The Threats And Opportunities In Dry Eye For Allergan: What Next For Restasis?

| About: Allergan plc (AGN)

Summary

Restasis is the second largest Allergan's franchise and it's likely to slow down in 2017 for the competition of Xiidra.

The institution of Mylan's IPR litigation by PTAB has increased the chances of generics competition in 2019/2020.

Despite that, Allergan's pipeline in dry eye is overlooked by the market and it could more than compensate the slowdown of Restasis.

Restasis is Allergan's second largest product, accounting for around $1.4B in sales in 2016 (~10% of sales) and still growing at a double-digit rate.

Looking into 2017, the market is concerned about the future of this key growth driver for two reasons:

  1. The competition by Xiidra, a new therapy offered by Shire.
  2. The risk of generics competition in 2019/2020 if Restasis patents will not hold against the IPR litigation.

What is Dry Eye Disease

"Dry eye appears when the eye does not produce tears properly, or when the tears are not of the adequate consistency and evaporate too quickly.

In addition, inflammation of the surface of the eye may occur along with dry eye. If left untreated, this condition can lead to pain, ulcers, or scars on the cornea, and some loss of vision. However, permanent loss of vision from dry eye is uncommon.

Dry eye can make it more difficult to perform some activities, such as using a computer or reading for an extended period of time, and it can decrease tolerance for dry environments, such as the air inside an airplane."

(Source)

Restasis vs. Xiidra

Xiidra has been the first new drug approved for dry eye in a market so far dominated by Restasis.

The early launch of this drug has been impressive, with Xiidra able to take already 50% of NRx (New Prescriptions) for a series of reasons:

  • There was a clear need for a new treatment for dry eye. Xiidra has been the first agent approved with a full label of "improving signs and symptoms of dry eye" while Restasis has been on the market only with a clear benefit for "increasing tear production".
  • Shire has pursued an aggressive advertising campaign, with a well-organized DTC campaign led by Jennifer Aniston and a 30-day free sample program to encourage patients to try Xiidra.
  • Faster onset of action is the key advantage of Xiidra vs. Restasis, because while Restasis usually requires two to four months to show efficacy, Xiidra seems to work in a few weeks, providing immediate relief to the patients.

Despite Xiidra has a better therapeutic profile than Restasis, it's worth noting that there are opportunities for both agents in the dry eye space. It's estimated there are 30 million patients in USA suffering from dry eye, but only 16 million are diagnosed and only 1 million have been treated with Restasis over time.

In addition to that, given the slow onset of action of Restasis, more than 50% of patients usually left the drug after few weeks of treatment for the lack of immediate efficacy and the burning sensation in the eye.

For these reasons, despite the excellent launch of Xiidra, Restasis is still holding well in the market with recent TRx (Total Prescriptions) showing flattish volume dynamic, because Shire (NASDAQ:SHPG) (OTCPK:SHPGF) has been focused on expanding the market, instead of fighting for switching patients from Restasis to Xiidra. In other words, the number of patients on Restasis has been stable despite increasing competition, with Xiidra's patients likely to have been ones who have failed Restasis in the past and who have been waiting for a new therapy for a while.

Thus, I think, in 2017, it's likely that Restasis will not be able to grow at a double-digit rate as in 2016, but it looks not still like a dead business.

Patent litigation

Allergan has patent protection for Restasis via six patents lasting to 2024, but these has been challenged by two ways:

  • Court litigation with bench trial set on August 29, 2017, with a likely resolution that will require at least one year.
  • IPR litigation, after the PTAB instituted Mylan's IPR against all six Restasis patent last month, with a decision expected by Q4/2017, and another year for the likely appeal.

In summary, it's likely that generics drug can be allowed to enter the market from late 2019/2020, few years before patent expiration, but, even if these patents will be invalidated, it's actually not ensured that any generic would be approved, because Restasis has a very complicated manufacturing process and FDA's guidelines for manufacturing drug in the dry eye space are challenging.

Allergan's Dry Eye Pipeline

Despite the market is not assigning any credit to Allergan's pipeline in dry eye, this is actually composed by a lot of different assets:

  • Restasis MDPF (Multi-Dose Preservative Free), a new version of Restasis where you have 60-doses in one vial. This should increase the compliance of patients and will be patent protected up to 2032. This drug has been approved in H2/2016 by FDA.
  • Oculeve that is a neurostimulator device to be used in mild to moderate patients as standalone or as a supplement to a prescription product. The product will be launched in early 2017.
  • Tavilermide, a new dry eye assets licensed by Mimetogen, for which Allergan will report Phase 3 results by end of 2016 or early 2017.
  • AGN-195263, AGN-223575, AGN-232411 and Restasis X, where there isn't sufficient information discussed by the company to assess the potential value.

Conclusion

Restasis is clearly one of the weakest franchise of Allergan looking forward and it's likely to become out of growth in 2017, but I believe it's a manageable risk for Allergan especially if its pipeline in dry eye will be successful given that the market is not assigning any value to these assets.

Disclosure: I am/we are long AGN.

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.

Additional disclosure: Additional disclosure: Not investment advice. I am not an investment adviser.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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