Event – Alimera hopes for the first ‘aye’ in DME

Analysis

A mood of cautious optimism likely presides over Alimera Sciences, as the firm looks towards transformational US and European regulatory decisions on Iluvien, a novel corticosteroid-eluting intravitreal device with the potential to become the first approved therapy for diabetic macular oedema (DME).

Given that Iluvien’s commercial potential – analysts have pencilled in sales close to $500m by 2016 - was the core offering to new investors that bought into Alimera’s IPO earlier this year, the stakes are certainly high. Licensed from pSivida, FDA approval would also be a breakthrough moment for the Australian company which is set to receive a $25m milestone and 20% profit share. The FDA’s decision is expected by the end of the year while a verdict in Europe should come in the first quarter of 2011, a region in which Alimera hopes to find a commercialisation partner.

Company  Alimera pSivida
Market Cap $292m  $80m
Product Iluvien Iluvien
Product NPV $1.01bn n/a
% of Mkt cap 347% n/a
Event US approval US approval
Date Q4 2010 Q4 2010


A cause of blindness

Eye diseases are common amongst diabetics and DME is a common complication of diabetic retinopathy. Leaking fluid in the macula, at the centre of the retina, causes it to swell, blurring vision. This can happen over a long time and vision will gradually deteriorate, potentially to the point of blindness.

It is estimated to affect about one million people in the US, and is usually treated with laser photocoagulation therapy, a technique that effectively cauterises vessels to stop the leakage. This brings with it a risk of some forms of vision loss, such as loss of night vision.

The principle of Iluvien is to use a non-surgical procedure to insert an implant into the retina, allowing sustained release of very low doses of the active corticosteroid, fluocinolone acetonide, over three years. Importantly, this procedure can be conducted at a doctor’s surgery.

The successful completion of two phase III trials at the end of last year enabled Alimera to become a public company and forms the basis of the regulatory filings in the US and Europe. A rally in Alimera's share price over the last two months indicates optimism in approval, although the fact that not all statistical analyses of the data were positive could be a potential sticking point. On the upside, the company already has two similar implants on the market, so the regulator should be familiar with the technique (pSivida and Alimera ones to watch following eye drug success, December 24, 2009)

Billion dollar market

Alimera, which recently received priority review status from the FDA for the $7,000 per patient/per year drug, has said it expects 300,000 new cases of DME annually, equating to a potential $1bn market. According to EvaluatePharma consensus data, analysts believe US sales of Iluvien could reach $466m by 2016.

Cowen and Credit Suisse analysts estimate that Iluvien will gain a 12% to 15% share of the DME market in the US by 2015, respectively.

Indeed, Iluvien’s broader commercial potential could be bolstered by ongoing phase III trials for age-related macular degeneration (AMD), and phase II studies in retinal vein occlusion (RVO), another cause of macular degeneration.

Significant gains

Alimera was one of a modest wave of pharmaceutical companies which went public earlier this year, raising $72m from the sale of 6.55 million shares at $11 each. Like all its IPO peers the offer price was discounted, from an initial proposal of $15-$17 per share, and the shares subsequently struggled to hold their value.

The stock sunk to a low of $6.62 in July, but with the FDA granting priority review at the end of August and a decision expected by the end of the year, the shares have recovered somewhat and currently trade at $9.37.

Both Credit Suisse and Oppenheimer have set a price target of $16 for Alimera’s shares, matching the company’s planned IPO valuation. Given that Iluvien is potentially worth $1bn to Alimera, more than three times its current market capitalisation of just under $300m, the share price gains could be significant should the product gain approval in both regions without too many strings attached.

At the end of June, Alimera had $46m in cash, enough it says to cover the remaining R&D expenses for Iluvien – $11.6m and $1.8m for 2010 and 2011, respectively – and the initial launch of the drug next year. Should FDA approval be granted, the company could well use any jump in its share price to raise additional funds.

Cash for pSivida, partner for Alimera

A $25m milestone payment is due to pSivida upon first approval of Iluvien, welcome income which will more than double the company's cash balance. With a 20% profit-share on US sales, the cash could really start to flow for pSivida – EvaluatePharma’s NPV Analyzer estimates the company could receive over $380m over the next ten years which should ease some funding pressure and help pSivida to develop the rest of its pipeline of ophthalmic and cancer drugs. pSivida’s Nasdaq-listed shares have also gained since priority review was granted for Iluvien, up 37% to $4.45.

Meanwhile the 20% of profits that Alimera is already having to share suggests it will try to resist any partnering arrangement in the US, should interest be stimulated by FDA approval. A green light in the US could have a knock on effect in Europe, where a deal is being sought, possibly tempting partners to step in ahead of a regulatory decision in the region.

With a decision expected by the FDA by the end of the year, and the outcome pivotal for both companies, a nervous couple of months awaits.

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