pSivida Corporation: Strong Takeover Target, October 17th PDUFA Date Make It A Buy

| About: pSivida Corp. (PSDV)

Investing in stocks with reasonable valuations, strong management teams and with solid business models always makes sense, but if you want to put some extraordinary potential in your portfolio, it's worthwhile to consider companies that could be takeover targets.

I have extensively researched this biotech company and I feel it fits the criteria for a takeover, and is therefore more likely to be looked at as a buyout target. This company has been considered to be a buyout target by multiple sources or analysts in the past. This is a solid company that appears undervalued and will rise over the next few months whether or not they are acquired due to some big catalysts. My last takeover candidate was Trius Therapeutics (TSRX). Back in February, I stated that Cubist Pharmaceuticals (CBST) would buy them out, and I had a pps target on Trius of $13.00. Cubist bought out Trius at $13.50 on August 31st. Here is the link to that article. My next buyout candidate is:

pSivida Corporation

pSivida (NASDAQ:PSDV) is a leading provider of miniaturized, sustained-release drug delivery products, and is continuing the evolution of these systems. The company has developed three of only four products approved by either the U.S. or EU for long-term, sustained-release delivery of medication to treat chronic eye disease.

The Iluvien intravitreal insert to treat Chronic diabetic macular edema (DME), made by pSivida, is a tiny cylindrical polyimide tube. The device is a mere 3.5mm in length, 0.37mm in diameter, and contains 180 μg of fluocinolone acetonide. It is one quarter the size of a grain of rice, and is designed to provide a low daily dose of Fluocinolone, a non-proprietary corticosteroid with a history of treating ocular disease. Iluvien is inserted into the patient's eye using a proprietary inserter with a 25 gauge needle, which allows for a self-sealing wound. Iluvien is inserted into the back of the eye, in the vitreous humor, to take advantage of the eye's natural fluid dynamics for delivery of the drug to the retina. A single Iluvien insert is designed to provide sustained therapy for 24 to 36 months.

Iluvien compared to a grain of rice

Insertion into the Vitreous Humor

Iluvien for DME has received marketing authorization (approval) in the U.K., Austria, France, Germany, Portugal, and Spain with an approval in Italy anticipated in the coming months. Revenue from the six European countries will start to roll in the remainder of 2013.

Here is a breakdown of the potential revenue for Iluvien.

Approximately 10% of diabetics will develop Diabetic Macular Edema. The proposed price for Iluvien in Europe will be somewhere between $5,500 to $8,800. For the purpose of this article I will use the average, which is $7150.


Has approximately 400,000 diabetics

400,000 * 0.10 = 40,000 potential patients

40,000 * $7150 = $286,000,000 sales


Has approximately 900,000 diabetics

900,000 * 0.10 = 90,000 potential patients

90,000 * $7150 = $643,500,000 sales


Has approximately 3,945,753 diabetics

3,945,753 * 0.10 = 394,575 potential patients

394,575 * $7150 = $2,821,211,250 sales


Has approximately 3,635,946 diabetics

3,635,946 * 0.10 = 363,594 potential patients

363,594 * $7150 = $2,599,697,100 sales


Has approximately 7,372,226 diabetics

7,372,226 * 0.10 = 737,222 potential patients

737,222 * $7150 = $5,271,137,300 sales

United Kingdom (I will use a cost of $5500 for the U.K. since it is most likely to be lower in the U.K.):

Has approximately 3,636,375 diabetics

3,636,375 * 0.10 = 363,637 potential patients

363,637 * $5500 = $2,000,003,500 sales

Approximately 10% of diabetics will develop Diabetic Macular Edema. The proposed price for Iluvien in Europe is between $5,500 and $8,800. For the purposes of this article I will use the average, which is $7150.

Using these conservative estimates, the potential revenue possibilities are enormous. pSivida fully diluted share count is 23,297,011. At today's price per share value of $4.78, it would have a market capitalization of around $110 million. If the company produces even 15% of the above projected revenues, this would equate to $2.1 billion. This is excluding the U.S. market, which I feel will be a slam dunk approval later this year.

Alimera Sciences (NASDAQ:ALIM) shares the revenue with pSivida Corporation, in which 80% goes to ALIM and 20% goes to pSivida. Therefore, based on the above projections, presuming that pSivida will get 315 million in revenue, the share price target of pSivida should be way north of $15.00. pSivida is definitely under the radar at the moment, with a ridiculous valuation ( approx. 110 million market cap), but will definitely be gaining steam as it marches towards its Prescription Drug User Fee Act (PDUFA) hearing in October. pSivida's PDUFA has a targeted date of October 17, 2013. (10 days from now) This will be its third try at approval in the United States, which should be successful with the new indication of Chronic Diabetic Macular Edema. Adding Chronic to DME, and further clinical data is the key to success. Approval will add a significant amount of revenue, which was not included in the above calculations. pSivida will also received a $25 million milestone payment from Alimera upon approval of Iluvien.

The following is a question and answer session with pSivida's CEO Dr. Paul Ashton, questioned by the great SA biotech analyst Scott Matusow:

Do you feel your company has what it takes to eventually market your top line products on your own, is that your ultimate goal; using royalty revenue to eventually attempt to become a top line company?

We have the best technology and we are fortunate in that we are going after a new area (diseases of the back of the eye) where none of the big guys has a dominant position in the market. Also the back of the eye space can be addressed with a small sales force, there are only 1,500 retina specialists in the US. However this space now has the attention of a lot of the big players - Merck (NYSE:MRK), Roche (OTCQX:RHHBY), Glaxo Smith Kline (NYSE:GSK), etc. - and there is a lot of consolidation, so I'd imagine that we'd likely be acquired before we get there. We are not planning this, but it seems to be the way things sometimes work.

pSivida as a Takeover Target

The lack of ample eye care investment options is definitely a problem in biotech. There are simply not any options to invest in back of the eye disease devices. Therefore, making it a very valuable biotech, which deserves a high valuation based on this. pSivida is a huge takeover target for big pharma who want to dominate the ocular market. Pfizer (NYSE: PFE) and Bausch & Lomb come to mind, as Pfizer owns over 10% of pSivida already, and pSivida is licensing Vitrasert and Durasert to Bausch & Lomb. It would be in both companies interest to buyout pSivida to dominate the ocular market.

I am also 95% sure that Iluvien will be successful in its PDUFA on October 17th, bringing Iluvien to market in the United States.

Disclosure: I am long PSDV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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