Date Theme Sector

2 September 2022 Financial Result Healthcare

Company

Opthea (OPT)

O/W: Positive trading into PIII readout

Recommendation OVERWEIGHT
12-mth target price (AUD) $1.50
Share price @ 1-Sep-22 (AUD) $1.13
We upgrade our 12-month price target to $1.50 per share and move to an OVERWEIGHT Forecast 12-mth capital return 33.4%
position based on a near-term trading opportunity as Opthea head toward a readout of their two Forecast 12-mth dividend yield 0.0%
Phase III registrational trials of OPT-302 in neovascular age-related macular degeneration 12-mth total shareholder return 33.4%
(nAMD). Updates to our model following Opthea’s recent capital raise (US$90M dilutive equity +
up to US$170M non-dilutive private equity investment) and movements in potential BLA filing
Market cap ($m) 455.9
and approval reduces our fundamental valuation by 16% to $0.90 per share. The chunky pay-
Enterprise value ($m) 411.3
away to PE reduces the total opportunity for OPT shareholders. Despite this, we see potential
value to be captured within the next 12-15months in the lead up to ShORe and COAST readouts, Shares on issue (m) 405.3
also with OPT’s funding risk now removed, hence our OVERWEIGHT call premised on a trading- Sold short (%) 0.4
only opportunity at this time. ASX All Ords weight (%) 0.0
Median turnover/day ($m) 0.5
 Key Points

Raise dilution less than forecast; albeit royalty pay-away not predicted. Opthea’s recent Dr Melissa Benson
announcement securing funding through to commercialisation of OPT-302 in nAMD was a melissa.benson@wilsonsadvisory.com.au
positive outcome, noting that the dilutive component of the raise (US$90M) was less impactful to Tel. +61 2 8247 6639
SOI than in our estimates (~85M share benefit). This is counterbalanced by the 7% net sales
royalty to Carlyle/Abingworth in exchange for up to US$170M in non-dilutive funding, with Dr Shane Storey
royalties capped at 4x the funding amount (max US$680M paid). The impact to Opthea is a shane.storey@wilsonsadvisory.com.au
~27% reduction in present value of their partnered nAMD opportunity, which is material. Tel. +61 7 3212 1351

Around the grounds – VABYSMO has potential to take share from EYLEA. Both Roche and Madeleine Williams
Regeneron have reported 2Q22 revenues with strong growth in their retinal lead drugs; EYLEA madeleine.williams@wilsonsadvisory.com.au
global 2Q22 sales of US$1.62B (+14% v pcp) and VABYSMO achieving US$22M sales in the Tel. +61 3 9640 3834
first 2 months on the US market, noting VABYSMO is expect to take market share from EYLEA
owing to its less frequent dosing regimen – albeit being too early to tell. Opthea’s COAST Phase
III trial combines OPT-302 with SOC treatment EYLEA.
12-mth price performance ($)

Forecast changes. We shuffle back the timelines of our nAMD partnering and first revenue 1.50
opportunities in our model by 12 months owing to delays in the Phase III ShORe and COAST
1.38
programs, with clinical readout now not expected before 3Q CY23 (previously late CY22).
1.27

Valuation. We upgrade our PT to $1.50 per share based on de-risking of Opthea’s Phase III 1.15
nAMD program to 100% as we expect the share price to trade positively into this trial readout in 1.03
the next 12 months. We note this is a trading idea only, with our fundamental real options
0.92
valuation (keeping clinical trial risk intact for their nAMD program) revised to $0.90 per share. As
a reminder, our risked valuations do not include OPT-302’s DME opportunity at this point in time. 0.80
Aug-21 Dec-21 Apr-22 Aug-22
OPT XAO

1-mth 6-mth 12-mth

Abs return (%) (11.3) 16.9 (13.0)
Rel return (%) (11.9) 18.5 (5.8)

Financial summary (Y/E Jun, AUD) FY21A FY22A FY23E FY24E FY25E Key changes 10-Feb After Var %
Sales ($m) 0.0 0.0 0.0 0.0 48.9 EBITDA FY23E (144.0) (144.0) 0%
EBITDA norm ($m) (44.8) (99.3) (144.0) (124.9) (27.8) norm FY24E (124.9) (124.9) 0%
Consensus EBITDA ($m) (107.6) (98.7) 15.2 ($m) FY25E 15.2 (27.8) -283%
EPS norm (cents) (14.2) (26.4) (24.7) (21.2) (4.5) EPS FY23E (32.6) (24.7) 24%
EV/Sales (x) n/m n/m n/m n/m 5.8 norm FY24E (28.2) (21.2) 25%
EV/EBITDA (x) n/m n/m n/m n/m n/m (cents) FY25E 3.5 (4.5) -226%
Price target 1.08 1.50 39%
Source: Company data, Wilsons estimate, Refinitiv.
Rating M/W O/W
All amounts are in Australian Dollar (A$) unless otherwise stated.

Wilsons Equity Research

Analyst(s) who owns shares in the Company: n/a Issued by Wilsons Advisory and Stockbroking Limited (Wilsons) ABN 68 010 529 665 – Australian Financial Services
Licence No 238375, a participant of ASX Group and should be read in conjunction with the disclosures and disclaimer in this report. Important disclosures regarding companies
that are subject of this report and an explanation of recommendations can be found at the end of this document.
2 September 2022 Healthcare
Opthea Limited

 Business Description  Investment Thesis

Opthea Limited (OPT) is an Australian clinical stage biopharmaceutical
company focused on development of novel anti-VEGF X agent OPT-302
in retinal disease – most notably neovascular Age-related macular
degeneration (nAMD) and diabetic macular edema (DME). OPT-302 is
currently in two pivotal Phase III trials in nAMD, with results expected
end CY23.
We upgrade our 12-month price target to $1.50 per share and move to
an OVERWEIGHT position based on a near-term trading opportunity as
Opthea head toward a readout of their two Phase III registrational trials
of OPT-302 in neovascular age-related macular degeneration (nAMD).
We see potential value to be captured within the next 12-15 months in
the lead up to, also with OPT’s funding risk now removed, hence our
OVERWEIGHT call is premised on a trading opportunity at this time.

 Catalysts  Risks
a) Positive clinical trial top line results from SHoRE and COAST studies; a) Unfavourable clinical trial results; b) access to adequate capital to
b) corporate activity re licensing OPT-302; c) progress updates on DME complete DME program; c) competitive product launches; d)
and coformulation project outlook. unfavourable regulatory interactions with FDA.

P&L ($m) FY21A FY22A FY23E FY24E FY25E Balance sheet ($m) FY21A FY22A FY23E FY24E FY25E
Sales 0.0 0.0 0.0 0.0 48.9 Cash & equivalents 118.2 44.6 200.2 200.5 178.0
EBITDA norm (44.8) (99.3) (144.0) (124.9) (27.8) Current receivables 5.5 6.3 6.9 7.5 8.1
EBIT norm (44.9) (99.4) (144.0) (124.9) (27.8) Current inventory 0.0 0.0 0.0 0.0 0.0
PBT norm (50.3) (99.1) (142.9) (122.7) (25.8) PPE 0.0 0.0 0.0 0.0 0.1
NPAT norm (45.3) (92.8) (114.3) (98.2) (20.7) Intangibles 0.1 0.0 0.0 0.0 0.0
NPAT reported (45.3) (92.8) (114.3) (98.2) (20.7) Other assets 14.6 9.1 10.1 11.3 12.7
EPS norm (cents) (14.2) (26.4) (24.7) (21.2) (4.5) Total assets 138.4 60.0 217.3 219.3 198.9
DPS (cents) 0.0 0.0 0.0 0.0 0.0 Current payables 2.5 11.4 11.7 11.9 12.2
Total debt 0.0 0.0 0.0 0.0 0.0
Growth (%) FY21A FY22A FY23E FY24E FY25E Other liabilities 0.5 0.6 0.6 0.6 0.6
Sales n/m n/m n/m n/m n/m Total liabilities 3.1 12.1 12.3 12.6 12.8
EBITDA norm 73.7 121.7 45.1 (13.3) (77.8) Minorities 0.0 0.0 0.0 0.0 0.0
NPAT norm 174.4 104.7 23.2 (14.1) (79.0) Shareholders equity 135.3 48.0 205.1 206.9 186.2
EPS norm (cents) 123.2 86.6 (6.5) (14.1) (79.0)
DPS (cents) n/m n/m n/m n/m n/m Cash flow ($m) FY21A FY22A FY23E FY24E FY25E
Operating cash flow (45.5) (71.3) (115.8) (99.8) (22.4)
Margins and returns (%) FY21A FY22A FY23E FY24E FY25E Maintenance capex (0.0) (0.0) (0.0) (0.0) (0.0)
EBITDA margin n/m n/m n/m n/m (56.8) Free cash flow (45.6) (71.4) (115.8) (99.8) (22.4)
EBIT margin n/m n/m n/m n/m (56.8) Growth capex 0.0 0.0 0.0 0.0 0.0
PBT margin n/m n/m n/m n/m (52.8) Acquisitions/disposals 0.7 0.0 0.0 0.0 0.0
NPAT margin n/m n/m n/m n/m (42.2) Dividends paid 0.0 0.0 0.0 0.0 0.0
Other cash flow 15.0 (2.5) 0.0 0.0 0.0
Interims ($m) 2H21A 1H22A 2H22A 1H23E 2H23E Cash flow pre-financing (29.8) (73.8) (115.8) (99.8) (22.4)
Sales 0.0 0.0 0.0 0.0 0.0 Funded by equity 105.5 0.3 271.4 100.0 0.0
EBITDA norm (5.7) (40.7) (58.5) (85.1) (58.9) Funded by cash/debt (181.0) 73.3 (427.0) (100.2) 22.4
EBIT norm (5.7) (40.8) (58.6) (85.1) (58.9)
PBT norm (11.8) (40.6) (58.5) (84.9) (58.1) Liquidity FY21A FY22A FY23E FY24E FY25E
NPAT norm (10.4) (37.7) (55.1) (67.9) (46.4) Cash conversion (%) 100.7 77.1 101.0 101.3 106.3
NPAT reported (10.4) (37.7) (55.1) (67.9) (46.4) Net debt ($m) (118.2) (44.6) (200.2) (200.5) (178.0)
EPS norm (cents) (2.8) (12.3) (15.7) (14.7) (10.0) Net debt / EBITDA (x) 2.6 0.4 1.4 1.6 6.4
DPS (cents) 0.0 0.0 0.0 0.0 0.0 ND / ND + Equity (%) (691.5) n/m n/m n/m n/m
EBIT / Interest expense (x) (8.3) n/m n/m 57.3 14.2

Valuation FY21A FY22A FY23E FY24E FY25E

EV / Sales (x) n/m n/m n/m n/m 5.8
EV / EBITDA (x) n/m n/m n/m n/m n/m
EV / EBIT (x) n/m n/m n/m n/m n/m
P / E (x) n/m n/m n/m n/m n/m
P / BV (x) 2.2 8.4 2.6 2.6 2.8
FCF yield (%) (15.3) (17.8) (21.9) (18.9) (4.2)
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
Payout ratio (%) 0.0 0.0 0.0 0.0 0.0
Weighted shares (m) 320.4 351.6 463.4 463.4 463.4

Source: Company data, Wilsons estimate, Refinitiv.

All amounts are in Australian Dollar (A$) unless otherwise stated.

Wilsons Equity Research Page 2

2 September 2022 Healthcare
Opthea Limited

Outlook & Valuation

 $1.50 12-month PT reflects positive trading opportunity

Figure 1 summarises our change in valuation and PT.

Fundamental value of OPT-302 in nAMD opportunity reduced 16% with PE pay-away. Fundamental value of the
nAMD opportunity for OPT-302 is reduced by ~30% (27% overall, 35% in NPV sense) owing to the royalty pay
away to Carlyle/Abingworth (up to US$680M). Noting that we have adjusted our diluted SOI count down 16% due
to the non-dilutive nature of the recent funding (versus prior expectations of dilutive equity capital). As a reminder
we previously removed the DME opportunity from our valuation noting the status of that project. Maintaining our
risked stance on the success of the nAMD opportunity (at 59%) our fundamental valuation has declined 16% to
$0.90 per share.

$1.50 PT set based on success of Phase IIIs as trading opportunity in lead up. We set our 12-month PT of
$1.50/share (+38% vs prior published PT) based on the adjusted nAMD opportunity noted above ($939M), but de-
risk the Phase III trial success (with overall probability of success increased from 59% to 90% to market access). This
reflects our expectations for share price trading in the next 12 months being bullish into trial readout.

Our current revised PT ($1.50/sh) reflects a 67% premium to our revised fundamental valuation ($0.90/sh).

Figure 1: Our revised PT of $1.50/share reflects de-risking of the revised nAMD program valuation
P r e v ious
Ne w
funda me nt a l Ne w P T Δ Δ
funda me nt a l
a nd P T

Project value (A$M) - nAMD only 1282 939 -27% 939 -27%

Overall probability of success (%) 59% 90% 52% 59% 0%

SOI diluted (M) 551 463 -16% 463 -16%

NPV of project value (nAMD) (A$m) 629 695 11% 407 -35%

R iske d pr ice t a r ge t (A$ /sha r e ) 1 .0 8 1 .5 0 39% 0.90 -16%

Source: Wilsons.

Wilsons Equity Research Page 3

2 September 2022 Healthcare
Opthea Limited

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