Regal’s King: Lessons from the Opthea Debacle and a Path Forward

The collapse of biotech firm Opthea’s clinical trial in early 2025 delivered a stark lesson for investors and fund managers alike. For Regal Partners, the Australian hedge fund giant led by co-founder Phil King, the $220 million write-off of its 30% stake in Opthea—once a high-flying ophthalmic drug developer—exposed vulnerabilities in high-risk biotech bets and underscored the need for rigorous risk management. Now, King is reflecting on the fallout, sharing hard-won insights that could reshape how investors approach volatile sectors.

The Financial Fallout

The Opthea failure triggered an immediate 52% drop in Regal Partners’ share price year-to-date, far outpacing the broader ASX 200 index’s 9% decline. By March 2025, Regal’s Funds Under Management (FUM) had fallen 8.3%, from $18.2 billion to $17.9 billion, with the Opthea write-down contributing a staggering $540 million loss. The blow was compounded by contractual obligations under Opthea’s Development Funding Agreement, which threatened to amplify losses if Regal were drawn into covering trial costs.

Leadership Accountability

Phil King, Regal’s Chief Investment Officer, took full responsibility for the misstep in a public letter to investors. He acknowledged that Regal’s overexposure to Opthea—a position grown too large through years of holding—was a critical error. “Stocks with event-driven binary outcomes will be limited to far smaller weightings in our strategies moving forward,” King stated. The admission was paired with a promise to recalibrate risk tolerance, particularly in sectors reliant on single-trial outcomes.

Lessons Learned

1. Due Diligence in Biotech: King emphasized the need to scrutinize clinical trial risks, including contractual liabilities, before backing high-stakes ventures. The Opthea case highlighted how trial failures can trigger cascading financial obligations.
2. Portfolio Diversification: Regal now prioritizes balancing volatile bets with stable assets. The firm’s long/short equity strategies, which held Opthea shares, will be reined in to avoid overexposure.
3. Contractual Clarity: DFA terms and exit clauses must be rigorously reviewed to avoid unintended liabilities. Regal’s revised approach will focus on deals with clear exit options.
4. Contingency Planning: Reserves and hedging strategies are now mandatory for high-risk investments, ensuring capital preservation even in worst-case scenarios.

Strategic Adjustments

Post-Opthea, Regal has pivoted toward defensive assets and diversified geographies. The firm’s planned Taurus Mining Finance Fund III (launching December 2025) signals a shift toward stable sectors like commodities, while its investor letters stress a renewed focus on value stocks and emerging markets. King also announced stricter governance: two new executives were added to the investment committee, and position limits were imposed to prevent overconcentration.

The Broader Implications

The Opthea collapse serves as a cautionary tale for the hedge fund industry. Regal’s experience underscores that even seasoned investors can underestimate the volatility of biotech, where clinical trial outcomes are binary and outcomes hinge on factors beyond control. For investors, the key takeaway is clear: diversification, contractual vigilance, and contingency planning are non-negotiable in high-risk arenas.

Conclusion

Phil King’s candid acknowledgment of Regal’s missteps and his subsequent reforms reflect a hard-won maturity in risk management. The Opthea debacle cost Regal over $500 million in FUM and eroded investor confidence, but it also catalyzed systemic changes. By capping exposure to “binary-outcome” bets, diversifying into stable sectors, and strengthening governance, Regal aims to rebuild resilience.

The numbers tell the story: a 57% plunge in Regal’s share price (from $4.20 to $1.80) and an $8 billion FUM decline underscore the stakes of overreach. Yet King’s strategic pivot—coupled with a renewed emphasis on long-term returns—suggests that even from failure, lessons can forge a stronger path forward. For investors, Regal’s experience is a blueprint: in volatile markets, prudence and preparedness are the ultimate safeguards.