EyePoint Pharmaceuticals, Inc. (EYPT) Q3 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the pSivida Third Quarter 2015 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now turn the conference over to your host Ms. Lori Freedman, Vice President of Corporate Affairs. Ma'am, please go ahead.

Thank you, Amanda. Good morning, everyone and thank you for joining us. Before the market opened today, we released our third 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 of 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 statements 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 good morning everyone as we discuss the results of our fiscal 2015 third quarter. This was another really good quarter for us. ILUVIEN which we licensed to Alimera Sciences was launched in the U.S. and very importantly we reached the agreement with the FDA on a clear regulatory path for our own product Medidur posterior uveitis. So let's get into the details. We believe ILUVIEN has an important alternative treatment alternative for patients with DME, which typically manage with either laser therapy or repeated intra-articular injections of the anti-VEGF drugs, Eylea Lucentis and off-label Avastin. These injections offer us treatment as every month and laser therapy only stays up the progression of this disease for a short period. By contrast, ILUVIEN provides three years of sustained treatments for the single injection. We're optimistic that ILUVIEN will be a significant alternative for DME patients. As you know, Alimera obtained FDA approval for ILUVIEN at the end of September 2014 the patients with DME who previously undergone a corticosteroids treatments without experiencing a clinically significant rise in intraocular pressure. This is a broader label than was approved in Europe, where ILUVIEN has marketing authorization in 17 EU countries for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to existing therapies. ILUVIEN was launched in Portugal in January and is already sold in Germany and the U.K. In the U.K. we’re pricing a reimbursement by the National Health Service has been in a place for a while we’re beginning to see a nice up-tick in sales. ILUVIEN was launched by Alimera in the U.S. in early March and is actually in February and is now widely available to an estimated over 500,000 patients with clinically significant DME. So, ILUVIEN is now launched in the U.S. and is joining the other anti-VEGF and OZURDEX competing in the billion dollar DME market. And we’re very optimistic that it will provide us with significant revenues in the future. So pSivida now the importance of ILUVIEN is two-fold, firstly because it's financial. Today we've perceived over $55 million in license fees and milestones et cetera with the promise of significantly more to come from our net profit split. Secondly, and perhaps more importantly its strategic is now an approved product based on our platform technology that we know can deliver drugs through the run of the years after single injection. The many of the serious diseases of the back of the eye such as posterior uveitis, wet age-related macular degeneration and of course the even larger dry age-related macular degeneration for which sustained delivery could be extremely valuable. There are many potential drugs for these diseases, but delivery is a problem getting the drugs in the right concentration to the target in the eye on sustained basis without causing damage elsewhere, that's the case. We now have an FDA approved technology that might solve this problem. Posterior uveitis is one of these big diseases. If someone treated with systemic steroids, which is side effect and effects about 175,000 people in the U.S. and despite best available therapies results in blindness in about 30,000. It’s a third leading cause of blindness in the developed countries. We’re very optimistic that Medidur our Phase 3 product of posterior uveitis can be an effective treatment for this terrible disease. Medidur uses the same micro-insert that comprises ILUVIEN for DME, same design drug polymer [indiscernible]. Over the past few months we've had a series of discussions with the FDA to nail down its requirements for NDA submission of Medidur. And I’m pleased to be able to tell you, we have an agreed clear regulatory path that could enable us to file the NDA in the first half of 2017 depending of course on the data. The FDA gave the 12 month primary end point from the ongoing trial, together with only a six month primary end points from a second trial and reckons the completed ILUVIEN Phase 3 data in DME that will be sufficient to support filing with the NDA. So it's great to have clarity and it's wonderful to have a shorter duration second trial. But what does this do to our timeline and budget? As you know, we planned on a single Phase 3 trial and on that basis we expected to file in late calendar Q4 2016 or Q1 2017. Well with the new trial requirements, we now expect to file just a little bit later but in the first half of calendar 2017. As part of our contingency planning, this second trial was up to 150 patients in India, and already been set up, ready-to-go in India after discussions with the FDA and this is now been initiated. As an aside, we'll also be able to use the data from these two studies to support filings in countries beyond the U.S. Let's move on to money [ph]. With respect to budgets, being conservative, we've budgeted for the second Phase 3 trial anyway any confirmations of the regulatory strategy. And as a result, the second trial does not change our liquidity projections, our cash resources take us into 2017 without any future profit share on sales of ILUVIEN. As you may recall, we've also developed and even asserted from Medidur, which uses a smaller gauge needle. We will be conducting a small utilization study for this inserter and we also filed data of this study as part of the NDA. This utilization study is very small and has very short end point. We're only looking at the efficacy of the inserter itself. So this will be in no way [indiscernible] to the NDA filing. So bottom-line, we have a clear regulatory strategy and a targeting of submission in the first half of 2017, and we have the most important thing [indiscernible]. We've talked to the FDA a lot. This quarter we completed enrollments of our first longer follow up Phase 3 trial and we expect topline data in the second quarter 2016. With the first half fully enrolled, we expect shortly to report the results to the preliminary must safety assessment, comparing a three months, the incidents of elevated intraocular pressure and study arms two thirds of which received Medidur with celluloids none of which received Medidur. Monthly elevation of IP in the first three months of slow dose can be an early indicator from all serious subsequent increases. So we will be monitoring how study arm has developed increased IP compared with celluloid, this will be an important analysis. Moving on, our preclinical programs are continuing to advance to the focus on back of the eye diseases, with streaming those candidates for wet age-related macular degeneration and dry age-related macular degeneration Most of these are repurposed cancer drugs to either now or will shortly be coming up pattern. We look to develop these products independently using the technology used in Medidur and ILUVIEN. We continue to work on programs in glaucoma which we will plan to upon since it's outside of all immediate focus of back of the eye disease and we are working on the delivery of proteins for retinal disease and systemic application using our Tethadur technology. Tethadur continues to show enormous promise we have take time to protect. We're continuing to work out, what I hope will be last of the bucks and to complete some of the preclinical work necessary to take this into the clinic. I’ll have more details on all of these programs later this year. Our work with hospital for special surgery, for a slow release product for osteoarthritis is continuing to progress. We are working with them on preparing an IMD for this product and anticipate this being cloud with the FDA over this summer. Going forward, we plan to continue to build out pSivida as a retinal drug delivery company developing our own products in this rapidly growing segment. At the same time, we look to upon an out license technologies in other areas where you can benefit from the experience and resources of others and broaden our reach. I’ll now turn the call over to Len, to take us through the financials. Len?

Thank you, Paul and good morning everyone. I will briefly review our third quarter fiscal 2015 results reported earlier today, starting with our financial position. As Paul noted at March 31, 2015 we had cash and cash equivalents and marketable securities of $31.7 million, which represented net cash usage of $4 million during the third quarter. We continue to believe these capital resources are sufficient to fund our current and planned operations into calendar 2017 including our two Medidur trials without taking into account any potential future net profit share amounts that we may earn on sales of ILUVIEN by Alimera. As Paul also noted earlier previous liquidity projections are already contemplated conducting two clinical trials for Medidur so that our current projections were not changed by the recent FDA guidance. Turning now to our third quarter fiscal 2015 results, revenues totaled $328,000 for the quarter ended March 31, 2015 compared to $2 million for last year’s quarter. The decrease was primarily attributable to the prior year recognition of $1.5 million of contingent consideration under a completed feasibility study agreement and an approximate $100,000 decrease in Retisert royalty income. Research and development expense totaled $3.3 million in this year's third quarter, an increase of $1.1 million or 47% compared to $2.3 million in the prior year period. This increase was primarily attributable to higher CRO cost for the clinical development of Medidur. General and administrative expense increased by $95,000 or 5% to $2 million for the three months ended March 31, 2015 from $1.9 million in the prior year quarter primarily due to higher stock-based compensation expense. Income tax benefit was $44,000 for the three months ended March 31, 2015 compared to $31,000 in the prior year period and consisted of foreign research and development tax credits in both periods. Net loss for the quarter ended March 31, 2015 was $5 million or $0.17 per share, compared to a net loss of $2.2 million or $0.08 per share for the prior year quarter. For the nine months ended March 31, 2015 total revenues were $26.2 million compared to $3.2 million for the same period of fiscal 2014. The increase was predominantly due to revenue recognition of the $25 million ILUVIEN FDA approval milestone that we earned in the first quarter of fiscal 2015 partially offset by lower research and development revenue from feasibility study agreements and Retisert royalties. Research and development increased by $1.6 million or 22% to $8.9 million for the fiscal 2015 year-to-date period compared to $7.3 million for the same period in the prior year. The increase was primarily attributable to $1.3 million increase in CRO costs for the clinical development of Medidur as well as modestly higher levels of preclinical research and personnel related costs. General and administrative increased by $177,000 or 3% to $5.6 million for the nine months ended March 2015 from $5.5 million in the prior year period primarily attributable to higher stock-based compensation partially offset by lower facility costs. Income tax expense totaled $144,000 for the nine months ended March 2015, compared to an income tax benefit of $87,000 for the fiscal 2014 year-to-date period. The current year period reflected $263,000 of federal alternative minimum tax expense attributable to calendar year 2014 U.S. taxable income. Both periods included income tax benefits arising from the foreign research and development tax credits. Net income for the nine months ended March 2015 was $11.5 million or $0.38 per diluted share compared to a net loss of $9.4 million or $0.35 per share for the prior year period. I will now turn the call back over to Paul.

Great, thanks Len. To sum up, it was a really good quarter for us. Key points are number one, ILUVIEN launched in the U.S. and sales beginning to pick up in the U.K. where reimbursement has been established. Two, we agreed with the FDA on a clear regulatory path for Medidur in posterior uveitis, which should allow us to file the NDA in the first half of the 2017 ending results. This plan calls for 12 months data from our current Phase 3 trial together with a six months data from second already budgeted Phase 3 study. Number three, we completed enrollment of the first Phase 3 trial with data read out anticipated in Q2 2016 and initiated the second study. Four, we continue to progress on our preclinical programs focusing particularly on wet and dry AMD, our Tethadur programs are continuing to progress and with our partner hospital for special surgery with IND filing for osteoarthritis that's a development stage product. Five, we believe we have enough cash to fund our planned operations into 2017 including the Medidur trials without any cash from ILUVIEN net profits. So at this point, we will be happy to take your questions. Amanda, could you please initiate the Q&A portion of the call?

[Operator Instructions] And our first question comes of Suraj Kalia from Northland Securities. Your line is open. Please check your mute button. Our next question comes from the line of Matt Kaplan of Ladenburg Thalmann. Please go ahead.

Hi, good morning Paul.

Good morning Matt, how are you?

Doing well, thank you. Couple of questions – congrats, I guess first congrats on the progress during the quarter and the clarity from the FDA with respect to next step needed from Medidur. With respect to ILUVIEN, can you talk a little bit about pricing and reimbursement status that has been able to been established so far by Alimera?

I really will discuss Alimera for that discussion but thanks very much for the - congratulations on the uveitis clarity.

And I guess maybe focusing on Medidur with respect to the additional, the second Phase 3 study, can you give us some more details on what the endpoint and primary endpoint of that study will be and your thinking on the timing?

Yes. The primary endpoint will be recurrence of uveitis at six months after enrolment in the study.

Okay.

After the first study, it was a 12 month primary endpoint. So the primary endpoint in both studies is the same i.e. recurrence of disease. So the first one is 12 months and the second one is only 6 months, which obviously shortens the whole thing.

Right. And is it you said you’re going to be randomized placebo controlled?

Yes, we have lot of things it’s randomized controlled study

Great. And is it only going be - only going to be a carry out in India or other countries as well?

Just India.

Okay. And with respect to the guidance from the FDA, anything as the components of what you need to complete obviously the first Phase 3 study, the second Phase 3 study or is there anything else that they gave you guidance on in terms of that's necessary for filing?

Well it's important that we're able to reference the ILUVIEN Phase 3 study because that takes out a lot of additional royalty, we would otherwise have to do. We also plan to do the utilization study with our new inserter, it is going to be a very important to have a new inserter going down a 27 gauge is a significant clinical advantage. So we had discussions with them about that inserter study and I think about that one is we’re already looking at the efficacy of the inserter itself as suppose to a long term follow up where we have to look at the efficacy of the in plant for intravitreal study.

Great. And I guess shifting a little bit to your pipeline, can you give us a little bit more detail in terms of your plans for wet and dry AMD and potential timing on those programs in terms of moving into the clinic.

Yes, we hope to get into the clinic sometime in calendar 2016.

Okay.

As you know there has really been a surge and interest in wet and dry AMD and we’re beginning to see some – shall I say, unfortunate results where people have tried topical drops to deliver drugs to the back of the eye. As you know, my personal view is topical drugs need not work for the back of the eye diseases. It's very clear that you need a means to get the drug into the back of the eye which is why of course people are injecting it there right now with Lucentis and Eylea. The trick is to keep it there where you don't have to have injections every month. And we've go the only technology that it's proven to be able to do that.

Very good. And any other detail you can give us on your catheter and where that is into play?

We're continuing to move that in preclinical models. It's a new technology so there's some bugs appear as you move through things, we are continuing to iron those, I think we are pretty much where we need to be. We need to do a couple of preclinical tests to ensure that indeed the case and the bugs finally been worked out.

Okay. So these are preclinical studies that are going to allow an IND filing?

Let's hope, yes.

And is that potentially a 2016 timeline for an IND filing.

Yes, 2016 is a reasonable guess.

Okay.

I'd like to had in 2015 but -

All right. Thank you very much for taking the questions.

Thanks Matt.

[Operator Instructions] Our next question comes from Ben Shim from MLV. Your line is open.

Good morning Paul, and congrats on the ILUVIEN launch. I got a question for you regarding osteoarthritis, is that the Phase 1 program baked into your guidance, your liquidity guidance for 2017 as well.

It will not affect the liquidity guidance, so yes.

Okay, great. With respect to Medidur, will there be any clinical expense following the completion of the Phase 3 trials?

Well, there is always the additional follow-ups for Medidur and regulatory folks who will give you whatever all the guidance they need for post approval surveillance and all those kind of thing.

Okay. So monitoring the patients, okay.

Yes.

I know its little bit early but are you at a point where you will be able to true up the joint commercialization costs for ILUVIEN with your partner?

Sorry, I don't understand the question.

Will you be able - have the joint commercialization cost that I guess will be coming out of your profit share, has that final number been settled done or reviewed or concluded?

You're talking about the pre-commercialization possibility costs?

Yes.

Those are obviously ongoing. I believe, I would presume because we haven't gone over the numbers yet with – let's say with respect to Q1, I would presume that given the long chest the product in this quarter in the U.S. The U.S will not be a profitable quarter this time around.

Okay. Thank you very much.

Thank you.

Thank you. And our next question comes from the line of Jesse Greenfield from Greenfield Investments. Your line is open. Please go ahead.

Can you give us a little more color arthritis program with the Hospital for Special Surgery?

Yes.

And what do you think is the potential market, size of the market?

Well, the basic premise is this, steroids are often injected in conjoint these days and patients with osteoarthritis. And they last [AP] [ph] at a time units and then people frequently get reinjections. The size, the amount of drugs that's injected is pretty high because you know that you have the thing left for a while, you give vein [indiscernible] therapeutically necessary give it get cleared out of the joint very quickly. So you try to give in a therapeutic amount for longer I’m putting in super therapeutic amount to begin with. Now this is very analogous to what has been going on in the eye for years also. People fluocinolone acetonide into the eye for macular edema and it lasts for - you inject four milligrams and it lasts for three or four months. Now with the ILUVIEN device, we can - or rather with the insert of comprise of the ILUVIEN, there we are injecting point two of a milligram approximately, and it lasts for three years. So you can have a far lower dose and have it last it far longer. So that's the basic approach of the hospital with the Hospital for Special Surgery folks is with that technology to provide a lower overall dose of steroid will have it last very long time indeed. So that’s the approach. I think it’s one of the things that theoretically you know will work than just the case of showing that it works. In terms of how many people would be potentially treated and what the market size is, to be honest it’s a little bit early for that because until you have the efficacy and any side effects, we don't anticipate but we need to look for. And till you know the efficacy and side effects it’s kind of difficult to do your market research because you wouldn't know how to describe the product to a potential R&D position. But it’s obviously, potentially a very large market.

Okay. Thank you very much.

Thank you. And at this time, I would like to turn the call back to management for any closing remarks.

Okay. Well thank you for joining us today. And I look forward to speaking with you again next quarter. In the meantime, of course if you have any additional questions, please feel free to contact us. Thanks again.