Ophthalmology Market: Healthy Growth, But Only A Few Companies Possess Robust Drug Pipelines

Includes: AGN, INSV
by: Suresh Gupta

In 2011, the global ophthalmology therapeutics market was estimated at $10 billion, growing with the Compound Annual Growth Rate (OTCPK:CAGR) of 7.2% between 2004 and 2011. The glaucoma market was the largest segment followed by the Wet Age Macular Degeneration (Wet-AMD). These segments accounted for 36% and 32% respectively, of the global ophthalmology therapeutics market in 2011. With the expansion of the cheaper generic drugs entering the market, revenues from the proprietary glaucoma medicines are expected to erode. By 2018, the global ophthalmology market glaucoma share is expected to decline by 13 % to 23% and the wet-AMD market will increase by 5% to 37%. The decline in the glaucoma market will be offset by a healthy growth in the wet-AMD, Dry Eye Syndrome (DES) and Diabetic Macular Edema (DME).

The drug ophthalmology market is dominated by six large companies - Pfizer Inc. (NYSE:PFE), Allergan Inc. (NYSE:AGN), Alcon Inc. (NYSE:ACL), Novartis AG (NYSE:NVS), Merck & co. Inc. (NYSE:MRK) and Roche (OTCQX:RHHBY) - that cover approximately 70% of the market. The FDA website notes that only 21 ocular drugs were approved in the last 10 years with two companies - Alcon and Allergan - getting the most approvals. Alcon, the global leader in eye care, has been purchased by Novartis and was merged with the new parent company. Alcon's new product development addresses many pressing eye health needs such as cataracts, glaucoma, retinal diseases, refractive errors, ocular allergies, dry eye, infection and inflammation. Alcon is planning to spend $4 billion over the next five years for research and new product development in eye care. This represents the largest corporate commitment to R&D in the eye care industry. In the second half of January 2013 Alcon announced the launch of ILEVRO™ Suspension, a treatment for pain and inflammation associated with cataract surgery that successfully passed two clinical trials.

In addition, Alcon is licensing ocriplasmin from ThromboGenics, a Belgian bio-pharmaceutical company. Ocriplasmin is currently under the review of the European Medicines Agency (NYSEMKT:EMA) as the first pharmacological treatment for symptomatic vitreomacular adhesion (VMA), which causes impaired vision. More than 300,000 symptomatic VMA patients in Europe (the standard treatment is the surgical vitrectomy) can benefit from this new drug. In the last quarter of 2012, Alcon also acquired the ophthalmic division of SensoMotoric Instruments (SMI), a private company based in Berlin, Germany. The acquisition provides Alcon with the leading ocular surgical guidance technology that will be integrated into its existing global cataract portfolio.

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Another ophthalmological company that has deep pockets and a serious scientific ambition is Allergan. It made a $420 million contract with privately owned Swiss company Molecular Partners to jointly develop ophthalmic drugs. Allergan paid $62.5 million upfront and promised $1.4 billion dollars at later stages. Allergan has licensing rights to MPO260 treatment for wet macular degeneration and can get exclusive licensing. With commitment of $375 million to Phase IIb study of MP0112 for the treatment of retinal diseases, total investments of Allergan are $1.9 billion.

However, some smaller companies are outperforming their larger rivals. For example, the private company Glaukos was selected as a recipient of Red Herring Top 100 North America Tech Startup in 2012 - the award honoring the year's most promising private technology ventures. It is the only medical device company in North America nominated for this honor. Its micro-bypass implant for the treatment of glaucoma (called iStent) that restores the natural physiologic outflow was approved by the FDA.

Another small company InSite Vision Inc. (OTCQB:INSV) occupies alone a niche with its DuraSite delivery system that administers topical eye drugs much more efficiently: it reduces dosing to one to two applications a day instead of four to eight. InSite Vision developed its own business strategy. It utilizes ophthalmic drugs already approved by the FDA and improves them using DuraSite - a mucoadhesive technology that reduces the number of drops through more efficient delivery of the drug. This strategy helps InSite to get quicker FDA approval of its products.

The application of this strategy led to the approval of the two drugs - AzaSite and Besivance - that are based on incorporating an antibiotic for bacterial conjunctivitis in the DuraSite drug delivery system. AzaSite is a DuraSite's enhanced treatment for pink eye whose potential market is at least $45 million through 2019. Currently most of InSite's revenues are royalties for AzaSite and Besivance that reached more than $12.1 million in the third quarter of 2012 with net profit of $5.1 million.

In addition, InSite already has three products in the Phase III development that can be approved by the FDA sometime from 2014 to 2016: AzaSite Plus and DexaSite for blepharitis and BromSite for relief of pain and inflammation after cataract surgery - the most frequently performed ocular surgery in the U.S. (more than three million procedures annually). There are no approved drugs for blepharitis, so the potential market of AzaSite Plus is more than $150 million in the U.S. and $90 million in the rest of the world. Even if the primary endpoints will not be reached in the Phase III trial called DOUBle, the intermediate results would likely be positive and DOUBle's information can be used for a better design of a second trial. In this case the second trial will have high chances of success and the DOUBle will serve as a supportive trial.

BromSite uses DuraSite to deliver the non-steroidal anti-inflammatory agent bromfenac. If Phase III of the trial will be successful, an NDA for BromSite could be filed already in 2013. Both Bromsite and DexaSite have $25 to $50 million potential.

Taken together, InSite's five current products can reach $412 million of revenues in 2018. The company should receive royalties up to $54 million in 2018 with corresponding earnings per share equal to $0.10. These earnings indicate price earnings ratio of 17 to 25 times that translates into share price of $1.70 to $2.50 in 2018 in comparison with the current price of $0.31.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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