As Published In:

Windhover Information Inc. | windhover.com | Vol. 14 No. 9 | OCTOBER 2009

Venture Eyes Ophthalmology

And Likes What It Sees
Ophthalmology has long been the darling of venture investors who
seem unlikely to avert their gaze thanks to the therapeutic areas big
markets, medical necessity, and an enlarged list of potential acquirers
BY ELLEN FOSTER LICKING

As pharma and med-tech players look to diversify, ophthalmology is

an attractive market because of high unmet medical need and large
market sizes.

Venture capitalists are eager to fund new biotechs, especially companies developing treatments for age-related macular degeneration
and glaucoma, or drug delivery approaches that reduce the health
care burden.

Although VCs have invested heavily in the sector, exits are still
mostly an event of the future.

On the pharma side, venture capitalists have hedged the development risk, showing a preference for funding companies specializing
in in-licensing rather than discovery.

On October 1, Sanofi-Aventis and the ophthalmology start-up

Fovea Pharmaceuticals SA announced a $538 million marriage that
unequivocally demonstrates the French pharmaceutical companys
interest in developing treatments for eye diseases. Fovea, which has
a mid-stage clinical program for allergic conjunctivitis and earlier
ones for macular edema, will become Sanofi s eyes in ophthalmology, operating as an independent business unit to build the drug
makers pipeline via a combination of in-licensing and in-house development.
Sanofi is by no means the only large health care company to
awaken to the potential of ophthalmology. Lured by the promise of
large markets and high unmet medical need, both pharmaceutical
and med-tech giants are increasingly interested in developing capabilities in this therapeutic area. Novartis AG has bet heavily on
the sector, shelling out billions to purchase a 25% stake in Nestle
SAs Alcon Inc. via a transaction that also allows Nestle to put additional Alcon shares to the Swiss pharma for billions more. Meantime,
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Bausch & Lomb Inc., a storied player in terms of consumer product

offerings, looks to be reinventing itself after its 2008 acquisition of
Eyeonics Inc., while GlaxoSmithKline PLC and AstraZeneca PLC
have both publicly signaled an interest in the therapeutic area.
There isnt another sector where all the demographics are working in the right direction, says James Mazzo, the former CEO and
chairman of Advanced Medical Optics (AMO) and currently president of Abbott Medical Optics Inc., Abbott Laboratories Inc.s
global vision care division. Mazzo ought to know. This year Abbott
made its own big move into ophthalmology, spending nearly $3.5
billion to buy AMO and privately held Visiogen Inc. to gain more
than a foothold in a market that is growing by double digits.
Exits like those of Visiogen and Foveawhile still a scarcity
show that innovative ophthalmology assets with compelling proofof-concept data are in high demand. Thats good news for venture
capital firms such as SV Life Sciences, Versant Ventures, InterWest
Partners, and Domain Associates, all of which have made big bets
that ophthalmology would command greater interest from potential acquirers. (See Exhibit 1.) Indeed, the attractive demographics,
strong reimbursement prospects for new therapies, and specialist
focus make ophthalmology, already a popular sector for venture, even
more appealing. An analysis by START-UP shows that private investors have poured nearly $1.8 billion into 58 ophthalmology start-ups
since 1999, with the money split nearly 50/50 in terms of device and
drug investments. (See Exhibit 2.)
This is probably the only hot sector in VC these days, admits Mark
Brooks, managing director at Scale Venture Partners and an investor in
both Oraya Therapeutics Inc., an age-related macular degeneration
(AMD) device start-up, and Alimera Sciences Inc., a biotech developing a drug/device combination to treat diabetic macular edema.
Although VCs still view ophthalmology as an attractive investment arena, theyre also aware of its potential investment challenges.
According to Brooks, everyones trying to take a program further

OPHTHALMOLOGY
On the pharmaceutical side, for instance, the increasing regulatory
and do it with less money in the hopes of enticing a pharma or
and commercial risks of me-too products are shifting drug compamed-tech company into an acquisition. And the ability of Genennies away from their therapeutic standbysnotably cardiovascutech Inc.s (part of Roche) anti-vascular endothelial growth factor
lar medicines, proton pump inhibitors, and antidepressantsto
inhibitor (VEGF) ranibizumab (Lucentis) to rapidly displace pegapmore specialist markets. Cancer and large molecule platforms
tanib (Macugen) as the therapy of choice for the wet version of
remain the hottest areas for big pharma, but even dermatology
AMD, a progressive disease characterized by uncontrolled growth
long considered a therapeutic backwater, is commanding interof blood vessels in the eyes macula, illustrates another important
est. Witness Glaxos February purchase of the dermatology player
point: clinical efficacy is king. If ophthalmologists find something
Stiefel Laboratories Inc. for $2.9 billion.
better, their adoption wont be a ripple moving across the contiOphthalmology is no exception. Like dermatology, ophthalmology
nent, but a simultaneous wave, says Paul Chaney, formerly COO
offers a diversity of products ranging from consumer-based over-theof Macugen developer Eyetech Pharmaceuticals Inc. and currently
counter treatments to physician-prescribed medicines; in the past, this
CEO of the newly created PanOptica Inc. For pharmaceutical-fovariety of product types would almost certainly have been viewed as
cused start-ups looking to stay ahead of the curve, thats meant a
a disadvantage. In todays environment, where companies believe size
greater focus on in-licensing molecules, especially compounds that
and an industrial focus can only help weather the uncertainties of drug
hit de-risked targets originally developed for other indications like
development, thats no longer the case. (See Why Doesnt Pharma Get
oncology or hypertension.
Smaller, IN VIVO, June 2009 and Pfizer/Wyeth: Industrializing Pharma,
Anecdotally, most investors think ophthalmology will remain
IN VIVO, February 2009.) Moreover, if companies were previously put
a desirable place to invest for some time to come, especially if
off by the number of disparateand differently treatedeye diseases
recent M&A activity continues. Drug delivery options that obviate
warranting attention, theyve recognized the inherent advantages of
the need for patient-unfriendly eye injections and messy topical
marketing products to an audience that is both technically savvy and
applications continue to command significant attention from VCs.
So, too, do novel therapeutics for wet
and dry AMD and glaucoma. Drugs for
these diseases are on everyones wish
Exhibit 1
list, says Chaney. But as competition in
The Industrys Most Active Ophthalmology Investors
those particular eye diseases increases,
entrepreneurs will look for areas where
VENTURE CAPITAL FIRM
PRIVATE OPHTHALMOLOGY INVESTMENTS
the reimbursement hurdles are easier,
including uveitis and dry eye.

Versant Ventures

AcuFocus, Eyeonics, ForeSight Vision IV, ForeSight Vision

III, ForeSight NewCo II, Glaukos, Intralase, I-Therapeutix,
LenSx, NeoVista, NeuroTech Pharmaceutical, Refractec,
Transcend Medical, plus two additional companies

SV Life Sciences

AcuFocus, ESBATech, EyeTech Pharmaceuticals,

I-Therapeutix, LenSx, Lux Biosciences, NeoVista,
NeuroTech Pharmaceutical, Ophthotech, PanOptica

InterWest Partners

Glaukos, Inspire Pharmaceuticals, Intralase, LenSx,

MacuSight, Ophthonix, Revision Optics

Domain Ventures

Alimera Sciences, CoDa Therapeutics, Glaukos, Intralase,

Optherion, Oraya, Revision Optics

Polaris Venture Partners

Alimera Sciences, Arsenal Medical, I-Therapeutix

Johnson & Johnson

Development Corporation

iScience, Optherion, Othera

Three Arch Partners

iScience, Visiogen, Vision Care Ophthalmic Technologies

De Novo Ventures

iScience, SynergEyes, VitreoRetinal Technologies

Alloy Ventures

MacuSight, OptiMedica, SynergEyes

Essex Woodlands

Control Delivery Systems, Neovista, Oraya

DAG Ventures

I-Therapeutix, Ophthonix, OptiMedica

RETHINKING OPHTHALMOLOGY
In the past, one of the knocks [against
ophthalmology] had been that there
werent acquirers, notes Charles Warden,
managing director of Versant Ventures, by
far the most active VC in the space, with
investments in 15 different eye-focused
start-ups. Indeed, mention eye disease and
the first names that come to mind arent
the big device or drug makers but the specialty outfits: Allergan Inc., Alcon, Bausch
& Lomb, and the Japanese pharma Santen
Pharmaceutical Co. Ltd. While these
companies certainly proved their willingness to spend over the yearsin the past
decade, for instance, Alcon has inked
more than 20 deals and Allergan nearly a
dozen not including its 2002 spin-out of
AMOtheir smaller market caps have by
necessity also led to smaller deal values.
If the murmurings bubbling up from
business development heads at big pharmaceutical and med-tech firms are any
guide, the landscape of potential ophthalmology acquirers is likely to undergo
significant changes in the coming years.

Source: Elseviers Strategic Transactions; Company web sites

2009 Windhover Information Inc., an Elsevier company. | START-UP | OCTOBER 2009

OPHTHALMOLOGY
made the decision to become a bigger player in ophthalmology
easily reached with small numbers of sales repsthere are just 1,000
after Christopher Viehbacher took the reins as the drug companys
general ophthalmologists and another 1,000 retinal specialists in the
leader. Sanofi looked at dozens of companies, including many
US, for instance.
developing anti-VEGFs like Lucentis,
Theres also less pushback on the payor
he says. Now Fovea will become the
front because of the high unmet medical need
drug makers ophthalmic business unit,
associated with diseases such as glaucoma,
and the team, including Foveas scienAMD, and uveitis. Its an unmanaged area
tific founder, the renowned ophthalif you look at the per member, per month
mologist Jos Sahel, will evaluate all
spend, says Vlad Hogenhuis,MD, SVP and
ongoing and future eye-related drug
general manager of Merck & Co. Inc.s Neudevelopment. That means the Fovea
roscience and Ophthalmology franchise.
personnel could be tapped to oversee
But by far the biggest reason driving wouldthe gene-therapy-based ophthalmology
be acquirers into the space is the lucrative
programs Sanofi in-licensed earlier this
profits brought in by anti-vascular endothelial
year from Oxford BioMedica PLC.
growth factor inhibitors such as Genentechs
James Mazzo,
Meantime, Merck, which develLucentis, which in 2008 pulled in sales totaling
Abbott Medical Optics
oped timolol (Timoptic), the first
$875 million in the US alone. At one time we
modern glaucoma medicine to lower
had to educate all the [Big Pharma] players that
elevated intraocular pressure, will
wet AMD was a multi-billion opportunity, says
continue to look for innovative prodDavid Guyer, MD, the co-founder and former
ucts that leverage this core strength,
CEO of Eyetech and now a partner with SV.
according to Hogenhuis. In April, the company inked a deal with
Its a little easier now because the market sizes are appreciated.
Santen Pharmaceutical, gaining exclusive marketing rights in
various areas of the world, including North and South America,
WHOS BUYING
for the Japanese pharmas preservative-free prostaglandin analog
Among the big drug makers, Merck, Pfizer, Novartisand now
tafluprost (branded as Taflotan, Tapros, and Saflutan). Merck is also
Sanofihave internal capabilities that make them potential acquirlikely to try and leverage the technology from its RNAi subsidiary,
ers. According to Bernard Gilly, Foveas president and CEO, Sanofi

There isnt another

sector where all the
demographics are working
in the right direction.

Exhibit 2

Total Venture Investment in Ophthalmology (1999-2009)

Since 1999, VCs have poured nearly $1.8 billion in 58 private ophthalmology companies, inking 89 deals.

16

400

14

350

300
Number of deals (Dx/Device)
Number of deals (Rx)
Total VC funding raised

10

250

200

150

100

50

0
1999

2000

2001

2002

2003

2004

Year

SOURCE: Elseviers Strategic Transactions

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2005

2006

2007

2008

2009

Total Dollars ($ millions)

Number of Deals

12

OPHTHALMOLOGY
Sirna Therapeutics Inc., especially in AMD and glaucoma, but
Hogenhuis insists thats a longer-term objective as the division
continues to optimize delivery to the eye and improve both the
specificity and half-life of its RNA therapies.
Like Merck, Pfizer has in the past been active in ophthalmology, attempting to build off the success of its blockbuster prostaglandin analog latanoprost (Xalatan), which was acquired through
its 2002 acquisition of Pharmacia Corp. That same year, the New
York-based behemoth inked one of the first big money deals in the
AMD space, agreeing to commercialize Eyetechs Macugen in a transaction worth $100 million up front.
The advent of the vastly better therapy Lucentis cut short the commercial
lifespan of Macugen and seems to have
colored Pfizers efforts in the therapeutic space. Unconvinced by the therapeutic potential of NicOx SAs phase
II experimental glaucoma therapy, for
instance, Pfizer returned all rights
to the drug to the French biotech in
early August. Instead, the drug maker
Vlad Hogenhuis,
has shifted its focus to smaller, more
Merck
R&D-centered deals that allow access
to innovation for little money, such
as a stem-cell related deal with University College Londons Institute of Ophthalmology to develop
therapies for wet and dry AMD and a $3 million investment in the
Series A of EyeCyte Inc.
Novartis, meanwhile, appears to be making bets primarily by
leveraging the ophthalmology expertise of specialty player Alcon.
In 2008, Novartis plunked down $11 billion for a 25% stake in
Alcon, and has rights to purchase additional shares of the unit
at a preset price in 2010. In terms of novel therapies, the Swiss
pharma, which helped launch QLT Inc.s photodynamic therapy
verteporfin (Visudyne) back in 2000 and licensed ex-US rights
three years later to Lucentis, is actively developing a wet AMD
antibody targeting Il-1 beta, as well as a rho kinase inhibitor for
glaucoma. But if Novartis has bet big on Alcon, its hard to know
if it has the interestor the financial wherewithalto seek out
additional eye-related business development deals. A very expensive put option could force the pharma to spend another $28
billion to purchase another 52% of Alcon. Thus, having spent so
much money on the Alcon stake, it seems unlikely Novartis will
seek out additional eye-related business development dealsat
least for the near term.
AstraZeneca is also tied into Alcon. Never a big ophthalmology player, AZ signed a very interesting deal with Alcon earlier
this summer, providing the specialty eye company access to early
stage compounds that mightbased on preclinical datahave
some utility treating various eye diseases. The joint partnership
has Alcon doing the basic R&D but if compounds look promising,
there is the opportunity for AstraZeneca to claw back certain assets
and in-license others on a case-by-case basis. Ophthalmology is a
potentially interesting long term opportunity. We had to decide do
we build the capabilities ourselves or look for a partner, says Kris
Matykiewicz, VP of marketing for AZs new opportunities group.

This partnership with Alcon is the best option to most quickly

bring drugs to market.
Importantly for VCs, Sanofi s acquisition of Fovea, and Alcons
deals with both Novartis and AstraZeneca suggest a definite interest
in ophthalmology and perhaps a desire to be a bigger player in the
future. They arent alone. GSK has also overhauled its R&D priorities,
making ophthalmology one of its eight strategic areas of interest, created a dedicated drug performance unit called Ophthiris, and hired
as chief medical officer Ellen Strahlman, MD, a trained ophthalmologist whose industry experience has included stints at both Pfizer and
Bausch & Lomb. In February, the company announced its
own tie-up with UCL: a three-year deal in which the academic group will conduct further research on ophthalmic
molecules and reagents of interest to GSK.

Ophthalmology
is an unmanaged
area if you look at
the per member,
per month spend.

ABBOTTS DEALS PRESAGE AN IMPORTANT NEW

OPHTHALMOLOGY PLAYER

GSKs announcements amount to toe-dipping in

comparison to Abbott, which made an undeniable
splash this year with its purchases of AMO and Visiogen.
Abbotts January purchase of AMO gave the diversified
MD,
health care giant a breadth of offerings, including the
Array multifocal lens and a femtosecond laser treatment
for presbyopia. (See Abbott Buys AMO, Gets Double-Digit
Growth Engine, IN VIVO, January 2009.) But with no
accommodating intraocular lens technology in-house, the company
was missing out on one of the highest growth areas of the vision
correction market. Thus, it made perfect sense for Abbotts new division to scoop up Visiogen, the most advanced company in a crop
of developers of presbyopia IOLs that includes laggards Lenstec
Inc., Tekia Inc., NuLens Ltd., Calhoun Vision Inc. and PowerVision Inc. (See Ophthalmologys Next Frontier, Medtech Insight,
January 2007.)
Having raised $70 million in private money and another $8 million in debt through its Series E financing in April, the 5x return garnered by Visiogens backers, which include Novartis Venture Fund,
Technology Partners, Prospect Venture Partners, and New Leaf Venture
Partners, provided exactly the hoped-for outcome. Jeani Delagardelle,
managing director at New Leaf Venture Partners and an investor in
Visiogens first institutional round, says Visiogen had a long list of characteristics VCs look for: it addressed large markets and unmet needs,
with novel technology, strong IP, and low reimbursement risk. There
arent many investment opportunities that can check all those boxes.
In a fairly turbulent market, we were able to get multiple term sheets
for the financing earlier in the year, she says.

EXITS FEW AND FAR BETWEEN

Indeed, even with recent interest from new acquirers, exits like
Visiogens or Foveas are still far from the norm. An analysis by STARTUP shows that in ophthalmology there have been just 12 device exits
and another 9 pharmaceutical deals in the past 10 years. That lack of
deal-flow makes it impossible to calculate average VC returns for the
therapeutic area as a whole. (See Exhibit 3 for an analysis of major exits,
both public and private.) In addition to Visiogen, notable device exits
include Allergans 2006 acquisition of Groupe Corneal Laboratories
for $217 million, and AMOs purchase of WaveFront Sciences Inc.

2009 Windhover Information Inc., an Elsevier company. | START-UP | OCTOBER 2009

OPHTHALMOLOGY
Exhibit 3

Notable Ophthalmic Acquisitions (1999-2009)

COMPANY (DATE)

ACQUIRER

ANALYSIS

Fovea (2009)

Sanofi-Aventis

Sanofi opts into ophthalmology with the $538 million acquisition of Fovea in October 2009. The French pharma pays
an undisclosed up-front plus clinical-based earn-outs, providing financial incentives for Foveas management team to
remain post-acquisition. The biotech, which has three clinical assets (all in-licensed) including a Phase II topical medicine for allergic conjunctivitis, will operate as a stand-alone unit within Sanofi, responsible for the larger companys
ophthalmic drug development.

ESBATech (2009)

Alcon

ESBATechs decision to refocus its large molecule platform on ophthalmic targets pays off big. Alcon acquires in September for $150 million upfront, plus another $439 million in earn-outs tied to the achievement of R&D milestones. As
part of the deal, Alcon gets all technologies and IP related to ophthalmic conditions. ESBATechs remaining platforms
will be spun off into a new company, Delenex Therapeutics, with backing from existing shareholders, including SV Life
Sciences, Clarus Ventures, and HBM BioVentures.

Visiogen (2009)

Abbott Labs

Just eight months after paying $2.86bn for Advanced Medical Optics, Abbott continues its buying spree, taking out
privately-held intraocular lens maker Visiogen for $400mm in cash. The device start-ups Synchrony, a 3-D dual-optic
accommodating IOL and pre-loaded injector, offers patients a full range of vision because it mimics the eyes natural
ability to change focus; its already been launched in Europe and could hit the U.S. markets by 2010. Since its 2001
inception, Visiogen has raised over $80mm in financings, resulting in a nice return for the companys backers, which
include Three Arch Partners, New Leaf Venture Partners, and Novartis Venture Fund.

Advanced Medical
Optics (2009)

Abbott Labs

One year after AMO attempts and fails to acquire Bausch & Lomb, Abbott takes out the company in a deal worth
$2.86bn. The deal makes Abbott, which plans to run AMO as a stand-alone business unit called Abbott Medical Optics,
a central player in the ophthalmic space. AMO, which spun off from Allergan in 2002, is a leader in laser vision correction (Lasik) products, cataract surgical devices, and contact lens care products. Marketed products/ technologies
include: ReZoom; Verisyse; Tecnis IOLs; and Visx, IntraLase and Advanced CustomVue Lasik technologies.

Eyeonics (2008)

Bausch & Lomb

Newly private B&L acquires Eyeonics for an undisclosed amount, gaining access to the privately-held companys IOL
Crystalens, the only FDA-approved accommodating IOL that has already captured about 30% of the U.S. presbyopic
IOL market. Eyeonics was founded in 1999 as C&C Vision and had 2007 revenues of $34 million. Outside analysts
predict Eyeonics staffers will become the cornerstone of B&Ls U.S. surgical business.

Alcon (2008)

Novartis

In a bid to diversify, Novartis buys 25% of Alcon for about $11bn. A put option from Alcons owner Nestle can force the
Swiss pharma to buy another 52% of the company between early-2010 and mid-2011 for an additional $28 billion. Novartis says Alcons products complement its own contact lens and ophthalmic businesses, giving the Big Pharma access to
revenues from the sales of prescription products such as Travatan for glaucoma, Vigamox for eye infections, and Pataday
and Patanol for allergies, as well as over-the-counter offerings. Alcon also has a robust device business focused on cataract surgeries, vitreoretinal procedures for retinal detachment, macular holes, vitreous hemorrhage, and laser correction.

Bausch & Lomb

(2007)

Warburg Pincus

One year after it was forced to take a key contact lens solution off the market because of the potential for dangerous
eye infections, Bausch & Lomb was taken private by Warburg Pincus in a deal worth $3.67bn in cash and another
$830mm in debt. Founded in 1853, the ophthalmic giants biggest businesses are contact lenses and eye care drugs,
including ocular vitamins, OTC medicines, and brand and generic prescription products for diseases such as glaucoma
and dry eye. In December 2006 B&L acquired Alimera Sciences consumer eye allergy unit, which recently got FDA
approval for the antihistamine Alaway.

IntraLase (2007)

AMO

Advanced Medical Optics acquires IntraLase for $808mm in cash. Founded in 1997, IntraLase specializes in a bladesfree technology used in Lasik surgery. The procedure has been used in over 600,000 surgeries to date and is sold
in the US and internationally. IntraLase, which went public through an $87mm IPO in 2004, grossed $94.4mm in
revenues in 2005. While the deal solidified AMOs LASIK offerings, its cost helped set up Abbotts take-out of AMO two
years later. Up until the Abbott take-out, AMO was one of the most aggressive acquirers, purchasing in 2004 VisX and
Pfizers surgical ophthalmology businesses for $1.26bn and $450mm respectively.

Eyetech Pharmaceuticals (2005)

OSI
Pharmaceuticals

OSI makes a big bet to diversify beyond its cancer and diabetes treatments, purchasing Eyetech for nearly $900 million in
cash and stock just one year after the ophthalmology company went public, raising $146 million in the process. The deal
gives OSI Macugen, the first anti-VEGF therapy for age-related macular degeneration to hit the market. But Macugens
leadership position lasts only until 2006 when Genentech launches Lucentis, a competing anti-VEGF inhibitor with better
efficacy. Macugens market share collapses and OSI takes steps to move away from ophthalmology. Ex-Eyetech officials,
meanwhile, play a critical role in forming the next wave of ophthalmology start-ups, including PanOptica and Ophthotech.

Oculex Pharmaceuticals (2003)

Allergan

Allergan buys privately-held Oculex (intraocular pharmaceuticals and delivery systems) for about $230mm in cash, two
years after the two companies inked a collaboration to discover and develop ophthalmic meds based on the start-ups
drug delivery technology. Central to the deal: Oculexs lead compound, Posurdex, a biodegradable, sustained-release
implant that delivers dexamethasone to the specific site of the disease at the back of the eye and is a potential treatment for macular edema, diabetic retinopathy, and uveitis.

Source: Elseviers Strategic Transactions

OCTOBER 2009 | START-UP

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OPHTHALMOLOGY
While pSvida Ltd.s 2005 take-out of drug delivery
play Control Delivery Systems Inc. for $104 million
provided a step-up of 2.7, a reasonable exit for Essex
Woodlands, Brookside Capital, and other CDS backers, the merger of privately held Sirion Therapeutics
Inc. with Sytera Inc. in 2006 represents less an exit
than an attempt by the two biotechs backers to create
critical mass.
Meanwhile, Sanofi s purchase of Fovea and Alcons recent decision to take out large molecule player
EsbaTech Inc. may be suggestive of pharmaceutical acquirers future leanings. The success of the antibody fragment Lucentis has eye companies, which
have tended to focus on repositioning or reformulating small molecules, searching for technologies that
allow the creation of anti-VEGF follow-ons as well
as other more novel therapies. Lucentis definitely
changed things, notes Graham Boulnois, a partner
at SV that invested in EsbaTechs 2006 $63 million
Series B recapitalization.
Tim Haines, a partner with Abingworth Management and a Fovea board member agrees, noting that
one reason Fovea was so attractive to Sanofi was
that it wasnt vying to supplant anti-VEGF therapy.
We think that train has left the station, he says.

Exhibit 4

Out-licensing Activity by Eye Disease

Partners most interested in age-related macular degeneration when it comes to
licensing, but conjunctivitis and dry eye also command attention. (Other category
includes alliances that cross multiple eye disease indications.)
(Percentage of
Total Deal Number)

Other

20%

Vision Correction

AMD

27%

8%

Uveitis

3%

3%
3%

IOL

Anti-Infective

12%

7%
10%

7%

Conjunctivitis

Glaucoma
Dry Eye

DME

SOURCE: Elseviers Strategic Transactions

Exhibit 5

Total Venture Investment by Specific Ophthalmic Indication (1999-2009)

Investments in age-related macular degeneration and vision correction dominate when analyzed as a function of number of deals and
dollars raised. Glaucoma, diabetic macular edema, and intraocular lenses are also commanding considerable interest.
700

600

Total Dollars ($millions)

27
500

400

300

16

200

100

10

4
2

Conjunctivitis

Diagnostic

4
0
AMD

DME

Dry Eye

Glaucoma

Uveitis

5
Drug Delivery Vision Correction Cataract/IOL

(5)
Undisclosed

*Number of venture deals (1999-2009) per indication in parentheses

SOURCE: Elseviers Strategic Transactions

2009 Windhover Information Inc., an Elsevier company. | START-UP | OCTOBER 2009

OPHTHALMOLOGY

Eyeing the AMD Market

Given the effectiveness of LucentisGenentechs antibody fragment that stops
progression of AMD in virtually all patients tested and leads to improved vision
33% of the timeone might think interest in developing new therapeutics for
the disease would have dimmed. Not so, says SV Life Sciences partner David
Guyer, MD: Lucentis is an improvement [over existing therapies], but its still not
a cure, he says.
The potential to improve anti-vascular endothelial growth factor (VEGF) therapy
has driven investment in a number of companies, including Ophthotech and Yale
University spin-out Iconic Therapeutics Inc. Thats good news for Cleveland
Clinic spin-off AngioQuest Inc., a start-up developing two non-VEGF mediated
therapies and a biomarker for AMD that is currently in the process of raising
a Series A. Novel treatments for the dry form of AMD, whose pathophysiology
remains mysterious but is linked to the formation of fatty, yellow deposits called
drusenare also commanding significant venture money. As SVs Guyer puts it,
dry is the new wet.
To date, most of the money has gone to fund the development of so-called
complement inhibitor molecules, with eight different firms vying to be the first to
lock up bragging rights to a viable therapy. In addition to Ophthotech and Jerini
Ophthalmics Inc., a division of Jerini AS in the process of being spun out after
that companys 2008 purchase by Shire PLC, other start-ups developing drugs in
this pathway include Potentia Pharmaceuticals Inc., Othera Pharmaceuticals
Inc., Taligen and Optherion Inc. (See Biotechs Eye Adult Macular Degeneration,
START-UP, July 2009.) The science of complementwhich attempts to forge a
link between inflammation and AMDis moving so fast and the race is now so
crowded that some VCs say its overheated. Handicapping the various start-ups
is also impossible given the paucity of clinical data. Theres just four years of
biology supporting the complement story, notes Anthony Adamis, MD, an Eyetech
co-founder and now CEO and president of Jerini Ophthalmic. We wont know for
sure what works until we get into the clinic.
Venture investors believe that future AMD therapy will not be limited solely to
therapeutic approaches, however. Current treatments such as Lucentis require
regular monthly injections, which are not only uncomfortable for patients but are
also a drain on physicians, who must allocate large blocks of time to deliver the
therapies. The drug works but the method of treatment is so cumbersome, notes
Mark Brooks, of Scale Venture Partners. Thus, delivery or device approaches that
increase the time between injections or obviate their need altogether are gaining support. On the delivery side, two biotechs worth watching are Neurotech
Pharmaceutical Inc., whose encapsulated cell technology administers the neuroprotectant ciliary neurotophic factor (CNTF) to the back of the eye via a rice-grainsized biodegradable polymer capsule, and Buckeye Ocular Inc., a pre-Series A
drug/device play that uses alternating current to drive drugs administered via a
contact lens into the eye. The device plays NeoVista Inc. and Oraya Therapeutics
Inc. also hope to become major players in the AMD space if clinical trials of their
respective beta radiation and IRay technologies yield positive clinical trial data.
(See NeoVista: Toward A More Sustainable Treatment Paradigm for AMD, IN VIVO,
March 2009.)

OCTOBER 2009 | START-UP

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Fovea, an in-licensing play whose lead product is

a Phase II fixed combination of prednisolone and
cyclosporine delivered via eye drops, is also developing two earlier-stage compounds, an intravitreal formulation of a plasma kallikrein inhibitor
for retinal vein occlusion in-licensed from Dyax
Corp. and a bradykinin B1 receptor antagonist
for diabetic macular edema obtained from Solvay
SA. The deals $538 million purchase price affords Foveas backerswhich aside from Abingworth include The Wellcome Trust, and Credit
Agricole Private Equity, among othersa tidy
exit. Although the ultimate price tag is tied to
earn-outs, Foveas Gilly says the drug maker is
paying an undisclosed but significant chunk
up front, with the rest due upon achievement of
concrete, clinical milestones that could materialize in as little as three years. The internal rate
of return is very nice agrees Haines who has
invested in both the biotechs $25 million Series
A and $44 million Series B.
If Foveas acquisition suggests big pharma
are eager to tap therapies beyond anti-VEGF, the
take-out of EsbaTech shows theres also a much
sharper focus on the utility of [large molecule]
technologies, in ophthalmology, says SVs Boulnois. Indeed, EsbaTech, which was one of the
earliest next-generation antibody companies to
emerge, struggled to gain traction until in 2005
it refocused its single chain antibody platform
around the local delivery of its anti-TNF antibody
fragment to treat uveitis. According to Boulnois,
Alcon had been following EsbaTechs progress for
some time, but was unwilling to pull the trigger
until the biotech showed in Phase I clinical trials that it could safely and adequately deliver the
anti-inflammatory via eye drops. Talks then progressed quickly, resulting in a deal worth $150
million up front, a 2x return for Series B backers
SV, Clarus Ventures, and HBM Bioventures.
Like Fovea, EsbaTech will operate as an independent subsidiary of Alcon and become its
large molecule center. Predefi ned R&D milestones worth up to an additional $439 million
may sweeten the VCs return significantly, to as
much as 9 times the initial investment. (Even
better, the Alcon acquisition is limited solely to
EsbaTechs ophthalmology intellectual property;
the biotechs investors have retained the non-eye
related IP and are in the process of spinning out
a new entity, Delenex Therapeutics AG, to develop the remaining rheumatology and respiratory pipeline candidates.)
The potential for a nearly 10x return and
ophthalmologys newfound visibility should have
VCs thinking hard about the merits of spinning

OPHTHALMOLOGY
drew interest; among the four deals inked in the period, two had
potential deal values in excess of $50 million: Alimeras partnership with Control Delivery Systems to in-license Iluvien (formerly
known as Medidur), an injectable implant that delivers fluocinolone acetonide to the back of the eye; and Santen Pharmaceuticals
decision to pay $50 million up front for Asian rights to MacuSight Inc.s specially formulated version of rapamycin, known as
sirolimus. Because 12 deals involved products that spanned ophthalmic indications, these partnerships were classified as Other
in START-UPs analysis. (See Exhibit 4.)
Not too surprisingly, the trends illustrated in Exhibit 4 are
closely mirrored by various venture fi rms funding commitmentsand again the emphasis is on treatments for diseases that
blind. (See The Eyes Still Have It: Finding Cures For Diseases that
Blind Remains Top Focus For Investors, Entrepreneurs, START-UP,
September 2007.) From 1999 to present day, VCs have invested
in 58 privately held ophthalmology companies at various stages
of development. During this time period, 18 biotechs pulled in
more than $700 millionroughly half of all the venture money
invested in eye diseasesto develop treatments for AMD (See Exhibits 5 and 6, and the sidebar, Eyeing the AMD Market.)
Beyond AMD, private backers spent nearly $400 million to
finance multiple players in the IOL, cataract, and vision correction markets. Glaucoma also remains an area of avid interest: nine

offor at least partneringassets with potential utility in eye

diseases. Two companies with potential AMD therapiesCatalyst
Biosciences Inc. and Taligen Therapeutics Inc.could potentially carve out their ophthalmology offerings while they continue
to develop their respective hemophilia and rheumatoid arthritis
therapies, for instance. Similarly, Resolvyx Pharmaceuticals Inc.,
which pulled in $29 million in financing in 2008 from a venture
syndicate, is attempting to build a pipeline of novel candidate
molecules called resolvins to treat a variety of inflammatory diseases. In August, the company announced positive Phase II data in
dry eye for its topical eye drop resolvin, Rx-10045. With opportunities in its pipeline to apply resolvins for multiple diseases, Resolvyx may consider partnering the ophthalmology-related assets.
Its an intriguing option, says Jamie Nichols, PhD, Resolvyxs
COO and head of corporate development.
More than likely the company will wait and see what comes
of the recent $10 million licensing/option agreement inked between next-generation biologics developer Pieris AG and Allergan. Beyond the modest up-front, financial details of the deal,
announced one day after Alcon and EsbaTech revealed their tieup, were scarce, but it is known that Allergan is picking up the
discovery and development tab for the ophthalmology molecules.
Moreover, its certainly good news for Pieristhe Allergan deal is
the biotechs first major collaboration and could provide the platform some much needed validity.

If private ophthalmology exits dont

provide many benchmarks for future
deals, private out-licensings like Pieris
deal with Allergan may be more helpful. Using Elseviers Strategic Transactions database, START-UP analyzed
alliances inked since 1999 by privately
held device or drug ophthalmology
companies and identified 60 pertinent
deals totaling more than $985 million
in commitments. These partnerships
were also parsed according to therapeutic use. In terms of deal numbers,
AMD assets or related procedures commanded the most attention, with 16
companies inking partnerships worth
north of $660 million. In addition to
Pfizers licensing of Macugen, other
notable AMD deals include a 2008
partnership that gave Otsuka Pharmaceutical Co. Ltd. Japanese rights to
Acucela Inc.s novel visual modulators
for the dry version of AMD.
In-licensors have also signed
seven partnerships each for either vision correction and IOL technologies
or conjunctivitis treatments. Therapies for diabetic macular edema also

Exhibit 6

Analysis of Ophthalmology Venture Investment By Series Raise

VCs put slightly more money to work in Series C stage companies than A or B, but in terms of
deal number, Series A companies garnered the most interest.
500

Ave = $21.21

Ave = $25.43

450
Ave = $15.53
400
350
Dollars ($ Millions)

WHERE THE VENTURE MONEY

IS FLOWING

(11)

(8)

Ave = $25.13

(12)

300

(12)

250
(18)

(10)

200

(8)

150
100
50
(2)
0
A

D-F

Series Raise
Total VC Dollars (Device/Dx)
Total VC Dollars (Pharma)

NOTE: Number of companies indicated in parentheses

SOURCE: Elseviers Strategic Transactions

2009 Windhover Information Inc., an Elsevier company. | START-UP | OCTOBER 2009

OPHTHALMOLOGY
Exhibit 7

Discovery or In-licensing?
In-licensing continues to be the preferred approach to building ophthalmology companies when analyzed by
both number of new company starts and capital raised.
Number of New Ophthalmology Starts

Discovery
In-licensed
Compounds

(10)

(18)

Percentage of VC Funding To In-licensing or

Discovery Ophthalmology Companies (Pharma Only)

Discovery
($190.5
million)

In-licensed Compounds
($778 million)

SOURCE: Elseviers Strategic Transactions

glaucoma players pulled in over $150 million in venture money

in 10 different deals during the past decade. Inotek Pharmaceuticals Corp. and Aerie Pharmaceuticals Inc. are among the
privately held companies vying to develop a drug that can supplant soon-to-be-generic Xalatan. The race is also on to develop
a device approach to treat the disease, with VCs pouring money
into companies such as Glaukos Corp., Transcend Medical Inc.,
and iScience Interventional, which since 2008 have raised a $35
million Series D, a $35 million Series B, and a $20.5 million Series
F, respectively.

IN-LICENSING: THE PREFERRED MODEL

FOR COMPANY CREATION?
One reason VCs have been enamored with ophthalmology is
the opportunity it provides to lessen the riskand development
costsof a companys creation via in-licensing. As researchers
learn more about the pathophysiology of specific eye diseases,
there have been numerous opportunities to repurpose drugs that
have already been vetted in preclinical or clinical studies for use
in the eye. Indeed, anti-VEGF inhibitors, originally discovered
as a way to starve tumors of their blood supply, are an excellent
example of this knowledge transference. (See Post-Macugen, Still
In-licensing to Uncover Value in Ophthalmology, START-UP, July
2006.) An analysis by START-UP shows that for the past 10 years
in-licensing was the prevailing strategy du jour for ophthalmology companies developing drug-based solutions, resulting in the
creation of Fovea, Lux Biosciences Inc., Ophthotech Corp.,
PanOptica, and Sirion Holdings Inc. (See Exhibit 7.)
But this approach only works if there are quality assets for
the taking. In the past this model may have worked well in ophthalmology because of the industrys historical lack of interest in
developing treatments for eye diseases. Given big drug makers
purported interest in ophthalmology, pulling de-risked assets out

OCTOBER 2009 | START-UP

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of their laboratories may become harder and harder. Both Sanofi

and AstraZenecas molecules, for instance, are presumably off the
table, given their recent respective deals with Fovea and Alcon.
As a result, the pendulum may swing back to platform-like approaches la EsbaTech or big discovery bets, where the risks are
greater, but so too are the rewards. Indeed, viewed through this
lens, ophthalmology may be seen as a microcosm of more general
VC investment practice, where there is growing realization that
pharmaceutical companies wont purchase incremental advances
because of potential pushback from payors.
[A#2009900201]

Reporting contributed by Christopher Morrison, Melanie Senior and

Mary Stuart.

E-MAIL THE AUTHOR AT: E.Licking@Elsevier.com

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