Ophthotech Corp. (NASDAQ:ISEE) is poised to report registration-ready late-stage trial results for its vision-restoring drug Fovista, and it appears at least one iconic hedge-fund manager thinks that those results will be good.

On Thursday, Point72 Asset Management, the family office run by legendary hedge-fund pioneer Steven Cohen, who is best known for founding S.A.C. Capital, reported that its acquired 1.8 million shares in the company equal a 5% ownership stake.

Does Point72's interest in Ophthotech make it a stock worth buying?


What's at stake

Ophthotech is developing Fovista for the treatment of wet age-related macular degeneration (AMD). Specifically, Fovista is being evaluated for use in combination with Novartis' (NYSE:NVS) Lucentis and Regeneron Pharmaceuticals(NASDAQ:REGN) Eylea, two multibillion-dollar blockbuster therapies commonly used in the indication.

The market for wet AMD is undeniably large, and it's getting bigger: The condition typically affects seniors, and baby-boomers are turning 65 at a rate of 10,000 per day.

Commonly, patients who are diagnosed with wet AMD are given Avastin off-label, or Lucentis, or Eylea to improve their vision. Ophthotech's management thinks that dosing Fovista along with those drugs may improve upon their efficacy, and so far, the evidence suggests that they're right.

In mid-stage studies, dosing Fovista in combination with Lucentis resulted in a 10.6-letter improvement in vision on a standard eye chart. For comparison, Lucentis monotherapy improved vision by just 6.5 letters.

Those results prompted Novartis to give Ophthotech $200 million up front, with promises of up to another $800 million in milestone payments plus 30% royalties on sales, to license the ex-U.S. rights to Fovista.

Soon we'll discover if that was a bargain. Ophthotech's C-suite has said that they'll release phase 3 results for the Lucentis plus Fovista combination regimen before the end of 2016.

If the data is good enough to support a FDA filing and eventual approval, then Ophthotech could find itself in for a big payday. In addition to potential milestone payments, the company's holding onto Fovista's U.S. rights could set it up to profit handsomely. In the third quarter, Lucentis' U.S. sales were $1.1 billion and Eylea's net U.S. sales were $854 million.

The size of Ophthotech's opportunity doesn't seem to be lost on Cohen's Point72.

According to his 13F filing with the SEC, Point72 established a new 786,000-share position in Ophthotech during the third quarter. And according to his 13G filing with the SEC on Dec. 8, that position has jumped to nearly 1.8 million shares worth roughly $64.4 million at yesterday's close.

Fool-worthy thinking

The potential to market a new drug for this multibillion-dollar indication makes this stock incredibly intriguing, but investors need to remember that there's no guarantee that Fovista's trial results will be good, or that the FDA will ultimately approve this drug.

Further, investors should bear in mind that while Point72 owns a lot of shares in Ophthotech, its stake is relatively small in proportion to its total $13 billion equity portfolio.

Overall, because this stock could soar on good news, or plummet on bad news, buying it is a high-risk binary bet. Point72 is highly diversified, so it can afford to take that gamble, but most individual investors probably shouldn't.

Risk-tolerant investors who can withstand losses from a failure, however, might want to consider owning a little of it. I've owned Ophthotech shares for a long time, so I'm not adding any more to my position -- but an argument can be made that, if this trial is a success, the company is worth more than its current $1.4 billion market cap.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.