After all, big companies like these tend to acquire small companies or outmaneuver them. But once you learn more about Ophthotech's impressive treatment for wet stage age-related macular degeneration, or wet-AMD, it becomes crystal clear why these companies are keeping a close eye on Ophthotech.
Reinvigorating a blockbuster
Market watchers are increasingly cozying up to Ophthotech's Fovista, a drug that is being developed by Ophthotech to help Novartis' blockbuster AMD drug Lucentis work better.
By all counts, Novartis' Lucentis has been a giant success. The drug, which is approved to treat eye disorders including wet-AMD and diabetic macular edema, or DME, is one of Novartis' and its partner Roche's (OTC:RHHBY) top sellers.
In the third quarter alone, Novartis reported that sales of Lucentis totaled $614 million, up 7% from a year ago, giving Lucentis a $2.4 billion annualized sales run rate. Roche, which markets Lucentis in the U.S., has also reported that sales of Lucentis in America totaled more than $1.3 billion through the first nine months of this year.
That means that Lucentis has a global annualized sales rate approaching $4 billion. However, Novartis and Roche have a problem on their hands: Lucentis is increasingly battling for market share against Regeneron and Bayer's (OTC:BAYRY) Eylea.
The FDA approved Eylea for wet-AMD in 2011 and this past July approved it as a treatment for DME. As a result, Eylea sales are increasingly eating away at Lucentis sales. In the third quarter, Eylea's worldwide revenue jumped 48% to $722 million, putting Eylea on pace to deliver annualized sales north of $2.8 billion.
Given billions of dollars in sales for these drugs is at stake, achieving an advantage could have a significant implication for these companies' profits. And that's where Ophthotech comes in.
Rather than pitting Fovista up against these drugs, Ophthotech is studying Fovista as a therapy to be used alongside them. So far, results in clinical trials of Fovista plus Lucentis have been pretty impressive.
In midstage phase 2 trials, patients dosed with both Fovista and Lucentis saw their vision improve by 10.6 letters on a standard eye chart, far better than the 6.5 letters for patients only taking Lucentis.
That outcome was good enough to prompt Novartis to pay Ophthotech $200 million up front and agree to pay Ophthotech as much as an additional $800 million in milestone payments to lock up overseas marketing rights to Fovista.
And another thing
Since Bayer markets Eylea overseas, Ophthotech's deal with Novartis may seem to be more of a direct threat to Bayer than it is to Regeneron. But since Bayer pays Regeneron a royalty based on those sales, both companies could be affected if a Fovista plus Lucentis combination gains a foothold.
Regardless, Regeneron, Bayer, and Roche are watching Ophthotech's phase 3 studies closely for another reason, too. Two of Ophthotech's phase 3 trials are evaluating Fovista alongside Lucentis, but a third trial is studying Fovista alongside Eylea.
If Fovista is as successful at improving vision when used with Eylea as its been with Lucentis, Regeneron and Roche may compete against one another to lock-up Fovista's U.S. rights. Whether Ophthotech would be willing to sell those rights is another question altogether. But, given that its $1.4 billion market cap isn't that much higher than what Novartis has already agreed to pay for ex-U.S. rights, you couldn't blame investors for considering Ophthotech in speculative portfolios.