UPDATE AND BUY RECOMMENDATION

U.S. Research: Biotechnology February 15, 2011

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 ROYALTIES
THAT COULD EXCEED $800 MILLION PER YEAR. ANNOUNCEMENT UNDERSCORES POTENTIAL DISTINCTIVE
BENEFITS OF ISONEP IN WET AMD AND OTHER OPHTHALMOLOGY DISEASES. Lpath‘s anti-S1P antibody
therapeutic, 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 lesions
and RPE detachments that cause loss in visual acuity. iSONEP‘s significant non-overlapping biological
effects vis-à-vis disease standards of care Lucentis and Avastin hold promise both clinically and
commercially. It may also act synergistically with Lucentis and Avastin as a combination therapy to
address the complex processes and multiple symptoms that ultimately lead to vision loss for wet AMD
patients. Importantly, iSONEP addresses not only the leakiness like Lucentis does, but also
inflammation 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 detachment
patients; 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 FORMER
PARTNER MERCK KGAA AND DURABLE STABLE DISEASE OBSERVED IN SEVERAL LATE STAGE PATIENTS.
Lpath‘s first-in-class mAb against the bioactive lipid sphingosine-1-phosphate (S1P) has been
implicated in the progression of various types of cancer. We expect existing grants with the National
Cancer Institute and/or collaborations with Harvard Medical School and others to continue to advance
this program through Phase II trials in one or more cancer indications.
 LPATHOMAB™ - TWO POSSIBLE CLINICAL CANDIDATES IDENTIFIED AGAINST LPA, A SIGNIFICANT
CONTRIBUTOR TO NEUROPATHIC PAIN.

We are updating coverage on Lpath, Inc. (OTCBB: LPTN) with a BUY rating and a 12-month price
target of $5.00 for LPTN shares.
Share Price (2/14/11) $1.28 12-Month Price Chart
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. 2010
and expected upfront payments from Pfizer. Source: BigCharts.com

Lpath, Inc. (OTCBB: LPTN) is a biotechnology company focused on lipidomics-based therapeutics that target
bioactive signaling lipids for treating a wide range of human disease. Lpath is the only company to have developed
monoclonal 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.

CHRYSTYNA BEDRIJ MARK MERRILL KEITH MARKEY, PH.D.

212-509-9500 646-442-1441 212-514-7914
CBEDRIJ@GRIFFINSECURITIES.COM MMERRILL@GRIFFINSECURITIES.COM KMARKEY@GRIFFINSECURITIES.COM

Griffin Securities, Inc., 17 State Street, NY, NY, 10004 www.GriffinSecurities.com 1

Please Review Disclosures on Page 20 of this Research Report
Lpath, Inc. February 15, 2011

HIGHLIGHTS
 LPATH INKS EXCLUSIVE OPTION AGREEMENT WITH PFIZER FOR COMPANY‟S ISONEP OCULAR PROGRAM –
REFLECTS STRENGTH OF BIOACTIVE LIPID APPROACH AND INTELLECTUAL PROPERTY AND PROVIDES A
POTENTIALLY „GINORMOUS‟ M ARKET OPPORTUNITY. In December 2010 Lpath announced an agreement
with 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 ophthalmology
diseases. Pfizer will pay an initial upfront amount of $14 million. Pfizer will also provide future
payments that could total $497 million and double-digit royalties on product sales if the option is
exercised. We expect Pfizer to carry most of the costs associated with the planned Phase Ib and IIa
trials expected to begin later this year. Upon completion of these trials, Pfizer will have the right to
exercise its exclusive worldwide option to the program. We believe that this partnership is an
important win for Lpath as it secures both a strategic and financial partner to advance the iSONEP
ocular franchise and it further validates the bioactive lipid-targeting approach.
 ISONEP DEMONSTRATES DISTINCTIVE BENEFITS, NOTABLY A REDUCTION IN OCCULT CHOROIDAL
NEOVASCULARIZATION (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 for
wet 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 the
trial (showing an average reduction of 75% for this group of patients) is not typical of other agents and
is expected to have significant implications for the planned Phase II trial. The resolution of RPE
detachment was also remarkable in wet AMD patients in a RPE patient subgroup that showed a
complete resolution of the condition with just a single injection. From a commercial perspective,
iSONEP was providing improvement in these patient‘s eyes with non-overlapping effect vis-à-vis
VEGF inhibitors (Lucentis and Avastin, and, if approved, the VEGF-Trap) so could potentially be
utilized as a mono therapy or as a combo therapy with Lucentis. If approved, we project peak annual
sales of iSONEP exceeding $5 billion.
 ASONEP PHASE I TRIAL IN CANCER PATIENTS COMPLETE; EXPECT EXISTING 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. Results from the Phase I clinical trial
of 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 and
was well-tolerated with no significant toxicities. More than half the patients that completed the initial
four-treatment evaluation period showed stable disease with durable stable disease being observed
in several patients. The test results offer considerable flexibility with dose level in future studies
because ASONEP was well tolerated across all doses tested. The safety profile suggests ASONEP
will have no significant overlapping toxicities with other agents, so it is a potential candidate for
combination therapy regimens. A mAb against the bioactive lipid S1P has been demonstrated to
inhibit the progression of various types of cancer. For example, data from work performed by J. Mier
and R. Bhatt at Beth Israel Medical Center and presented in April 2009 showed that ASONEP
administered as a single agent delayed the progression of renal cell carcinoma (RCC) by
approximately 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 expect
existing 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 option
agreement for iSONEP, Pfizer gained a time-limited (through most of 2013) first right of refusal on the
ASONEP program.
 LPTN SHARES UNDERVALUED; WE REITERATE OUR BUY RATING AND $5.00 12-MONTH PRICE TARGET
FOR LPTN SHARES. Estimated cash & equivalents of $8.0 million, including $4.9 million raised in
November 2010, plus the upfront payment of $14 million from the Pfizer option agreement and
approximately $4 million from remaining grants, provides strategic support for planned 2011 clinical
trials 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 target
price of $5.00 per share.
GRIFFIN SECURITIES EQUITY RESEARCH 2
Lpath, Inc. February 15, 2011

CONTENTS
PRIMARY PRODUCT DEVELOPMENT PROGRAMS ................................................................................ 4
KEY EVENTS AND MILESTONES .............................................................................................................. 4
ABOUT ISONEP™ ....................................................................................................................................... 5
PHASE I STUDY OVERVIEW .......................................................................................................................... 6
ABOUT ASONEP™ ...................................................................................................................................... 8
PHASE I STUDY OVERVIEW ........................................................................................................................ 10
ABOUT LPATHOMAB™ ............................................................................................................................ 11
LPA IN HEALTH & DISEASE....................................................................................................................... 11
LPATH‟S DRUG DISCOVERY OVERVIEW: IMMUNEY2™ ..................................................................... 13
INVESTMENT CONCERNS AND RISKS .................................................................................................. 14
FINANCIAL ANALYSIS & VALUATION .................................................................................................... 15
REVENUE MODEL...................................................................................................................................... 15
INCOME STATEMENT ................................................................................................................................. 17
HISTORICAL BALANCE SHEET ................................................................................................................... 18
DISCOUNTED CASH FLOW (DCF) MODEL................................................................................................... 19
DISCLOSURES .......................................................................................................................................... 20

GRIFFIN SECURITIES EQUITY RESEARCH 3

Lpath, Inc. February 15, 2011

PRIMARY PRODUCT DEVELOPMENT PROGRAMS

PRODUCT DESCRIPTION INDICATION STATUS
iSONEP mAb against S1P, a validated angiogenic AMD Phase 2a wet AMD clinical trial
growth factor & contributor to inflammation expected to begin in Q2 2011.
and fibrosis
RPE Detachment Phase 1b/2a PED clinical trial
expected to begin in Q1 2011.
Other retinal diseases Demonstrated in vivo mechanisms
that contribute to progression of
diabetic retinopathy and wet AMD.

ASONEP mAb against S1P, a validated angiogenic
factor and validated mediator of lymphocyte
trafficking
Cancer - various tumor types Phase 1 completed, and preparing for
Phase 2.
Multiple sclerosis ("MS") Demonstrated in vivo efficacy in
validated models of MS.

Lpathomab mAb against LPA, a tumorigenic and
metastatic agent and a validated contributor
to neuropathic pain; in addition, the mAb
was shown to inhibit fibrosis in a bleomycin
model of pulmonary fibrosis
Cancer Antibody humanization completed for 2
Neuropathic pain lead antibodies. Clinical candidate
Fibrosis selection in process. Phase 1 clinical
Fibrotic ocular diseases trial targeted to begin in 2012.

Source: Lpath, Inc. S-1/A filed 12/21/2010

KEY EVENTS AND MILESTONES

 1Q 2011 – Dose the first patient in the iSONEP Phase Ib clinical trial (PEDigree) in wet age-related
macular degeneration (AMD) patients with Retinal Pigment Epithelial detachment.

 2Q 2011 – Dose the first patient in the iSONEP Phase IIa clinical trial (Nexus) in wet age-related
macular degeneration (AMD) patients, possibly with occult disease.

 3Q 2011 – Final patient enrolled in the iSONEP Phase Ib clinical trial in wet age-related macular
degeneration (AMD) patients with Retinal Pigment Epithelial detachment.

 3Q 2011 – Partner Lpathomab.

 4Q 2011 – Preliminary results from the iSONEP Phase Ib clinical trial in wet age-related macular
degeneration (AMD) patients with Retinal Pigment Epithelial detachment.

 4Q 2011 – Form a collaboration for the ImmuneY2™ platform technology.

 1Q 2012 – Initiate clinical trial of ASONEP in renal cell carcinoma (RCC).

 1Q 2012 – Initiate clinical trial of ASONEP in neuroblastoma.

 1Q 2012 – Announce a preclinical candidate for Lpathomab.

 2Q 2012 – Final patient enrolled in the iSONEP Phase IIa clinical trial in wet age-related macular
degeneration (AMD) patients.

 4Q 2012 – Preliminary results from the ASONEP renal cell carcinoma (RCC) clinical trial.

 1Q 2013 – Pfizer decision to opt in to the iSONEP program.

GRIFFIN SECURITIES EQUITY RESEARCH 4

Lpath, Inc. February 15, 2011

ABOUT ISONEP™
Sonepcizumab is a monoclonal antibody (mAb) that targets the bioactive lipid, sphingosine-1-phosphate
(S1P). iSONEP, the ocular formulation of sonepcizumab, has demonstrated several important
mechanisms of action that suggest its usefulness in treating eye diseases; notably, the inhibition of
angiogenesis, 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 of
ocular maladies.
S1P modulates the AMD-associated processes of angiogenesis, inflammation and fibrosis. A potential
strategy for treating choroidal neovascularization associated with AMD is to reduce the biologically
available extracellular levels of S1P. iSONEP is highly selective for S1P and binds with much higher
affinity than S1P binds to its receptors, and so, iSONEP prevents S1P from signaling cells through S1P
receptors. 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 survival
factors thus targeting the multiple maladaptive processes of exudative AMD that ultimately result in the
loss of photoreceptors, their supporting cells, and visual acuity. Simultaneously targeting multiple
components of the choroidal neovascular response is a novel approach and has the potential to be more
1
potent than "single-targeted" therapeutics such as anti-VEGF therapies.

Wet AMD: Neovascular or exudative AMD, the ―wet‖ form of advanced AMD, causes vision loss due to
the development of ―lesions‖ created by abnormal blood vessel growth (choroidal neovascularization) in
the choriocapillaris, through Bruch's membrane, ultimately leading to blood and protein leakage in the
region of the macula. The leakage creates cysts of retinal edema, which can cause the retina to swell and
thicken, resulting in loss of vision and visual distortions. A key component of the retina is the retinal
pigment epithelium (RPE), a layer of cells responsible for transporting oxygen and sugars to the retina
and removing waste products from the retina. One may hypothesize that the RPE layer could be the
source of dysregulated (i.e., too much) S1P, VEGF and other factors that stimulate the choroidal vascular
endothelia cells (the cells that make new blood vessels of the lesion) to proliferate and form the wet-AMD
lesion. 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.

The macular region of the retina (front of the eye is towards the top of each image)
Cartoon representation Healthy subject Wet-AMD patient

Basement
Membrane

Source: Lpath, Inc.

Bleeding, leaking, and scarring from these blood vessels eventually causes irreversible damage to the
photoreceptors and rapid vision loss if left untreated. AMD is a leading cause of blindness in adults over
55 years of age. An estimated 15 million people in the United States have age-related macular
degeneration (AMD), with more than 3.0 million experiencing the active blood vessel growth and blood
vessel 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

GRIFFIN SECURITIES EQUITY RESEARCH 5

Lpath, Inc. February 15, 2011

PHASE I STUDY 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 levels
ranging from 0.2 mg to 1.8 mg per intravitreal injection (compares with the 1.25mg that is used
pervasively with Avastin treatments). No drug-related serious adverse events were reported in any of the
patients. 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 that
was considered by experienced ophthalmologists to be ―large,‖ four experienced a reduction exceeding
5mm and three experienced a reduction of greater than 75% — all with a single dose of iSONEP. This
type of clinical benefit is not typical with other treatments, as the published data suggest that, even with
repeated Lucentis dosing, the total physical size of CNV lesion remains unchanged.
Another distinctive benefit was the resolution of retinal pigment epithelium (RPE) detachment (called
PED), a potentially serious condition that is often a part of the pathology of wet AMD. Of two patients that
were diagnosed with PED in the Phase 1 trial, both experienced complete or near-complete resolution of
the condition — again, with only a single dose of iSONEP. Currently, there is no drug approved for this
condition.
A key observation from the Phase I trial was that of the five patients that showed the strongest biological
effect, 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 occult
disease. In other words, all of the patients with a component of occult CNV exhibited a strong positive
biological effect during the 30-45 days following a single injection of iSONEP. This correlation has
significant implications for the Company‘s Phase II study design.
One subject (Subject 2) experienced 100% lesion regression and a resolution of RPE detachment. A
second subject (Subject 9) experienced an almost complete resolution in RPE detachment. A third
subject (Subject 15) experienced 100% lesion regression, notable because the patient had previously not
responded to 16 previous Avastin, Lucentis, PDT laser, and dexamethasone treatments. It should be
noted 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 the
MARINA 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 in
iSONEP‘s Phase I trial). Importantly, from a potential commercial perspective, iSONEP was providing
improvement in these patient‘s eyes with non-overlapping effect with the VEGF inhibitors (Lucentis and
Avastin, and, if approved, the VEGF-Trap). In addition, iSONEP was well tolerated at all dose levels
tested and no drug-related serious adverse events were reported.
The fact that these biological effects appear to be non-overlapping vis-à-vis those of the predominant
market leaders, Lucentis and Avastin may be significant. Wet AMD is characterized by the pathologic
disruption of the retina, which is caused collectively by (i) new-blood-vessel growth in the choroid layer
under the retina, (ii) sub-retinal fibrosis, (iii) general inflammation in the retinal area, and (iv) edema
caused 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 blood
vessels, and appear to exert most of their beneficial effect via an anti-permeability action that results in
resolution 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-vessel
growth 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 that
may offer significant advantages over exclusively anti-VEGF approaches. It may also act synergistically
with them as a combination therapy to address the complex processes and multiple steps that ultimately
lead to vision loss for wet AMD patients.

GRIFFIN SECURITIES EQUITY RESEARCH 6

 Lpath, Inc. February 15, 2011

The Retinal Pigment Epithelium (RPE) Layer: The RPE is a layer of cells responsible for regulating the
transmission of oxygen, sugars, other nutrients, and waste to and from the retina. The images below
illustrate the difference between a detached and a healthy RPE layer:
A Comparison between a Detached and a Healthy Retinal Pigment Epithelium (RPE) Layer

Detached RPE
Healthy RPE
Source: Eye 2009

Previous studies with iSONEP have yielded supporting data to suggest that iSONEP was capable of
preventing CNV lesion formation.
120

Mean CNV Lesion Volume

100

80
(µm 3)
60

40
*
20
*#
0

Saline iSONEPm iSONEP

Values = mean SEM,

*p<0.0005 vs. saline
Control
Control S1P Ab TM
Sphingomab #p<0.05 vs. LT1002

Representative images of CNV lesions 28 days after laser-induced rupture of

Bruch‘s membrane with immunohistochemical staining of the vasculature
using R. communis agglutinin 1 and lesion volume in iSONEP treated retinal
injury versus saline. Source: Lpath, Inc.

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 and
Avastin (and soon-to-be-available treatments with similar mechanisms of action like Regeneron
Pharmaceuticals, Inc.‟s (NasdaqGS: REGN) VEGF-Trap). The loss of visual acuity associated
with AMD is caused by a combination of all the factors mentioned above, yet Lucentis, Avastin, and
the VEGF-Trap apparently fail to address inflammation and sub-retinal fibrosis. Thus, iSONEP may
improve vision on a more-consistent basis across the patient population and may treat the multiple
mechanisms that cause exudative-AMD-related vision loss. Such an agent might act as a
monotherapy or an adjunct therapy to an anti-VEGF agent.
ii. iSONEP may be able to inhibit the vascular and extravascular components of ischemic
retinopathies such as diabetic retinopathy and the dry form of AMD, both of which represent
significant unmet medical needs.
iii. iSONEP might be efficacious in treating fibrotic-related disorders of the eye, including proliferative
retinopathy, post glaucoma filtration surgery (trabeculectomy or valve implantation), and various
anterior-segment diseases.

GRIFFIN SECURITIES EQUITY RESEARCH 7

Lpath, Inc. February 15, 2011

ABOUT ASONEP™
Lpath‘s product candidate ASONEP (the systemic formulation of sonepcizumab) is an antibody that binds
the bioactive lipid sphingosine-1-phosphate (S1P) and thus has promise as a therapy for cancer, multiple
sclerosis, and other diseases.
S1P and Cancer
Multiple studies have demonstrated that cancer cells have abnormal
levels of sphingolipids and related enzymes involved in the
10
biosynthetic pathway, resulting in conditions that favor cell survival.
Certain tumors such as colorectal, breast, uterine, and kidney cancer, express abnormally high
sphingosine kinase-1 activity (this kinase responsible for making S1P, which resists cell death and
promotes neovascularization). In cancer, the sphingolipid rheostat makes S1P which favors cancer cell
survival, thereby helping malignant cells resist the effects of radiation and chemotherapy and promotes
tumor angiogensis (blood vessel formation to feed the growing tumor). Below is an image of one
proposed mechanism of action that proposes that low oxygen environment (hypoxia) and reactive oxygen
species (ROS) of tumors stimulates the activation of sphingosine kinase (Sphk1) which, in turn, activates
Hypoxia Inducible Factor (HIF). HIF then turns on genes which promote tumor angiogenesis and promote
metastases:
Regulation of HIF-1α 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 novo synthesis of ceramide; among these are
daunorubicin, irinotecan, etoposide, and gemcitabine. In addition, ionizing radiation causes ceramide
levels to increase by activating acid sphingomyelinase. This enzyme is also implicated in mediating the
apoptotic effects of UVA-light and TNFα. Although different mechanisms are involved, all of these
interventions shift the sphingolipid balance toward ceramide-induced apoptosis. Lpath‘s ASONEP, on the
other hand, shifts this balance in favor of ceramide by neutralizing the S1P, the major sphingolipid that
antagonizes ceramide-induce apoptosis.
The rationale behind the development of ASONEP as an oncotherapy is based partly on the antibody‘s
ability to reduce free S1P levels and thereby create conditions that favor apoptosis. This approach makes
sense, since erythrocytes and platelets release the sphingolipid to help control thymocyte and lymphocyte
2
tissue distribution. As 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.

GRIFFIN SECURITIES EQUITY RESEARCH 8

Lpath, Inc. February 15, 2011

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 drug‘s efficacy as a single agent against different xenograft models lays the groundwork for its use as
a standalone therapy. Its dual mechanism of action, tilting the ―sphingolipid rheostat‖ toward apoptosis
and inhibiting blood vessel formation, render it a suitable candidate for further studies against solid
tumors. 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 in
renal cell carcinoma (RCC) (kidney cancer) patients, one potential target for ASONEP, compared to
healthy 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 in
th
April at the 100 Annual 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 with
human RCC cells. The murine for of ASONEP substantial and significantly retarded disease progression
compared to Sunitinib (Sutent®).
These initial results were comparable to the standard of care for the treatment of RCC, VEGF receptor
tyrosine 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 unique
mechanisms of action. Indeed, ASONEP may well act synergistically with established anticancer
medicines by rendering the malignant cells susceptible to chemotherapy by shifting the ―sphingolipid
rheostat‖ toward apoptosis. Lowering S1P levels or increasing ceramide concentrations in prostate
cancer cells increases their sensitivity to radiation and to the chemotherapeutic agents docetaxel and
3,4
camptothecin. Similar results have been obtained when human lung cancer cells were treated with
cisplatin, carboplatin, and doxorubicin, a drug related to Merck-Serono‘s UFT® (an oral formulation of 5-
5
fluorouracil) .

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. Mol
Cell 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-dependent
manner. Mol Cancer Res 2005; 3(5): 287.

GRIFFIN SECURITIES EQUITY RESEARCH 9

Lpath, Inc. February 15, 2011

PHASE I STUDY 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 more
doses per patient; three patients per cohort.
Primary Endpoint: To determine safety, tolerability, maximum tolerated dose and dose-limiting toxicity of
ASONEP.
Positive results from the Phase I clinical trial of ASONEP in cancer patients were presented at the
American Society of Clinical Oncology (ASCO) 2010 Annual Meeting. The drug was administered to 28
patients (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 with
other agents, so it may be a potential candidate for combination therapy regimens. Additionally, twelve
patients (approximately 57%) had stable disease beyond two months, including three patients for over six
months and one for over 30 months. The patient with stable disease for over 30 months has carcinoid
cancer and has been treated with 3 mg/kg of ASONEP weekly. In order to be ―evaluable‖, the patient had
to stay on the drug for at least four treatments with the option to remain on the drug until the cancer
progressed. After receiving about 110 treatments of ASONEP, the patient is still on the drug with no
disease 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 compares
the ASONEP Phase I trial with Avastin‘s initial Phase I trial:
ASONEP™ Phase I Trial Compared to Avastin® Phase I Trial

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 4 doses only - Days 0, 28, 35 and 42 only Continuous dosing - Days 1, 15, 22 and 29 in Cycle 1,
administration then, if stable, weekly
Number of patients 25 21 evaluable
Tumor types Sarcoma (8), Renal cell (7), Breast (5), Ovarian (4), Breast (2), Renal (4), Colon (3)
Lung (2), Other (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); No hypertension
Hemorrhage (5 – severe in 2) No significant hemorrhage
Infusion-related reactions not reported, but are known Infusion-related reactions at 24 mg/kg dose level only
to occur in about 2% of Avastin-treated patients
Total serum ligand/free Dose-related increases in VEGF Dose-related increases in S1P
serum ligand No free VEGF detectable in patients treated with 0.3
mg/kg

Objective Response None None

(partial or complete)
Stable disease
Source: Lpath, Inc.
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)

Though the sample sizes were relatively small, ASONEP had fewer significant adverse events than
Avastin 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 Institute
and/or collaborations with Harvard Medical School to continue to advance this program in one or more
cancer indications. As part of the option agreement for iSONEP, Pfizer gained a time-limited first right of
refusal on the ASONEP program.

GRIFFIN SECURITIES EQUITY RESEARCH 10

Lpath, Inc. February 15, 2011

ABOUT LPATHOMAB™
Lpathomab, Lpath‘s 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. Lpath
has 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) for
Lpathomab in 2012.

LPA IN HEALTH & DISEASE

Like S1P, LPA is synthesized and released by platelets into the serum to help regulate several cellular
processes including platelet aggregation, cytoskeleton remodeling, and cell proliferation, survival and
migration. It also shares the anti-apoptotic properties of S1P. Two principle enzymes contribute to its
6,7
production, as shown below:

Biosynthetic pathways of
lysophosphatidic acid (LPA). Two
types of enzymes have been
identified in the phospholipid‘s
synthesis: phospholipase A
(PLA1 and sPLA2, or secretory
phospholipase A2), and ATX/
lysoPLD, which is known as both
autotaxin and phospholipase D.40

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 that
synthesizes the phospholipid extracellularly after its substrates are released from activated platelets (in
response to injury, inflammation, or atherosclerosis), adipocytes, and many different cancer cells. This
enzyme is essential for blood vessel formation during embryogenesis and it appears to play a part in the
8,9
development of obesity-associated diabetes. The 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 adipocyte
lysophospholipase D/atotaxin expression. Diabetologia 2005; 48: 569.

GRIFFIN SECURITIES EQUITY RESEARCH 11

Lpath, Inc. February 15, 2011

enzymes have not been fully defined, though at least some of the forms are involved in prostaglandin
10
synthesis in various cells, including lung fibroblasts. They also appear to participate in such pathological
11,12,13.14
conditions as psoriasis and cancers of the testis, skin, and ovaries.
LPA exerts its influence through the activation of G-protein coupled receptors (GPCRs) that belong to one
of two families. One group, comprised of the LPA1, LPA2, and LPA3 receptors, has 50%-57% homologous
amino 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 several
different G proteins. The six receptors differ in the levels of their expression and the tissues in which they
are 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), and
it allows LPA to influence some processes in the same cell via different pathways (e.g., anti-
15,16
apoptosis).
Given the general cellular functions that LPA influences and the variety of receptors, it is not surprising
that it has a wide range of activity. For instance, this bioactive lipid plays a role during conception by
affecting implantation of the fertilized egg and subsequently directs the differentiation of certain neural
stem cells into oligodendrocytes. (These cells become the insulation that is required for proper signal
17,18
transduction along nerve fibers via a process called myelination.) LPA also facilitates wound healing
through its effects on fibroblasts, endothelial cells, and smooth muscle cells. This activity is not limited to
the 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 local
19
myofibroblast formation, which leads to the deposition of extracellular matrix and tissue remodeling.
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-β
20,21
(TGF-β) induced differentiation of fibroblasts into myofibroblasts. . (TGF-β is considered the most
important signal involved in fibrosis.)
LPA has also been implicated in various pathological conditions, notably various cancers in which the
malignant cells express aberrant levels of LPA and/or its receptors. This bioactive lipid is found at
elevated levels in ovary, kidney, breast, and brain cancers. Moreover, expression of its receptors appears
22,23
to follow a pattern in various cancers, including ovarian colorectal, prostate, and breast. In 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 Asζ in mouse lung fibroblasts. J Biol
Chem 2007; 282(16): 11676.
11
Foell, JL, et al. Membrane-associated phopholipase A1 beta (LIPI) is an Ewing tumour-assoicated cancer/testis antigen. Pediatr
Blood 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 psoriatic
skin. 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 prostaglandin
synthesis. 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 in
rates 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 Ophthalmol
Vis 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 Mol
Physiol 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 Ophthalmol
Vis 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 Res
2004; 6: R640.

GRIFFIN SECURITIES EQUITY RESEARCH 12

Lpath, Inc. February 15, 2011

24 25
tumor growth directly by boosting synthesis of the interleukins 6 and 8, as well as cyclin D1, a member
of a family of three proteins that regulate the cell cycle. The bioactive lipid also promotes tumor growth
26
indirectly via stimulation of VEGF production and therefore blood vessel formation. Importantly, LPA
might also be an improved diagnostic marker vis-à-vis CA-125, which is an already approved biomarker
27
for the diagnosis of eptithial ovarian cancer compared to CA-125. Further studies on the association
between initial plasma LPA values and treatment outcomes and survival are needed to evaluate that
issue. 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 initiate
28
a key characteristic of the disease, aberrant nerve demyelination. And it plays a role in the deposition of
abnormal fibrotic tissue in such tissues/organs as the kidneys, liver, lungs, and skin.

LPATH‟S DRUG DISCOVERY OVERVIEW: IMMUNEY2™

Lpath‘s ImmuneY2 technology, which consists of a series of proprietary processes, is a drug-discovery
engine that provides Lpath the capability of generating a pipeline of novel mAb-based drug candidates
against bioactive lipid targets in the emerging lipidomics field. This powerful platform involves (i) a unique
methodology of presenting the selected lipid target to the mouse immune system to elicit antibodies
against 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 performance
characteristics 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, Lpath‘s first mAb, sonepcizumab, binds sphingosine-1-phosphate, a validated lipid target for
multiple diseases, including cancer, AMD, various other ocular disorders, and certain inflammatory,
autoimmune, cardiovascular, and fibrotic diseases. The next mAb created, Lpathomab, targets
lysophosphatidic 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 mAbs
against as-yet undisclosed lipid targets that should provide an ever-growing pipeline of novel, mAb-based
29
drug candidates.

24
Fang, 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. J
Natl 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 Lpath‘s ImmuneY2™ Process‖, July 17, 2006.

GRIFFIN SECURITIES EQUITY RESEARCH 13

Lpath, Inc. February 15, 2011

INVESTMENT CONCERNS AND RISKS

For a complete description of risks and uncertainties related to Lpath, Inc.‟s business, see the
“Risk Factors” section in Lpath‟s SEC filings, which can be accessed directly from the SEC Edgar
filings at www.sec.gov. Potential risks include:

 Stock risk and market risk: There is a limited trading market for the Company‘s 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 one‘s ability to buy or sell the Company‘s common stock at a
desired price. Investors should also consider technical risks common to many small-cap or micro-cap
stock investments, such as small float, risk of dilution, dependence upon key personnel, and the
strength of competitors that may be larger and better capitalized.
 New and rapidly changing field: The pharmaceutical and biotechnological markets are rapidly
evolving, and research and development are expected to continue at an accelerated pace with
increased frequency. Other companies are also actively engaged in the development of therapies to
directly or indirectly treat those disorders being pursued by Lpath. These companies may have
substantially greater research and development capabilities, as well as significantly greater
marketing, financial, and human resources abilities than Lpath.
 Products still in development phases: Although the Company intends to continue with clinical
development of ASONEP for cancer, iSONEP for wet age-related macular degeneration, and other
pipeline candidates in various indications, the successful development of the Company‘s product
candidates is uncertain. Product development costs and timelines can vary significantly for each
product candidate and are difficult to accurately predict. Products in development that appear to be
promising may not reach commercialization for various reasons, including failure to achieve
regulatory approvals, safety concerns, and/or the inability to be manufactured at a reasonable cost. In
addition, partners such as Pfizer may or may not option the Company‘s clinical development
programs, including ASONEP, which could affect the Company‘s developmental capabilities.
 Funding requirements: It is difficult to predict the Company‘s future capital requirements. The
Company may need additional financing to continue funding the research and development of its
products and to expand its business. There is no guarantee that it can secure the desired future
capital 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 seeking
approval and the subsequent compliance with applicable statutes and regulations require the
expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory
approvals could materially adversely affect Lpath‘s business. There is no guarantee that Lpath‘s
products will be approved by the U.S. Food and Drug Administration (FDA) or international regulatory
bodies for marketing in the U.S. or abroad.
 The Company may need to raise additional capital, which may not be available on terms
acceptable to them, if at all: As the Company continues to expand its research and development
and sales and marketing activities, they may need to raise additional capital, which may not be
available on terms acceptable to them, if at all. If the Company cannot raise necessary additional
capital on acceptable terms, they may not be able to increase sales, develop or enhance their
products and services, take advantage of future opportunities, or respond to competitive pressures or
unanticipated requirements, any of which could cause their business to suffer.
 Competitive risk: The biotechnology industry is extremely competitive, mainly due to its large market
potential. Many companies are developing products for the same therapeutic indications targeted by
Lpath. These companies may have substantially more resources than Lpath, which could adversely
affect the Company‘s position in the market place.

GRIFFIN SECURITIES EQUITY RESEARCH 14

Lpath, Inc. February 15, 2011

FINANCIAL ANALYSIS & VALUATION

REVENUE MODEL
Our revenue model includes iSONEP for wet age-related macular degeneration (AMD) and ASONEP for
renal 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 these
opportunities add significant upside potential to our estimates.

Pursuant to the collaboration with Pfizer, we assume that Lpath will receive (i) an average annual royalty
of 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 and
milestones totaling $400 million for each product candidate.

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%

Assumptions:
 The patient population in 2011 consists of an estimated 3.0 million patients, a number that is
increasing faster than the U.S. population due to the aging Baby Boom generation. We estimate the
patient 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 have
untreatable disease and patients refractory to iSONEP.
 The initial penetration rate is 5% due to the application of iSONEP in first-line patients in combination
with Lucentis/Avastin.
 The peak penetration rate is 40%, reflecting a good level of efficacy, particularly with respect to
today‘s medications.
 Lpath‘s licensing deal for iSONEP with Pfizer grants marketing rights in the ophthalmology sector in
exchange 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 trial
successfully with strong data and signed a partnership option with Pfizer to move the program
forward into two Phase II trials. There is potential to get FDA approval with two Phase II trials in a
mutually exclusive patient population.

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Lpath, Inc. February 15, 2011

ASONEP™: Renal Cell Carcinoma - U.S.

Year penetration starts 2017 Incidence 49,096
Starting penetration rate 5% Percent addressable 30%
Years between penetration start and peak 4 Market growth rate 2%
Peak penetration 20% Price per patient $50,000
Duration of peak penetration in years 4 Treatment price growth 1%
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
Starting penetration rate 5% Percent addressable 30%
Years between penetration start and peak 4 Market growth rate 2%
Peak penetration 15% Price per patient $40,000
Duration of peak penetration in years 4 Treatment price growth 0%
Retention rate in decline years 90% Royalty rate 10%
Stage of development Phase I Probability of commercialization 15%

Assumptions:
 The National Cancer Institute (NCI) estimates that there will be approximately 49,096 patients
diagnosed with renal cell carcinoma in the United States in 2009, and the International Agency for
Research of Cancer (IARC) estimates that there will be approximately 139,871 patients diagnosed in
30,31
foreign developed countries of the world.
 Only 30% of the patient population is eligible for ASONEP therapy, since about 60% are diagnosed
with Stage I or Stage II disease and are treated surgically. A proportion of the remainder is probably
ineligible 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 new
therapies into the market.
 The price of therapy is $50,000 per patient per year in the United States, which is comparable to
other monoclonal antibody-based anticancer drugs (e.g. Genentech‟s Avastin).
 The price of the drug is lower in foreign countries than in the United States, primarily because of
differences in pricing policies.
 We‘ve assumed that the royalty rate averages 10% over the span a licensing agreement with a
pharmaceutical partner.

30
National 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.

GRIFFIN SECURITIES EQUITY RESEARCH 16

Lpath, Inc. February 15, 2011

INCOME STATEMENT
$ 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

Assumptions:
 Pursuant to the licensing agreement with Pfizer for iSONEP, Lpath receives a $14 million milestone
payment 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 believe
Lpath 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 to
increase following 2012 as clinical trials advance for iSONEP and other pipeline candidates are
developed. 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 net
operating loss carryforwards will minimize Lpath‘s cash obligations according to our calculations.)
 Equity financings and grants of stock options increase the number of fully diluted shares outstanding.

GRIFFIN SECURITIES EQUITY RESEARCH 17

Lpath, Inc. February 15, 2011

HISTORICAL BALANCE SHEET

$ in thousands 9/30/2010
ASSETS
Current Assets
Cash & equivalents (1) $ 3,114
Accounts Receivable 271
Inventory -
Other 90
Total Current Assets $ 3,474

Property & equipment $ 137

Intangible assets 1,269
Other 36
Total Assets $ 4,916

LIABILITIES
Current Liabilities
Accounts payable $ 442
Debt due 3
Other 1,147
Total Current Liabilities $ 1,591

Long-term debt $ -
Other (2) 4,300
Total Long-Term Liabilities $ 4,300

Shareholders Equity
Common Stock, par value $ 53
Additional Paid-In Capital 35,027
Accumulated Deficit (36,056)
Treasury Stock -
Total Shareholders Equity $ (975)

Total liabilities & equity $ 4,916

Notes:
(1) Cash & equivalents excludes approximately $4.9 million raised in
November 2010.
(2) Other long-term liabilities include $4.4 million in warrants reclassified
from equity starting January 1, 2009 pursuant to EITF 07-5. The warrant
liability should not be subject to any future cash payments for settlement.

GRIFFIN SECURITIES EQUITY RESEARCH 18

Lpath, Inc. February 15, 2011

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

Discounted PV of Terminal Value at a

Cash Flows Perpetual growth rate of rFCF Enterprise Value
Discount Rate (2008 - 2023) 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

Total Equity Value Value per Diluted Share

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

Terminal Value as % Enterprise Value Implied EBITDA Multiple

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

GRIFFIN SECURITIES EQUITY RESEARCH 19

Lpath, Inc. February 15, 2011

DISCLOSURES
ANALYST(s) CERTIFICATION: The analyst(s) responsible for covering the securities in this report certify that the
views expressed in this research report accurately reflect their personal views about Lpath, Inc. (the ―Company‖) and
its securities. The analyst(s) responsible for covering the securities in this report certify that no part of their
compensation was, is, or will be directly or indirectly related to the specific recommendation or view contained in this
research report.

MEANINGS OF RATINGS: Our rating system is based upon 12 to 36 month price targets. BUY describes stocks
that we expect to appreciate by more than 20%. HOLD describes stocks that we expect to change plus or minus
20%. SELL describes stocks that we expect to decline by more than 20%. SC describes stocks that Griffin Securities
has Suspended Coverage of this Company and price target, if any, for this stock, because it does not currently have
a sufficient basis for determining a rating or target and/or Griffin Securities is redirecting its research resources. The
previous 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 it
covers, HOLD ratings on 3.4%, and SELL ratings on 0.0%. Griffin Securities has provided investment banking
services for 17% of companies in which it has had BUY ratings in the past 12 months and 0% for companies in which
it 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 other
Company mentioned in the report.

COMPENSATION OR SECURITIES OWNERSHIP: The analyst(s) responsible for covering the securities in this
report receive compensation based upon, among other factors, the overall profitability of Griffin Securities, including
profits derived from investment banking revenue. The analyst(s) that prepared the research report did not receive any
compensation from the Company or any other companies mentioned in this report in connection with the preparation
of this report. The analysts responsible for covering the securities in this report currently do not own common stock in
the Company, but in the future may from time to time engage in transactions with respect to the Company or other
companies mentioned in the report. However, a member of an analyst‘s household holds warrants to purchase
shares of the Company common stock and an account in which a member of an analyst‘s household has a financial
interest holds warrants to purchase shares of the Company common stock. Griffin Securities from time to time in the
future may request expenses to be paid for copying, printing, mailing and distribution of the report by the Company
and other companies mentioned in this report. Griffin Securities has received compensation from the Company in the
past 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 three
months.
PRICE CHART

BUY

BUY

BUY

Source: BigCharts.com

8/31/2007 – Initiating Coverage: share price: $1.75; rating: BUY; 12-month price target: $6.00. 10/29/08 – Updating
Coverage: 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.

GRIFFIN SECURITIES EQUITY RESEARCH 20

Lpath, Inc. February 15, 2011

FORWARD-LOOKING STATEMENTS: This Report contains forward-looking statements, which involve risks and
uncertainties. Actual results may differ significantly from such forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in the ―Risk Factors‖ section in the SEC filings
available 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 Griffin
Securities. Our research professionals provide important input into our investment banking and other business
selection processes. Our salespeople, traders, and other professionals may provide oral or written market
commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed
herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent
with the recommendations expressed herein.

Griffin Securities may from time to time perform corporate finance or other services for some companies described
herein and may occasionally possess material, nonpublic information regarding such companies. This information is
not used in preparation of the opinions and estimates herein. While the information contained in this report and the
opinions contained herein are based on sources believed to be reliable, Griffin Securities has not independently
verified 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 or
correctness 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, industry
or security. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in
any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this
material. It is for the general information of clients of Griffin Securities. It does not take into account the particular
investment objectives, financial situations, or needs of individual clients. Before acting on any advice or
recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if
necessary, seek professional advice. Certain transactions - including those involving futures, options, and other
derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all
investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or
complete, and it should not be relied on as such. The information contained in this report is subject to change without
notice and Griffin Securities assumes no responsibility to update the report. In addition, regulatory, compliance, or
other 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 at
www.SEC.gov. In particular, for a description of risks and uncertainties related to subject companies‘ businesses in
this report, see the ―Risk Factors‖ section in the SEC filings.

GRIFFIN SECURITIES EQUITY RESEARCH 21