Source: Flickr user Ali T.

Ophthotech Corporation (NASDAQ:OPHT) is developing a new drug that may improve results for Novartis (NYSE:NVS) and Regeneron's (NASDAQ:REGN) top-selling vision loss therapies. If Ophthotech's late-stage trials pan out, Ophthotech could have a billion-dollar blockbuster drug on its hands.

First, a bit of background
The drug Ophthotech is developing is Fovista, a possible treatment for wet-stage, age-related macular degeneration -- one of the most common forms of vision loss among aging Americans. As a result, demand for therapies that address this condition should climb as baby boomers age.

Currently, doctors treat wet-AMD by prescribing Roche's Avastin, Novartis' Lucentis, or Regeneron's Eylea. According to Ophthotech, roughly 60%, or $3.6 billion, of the $6 billion wet-AMD market is being captured by Avastin. The remaining $2.4 billion goes to either Lucentis, which is marketed by Novartis overseas and Roche in the U.S., or Eylea, which is marketed by Bayer overseas and Regeneron in America. Across all of their approved indications, including wet-AMD, global sales of Lucentis are tracking at roughly $4 billion per year, while global sales of Eylea are running at a $2.8 billion annualized pace.

Source: Ophthotech Corporation.

Making a difference
The ability to improve the efficacy of Avastin, Lucentis, and Eylea could prove particularly profit-friendly to Ophthotech because Ophthotech is being studied for use alongside these top-selling drugs, rather than instead of them.

So far, Fovista's results have been encouraging. During phase 2b trials, patients taking Fovista and Lucentis saw their vision improve by 10.6 letters on a standard eye chart. That was much better than the 6.5 letter improvement for patients who only took Lucentis. Importantly, there were no surprises in Fovista's safety profile, either. That study may suggest that other phase 3 trials evaluating Fovista alongside Avastin and Eylea could produce similarly strong results.

Source: Ophthotech Corporation.

Thanks to Fovista's strong phase 2 results, last year, Novartis agreed to pay Ophthotech $200 million upfront and up to an additional $800 million in milestone payments, as well as future royalties on any sales, to acquire the license to Fovista for sale outside the United States. According to Ophthotech's presentation at the JP Morgan Healthcare Conference in January, $130 million of these milestones are tied to phase 3 enrollments, including a $50 million payment Novartis paid Ophthotech in the fourth quarter. During the conference, Ophthotech also reported that its royalty rate on any future ex-U.S. sales will be in the mid 30% range, which is quite healthy when compared to the mid-teens royalty rates commonly inked by Ophthotech's small-cap biotech peers.

Looking ahead
Investors won't learn whether or not Fovista has succeeded in its phase 3 trials until 2016, but in the meantime, there's likely to be a fair amount of other information for investors to digest. Ophthotech plans to launch a series of expansion studies for Fovista to evaluate its potential, including a study that will determine whether combining Fovista and Lucentis in single dose, rather than as two separate doses, could make the drug regimen more convenient for patients. Ophthotech also plans to study whether or not Fovista, as an adjunct therapy, can extend how long patients benefit from these other drugs, and whether or not Fovista treatment can help people who have previously failed to regain vision after receiving these other medications.

If those trials succeed, Fovista could end up expanding the overall wet-AMD market, giving it an additional opportunity to achieve billion-dollar blockbuster status.