Finding The Fit For Ophthalmology In The New Pfizer

The merger of Pfizer and Allergan might raise broader questions about the fairness – or long-term viability – of the corporate tax code in the US. But it also has generated some angst over Allergan’s future as a stalwart in ophthalmology.

The merger of Pfizer Inc. and Allergan PLC might raise broader questions about the fairness – or long-term viability – of the corporate tax code in the US. But, as former Speaker of the House Thomas "Tip" O’Neil once famously said about all politics being local, the more pressing concern for the ophthalmology community is whether the creation of the world’s largest pharmaceutical company will, in effect, rob the growing sector of one of its leaders.

The angst over Allergan isn’t new. For more than two years, a handful of players have made moves on Allergan, some welcome, some not. The bid by Valeant Pharmaceuticals International Inc. grew contentious as Allergan management resisted the campaign led by activist shareholders and Valeant. Allergan resisted the merger on a few counts, but one notable concern was the perception that Valeant did not invest in innovative technologies.

The high profile – and sometimes rancorous – negotiations ended when generics pharmaceutical company Actavis swept in to acquire Allergan. [See Deal]Led by CEO Brent Saunders, Actavis promised to keep Allergan focused on its core ophthalmology and aesthetics businesses. Actavis is still selling off its core generic pharmaceuticals line to Teva Pharmaceutical Industries Ltd.[See Deal] It renamed the combined company Allergan, a move that pleased many who saw the name as a critical piece of the ophthalmology industry since 1948, when Gavin Herbert founded the company around an eyedrop solution.

The deal closed earlier this year, so the new Allergan hasn’t filed an annual report. But according to the report filed by the original Allergan in 2014, more than half of the company’s $6 billion in pharmaceutical sales come from eye care and ophthalmology products. The new Allergan moved aggressively over the summer, buying medtech device companies Oculeve Inc. and AqueSys Inc.[See Deal][See Deal]] The two firms are developing devices to treat dry eye disease and glaucoma, respectively. (See (Also see "Ophthalmology Surgeons, Companies Finding Solutions In Medtech" - Medtech Insight, 18 Sep, 2015.).) Allergan also signed a licensing deal with Mimetogen Pharmaceuticals Inc. for the rights to a clinical-stage drug for the treatment of dry eye. [See Deal] (See Exhibit 1.)

CEO Saunders appears intent upon moving forward in ophthalmology with great gusto. At the November Ophthalmology Innovation Summit conference in Las Vegas, Saunders shared a story that demonstrated the personal role he played in the Oculeve acquisition. He’d heard first of the company at a clinical meeting where a physician relayed a story that he’d been involved in a clinical trial with Oculeve’s OD-01 device. At the conclusion of the trial, the physician was surprised when a patient began crying when the device had to be returned. Saunders took note of the company, and then when he heard the same story from a different doctor he knew Oculeve deserved consideration. This story convinced many in ophthalmology that Allergan’s heart – and mind – would remain in ophthalmology.

Exhibit 1

Allergan's Recent Deal History

Date	Deal
Nov. 2015	Pfizer, Allergan combine in $160bn deal
	Mimetogen finds new partner for tavilermide in Allergan
Sept. 2015	Allergan buys AqueSys for $300m
July 2015	Teva opts for Allergan's generics business, paying $40.5bn
	Allergan pays $125m up front for ophthalmic device start-up Oculeve
Nov. 2014	Actavis becomes white knight for Allergan; buys firm for $65bn
April 2014	Valeant proposes to buy Allergan for $45bn in cash and stock

Strategic Transactions

Now, the Pfizer-Allergan combination certainly is stripping some of those comforts away. The $160 billion merger will create the world’s largest pharmaceutical company, one with a broad portfolio in cardiovascular disease, oncology and vaccines as well as Allergan’s concentration in gastrointestinal disease, aesthetics and, of course, ophthalmology. [See Deal]

The worry in ophthalmology circles isn’t Pfizer’s commitment to early-stage investments, as was the case with the Valeant merger. Rather, the larger concern centers on the breadth of the new Pfizer. Will its broad focus diminish the importance of ophthalmology? Pfizer and Allergan executives started addressing that early on. In a call with analysts on the day the deal was announced, Pfizer CEO Ian Read noted the deal would expand Pfizer’s reach into new areas like ophthalmology, pointing out the existence of a “natural connection” already existing between ophthalmology and Pfizer’s core neuroscience program. (See Exhibit 2 for a select list of Allergan’s line of eye care products.)

Ultimately, the faith of the ophthalmology community centers on Brent Saunders. In early speculation about the Pfizer-Allergan deal, some were hopeful he would emerge to lead the combined company. Such a role may still be in Saunders’ future, but he’ll help lead the new Pfizer as chief operating officer and president. Saunders’ place near the top of the executive team has been a comfort to those who have grown to know him. Prior to leading Actavis (which became Allergan), Saunders served as CEO and president at Forest Laboratories. Before that he earned a name in ophthalmology as CEO of Bausch & Lomb, which he ran until Valeant acquired the company in 2013.

In the call with analysts as well as in statements, Saunders has insisted the Pfizer deal will benefit ophthalmology. He noted that Actavis management took many steps to ensure Allergan’s eye care businesses remained untouched. He said Pfizer had no plans to make any changes in Allergan’s Southern California units where ophthalmology and aesthetics are based. At one point, an analyst asked about the “protection” of Allergan’s eye care and aesthetics businesses in the Actavis-Allergan merger. Saunders, in his reply, said, “The reason we, as you said, protected our colleagues in California is because they are quite good at what they do. Southern California is the epicenter of eye care innovation. Our eye care franchise will stay in California. Medical aesthetics is based out of California. Our discovery unit is in California. They are all together, including marketing and R&D and I suspect that that will stay there for the long term. And so it's not about protecting people, it's about keeping the best people in the right location to drive value in the future and that will be the philosophy we approach integration with here as well.”

In the same call, Saunders pointed to Pfizer’s international reach as a major boost for the company’s eye care products. “We can't quantify revenue synergies at this point, but I think the thing is just to plant some ideas for you very quickly,” he said. “Think about some of the most exciting and biggest markets that we have actually zero or low presence in. Take Japan, for example, the second largest pharmaceutical market in the world. You have a multibillion-dollar business in Pfizer that already exists there. We're trying to figure out how to bring our product flow into Japan in an efficient way. The issue is solved through this transaction.” Saunders says most of Allergan’s aesthetics and eye care products have the green light to sell in China, but the sales and marketing outreach has been limited to so-called Tier 1 cities. Now the company can reach deeper into that massive market.

In short, Saunders sees the merger of Allergan and Pfizer as a transaction that will lift all boats, including ophthalmology.

The comments of Pfizer and Allergan management have resonated with many analysts. Liav Abraham, senior analyst at Citigroup Global Markets Inc., says Allergan’s push into ophthalmology after the Actavis acquisition should be seen as a positive sign of stronger interest in eye care. “Given AGN’s leading positioning in the ophthalmology space (both commercial and in R&D), we anticipate that this therapeutic area will remain a core strategic focus of the combined entity,” Abraham writes. “This, coupled with the fragmentation in the ophthalmology space, which consists of multiple companies pursuing innovation in both front and back of the eye diseases, suggests continued robust activity on both the business development and R&D front going forward, we believe." Abraham, like many, points to Saunders’ success managing past mergers and his history with ophthalmology as indicators of what Pfizer’s future interests will be.

Exhibit 2

Allergan's Eye Care Products

Dry Eye
Restasis	Prescription eyedrop with regulatory approval to help increase tear production in cases where tear production may be reduced by inflammation due to chronic dry eye.
Refresh and Optive	Lubricant eyedrop to treat dry eye symptoms including irritation and dryness due to pollution, computer use, aging and other causes.
OD-O1	Intranasal neurostimulation device developed by start-up Oculeve to stimulate tear production. Allergan acquired the company in 2015.
Tavilermide	A small cyclic peptidomimetic of NGF protein in the eye, which maintains corneal nerves and epithelium. Allergan licensed the product from Mimetogen Pharmaceuticals and will pay Phase III clinical trial costs.
Glaucoma
Lumigan	Topical treatment indicated for the reduction of elevated intraocular pressure in patients with glaucoma or ocular hypertension.
Ganfort	Bimatoprost and timolol maleate combination designed to treat glaucoma and ocular hypertension in patients who are not responsive to treatment with only one medication.
Alphagan	Ophthalmic solutions that lower intraocular pressure by reducing aqueous humor production and increasing uveoscleral outflow.
Combigan	Brimonidine and timolol combination designed to treat ocular hypertension in glaucoma patients who are not responsive to treatment with only one medication or need additional therapy.
Inflammation
Acuvail	Nonsteroidal, anti-inflammatory indicated for the treatment of ocular pain and inflammation following cataract surgery that was approved by the FDA in 2009.
Infection
Zymaxid	Next-generation anti-infective product indicated for the treatment of bacterial conjunctivitis.
Allergy
Lastacaft	Topical allergy medication for the prevention and treatment of itching associated with allergic conjunctivitis.
Elestat	Used for the prevention of itching associated with allergic conjunctivitis.
Retinal Disease
Ozurdex	Sustained-release drug delivery system that can be used to locally and directly administer medications to the retina.

Allergan annual reports (published prior to merger with Actavis); Published reports