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February 2007 issue
Investors’ Eyes On Vision, For The Future - Venture Capitalists See
Ophthalmology Opportunities Expanding Sign up for a trial subscription and get the current issue! Read more about Healthcare Corporate Finance News Read the past headlines.
Companies Mentioned in this issue:
20/10 Perfect Vision Optische p1 |
Investors’ Eyes On Vision, For The Future - Venture Capitalists See Ophthalmology Opportunities ExpandingIn the past few years, we have noticed an increase in the amount of venture capital committed to ophthalmology, and have seen some landmark events within this specialty market. During 2006, compared with 2003, investments in companies targeting eye care, eye disease, eye implants and the like increased approximately tenfold, according to our records. Also signaling growth, the amount of total funding raised in 2006 resulted in a 100% increase, compared with the prior year, and 2006 also accounted for more than half of all the funding raised in this area since 2003. From 2003 through 2006, more than three-quarters of a billion dollars was raised by 39 companies the ophthalmic space. Two raised two rounds apiece, including Lux Biosciences, Ophthonix and Othera Pharmaceuticals in the United States, as well as France-based Novagali Pharma and Israel-based NuLens. Germany-based 20/10 Perfect Vision Optische secured three venture rounds during those four years. For an insider’s view of what is happening on the business side of ophthalmology, we talked with Lutz Giebel, Ph.D., a managing partner of SV Life Sciences, and Charles Warden, a managing director of Versant Ventures, two venture capitalists involved in the space, who took time to share some insights with us. Commenting on the potential size of the market, Dr. Giebel, who is on the boards of Lux Biosciences and Neurotech, estimated it could be in the billions of dollars per indication. Specifically, he sees the greatest unmet medical need in three areas: dry age-related macular degeneration, or AMD (which can progress to wet AMD in about 20% of patients), diabetic retinopathy and diabetic macular edema. "Many of the companies entering the ophthalmology space recently are targeting AMD, both the dry and the wet form," he stated. Mr. Warden, of Versant, who is on the board of directors of AcuFocus and was formerly a general partner with SV Life Sciences (SVLS), specified that, "Areas of unmet medical need include the refractive area, notably presbyopia, as well as conditions affecting the back of the eye." Therapies targeting the back of the eye, he indicated, are progressively attracting more interest as new possibilities emerge for treating various retinal diseases. "Glaucoma would be another area of important clinical need," he added. "Helping people to see better, or to see at all, is a fundamentally rewarding objective to be involved in with our companies," Mr. Warden stated. From his perspective, now is also a good time to be investing in this space. "There are good quality companies to align with in the market right now. As in other markets, Versant is looking for ophthalmology companies that target a large unmet clinical need, with a unique technology that can address that need, and a capable management team." Instead of planning for a specific exit, Versant is focusing on building strong companies that are able to stand alone—however, if the right M&A or IPO opportunity arose for a mature company, it would surely be considered. "A broad market exists for eye care, ranging from surgical procedures and implants for vision correction, to pharmaceuticals and biopharmaceuticals for eye disease, as well as various products for routine eye care," Mr. Warden observed. He also noted that the high pace of technological advancement is making it possible to address previously underserved clinical needs, and underlying the ophthalmic market is "a research and innovation oriented clinical community." As another factor driving growth in this market, he cited, "Baby boomers are increasingly seeking, and finding, solutions other than glasses for vision correction." Dr. Giebel, of SV Life Sciences, has seen change in the ophthalmology industry over the last few years, in that, "Eye diseases have come to the forefront of health care. Events such as the approval of Macugen, and later Lucentis, really changed the landscape in this part of the market." He also sees many new opportunities arising in the ophthalmology space, and some of the best may be start-ups. SVLS, he said, is focusing on companies that have solid science underlying their technology and exceptional teams with relevant expertise—the right team with the right product—to build the right company, pretty much from scratch. But the right team is usually ahead of this curve. For example, when SVLS invested in Lux Biosciences, the company already had some collaborations in effect and other discussions in process. The Lux team pitched uveitis, an autoimmune disease, as a severe orphan disease, along with their systemic approach to treatment of the condition. The company is working with an analog of cyclosporine (an immunosuppressive agent that works to prevent white blood cells from rejecting a new organ or tissue) that it licensed from Isotechnika (TSX: ISA), to develop for eye indications and entered directly into pivotal trials. It has also licensed from the National Eye Institute an implantable cyclosporine-eluting device for use in corneal transplants. Sometime in 2008 Lux expects it will have a chance to file a New Drug Application with the FDA for the compound, as a treatment for uveitis. In this therapeutic area, Lux has basically outrun the competition, Dr. Giebel told us, by exploiting an unique opportunity to combine two late stage technologies. Part of what is driving the activity in the ophthalmology space is reflective of the greater health care space. The M&A market continues to provide a worthy exit for many companies, including in January the sale of IntraLase (NASDAQ: ILSE) to Advanced Medical Optics (NYSE: EYE) for $808.0 million. The merger and acquisition market, Dr. Giebel noted, "is currently the best exit option for venture backed companies, including ophthalmic companies, in terms of multiples." SV Life Sciences was an early investor in Eyetech Pharmaceuticals, exiting after the IPO, but prior to its $935.0 million acquisition by OSI Pharmaceuticals (NASDAQ: OSIP). In his experience, venture capitalists are now seeing many more companies trying to get into this space, so SVLS is keeping excellent scientific counsel on its side—these days, including working with the founder of Eyetech. Mr. Warden of Versant pointed out, "Catalysts for investment interest in this space include the bellwether successes of companies such as IntraLase, AcuFocus and Eyetech, and the continuing growth of companies like AMO [Advanced Medical Optics], as well as the success of drugs like Lucentis." He perceives "a high level of energy in this space," referring to a mix of factors including a fast pace of innovation and development, as well as scientific and investor interest in ophthalmology. In January 2007 alone, there were three venture capital deals in the eye care space. NovaVision raised $20.0 million in venture funding that will be used to continue expanding the company’s national reach. Its FDA-cleared, non-invasive medical device is being used at hospitals and other institutes across the country to enhance vision in people left partially blind by stroke or brain trauma. EyeGate Pharma raised $1.9 million, and with technology licensed from the University of Miami, is developing an iontophoresis delivery platform to safely and non-invasively administer therapeutics to both the front and back of the eye for ocular indications, including severe uveitis and other inflammatory eye diseases. Large pharmaceutical companies, in this case the likes of Bausch & Lomb (NYSE: BOL) and Allergan (NYSE: AGN), are facing patent expiration or other challenges and need to expand their pipelines through acquisitions. In January Bausch & Lomb announced it made an equity investment in AcuFocus as part of a strategic alliance to develop corneal inlay technology for the treatment of presbyopia. According to a spokesperson at BOL, the amount of the investment is not being disclosed, but one source priced the deal at close to $20 million. The eye care space is well within the sights of other big pharmas, too, such as Pfizer, which co-developed Macugen together with Eyetech, and in early 2005 acquired Angiosyn, a start-up biotech developing protein treatments for controlling unwanted blood-vessel development at the back of the eye, or angiogenesis, which can cause blindness. Much more recently, in January, Pfizer signed a development agreement with MediVas, LLC, a developer of drug delivery platforms, to collaboratively focus on the research and development of advanced delivery methods for proprietary Pfizer compounds that treat diseases of the eye. Dr. Giebel observed that recent activity is part of a trend, in which "big pharma has become [more] willing to look at smaller market slices than before, as the personalized medicine movement progresses and specialty and orphan indications are recognized as opportunities." One exciting aspect of being in the industry right now, he said, is that ophthalmology is reaching critical mass, with large areas of unmet medical need and many approaches being developed for treatment. Although SV Life Sciences is looking primarily at the pharmaceutical space for opportunities, the best ocular therapies, he believes, are often complementary drug device combinations. Neurotech, one company in SVLS’s portfolio, "has a clinical stage, expandable platform, with a new twist on cell therapy." "While many cell therapies are focused on replacing or rejuvenating tissue, Neurotech is harnessing the power of living cells as a drug delivery method," he continued. The approach is being developed for the treatment of retinitis pigmentosa, a devastating retinal disease that can lead to complete blindness. Neurotech is working with a special cell line, which has been "engineered to express recombinant ciliary neurotrophic factor (CNTF) under license from Amgen (NASDAQ: AMGN), then housed in an implantable device that provides the perfect habitat for the cells to stay alive and healthy, without reproducing. The device is implanted in the eye, secreting CNTF, continuously repairing the retina," he explained. Looking forward, eye institutes and clinics, as well as universities, are expected to continue producing new technology, and biotechs to continue developing, for ophthalmic indications. Key areas that companies within this specialty are already targeting include wet AMD and vascular endothelial growth factor. More licensing and rights deals are likely to ensue, as big pharma has realized this is a more cost-efficient way to fill a pipeline than in-house development. Current estimates are that the worldwide market for ophthalmic devices, drugs and diagnostics will reach anywhere from $13 billion to $22 billion in the next year or two. |
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