Opthotech (NASDAQ:ISEE) has had quite a run in the past two years. Shares have nearly doubled as investors have grown increasingly confident that Fovista, its treatment for wet age-related macular degeneration, can eventually reach the market.

If it does, Opthotech investors may find that the stock is significantly undervalued relative to Regeneron (NASDAQ:REGN), the maker of the highly successful wet-AMD treatment Eylea.

Source: Regeneron.

A big-time deal
Opthotech has retreated from a 20% jump in May that followed the announcement of a significant partnership deal with Novartis (NYSE:NVS).

Novartis paid Opthotech an impressive $200 million up front to partner with it on Fovista and agreed to milestone payments that could eventually total $1 billion, plus royalties on any sales.

For that much money, you'd think Novartis had locked up global rights to the drug, but it didn't. The deal only covers ex-U.S. sales of Fovista and clearly suggests that Novartis believes Opthotech has a big blockbuster on its hands.

Despite that vote of confidence, Opthotech's market cap remains just a shade over $1 billion -- about as much as Novartis may potentially pay in milestones alone.

Why Novartis wants Fovista
Wet AMD is an increasingly important market for drugmakers. Baby boomers are turning 65 at a pace of 10,000 people per day, and that will significantly increase demand for treatments targeting this age-related disease.

Source: Novartis.

AMD is the leading cause of vision loss among those over 50, and more than 15 million Americans are diagnosed with the condition. Roughly 10% of those patients have the severe form of the disease that Fovista is being developed to treat.

Treating those patients can involve laser coagulation or treatment with specially designed eye drugs such as Regeneron's Eylea and Roche and Novartis' Lucentis.

In 2013, Regeneron's Eylea sales totaled more than $1.4 billion in the U.S., and sales continued to grow in the first quarter, rising 14% year over year to $359 million.

Sales are also climbing overseas for Regeneron's partner, Bayer. International sales reached $472 million in 2013 (its first full year on the market) and totaled $218 million in the first quarter, up from $62 million the year before.

Novartis, which owns the ex-U.S. rights to Lucentis, notched nearly $2.4 billion in sales from the drug last year, and roughly three-quarters of those sales are tied to the wet-AMD indication.

Roche, which markets the drug in the U.S., also reported strong sales, totaling $500 million in the first quarter.

Rather than displace those drugs, Opthotech is pairing Fovista with them to show that using Fovista in combination with them can improve vision more than using Eylea and Lucentis alone. In phase 2 trials, combining Fovista with Lucentis improved vision by 10.6 letters on a standard eye chart, versus just 6.5 letters for Lucentis alone.

Source: Opthotech. PDGF = platelet-derived growth factor. VDGF = vascular endothelial growth factor.

Fool-worthy final thoughts
According to the National Institutes of Health, more than 8 million Americans are at risk of developing AMD and 150,000 people in the U.S. are diagnosed with wet-AMD every year.

That suggests that there's a big and growing market for new treatments, and while results from Opthotech's phase 3 trial won't be available until 2016, I'm keeping a close eye on this one, given that Regeneron's market cap is nearly 30 times larger than Opthotech, and Opthotech's market cap doesn't seem to reflect any potential revenue beyond Novartis' milestones.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.