Allergan, Inc. (NYSE:AGN) has a potential sleeper hit on its hands with Ozurdex that is expected to be approved in mid-2014 for the treatment of diabetic macular edema (DME), a condition that distorts acute vision.
Laser retinal photocoagulation was considered the standard of care for treating DME for many years and is still used often. Many ophthalmologists often use anti-VEGF (vascular endothelial growth factor) drugs to treat DME, such as products from Novartis, Genentech (Lucentis) and Regeneron (Eylea). Eylea is commonly used anti-VEGF off-label treatment for DME.
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Meanwhile, Genentech's anti-VEGF Avastin, despite not being approved for any ophthalmic indications, dominates the DME market owing to its low out-of-pocket cost and broad managed care coverage. Genentech seems not interested in applying for approval to market Avastin as a DME treatment
BMO Capital Markets analyst David Maris estimate current market shares for IVT-treated DME patients are Avastin 70 percent, Lucentis 20 percent and Eylea 10 percent.
Allergan's Ozurdex, a biodegradable intravitreal (IVT) implant, delivers a steroid (dexamethasone) to the back of the eye, which treats inflammation and swelling. It is already approved in the US for macular edema related to retinal vein occlusion (RVO) as well as posterior uveitis.
Maris noted that about 500,000 patients in the US require treatment for DME. Allergan plans to market Ozurdex to DME patients who are not responsive to anti-VEGF drugs, which the company and other sources suggest could be approximately 35-40 percent of the DME patient population.
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Allergan acknowledges that patients already improving though anti-VEGF treatments are not likely to switch drugs but asserts there is a "huge unmet need" of patients unresponsive to anti-VEGF therapies.
Ozurdex has several advantages over other therapies, including longer duration, lower price, and greater effectiveness in treating inflammation.
Maris believes this combination of advantages will likely drive uptake when approved. Data shows that Ozurdex injections can be successful as far as six months apart, a much longer duration than Lucentis, Avastin, or Eylea, which are typically monthly or bimonthly injections.
DME is a condition that affects many diabetics early on, and that means duration is very important as these patients may receive treatments for many years. Allergan expects Ozurdex to be approved with six-month duration on the labeling.
In addition, treatment with Ozurdex is cheaper than branded anti-VEGFs Eylea and Lucentis. Allergan sells Ozurdex for approximately $1,300 per implant, and the trial data showed an average of 1.5 treatments per eye per year, totaling approximately $1,950 a year.
Ozurdex's $1,950 price per year is a significant discount to two of its anti-VEGF competitors, Lucentis and Eylea. Lucentis can cost as much as $24,000 a year (or $2,000 a dose administered monthly), and Eylea can cost approximately $16,000 a year, or about $1,850 a dose. It's also noteworthy to remember DME is typically bilateral, so usually both eyes require treatment.
Maris says it seems that Ozurdex's lower out-of-pocket cost has encouraged uptake in Europe, and the expectation is it will do the same when marketed for DME in the US as DME is more prevalent than RVO or uveitis.
However, Ozurdex does have potential downsides that may limit uptake, including relatively less impressive improvement in eyesight when compared to successful anti-VEGF treatments and the development of cataracts in Ozurdex patients, which is to be expected whenever a steroid is injected into the eye.
Maris views that cataract surgery is common, and this side effect will actually deter very few patients. Fortunately, the data presented at AAO show the gains in visual acuity from Ozurdex are not lost and are regained once the cataract is removed.
On the positive side, it will be several years before Ozurdex will face competition from treatments going through the approval process that aren't already competing with it off-label. Bayer and Regeneron filed for approval from the FDA for Eylea for DME in December. As Eylea is an anti-VEGF treatment, it is more likely to take share from Lucentis than Ozurdex.
Maris estimates that Ozurdex could emerge to be a $200 million - $300 million product by 2020 in the US alone. According to IMS Health data, sales of Ozurdex totaled $8 million in the third quarter of 2012, and at the average sequential growth rate of 8.5 percent, are expected to top $30 million in fiscal 2013.
If Ozurdex DME reaches Maris' US upside case, it could add about 20 cents to BMO's already much higher than consensus 2017 EPS view of $7.58 (consensus is $7.04).
As such, Allergan has a potential sleeper hit on its hands with Ozurdex for DME. While reaching $230 million in US sales would take some time, Ozurdex is a technology that will see less competition. While being the go-to second-line treatment for DME does not translate to being a blockbuster product, it can still be a great place to be.
Moreover, 2014 presents Allergan with the opportunity to get its pipeline, and regain investor trust after a year of setbacks that surely dampened investor appeal.
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