EyePoint Pharmaceuticals, Inc. (EYPT) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 pSivida Earnings Conference Call. My name is Keisha and I will be your operator for today. [Operator instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to hand the conference over to Lori Freedman, Vice President, Corporate Affairs and General Counsel. Please proceed.

Thank you, Keisha. Good afternoon, everyone, and thank you for joining us. After the market closed today, we released our second quarter financial results for fiscal 2012. A copy of the release is available in the Investors section of our website at www.psivida.com. On the call with me today is Dr. Paul Ashton, President and Chief Executive Officer and Len Ross, our Vice President, Finance. Before I hand the call over to Paul, I need to remind everyone that some of our prepared remarks are and answers to your questions may be forward-looking in nature. Forward-looking statements are inherently subject to risks and uncertainties. All statements other than statements of historical facts are forward-looking statements and we cannot guarantee that the results and other expectations expressed, anticipated, or implied will be realized. Actual results could differ materially from those anticipated, estimated, or projected in the forward-looking statements. For a more detailed discussion of the risk factors that could impact our future results and financial conditions, I refer you to our filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended June 30th, 2011. We undertake no obligation to update any forward-looking statement in order to reflect events or circumstances that may arise after this conference call. With that, I'd like to turn the call over to Paul.

Great. Thank you, Lori. And welcome, everyone as we discuss the results of the second quarter of fiscal 2012. We ended the second quarter with $18.7 million in cash, down from $21.3 million at the end of Q1. Also, our quarterly operating results included a non-cash $14.8 million impairment write-down of our intangible assets. Len will discuss this and take us through the detailed breakdown of the quarterly financials in a moment. First, I'd like to talk about our development programs. As you know, we were very surprised and disappointed when Alimera, our partner for Iluvien for Diabetic Macular Edema, received a Complete Response Letter from the FDA in November 2011 after they had resubmitted the new drug application. In the CRL, the FDA stated that the risks of adverse reactions shown for Iluvien were significant and were not offset by the benefits demonstrated by Iluvien in the clinical trials. The FDA also stated that Alimera will need to conduct 2 additional clinical trials to demonstrate Alimera is safe and effective in DME. Alimera reported that it will be requesting a meeting with the FDA to clarify next steps. Until this meeting occurs it's unclear what Alimera's next steps will be. On the positive side, the review process for Iluvien in the EU is progressing. In July 2010, using the decentralized procedure, Alimera submitted a marketing authorization application for Iluvien for DME to regulatory authorities in the United Kingdom and 6 other EU countries. Alimera has reported that it expects a decision regarding the approval of Iluvien for DME in the EU by the middle of this year. Alimera has previously stated they plan to seek a partner for sales and marketing activities outside North America for Iluvien for DME if approved. In addition to the possibility of Iluvien for DME in Europe, we have 2 clinical stage product candidates for the treatment of back-of-the-eye diseases. We are currently independently developing an insert to treat uveitis affecting the posterior of the eye and we are developing an insert to treat glaucoma and ocular hypertension under our agreement with Pfizer. First, let's discuss our posterior uveitis product candidate. Posterior uveitis is an inflammatory condition that can be extremely serious. In the U.S., this disease has been estimated to affect approximately 175,000 people and is responsible for approximately 30,000 cases of blindness. Our product candidate to treat this disease uses the same injectable micro insert as Iluvien for DME. Our collaboration agreement with Alimera allows us to reference the Iluvien DME regulatory filings. This provides the potential for a shortened clinical development program for the posterior uveitis application and could result in a shortened time to approval and market. We had a pre-IND meeting with the FDA after they'd issued the CRL to Alimera and following this meeting, we are planning 2 pivotal trials required as a basis for an NDA. Retisert is our FDA-approved product for the treatment of posterior uveitis and is licensed to Bausch & Lomb. Retisert, like Iluvien, delivers fluocinolone acetonide on a sustained basis for the back-of-the-eye. Now, based on the data obtained in Alimera's DME studies, we expect our new uveitis product to have a very similar efficacy to the Retisert device, but with a much better side-effect profile than Retisert. Also, the new product would be injected in an office visit rather than being surgically implanted as Retisert is. Now, moving on to our proposed product to treat glaucoma, it's an injectable, bioerodible sustained release insert that delivers latanoprost, a drug already approved for this disease. This new device is currently being studied in a dose-ranging clinical trial. We granted Pfizer an exclusive option under various circumstances to license the development and commercialization worldwide of this insert for human ophthalmic disease other than uveitis. And we are continuing to work on BioSilicon. We remain focused on advancing Tethadur, a BioSilicon system designed to give sustained delivery of large biological molecules, including peptides and proteins. As I said before, we believe the optimal timing of partnering varies and is based on many factors, including the cost of developing the product, the cost and availability of capital, the complexity, timing, and cost of the clinical and regulatory process, and the cost and complexity of sales and marketing and of course, a product's overall strategic fit. Capital resources may be a key item in our decision process in light of the FDA's recent CRL regarding Iluvien for DME. Given our capital resources and depending on the - on the outcome of the Iluvien regulatory process in the EU and if approved, the timing terms and success of its commercialization, we may look more aggressively at collaborative arrangements for our product candidates and technologies. I'll let Len address our capital resources in a moment. Looking to the future, approval of Iluvien for DME in the EU could be a significant step forward for us. Favorable developments in the clinical programs of product candidates designed to treat glaucoma and uveitis will also be important. And down the line, the potential non-ophthalmic applications of our Durasert system, as well as the potential ophthalmic and non-ophthalmic applications of the BioSilicon Tethadur protein delivery system offer a huge blue-sky potential for the company. So with those thoughts, I'm going to hand you over to Len.

Thank you, Paul, and good afternoon, everyone. I will briefly review with you the second quarter results, which we reported earlier today, starting with our financial position. As Paul mentioned, at December 31, we had cash, cash equivalents, and marketable securities of $18.7 million, a net decrease of $2.6 million from $21.3 million at September 30, 2011. We anticipate that these resources, together with expected royalty income from Bausch & Lomb should enable us to maintain our current and planned operations into at least at the beginning of calendar year 2013. Our resources could be enhanced if Alimera receives approval for Iluvien for DME in the EU and successfully commercializes or sub-licenses the product. However, the time frame and amounts that we would be entitled to receive from Alimera from such activities under the terms of our collaboration agreement are uncertain. We may also seek to obtain additional capital resources and/or reduce our capital requirements as a result of possible new collaborative licensing or other agreements, possible adjustments to our operating plan, including delaying initiation of some clinical trials and/or possible other agreements and transactions, which may include sales of assets or securities. Turning to our results for the quarter ended December 31, 2011. We reported revenues of $630,000 compared to $414,000 in the second quarter last year. The year-over-year revenue increase was primarily the result of the recognition of previously deferred collaborative research and development revenue from our June 2011 restated Pfizer agreement. Research and development expense totaled $2 million for the 3 month period ended December 31 compared to $1.5 million in the prior-year quarter, primarily attributable to increased personnel expenses and the absence in the current-year quarter of a $208,000 federal grant award received in the prior year. General and administrative expense totaled $1.5 million in the second quarter this year, compared to $2 million last year, primarily attributable to reduced stock-based compensation expense, including reversal of stock-based compensation related to performance-based option forfeitures and lower professional fees. During the current quarter, we recorded a $14.8 million non-cash impairment charge to our finite-lived intangible assets with Durasert and BioSilicon technologies. The combination of the 2011 Complete Response Letter from the FDA and the resulting significant decrease in our market capitalization at December 31, 2011, constituted impairment indicators for these intangible assets. The resulting recoverability assessment derived and implied fair value of our intangible assets of $4.6 million compared to their combined carrying value of $19.4 million and accordingly, a $14.8 million impairment charge was recorded in the current period. Non-operating income was $139,000 for the quarter ended December 2011 compared to $461,000 in the prior-year quarter. This decrease was primarily attributable to lower non-cash income in the current-year period from the change in the fair value of derivatives related to outstanding Australian dollar investor warrants. As noted previously, the remainder of these warrants will expire in July 2012 unless earlier exercised. As a result of the significant decrease in our share price during the quarter, the derivative liability balance was reduced to zero at December 31, 2011. Net loss for the first (sic) [second] quarter of fiscal 2012 was $17.5 million or $0.84 per share, compared to a net loss of $2.7 million or $0.15 per share for the prior-year quarter. I will now turn briefly to our 6 month year-to-date results. For the 6 months ended December 31, 2011, we reported revenues of $2.3 million compared to $890,000 for the same period last year. The year-over-year revenue increase was primarily the result of the recognition of previously deferred collaborative research and development revenues from the Intrinsiq field-of-use license, which was terminated in July 2011 and from the restated Pfizer agreement. Research and development expense totaled $4.1 million for the 6 month period ended December 31, 2011, compared to $3.3 million in the prior-year period, primarily attributable to increased personnel expenses, costs of the latanoprost phase I/II clinical trial under the restated Pfizer agreement and the absence in the current year of the federal grant award received in the prior year. General and administrative expense totaled $3.5 million in the fiscal 2012 year-to-date period compared to $4.2 million last year, primarily again attributable to the reduced stock-based compensation expense, including reversal of amounts resulting from the performance-based option forfeitures and lower professional fees. The year-to-date period also reflected the $14.8 million intangible asset impairment charge, which I discussed earlier. Non-operating income was $188,000 for the 6 months ended December 2011 compared to $797,000 in the prior-year period. The decrease was primarily attributable to the change in the fair value of derivatives related to the Australian dollar investor warrants as previously discussed. Net loss for the first 6 months of fiscal 2012 was $19.9 million or $0.96 per share compared to a loss of $5.8 million or $0.31 per share for the prior-year quarter. I will now turn the call back over to Paul.

Thanks, Len. So to sum up, Alimera's CRL from the FDA for Iluvien for DME was a big disappointment and surprise to us. However, we look forward to action by the EU in the first half of 2012. We believe we are continuing to make progress in developing our product pipeline with clinical stage product candidates for glaucoma and posterior uveitis, 2 of the leading causes of blindness in the developed world. At this point, we'll be happy to take your questions. Operator, would you please initiate the Q&A portion of the call?

[Operator instructions] Your first question comes from the line of Juan Sanchez with Ladenburg.

Yes, one question on Alimera's conversations with the European agency. Last time they said that they could receive some responses by the end of 2011, I believe. So, they received a response and there are more questions or what's the nature of the back and forth between them and the -?

I could only say that under our agreement, Alimera would be putting out any public information on that. So I apologize, I really do have to defer.

[Operator instructions] Your next question comes from the line of Jason Aryeh with Jalaa Equities.

Few questions. Can you talk about, firstly, how you'll pay for the 2 pivotal trials on uveitis, when will they start, and how long they will be?

The uveitis trials are still being designed. We would anticipate that they would be beginning this calendar year. We are, however, still in negotiations and designing those. Until you know the size of the nut, it's not clear how you're going to pay for it, right?

Absolutely. That's fair. And can the posterior safety results be used for the Iluvien, the 2 "trials" that are needed?

Yes.

Okay. And can you talk about in more detail about how you plan on raising money with, I guess, about a year of cash? What are the plans there? What - which are the programs that you're going to prioritize and which ones are you going to back-burner?

I can't really get into those discussions right now, but I would point out that the phrase that was used was "at least until."

Okay.

So don't read - please don't assume that that is the beginning of.

There are no further questions in queue at this time. I would now like to hand the conference back over to Mr. Paul Ashton for any closing comments.

Okay. Well, thank you all very much for calling in and I look forward to speaking with you again next quarter. In the meantime, should you have any additional questions, please feel free to contact us directly. Thanks very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect your lines. Good day.