Warburg Pincus: A Potential Private Equity Vision Care Powerhouse

Includes: INSV, ISPH, VRX
by: Mike Havrilla

Warburg Pincus has been active in vision care stocks recently, as Bausch & Lomb (BOL) recently asked its shareholders to back a $3.7 billion buyout by the private equity firm. Also, Warburg took a 25% stake in mid-July in Inspire Pharma (NASDAQ:ISPH), investing a total of $75 million at $5.35 per share into the company as it prepares for an August 13 domestic sales launch of the antibiotic eye drop AzaSite.

AzaSite is licensed from InSite Vision (ISV) and is based on the company's DuraSite topical drug delivery technology, which greatly reduces the frequency and number of eye drops required to clear up infections compared to existing products in a $362 million single-entity ocular anti-infective US market. Since Warburg obviously likes the marketing potential for AzaSite based on the Inspire investment, the next step would be to acquire the entire AzaSite franchise of products along with InSite's proprietary DuraSite drug delivery platform at current low valuations before AzaSite sales begin to ramp-up and cause the value of both InSite and Inspire to increase from currently depressed levels.

Warburg should strongly consider taking the entire group (BOL, ISPH, and ISV) of companies private, creating a vision care powerhouse that would provide a wide range of products and services, ranging from contact lenses to cataract surgery devices to OTC eye/ear drops to prescription eye/ear drops; while allowing Warburg to streamline operations and cut overhead costs and achieve global marketing reach via Bausch & Lomb.

The AzaSite franchise of products at InSite Vision includes one approved product ready to hit the markets on Monday 13-August(AzaSite), as well as the following in development: AzaSite Xtra (higher concentration of azithromycin versus AzaSite), AzaSite Plus (antibiotic/steroid eye drop - to compete with Tobradex), and AzaSite Otic (antibiotic/steroid ear drop - to compete with Floxin Otic). This group of products could easily exceed worldwide sales of over $500 million based on competing products and the advantages in their formulation which increases patient compliance by decreasing the number of doses required to clear up infections, especially since many of their patients will be children with pink eye and ear infections, although there is a much wider potential market for these products beyond that demographic.