Aerie Pharmaceuticals Could Still Be a Bargain After Its Run-Up

By Markets

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Aerie Pharmaceuticals (NASDAQ: AERI)reported late-stage study data earlier this month suggesting that its Roclatan could reshape the multi-billion dollar market for glaucoma treatment. The news has already sent Aerie Pharmaceuticals' shares soaring by more than 85%, but there may still be room for this company's shares to run higher. Here's why.

AERI data by YCharts.

A big and growing market

Untreated glaucoma is a common cause of blindness globally and in the U.S., and roughly half of the 3 million people estimated to suffer from glaucoma don't know they have it.

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Glaucoma accounts for roughly 10% of all cases of blindness in America and the World Health Organization says glaucoma is the second leading reason for blindness worldwide. Glaucoma, which is more common in African Americans and Hispanics than it is in Caucasians,trails only cataracts in causing blindness in African Americans. Worldwide, it's estimated that there are 60 million cases of glaucoma.

Undeniably, the addressable patient population for glaucoma treatment is large.In the U.S., the market for loweringintraocular eye pressure (IOP) in glaucoma patients is worth $2.5 billion and globally, the market for glaucoma treatment is valued at $6 billion. Since glaucoma is most commonly diagnosed in older patients and millions of baby boomers are turning 65 every year, demand tailwinds should continue to increase spending on treatment.

Improving upon care

Currently, the primary therapies used to treat glaucoma are prostaglandin analogues (PGA), however, a significant share of patients receiving PGAs fail to adequately respond to them. In those patients, adjunct therapies like beta blockers are also used.

Beta blockers represent 13% of glaucoma prescription market share and Aerie Pharmaceuticals' management thinks that it's developed a better alternative in Rhopressa.In phase 3 trials,Rhopressa, whichtargets the trabecular meshwork, the eye's primary fluid drain,was as effective as the beta blocker timolol in treating glaucoma patients with IOPs between 20 and 25 mmHg.

Aerie Pharmaceuticals filed a new drug application with the FDA for Rhopressa as an add-on therapy to PGAs, such as latanoprost. If Rhopressa wins approval, then it may capture a significant amount of the prescription volume currently held by beta blockers because it only needs to be dosed once-daily rather than twice-daily.

Rhopressa's potential is intriguing, but Aerie Pharmaceuticals' Roclatan could reshape glaucoma treatment even more.

In phase 3 trials, Roclatan, a combination of the PGA latanoprost and Rhopressa, effectively lowered IOP by more than latanoprost and Rhopressa monotherapy.

Because Roclatan works better than latanoprost, Aerie Pharmaceuticals could be in the enviable position of replacing latanoprost as a first-line glaucoma therapy. In 2014, PGAs accounted for 35% of all U.S. glaucoma prescriptions.

Image source: Aerie Pharmaceuticals.

Looking forward

Aerie Pharmaceuticals' market cap stands a little above $1.1 million and that could still undervalue the company's peak sales potential. If Rhopressa captures 10% of the U.S. glaucoma market and Roclatan captures the bulk of PGA market share, then it's not inconceivable to think that Aerie Pharmaceuticals' U.S. sales could eclipse $800 million within a few years.

Approvals in Europe, Japan, and elsewhere could mean that peak sales of these drugs globally is handily in billion dollar blockbuster territory. So far, the company hasn't licensed ex-U.S. rights to these drugs, so there's always the possibility of a lucrative commercialization deal with a big pharma company too.

Of course, these drugs need to get across the FDA finishline first and that means that there's still some risk associated with this company. Based on Rhopressa's filing, a decision from the FDA could come next summer. A decision on Roclatan, however, won't come until later. The company's waiting for results from a second trial to confirm its efficacy and safety before it files for approval. Assuming that the trial confirms the first trial's findings, then regulators should be able to issue a go/no-go on it in 2018.

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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.