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WIKI ANALYSIS
Ista Pharmaceuticals Inc. (NASDAQ:ISTA) is the fastest growing US branded ophthalmic pharmaceutical company.[citation needed] It currently markets three products treating various eye-related conditions and has a pipeline of eight products among which two are in Phase III of clinical trials.
Although it is conducting research and clinical trials on its own to obtain FDA New Drug Application (NDA) for its products, Ista essentially markets products under license agreements with Japanese drug manufacturers. The company is looking to extent its business into nasal products. Since it was founded in the early 2000s, Ista has never been profitable and the company incurred a loss of $30.7 million in 2008. It expects to break even on its operating income in 2009urther increase the company growth rate and it's expected to earn about $100 million in 2009[1] but should incur a net loss up to $10 million in 2009[citation needed]. At the end of Q1 2009 it had a $358 million accumulated loss.
On September 11, 2009 the FDA approved Ista's NDA for Bepreve product, making it the fourth approved drug of Ista in the US. However in January 2009 the patent on Xibrom, Ista's main product, expired leaving the door open for generic companies to enter the market. According to the company no generic maker is expected to release its own drug before 2010.[citation needed] In 2008 Xibrom represented 76% of the company's net revenues and 81% of its gross profit.
Overview
Over the last three years Ista's revenues have significantly grown, from $33 million in 2006 to $82.8 million in 2009. The approval of Bepreve should further increase the company growth rate and it's expected to earn about $100 million in 2009[2] which would represent a 20% increase.
Business and Financial Metrics
- From 2006 to 2008 revenues are more than doubled. The company should break even on its operating income in 2009 and might even start having a net positive income in 2010. Gross margin was around 75% over the last 5 years which is average in the industry.
- R&D expenses/revenues ratio have been high but show a diminishing pattern indicating that the R&D investments are paying off, the initial costs necessary to develop new products are being met with increasing sales. R&D expenses however remain highly variable depending on the progress made in clinical trials.
- The company's cash balance has been relatively high over the last quarters. Ista has obtained a revolving credit line and a facility agreement. Current assets are well above current liabilities. The company is enticed to maintain a quick ratio above 1.50 since it contractually implies lower interest rates on its revolving credit facility. The company has been able to invest a significant part of its cash into interest-generating short-term investments.
- The debt leverage remains very high, as it is with numerous biotech companies and the company has no positive shareholders' equity. Liabilities far exceed assets but as new products get approved by the FDA, the company should be able to record net income and intangible assets value.
- Interest expenses are also high and show an increasing trend since the company is taking on more debt to make up for its net loss. Interest coverage ratio clearly shows the EBIT cannot even pay for interest but compared to other similar companies, this ratio is average.
| 2005 | 2006 | 2007 | 2008 | |
|---|---|---|---|---|
| SG&A | 287% | 113% | 79% | 64% |
| R&D | 156% | 72% | 55% | 39% |
Business Segments
Ista's business is essentially focused on ophthalmic products. In 2009 it had three marketed products and another should be marketed by the end of the year.
- Xibrom (76% of net revenues, 81% of net income): only twice-daily non-steroidal anti-inflammatory approved in the US for ocular inflammation and pain following cataract surgery. It is currently number one on its market with a market share about 36%. Ista is in the process of developing new applications for bromfenace (Xibrom) through a once daily use of Xibrom in Phase III and a new low-dose Xibrom version in Phase II of clinical trials. However in January 2009, Xibrom patent expired and Ista lost regulatory exclusivity for Xibrom. Xibrom marketing rights were acquired by Ista in 2002 from Japanese Senju Pharmaceuticals Inc. which launched Xibrom in Japan in 2000. Bromfenate used to be approved as a prescription capsule but was withdrawn due to safety concerns. Its ophthalmic applications appear to be promising.
- Istalol (20% of net revenues, X% of net income): once-daily beta blocker for glaucoma. Acquired in 2002 from Senju that developed this product. It was authorized for sale in the US by the FDA in 2004. Istalol is on a market worth about $154 million in 2004 with a domination of generic products. Competitors are either twice-daily solutions or once-daily gels that cause blurring of patients' vision. Istalol has a market share of approximatively 20% in 2009. Growth appears limited in this market given its size and the presence of many generic competitors.
- Vitrase (4% of net revenues X% of net income): spreading agent that promotes diffusion of injected drugs in the eye. Agent developed by Ista itself in 2005. Narrow market with a limited potential growth.
- Bepreve (approved in September 2009): Bepreve will be Ista's 4th product to be released. Bepreve North American rights were bought from Sanju in 2006 and Ista has obtained the right to commercialize Bepreve as an eye drop treatment for ocular itching associated with allergic conjunctivitis. Bepreve has shown in clinical trials a better rapidity of response and improvements on nasal symptoms. The US market for ocular allergy is worth around $550 million. Ista intends to match current leader Alcon's share of voice through the strengthening of its sales force to quickly seize a large market share.[5]
Key Trends and Forces
Pipeline risks and opportunities
As with any pharmaceutical company, Ista is exposed to the risk of its R&D not being fully satisfying. Ista's products are niche-drugs with narrow markets meaning potential profits will remain limited but this seems in phase with the company's overall strategy. However given the fact that some of Ista's products have already been approved for commercial use in other countries (Japan), the risks of a refusal from the FDA are lessened. The four most advanced products in the pipeline would target markets with size between $300 million and $400 million[6] in the US. Lately the two most advanced products have raised concerns from the FDA about their inefficacy and will require deeper clinical trials.
Generic drugmakers threat
In 2009 Ista lost its exclusivity rights on Xibrom meaning generic manufacturers could enter the market at any moment. Ista has been seeking an extension of its patents but the FDA seems to have rejected. Ista claims that no generic product would enter the market before the end of 2010 but this remains highly uncertain. Xibrom is currently the major source of revenue for Ista, generic drugs would do greatly impact its chance of survival. Besides exclusivity rights on Vitrase, Ista's other marketed product, could expire soon since it was granted a 5-year protection starting in 2004.
Partnering opportunities and constraints
Most of Ista's products patents have bought from external companies, mainly Senju from Japan. While this provides some certainty about the potential of the products being bought, it also introduces a constraint on Ista. Milestones payments and royalties must be paid and thus lower the ability for the company to make profits. But these license agreements also present the risk of being ended by the other contracting company.
Pace of growth, debt, cash and financing options
As a biotech company with significant R&D expenses, Ista has taken on a lot of debt. So far it doesn't seem to have any financing problem and cash flow from operations are getting closer to be positive. The management team has followed a strategy to keep high level of cash which preserves the company's ability to stay in the business through the current economic crisis.
Suppliers/Customers
Ista has obtained some of its raw material and products from sole suppliers which greatly concentrates risks. While Ista has taken actions to diversify its sources of basic materials, it might not be able to find other suppliers. On the other side, Ista commercializes its products mainly hrough three drug wholesalers that account for 91% of Ista's revenues. This high concentration of customers also draws concerns in case of the withdrawal of any of those customers.
Competition
Given the very diverse nature of ophthalmic diseases and conditions, one will find it quite difficult to find direct competitors and furthermore financial metrics in those markets, especially since ophthalmic products only represent a small portion of the revenues of large drug manufacturers.
- Alcon (NYSE:ACL) major eye-care company and biggest direct competitor to Ista. Their products compete directly with Ista's in glaucoma treatment as well as allergies. One of Ista's goals for new product Bepreve is to outpace Alcon's share of voice and cut their market share. Alcon is a multinational company with net income over $2 billion and great marker power.
- Inspire pharmaceuticals (NASDAQ:ISPH): leading biotechnology company specialized in ophthalmic and pulmonary diseases. Their ophthalmic products are direct competitors to Ista's in eye allergies, dry eye conditions and conjunctivitis. Ista also aims at surpassing Inspire's share of voice in the short term with its Bepreve.
- Akorn (NASDAQ:AKRX): Akorn distributes several ophthalmic products, mainly for hospital uses. This biotech could be a distant competitor to Ista.
- Pfizer (NYSE:PFE): the world's leader drug manufacturer has operations in the ophthalmic market with a focus on glaucoma disease. Given its size and its scope, it could be a major threat to Ista as well as a potential licensing partner.
- Opko Health Inc (OPK) (AMEX:OPK): small biotechnology focused on ophthalmic diseases and diagnostic systems for the detection of eye conditions. It is currently conducting research on dry eye diseases but has no marketed products on this market.
References
- ↑ SeekingAlpha.com, Stock to Watch This Week, 09/10/2009
- ↑ SeekingAlpha.com, Stock to Watch This Week, 09/10/2009
- ↑ ISTA (ISTA) Form 10-K, FY2008
- ↑ ISTA (ISTA) Form 10-K, FY2008
- ↑ Ista (ISTA) Investor Presentation, August 2009, p13
- ↑ Ista (ISTA) Investor Presentation, August 2009, p11
- ↑ http://media.corporate-ir.net/media_files/irol/12/121179/Q408FactSheet.pdf, ISTA Quarterly Fact Shee, Q2 2009
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