EyePoint Pharmaceuticals, Inc. (EYPT) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Q3 2012 pSivida Corp. Earnings Conference Call. My name is Sonia, and I'll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Lori Freedman, Vice President, Corporate Affairs. Please proceed, ma’am.

Thank you, Sonia. Good morning, everyone, and thank you for joining us. Before the market opened today, we released our third quarter financial results for fiscal 2012, a copy of the release is available on the -- in the Investor 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 fact 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 detail 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 quarterly report on Form 10-Q for the quarterly period ending December 31, 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.

Thank you, Lori. And welcome everyone as we discuss the results of the third quarter of fiscal 2012. This was an excellent quarter for us. Iluvien, our lead development product received a positive outcome from the European regulators in the Decentralized Procedure and as we announced on Monday, this product has now received marketing authorization in Austria and the U.K. With additional approvals anticipated in the coming months in 5 other EU countries. We’ve also made good progress in our development stage products and we ended the third quarter with $16.5 million in cash. Len will discuss this further and take us through the detail breakdown of our cash position and the quarterly financials in the moment. First, I’d like to give some more details about our development program. With respect to Illuvien, the approval process in the EU is different from that in the U.S. So I shall summarize it for you. In the EU, Alimera, our development and commercialization partner in this program, applied for marketing approval for Illuvien for DME in 7 EU countries under the Decentralized Procedure or DCP. This review process was as we announced in February completed with the positive outcome and the final assessment report was issued by the reference member state, which in this case was the U.K., with agreements of the 6 of the concerned member states. And that report said that Illuvien is approvable for the treatment of vision impairment associated with chronic diabetic macular edema considered insufficiently responsive to the available therapies. So the process is now in the national phase, during which the 7 participating countries separately issue the marketing authorizations. First to come in was Austria and as we announced on Monday, approval in the U.K was next. The timing varies country by country, but Alimera has reported that approval in the remaining countries, France, Germany, Italy, Spain and Portugal, will likely be issued in the second or third quarters of 2012, although few countries could take longer. Alimera has reported a plan to commercialize Iluvien for DME in the EU either directly or with a partner, and expect the product to be available in the EU by the end of 2012. The International Diabetes Federation estimates that there are over 20 people in these 7 countries currently living with diabetes, and Alimera estimates that over 1 million of these people have DME. So we are looking forward for the commercialization of Iluvien in Europe. Apart from the potential revenue stream to us under our collaboration agreement with Alimera, EU approval again validates our technology platform. Currently, there are 4 sustained release products that have been approved by either the FDA or the EU for back-of-the-eye diseases. [indiscernible] all of which used different generations of our Durasert technology, continuing to work with other pre-clinical and clinical stage programs, I remain very optimistic. In March we announced a technology evaluation agreement with Neuron Systems as a privately company -- private company funded by J&J and Domain [ph]. This is to evaluate use of pSivida’s technology to develop a sustained release system to treat dry-AMD. That’s a serious retinal condition effects millions of people worldwide, currently there are no approved treatment for this disease. Also in collaboration with Pfizer, we’re continuing our clinical stage development of a sustained release implant to treat glaucoma and ocular hypertension. This product is a fourth generation of our Durasert technology which as you recall was, Durasert recently approved Iluvien, but this portion is bioerodible. The insert delivers latanoprost. It’s a highly effective glaucoma drug currently administered as an eye drop, and also up till recently sold under the brand name Xalatan by Pfizer. This is in Phase I/II clinical trials. Under our agreement with Pfizer, we can develop the product through to the end of the Phase II clinical trials at our expense at which time Pfizer has the option on payment of $20 million to obtain an exclusive worldwide license to develop and commercialize the product. Under this scenario, Pfizer will then be responsible for all future development costs and we’ll be entitled to additional development regulatory and sales performance milestones totaling $145 million and the double-digit royalty on net sales. As you may recall, Pfizer previously paid us a little over $9 million on the cost of this work thus far. We are currently independently continuing to develop our own insert to treat uveitis affecting the posterior segment of the eye. Posterior uveitis is an inflammatory condition that can be extremely serious. In the United States, this disease has been estimated to affect approximately 175,000 people and is responsible for approximately 30,000 cases of blindness. Our product to treat this disease uses the same injectable micro insert, as it was recently approved in the EU for DME under the name Iluvien. Our collaboration agreement with Alimera allows us to reference the Iluvien for DME regulatory filings. This provides the potential for a shortened development program for the posterior uveitis application and it could result in a shortened time to approval and market. Following our pre-IND meeting with the FDA, applying 2 pivotal trials are required as the basis for a NDA and to provide a little bit more background on this, it’s important to think about Retisert. Now Retisert was our FDA-approved product for the treatments of posterior uveitis and it like Iluvien delivers fluocinolone acetonide or FA, and it delivers on a sustained basis to the back of the eye. At the duration of approximately 30 months, very similar in fact to the Iluvien device, and whether Iluvien uses a latest stage generation of our Durasert technology to deliver the drug. Based on the data obtained in the Alimera’s DME studies, we would expect our new uveitis product have a very similar efficacy to the Retisert device, but with a much better side effect profile, probably [ph] like Iluvien. Also the new product like Iluvien would be injected in an office visit rather than being surgically implanted as a Retisert device currently is. I look forward to providing further information as our plans progress. We are continuing to work on BioSilicon. We remain focused on advancing Medidur, our BioSilicon system, designed to deliver larger biological molecules, including peptides and proteins on a sustained basis. So, we have several clinical stage products ongoing, some very interesting technologies and a record of successfully developing products. We also have licensing opportunities. As I said before, our views of the optimal timing for partnering varies and is based on many factors, including the cost of developing the product, cost and availability of capital, the complexity, timing, and cost of clinical trials and regulatory process, and the cost and complexity of the sales and marketing, and of course, our products’ overall strategic fit. The availability of capital resources is the key item in our decision process, at least until a financial impact of our approve of the -- approval of Iluvien and the commercialization of this product, until a financial impact of that can be reasonably projected. Depending on the timing, terms and success of Alimera’s commercialization of Iluvien in EU and the resulting estimated timing amounts of revenues at the end, we may look to more aggressively collaborating -- the programs at early stages of certain of our product technologies -- product candidates and technologies. Looking to the future, commercialization of Iluvien in the EU will be a significant step forward for us. Favorable developments and clinical programs of our product candidates designed to treat glaucoma and uveitis could also be important. And down the line, potential non-ophthalmic applications of our Durasert system, as well as the potential ophthalmic and non-ophthalmic applications of BioSilicon Tethadur Protein Delivery Systems, these offer tremendous upside to our company. Now, I’m going to hand it over to Len.

Thank you, Paul, and good morning, everyone. I will briefly review our fiscal year 2012 third quarter results we reported earlier today, starting with our financial position. As Paul mentioned at March 31, 2012, we had cash, cash equivalents and marketable securities of $16.5 million, a net decrease of $2.2 million from $18.7 million at December 31, 2011. We anticipate that these capital resources together with expected royalty income from Bausch & Lomb should enable us to maintain our current operations into fiscal year 2014. Our resources could be enhanced if Alimera successfully commercializes or sub-licensees commercialization of Iluvien for DME in the EU. 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 expect to seek additional capital resources through possible new collaborative or licensing arrangements, and/or possible other agreements and transactions may include sales of assets or securities, and/or to reduce our capital requirements through possible adjustments to our operating plan. We currently do not intend to initiate pivotal multicenter clinical trials for our injectable insert designed to treat posterior uveitis without appropriate additional funding. Turning to our results for the fiscal third quarter ended March 31, 2012, we reported revenues $538,000, compared to $360,000 in the third quarter last year. The year-over-year revenue increase was primarily the result of the recognition of previously deferred collaborative research and development revenues from our June 2011 restated Pfizer agreement, as well as increased Retisert royalty income. Research and development expense totaled $1.5 million for the 3 months period ended March 2012, compared to $1.7 million in the prior year quarter, primarily attributable to lower amortization of intangible assets that resulted from the $14.8 million impairment charge in the second quarter. This was partially offset by increased levels of personnel expense. General and administrative expense totaled $1.8 million for each of the 3-month periods ended March 2012 and 2011. Reduced stock-based compensation expense was substantially offset by higher professional fees. Non-operating income was $11,000 for the quarter-ended March 2012, compared to $341,000 in the prior year quarter. The decrease was attributable to lower non-cash income in the current-year period and the change in the fair value of derivatives related to outstanding Australian dollar investor warrants. As I have noted previously the remainder of these warrants will expire in July 2012 unless earlier exercised. As a result of the significant spread between our share price and the exercise price of the associated warrants, the derivative liability balance was 0 at both March 31 and December 31. Net loss for each of the third quarter of fiscal 2012 and fiscal 2011 was $2.7 million or $0.13 per share. I will now turn briefly to our 9-month year-to-date results. For the 9 months ended March 2012, we reported revenues of $2.8 million compared to $1.3 million in the same period last year. The year-over-year increase was primarily the result of the recognition of previously-deferred collaborative research and development revenues from the Intrinsiq field-of-use license which terminated in July 2011 and from the restated Pfizer agreement. Research and development expense totaled $5.6 million for the 9-month period ended March 2012 compared to $5 million in the prior year period, primarily attributable to higher levels of personnel expense and professional fee and the absence of the current year of a federal grant award that we received in the prior year, partially offset by lower amortization of tangible assets. General and administrative expense totaled $5.3 million in fiscal 2012 year-to-date period, compared to $5.9 million last year, primarily attributable to reduced stock-based compensation expense, including reversal of amounts resulting from performance-based option forfeitures and lower professional fees. In fiscal 2012, year-to-date period also included the $14.8 million intangible assets and impairment charge that was recorded in the previous call. Non-operating income was $199,000 for the 9-months ended March 2012, compared to $1.1 million in the prior-year period. The decrease was attributable to the change in the fair value of derivatives related to the outstanding Australian dollar investor warrants as previously discussed. Net loss for the 9-months of fiscal 2012 was $22.6 million or $1.09 per share compared to a net loss of $8.5 million or $0.45 per share for the prior fiscal year period. With that, I will now turn the call back over to Paul.

Thanks, Len. To sum up a positive outcome of the review of Iluvien in the EU, obviously very welcome news. Marketing authorizations has already been issued in Austria and the U.K. And we expect marketing authorizations from the remaining countries in the coming months. We are very pleased upon Alimera. I have stated that it is the anticipated commercialization in the EU by the end of this calendar year. We continue to press -- progress our plans for Phase III program in the U.S. for our insert for posterior uveitis, which is the same insert approved in the EU for DME. As we set to our early stage programs, we believe we’re continuing to make progress of our clinical stage product for glaucoma and the protein delivery system continues to elapse. So at this point, we’d be happy to take your questions. Operator, would you please initiate the Q&A portion of this call?

[Operator Instructions] First question comes from the line of Suraj Kalia, Rodman & Renshaw.

Paul, one of the things, I was wondering if you could shed some color, maybe on fairly soon, Alimera’s part, what is the status of the FDA discussions on Iluvien? Is there some -- any wiggle room there?

I would have to defer to Alimera on that, Suraj. My understanding is that Alimera would be planning to have a follow-up meeting to discuss the CRL with the FDA and I believe they’ve announced that.

Okay. So we won’t have some additional color for at least, maybe a few more months?

I couldn’t comment.

And Paul, specifically, in terms of posterior uveitis, you mentioned, a shorter time line, shorter pathway should I say for a Phase III, could you remind us again in terms of how many patients are you looking at in the study, duration of follow-up, assuming funding is eventually at a place where you’re comfortable moving ahead?

Ultimately, I can’t provide a great deal of color on that because we’re still in discussions with the FDA. So at some point, when we finish those negotiations I’ll be able to give you much more detail. I am expecting that those negotiations will be concluded relatively shortly.

Okay. And Paul, are we looking at any new technologies on the horizon that potentially your view as interesting maybe from an acquisition perspective, maybe from a competition perspective that we should keep an eye open for?

So I’ve just come back from ARVO conference. There’s a couple of interesting technologies on display there, but they all seem to be at the pre-clinical stage in terms of drug delivery. So pre-clinical things, while they often look great and some of them no doubt will be great, it’s the timeline that is sometimes open to questions. There is obviously a great deal of focus now in drug delivery to the back of the eye. We look at the great advance that Regeneron -- the success that Regeneron is having with EYLEA product. Just for the people who do not know, EYLEA is a newly-approved fusion protein that’s, kind of, like an antibody for wet-AMD. It is injected into the eye about every 2 months. And as I recall, well, please go and check the press release because my understanding is that they expect to take 50% market share away from Regeneron’s products which is -- sorry – Genetech’s product. I do apologize. They’re expecting to take 50% market share from – Roche Genentech’s product, which is injected every 6 weeks. So that’s only a 2 or 3-week intravitreal [ph] injection and it’s having a huge impact on the clinical practice. So while we’ll presume that a much longer-term delivery system of the type that we are developing would be quite interesting. So there is clearly a lot of industry focus I think on long-term delivery for the back of the eye, just that currently I think we’re one of the few people who have been able to get it to work.

And the next question comes from the line of Juan Sanchez, Ladenburg.

One question about the Pfizer program for glaucoma, when do you think you finish this study and what are you looking for into dose-ranging study. I mean, our offering is being dictated [ph] on what’s the efficacy criteria for you to know there is – within a bit of margin. And the second question is you say that you are now planning to move in uveitis program before you raise some money or you find a partner, so how much is the cost of the pivotal program in uveitis?

Well, so there’s 2 questions there, I think. To address the first one which is -- with respect to glaucoma, we’re expecting that will finish towards the end of this year.

Okay.

That’s the current Phase I, II dose-ranging study. That’s primarily a safety study. But we are hoping to see and we would expect certainly to see some evidence of a efficacy-based on reduction in overall IOP. Probably that’s not going to be statistically significant, but it’s not going to be power [ph] to these statistics. This is a very small study. Based on that, that will allow us to pick 2 doses to go into the Phase II study that we had expected obviously sometime later. To get back to the question on uveitis, I’m sorry, could you repeat your question?

Yes. Well, how much will be cost of the pivotal program on uveitis?

So that -- it’s still -- that is largely a function of the number of patients who are going to be required to enroll, which will also affect the potential timing. So that’s still a subject of discussion with the FDA.

Now, back to the glaucoma program, how much time does Pfizer have after this trial is done to take the option or not, you know what I mean?

So the trial that we currently doing is a Phase I, II study.

Okay.

After that we’ll do…

So, it’s after the next trial, not after this trial.

That’s correct.

There are no further questions at this stage. [Operator Instructions] There are no questions coming through. I would now like to turn the call over to Paul Ashton for closing remarks.

Well, I would like to thank you all for joining us today. And I look forward to speaking to you again next quarter. In the meantime, if you have any additional questions, please feel free to contact us and good morning. Thank you.

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