Good day, ladies and gentlemen, and welcome to the pSivida Corporation Fourth Quarter 2015 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference, Vice President of Corporate Affairs and General Counsel, Lori Freedman. Please go ahead, ma'am.

Thank you, Melanie. Good morning, everyone and thank you for joining us. Earlier today, we released our fiscal 2015 full year and fourth quarter financial results. 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. 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 March 31, 2015. 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 good afternoon everyone as we discuss the results of our fiscal 2015 full year and fourth quarter. This was a great year for us. Our first Phase III clinical trial for Medidur for posterior uveitis, our lead development product, is fully enrolled and enrollment in the second trial is proceeding. We anticipate filing the NDA in the first half of 2017, assuming good results. Our preclinical studies are progressing well. We anticipate an IND will be filed for Durasert product for knee osteoarthritis shortly through our collaboration with Hospital for Special Surgery at the America’s leading orthopedic hospital. We’re very pleased with our recent progress on [pivotal] research for biologic delivery and Durasert for AMD. ILUVIEN, our lead licensed product, has been approved by the FDA; it was launched in the US in February and is now gaining traction. Finally, we ended the year with over $28 million in cash and no debt. That’s the healthiest year in total we've ever had. So, let's get into the details. As you know, Medidur is an injectable micro-insert designed to provide three years of treatment of posterior uveitis from a single injection. It's the same micro-insert as ILUVIEN for DME, given in the same drug at the same release rate. We completed enrolment of our first Phase III trial of Medidur at the end of March and are currently enrolling the second trial. The primary endpoint of the first trial is recurrence of disease within the first 12 months. So we will have top line data in about nine months. Based on our meetings with the FDA, the second trial has a shorter primary endpoint of recurrence of disease at six months. This means that assuming positive results, we anticipate filing the NDA in the first half…

Thank you, Paul, and good afternoon everyone. I will briefly review our fourth quarter and fiscal year 2015 results reported earlier today, starting with our financial position. As Paul noted, at June 30, 2015, we had cash, cash equivalents and marketable securities of $28.5 million, an increase of $10.2 million compared to $18.3 million at June 2014. This reflected a $25 million ILUVIEN FDA milestone that we received in fiscal 2015 second quarter. For the fourth quarter of fiscal 2015, net cash usage was $3.1 million. We anticipate that our existing capital resources and expected cash inflows under our existing collaboration agreements will enable us to fund our current and planned operations into early calendar year 2017. This estimate includes expected costs of the ongoing Phase III clinical trials of Medidur, but excludes any potential net profit participation receipts from sales of ILUVIEN. To date, we have received $43,000 of net profit participation from Alimera’s sales of ILUVIEN in the UK and Germany. We do not know when or if we will receive additional net profits from ILUVIEN sales in the EU, or commence receipt of net profits from sales of ILUVIEN in the US or Portugal where Alimera launched the product during our fiscal 2015 third quarter. Turning now to our full-year fiscal 2015 results, revenues increased by $23.1 million to $26.6 million for the year ended June 2015, compared to $3.5 million for the same period last year. This increase primarily reflected revenue recognition from of $25 million ILUVIEN FDA milestone, partially offset by a $1.8 million reduction of revenues from feasibility study arrangements. [indiscernible] royalty income of approximately $1.2 million represented a decrease of $164,000 or 12% from the previous year. Research and development totaled $12.1 million for fiscal 2015, an increase of $2.5 million or 26%…

Great. Thanks, Len. So to sum, it was a really good quarter and year. Key points are number one, our phase II trials for posterior uveitis continue to advance. We expect to have top line data from the first Phase III in mid-calendar 2016 and to file the NDA as early as first half of 2017. Two, we expect an investigator-sponsored IND to be filed shortly by our collaborative partner Hospital for Special Surgery for Durasert to treat osteoarthritis of the knee. Three, we've made significant progress in optimizing [indiscernible] to deliver proteins and antibodies. Four, we've commenced a new pre-clinical program for Durasert system for AMD. Five, Alimera has launched ILUVIEN in the US and sales last quarter picked up nicely. Six, we believe we have enough cash to fund our planned operations into 2017, including major trials without assuming any cash from ILUVIEN net profit. So at this point, we would be happy to take your questions. Operator, would you please initiate the Q&A portion of the call?

[Operator Instructions] Our first question comes from the line of Matt Kaplan with Ladenburg Thalmann.

A couple follow-up questions just in terms of the second Phase III. Could you give us a bit of a sense in terms of the timeline there for enrollment? Obviously, it's a shorter time. The endpoint was six months, but when do think you'll be able to see data from that study?

We anticipate the trial will be with complete enrollment more less than middle of next calendar year. Six months after that is the end of 2016.

And then just with respect to the osteoarthritis of the knee program, give us a little more color in terms of the plan for the investigator study design for that.

I guess it’s described as a Phase IIa investigator-sponsored study. We’re going to take patients with severe osteoarthritis who are anticipating a total joint replacement and give them an implant which is essentially a screw that is placed into a non-load-bearing parts of the knee and see how they do.

So you're going to look at outcomes such as impact on pain and progression to full knee replacement?

Yes, it's going to be the – pain is the main outcome that we are looking for. And it's one of those things that steroid injections into the knee are very, very common, as I'm sure you know. It's just that they really don't last very long, and you get this weird trampling effect while the first injection is very effective, the second one isn't as effective and doesn't last as long, et cetera, et cetera. And it's very analogous to what you see in ophthalmology with uveitis. It seems a very straightforward thing theoretically to contemplate.

And then uveitis has a licensing opportunity after the data?

Let's see how the data looks, but yes, as we move out of ophthalmology into a lot of different areas, then we'd be anticipating out-licensing to some of the companies that are already in this space. Same would be said for some of the Tethadur applications. With some obvious applications of a sustained-release antibody that's injectable, the obvious one would be a sustained Humira, which is coming off patent very shortly. That does $1 billion a month, I believe. Now, we are not going to be setting up shop to challenge AbbVie on that, but it's someone that we could potentially partner.

And then with respect to the progress you've made with both Tethadur and the Durasert AMD programs, when do think you could be in a position to file an IND for either of the programs of the two drugs?

I'd like to see the Tethadur filed within our fiscal 2016, so i.e., within nine months, and probably a similar timeline for the AMD program. With the AMD program, we're just taking some existing anti-cancer drugs, small molecules, there's a bunch of then now which are about to come off patent or will be off patent shortly, which their mode of action is to inhibit VEGF and PDGF. Those are some very attractive targets. It's a case of the drugs are targeting the right elements that are triggering AMD, and you know that the implants can achieve long-term sustained delivery. Again, it seems a very logical thing to combine these.

And then should we expect to see any pre-clinical data from Tethadur or the Medidur AMD programs between now and the IND?

Between now and the...

IND filings?

Yes, we'd be looking to publish some of the – or at least present some of the pre-clinical data as it becomes available as we publish it over the next six to nine months.

Our next question comes from the line of Suraj Kalia from Northland Securities.

Paul, a bunch of questions from my side and let me start off with the first, my apologies if I got this wrong. If I remember correctly, for ILUVIEN, elevated IOP was defined as greater than equal to 30 millimeter of mercury, and for Medidur uveitis it's greater than 21 millimeter of mercury. First, am I wrong in this? That's what my memory was about 30 millimeter of mercury, and I see 21 millimeter of mercury here. And the second part of this is why the more stringent criteria in uveitis?

So elevation of IOP is – normal IOP is below 20 millimeter of mercury; average is about 15 millimeter of mercury. And the higher it gets, the more problematic it potentially can be. So when people were talking about IOP for ILUVIEN in DME, they were talking about the percentage of patients whose IOP was above 30 millimeter of mercury at some point in the studies. A more full description would've also included the percentage of patients whose IOP was above 25 millimeter of mercury. If you really want to go whole hog, you'd also talk about the percentage of patients who have no IOP above 20 millimeter of mercury. Now, to be clear, there's quite a lot of people walking around with an IOP of 20 odd and it's not a big deal. It's borderline if you'd even bother to give people eye drops for that; 25 millimeter of mercury you would give them eye drops, and at 30 millimeter of mercury after, no one's going to want to walk around with an IOP of 30 millimeter of mercury. So it turns out that when people are on steroids, if they have an initial increase in IOP of – I will rephrase this again, it seems that there's about 30%-odd of the patients of the population whose IOP is sensitive to steroids. And you will typically find that they will have an early initial increase in pressure. Over the long term, those patients have a much higher likelihood of developing much more significant increases in eye pressure. Those, where there is no difference, where there is no real increase in pressure, they have a much lower likelihood of developing elevated IOP in the long-term. What we've found in our observation of the first three months is that there seems to be very little difference in the percentage of patients who have a small increase in pressure between the study eyes and the fellow eyes. So that suggests that in the long term, we won't see much of a difference in the percentage of patients who have a big increase in pressure. Is that clear? We're using the small increase in pressure to try to be an early warning sign to differentiate people who may subsequently be at risk of developing worse pressure.

Paul, the 5% in the treatment arm versus the control arm, can you give some more color about it? The press release says 5% more. What are the actual numbers? Are you all at a position to reveal that?

I don't have that in front of me, but the issue for the FDA or indeed anyone using this product, is how much of an increase in a side effect like pressure does the implant cause? In some patients, in uveitis patients in particular, it's quite a complicated question because in uveitis, a lot of patients will develop increased eye pressure anyway as part of the natural course of their disease, because you get a lot of proteins and particulate matter that build up in the eye that physically block the outflow of aqueous humor, so it causes the eye pressure to increase. Conversely, by the same token, sometimes the eye gets so inflamed they become incapable of making the aqueous humor, and those patients get hypotony, so the pressure gets too low, and that's actually a bigger problem. So ultimately we're looking for the difference between IOP in patients who get the implant versus IOP in patients who on standard of care, so that's where the 5% number comes from. Now, from memory, and I apologize to people who are listening, it's only from memory here, I believe that for ILUVIEN in DME, there was something like a 30% difference in IOP between treatments and control at 25 millimeters of pressure at three years. We're obviously optimistic that Medidur will, in uveitis, will show a smaller elevation than that.

Paul, One last question and I will hop back in queue. One of your programs that I find fascinating is this osteoarthritis program, and partly the reason is because you look at Anika, you look at Flexion, and you look at Carbylan. Combined, all these companies are trying to do the same thing that you guys are doing, albeit using hyaluronic acid. I'm sure you'll notice that Flexion had some issues with their Phase II results yesterday that they announced. At least from all the commentary, Paul, what they are talking about is pain is a subjective score. We saw it at 11 weeks, everything was statistically superior, and in week 12, there was an anomaly, and part of it is being blamed on the subjective assessment of pain. A two-fold question for you Paul, in this. One is how do you see your program for OA, vis-a-vis, some of the other hyaluronic acid based modalities out there? And the second thing is just from your view on pain as a primary endpoint or a marker for efficacy.

As you know, hyaluronic acid, elastin gel, for anyone who's not familiar with it, that's injected into joints, was actually approved as a device. And it was initially approved as a means of really replacing the somewhat used-up, burnt out, wasted or ineffective synovial fluid that was thought to be in joints. It turns out that rather than reacting as device, it actually has some efficacy, but it's pretty marginal efficacy. The standard of care for really painful osteoarthritis and, bear in mind, we're going for the severe osteoarthritis, the primary treatment is corticosteroid injections into the knee, which are very effective but they don't last very long. So the concept of providing a long-term steroid is fairly straightforward. With respect to showing efficacy based on pain, you're absolutely correct; it is a subjective model. The secret is to simply plan your studies accordingly; it's as simple as that. There is some additional measures that you can take. You can look at flexibility of the joints and this kind of thing. But it comes down to clinical trial design and powering a study, and you should be able to do that.

And Paul, forgive me I will just sneak in one more. Knowing you guys for so many years, you all are very deliberate in your approach. Is it safe to say that the PK profile of the OA product in the knee would be relatively uniform, because the knee environment is pretty dynamic; it's not like the eye, right or am I thinking – am I not thinking about this right, because I'm just – your environment changes, there's Flexion, there's compression. There is different kinds of loading, the PK profile change, and as a result over time, in different patients, your standard deviation of efficacy could be quite a bit? That would be my last.

The pre-clinical data that we generated indicated pretty constant levels of steroid being maintained in the joint for a prolonged period of time. It could easily be, to your point, there's this hour by hour, there may be significant variations. But the implant is going to release somewhat constant rate and the half-life – the elimination half-life of the drug in the joint is not going to vary enormously. It can change very significantly in cases where the knee becomes inflamed, but we shouldn't see that if we're delivering a steroid. And certainly from earlier work that we did several years ago where we did a study in sheep with a meniscus, meniscectomy. It was very easy to tell which of the animals had a sham procedure or a sham implant and which had the active, because the ones with the sham were universally laying down and the ones with the active were walking around like normal. So that was pretty easy.

[Operator Instructions] Our next question comes from the line of Robert Carlson with Janney, Montgomery, Scott.

Just little bit more on the osteoporosis. I presume this is an outpatient procedure and what happens at the end of six months? Do we go back for another surgery and another implant, and how many of these can you do?

Just to be clear, we're looking at severe osteoarthritis in patients who are otherwise contemplating a total knee replacement surgery. Now this first study, we're looking at six-month implant, but we can certainly extend the duration of the implant once we're sure that we have the right dose. We can make these things last for years if that is appropriate. We also have a system whereby you can essentially recharge the implant in an outpatient procedure. So to answer your question, one, yes six months, by design for this particular study that's coming up that allows us – we have the technology certainly to extend it much longer than that. And in addition, we have the device already designed that allows central drug-bearing to be recharged; it's a refillable device.

[Operator Instructions] And we do have a question from the line of Guy Dietrich with Dietrich Capital.

Could you talk a little bit about what you've been doing with Tethadur in the last quarter to make you so much more enthusiastic about the progress?

With Tethadur, the technical problems that were uncovered or revealed themselves is probably a better way to say was long term stability of the antibody when loaded into the Tethadur molecule itself – when loaded into the Tethadur system. So essentially, we had more than a year's worth of stability data of antibodies loaded into Tethadur at say, 7 degrees, accelerated conditions, all look great. In the wet conditions, however, there seemed to be a – it's likely to be in when you use it, there was surprisingly some degradation of the antibody occurring probably inside Tethadur itself. That's one of those really annoying observations. If you're going to have a stability problem, you want to have it soon rather than after four months. So we've fixed that problem, I believe we fixed that problem, time will tell. And in so doing, fortunately, we've also been able to significantly increase the amount of antibody loading now into the Tethadur itself, so we can get a much higher percentage of antibody into the Tethadur. Both of those things that are looking very promising. That's going into pre-clinical studies now to ensure that we haven't upset any other apples with respect to toxicity and information and those kinds of things, although at the moment, we're not really expecting to see any of that problem, but you've got to check.

I'm not showing any further questions at this time.

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