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Venture capitalists are eager to fund new biotechs, especially companies developing treatments for age-related macular degeneration
and glaucoma, or drug delivery approaches that reduce the health
care burden.
Although VCs have invested heavily in the sector, exits are still
mostly an event of the future.
On the pharma side, venture capitalists have hedged the development risk, showing a preference for funding companies specializing
in in-licensing rather than discovery.
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OPHTHALMOLOGY
On the pharmaceutical side, for instance, the increasing regulatory
and do it with less money in the hopes of enticing a pharma or
and commercial risks of me-too products are shifting drug compamed-tech company into an acquisition. And the ability of Genennies away from their therapeutic standbysnotably cardiovascutech Inc.s (part of Roche) anti-vascular endothelial growth factor
lar medicines, proton pump inhibitors, and antidepressantsto
inhibitor (VEGF) ranibizumab (Lucentis) to rapidly displace pegapmore specialist markets. Cancer and large molecule platforms
tanib (Macugen) as the therapy of choice for the wet version of
remain the hottest areas for big pharma, but even dermatology
AMD, a progressive disease characterized by uncontrolled growth
long considered a therapeutic backwater, is commanding interof blood vessels in the eyes macula, illustrates another important
est. Witness Glaxos February purchase of the dermatology player
point: clinical efficacy is king. If ophthalmologists find something
Stiefel Laboratories Inc. for $2.9 billion.
better, their adoption wont be a ripple moving across the contiOphthalmology is no exception. Like dermatology, ophthalmology
nent, but a simultaneous wave, says Paul Chaney, formerly COO
offers a diversity of products ranging from consumer-based over-theof Macugen developer Eyetech Pharmaceuticals Inc. and currently
counter treatments to physician-prescribed medicines; in the past, this
CEO of the newly created PanOptica Inc. For pharmaceutical-fovariety of product types would almost certainly have been viewed as
cused start-ups looking to stay ahead of the curve, thats meant a
a disadvantage. In todays environment, where companies believe size
greater focus on in-licensing molecules, especially compounds that
and an industrial focus can only help weather the uncertainties of drug
hit de-risked targets originally developed for other indications like
development, thats no longer the case. (See Why Doesnt Pharma Get
oncology or hypertension.
Smaller, IN VIVO, June 2009 and Pfizer/Wyeth: Industrializing Pharma,
Anecdotally, most investors think ophthalmology will remain
IN VIVO, February 2009.) Moreover, if companies were previously put
a desirable place to invest for some time to come, especially if
off by the number of disparateand differently treatedeye diseases
recent M&A activity continues. Drug delivery options that obviate
warranting attention, theyve recognized the inherent advantages of
the need for patient-unfriendly eye injections and messy topical
marketing products to an audience that is both technically savvy and
applications continue to command significant attention from VCs.
So, too, do novel therapeutics for wet
and dry AMD and glaucoma. Drugs for
these diseases are on everyones wish
Exhibit 1
list, says Chaney. But as competition in
The Industrys Most Active Ophthalmology Investors
those particular eye diseases increases,
entrepreneurs will look for areas where
VENTURE CAPITAL FIRM
PRIVATE OPHTHALMOLOGY INVESTMENTS
the reimbursement hurdles are easier,
including uveitis and dry eye.
Versant Ventures
SV Life Sciences
InterWest Partners
Domain Ventures
De Novo Ventures
Alloy Ventures
Essex Woodlands
DAG Ventures
RETHINKING OPHTHALMOLOGY
In the past, one of the knocks [against
ophthalmology] had been that there
werent acquirers, notes Charles Warden,
managing director of Versant Ventures, by
far the most active VC in the space, with
investments in 15 different eye-focused
start-ups. Indeed, mention eye disease and
the first names that come to mind arent
the big device or drug makers but the specialty outfits: Allergan Inc., Alcon, Bausch
& Lomb, and the Japanese pharma Santen
Pharmaceutical Co. Ltd. While these
companies certainly proved their willingness to spend over the yearsin the past
decade, for instance, Alcon has inked
more than 20 deals and Allergan nearly a
dozen not including its 2002 spin-out of
AMOtheir smaller market caps have by
necessity also led to smaller deal values.
If the murmurings bubbling up from
business development heads at big pharmaceutical and med-tech firms are any
guide, the landscape of potential ophthalmology acquirers is likely to undergo
significant changes in the coming years.
OPHTHALMOLOGY
made the decision to become a bigger player in ophthalmology
easily reached with small numbers of sales repsthere are just 1,000
after Christopher Viehbacher took the reins as the drug companys
general ophthalmologists and another 1,000 retinal specialists in the
leader. Sanofi looked at dozens of companies, including many
US, for instance.
developing anti-VEGFs like Lucentis,
Theres also less pushback on the payor
he says. Now Fovea will become the
front because of the high unmet medical need
drug makers ophthalmic business unit,
associated with diseases such as glaucoma,
and the team, including Foveas scienAMD, and uveitis. Its an unmanaged area
tific founder, the renowned ophthalif you look at the per member, per month
mologist Jos Sahel, will evaluate all
spend, says Vlad Hogenhuis,MD, SVP and
ongoing and future eye-related drug
general manager of Merck & Co. Inc.s Neudevelopment. That means the Fovea
roscience and Ophthalmology franchise.
personnel could be tapped to oversee
But by far the biggest reason driving wouldthe gene-therapy-based ophthalmology
be acquirers into the space is the lucrative
programs Sanofi in-licensed earlier this
profits brought in by anti-vascular endothelial
year from Oxford BioMedica PLC.
growth factor inhibitors such as Genentechs
James Mazzo,
Meantime, Merck, which develLucentis, which in 2008 pulled in sales totaling
Abbott Medical Optics
oped timolol (Timoptic), the first
$875 million in the US alone. At one time we
modern glaucoma medicine to lower
had to educate all the [Big Pharma] players that
elevated intraocular pressure, will
wet AMD was a multi-billion opportunity, says
continue to look for innovative prodDavid Guyer, MD, the co-founder and former
ucts that leverage this core strength,
CEO of Eyetech and now a partner with SV.
according to Hogenhuis. In April, the company inked a deal with
Its a little easier now because the market sizes are appreciated.
Santen Pharmaceutical, gaining exclusive marketing rights in
various areas of the world, including North and South America,
WHOS BUYING
for the Japanese pharmas preservative-free prostaglandin analog
Among the big drug makers, Merck, Pfizer, Novartisand now
tafluprost (branded as Taflotan, Tapros, and Saflutan). Merck is also
Sanofihave internal capabilities that make them potential acquirlikely to try and leverage the technology from its RNAi subsidiary,
ers. According to Bernard Gilly, Foveas president and CEO, Sanofi
Exhibit 2
16
400
14
350
300
Number of deals (Dx/Device)
Number of deals (Rx)
Total VC funding raised
10
250
200
150
100
50
0
1999
2000
2001
2002
2003
2004
Year
www.ElsevierBI.com
2005
2006
2007
2008
2009
Number of Deals
12
OPHTHALMOLOGY
Sirna Therapeutics Inc., especially in AMD and glaucoma, but
Hogenhuis insists thats a longer-term objective as the division
continues to optimize delivery to the eye and improve both the
specificity and half-life of its RNA therapies.
Like Merck, Pfizer has in the past been active in ophthalmology, attempting to build off the success of its blockbuster prostaglandin analog latanoprost (Xalatan), which was acquired through
its 2002 acquisition of Pharmacia Corp. That same year, the New
York-based behemoth inked one of the first big money deals in the
AMD space, agreeing to commercialize Eyetechs Macugen in a transaction worth $100 million up front.
The advent of the vastly better therapy Lucentis cut short the commercial
lifespan of Macugen and seems to have
colored Pfizers efforts in the therapeutic space. Unconvinced by the therapeutic potential of NicOx SAs phase
II experimental glaucoma therapy, for
instance, Pfizer returned all rights
to the drug to the French biotech in
early August. Instead, the drug maker
Vlad Hogenhuis,
has shifted its focus to smaller, more
Merck
R&D-centered deals that allow access
to innovation for little money, such
as a stem-cell related deal with University College Londons Institute of Ophthalmology to develop
therapies for wet and dry AMD and a $3 million investment in the
Series A of EyeCyte Inc.
Novartis, meanwhile, appears to be making bets primarily by
leveraging the ophthalmology expertise of specialty player Alcon.
In 2008, Novartis plunked down $11 billion for a 25% stake in
Alcon, and has rights to purchase additional shares of the unit
at a preset price in 2010. In terms of novel therapies, the Swiss
pharma, which helped launch QLT Inc.s photodynamic therapy
verteporfin (Visudyne) back in 2000 and licensed ex-US rights
three years later to Lucentis, is actively developing a wet AMD
antibody targeting Il-1 beta, as well as a rho kinase inhibitor for
glaucoma. But if Novartis has bet big on Alcon, its hard to know
if it has the interestor the financial wherewithalto seek out
additional eye-related business development deals. A very expensive put option could force the pharma to spend another $28
billion to purchase another 52% of Alcon. Thus, having spent so
much money on the Alcon stake, it seems unlikely Novartis will
seek out additional eye-related business development dealsat
least for the near term.
AstraZeneca is also tied into Alcon. Never a big ophthalmology player, AZ signed a very interesting deal with Alcon earlier
this summer, providing the specialty eye company access to early
stage compounds that mightbased on preclinical datahave
some utility treating various eye diseases. The joint partnership
has Alcon doing the basic R&D but if compounds look promising,
there is the opportunity for AstraZeneca to claw back certain assets
and in-license others on a case-by-case basis. Ophthalmology is a
potentially interesting long term opportunity. We had to decide do
we build the capabilities ourselves or look for a partner, says Kris
Matykiewicz, VP of marketing for AZs new opportunities group.
Ophthalmology
is an unmanaged
area if you look at
the per member,
per month spend.
OPHTHALMOLOGY
Exhibit 3
ACQUIRER
ANALYSIS
Fovea (2009)
Sanofi-Aventis
Sanofi opts into ophthalmology with the $538 million acquisition of Fovea in October 2009. The French pharma pays
an undisclosed up-front plus clinical-based earn-outs, providing financial incentives for Foveas management team to
remain post-acquisition. The biotech, which has three clinical assets (all in-licensed) including a Phase II topical medicine for allergic conjunctivitis, will operate as a stand-alone unit within Sanofi, responsible for the larger companys
ophthalmic drug development.
ESBATech (2009)
Alcon
ESBATechs decision to refocus its large molecule platform on ophthalmic targets pays off big. Alcon acquires in September for $150 million upfront, plus another $439 million in earn-outs tied to the achievement of R&D milestones. As
part of the deal, Alcon gets all technologies and IP related to ophthalmic conditions. ESBATechs remaining platforms
will be spun off into a new company, Delenex Therapeutics, with backing from existing shareholders, including SV Life
Sciences, Clarus Ventures, and HBM BioVentures.
Visiogen (2009)
Abbott Labs
Just eight months after paying $2.86bn for Advanced Medical Optics, Abbott continues its buying spree, taking out
privately-held intraocular lens maker Visiogen for $400mm in cash. The device start-ups Synchrony, a 3-D dual-optic
accommodating IOL and pre-loaded injector, offers patients a full range of vision because it mimics the eyes natural
ability to change focus; its already been launched in Europe and could hit the U.S. markets by 2010. Since its 2001
inception, Visiogen has raised over $80mm in financings, resulting in a nice return for the companys backers, which
include Three Arch Partners, New Leaf Venture Partners, and Novartis Venture Fund.
Advanced Medical
Optics (2009)
Abbott Labs
One year after AMO attempts and fails to acquire Bausch & Lomb, Abbott takes out the company in a deal worth
$2.86bn. The deal makes Abbott, which plans to run AMO as a stand-alone business unit called Abbott Medical Optics,
a central player in the ophthalmic space. AMO, which spun off from Allergan in 2002, is a leader in laser vision correction (Lasik) products, cataract surgical devices, and contact lens care products. Marketed products/ technologies
include: ReZoom; Verisyse; Tecnis IOLs; and Visx, IntraLase and Advanced CustomVue Lasik technologies.
Eyeonics (2008)
Newly private B&L acquires Eyeonics for an undisclosed amount, gaining access to the privately-held companys IOL
Crystalens, the only FDA-approved accommodating IOL that has already captured about 30% of the U.S. presbyopic
IOL market. Eyeonics was founded in 1999 as C&C Vision and had 2007 revenues of $34 million. Outside analysts
predict Eyeonics staffers will become the cornerstone of B&Ls U.S. surgical business.
Alcon (2008)
Novartis
In a bid to diversify, Novartis buys 25% of Alcon for about $11bn. A put option from Alcons owner Nestle can force the
Swiss pharma to buy another 52% of the company between early-2010 and mid-2011 for an additional $28 billion. Novartis says Alcons products complement its own contact lens and ophthalmic businesses, giving the Big Pharma access to
revenues from the sales of prescription products such as Travatan for glaucoma, Vigamox for eye infections, and Pataday
and Patanol for allergies, as well as over-the-counter offerings. Alcon also has a robust device business focused on cataract surgeries, vitreoretinal procedures for retinal detachment, macular holes, vitreous hemorrhage, and laser correction.
Warburg Pincus
One year after it was forced to take a key contact lens solution off the market because of the potential for dangerous
eye infections, Bausch & Lomb was taken private by Warburg Pincus in a deal worth $3.67bn in cash and another
$830mm in debt. Founded in 1853, the ophthalmic giants biggest businesses are contact lenses and eye care drugs,
including ocular vitamins, OTC medicines, and brand and generic prescription products for diseases such as glaucoma
and dry eye. In December 2006 B&L acquired Alimera Sciences consumer eye allergy unit, which recently got FDA
approval for the antihistamine Alaway.
IntraLase (2007)
AMO
Advanced Medical Optics acquires IntraLase for $808mm in cash. Founded in 1997, IntraLase specializes in a bladesfree technology used in Lasik surgery. The procedure has been used in over 600,000 surgeries to date and is sold
in the US and internationally. IntraLase, which went public through an $87mm IPO in 2004, grossed $94.4mm in
revenues in 2005. While the deal solidified AMOs LASIK offerings, its cost helped set up Abbotts take-out of AMO two
years later. Up until the Abbott take-out, AMO was one of the most aggressive acquirers, purchasing in 2004 VisX and
Pfizers surgical ophthalmology businesses for $1.26bn and $450mm respectively.
OSI
Pharmaceuticals
OSI makes a big bet to diversify beyond its cancer and diabetes treatments, purchasing Eyetech for nearly $900 million in
cash and stock just one year after the ophthalmology company went public, raising $146 million in the process. The deal
gives OSI Macugen, the first anti-VEGF therapy for age-related macular degeneration to hit the market. But Macugens
leadership position lasts only until 2006 when Genentech launches Lucentis, a competing anti-VEGF inhibitor with better
efficacy. Macugens market share collapses and OSI takes steps to move away from ophthalmology. Ex-Eyetech officials,
meanwhile, play a critical role in forming the next wave of ophthalmology start-ups, including PanOptica and Ophthotech.
Allergan
Allergan buys privately-held Oculex (intraocular pharmaceuticals and delivery systems) for about $230mm in cash, two
years after the two companies inked a collaboration to discover and develop ophthalmic meds based on the start-ups
drug delivery technology. Central to the deal: Oculexs lead compound, Posurdex, a biodegradable, sustained-release
implant that delivers dexamethasone to the specific site of the disease at the back of the eye and is a potential treatment for macular edema, diabetic retinopathy, and uveitis.
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OPHTHALMOLOGY
While pSvida Ltd.s 2005 take-out of drug delivery
play Control Delivery Systems Inc. for $104 million
provided a step-up of 2.7, a reasonable exit for Essex
Woodlands, Brookside Capital, and other CDS backers, the merger of privately held Sirion Therapeutics
Inc. with Sytera Inc. in 2006 represents less an exit
than an attempt by the two biotechs backers to create
critical mass.
Meanwhile, Sanofi s purchase of Fovea and Alcons recent decision to take out large molecule player
EsbaTech Inc. may be suggestive of pharmaceutical acquirers future leanings. The success of the antibody fragment Lucentis has eye companies, which
have tended to focus on repositioning or reformulating small molecules, searching for technologies that
allow the creation of anti-VEGF follow-ons as well
as other more novel therapies. Lucentis definitely
changed things, notes Graham Boulnois, a partner
at SV that invested in EsbaTechs 2006 $63 million
Series B recapitalization.
Tim Haines, a partner with Abingworth Management and a Fovea board member agrees, noting that
one reason Fovea was so attractive to Sanofi was
that it wasnt vying to supplant anti-VEGF therapy.
We think that train has left the station, he says.
Exhibit 4
Other
20%
Vision Correction
AMD
27%
8%
Uveitis
3%
3%
3%
IOL
Anti-Infective
12%
7%
10%
7%
Conjunctivitis
Glaucoma
Dry Eye
DME
Exhibit 5
600
27
500
400
300
16
200
100
10
4
2
Conjunctivitis
Diagnostic
4
0
AMD
DME
Dry Eye
Glaucoma
Uveitis
5
Drug Delivery Vision Correction Cataract/IOL
(5)
Undisclosed
OPHTHALMOLOGY
www.ElsevierBI.com
OPHTHALMOLOGY
drew interest; among the four deals inked in the period, two had
potential deal values in excess of $50 million: Alimeras partnership with Control Delivery Systems to in-license Iluvien (formerly
known as Medidur), an injectable implant that delivers fluocinolone acetonide to the back of the eye; and Santen Pharmaceuticals
decision to pay $50 million up front for Asian rights to MacuSight Inc.s specially formulated version of rapamycin, known as
sirolimus. Because 12 deals involved products that spanned ophthalmic indications, these partnerships were classified as Other
in START-UPs analysis. (See Exhibit 4.)
Not too surprisingly, the trends illustrated in Exhibit 4 are
closely mirrored by various venture fi rms funding commitmentsand again the emphasis is on treatments for diseases that
blind. (See The Eyes Still Have It: Finding Cures For Diseases that
Blind Remains Top Focus For Investors, Entrepreneurs, START-UP,
September 2007.) From 1999 to present day, VCs have invested
in 58 privately held ophthalmology companies at various stages
of development. During this time period, 18 biotechs pulled in
more than $700 millionroughly half of all the venture money
invested in eye diseasesto develop treatments for AMD (See Exhibits 5 and 6, and the sidebar, Eyeing the AMD Market.)
Beyond AMD, private backers spent nearly $400 million to
finance multiple players in the IOL, cataract, and vision correction markets. Glaucoma also remains an area of avid interest: nine
Exhibit 6
Ave = $21.21
Ave = $25.43
450
Ave = $15.53
400
350
Dollars ($ Millions)
(11)
(8)
Ave = $25.13
(12)
300
(12)
250
(18)
(10)
200
(8)
150
100
50
(2)
0
A
D-F
Series Raise
Total VC Dollars (Device/Dx)
Total VC Dollars (Pharma)
OPHTHALMOLOGY
Exhibit 7
Discovery or In-licensing?
In-licensing continues to be the preferred approach to building ophthalmology companies when analyzed by
both number of new company starts and capital raised.
Number of New Ophthalmology Starts
Discovery
In-licensed
Compounds
(10)
(18)
Discovery
($190.5
million)
In-licensed Compounds
($778 million)
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