A number of companies have taken severe hits over the last week in the small cap biotech space, but a handful of these have had a particularly bad start to the final quarter of the year. Here’s a look at two of the hardest hit, and what’s weighing on sentiment for each. The two companies in question are Spectral Medical Inc (OTCMKTS:EDTXF) and Ophthotech Corp (NASDAQ:OPHT).
Now, those familiar with the biotech space will be aware that one of these companies is far bigger than the other. At post decline rates, Ophthotech holds a market capitalization of just shy of $1.5 billion, while Spectral is worth just $36 million. As such, and because a high degree decline in a bigger entity is usually far more serious than in a smaller one, we’ll kick off with Ophthotech.
Interestingly, this one isn’t even directly related to the company’s operations. Well, not really. Ophthotech’s lead development candidate is a wet AMD drug called fovista. It’s currently under investigation as part of two pretty wide scale phase III trials, one pitching it against Avastin (as a combo, versus a mono) and the other pitching it against Lucentis. Data from the trials are due to hit press in December this year (assuming analysis runs smoothly) and the company has been chugging along pretty nicely in advance of the data output.
So what happened? Well, the drug is part of a family of investigational therapies called anti-PDGFR-beta antibodies, which are under investigation in a number of trials (and by way of a number of different sponsors) for various ophthalmic indications. One of the companies conducting their own anti-PDGFR-beta trial is Regeneron Pharmaceuticals Inc (NASDAQ:REGN), and at the end of last week, Regeneron announced that its drug did not meet the primary endpoint in a phase II called CAPELLA. Ophthotech Corp (NASDAQ:OPHT) fell more than 15% on the news, with markets assuming that if Regeneron’s candidate doesn’t work, Ophthotech’s is likely to fail as well.
We’re waiting until we see some topline before bringing a judgment to the table. These sorts of collateral implication plays are always dangerous, as there are so many variables between sponsored programs that the trial could have failed for any number of reasons, none of which might come in to play for Ophthotech Corp (NASDAQ:OPHT).
Moving on, let’s look at Spectral Medical Inc (OTCMKTS:EDTXF).
This one is a little more straightforward – the company is developing a device designed to target sepsis, a condition that is the leading cause of hospitalizations in the US. Basically, the system is designed to remove what are called endotoxins from the blood, by way of passing a patient’s extracted blood through two columns. A sort of filtration system, if you will.
The system failed to meet its endpoint of absolute reduction in mortality rate at 28 days, however, there’s an upside (an in turn, a potential opportunity to get in at what amounts to a nearly 90% discount).
The system demonstrated some clinical benefit, and is already approved in its current form in Japan, Europe and Canada. The company thinks that if it can remove more endotoxins, it can increase the level of benefit, so it’s going to go after an approval by adding more columns to this system.
This will cost money, of course, something that Spectral Medical Inc (OTCMKTS:EDTXF) doesn’t have much of (so it’s probably going to need to bring a dilutive raise to the table) but at its current market cap, even with some dilution, there’s plenty of potential upside on a recovery thesis.
Note: This article is written by Mark Collins and was originally published at Market Exclusive.