Recently, Inspire Pharmaceuticals Inc.’s (NASDAQ:ISPH) ophthalmic portfolio was boosted by the launch of Diquas (diquafosol tetrasodium), a therapy for patients with dry eyes, in Japan. The drug, a 3% ophthalmic solution, received pricing approval in Japan and was subsequently launched by partner, Santen Pharmaceutical Co. Ltd, a Japan-based pharmaceutical company. Dry eye refers to a chronic disorder accompanied by symptoms such as ocular discomfort and vision related disorders.
Inspire Pharma is eligible to receive $1.25 million from the Japanese company as a milestone payment in the fourth quarter of 2010. Moreover, Inspire Pharma will receive royalty (ranging from high single digits to low double digits) on net Japanese sales of the drug.
Even though the eye treatment was approved by the Japanese authorities in April 2010, the pricing approval clears the way for the therapy to be sold in Japan. We note that the active ingredient (diquafosol tetrasodium) in Diquas is the same as another pipeline candidate at Inspire Pharma, Prolacria. Prolacria is a dry eye treatment, which failed to meet its primary endpoint in late stage trials.
In August 2010, Inspire Pharma amended the terms of its agreement with long time partner Allergan Inc. (NYSE:AGN) for the development and marketing of Prolacria. The collaboration also involved another dry-eye treatment, Restasis (cyclosporine), and any other human ophthalmic formulation of cyclosporine.
Per the terms of the amended agreement, which extends through 2020, Inspire Pharma will continue receiving royalties on global sales of Restasis and Allergan’s any other human ophthalmic formulation of cyclosporine for the rest of 2010 at the current rate. In 2011, the royalty rate will decline by 3% and in 2013, the rate will be slashed further by 25 basis points. Finally, in 2014, the royalty rate will be cut by an additional 50 basis points and will remain at that level through December 31, 2020.
Inspire Pharma currently has a Zacks #3 Rank, which translates into a short-term Hold rating. We are also Neutral on the stock in the long term. The stance indicates that the stock is expected to perform in line with the US equity market over the next 6+ months. We advise investors to retain the stock over the time period.