Bausch + Lomb's move on Ista points to further eye care consolidation

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Ista Pharmaceuticals’ takeover by Bausch + Lomb this week sees one of the few remaining mid-sized eye care companies taken over by a larger player. Deal making shows no sign of slowing in this space, as more and more companies signal an interest in gaining a presence in a growing sector that is increasingly dominated by a handful of global majors (Therapeutic focus- Eye care products in demand in market dominated by few, March 23, 2012).

For Bausch + Lomb, five years in the hands of private equity, the deal is the latest move to expand its therapeutic products business. Growing in pharmaceuticals and emerging markets have been a focus for the group in the last few years, and more recently a return to the stock market has been mooted by its chief executive. Given the company’s dominant position in an attractive market, it would not be surprising to see Bausch itself become prey, before that goal can be achieved.

Deal done

The final price agreed upon was $9.10 per share, valuing Ista at $500m. The company had rebuffed a $7.50 offer from Valeant earlier this year and the serial acquirer finally withdrew at the end of January.

The Bausch offer is only a 9% premium over Ista’s closing share price on Monday but represents a healthy 134% premium to the share price before Valeant’s first offer emerged back in December (Valeant goes hostile with bid for ISTA, December 19, 2011).

Ista was clearly right to hold out for a better offer, although some investors might point out that the stock hit a seven year high of $11.26 in May last year. Life at this level was short lived, however. The failure of one of the company’s most promising pipeline products, phase III dry eye drug Remura, prompted a plunge to $5.21 in July, from which the stock failed to recover until the potential for a takeover emerged (ISTA shedding tears on Remura failure, July 29, 2011).

Pharmaceutical expansion

The union with Bausch makes sense in that the private company already manufacturers nearly all of Ista’s current US products. The eye care giant said the move will substantially expand its clinical pipeline; the company has made no secret of its desire to expand the therapeutic side of its business.

Bought by private equity in 2007, the last financial statements released by the Bausch + Lomb revealed that in 2006, nearly half of its $2.2bn annual sales were derived from contact lenses or lens care products. At that time pharmaceuticals only accounted for a quarter of sales. EvaluatePharma estimates that the group’s total sales topped $3bn last year.

Ista generated sales of $160m last year, up only 2% on 2010 although the company has forecast more robust growth this year. Continuing strong demand for its allergic conjunctivitis treatment Bepreve and newly launched anti-inflammatory Bromday are expected to drive sales; Ista expects revenues to come in between $180m-$195m.

As well its existing products Bausch is likely to have its eye on a couple of projects in Ista’s pipeline. Prolensa, a low concentration version of Bromday, is the company’s latest effort to extend its bromfenac franchise. Bromday’s patent expire in 2013, the company this week won a patent protecting Prolensa until 2025 and the product is likely to be filed in the second quarter, for a potential launch early next year. After converting patients onto Prolensa the company is planning to discontinue Bromday, a tactic it successfully employed with Bromday’s predecessor, Xibrom.

Also expected in the first half of this year are preliminary phase II results from the company’s cedar pollen allergy study with a nasal spray called Beposone. Containing the same active ingredient as Bepreve, this represents the company’s attempts to extend this group of products. Meanwhile phase III trials should start later this year with T-pred, an anti-infective and steroid to treat inflammation and infection in the eye.

The products will fall alongside Bausch’s own phase II glaucoma product, BOL-303259-X, which reported encouraging results earlier this month (EP Vantage Interview - NicOx strategy becoming clearer as its gaze shifts to eye care, March 22, 2012).

Future directions for Bausch

After nearly 5 years in the hands of private equity firm Warburg Pincus, Bausch + Lomb’s chief executive has recently begun to talk about a return to the public markets. With an expanded pharmaceutical portfolio and strong emerging market presence, an IPO would certainly attract interest.

According to EvaluatePharma data, branded, prescription eye care products generated sales of almost $11bn in 2010. That figure is projected to grow 7% annually to $16.4bn by 2016, a respectable rate of growth. A dominant player in this market, as Bausch + Lomb is, would also make an attractive target for many of the world’s larger drug makers, several of which are searching for new growth engines.

Just like Nycomed, another private company long touted as the next big IPO in healthcare, it would not be surprising if Bausch + Lomb never made it back to the stock market (Takeda confirms defensive course in Nycomed buy, May 19, 2011).

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