Opthea Limited

OPT Details

Change in Shareholding: Opthea Limited (ASX: OPT) develops and commercializes therapies mainly for retinal diseases. OPT-302, is a lead product candidate for diabetic macular edema (DME) and wet age-related macular degeneration (wet AMD). On 1 November 2021, Bank of America Corporation and its related entities increased its shareholding from ~5.02% to ~6.35% in OPT. On 27 October 2021, OPT issued ~92,254 fully paid ordinary shares as part of the transaction and is expected to issue ~1,963,000 unlisted options to employees of the company.

Grant of Chinese Patent:

• On 26 October 2021, OPT declared the grant of a Chinese patent by its wholly owned subsidiary, Vegenics Pty Limited.
• The patent is registered for the phase-3 clinical trials - ShORE (Study of OPT-302 in combination with Ranibizumab) and COAST (Combination OPT-302 with Aflibercept Study) undertaken for OPT-302.
• The duration of the Chinese patent term extends to February 2034.

FY21 Results:

• Progress on OPT-302 Trials: In FY21, OPT progressively advanced to the two large Phase-3 registrational clinical trials (ShORe and COAST) for OPT-302 in wet AMD. The OPT-302 treatment of wet-AMD obtained Fast-Track status from the FDA.
• NASDAQ Listing: In October 2020, OPT conducted an IPO in the US and got listed on NASDAQ. OPT raised ~US$128.2 million (AU$164.9 million) equity.
• Board Changes: Jeremy Levin was appointed as the new Chairman in October 2020 with the addition of Ms. Judith Robertson and Dr. Julia Haller as the independent non-executive directors.
• Liquidity & Debt Position: As of June 30, 2021, OPT held ~US$118.2 million cash, cash equivalents and short-term investments.
• Higher Net Loss: OPT recorded ~US$45.34 million net loss for FY21 versus ~US$11.12 million in FY20.
  

Revenue & Loss After Tax Trend from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of desired clinical outcomes, adequate funds for development programs, and manufacturing of OPT-302. It faces COVID-19 disruptions and regulatory delays for necessary approvals.

Outlook:

• In FY22, OPT aims to focus on implementation of the Phase 3 pivotal program for OPT-302 in wet AMD and ensure resource strength to seek opportunities for the program development. The company plans to report Phase 3 top-line data in 2HCY23.
• OPT expects the grant of the new Chinese patent to aid the development of OPT302 for the treatment of retinal diseases in China. With a growing biologics industry and life sciences sector in China, plus the promising proof of the efficacy of OPT-302 in patients with PCV (polypoidal choroidal vasculopathy), OPT believes patent reach in China is pivotal in the commercialization of OPT-302.

Valuation Methodology: Price/ Book Value Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of OPT gave a negative return of ~10.07% in the past six months and a negative return of ~32.24% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.210 - $2.380. The stock has been valued using the Price to Book Value based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ median P/BV multiple, considering its continuing net losses, higher net loss in FY21, failure of the administration of anti-VEGF-A therapies on majority patients after even 12 months of treatment, risk of funding, and clinical outcomes. For this purpose of valuation, few peers like Mesoblast Limited (ASX: MSB), Oncosil Medical Limited (ASX: OSL), Mayne Pharma Group Limited (ASX: MYX) have been considered. Considering the current trading levels, the grant of patent in China, completion of Phase 2 trials and ongoing focus on the development of phase 3 trials for OPT-302, valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing price of $1.250, as of 5 November 2021, 3:44 PM (GMT+10), Sydney, Eastern Australia.

OPT Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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