Why Opthea shares could offer big growth potential

Rhys Brock | July 24, 2020 11:36am | More on: MVP OPT PNV

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Long-term shareholders of emerging ASX healthcare company Opthea Ltd (ASX: OPT) have endured a volatile 12 months. A little under a year ago, the Opthea share price was trading at a 52-week low of just $0.735. Then, in the space of a month, shares skyrocketed 465% to an all-time high price of $4.15.

In March, amid a wave of selloffs prompted by the global spread of COVID-19, the Opthea share price plunged all the way back down to just $1.25. Opthea shares have rallied significantly since then – at one point in early June they even looked set to push back up beyond $3.50. But then came yet another pullback, and as at the time of writing they are trading at $2.67.

What’s been driving the Opthea share price?

Opthea specialises in developing novel treatments for chronic eye diseases such as age-related macular degeneration (AMD). The initial steep rise in the share price back in August 2019 was driven by positive clinical trial results from a phase 2b study involving 366 patients suffering from “wet” AMD. Wet AMD is a condition caused by blood vessels leaking fluid into the macular resulting in blurred vision or persistent blind spots. According to Opthea, wet AMD is the leading cause of blindness for those aged over 50 across the developed world.

In the trial, Opthea’s OPT-302 treatment was shown to deliver statistically significant benefits versus the control group when used in combination with an existing wet AMD treatment called Lucentis. Opthea has stated that currently approximately 50% of wet AMD patients who use Lucentis will not experience significant gains in vision. And yet, in 2018 alone, sales of Lucentis totalled US $3.7 billion.

That trial was followed by positive results from a further phase 2a trial released just last month. This time, OPT-302 was used in combination with another therapy called Eylea in patients suffering from diabetic macular edema (DME). DME is a similar condition to wet AMD and occurs in people suffering the long-term effects of diabetes.

On Thursday, the company announced that the results of the trial will be presented at the upcoming American Society of Retina Specialists 2020 Annual Meeting. This gives Opthea significant international exposure, as over 3,000 retinal specialists from 63 countries are expected to attend the virtual meeting.

Should you invest?

Economic uncertainty caused by the COVID-19 global pandemic has made valuing growth stocks like Opthea incredibly difficult. Other emerging ASX healthcare companies like Medical Developments International Limited (ASX: MVP) and Polynovo Ltd (ASX: PNV) have also seen big swings in their share prices over the last 12 months as investors try to price in the longer-term impacts of the pandemic.

However, Opthea has continued to demonstrate that its treatments are not only effective but also address a debilitating condition affecting a significant portion of the population. Sales of Lucentis and Eylea show that this is a potentially lucrative market if Opthea can successfully commercialise its treatment.

The COVID-19 economy poses significant challenges to young companies. Supply-side logistical challenges may persist for months and funding will be harder to come by. However, for those willing to take on the risk, in my opinion an investment in Opthea has the potential to deliver significant long-term gains.