Ohr Pharmaceutical’s 2018 Binary Event
by Sherli Looi
Aug. 16, 2017 4:33 PM ET
Summary
Ohr's phase 3 clinical trial will have a data readout in early 2018
If the data is positive, the stock price can jump multiple times
If the data is negative, the stock gets crushed
We are taking a look at the probabilities of these binary events
Ohr Pharmaceutical (OHRP) is a clinical stage company with a lead drug, Squalamine Lactate Ophthalmic solution, which is currently in a Phase 3 trial called “MAKO”. Ohr’s Squalamine is used as a combination therapy to the FDA approved Lucentis to treat patients with wet age-related macular degeneration (wet AMD).
OHR’s Squalamine drug may be a potential winner. Here are the reasons why:
A clinical need still exists.
Phase 3 trial has been substantially derisked by Phase 2 data
As a topical application, Ohr’s Squalamine has a great advantage against the current delivery system of intravitreal injections.
The market size will be substantial since the 2016 global sales from current FDA approved drugs is already at $8 billion.
With $18 million cash, and a burn rate of $4 million per quarter, Ohr has enough cash to its data read out in early 2018.
Wet AMD is the #1 cause of blindness in Americans over the age of 65. It occurs when there is abnormal growth of blood vessels in the choroid layer, under the macula, and these vessels have started to leak or bleed, eventually robbing the victim of sight.
Avastin, Eylea and Lucentis are currently the standard of care for wet AMD. These drugs are delivered via intravitreal injections. Although they are relatively “effective”, only about 25% of wet AMD patients gain at least 3 lines (15 letters) of visual acuity at nine months, a clinically meaningful endpoint for patients and for regulatory purposes. In addition, only 40% of patients achieve 20/40 vision outcomes, a key level of visual function indicating the ability to perform daily tasks and an improved quality of life. Hence, there is still a clinical need to develop more optimal treatments.
The most significant difference amongst these three drugs is cost. Lucentis and Eylea cost $2000 and $1850 per injection. Avastin costs only $50. Lucentis, Avastin and Eylea are injected at approximately 4 to 8 weeks intervals. Avastin is used off label as it was never FDA approved for wet AMD. Instead, it was approved for various cancers, but given its price and efficacy, it is the drug of choice for the insurers and Medicare. As a topical solution, Ohr’s Squalamine solution would offer ease of use for patients, increasing compliance and hopefully, improving visual outcomes.
Furthermore, retinal specialists have no drugs to delay the onset of this condition to a patient’s remaining good eye. For sufferers of wet AMD, the probability that their remaining good eye getting the condition is at 10-20% with each passing year. Given this situation, it is highly likely that the drug will be prescribed for “prevention” purposes as well, thereby increasing Ohr’s potential market size, if FDA approved. Also, since Lucentis and Eylea together generated a total of $8 billion in global sales in 2016, the sales outlook for Ohr’s Squalamine looks bright.
Stock Price
The stock is currently at $0.60, far from its highs of $17.85 in March 2014.
Investors crushed the stock on several major occasions, with good reasons.
March 27, 2015
The data from Ohr’s phase 2 trial, IMPACT was released. Ohr reported that “The mean number of injections between the treatment arms, the primary endpoint of the study, was not meaningfully different”. The stock had traded at $12 on March 6, 2015. It plunged to close at $2.54 on this news.
The positive aspects of IMPACT, which showed that the drug was safe and that there were significant improvements in visual acuity in the combination therapy, were completely ignored.
The point is that the company should not have stated its primary endpoint as a reduction in injections. Phase 2 trials are meant to evaluate safety and dosage specifications. And the point is Squalamine did improve visual acuity significantly. Oh well.
December 12, 2016
In May 2014, Ophthotech Corporation (OPHT) received an upfront fee of $330 million from Novartis Pharmaceutical for the commercial and licensing rights to Fovista in all non-US markets. Fovista was then in a Phase 3 trial, with primary endpoints of visual acuity improvements in wet AMD patients, when used as a combination therapy with Lucentis. The deal, if Fovista was successful, could be as much as US$1billion, excluding royalties.
However, on December 12, 2016, it was announced that Fovista had failed in its phase 3 clinical trial. It did not add any discernible improvement in visual acuity over the monotherapy drug, Lucentis. The stock of Ophthotech, which had reached a high of $80 in 2015, closed that day at $5.95
Unfortunately for OHRP, the failure of Fovista cast huge doubts over the benefits of combination therapies, and eliminated any chances of sponsorship or partnership from the big pharmaceutical companies.
Additionally, some media reporters, analysts and investors thought that both Ophthotech and Ohr were attacking the same cells to generate improvement. They were misinformed. Ophthotech/Fovista sought improvement using anti-PDGF which works on the pericyte cells. Ohr/Squalamine sought benefits using multiple angiogenic targets, including anti-VEGF which works directly on the endothelial cells. But, the damage was done.
April 10, 2017
Ohr announced that they would stop enrolling patients for its phase 3, MAKO trial. The investing world interpreted this as a bad omen. The press release which states that this was a “strategic decision”, did not dispel this feeling of gloom and the stock, OHRP, continues to languish in the $0.56 – $0.74 zone.
And of course, there had been several rounds of secondary offerings. We all know the plight of early investors.
Is OHRP buyable now?
Ohr is heading towards a binary event in early 2018.
The phase 3 trial, MAKO, will have its data released.
The WIN EVENT is defined as MAKO's data being as good as phase 2 IMPACT's positive results, as in table 1 below.
If that happens, then the stock price of OHRP can jump from $0.60 to $5.87. The $5.87 number is estimated from the $330 million upfront payment received by Ophthotech from Novartis AG for the marketing license of its Fovista drug, if FDA approved, to all non-US markets. If MAKO delivers positive data, then cash rich pharmaceutical companies would similarly want to partner with Ohr. At $0.60 per share, Ohr’s market capitalization is only $33.7 million. If the market cap is $330 million, it implies a stock price of $5.87.
The LOSE EVENT is when MAKO's data shows that the combination therapy does not meaningfully improve the visual acuity when compared to the Lucentis only therapy. The stock would most likely be crushed to zero.
What is the probability associated with these win/lose events?
According to a 2006-2015 study done on 9,985 clinical trials of varying phases, a phase 3 trial in Ophthalmology has a 58% probability of success. This is not to imply that Ohr will enjoy this probability. However, it is important to note that Ohr’s management has derisked its phase 3 trial by using data from its phase 2 by selecting a patient population with higher responses to Ohr’s Squalamine, as explained below.
The phase 2 trial, IMPACT, had already proved that Ohr’s Squalamine in combination with Lucentis delivered superior results in patients with occult CNV sizes of less than 10 mm², please see table 1 below:
Table 1. IMPACT Results
Ohr’s Phase 2, IMPACT Data for Patients with occult CNV sizes < 10mm²
Improvement combo lucentis alone diff
Change in Visual Acuity 11 letters 5.7 letters 5.3 letters = 92%
Proportion of Patients with
visual gains of at least 3 lines 40% 26% 54%
Better Final Visual Outcomes
at week 36 72 letters 67 letters
Note: 72 letters of vision is equivalent to 20/40 = Driving Vision
Thus, the MAKO trial enrolled only patients with occult CNV sizes of less than 10 mm² with the hope that MAKO can deliver IMPACT’s positive data.
Also, the fact that Dr. Jason Slakter, a successful retina specialist, academic and consultant, took over the stewardship of Ohr as its CEO, and according to FactSet, is its second largest shareholder, does reduce some of the anxiety over the MAKO trial results.
Given the above considerations, let us guess that the probability of winning to losing is 50/50. This means the expected return to a speculator buying OHRP at $0.60 is $2.94, resulting a ROI of 390%in 6 to 8 months' time frame.
Conclusion
Investing strategies based on clinical outcomes are risky propositions. Fovista has clearly illustrated this risk. It delivered promising phase 2 data but failed to meet its primary endpoint in phase 3. The same can happen to Ohr’s Squalamine, even though its management has tried to derisked the outcome somewhat.
Therein lies the risk. Buying the stock can generate absolute loss. Or, MAKO provides meaningful positive data and the stock could be a multi-bagger. This idea is best perceived as spending the $0.60 per share as a premium to a call option. One can sleep soundly, having delineated the risk dollars. And one may wake up to a good return in about 6 months’ time.
Disclosure: I am/we are long OHRP.
