PSivida: An Extremely Undervalued Ophthalmology Small Cap Investment With Upcoming Catalyst


Submitted by Scott Matusow as part of our contributors program.

PSivida: An Extremely Undervalued Ophthalmology Small Cap Investment With Upcoming Catalyst

pSivida (PSDV) has been on stockmatusow’s radar for over one year now, as we first wrote about the company in April of 2012 detailing the company’s good long term prospects. When it comes to small cap companies, the first thing we look for is strong leadership. Dr. Paul Ashton, pSivida’s CEO certainly fits the bill as an honest and straight-forward leader. For our first article, I had the pleasure of interviewing Dr. Ashton and was impressed with his straight-forward no-nonsense talk.

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I always say “bet on the jockey, not the horse,” and in pSvidia’s case, I feel both the jockey and the horse have very strong potential.

Not only does Dr. Ashton handle the company’s finances very well while operating on a small budget, he has also created and developed three of the only four products approved by either the US or EU for the long-term, sustained-release delivery of drugs to treat chronic eye disease.

The only criticism I have of Dr. Ashton is that he might be a bit too conservative in his approach, and is not the most “exciting” speaker in terms of delivering company presentations in conferences and earnings calls. However, I would prefer to have a CEO act in this manner rather than over-guiding and making “pie in the sky” promises, which is almost always a sign of poor management. In my opinion, Dr. Ashton is an honest man with good character — something investors should take solace in.

Product Pipeline

pSivida specializes in treatments for eye conditions. The company’s products address issues with glaucoma, posterior uveitis, and diabetic macular edema (DME). ILUVIEN is being developed to treat DME, Medidur to treat uveitis, and Durasert for glaucoma. Tethadur may be the company’s most valuable technology platform because it has the potential to deliver peptides, proteins, and antibodies with a better safety and efficacy profile than other options.

In 2012, the global ophthalmic drugs market reached $18.7B, and is expected to continue growing.

The age-related macular degeneration (AMD) and diabetic retinopathy segment of that market generated just over $3 billion in 2010. Visiongain projects those revenues to climb to nearly $5.1 billion by 2014 while ten-year forecasts for ocular disease therapeutics predict steady growth.

According to Dr. Ashton,
[quote]

“Back-of-the-eye diseases are the leading cause of blindness in the developed world, but they’re very difficult to treat. The challenge is delivering drugs to the back of the eye.

There have been big advances in wet AMD therapies recently, targeting vascular endothelial growth factor (VEGF). Excessive VEGF production causes blood vessels to become fragile, allowing fluids to leak into surrounding tissues where they may damage the macula and create blind spots in central vision.”
[/quote]

Eye drops have been a standard delivery mechanism, but they don’t penetrate to the back of the eye. GlaxoSmithKline (GSK) and Sanofi (SNY) are developing penetrating eye drops, which could have profound implications for glaucoma simply because people forget to administer eye drops, especially for conditions that aren’t painful. Therefore, physicians never know for certain if the drugs are ineffective or whether the patient is non-compliant.

Standard therapy has been Genentech’s (Genentech is a member of the Roche Group (RHHBY) ) VEGF inhibitors Lucentis (ranibizumab) and the off-label use of Avastin