Inside Wall Street: This Tiny Biotech Has Pfizer as a Big Backer

Gene Marcial's Inside Wall Street
Gene Marcial's Inside Wall Street

Lpath (LPTN), a low-flying biotech microcap stock trading over-the-counter, has developed drug candidates that could end up being acquired by a Big Pharma company. Already, it has been embraced by Pfizer (PFE), the world's largest pharmaceutical, which has signed a partnership pact that promises to be a blockbuster deal for the tiny biopharmaceutical company.

Essentially, Lpath focuses on developing therapeutics that target bioactive lipids for treating a range of human diseases, including cancer and ocular diseases that cause blindness. The latter initially attracted Pfizer to Lpath, although the giant drugmaker quite possibly could also partner with Lpath on its cancer product, called SONEP, which seeks to delay the progression of renal cell carcinoma.

Lpath's ocular product is called iSONEP, which recently completed Phase I clinical trials for the treatment of wet age-related macular degeneration (wet AMD) and other ophthalmology disorders. Analysts say drugs to treat ocular diseases have a large commercial opportunity. With an estimated 16 million people in the U.S. alone suffering from active blood-vessel growth and blood-vessel leakage associated with wet AMD, Lpath could "end up with a multibillion-dollar drug," says Chrystyna Bedrij, senior biotech analyst at investment firm Griffin Securities.

$500 Million in Milestone Payments

According to the partnership pact signed on Dec. 20, Pfizer will pay Lpath an upfront fee of about $20 million (about 20% of which Lpath has already received), plus share the cost of a planned Phase 1b and Phase 2a clinical trials, scheduled for the first quarter and second quarter, respectively, of 2011. Pfizer has the right to exercise its option for worldwide rights to iSONEP for an undisclosed fee.

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The initial bunch of big bucks for Lpath will come if Pfizer exercises that option. That's when Lpath will be eligible to receive development, regulatory and commercial milestone payments from Pfizer that could run up to as much as $497.5 million. That doesn't include royalties based on iSONEP sales that could also amount to huge amounts.

With Lpath's minuscule market capitalization of $41 million, these numbers are quite mind-numbing and should potentially rejuvenate in a big way the Lilliputian biotech's stock price. Yet the good news for Lpath has yet to lift its stock, which stayed unchanged at $1.04 a share the day after the partnership was inked. In fact, the stock has surprisingly dropped, to 79 cents a share by Jan. 21. Pfizer's stock, on the other hand, has jumped from $17.38 a share on Dec. 20 to $18.35 by Jan. 21.

The obvious reason is that the news of the partnership hasn't spread to most biotech investors. On the other hand, with Pfizer's wider public profile and large institutional ownership, investors are always aware of what's happening to its stock.

"A Wealth of Potential Opportunity"

Why has Pfizer signed such a partnership with a tiny, little-known biotech? "We have been impressed by Lpath's innovative approach in targeting bioactive lipids with iSONEP and the potential opportunity to significantly add to current standards of treatment in retinal disease," said Mikael Dolsten, president of Pfizer Worldwide Research and Development in a public statement.

Predictably, Lpath's CEO Scott Pancoast was ecstatic. "We are thrilled to partner with Pfizer, which has demonstrated its commitment to innovative solutions and partnerships for the development of treatments across a wide spectrum of disease," he says.

He predicts Lpath will demonstrate the important role that bioactive lipids play in diseases processes. Lpath's unique ability, says Pancoast, to generate monoclonal antibodies to target these lipids "presents a wealth of potential opportunity for new and innovative medicines."

"North of $10 Billion a Year"

Lpath has a patented platform technology that enables it to produce antibodies that inhibit lipids, whose changes in metabolism could lead to serious diseases, including cancer, ocular disorders and cardiovascular diseases. Lipids are fat-soluble compounds commonly recognized as saturated or unsaturated fats that humans consume on a daily basis.

Griffin's analyst Bedrij, who rates Lpath a buy, says iSONEP can do certain things that other drugs in the market that treats wet AMD don't do. Among them is reducing the size of the underlying lesion behind the eye to a significant degree in half of the AMD patients who received just a single dose in the clinical trials, "hinting at a cure rather than simply treating a symptom." She estimates the market potential of iSONEP at "north of $10 billion a year."

In any given scenario on iSONEP's potential, "Lpath's stock should be trading at about $5 a share" in 12 months, says Bedrij.

So, for investors seeking a biotech play that already has potentially rich products -- and a possible takeover bonus to boot -- Lpath could be on a winning pathway.

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