3 Things To Know Ahead Of Aerie Pharmaceuticals' Q4 Report

| About: Aerie Pharmaceuticals, (AERI)

Summary

Aerie has two late-stage glaucoma drugs coming that could revolutionize the $5.6 billion market.

Company already announced NDA resubmission for lead drug so no likely new info in the Q4 report.

Secondary drug finishing up late-stage trials that might provide more info in the report -- but probably not.

Both drugs look likely to receive FDA approval so investors in holding pattern until drugs hit market next year.

Aerie Pharmaceuticals (NASDAQ: AERI) will report fourth quarter and full-year earnings after the market closes on Tuesday. The company has two drugs, both yet to reach market and both for the treatment of degenerative eye disease glaucoma. Reuters pegged the glaucoma market size at $5.6 billion in 2015 with growth likely in the future due to population aging. But the uniquely varied mechanisms of action in Aerie's drugs could make this company the king of the glaucoma market.

Aerie only has late-stage development products so a deep dive into the financials isn't necessary here. You simply watch the earnings report, and more importantly the earnings call transcript that will appear here on Seeking Alpha, for more updates on each drug's progress through the trials and regulatory process.

What should you know ahead of Aerie Pharmaceuticals' fourth quarter report?

Glaucoma Overview

Glaucoma is an eye disease that occurs when the bundle of optic nerves at the back of the eye, which connect the retina to the brain, become damaged for some reason. The most common form of glaucoma is open angle glaucoma, which occurs due to an increase of intraocular pressure or IOP.

Your eye constantly produces and drains a watery mixture of amino acids and electrolytes that's collectively called the aqueous humor. A healthy eye has a balanced level of aqueous humor production and drainage, which keeps the IOP within the healthy range of about 12 to 22 millimeters of mercury (mm Hg.) But problems within the eye can lead to rising IOP that will put increasing amounts of pressure on the optic nerve. High pressure can start to cause irreparable damage to the nerve, which will cause sight loss starting with peripheral vision then moving in towards the central vision.

There are four known ways that drugs can target high IOP and lower it to reduce the risk of further optic nerve damage:

  1. Reduce amount of aqueous humor being produced in the eye
  2. Improve the main drainage route for the aqueous humor
  3. Improve the secondary drainage route for the aqueous humor
  4. Reduce a correlated type of pressure that will in turn improve drainage

You can check out my more extensive glaucoma market summary for a more detailed explanation, but that list gives you the gist. The current available drugs/ophthalmic solutions include beta-blockers and prostaglandins with the latter serving as the most popular type of glaucoma treatment in the U.S. market. New drugs in trial testing are typically compared to the beta-blocker timolol and/or the prostaglandin latanoprost.

The current drugs can prove quite effective particularly the prostaglandins and the fixed combo therapies that combine the mechanisms of actions of multiple drugs. But Aerie's drugs are going to change the glaucoma game.

Aerie's Lead Drug: Rhopressa

Rhopressa belongs to a newer drug class called Rho kinase inhibitors, or ROCK inhibitors. The company's secondary drug, Roclatan, simply puts Rhopressa into a fixed combo therapy with good old prostaglandin latanoprost. More on Roclatan in a minute.

Rhopressa is notable because the drug utilizes three of the four known mechanisms for lowering IOP. The only one the drug doesn't hit is the increased drainage through the secondary route.

Rhopressa is set to become Aerie's first drug to market though that potential launch was pushed back by a regulatory snafu. Aerie had previously filed a New Drug Application with the Food and Drug Administration back in October but had to pull the filing when the manufacturing facility wasn't ready for the FDA's pre-approval inspection. Investors received a pre-earnings update on Wednesday when Aerie announced that the company had resubmitted the NDA for Rhopressa. Assuming the standard year it usually takes the FDA to complete the review process, the company expects Rhopressa to hit market in the second quarter of 2018.

The NDA filing was packaged with the results of two Phase III trials: Rocket 2 as the pivotal trial and Rocket 1 as supportive. Rocket 3 and Rocket 4 trials are underway but are safety trials necessary for Canadian and European approval, respectively, and won't factor into the FDA's decision.

Rhopressa has had some drug trial snafus. In a Phase IIb trial, the higher dose of Rhopressa included underperformed comparison drug latanoprost at lowering IOP. Latanoprost beat by 1 mm Hg reductions. But the Rhopressa underperformance was only found in patients with IOP above 26 mm Hg.

The Rocket 1 trial started off with a similar problematic comparison to twice daily dosages of timolol where the once daily dosage of the newer drug again showed noninferiority only in patients with IOP lower than 26 mm Hg. The finding caused Aerie to ask the FDA for permission to shift the IOP range of participants in Rocket 2. The company was allowed to move the primary endpoint IOP range down from 20 mm Hg - 27 mm Hg to 20 mm Hg - 25 mm Hg. Rhopressa was able to meet the noninferiority criteria with this lowered range.

The lower IOP range might cause some later stage glaucoma patients to stick with the currently available treatments. But timolol as a beta-blocker also has a wider range of potential systemic side effects including respiratory and heart issues that might make that drug class contraindicated in some elderly patients. The worst Rhopressa side effect was eye redness. Rhopressa could also work well for the newly diagnosed who still have relatively low IOP levels.

Secondary Drug: Roclatan

Roclatan combines Rhopressa with a prostaglandin to scoop up that last treatment mechanism, which means that Roclatan would become the first glaucoma treatment to work on all four mechanisms.

A Phase IIb study compared Roclatan's combo therapy to each of its component parts and the combo drug blew the others out of the water. On day 29, half of the patients taking the 0.02% dose of Roclatan had an IOP reduction >= 35% while only 28% of latanoprost patients and 17% of Rhopressa patients had similar results.

Roclatan is currently involved in three Phase III trials. Mercury 1 is a 1-year safety study that has already had its 3-month interim efficacy report back in September. The report showed that Roclatan again bested its component parts across all nine measured time points for patients with IOP levels ranging between 20 mm Hg and 36 mm Hg.

Mercury 2 is a 3-month efficacy study that completed enrollment in December so the readout should be just around the corner. The trial is again comparing Roclatan to its component parts in patients between 20 mm Hg and 36 mm HG.

If Mercury 1 and 2 prove successful, Aerie hopes to file the NDA for Roclatan in late 2017, which would put the fixed combo drug on schedule for launch as early as late 2018.

Mercury 3, which is required for European registration, is a 6-month safety and efficacy combination study. But these results aren't needed for the NDA submission.

Final Thoughts

Aerie's drugs stand ready to transform the glaucoma market. Rhopressa looks likely to receive approval and hit market next year. Roclatan has only shown positive trial data and if that trend holds the fixed combo drug should follow its older brother to market about six months later.

What does this all mean for the fourth quarter report? This quarter, and the ones that follow, will simply give the company chances to issue any trial updates and for investors to patiently wait for this all to play out.

Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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