Opthea (ASX:OPT): It’s a tragedy to see the dream is (most likely) over after poor Phase 3 data

It has been a few years since investors have paid attention to biotech Opthea (ASX:OPT) on the scale that they have in the past week or so. Since its stellar Phase 2 trial results in 2019, it has toiled away at a Phase 3 trial. Well, the company finally got the results back and it did not work. The company is currently in suspension, uncertain to have a future of any kind. How did we get here?

Introduction to Opthea

Opthea is an ASX biotech that is developing a drug called Sozinibercept (formerly known as OPT-302). Sozinibercept is administered via injection and it is a ‘VEGF-inhibitor’ (Vascular endothelial growth factor). It prevents the abnormal growth of blood vessels and leakage of fluid and protein from the vessels, which can cause wet AMD. Wet AMD is the leading cause of blindness, impacting 3.5m people annually across the globe.

There are existing treatments, but they only inhibit VEGF-A, not VEGF-C and VEGF-D, but Opthea does. Even so, global sales of Lucentis and Eyelea were nearly US$8bn between them. Sozinibercept is intnded to be used in combination with them or other VEGF-A inhibitors, and has a more comprehensive effect than just the one treatment.

Great Phase 2 results

In 2019, Opthea revealed Phase 2 clinical trial results which were nothing short of a success. In simple terms, the average patient receiving Sozinibercept could read 14.2 letters on a typical eye chart whilst other patients (those receiving Lucentis’ treatment ranibizumab, the placebo) could only read 10.8 letters. Non-headline results (such as patients who gained 15 letters or more from the baseline) were good too.

And it was a trial of 366 patients across 110 sites worldwide – so the result clearly was no mere fluke. Opthea also recorded good results in a clinical trial against Diabetic Macular Oedema (DME), unveiled in 2020.

Phase 3: A long path…

Although drugs that pass Phase 2 are more likely to succeed than fail, Phase 3 still needs to be done and there’s no guarantee they’ll work. Opthea finally started the path in 2021 when it began recruitment and opted to run 2 separate trials with nearly 1,000 each. The company’s target was a 5.7 letter change in BCVA from baseline at 24 weeks – essentially how many more letters can a patient read on that typical letter chart you read at your eye check ups.  

The clinical trials were not all the company has been up to. In 2022, the company brought onboard Carlyle Group as an investor and signed a deal whereby its Abingworth unit would receive 7% of net sales if and when it was commercialised, plus a milestone payment on market approval. With a near 5-decade history of investing in biotech, Abingworth knows a thing or two about investing in biotechs – it has invested in over 179 of them.

By Christmas 2023, Carlyle had committed to providing its partner with the balance of the non-dilutive funding not already sent across, with the final tranche amounting to US$35m making the total US$120m. And right after Christmas, a new anonymous co-investor joined this deal, promising to contribute US$50m of its own. A further US$113.2m was raised in June 2024 that is expected to see the company through the current clinical phase.

On top of all this, Opthea has presented at several conferences across the globe. These raise awareness about the company and its therapy, putting it in the best position to hit the ground running if and when it is approved.

…That didn’t pay off

Earlier this week, Opthea unveiled the results from one of its trials (the COAST – standing for Combination OPT-302 with Afilbercept Study). The placebo (i.e. aflibercept monotherapy) saw a gain of 13.7 letters whilst OPT-302 achieved a mean change of 13.5 letters when taken every 4 weeks and just 12.8 when achieved every 8 weeks.

Although the therapy was well tolerated (in other words, there were no side effects), it clearly doesn’t work as well as the placebo and would be unlikely to attract commercial partners. The company told investors it had undertaken a thorough review of the data to ensure its accuracy and integrity, and that it had not identified anomalies that would cause questions in those regards.

Opthea has over US$100m in cash. But…the contracts it signed with investors meant that in the event of clinical trial failure, it could be liable to repay them…not just what it received, but a lot more – up to US$680m in the most extreme case where it disagrees with investors. Opthea has told investors it is in active discussions with those investors to try and reach some kind of settlement. Under the present deal, the company cannot incur further non-equity funding or dispose of material assets without prior consent of DFA investors. No decision has been made as about what to do with the other clinical trial.

Opthea admitted that there is uncertainty as to its ability to continue as a going concern, and it is relying on ‘safe harbour’ provisions in s.588GA of the Corporations Act. The stock is suspended until at least March 31, to avoid an enmasse sell off that’d likely lead to an 80-90% share price decline. Even prior to the resumption of trading two institutional investors (Regal and Heart & Minds) wrote down their stakes by 66%.

A good opportunity, but still some time to go

The recent case studies of Telix Pharmaceuticals and Neuren passing Phase 3 clinical trials (and coming into market in the case of Telix) illustrates that Phase 3 may not be too late to invest in a company and realise some upside potential (albeit less than had you invested much earlier in the journey).

But the story of Opthea shows that the passage of Phase 3 is never an iron-clad guarantee and there may be similar consequences of failure as if it had occured at an earlier stage.

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