E A Market Opportunity Not Yet Priced Into Aerie Pharmaceuticals, Inc.

Take a look at the chart below, and try and guess on which day Aerie Pharmaceuticals, Inc. (NASDAQ:AERI) announced that its phase III trial of its lead candidate failed to its primary endpoint.

Click on picture to enlarge

(source)

Correct. On April 23,2015, Aerie reported that Rhopressa did not demonstrate non-inferiority to timolo, the current standard of care treatment for patient suffering from glaucoma and a range of other eye diseases.

Another glance at the chart reveals that, while the company has recovered slightly from the 75% losses it suffered during the three days subsequent to the announcement, it still trades at a close to 50% discount to its pre-announcement valuation. Herein lies an opportunity.

Following the release, Aeri sat down with an FDA review panel and completely redesigned its Rhopressa trials – a redesign that weighs heavily towards success based on previous results. The results from the redesigned trial are due out before the end of this month, and as yet, it looks as though markets have not priced in the potential for success. So, with this said, let’s take a look at the redesigned trial and attempt to gauge what the results – whatever side of the markets they come out on – might mean for the company and Rhopressa going forward.

First, for those not familiar with the treatment here is a quick outline of the science that underpins it and its target indication – glaucoma. Glaucoma is an eye disease that can cause both long term and short term nerve damage in the eye. It primarily arises from increased ocular pressure, and can lead to visual impairment or blindness if gone untreated. There are two main types of treatment, both of which target reduced intraocular pressure – surgery or medication (usually eye drops). Rhopressa is the latter. The treatment inhibits what is called Rho Kinase, and in doing so, promotes the outflow of fluid from the trabecular meshwork in the eye. The reduction in fluid reduces the intraocular pressure, and the glaucoma recedes. At least, this is Aerie’s hypothesis.