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ISTA is a California-based company which has emerged over the past several years to become the fourth largest prescription ophthalmic (visual pathway) firm in the $5 billion U.S. market.

The company currently has three products on the market-

1) Xibrom (twice daily)- for the treatment of inflammation after cataract surgery

2) Istatol- for the treatment of glaucoma

3) Vitrase- which is used as a spreading agent.

Combined these three products accounted for $83 million in revenue in 2008 with $63 million from Xibrom, $15 million from Istatol and $5 million from Vitrase. The company is operating with significant although declining losses as the company has spent approximately $32 million on R&D in each of the past two years. It has been working on several new products in larger potential markets in the ophthalmology space.

The most likely near-term product for the company is Bepreve, which is a treatment for ocular allergies, which has already been approved in the Japanese market (licensed by Senju).

The market in the U.S. for ocular allergies is estimated to be over $600 million per year which could be a major catalyst for this $125 million market capitalization company looking forward. Bepreve has a scheduled PDUFA date in front of the FDA of 9/12/09 although they will first be meeting in front of an advisory committee on 6/26/09. Based on strong clinical results and the existence of the product in Japan without major safety issues the odds of an approval appear to be very high.

Other current products under development by ISTA include a once-daily version of Xibrom and T-Pred, which is a topical anti-inflammatory treatment ($700M market) which are both in Phase III.

The company has two products in the dry eye space ($400M+ market) under review including a lower dosage version of Xibrom and ecabet sodiun. Finally, the company has a nasal allergy product ($2B+ market) also under development.

As with all younger biotechnology and pharmaceutical companies there are significant risks inherent such as with financing (the company has $104 million in debt although half is not due for at least 3 years and the company has $52 million in cash); a history of operating losses (although losses are steadily declining) and regulatory uncertainty with the FDA.

Based on the approval of Bepreve in the fall of 2009 and potential additional approvals for the company in 2010, my models show the company with positive operating income in the late part of 2009 and positive net income in 2010. At a share price of $3.50, (an under $120 million market cap) the risk/reward for the company looks very attractive for speculative investors.

Disclosure: Author is long ISTA

Source: A Look at ISTA's Strong Pipeline