griffin lptn analyst report

8/7/2019 Griffin LPTN Analyst Report

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Griffin Securities, Inc., 17 State Street, NY, NY, 10004 www.GriffinSecurities.com 1Please Review Disclosures on Page 20 of this Research Report

LPATH,INC. (OTCBB:LPTN)LPATH ANNOUNCES $500 MILLION DEAL WITH PFIZER FOR ITS NEW OCULAR DRUG ISONEP

ISONEP OCULAR DEAL WITH PFIZER WORTH UP TO $500 MILLION IN MILESTONE PAYMENTS PLUS ROYALTIESTHAT COULD EXCEED $800 MILLION PER YEAR. ANNOUNCEMENT UNDERSCORES POTENTIAL DISTINCTIVEBENEFITS OF ISONEP IN WET AMD AND OTHER OPHTHALMOLOGY DISEASES. Lpaths anti-S1P antibodytherapeutic, iSONEP, targets multiple mechanisms that cause wet age-related macular degeneration(AMD)-related vision loss and promises to improve vision in patients by regressing the CNV lesionsand RPE detachments that cause loss in visual acuity. iSONEPs significant non-overlapping biologicaleffects vis--vis disease standards of care Lucentis and Avastin hold promise both clinically andcommercially. It may also act synergistically with Lucentis and Avastin as a combination therapy toaddress the complex processes and multiple symptoms that ultimately lead to vision loss for wet AMDpatients. Importantly, iSONEP addresses not only the leakiness like Lucentis does, but alsoinflammation and sub-retinal fibrosis associated with wet AMD disease. Two trials with Pfizer Inc.(NYSE: PFE) for wet AMD are planned for 2011: the first trial (PEDigree) will target RPE detachmentpatients; and a second larger trial (Nexus) will include the broader wet AMD population. If approved,we project peak annual sales of iSONEP exceeding $5 billion.

ASONEP SAFETY PROFILE EXTREMELY FAVORABLE THROUGHOUT THE PHASE I TRIAL WITH FORMERPARTNER MERCK KGAA AND DURABLE STABLE DISEASE OBSERVED IN SEVERAL LATE STAGE PATIENTS .Lpaths first-in-class mAb against the bioactive lipid sphingosine-1-phosphate (S1P) has beenimplicated in the progression of various types of cancer. We expect existing grants with the NationalCancer Institute and/or collaborations with Harvard Medical School and others to continue to advancethis program through Phase II trials in one or more cancer indications.

LPATHOMAB - TWO POSSIBLE CLINICAL CANDIDATES IDENTIFIED AGAINST LPA, A SIGNIFICANTCONTRIBUTOR TO NEUROPATHIC PAIN.

We are updating coverage on Lpath, Inc. (OTCBB: LPTN) with a BUY rating and a 12-month pricetarget of $5.00 for LPTN shares.

Lpath, Inc. (OTCBB: LPTN) is a biotechnology company focused on lipidomics-based therapeutics that targetbioactive signaling lipids for treating a wide range of human disease. Lpath is the only company to have developedmonoclonal antibodies against bioactive lipids. The Company is currently advancing three drug candidates:iSONEP, ASONEP, and Lpathomab. Lpath developed these compounds using its proprietary and patent-pending drug-discovery engine called ImmuneY2 which Lpath is leveraging to further expand its pipeline.

Share Price (2/14/11) $1.28

52-Week Price Low/HIGH $0.40$1.55

Mkt. Capitalization (issued) $77.2 MM

Shares Outstanding (issued) 60.34 MM

12-month Target Price $5.00

Cash & Equivalents (9/30/10)* $3.1 MM

Fiscal Year Ends December 31st

Website lpath.com

*Cash & equivalents exclude approx. $4.9 million raised in Nov. 2010and expected upfront payments from Pfizer.

12-Month Price Chart

Source: BigCharts.com

U.S. Research: Biotechnology February 15, 2011

UPDATE AND BUY RECOMMENDATION

MARK MERRILL646-442-1441

[email protected]

KEITH MARKEY,PH.D.212-514-7914

[email protected]

CHRYSTYNA BEDRIJ212-509-9500

[email protected]


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GRIFFIN SECURITIES EQUITY RESEARCH 2

Lpath, Inc. Februar 15, 2011

HIGHLIGHTS LPATH INKS EXCLUSIVE OPTION AGREEMENT WITH PFIZER FOR COMPANYS ISONEPOCULAR PROGRAM

REFLECTS STRENGTH OF BIOACTIVE LIPID APPROACH AND INTELLECTUAL PROPERTY AND PROVIDES APOTENTIALLY GINORMOUSMARKET OPPORTUNITY.In December 2010 Lpath announced an agreementwith Pfizer providing an option for exclusive rights to a worldwide license to develop and

commercialize iSONEP for wet age-related macular degeneration (AMD) and other ophthalmologydiseases. Pfizer will pay an initial upfront amount of $14 million. Pfizer will also provide futurepayments that could total $497 million and double-digit royalties on product sales if the option isexercised. We expect Pfizer to carry most of the costs associated with the planned Phase Ib and IIatrials expected to begin later this year. Upon completion of these trials, Pfizer will have the right toexercise its exclusive worldwide option to the program. We believe that this partnership is animportant win for Lpath as it secures both a strategic and financial partner to advance the iSONEPocular franchise and it further validates the bioactive lipid-targeting approach.

ISONEP DEMONSTRATES DISTINCTIVE BENEFITS, NOTABLY A REDUCTION IN OCCULT CHOROIDALNEOVASCULARIZATION (CNV) LESIONS AND RESOLUTION OF RETINAL PIGMENT EPITHELIUM (RPE)DETACHMENT.Key observations from the Phase I trial in which iSONEP was tested as a treatment forwet AMD was reduction in CNV lesions and resolution of RPE detachment in specific patient groups.CNV is the underlying cause of the disease that leads to degeneration of the macula, the area of

vision responsible for central vision. The observed reduction in CNV lesion size demonstrated in thetrial (showing an average reduction of 75% for this group of patients) is not typical of other agents andis expected to have significant implications for the planned Phase II trial. The resolution of RPEdetachment was also remarkable in wet AMD patients in a RPE patient subgroup that showed acomplete resolution of the condition with just a single injection. From a commercial perspective,iSONEP was providing improvement in these patients eyes with non-overlapping effect vis--visVEGF inhibitors (Lucentis and Avastin, and, if approved, the VEGF-Trap) so could potentially beutilized as a mono therapy or as a combo therapy with Lucentis. If approved, we project peak annualsales of iSONEP exceeding $5 billion.

ASONEPPHASE ITRIAL IN CANCER PATIENTS COMPLETE;EXPECT EXISTING GRANTS WITH THE NATIONALCANCER INSTITUTE AND/OR COLLABORATIONS WITH HARVARD MEDICAL SCHOOL TO CONTINUE TOADVANCE THIS PROGRAM IN ONE OR MORE CANCER INDICATIONS.Results from the Phase I clinical trialof ASONEP in cancer patients were presented at the American Society of Clinical Oncology (ASCO)

2010 Annual Meeting. The drug was administered to 28 patients with a variety of cancer types andwas well-tolerated with no significant toxicities. More than half the patients that completed the initialfour-treatment evaluation period showed stable disease with durable stable disease being observedin several patients. The test results offer considerable flexibility with dose level in future studiesbecause ASONEP was well tolerated across all doses tested. The safety profile suggests ASONEPwill have no significant overlapping toxicities with other agents, so it is a potential candidate forcombination therapy regimens. A mAb against the bioactive lipid S1P has been demonstrated toinhibit the progression of various types of cancer. For example, data from work performed by J. Mierand R. Bhatt at Beth Israel Medical Center and presented in April 2009 showed that ASONEPadministered as a single agent delayed the progression of renal cell carcinoma (RCC) byapproximately 60% longer than the delay typically seen in this same model with VEGF-receptor-tyrosine-kinase inhibitors (TKis), a current leading treatment option for advanced RCC. We expectexisting grants with the National Cancer Institute and/or collaborations with Harvard Medical School

to continue to advance this program in one or more cancer indications. As part of the optionagreement for iSONEP, Pfizer gained a time-limited (through most of 2013) first right of refusal on theASONEP program.

LPTNSHARES UNDERVALUED;WE REITERATE OUR BUYRATING AND $5.0012-MONTH PRICE TARGETFOR LPTN SHARES. Estimated cash & equivalents of $8.0 million, including $4.9 million raised inNovember 2010, plus the upfront payment of $14 million from the Pfizer option agreement andapproximately $4 million from remaining grants, provides strategic support for planned 2011 clinicaltrials and, with current plans, cash into 2013. The option agreement with Pfizer offers a potential long-term development and commercialization partner for the iSONEP franchise. Our valuation model,based on projected sales of iSONEP in wet AMD and ASONEP in RCC, supports a 12-month targetprice of $5.00 per share.


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CONTENTSPRIMARY PRODUCT DEVELOPMENT PROGRAMS ................................................................................ 4KEY EVENTS AND MILESTONES .............................................................................................................. 4ABOUT ISONEP ....................................................................................................................................... 5

PHASE ISTUDY OVERVIEW.......................................................................................................................... 6ABOUT ASONEP...................................................................................................................................... 8

PHASE ISTUDY OVERVIEW........................................................................................................................ 10ABOUT LPATHOMAB ............................................................................................................................ 11

LPA IN HEALTH &DISEASE....................................................................................................................... 11LPATHS DRUG DISCOVERY OVERVIEW: IMMUNEY2 ..................................................................... 13INVESTMENT CONCERNS AND RISKS .................................................................................................. 14FINANCIAL ANALYSIS & VALUATION .................................................................................................... 15

REVENUE MODEL...................................................................................................................................... 15INCOME STATEMENT ................................................................................................................................. 17HISTORICAL BALANCE SHEET ................................................................................................................... 18DISCOUNTED CASH FLOW (DCF)MODEL................................................................................................... 19

DISCLOSURES .......................................................................................................................................... 20


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ABOUT ISONEPSonepcizumab is a monoclonal antibody (mAb) that targets the bioactive lipid, sphingosine-1-phosphate(S1P). iSONEP, the ocular formulation of sonepcizumab, has demonstrated several importantmechanisms of action that suggest its usefulness in treating eye diseases; notably, the inhibition ofangiogenesis, inflammation (macrophage infiltration), and fibrosis, while also reducing vascular

permeability. This combination of actions has considerable promise for a long-term therapy for a host ofocular maladies.

S1P modulates the AMD-associated processes of angiogenesis, inflammation and fibrosis. A potentialstrategy for treating choroidal neovascularization associated with AMD is to reduce the biologicallyavailable extracellular levels of S1P. iSONEP is highly selective for S1P and binds with much higheraffinity than S1P binds to its receptors, and so, iSONEP prevents S1P from signaling cells through S1Preceptors. Lpath, in its first wet AMD trial proposes that iSONEP would deprive many cell types(fibroblasts, pericytes, vascular endothelial cells and inflammatory) of important growth and survivalfactors thus targeting the multiple maladaptive processes of exudative AMD that ultimately result in theloss of photoreceptors, their supporting cells, and visual acuity. Simultaneously targeting multiplecomponents of the choroidal neovascular response is a novel approach and has the potential to be morepotent than "single-targeted" therapeutics such as anti-VEGF therapies.

1

Wet AMD: Neovascular or exudative AMD, the wet form of advanced AMD, causes vision loss due tothe development of lesions created by abnormal blood vessel growth (choroidal neovascularization) inthe choriocapillaris, through Bruch's membrane, ultimately leading to blood and protein leakage in theregion of the macula. The leakage creates cysts of retinal edema, which can cause the retina to swell andthicken, resulting in loss of vision and visual distortions. A key component of the retina is the retinalpigment epithelium (RPE), a layer of cells responsible for transporting oxygen and sugars to the retinaand removing waste products from the retina. One may hypothesize that the RPE layer could be thesource of dysregulated (i.e., too much) S1P, VEGF and other factors that stimulate the choroidal vascularendothelia cells (the cells that make new blood vessels of the lesion) to proliferate and form the wet-AMDlesion. In some cases of AMD patients, detachment of the RPE layer can occur as AMD progresses,producing a condition known as PED, or Pigmented Epithelial Detachment.

Source: Lpath, Inc.

Bleeding, leaking, and scarring from these blood vessels eventually causes irreversible damage to thephotoreceptors and rapid vision loss if left untreated. AMD is a leading cause of blindness in adults over55 years of age. An estimated 15 million people in the United States have age-related maculardegeneration (AMD), with more than 3.0 million experiencing the active blood vessel growth and bloodvessel leakage associated with wet AMD with the numbers expected to increase as the population ages.

1 Clintrials.gov. Safety Study of iSONEP (Sonepcizumab/LT1009) to Treat Neovascular Age-related Macular Degeneration

BasementMembrane

The macular region of the retina (front of the eye is towards the top of each image)

Cartoon representation Healthy subject Wet-AMD patient


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PHASE ISTUDY OVERVIEW

In 2009, Lpath completed a Phase I clinical trial in which iSONEP was tested as a treatment for wet AMD.In that trial, iSONEP met its primary endpoint of being well tolerated in all 15 patients at dose levelsranging from 0.2 mg to 1.8 mg per intravitreal injection (compares with the 1.25mg that is usedpervasively with Avastin treatments). No drug-related serious adverse events were reported in any of thepatients. A positive biological effect was also observed in a number of patients in this clinical study.

The most significant benefit observed in the Phase I trial was a regression in choroidal neovascularization(CNV), which is the underlying cause of the disease that eventually leads to degeneration of the macula,the area of the retina responsible for central vision. Of the seven patients that had a baseline lesion thatwas considered by experienced ophthalmologists to be large, four expe rienced a reduction exceeding5mm and three experienced a reduction of greater than 75% all with a single dose of iSONEP. Thistype of clinical benefit is not typical with other treatments, as the published data suggest that, even withrepeated Lucentis dosing, the total physical size of CNV lesion remains unchanged.

Another distinctive benefit was the resolution of retinal pigment epithelium (RPE) detachment (calledPED), a potentially serious condition that is often a part of the pathology of wet AMD. Of two patients thatwere diagnosed with PED in the Phase 1 trial, both experienced complete or near-complete resolution ofthe condition again, with only a single dose of iSONEP. Currently, there is no drug approved for thiscondition.

A key observation from the Phase I trial was that of the five patients that showed the strongest biologicaleffect, all five had a component of occult-type CNV (either pure occult CNV or minimally classic CNV).Further, these five patients were the only ones in the Phase I study that were diagnosed with occultdisease. In other words, all of the patients with a component of occult CNV exhibited a strong positivebiological effect during the 30-45 days following a single injection of iSONEP. This correlation hassignificant implications for the Companys Phase II study design.

One subject (Subject 2) experienced 100% lesion regression and a resolution of RPE detachment. Asecond subject (Subject 9) experienced an almost complete resolution in RPE detachment. A thirdsubject (Subject 15) experienced 100% lesion regression, notable because the patient had previously notresponded to 16 previous Avastin, Lucentis, PDT laser, and dexamethasone treatments. It should benoted that all 10 of the efficacy patients in the iSONEP Phase 1 averaged 8 Lucentis/Avastin treatments,and none of them were responding wel to the treatment, so this was a particularly challenging set of eyes.

Neither Lucentis nor Avastin typically show this type of clinical benefit with a single dose; in fact, in theMARINA Phase III trial, Lucentis-treated patients with occult disease experienced an average of 2%reduction in lesion size after 12 monthly injections, which is noise (vs. 76% average reduction iniSONEPs Phase I trial). Importantly, from a potential commercial perspective, iSONEP was providingimprovement in these patients eyes with non-overlapping effect with the VEGF inhibitors (Lucentis andAvastin, and, if approved, the VEGF-Trap). In addition, iSONEP was well tolerated at all dose levelstested and no drug-related serious adverse events were reported.

The fact that these biological effects appear to be non-overlapping vis--vis those of the predominantmarket leaders, Lucentis and Avastin may be significant. Wet AMD is characterized by the pathologicdisruption of the retina, which is caused collectively by (i) new-blood-vessel growth in the choroid layerunder the retina, (ii) sub-retinal fibrosis, (iii) general inflammation in the retinal area, and (iv) edemacaused by new blood vessels that do not form perfectly and are thereby permeable (or leaky).

Lucentis and Avastin target the protein VEGF, a validated promoter of permeable and leaky bloodvessels, and appear to exert most of their beneficial effect via an anti-permeability action that results inresolution of intra and sub-retinal edema. However, the actual CNV lesion does not typically regress.

In contrast, iSONEP has been shown in various animal models of disease not only to reduce blood-vesselgrowth and leakiness, but also to significantly mitigate ocular fibrosis

and to substantially reduce

inflammation in the eye. As such, iSONEP has the potential to be an effective wet AMD treatment thatmay offer significant advantages over exclusively anti-VEGF approaches. It may also act synergisticallywith them as a combination therapy to address the complex processes and multiple steps that ultimatelylead to vision loss for wet AMD patients.


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The Retinal Pigment Epithelium (RPE) Layer: The RPE is a layer of cells responsible for regulating thetransmission of oxygen, sugars, other nutrients, and waste to and from the retina. The images belowillustrate the difference between a detached and a healthy RPE layer:

A Comparison between a Detached and a Healthy Retinal Pigment Epithelium (RPE) Layer

Source: Eye 2009

Previous studies with iSONEP have yielded supporting data to suggest that iSONEP was capable ofpreventing CNV lesion formation.

The promising Phase I clinical trial results, together with the preclinical studies, suggest the following:

i. iSONEP may have comparative advantages over currently available treatments like Lucentis andAvastin (and soon-to-be-available treatments with similar mechanisms of action like RegeneronPharmaceuticals, Inc.s (NasdaqGS: REGN) VEGF-Trap). The loss of visual acuity associatedwith AMD is caused by a combination of all the factors mentioned above, yet Lucentis, Avastin, andthe VEGF-Trap apparently fail to address inflammation and sub-retinal fibrosis. Thus, iSONEP mayimprove vision on a more-consistent basis across the patient population and may treat the multiplemechanisms that cause exudative-AMD-related vision loss. Such an agent might act as amonotherapy or an adjunct therapy to an anti-VEGF agent.

ii. iSONEP may be able to inhibit the vascular and extravascular components of ischemicretinopathies such as diabetic retinopathy and the dry form of AMD, both of which representsignificant unmet medical needs.

iii. iSONEP might be efficacious in treating fibrotic-related disorders of the eye, including proliferativeretinopathy, post glaucoma filtration surgery (trabeculectomy or valve implantation), and variousanterior-segment diseases.

SphingomabTMControl

Values = mean SEM,

*p


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ABOUT ASONEPLpaths product candidate ASONEP (the systemic formulation of sonepcizumab) is an antibody that bindsthe bioactive lipid sphingosine-1-phosphate (S1P) and thus has promise as a therapy for cancer, multiplesclerosis, and other diseases.

S1P and Cancer

Multiple studies have demonstrated that cancer cells have abnormallevels of sphingolipids and related enzymes involved in thebiosynthetic pathway, resulting in conditions that favor cell survival.

10

Certain tumors such as colorectal, breast, uterine, and kidney cancer, express abnormally highsphingosine kinase-1 activity (this kinase responsible for making S1P, which resists cell death andpromotes neovascularization). In cancer, the sphingolipid rheostat makes S1P which favors cancer cellsurvival, thereby helping malignant cells resist the effects of radiation and chemotherapy and promotestumor angiogensis (blood vessel formation to feed the growing tumor). Below is an image of oneproposed mechanism of action that proposes that low oxygen environment (hypoxia) and reactive oxygenspecies (ROS) of tumors stimulates the activation of sphingosine kinase (Sphk1) which, in turn, activatesHypoxia Inducible Factor (HIF). HIF then turns on genes which promote tumor angiogenesis and promotemetastases:

Regulation of HIF-1 Level by the SphK1/S1P Signaling Pathway in Cancer Cells Subjected to Hypoxia

Source: Lpath, Inc., Ader, I. et al. Cancer Res 2009;69:3723-3726.

Additionally, certain chemotherapeutic agents stimulate de novosynthesis of ceramide; among these aredaunorubicin, irinotecan, etoposide, and gemcitabine. In addition, ionizing radiation causes ceramide

levels to increase by activating acid sphingomyelinase. This enzyme is also implicated in mediating theapoptotic effects of UVA-light and TNF. Although different mechanisms are involved, all of theseinterventions shift the sphingolipid balance toward ceramide-induced apoptosis. Lpaths ASONEP, on theother hand, shifts this balance in favor of ceramide by neutralizing the S1P, the major sphingolipid thatantagonizes ceramide-induce apoptosis.

The rationale behind the development of ASONEP as an oncotherapy is based partly on the antibodysability to reduce free S1P levels and thereby create conditions that favor apoptosis. This approach makessense, since erythrocytes and platelets release the sphingolipid to help control thymocyte and lymphocytetissue distribution.

2As a result, S1P, which is often associated with high-density lipoproteins in circulation,

2 Hanel, P, et al. Erythrocytes store and release sphingosine 1-phosphate in blood. FASEB J 2007; 21: 1202.


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is found at concentrations roughly 100 times higher in blood than those recorded in other types of tissue.This means that the largest source of S1P is readily accessible to the antibody ASONEP.

The drugs efficacy as a single agent against different xenograft models lays the groundwork for its use asa standalone therapy. Its dual mechanism of action, tilting the sphingolipid rheostat toward apoptosisand inhibiting blood vessel formation, render it a suitable candidate for further studies against solidtumors. The most likely targets include neoplasms that express high sphingosine kinase-1 activity

(colorectal, breast, uterine, and kidney) and those that have abnormally low levels of ceramide (ovarian,lung, and non-squamous head and neck). The following graph displays elevated S1P plasma levels inrenal cell carcinoma (RCC) (kidney cancer) patients, one potential target for ASONEP, compared tohealthy volunteers:

S1P Plasma Levels in RCC Patients Compared to Healthy Volunteers

Source: Lpath, Inc.

Notably, pre-clinical proof-of-principle data in a murine model of renal cell carcinoma (RCC) presented inApril at the 100

thAnnual Meeting of the American Association for Cancer Research (AACR) demonstrated

that ASONEP administered as a single agent delayed the progression of RCC in mice implanted withhuman RCC cells. The murine for of ASONEP substantial and significantly retarded disease progressioncompared to Sunitinib (Sutent).

These initial results were comparable to the standard of care for the treatment of RCC, VEGF receptortyrosine kinase inhibitors (TKIs), including the approved TKIs Sutent and Nexavar. At higher doses of

the anti-S1P agent, the initial results exceeded Sutent.

The drug may also prove effective in combination with other anticancer agents, given its uniquemechanisms of action. Indeed, ASONEP may well act synergistically with established anticancermedicines by rendering the malignant cells susceptible to chemotherapy by shifting the sphingolipidrheostat toward apoptosis. Lowering S1P levels or increasing ceramide concentrations in prostatecancer cells increases their sensitivity to radiation and to the chemotherapeutic agents docetaxel andcamptothecin.

3,4Similar results have been obtained when human lung cancer cells were treated with

cisplatin, carboplatin, and doxorubicin, a drug related to Merck-Seronos UFT (an oral formulation of5-fluorouracil)

5.

3 Nava, VE, et al. Sphingosine enhances apoptosis of radiation-resistant prostate cancer cells. Cancer Res 2000; 60: 4468.4

Pchejetski, D, et al. Chemosensitizing effects of sphingosine kinase -1 inhibition in prostate cancer cell and animal models. MolCell Therap 2008; 7: 1836.5 Min, J, et al. Sphingosine-1-phosphate lyase regulates sensitivity of human cells to select chemotherapy drugs in a p38-dependentmanner. Mol Cancer Res 2005; 3(5): 287.


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PHASE ISTUDY OVERVIEW

ASONEP Study Details

Dosing: Dose escalation; intravenous administration of 1.0, 3.0, 10.0 17.0 or 24.0 mg/kg; four or moredoses per patient; three patients per cohort.

Primary Endpoint: To determine safety, tolerability, maximum tolerated dose and dose-limiting toxicity ofASONEP.

Positive results from the Phase I clinical trial of ASONEP in cancer patients were presented at theAmerican Society of Clinical Oncology (ASCO) 2010 Annual Meeting. The drug was administered to 28patients (21 evaluable) with a variety of cancer types and was well-tolerated with no significant toxicities.The safety profile indicates that ASONEP is expected to have no significant overlapping toxicities withother agents, so it may be a potential candidate for combination therapy regimens. Additionally, twelvepatients (approximately 57%) had stable disease beyond two months, including three patients for over sixmonths and one for over 30 months. The patient with stable disease for over 30 months has carcinoidcancer and has been treated with 3 mg/kg of ASONEP weekly. In order to be evaluable, the patient hadto stay on the drug for at least four treatments with the option to remain on the drug until the cancerprogressed. After receiving about 110 treatments of ASONEP, the patient is still on the drug with nodisease progression. Additionally, the patient reported that her troubling side-effects, known collectively

as carcinoid syndrome, disappeared long ago and have not re-emerged. The following table comparesthe ASONEP Phase I trial with Avastins initial Phase I trial:

ASONEP Phase I Trial Compared to Avastin Phase I Trial

Source: Lpath, Inc.

Though the sample sizes were relatively small, ASONEP had fewer significant adverse events thanAvastin with a comparable number of patients experiencing stable disease (57% for ASONEP for 60+days versus 48% for Avastin for 70 days). We expect existing grants with the National Cancer Instituteand/or collaborations with Harvard Medical School to continue to advance this program in one or morecancer indications. As part of the option agreement for iSONEP, Pfizer gained a time-limited first right ofrefusal on the ASONEP program.

Avastin ASONEP

Doses studied 0.1, 0.3, 1.0, 3.0, 10.0 mg/kg 1, 3, 10, 17 and 24 mg/kg

Schedule of

administration

4 doses only - Days 0, 28, 35 and 42 only Continuous dosing - Days 1, 15, 22 and 29 in Cycle 1,

then, if stable, weekly

Number of patients 25 21 evaluable

Tumor types Sarcoma (8), Renal cell (7), Breast (5),

Lung (2), Other (3)

Ovarian (4), Breast (2), Renal (4), Colon (3)

Mesothelioma (1), Melanoma (2), Carcinoid (1),

Synovial cell sarcoma (1), NSCLC (1), Adenoid cystic

(1), Head & Neck (1)

Patient Follow Up 70 days only No set limit on duration of treatment or follow up

Pharmacokinetics Dose-linear PK; 21 day half life Data not final; 4 -6 day half-life estimated

Notable adverse events Grade 3 hypertension (1 patient);

Hemorrhage (5 severe in 2)

Infusion-related reactions not reported, but are known

to occur in about 2% of Avastin-treated patients

No hypertension

No significant hemorrhage

Infusion-related reactions at 24 mg/kg dose level only

Total serum lig and/free

serum ligand

Dose-related increases in VEGF

No free VEGF detectable in patients treated with 0.3

mg/kg

Dose-related increases in S1P

Objective Response

(partial or complete)

None None

Stable disease 12 patients (48%) for 70 days 12 patients (57%) for 60+ days

7 patients (33%) for 90+ days

3 patients (14%) for 180+ days

1 patient still on study (well over 2 years)


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ABOUT LPATHOMABLpathomab, Lpaths third mAb-based drug candidate, targets the bioactive lipid lysophosphatidic acid(LPA). Lpathomab has shown anti-fibrotic and anti-angiogenic activity, as well as anti-metastatic and anti-tumorigenic activity. In other words, it is an attractive drug candidate for a wide range of diseases. Lpathhas successfully humanized Lpathomab and will soon choose its lead indication in preparation for IND-

enabling studies. The Company plans to file one or more Investigational New Drug applications (INDs) forLpathomab in 2012.

LPA IN HEALTH &DISEASE

Like S1P, LPA is synthesized and released by platelets into the serum to help regulate several cellularprocesses including platelet aggregation, cytoskeleton remodeling, and cell proliferation, survival andmigration. It also shares the anti-apoptotic properties of S1P. Two principle enzymes contribute to itsproduction, as shown below:

6,7

Of the enzymes that produce LPA, phospholipase D is considered the most important source of the

phospholipid in blood. This enzyme, which is also known as autotaxin, is a secreted enzyme thatsynthesizes the phospholipid extracellularly after its substrates are released from activated platelets (inresponse to injury, inflammation, or atherosclerosis), adipocytes, and many different cancer cells. Thisenzyme is essential for blood vessel formation during embryogenesis and it appears to play a part in thedevelopment of obesity-associated diabetes.

8,9The physiological roles of the phospholipase A family of

6 Mills, GB, and Moolenaar, WH. The emerging role of lysophosphatidic acid in cancer. Nature Reviews Cancer 2003; 3: 582.7 Aoki, J, et al. Serum lysophosphatidic acid is produced through diverse phospholipase pathways. J Biol Chem 2002; 277(50):48737.8

Ferry, G, et al. Functional invalidation of the autotaxin gene by a single amino acid mutation in mouse is lethal. FEBS Lett 2007;581(18): 3572.9 Boucher, J, et al. Potential involvement of adipocyte insulin resistance in obesity-associated up-regulation of adipocytelysophospholipase D/atotaxin expression. Diabetologia 2005; 48: 569.

Biosynthetic pathways oflysophosphatidic acid (LPA). Twotypes of enzymes have beenidentified in the phospholipidssynthesis: phospholipase A(PLA1 and sPLA2, or secretoryphospholipase A2), and ATX/lysoPLD, which is known as bothautotaxin and phospholipase D.40


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enzymes have not been fully defined, though at least some of the forms are involved in prostaglandinsynthesis in various cells, including lung fibroblasts.

10They also appear to participate in such pathological

conditions as psoriasis and cancers of the testis, skin, and ovaries.11,12,13.14

LPA exerts its influence through the activation of G-protein coupled receptors (GPCRs) that belong to oneof two families. One group, comprised of the LPA1, LPA2, and LPA3 receptors, has 50%-57% homologousamino acid sequences and is associated with a single G protein that propagates the messages

intracellularly. The other family is not related to the first group structurally, and is coupled to severaldifferent G proteins. The six receptors differ in the levels of their expression and the tissues in which theyare found. Nonetheless, virtually all mammalian cells and organs express multiple LPA receptor types.This appears to permit fine control over some cellular processes regulated by LPA (e.g., cell motility), andit allows LPA to influence some processes in the same cell via different pathways (e.g., anti-apoptosis).

15,16

Given the general cellular functions that LPA influences and the variety of receptors, it is not surprisingthat it has a wide range of activity. For instance, this bioactive lipid plays a role during conception byaffecting implantation of the fertilized egg and subsequently directs the differentiation of certain neuralstem cells into oligodendrocytes. (These cells become the insulation that is required for proper signaltransduction along nerve fibers via a process called myelination.)

17,18LPA also facilitates wound healing

through its effects on fibroblasts, endothelial cells, and smooth muscle cells. This activity is not limited tothe skin, but takes place in such distinct areas as the lungs, eyes, and brain. Typically, it participates in

pathways that attract fibroblasts from the bloodstream to a site of injury and that promote localmyofibroblast formation, which leads to the deposition of extracellular matrix and tissue remodeling.

19

This process involves the opening of chloride ion channels in fibroblasts or their equivalent (e.g.,keratocytes in the eye), resulting in a chloride ion flow that is essential for transforming growth factor-(TGF-) induced differentiation of fibroblasts into myofibroblasts.

20,21. (TGF- is considered the most

important signal involved in fibrosis.)

LPA has also been implicated in various pathological conditions, notably various cancers in which themalignant cells express aberrant levels of LPA and/or its receptors. This bioactive lipid is found atelevated levels in ovary, kidney, breast, and brain cancers. Moreover, expression of its receptors appearsto follow a pattern in various cancers, including ovarian colorectal, prostate, and breast.

22,23In each case,

LPA2 receptors are found in excess, while LPA1 receptors decline and LPA3 levels remain at a low level.Work performed with several ovarian cancer cell lines has further demonstrated that LPA stimulates

10 Ghosh, M, et al. Function, activity, and membrande targeting of cytosolic phospholipase A s in mouse lung fibroblasts. J BiolChem 2007; 282(16): 11676.11 Foell, JL, et al. Membrane-associated phopholipase A1 beta (LIPI) is an Ewing tumour-assoicated cancer/testis antigen. PediatrBlood Cancer 2008; 51(2): 228.12 Nagai, Y, et al. An alternative splicing form of phosphatidylserine-specific phospholipase A1 that exhibits lysophosphatidylserine-specific lysophospholipase activity in humans. J Biol Chem 1999; 274(16): 11053.13 Ren, J, et al. Lysophosphatidic acid is constitutively produced by human peritoneal mesothelial cells and enhances adhesion,migration, and invastion of ovarian cancer cells. Cancer Res 2006; 66(6): 3006.14 Chiba, H, et al. Cloning of a gene for a novel epithelium-specific cytosolic phospholipase A2, cPLA2delta, induced in psoriaticskin. J Biol Chem 2004; 279(13): 12890.15

Lee, Z, et al. Role of LPA4/p2y9/GPR23 in negative regulation of cell motility. Mol Biol Cell pre-publication, posted October 8,2008.16 Lin, FT, et al. The lysophosphatidic acid 2 receptor mediates down-regulaton of Siva-1 to promote cell survival. J Biol Chem 2007;282(52): 37759.17 Liszewska, E, et al. Lysophosphatidic acid signaling during embryo development in sheep: involvement in prostaglandinsynthesis. Endocrinol pre-publication, posted September 4, 2008.18

Hui-Lin, C and Jian-Tian, Q. Effect of lysophosphatidic acid on differentiation of embryonic neural stem cells into neuroglial cells inrates in vitro. Acta Physiol Sinica 2007; 59(6): 759.19 Wang, J, et al. Receptor-mediated activation of a Cl - current by LPA and S1P in cultured corneal keratocytes. Invest OphthalmolVis Sci 2008; 43(10): 3202.20 Yin, Z and MA Watsky. Chloride channel activity in human lung fibroblasts and myofibroblasts. Am J Physiol Lung Cell MolPhysiol 2005; 288(6): L1110.21 Wang, J, et al. Receptor-mediated activation of a Cl - current by LPA and S1P in cultured corneal keratocytes. Invest OphthalmolVis Sci 2008; 43(10): 3202.22

Shida, D, et al. Aberrant expression of lysophosphatidic acid (LPA) receptors in human colorectal cancer. Lab Invest 2004; 84:1352.23 Kitayama, J, et al. Over-expression of lysophosphatidic acid receptor-2 in human invasive ductal carcinoma. Breast Cancer Res2004; 6: R640.


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tumor growth directly by boosting synthesis of the interleukins 6 and 8,24

as well as cyclin D1,25

a memberof a family of three proteins that regulate the cell cycle. The bioactive lipid also promotes tumor growthindirectly via stimulation of VEGF production and therefore blood vessel formation.

26Importantly, LPA

might also be an improved diagnostic marker vis--vis CA-125, which is an already approved biomarkerfor the diagnosis of eptithial ovarian cancer compared to CA-125.

27Further studies on the association

between initial plasma LPA values and treatment outcomes and survival are needed to evaluate thatissue. The value of the diagnostic alone could provide potential for additional upside for Lpath.

LPA plays a role in other diseases based on the various normal cellular processes in which it is involved.For instance, it has been implicated in the development of neuropathic pain, based on its ability to initiatea key characteristic of the disease, aberrant nerve demyelination.

28And it plays a role in the deposition of

abnormal fibrotic tissue in such tissues/organs as the kidneys, liver, lungs, and skin.

LPATHS DRUG DISCOVERY OVERVIEW:IMMUNEY2Lpaths ImmuneY2 technology, which consists of a series of proprietary processes, is a drug-discoveryengine that provides Lpath the capability of generating a pipeline of novel mAb-based drug candidatesagainst bioactive lipid targets in the emerging lipidomics field. This powerful platform involves (i) a uniquemethodology of presenting the selected lipid target to the mouse immune system to elicit antibodiesagainst the lipid target (lipids are so small that they do not normally trigger an immune response) and (ii)

several proprietary assays that measure the immune response and analyze the performancecharacteristics of antibodies produced by isolated B lymphocyte cell lines.

To date, no other firm has been able to generate therapeutic mAbs against bioactive lipids,making Lpath the leader in this new and emerging category of drug discovery.

In summary, Lpaths first mAb, sonepcizumab,binds sphingosine-1-phosphate, a validated lipid target formultiple diseases, including cancer, AMD, various other ocular disorders, and certain inflammatory,autoimmune, cardiovascular, and fibrotic diseases. The next mAb created, Lpathomab, targetslysophosphatidic acid, a validated target for multiple cancers, various fibrotic diseases, neuropathic pain,and ocular disorders. In addition, Lpath is using the ImmuneY2 platform to generate additional mAbsagainst as-yet undisclosed lipid targets that should provide an ever-growing pipeline of novel, mAb-baseddrug candidates.

29

24Fang, X, et al. Mechanisms for lysophosphatidic acid-induced cytokine production in ovarian cancer cells. J Biol Chem 2004;

279(10): 9653.25 Hu, YL, et al. Dual mechanisms for lysophosphatidic acid stimulation of human ovarian carcinoma cells. J Natl Cancer Inst 2003;95(10): 733.26 Hu, YL, et al. Lysophosphatidic acid induction of vascular endothelial growth factor expression in human ovarian cancer cells. JNatl Cancer Inst 2001; 93(10): 762.27 Bese, T, et.al. J gynecl Oncology Vol. 21, No. 4:248-254, December 2010 DOI:10.3802/jgo.2010.21.4.248.28

Ueda, H. Peripheral mechanisms of neuropathic pain involvement of lysophosphatidic acid receptor-mediated demyelination.Mol Pain 2008; 4: 11.29 Lpath, Inc. press release, Lpath Creates First Neutralizing Monoclonal Antibodies Against LPA, an Important Cancer Target:Breakthrough Further Validates Lpaths ImmuneY2 Process, July 17, 2006.


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INVESTMENT CONCERNS AND RISKSFor a complete description of risks and uncertainties related to Lpath, Inc.s business, see theRisk Factors section in Lpaths SEC filings, which can be accessed directly from the SEC Edgarfilings at www.sec.gov. Potential risks include:

Stock risk and market risk: There is a limited trading market for the Companys common stock.There can be no assurance that an active and liquid trading market will develop or, if developed, that

it will be sustained, which could limit ones ability to buy or sell the Companys common stock at adesired price. Investors should also consider technical risks common to many small-cap or micro-capstock investments, such as small float, risk of dilution, dependence upon key personnel, and thestrength of competitors that may be larger and better capitalized.

New and rapidly changing field: The pharmaceutical and biotechnological markets are rapidlyevolving, and research and development are expected to continue at an accelerated pace withincreased frequency. Other companies are also actively engaged in the development of therapies todirectly or indirectly treat those disorders being pursued by Lpath. These companies may havesubstantially greater research and development capabilities, as well as significantly greatermarketing, financial, and human resources abilities than Lpath.

Products still in development phases: Although the Company intends to continue with clinicaldevelopment of ASONEP for cancer, iSONEP for wet age-related macular degeneration, and otherpipeline candidates in various indications, the successful development of the Companys productcandidates is uncertain. Product development costs and timelines can vary significantly for eachproduct candidate and are difficult to accurately predict. Products in development that appear to bepromising may not reach commercialization for various reasons, including failure to achieveregulatory approvals, safety concerns, and/or the inability to be manufactured at a reasonable cost. Inaddition, partners such as Pfizer may or may not option the Companys clinical developmentprograms, including ASONEP, which could affect the Companys developmental capabilities.

Funding requirements: It is difficult to predict the Companys future capital requirements. TheCompany may need additional financing to continue funding the research and development of itsproducts and to expand its business. There is no guarantee that it can secure the desired futurecapital or, if sufficient capital is secured, that current shareholders will not suffer significant dilution.

Regulatory risk: Various statutes and regulations also govern or influence the manufacturing, safety,labeling, storage, record keeping and marketing of each product. The lengthy process of seekingapproval and the subsequent compliance with applicable statutes and regulations require theexpenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatoryapprovals could materially adversely affect Lpaths business. There is no guarantee that Lpathsproducts will be approved by the U.S. Food and Drug Administration (FDA) or international regulatorybodies for marketing in the U.S. or abroad.

The Company may need to raise additional capital, which may not be available on termsacceptable to them, if at all: As the Company continues to expand its research and developmentand sales and marketing activities, they may need to raise additional capital, which may not beavailable on terms acceptable to them, if at all. If the Company cannot raise necessary additionalcapital on acceptable terms, they may not be able to increase sales, develop or enhance theirproducts and services, take advantage of future opportunities, or respond to competitive pressures orunanticipated requirements, any of which could cause their business to suffer.

Competitive risk: The biotechnology industry is extremely competitive, mainly due to its large marketpotential. Many companies are developing products for the same therapeutic indications targeted byLpath. These companies may have substantially more resources than Lpath, which could adverselyaffect the Companys position in the market place.


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FINANCIAL ANALYSIS &VALUATION

REVENUE MODEL

Our revenue model includes iSONEP for wet age-related macular degeneration (AMD) and ASONEP forrenal cell carcinoma (RCC). We excluded ASONEP for other oncology indications and Lpathomab, which

we believe is a promising program that is likely to be advanced in neuropathic pain by Lpath or a partner,and other future pipeline candidates that may be advanced by Lpath and/or partners. We believe theseopportunities add significant upside potential to our estimates.

Pursuant to the collaboration with Pfizer, we assume that Lpath will receive (i) an average annual royaltyof 16% of total product sales in each approved indication for iSONEP and (ii) total milestone exceeding$490 million over the life of the product.

We also assume that Lpath will seek marketing partners for (i) ASONEP in exchange for royalties of 10%of total product sales and (ii) Lpathomab in exchange for royalties of 10% and an upfront fee andmilestones totaling $400 million for each product candidate.

Assumptions:

The patient population in 2011 consists of an estimated 3.0 million patients, a number that isincreasing faster than the U.S. population due to the aging Baby Boom generation. We estimate thepatient population to be approximately 4.2 million patients when iSONEP achieves approval in 2017.

The percent of the market that is addressable is estimated to be 60%, reflecting patients that haveuntreatable disease and patients refractory to iSONEP.

The initial penetration rate is 5% due to the application of iSONEP in first-line patients in combinationwith Lucentis/Avastin.

The peak penetration rate is 40%, reflecting a good level of efficacy, particularly with respect totodays medications.

Lpaths licensing deal for iSONEP with Pfizer grants marketing rights in the ophthalmology sector inexchange for royalties of 16%. The deal includes an upfront fee and milestone payments exceeding$490 million.

The probability of commercialization is 35% given the Company completed a Phase I trialsuccessfully with strong data and signed a partnership option with Pfizer to move the programforward into two Phase II trials. There is potential to get FDA approval with two Phase II trials in amutually exclusive patient population.

iSONEP: AMD

Year penetration starts 2017 Incidence (2017 estimate) 4,200,000

Starting penetration rate 5% Percent addressable 60%

Years between penetration start and peak 4 Market growth rate 5%

Peak penetration 40% Annual price per patient $3,850

Duration of peak penetration in years 4 Treatment price growth 3%

Retention rate in decline years 90% Royalty rate 16%

Stage of development Phase II Probability of commercialization 35%


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Assumptions:

The National Cancer Institute (NCI) estimates that there will be approximately 49,096 patientsdiagnosed with renal cell carcinoma in the United States in 2009, and the International Agency forResearch of Cancer (IARC) estimates that there will be approximately 139,871 patients diagnosed inforeign developed countries of the world.

30,31

Only 30% of the patient population is eligible for ASONEP therapy, since about 60% are diagnosedwith Stage I or Stage II disease and are treated surgically. A proportion of the remainder is probablyineligible for drug therapy based on their overall health.

Commercialization begins in 2017 with an initial penetration rate of 5% in the United States and in

2018 in foreign markets with an initial penetration rate of 5%. The peak penetration rates are 20% and 15% for the United States and overseas markets,

respectively, reflecting a good efficacy rate, but allowing for the potential entrance of other newtherapies into the market.

The price of therapy is $50,000 per patient per year in the United States, which is comparable toother monoclonal antibody-based anticancer drugs (e.g. Genentechs Avastin).

The price of the drug is lower in foreign countries than in the United States, primarily because ofdifferences in pricing policies.

Weve assumed that the royalty rate averages 10% over the span a licensing agreement with apharmaceutical partner.

30National Cancer Institutes website: Kidney Cancer, http://www.cancer.gov/cancertopics/types/kidney.31 International Agency for Research of Cancer, The Globocan 2002 Database. http://www-dep.iarc.fr/globocan/database.htm.

ASONEP: Renal Cell Carcinoma - U.S.

Year penetration starts 2017 Incidence 49,096



Peak penetration 20% Price per patient $50,000


Retention rate in decline years 90% Royalty rate 10%

Stage of development Phase I Probability of commercialization 15%

ASONEP: Renal Cell Carcinoma - ROW

Year penetration starts 2018 Incidence 139,871



Peak penetration 15% Price per patient $40,000


Retention rate in decline years 90% Royalty rate 10%Stage of development Phase I Probability of commercialization 15%


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INCOME STATEMENT

Assumptions:

Pursuant to the licensing agreement with Pfizer for iSONEP, Lpath receives a $14 million milestonepayment in 1Q 11, with revenue recognition in 2011 and 2012.

Lpath received a $3 million grant awarded by the National Eye Institute in July 2010. We believeLpath will continue to seek similar non-dilutive funding opportunities.

Lpath books royalties on its three drugs and incurs no marketing expense.

Lpath spends $8.5 million and $12.2 million on R&D in 2010 and 2011, respectively. R&D begins toincrease following 2012 as clinical trials advance for iSONEP and other pipeline candidates aredeveloped. Pfizer takes over costs of iSONEP after 2012.

General & administrative costs are $3.6 million in 2010, increasing to $6.0 million by 2014.

The company books a tax liability for financial reporting purposes at 38%. (Note that the use of netoperating loss carryforwards will minimize Lpaths cash obligations according to our calculations.)

Equity financings and grants of stock options increase the number of fully diluted shares outstanding.

$ in thousands, except per share data 2010 2011 2012 2013 2014

FY ending Dec. 31st

2010 2011 2012 2013 2014

Total revenue 7,000$ 13,400$ 44,000$ 27,200$ 25,000$COGS - - - - -

Gross profit 7,000$ 13,400$ 44,000$ 27,200$ 25,000$

Operating expenses

R&D 8,500$ 12,200$ 8,300$ 10,000$ 10,000$

Selling & marketing - - - - -

General & administrative 3,600 4,000 4,500 5,000 6,000

Total expense 12,100 16,200 12,800 15,000 16,000

Operating profit (5,100)$ (2,800)$ 31,200$ 12,200$ 9,000$

Non-operating income/expense

Interest expense (10) (10) (10) (10) (10)

Interest income 50 50 100 200 200

Other (200)

Total non-operating (160) 40 90 190 190

Pretax profit (5,260)$ (2,760)$ 31,290$ 12,390$ 9,190$

Income tax - - - - -

Net income (5,260)$ (2,760)$ 31,290$ 12,390$ 9,190$

Earnings (loss) per share (0.07)$ (0.03)$ 0.38$ 0.15$ 0.11$

Basic shares outstanding 60,000 60,000 73,000 75,000 80,000

Diluted shares outstanding 80,000 80,000 82,000 83,000 84,000


18/21


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DISCOUNTED CASH FLOW (DCF)MODEL

Our DCF model, using a discount rate of 15.0%, suggests a value of $5.95 for LPTN shares.

$ in thousands, except per share data 2010 2011 2012 2013 2014

2010 2011 2012 2013 2014

Revenue 7,000$ 13,400$ 44,000$ 27,200$ 25,000$Operating income (5,100) (2,800) 31,200 12,200 9,000

Net income (5,260) (2,760) 31,290 12,390 9,190

Depreciation/amortization 150 150 200 200 250

Stock-based compensation 1,000 750 500 500 500

Tax loss carryforwards - - - - -

Capital expenditures (375) (400) (425) (450) (475)

Other

Total cash flow adjustments 775 500 275 250 275

Free cash flow (4,485)$ (2,260)$ 31,565$ 12,640$ 9,465$

Risk-adjusted free cash flow (4,485)$ (2,260)$ 11,048$ 2,100$ 947$

Discount Rate 2.0% 3.0% 4.0% 2.0% 3.0% 4.0%

13.0% $308,820 341,165$ 378,961$ 425,155$ $649,984 $687,780 $733,975

14.0% $277,109 274,018$ 301,860$ 335,269$ $551,127 $578,969 $612,378

15.0% $249,000 221,882$ 242,729$ 267,366$ $470,882 $491,729 $516,366

16.0% $224,047 180,940$ 196,769$ 215,236$ $404,988 $420,817 $439,284

17.0% $201,864 148,475$ 160,640$ 174,677$ $350,339 $362,504 $376,541

Discount Rate Net Debt 2.0% 3.0% 4.0% 2.0% 3.0% 4.0%

13.0% (8,011)$ $657,995 $687,780 $741,986 7.83$ 8.19$ 8.83$

14.0% (8,011) $559,138 $586,979 $620,389 6.66$ 6.99$ 7.39$

15.0% (8,011) $478,893 $499,740 $524,377 5.70$ 5.95$ 6.24$

16.0% (8,011) $412,999 $428,827 $447,294 4.92$ 5.11$ 5.32$

17.0% (8,011) $358,350 $370,515 $384,552 4.27$ 4.41$ 4.58$

Discount Rate 2.0% 3.0% 4.0% 2.0% 3.0% 4.0%

13.0% 52.5% 55.1% 57.9% 5.76 6.40 7.18

14.0% 49.7% 52.1% 54.7% 5.28 5.81 6.46

15.0% 47.1% 49.4% 51.8% 4.87 5.33 5.87

16.0% 44.7% 46.8% 49.0% 4.52 4.92 5.38

17.0% 42.4% 44.3% 46.4% 4.22 4.57 4.97

Value per Diluted Share

Implied EBITDA Multiple

Discounted

Cash Flows

(2008 - 2023)

PV of Terminal Value at a

Perpetual growth rate of rFCF Enterprise Value

Total Equity Value

Terminal Value as % Enterprise Value


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DISCLOSURESANALYST(s) CERTIFICATION: The analyst(s) responsible for covering the securities in this report certify that theviews expressed in this research report accurately reflect their personal views about Lpath, Inc. (the Company) andits securities. The analyst(s) responsible for covering the securities in this report certify that no part of theircompensation was, is, or will be directly or indirectly related to the specific recommendation or view contained in thisresearch report.

MEANINGS OF RATINGS: Our rating system is based upon 12 to 36 month price targets. BUY describes stocksthat we expect to appreciate by more than 20%. HOLD describes stocks that we expect to change plus or minus20%. SELL describes stocks that we expect to decline by more than 20%. SC describes stocks that Griffin Securitieshas Suspended Coverage of this Company and price target, if any, for this stock, because it does not currently havea sufficient basis for determining a rating or target and/or Griffin Securities is redirecting its research resources. Theprevious investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.NR describes stocks that are Not Rated, indicating that Griffin Securities does not cover or rate this Company.

DISTRIBUTION OF RATINGS: Currently Griffin Securities has assigned BUY ratings on 96.6% of companies itcovers, HOLD ratings on 3.4%, and SELL ratings on 0.0%. Griffin Securities has provided investment bankingservices for 17% of companies in which it has had BUY ratings in the past 12 months and 0% for companies in whichit has had HOLD, NR, or no coverage in the past 12 months or has suspended coverage (SC) in the past 12 months.

MARKET MAKING: Griffin Securities does not maintain a market in the shares of this Company or any otherCompany mentioned in the report.

COMPENSATION OR SECURITIES OWNERSHIP: The analyst(s) responsible for covering the securities in thisreport receive compensation based upon, among other factors, the overall profitability of Griffin Securities, includingprofits derived from investment banking revenue. The analyst(s) that prepared the research report did not receive anycompensation from the Company or any other companies mentioned in this report in connection with the preparationof this report. The analysts responsible for covering the securities in this report currently do not own common stock inthe Company, but in the future may from time to time engage in transactions with respect to the Company or othercompanies mentioned in the report. However, a member of an analysts household holds warrants to purchaseshares of the Company common stock and an account in which a member of an analysts household has a financialinterest holds warrants to purchase shares of the Company common stock. Griffin Securities from time to time in thefuture may request expenses to be paid for copying, printing, mailing and distribution of the report by the Companyand other companies mentioned in this report. Griffin Securities has received compensation from the Company in thepast 12 months for investment banking services. Griffin Securities expects to receive, or intends to seek,

compensation for investment banking and non-investment banking services from the Company in the next threemonths.

PRICE CHART

Source: BigCharts.com

8/31/2007 Initiating Coverage: share price: $1.75; rating: BUY; 12-month price target: $6.00. 10/29/08 UpdatingCoverage: share price: $0.99; rating: BUY; 12-month price target: $7.00. 11/20/09 Updating Coverage: share price:$0.80; rating: BUY; 12-month price target: $5.00. 2/15/11 Updating Coverage: share price: $1.28; rating: BUY; 12-month price target: $5.00.

BUY

BUY

BUY


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Lpath, Inc. Februar 15, 2011FORWARD-LOOKING STATEMENTS: This Report contains forward-looking statements, which involve risks anduncertainties. Actual results may differ significantly from such forward-looking statements. Factors that might causesuch a difference include, but are not limited to, those discussed in the Risk Factors section in the SEC filingsavailable in electronic format through SEC Edgar filings at www.SEC.gov on the Internet.

GENERAL: Griffin Securities, Inc. (Griffin Securities) a FINRA member firm with its principal office in New York,New York, USA is an investment banking firm providing corporate finance, merger and acquisitions, brokerage, and

investment opportunities for institutional, corporate, and private clients. The analyst(s) are employed by GriffinSecurities. Our research professionals provide important input into our investment banking and other businessselection processes. Our salespeople, traders, and other professionals may provide oral or written marketcommentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressedherein, and our proprietary trading and investing businesses may make investment decisions that are inconsistentwith the recommendations expressed herein.

Griffin Securities may from time to time perform corporate finance or other services for some companies describedherein and may occasionally possess material, nonpublic information regarding such companies. This information isnot used in preparation of the opinions and estimates herein. While the information contained in this report and theopinions contained herein are based on sources believed to be reliable, Griffin Securities has not independentlyverified the facts, assumptions and estimates contained in this report. Accordingly, no representation or warranty,express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness orcorrectness of the information and opinions contained in this report.

The information contained herein is not a complete analysis of every material fact in respect to any company, industryor security. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security inany jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on thismaterial. It is for the general information of clients of Griffin Securities. It does not take into account the particularinvestment objectives, financial situations, or needs of individual clients. Before acting on any advice orrecommendation in this material, clients should consider whether it is suitable for their particular circumstances and, ifnecessary, seek professional advice. Certain transactions - including those involving futures, options, and otherderivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for allinvestors. The material is based on information that we consider reliable, but we do not represent that it is accurate orcomplete, and it should not be relied on as such. The information contained in this report is subject to change withoutnotice and Griffin Securities assumes no responsibility to update the report. In addition, regulatory, compliance, orother reasons may prevent us from providing updates.

DISCLOSURES FOR OTHER COMPANIES MENTIONED IN THIS REPORT: To obtain applicable current

disclosures in electronic format for the subject companies in this report, please refer to SEC Edgar filings atwww.SEC.gov.In particular, for a description of risks and uncertainties related to subject companies businesses inthis report, see the Risk Factors section in the SEC filings.
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