What's Behind Aerie Pharmaceuticals' 12.9% Rally Today

By Markets Fool.com

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What happened

After reporting positive phase 3 trial results for its glaucoma drug Roclatan last week, optimism at Wall Street research firms is helping to propel shares inAerie Pharmaceuticals (NASDAQ: AERI)12.9% higher today at 12:30 p.m. EDT today.

So what

Phase 3 results for Roclatan, the company's next-generation therapy for reducing inintraocular eye pressure (IOP) in glaucoma patients, could position it to win away significant share in the $2.5 billion market for glaucoma treatment.

Image source: Aerie Pharmaceuticals.

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In the study, Roclatan, which combines the widely used glaucoma drug, latanoprost, a prostaglandin analogue (PGA), with Aerie Pharmaceuticals' first-generation IOP drug, Rhopressa, delivered a 1 to 3 mmHg improvement versus the use of latanoprost or Rhopressa alone.

If a second phase 3 trial evaluating Roclatan reads out similarly, then it should allow Aerie Pharmaceuticals to file for Food and Drug Administration approval next year.

The company also expects to receive a go/no-go decision from the FDA on its once-daily Rhopressa in 2017. If approved, Rhopressa could be used as an adjunct therapy to PGA's like latanoprost instead of beta blockers. In trials, Rhopressa's efficacy was similar to twice-daily beta blockers, which suggests Rhopressa's easier dosing could allow it to capture up to 14% of the U.S. glaucoma market.

As the potential for these drugs is being modeled into Wall Street's projections, it is increasingly bullish about Aerie Pharmaceuticals stock. On Friday, Raymond James initiated coverage on the company with a strong buy and a price target of $48. Today, H.C. Wainwrightinitiated coverage with a "buy" rating and a target price of $66.

Now what

In preparation for costly launches, Aerie Pharmaceuticals just completed stock offerings that add $125 million, minus fees, to its balance sheet.

The company's firm financial footing and an opportunity to serve a market that's growing because of aging baby boomers makes this a very intriguing stock. However, investors should remember that there's no guarantee that Roclatan's second trial will pan out or that Rhopressa will net a FDA green light. Nevertheless, I think that the risk/reward for this stock is pretty good, soI'll be looking to buy it in my portfolio.

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Todd Campbell has no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.