Irvine eye drug makers Allergan Inc. and Ista Pharmaceuticals Inc. are getting some attention in the wake of some big drug industry deals.
Shares of Ista have nearly doubled in the past two months to a market value of $340 million last week.
Allergan, which is bigger and more diversified, has seen its shares rise about 5% in the same time to a market value of $23 billion.
The two companies are eye drug “survivors,” according to a recent blog on investor website Seeking Alpha.
That makes them attractive to investors looking to get into the sector as well as potential acquisition targets for big companies looking to get into or expand in eye drugs, according to the blog.
Earlier this month, New Jersey’s Merck & Co. said it was buying Raleigh, N.C.-based eye drug maker Inspire Pharmaceuticals Inc. for $430 million. Inspire has dealt with a pair of high-profile clinical trial bombs in recent years.
The Merck-Inspire deal was interesting “because it leaves so few publicly traded stocks in the eye care sector,” Seeking Alpha blogger Stephen Simpson wrote.
Investors “should at least take a look at Allergan and Ista,” he said.
Allergan Inc.
• Headquarters: Irvine<br>• Business: eye, skin drugs, medical cosmetics<br>• Projected 2011 sales: $5.2 billion, up 7%<br>• Projected 2011 profit: $1.1 billion, up 14%<br>• Market value: $23 billion<br>
Ista Pharmaceuticals Inc.
• Headquarters: Irvine<br>• Business: eye drugs<br>• Projected 2011 sales: $183 million, up 6.6%<br>• Projected 2011 profit: $5.7 billion, up 240%<br>• Market value: $340 billion
Simpson alluded to possible attractiveness to larger drug makers: “Scarcity value alone may make these names interesting to bigger companies looking to add approved products to their own portfolios.”
As a midsize drug maker, Allergan is the subject of regular takeover speculation. The company would be a pricey acquisition, even for big drug makers.
Ista, with a handful of products, would be an easier buy.
It too has been the subject of takeover rumors.
“Our name gets mentioned just about any time there’s a rumor out there about somebody being bought,” Ista Chief Executive Vince Anido said. “There’s no scarcity of rumors about who’s going to buy us next.”
When news surfaced about French drug maker Sanofi-Aventis SA’s plans to spend up to $1.3 billion to get into eye drugs, “obviously, our phones lit up because there (were) a lot of guys trying to get a handle on whether we were talking to them or not,” Anido said.
Allergan
Last summer, Allergan was the subject of takeover speculation with buzz about Sanofi going after an American company. That speculation died down when Sanofi made an ultimately successful bid to buy Cambridge, Mass.-based Genzyme Corp.
Other big companies that have been cited in connection with possible eye drug deals include Britain’s GlaxoSmithKline PLC and Abbott Laboratories, the suburban Chicago diversified drug and device maker that owns Santa Ana’s Abbott Medical Optics.
Other large diversified companies with eye businesses include New Jersey conglomerate Johnson & Johnson, New York-based Pfizer Inc. and Switzerland’s Novartis AG, which recently paid $12.9 billion for the 23% of Alcon Inc. it didn’t already own.
Allergan, whose drugs include Lumigan for glaucoma and Restasis for dry eye, gets close to half of its $5 billion yearly revenue from eye drugs.
Allergan didn’t respond to a request for comment. The maker of Botox and other drugs typically doesn’t talk in the run-up to releasing financial results. Allergan’s first-quarter results are due in early May.
“For a pure play on the (eye) drug side, Ista Pharmaceuticals is about all that’s left,” said Seeking Alpha’s Simpson, who holds shares in Ista and not Allergan.
He called Ista’s Xibrom drug to treat pain after cataract surgery “solid.” The company is moving doctors and users to a new, once-a-day version called Bromday to avoid generic competition.
Ista’s pipeline “is also attractive,” Simpson said, with potential drugs for dry eye, rhinitis and inflammation in the works.
The company—which has a goal of $500 million in revenue by 2015, up from $183 million projected for 2011—is trying to get in on the buying.
The drug maker revealed in a recent Securities and Exchange Commission filing that it bid on “a large acquisition, where we had raised quite a bit of money to support us.”
“Unfortunately, we were unsuccessful in making that acquisition,” Anido said.
Anido said he was unable to name the company because of confidentiality rules. He called it a “company of a pretty good size.”
“We’re still looking for additional acquisitions because we’re now profitable,” Anido said. “Being able to go get debt financing certainly makes it very, very attractive.”
Niche Market
Specialty eye drug makers are gaining more attention, said Frank Pinkerton, an analyst with SunTrust Robinson Humphrey who follows both Ista and Allergan.
Ophthalmology is “a true specialty field, so you can, with a limited sales force of 75 to 100 salespeople, go out and (reach) the entire prescriber base,” Pinkerton said.
He also said that because eye drugs are a niche, companies with such drugs in the “several-hundred-million-dollar” range can be profitable with a small sales force.
Pinkerton said he couldn’t answer a question about whether Ista is a takeover target. He said he thought its stock has risen because Bromday’s launch has “taken away that patent overhang” that stemmed from the original Xibrom, as well as a “pipeline that makes sense.”
