Lucrative AMD & DME Markets Attract Wall Street’s Attention
One of the biggest success stories that we’ve seen in the history of recent drug launches was with the AMD (Age-related Macular Degeneration) treatment EYLEA (aflibercept) – the flagship product of its parent company Regeneron Pharmaceuticals (NASDAQ: REGN).
Macular degeneration is a medical condition that results in blindness or severe medical impairment, and becomes increasingly common in people as they get older. Based on US data, about 10% of adults aged 66-74 will have some degree of macular degeneration. Incidence jumps to 30% or more in patients aged 75-85. The cause has been linked to a variety of factors, although there has been limited progress on the prevention of AMD.
AMD comes in two forms: wet, and dry. The dry form is far more common, occurring in roughly 9/10 cases of AMD, and is caused by the wasting away of tissue under the retina that contains the rods and cones that capture light and create “pictures” out of it. The wet form is caused by abnormal blood vessel growth, which leads to a variety of problems that generally cause faster and more intense damage to one’s vision relative to the dry form.
Estimates suggest that there are 2 million in the United States with AMD (meaning ~200,000 with wet AMD). The incidence is expected to increase dramatically as we head towards 2020 due to the aging of the “baby boomer” generation, which will likely bring AMD incidence closer to 3-4 million.
Regeneron’s EYLEA, which was approved for wet AMD in 2011, is a protein that is injected directly into wet AMD patients’ eyes once per two months to slow the abnormal growth by inhibition of multiple forms of VEGF (vascular endothelial growth factor) in addition to PGF (placental growth factor). Since there is little that doctors can do about the existing blood vessels which are damaging wet AMD patients’ vision, the next best thing is to rapidly slow down its progression by inhibiting the physiological pathways that could trigger more blood vessel growth.
Although Wall Street knew that drug had major potential in a huge indication, it seems that the rate of EYLEA’s adoption by doctors startled some of the bears who began to short the stock in late 2012. In one of the biggest short squeezes we’ve seen recently in the biotech sector, ~1.7 million shares out of the ~5.6 million shares short REGN on November 30th 2012 closed out their position in the last five months.
Generally speaking, about $322 million worth of smart money moved away from its bet against EYLEA.
One explanation is that few believe that the drug can’t really maintain its momentum in the current indication. EYLEA generated $838 million for fiscal year 2012, and expects to generate $1.2-$1.3 billion for 2013. While top-line growth is always welcome, it will be harder for Regeneron to surprise the market to the same extent that it did in 2012.
Because of this, Regeneron is looking to expand EYLEA’s reach by developing it for the giant (and similarly-sized) Diabetic Macular Edema (DME) indication, which will require additional trials for sNDA approval.
The current heavyweight champion of DME is Lucentis (ranibizumab) – another VEGF inhibiting drug developed by Genentech, which is a subsidiary of the big pharma company Roche (RHHBY). The drug generated around $2 billion in annual revenues in 2011, and has also been approved for the wet AMD indication (which already puts it in direct competition with EYLEA). By moving into the DME indication, Regeneron is basically going on the offensive.
This doesn’t bode well for Lucentis in the DME indication, since it’s already being threatened by the equally efficacious and significantly cheaper drug Avastin, which can be used off-label for wet AMD or DME due to its well established capacity for VEGF inhibition. One it moves into the market, Lucentis could be a threat from another angle, since it can be dosed once per two months instead of once per month (as indicated on Lucentis’ label).
Although Genentech/Roche also own Avastin, the price differential will hurt top-line growth a lot if more doctors move to off-label use.
There is no shortage of investor and drug developer interest in the AMD and DME indications due to the sheer number of people who are (and will) be affected in coming years, but the VEGF inhibitor space is getting a bit crowded at this point. Additional improvements in AMD/DME treatment will have to come from a different angle.
Optina, a weak dosage of the steroid danazol, is being developed by Ampio Pharmaceuticals (NASDAQ: AMPE) for the DME indication due to promise that the reformulation has shown in previous trials. In February 2013, Ampio announced that Optina initiated Phase III trials. After some turbulence, AMPE is up nearly 32% for the year.
Since danazol is a generic compound that was approved for the treatment of endometriosis decades ago, the trial will prepare Optina for a 505(b)(2) application, which utilizes the extensive data that supports the efficacy and safety of danazol. Steroids have been utilized and studied quite extensively for off-label use in diabetic macular edema patients, but Optina’s potential approval for the specific indication could threaten the firm grasp that Lucentis and other VEGF inhibitors have.
Since the trial is not going to take a very long time, investors should expect an NDA submission later this year if the trial is successful. Ampio is a relatively cheap small pharma company with a market cap of $175 million, and has “sleeper-hit” potential with Optina. Good trial results should also result in a partnership with a larger company that could more effectively market Optina to the large target population, so expect an intense reaction from the market later this year.
Regeneron also has quite a bit of upside potential, and has completed enrollment for its Phase III trial which should result in a sNDA submission for the DME indication later on. I don’t expect EYLEA to explode in sales again, but I believe that the moderate EYLEA growth the Regeneron is pricing into its expectations for 2013 revenues is fair and could move REGN north of $200/share so long as the healthcare sector remains fairly strong.