Outlook Therapeutics: Ready to jump in with wet AMD treatment if it can clear FDA hurdles

This is my third Outlook Therapeutics (NASDAQ:OTLK) article. As I will discuss, its situation is becoming increasingly sticky in terms of current liquidity and timing. I am downgrading my Strong Buy rating from “Outlook Therapeutics: Worth A Good Strong Look After CRL” from 06/2024; instead, I make a note it is a Purchase. In doing so, I highlight its risks.

The massive success potential of the Wet AMD therapy in Outlook, compared to its current market cap, presents an unusual opportunity, as we discussed. In this article, I rely on and refer to Outlook’s Q3 2024 revenue as reported on 08/14/2024 in:

1. earnings press release (“Release”);
2. earnings conference call (the “Call”);
3. 10-Q (“10-Q”) and
4. its most recent website presentation (the “Presentation”).

Outlook’s Wet AMD therapy has strong potential for success if it can clear its FDA hurdles.

Generic

Outlook’s only asset in the pipeline is LYTENAVA (ONS-8010, bevacizumab-vikg) for the treatment of wet AMD. It is administered as an intravitreal injection. As described in the 10-Q (p. 24), retina specialists in the US regularly use repackaged bevacizumab off-label. It is one of a number of anti-VEGF therapies.

Such therapies are recognized in the retina community globally as a standard of care treatment option. The Outlook strategy was to develop bevacizumab for the treatment of wet AMD as an approved therapy. It believes this creates realizable value by mitigating the risks associated with off-label use of unapproved bevacizumab.

Potentially successful

Three presentation slides describe the configuration of LYTENAVA that leads to its potential for success:

slide 4 –

slide 5 –

slide 6 –

Slide 4 shows the potential $15.9 billion market for the anti-VEGF retinal universe; slides 4 and 5 show Outlook’s progress in tapping this market. It already has regulatory approval in the EU and, as discussed below, has been engaged with the FDA for a long time to secure its approval.

Slide 6 is essential for those who want to make a bull case for Outlook, especially its panel labeled “Current Situation.” It explains a typical progression of newly diagnosed wet AMD patients. They start with off-label (neophthalmic) repackaged bevacizumab, within a few years up to 40% switch to an FDA-approved anti-VEGF.

This is where LYTENAVA sees its opportunity if it can get FDA approval. The latest 10-K in Outlook (p.13) lists ~7 brand-name VEGF inhibitors and FDA-approved biosimilars. It also explains its strategy to position LYTENAVA as an affordable, FDA- and EMA-approved bevacizumab option that is safe, effective and manufactured under appropriate guidance.

FDA hurdles

Outlook has performed admirably in obtaining European approval for LYTENAVA; however, that’s small potatoes compared to getting FDA approval. 10-Q, pp. 23-24, describes Outlook’s efforts to obtain FDA approval.

In 03/2022 he submitted his BLA for LYTENAVA in the treatment of wet AMD and other retinal diseases. Voluntarily withdrew the BLA in 05/2022 to provide additional information requested by the FDA. In 08/2022, resubmitted BLA to FDA. In 10/2022, the FDA accepted it for submission with a PDUFA date of 08/29/2023.

Instead of the hoped-for approval, 08/2023 brought a CRL; The FDA cited a trifecta of:

… several chemical, manufacturing and control or CMC issues, open observations from pre-approval manufacturing inspections and lack of substantial evidence…

At subsequent FDA meetings, Outlook learned that the FDA will require:

…successful completion of an additional appropriate and well-controlled clinical trial evaluating ONS-5010, as well as the additional required CMC data indicated in the CRL to approve ONS-5010 for use in wet AMD.

In 01/2024, Outlook announced a major step forward in defining its new required clinical trial. NORSE 8, the new required trial, was anticipated to be completed shortly to allow for a renewed BLA registration in late 2024. This ambitious timeframe has slipped.

During the call, CEO Trenary announced his latest plans to resolve the CRL issues and resubmit the BLA as follows:

…Topline results from NORSE EIGHT are expected in the fourth quarter of this year and, if positive, should provide enough clinical data to resubmit the BLA to the US FDA in the first calendar quarter of 2025. Additionally , we have completed our planning Type C and Type D meetings with FDA and believe we have addressed the open CMC items that were received in the CRL.

Unfortunately, Outlook is not in a financial position to avoid such delays, as discussed below.

Outlook works in a weak financial position

The Outlook 10-Q includes the following discouraging advice in the liquidity section regarding its overall financial condition:

Management does not believe that cash and cash equivalents existing as of June 30, 2024 are sufficient to fund the Company’s operations for one year from the date of this Quarterly Report on Form 10-Q. Consequently, there is substantial doubt about the Company’s ability to continue as a going concern…

During the call, CFO Kenyon said this in more detail. He reported that Outlook had a cash balance of $32 million as of 6/30/2024. As for the cash rate, he indicated that that money plus the $107 million he anticipated from the full exercise of outstanding warrants should be enough to fund operations through 2025.

Regarding cash use, the 10-Q notes that it used approximately $52 million of net cash in operating activities during the nine months ended 06/30/2024. There are 18 months between 30.06.2024 and 31.12.2025. It would need ~$104 million to cover operational activities at the same pace of operations.

With $32 million in cash on hand, it needs to generate at least another $72 million. Management involves the generation of this from the exercise of mandates; there can be no assurance that this will occur. Having a plausible plan B is essential.

The liquidity section excerpted above notes that management is actively considering other options for cash generation, such as:

1. collaborations of various flavors;
2. additional loans;
3. additional share offers.

As it notes, there are no assurances that it will be able to generate additional funds under any of these. Cash on hand is really all it can count on, and this only gives it a run to the end of 2024.

Conclusion

Looking for the sum of the Alpha ratingsary PANEL for Outlook says a lot. Analysts like myself and the 7 Wall Street analysts who cover the stock allow us to be tempted by its exaggerated growth potential. Wall Street analysts covering it have an average price target of $37.43 for a 397.08% upside.

Searching for Alpha’s quantum system, on the other hand, depends on actual values. In such an environment, I think it fails; rates a “Strong Sell”. I’ve tempered my optimism, downgrading my previous “Strong Buy” to a “Buy.” We did this because its risks are more pronounced due to its low liquidity and extended time to file BLA.

In doing so, I notice that the big picture remains the same. The outlook continues to present a high risk of investors losing their entire holdings. On a more positive note, there is a significant chance for investors to enjoy an asymmetric gain.