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Taking a Look at ISTA Pharmaceuticals

|Includes:Valeant Pharmaceuticals International, Inc. (VRX)

ISTA Pharmaceuticals is a rapidly growing specialty pharmaceutical company and is the fourth largest branded ophthalmic pharmaceutical business in the U.S., according to data provided by IMS Health.  ISTA currently markets four products in the United States: Bepreve®(bepotastine besilate ophthalmic solution) for the treatment of itching associated with signs and symptoms of allergic conjunctivitis, Xibrom (bromfenac ophthalmic solution)® for the treatment of inflammation and pain following cataract surgery, Istalol® (timolol maleate ophthalmic solution) for the treatment of glaucoma, and Vitrase ® (hyaluronidase injection) for use as a spreading agent. ISTA also has several allergy and eye product candidates in various stages of development. ISTA Pharmaceuticals, Inc. had 2009 revenues of $111 million and is based in Irvine, California.

ISTA Pharmaceuticals is not very well known in the investment world (they have an average 3 month daily volume of 120,000). We first noticed ISTA in 2009 – when they received approval for Bepreve. The approval of Bepreve sent the stock as high as $6, only to fall back into the $4-$5 range afterward (for a market cap of $140M-160M). So far this year, ISTA has gone as low as $2.50, and has currently rebounded to over $4.

You’re probably wondering, “After a rebound like that (from $2.50-$4.00), what could push the price higher?”

Answer: On October 16, 2010, the FDA will decide on ISTA’s sNDA for Xibrom - an sNDA is a label extension. Xibrom is currently approved for ocular inflammation and pain following cataract surgery, and brought in ~$90M in revenue last year (2009). In a recent investor presentation, ISTA stated that Xibrom can add up to $50M in net income over the next three years.

We believe that ISTA, with only 33.42M shares outstanding, is undervalued and has the potential to go significantly higher into the October 16th PDUFA date. And, if the sNDA receives approval, we believe it could bring some much deserved attention to the stock.

Disclosure: No position
Stocks: VRX