the mind of the smart investor. Because no profit results in a negative Return of Equity ratio (-67.2%).
Furthermore, OPT’s operational expenses have increased due to further development in OPT-302. Consequently, causing cash flow to continue to become more negative (-19.94 million June 2018 to -24.1 million June 2019). Also, revenue has only increased by 170,000 in the past year. Indicating that OPT still has a long road ahead for revenue surges to become a reality.
Outlook for Investors into 2020
Despite the few financial negatives, the future growth for OPT in 2020 looks bullish from our research. Investors must understand OPT’s current negative cash flow and minimal revenue growth due to the expensive nature of clinical development.
OPT’s 45 million dollar fundraising back in 2017 means the company is fully funded for 2020. Moreover, the recent 14.6 million R&D tax incentive from the ATO will further assist OPT in financing the commercialisation of OPT-302.
In 2020 investors must watch out for phase 3 (wet AMD) and phase 2 (DME) clinical trials for OPT-302. However, 2020 clinical trials will continue the trend of negative cash flow.
Therefore, is now the perfect time? If you have a high-risk tolerance a micro-investment, especially with upcoming clinical trials, may result in a capital gain however your own research is needed.
Check out our analysis on other bullish biotechnological stocks
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Associate of YIG