Here's Why Ophthotech Corporation Is Being Obliterated Today

Shares collapse after the company reports disappointing results from two phase 3 clinical trials.

By Brian Feroldi – Updated Dec 12, 2016 at 12:12PM EST

Image source: Getty Images.

What happened

Investors in Ophthotech (OPHT +0.00%), a clinical-stage biotech primarily focused on diseases of the eye, are having a brutal start to the trading week. Shares have utterly collapsed, falling by 84% as of 11:15 a.m. EST on Monday in response to disappointing results from two late-stage pivotal phase 3 trials.

So what

Ophthotech reported results from two phase 3 clinical trials, OPH1002 and OPH1003, on Monday. These trials were designed to test the company's experimental compound Fovista in combination with Novartis' (NVS 0.68%) Lucentis as a hopeful treatment for wet age-related macular degeneration, or wet AMD.

The combined analysis from the trials showed that patients who received Fovista and Lucentis in combination only demonstrated a mean gain of 10.24 letters on a standardized eye chart at 12 months. Unfortunately, that was only slightly better than the 10.01-letter gain observed in the patient group that only received Lucentis as a monotherapy. The small difference in outcomes was not shown to be statistically significant, which led the company to conclude that it sees no benefit to adding Fovista to a monthly Lucentis regimen in treating AMD.

Ophthotech CEO Dr. David Guyer said that the company was very disappointed with the news and that it plans to "continue to analyze the data from these two studies to better understand the trial results." Investors pummeled the stock on Monday in response to the news.

Now what

There's no doubt that this news blows a hole in the bull case for owning Ophthotech's stock. Investors were banking on Fovista's success, which seemed like a smart bet given that phase 2b studies showed that the combination of Fovista and Lucentis resulted in a 62% improvement in eyesight when compared to using Lucentis as a monotherapy. That news led Novartis to sign a deal with Ophthotech that could have been worth up to $1 billion in milestone payments plus a healthy royalty on any sales, which would have been a windfall for investors. However, that deal appears to be dead now that it looks like Fovista is a dud.

If you're looking for a reason to hang on to the company's shares, it is worth pointing out that Ophthotech had more than $320 million in cash on its balance sheet as of the end of September. That's $100 million more than the company's current market capitalization. In addition, it has another drug candidate in its pipeline -- Zimura -- that is currently in phase 2/3 trials as a potential treatment for geographic atrophy, an advanced form of dry AMD. Thus, while the stock's drop today is deserved, it is possible that the markets are overreacting.

Of course, today's news completely changes the thesis for owning Ophthotech's stock, so none of the above really matters. Today is a sad day for investors and the wet AMD community alike.

Brian Feroldi first starting "investing" -- if you can call trading penny stocks investing -- in 2004. Thankfully, he lost a good chunk of his money early on and realized there was far more to the stock markets than just buying and selling junk. Realizing that he needed help, Brian voraciously read every book on money and investing that he could get his hands on. Thankfully, that included "the Motley Fool's Investing Guide" and he has been investing using Foolish principles ever since. Brian's investing strategy has morphed into a simple three-step process: 1) Find the highest quality companies on the public markets 2) Buy those companies 3) Sit back and let compounding work its magic Brian was lucky enough to be hired at a start-up medical device maker right out of college. However, after sticking with the company for more than a decade he realized that he was spending all of his free time on his true passion -- finding great stocks to buy. Brian struck gold in 2015 when he was hired by Motley Fool to cover the healthcare industry for Fool.com. He has been doing that ever since. Brian currently resides in Rhode Island where he is happily married and is working hard to raise three small kids. Brian's hobbies are playing board games (chess & escape rooms are his favorite), watching his kids play sports, meeting up with friends, finding ways to lower his carbon footprint, and cheering on the Patriots.

TMFTypeoh

@brianferoldi

Here's Why Ophthotech Corporation Is Being Obliterated Today

What happened

So what

Now what

Read Next

About the Author

Stocks Mentioned

Premium Investing Services