Good day, ladies and gentlemen and welcome to pSivida Corporation’s Q2 2015 Earnings Conference Call. At this time, all participant lines are in a listen-only mode, but later we will be conducting a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. Now, I would like to introduce your host for today’s program, Lori Freedman. You have the floor.

Thank you, Andrew. Good afternoon, everyone and thank you for joining us. After the market closed today, we released our second quarter financial results for fiscal 2015. A copy of the release is available 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, 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 maybe 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 risk factors that could impact our future results and financial condition, I refer you to our filings with the SEC, including our Quarterly Report on Form 10-Q for the quarter ended September 30, 2014. 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 would like to turn the call over to Paul.

Great, thank you, Lori and welcome everyone as we discuss the results of our fiscal 2015 second quarter. This was another good quarter for us. Our ILUVIEN product moved towards commercialization in the U.S. and we expect it to be launched in early March. Enrollment of our uveitis Phase 3 clinical trial is coming to a close as we expect it to be complete around the end of March. Our preclinical development programs are continuing to advance. Before I hand over to Len for the financial details, I will give a bit more color on the headlines. We are really looking forward to the U.S. launch of ILUVIEN in early March. As you know, ILUVIEN was approved by the FDA at the end of September for patients with DME, diabetic macular edema, who have previously undergone a course of corticosteroid treatment without experiencing a clinically significant rise in intraocular pressure. Now, this is a broader label than was approved in Europe, while ILUVIEN now has marketing authorization in 15 countries and is approved for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to existing therapies. ILUVIEN is awaiting marketing authorization in two final EU countries and is already solved in Germany and the UK and was launched in Portugal in January. ILUVIEN is an important treatment alternative for DME patients. Many of these patients are currently treated with the anti-VEGF drugs, Eylea or Lucentis always off-label Avastin. These treatments require intraocular injections, sometimes, just frequently as every month. These injections are expensive and obviously inconvenient and they are subject to patients through the risk of intraocular infections. And for many patients, they don’t actually provide the optimal management of the disease. Regeneron, in fact, recently revised down its guidance for Eylea setting slow off-take in DME.…

Thank you, Paul and good afternoon everyone. I will briefly review our second quarter fiscal 2015 results reported earlier today starting with our financial position. As Paul noted at December 31, 2014, we had cash, cash equivalents and marketable securities of $35.7 million, an increase of $21.4 million from September 30, 2014 primarily reflecting receipt of the $25 million ILUVIEN FDA milestone payment in October 2014. We continue to believe these capital resources are sufficient to fund our current and planned operations into calendar year 2017 without taking into account any future net profit share that we may earn on sales of ILUVIEN by Alimera. As noted previously we expect cash used from operations to be variable quarter-to-quarter, particularly with respect to the timing and amount of payments for our Medidur clinical development program. Turning now to our second quarter fiscal 2015 results, revenues totaled $521,000 for the quarter ended December 2014 compared to $592,000 for last year’s quarter. The decrease reflected lower revenues from feasibility study agreements, net of a modest increase in Retisert royalty income. Research and development totaled $2.8 million in the current quarter, an increase of $273,000 or 11% compared to $2.5 million in the prior year period. This increase was primarily attributable to higher contract research organization costs for the clinical development of Medidur and also higher personnel related costs. General and administrative expense increased by $159,000 or 9% to $1.9 million for the three months ended December 2014 from $1.7 million in the prior year quarter primarily due to higher professional fees and stock-based compensation. Income tax benefit of $38,000 for the three months ended December 2014 compared to an income tax benefit of $26,000 in the prior year period, both consisting foreign research and development tax credits. Our net loss for the quarter…

Great. Thanks, Lin. So, to sum up, it was a really good quarter. Key points are number one, ILUVIEN all set to launch in the U.S. in March with a broad label; two, we are nearing completion of enrollments of our Phase 3 trial in posterior uveitis and anticipate full enrollments around the end of March; three, with our partner, Hospital for Special Surgery, we have made significant progress in an additional product for osteoarthritis to steroid implant; four, we continue to make progress in our preclinical development programs using Durasert and Tethadur; five, cash, we have enough cash to fund planned operations into 2017 without any cash coming in from ILUVIEN net profits. At this point, we would be happy to take your questions. Andrew, would you please initiate the Q&A portion of the call?

Sure. [Operator Instructions] And our first question is from the line of Suraj Kalia from Northland Securities. Your line is open.

Hi, Paul.

Hi, Suraj.

Can you hear me alright?

Yes, very well. Thank you.

So, Paul my apologies, I jumped a few minutes late on the call. Did you give some color on the outlook for ILUVIEN in DME from a commercial perspective?

Well, obviously, it’s one of four products that are approved for DME, that’s Eylea, Lucentis, OZURDEX and ILUVIEN. Alimera who is the partner, our licensee here, will be actually selling the product of estimated that there is around, I believe 270,000 odd potential cases that they would be targeting. So, we will see what penetration they get. I believe the price Alimera has announced of around $8,500, so relatively small penetration into that pool of patients will be a pretty significant sales number.

Right. And Paul, do we have any rough numbers in terms of how many are either non-responsive or insufficiently responsive? If we are just trying to have a first cut at the low hanging fruit, how would you characterize those numbers for Eylea, for Lucentis, the whole gamut right now for patients if we use insufficiently responsive as a bogie?

Well, I would point out that the approval isn’t for insufficiently responsive.

Correct, correct.

If you are going to use that you have to look at the clinical trials and you see that perhaps 50% of patients who are receiving monthly injections of Lucentis did not have the great response. It was probably 50% of the total. And that’s what I said there is about 270,000 odd patients, that is the 50% odd number.

Fair enough, great. Paul, correct me if I am wrong, this was the first time you all have mentioned anything about osteoarthritis of the knee. Is that – did I miss it in the past or this is the first time you all have talked about it?

This is the first time we have talked about it.

Perfect. So, Paul I can see the appeal for localized non-systemic drug delivery. I think it’s a very intriguing opportunity you all are pursuing, I guess the question I have is can you frame the regulatory pathway, the opportunity you see whether you all are going to go it alone or partner with the Stryker or Zimmer, because all of these depending on how you answer, this is a much, much, much bigger opportunity at least we see and to a certain extent, I can see the appeal of where you are going and why you are trying this. Any color would be great?

Yes. So, when the technical detail is clear, obviously we can make very small advance that can release steroids for a very long period of time. Osteoarthritis of the knee is a common disease that is frequently treated with localized injections of steroids that really don’t last very long and consequently are somewhat less than effective. So, it’s a pretty straight on the face that at least it would appear steady – such a straightforward thing to combine our drug delivery impact with a steroid that’s already being used. And so this product would likely be approved as a drug. I will go through that channel of the FDA. With respect to how we progress, I would like to see some efficacy data in humans and based on what we see there then we can make a decision as to how to move forward. Now obviously, this is outside our negative clinical expertise, which would tend to suggest that we would be looking into our licensing deal potentially for us. But at this point, it’s – all of those thoughts are a bit premature.

And forgive me for harping on this. Paul, let me ask the question a little differently. So, there was a problem for which a solution was sought. I presume that the Hospital for Special Surgery, there were some decisions that were initiated. And I am curious when you are just looking at steroids or are you also looking at other agents like hyaluronic acid and whatnot, because they are pretty 6-month injections are being used. I am just curious are you looking it for sort of a carpet indication with multiple agents or it will be on a case by case basis?

Well, to be sure, I think that problems with orthopedics, there are many potential applications for a sustained delivery product there. Osteoarthritis is obviously a huge one and the steroids are the proverbial low hanging fruit, but there are truly many others. Bone infections are just awful and they are inordinately difficult to treat with antibiotics. You have to – the pharmacokinetics of getting an antibiotic into this infection site in the bone and keeping it there long enough to have any efficacy is just really difficult. And in many ways, it’s analogous to ophthalmology, where the problem has been not so much coming up with new drugs so much as finding a way to get those drugs to the target type and keeping them there long enough. So, the technology that we have developed in ophthalmology I think lends itself very well to the host of all that indications.

Interesting. And Paul finally just in terms of your capital expenditure for the uveitis trials should be coming down – correct me if I am wrong, it should almost come down to nil, but then you are all going to step it up on dry AMD and potentially on this osteoarthritic application, fair enough?

Not quite, the clinical trial costs for uveitis will run for a considerable period of time. You are correct in that, you pay most of the upfront when you enroll patients. So these patients will – while we have a 12-months primary endpoint, we will continue to monitor the patients for 3 years to provide additional data, etcetera.

Okay.

So we would love to be able to file with 1-year efficacy data, but it’s a 3-year implant, so we will need to collect the additional on the uveitis patients.

And – does it still hold that the FDA will look at the 1-year data and potentially could give you all the green light assuming everything holds up in conjunction with our famous study data?

That’s my expectation. And if I – if we go back to second product that we had approved which was the Retisert device that was also a 3-year implant. It was actually approved with a label for 30 months as I recall. There the primary endpoint was recurrence of disease at 34 weeks. And we provided the FDA with that primary endpoint and additional follow-up data and eventually got the label of 13 months. So patients were followed after that primary endpoint.

Okay.

And to add to that point, if I may, Suraj, so there is certainly precedence at the agency and we have precedence for having a long-term implant approved for the relatively short-term primary endpoint as long as you have additional data to support safety out in the longer term. But in this case for Medidur, we will of course be using the 3-year DME data for ILUVIEN to help support it.

Well, also at this time you all are trying to control your own destiny with all the docket submissions, I am sure if that is also a significant factor playing at this. Got it. I guess those were all my questions for now. Thank you very much.

Thank you, Suraj.

Thank you. Our next question is from the line of Matt Kaplan from Ladenburg Thalmann. Your line is open.

Hi, Paul. Thanks for taking my questions. Just a follow-up on Medidur with the nearing completion of enrollment in the study and the safety look on a blinded basis there what should we expect to see or look for in that safety look and how will you be announcing it?

Well, we will do the analysis of the percentage of patients who had an increase in intraocular pressure. And the study arm relatively fell [ph] on two-thirds of the patients in the study arm will have received an implant. So, if the implant is causing a big increase in IP, you would see an imbalance between those two groups.

And in your prepared remarks, you said that you expected to see something less than or not more than what you have seen with ILUVIEN. And – okay, can you quantify…?

If we consider the same analysis for the ILUVIEN in DME study and do a [indiscernible].

And what was the percentage that you saw?

I would have to get back to you on that.

Okay, great. And when – so you are completing enrollment at the end of the quarter into March or sometime around that, when should we expect you to be able to announce the results there?

That’s just stayed within – amongst this enrollment.

Very good, and with – just shifting gears a little bit to your preclinical programs with – in dry AMD can you give us a little bit of some more color in terms of the timing potentially to announce some even preclinical data in that area?

Yes. With regard to timing that it’s a little difficult to do that when you are in very early preclinical stages simply because if I put up a date like 3 months from now and its 4 months everyone will be upset and think something horrible gone wrong. So, I would rather not put our date to be honest.

Sure. Okay, fair enough. And then with the….

I would say however that I am really optimistic about the dry AMD program.

And maybe a broader question in terms of timing – little bit more of in terms of timing of potential movement into the clinic rather than preclinical data?

That’s 2016.

Okay.

That calendar 2016.

Alright. And then with respect to the Tethadur program, can you give us a little bit of an update in terms of timing and how that’s moving forward with the buyouts you are looking at?

Yes. We are doing additional safety studies. I expect to get information on those within the next 3 months.

Very good. And then osteoarthritis, congratulations on working with Hospital for Special Surgery, what could be potential timeline for that program as well?

Well, we have done some very encouraging preclinical work. I would hope that within the next 3 months we should be able to file for an IND for a Phase 1/2 clinical trial.

And would Hospital for Special Surgery be helping you to fund that or?

Yes, we will get it. That’s getting to some level of detail that we would rather not get into on this call.

Okay, fair enough. Well, thank you for the questions and congrats on the progress.

Great, thank you.

Thank you. Our next question is from the line of Arlinda Lee from MLV. Your line is open.

Hi, it’s Ben Shim calling in for Arlinda. How are you, Paul?

Hey, well, thanks. How about yourself?

Good, good. Most of my questions have been answered. I just wanted to clarify one thing, did I hear correctly that the dry AMD is going to be in calendar year 2016 or is that still going to be a 2015 initiation?

For human trial, it’s probably 2016.

2016, okay, great. I know it’s a little bit early to get into the scope of this, but will it be more or less sort of similar to Medidur in terms of the number of patients enrolled etcetera?

Initially, we will do a Phase 1/2 clinical trial.

Okay.

And you need to have some – the purposes of Phase 1/2 trial would be one, primarily safety of costs to get some idea of clinical efficacy, so it’s that one we would be able to adequately power a Phase 3 study.

Okay, great. Thank you very much.

Thank you.

Thank you. [Operator Instructions] Our next question is from the line of Guy Dietrich from Dietrich Capital. Your line is open.

Hey, Paul. Are there any licensing or milestone payments that you expect to receive anytime this year?

Well, it’s still early in the year, so we don’t expect to receive any more milestone or licensing payments from ILUVIEN, but we are in discussions with people on a variety of other things.

Okay. And do you have any color on the ILUVIEN sales in Europe at all?

No, I do not. Alimera will no doubt be releasing that sales numbers on the next call.

And you said that you are exceptionally enthusiastic about the dry AMD work that you are doing, can you expand on that a little bit?

Well, yes sure. The preclinical data that is being generated with some of these drugs is extremely encouraging. The drugs in question are relatively old drugs or at least repurposed drugs. So we already know a great detail about the safety profiles and things. So to some degree it’s a question of can we get them into an implant, and the answer to that is almost certainly yes. And will a sustained delivery version of those agents work in humans as well as the pulsatile of systemic delivery of some of these drugs has worked in different animal models. So yes we are very optimistic. There will be a long path to be showed, but it’s such an attractive market. It’s such an appalling unmet medical need as well and there is really very little at best.

Okay. Thank you.

Thank you. [Operator Instructions] Our next question is from the line of Larry Smith from SmithOnStocks. Your line is open.

Hi, Paul. Paul do you expect to receive any revenues from the ILUVIEN in Europe this year and if so what quarter might that fall in?

We received some revenues from ILUVIEN, Len I ask you to come and assist.

A token amount of revenue for one quarter but…

We are not expecting any significant revenues in the order of the milestone payment to be shown.

Can you say whether those revenues came from Germany or the UK or from both?

I would rather not, I apologize.

Okay. In regard to OZURDEX what is your estimate of the time between administration and the clinical practice?

I’m sorry, the time between administration and clinical practice, I don’t…

In clinical practice how often do you – how many times a year do you think OZURDEX will be…

Yes, that’s a difficult one at this time, because I don’t know what it is in uveitis – in DME, because the clinical trial data indicated that you certainly get an effect, but it would appear to what often DME certainly in about three to four months. In vein occlusion and again I am just saying this from memory when I again looked at the time to – they looked at the improvement in vision of sham which has no treatment versus OZURDEX then as I recall there was simply no difference at six months and statistical significance has been lasted about three to four months. So you certainly see a waning of effect beyond two to three months.

Okay. Do you have any kind of read on how well the OZURDEX launch is going in DME?

I hear rumors that they are doing about $200 million year end sales, but it’s kind of the rumor.

$200 million?

That’s a rumor.

In DME?

That’s just in OZURDEX, so I don’t – it’s all bundled together so it’s kind of hard to play at, but to just to give [indiscernible] what the real numbers are.

Yes. Okay. Well, okay. And Regeneron actually lowered their numbers from their original projections for Eylea in DME does that have any implications for the launch of ILUVIEN?

Well, it probably does and that its conformation that clearly third-party confirmation that as we have been saying for quite a while that the anti-VEGFs simply are not, doesn’t give you as dramatically an effect in DME as they do in wet AMD. When you those in wet AMD, you are seeing the effect really quick. And in DME, it tends to be longer, you have got to give people several injections, is it 3, is it 4, before you start to see anything. So, it just doesn’t seem to be as dramatic a drug, which is unfortunate obviously, but I guess the flipside of that is presumably good for ILUVIEN.

Okay, thank you.

Thank you. That’s all the time that we have for questions today. So, I would like to turn the call back over to the speakers for closing remarks.

Great. Well, thank you all very much for joining us today. And I look forward to speaking with you again next quarter. As always, in the meantime, should you have any additional questions, please feel free to give us a call. Thank you.