EyePoint Pharmaceuticals, Inc. (EYPT) Q1 2016 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the pSivida Corporation Q1 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Lori Freedman, VP Corporate Affairs.

Thank you, Sylvie. Good afternoon, everyone and thank you for joining us. Earlier today, we released our first quarter financial results for fiscal 2016. 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 Annual Report on Form 10-K for the year ended June 30, 2015. 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'd like to turn the call over to Paul.

Thank you, Lori, and good morning everyone as we discuss the results for our fiscal 2016 first quarter. This was a very exciting quarter for us. Here are the highlights: Clinical development continues to progress well for Medidur, our injectable micro=insert designed to provide sustained treatment of posterior uveitis for three years, and we expect to report top-line results of our first Phase III trial before the end of the year. In osteoarthritis, we are collaborating with Hospital for Special Surgery. Tethadur is continuing to generate good pre-clinical data. We are seeing some promising early pre-clinical data using our Durasert technology to deliver a class of small molecule, anti-cancer drugsto treat Age related macular degeneration. We ended the quarter with $24m in cash and no debt, so we are in good financial shape. Lets get into the details. As you know, pSivida has traditionally out-licensed its products and in return received consideration including up-front payments, development funding, milestones and royalties. This has been a good model for us. We’ve pulled in approximately $85m in the last 8 years, and this non-dilutive funding has largely funded our company. Now our strategy to transition to a specialty pharma company by developing our own products while continuing to enter into collaborations where appropriate. Medidur is the first of our “own” products so the recent regulatory developments and trial developments are extremely important to us. We are currently conducting two phase III trials in patients with posterior uveitis, which is one of the leading causes of blindness and affects approximately 175k people in the US alone. In both trials, the worse affected eyes of patients have been randomized on a two-to-one basis to receive either a Medidur device or a sham procedure (which is masked to both the patient and the physician). The primary end-point for efficacy for both trials is the percentage of patients who have a recurrence within the first 6 months. We’ll also look at visual acuity changes and safety measures such as changes in intraocular pressure, cataract formation etc. This first trial completed enrollment in March 2015 with the last 6 month follow-up visit in September 2015. We expect to have top-line efficacy and safety data by the end of 2015. Enrollment of our second study is progressing as planned with expected completion in mid-calendar 2016. With favorable results, we expect to file for approval in the US in the first half of 2017. We have had multiple meetings with the FDA so we have a good idea of what they want to see for an approval. We are also working on securing approval in the EU. We recently had a very productive meeting with the MHRA regarding requirements for European approval, and we look forward to sharing this information when we get the official minutes. We expect Medidur will show efficacy because it delivers a drug we know works for this disease. It’s the same drug that’s in a product we earlier developed, the FDA-approved Retisert, However, Medidur, which is easier to administer than Retisert because it is injected rather than surgically implanted, delivers a lower and more consistent dose of the drug. Top-line results from a Phase II study of high and low dose Medidur support our expectations, showing a statistically significant reduction in recurrence of uveitis and a statistically significant improvement in visual acuity in eye treated with Medidur. We also expect that Medidur will have a far better side effect profile than Retisert, similar to or perhaps better than the related product ILUVIEN approved by the FDA for diabetic macular edema. Our analyses of masked data from the first Phase III trial showed only a 5% difference at 6 months follow-up in the number of eyes with elevation of IOP over 20mmHg between in study eyes (2/3 of which received Medidur) compared to non-study eyes (none of which received Medidur). So this is very encouraging for safety, and we should know the definitive safety results for our first trial by the end of the year. Moving on to our work on osteoarthritis. This is an example of us applying our proved Durasert technology, which can deliver drugs for months to years, to an area outside ophthalmology. Osteoarthritis is obviously a very common disease. It often affects a single joint, but current treatment options are pretty poor and the disease can progress to require total joint replacement. Last year there were over 700,000 knee replacement surgeries performed in the US. Last year, more people had knee replacements in the US than developed age related macular degeneration and diabetic macular edema, combined. We are collaborating with Hospital for Special Surgery, the leading specialty hospital for orthopedics and rheumatology to develop an implant for the treatment of pain associated with severe knew osteoarthritis. The product we are developing is comprised of a screw with an embedded Durasert device that is surgically placed into the knee. The implant is designed to deliver a corticosteroid directly into the joint on a sustained basis to provide long term pain relief delaying or eliminating the need for knee replacement surgery. Following promising pre-clinical data showing maintenance of sustained drug levels in the knee the principal investigator from HSS filed an investigational new drug application (IND) and is awaiting information from the FDA as to additional requirements it may have for initiating a clinical trial. Our progress with protein delivery via Tethadur technology is continuing. We have optimized the formulation to increase its loading capacity and have achieved up to 6 months therapy in-vitro. Our early pre-clinical safety work also looks good. Work is under way to confirm this work. I’d like to address why this is seemingly taking so long. Developing Tethadur to deliver proteins is real scientific discovery. We have to keep experimenting to achieve delivery of the appropriate amount of proteins over the appropriate period without problematic side effects. Changes in each of these variables and indeed changes in the different proteins affect the other variables so we are working to get optimal delivery for different proteins. We are also making good progress applying Durasert technology to age related macular degeneration. Here we are seeking to apply and extend our proven technology to deliver existing anti-cancer small drug molecules to the eye for AMD. Tyrosine kinase inhibitors are a class of drug fight cancer in some cases byinhibiting VEGF and PDGF, two molecules that are also known to promote AMD in the eye. When given systemically these drugs are effective in treating cancer. However, they can’t currently be used to treat AMD because the relatively high dose that must be given with each dosing cycle to treat AMD would result in very significant side effects. Durasert should allow over 10,000 times less drug to be delivered than systemic delivery would require. Because the drug would be delivered directly to the eye, we expect to achieve high concentrations in the eye without any detectable systemic drug exposure. Early data indicates that we can achieve sustained release for approximately 6 months and implants are well tolerated in pre-clinical models. Turning to, ILUVIEN. We licensed this 3-year injectable microinsert for the treatment of diabetic macular edema to ALIMERA Sciences, ILUVIEN was approved in the US in February this year and has received approval in all 17 countries in the EU where approval was sought. It is now marketed by Alimera in the US, UK, Germany and Portugal. We believe ILUVIEN is an important treatment alternative for patients with DME. These patients who are typically treated with laser therapy or repeated intraocular injections of the anti-VEGF drugs, Eylea, Lucentis and the off-label Avastin. The financial impact of ILUVIEN has been positive for us, as we have received over $55m to date from Alimera, primarily in the license fees, contingent note repayment and milestones. We are entitled to 20% of net profits from Alimera’s sales of ILUVIEN on a quarter by quarter, country by country basis, and are optimistic that going forward our share of profits will become significant. Now I’ll ask Len to take us through the financials. Len.

Thank you, Paul and good afternoon everyone. I'll briefly review our first quarter fiscal 2016 results we reported earlier today. Starting with our financial position, as Paul noted at September 30, 2015, we had cash, cash equivalents and marketable securities of $24 million, a net decrease of $4.5 million since June 30, 2015. The major cash outflows during the quarter included $1.8 million of costs related to the ongoing Medidur Phase III clinical trials and $1.7 million on personnel costs which included fiscal 2015 annual incentive compensation. Cash inflows included $353,000 of registered royalties and $157,000 representing our contractual share of non-royalty consideration from a sub-license agreement. We believe our capital resources in September 30 are sufficient to fund our current and planned operations into early calendar 2017. This estimate includes the expected cost of our Medidur clinical program but excludes any potential receipts of net profits or sub license consideration from the commercialization of Iluvien by Alimera. Turning now to our first quarter fiscal 2016 results. Revenues totaled $466,000 for the quarter compared to $25.3 million for last year's quarter which included recognition of a $25 million Iluvien FDA approval milestone. Research and development totaled $3.5 million in the current quarter, an increase of approximately $700,000 or 25% compared to $2.8 million in the prior year period. This increase was primarily attributable to higher CRO costs for the clinical development of Medidur. General and administrative expense increased by $234,000 or 13% to $2 million for the three months ended September 30, 2015 from $1.7 million in the prior year quarter, primarily due to higher professional fees and stock-based compensation. Income tax benefit of $41,000 for the three months ended September 2015 compares to an income tax expense of $226,000 in the prior year period. The prior year period included a $260,000 Federal alternative minimum tax accrual based on U.S. taxable income for the 2014 tax year, as a result of the $25 million milestone. In addition, both periods included foreign research and development tax credits. Net loss for the quarter ended September 2015 was $4.9 million or $0.17 per share compared to net income of $20.6 million or $0.67 per diluted share for the prior year quarter. I will now turn the call back over to Paul.

Len, thanks a lot. So to sum up, it was a really good quarter. Key points are, one, our Medidur programs were posted continues to advance with top line data from our first Phase III just around the corner. The second Phase III trial on schedule to complete enrollment in mid-2016. And then NDA expected to be filed in the first half of 2017. We've also had very productive discussions with the NHLA on requirements for approval in Europe. Two, as you apply to the principal investigator of our collaboration with Hospital for Special Surgery, it filed an IMD and is awaiting further inputs from the FDA. Three, Tethadur programs are continuing to progress well. Four, preclinical using Durasert to deliver tyrosine kinase inhibitors which is a class of anticancer drug to treat AMD is very promising. Five and six, together, we look forward to profit sharing from Iluvien but we believe we have enough cash to fund our planned operations into 2017, including our Medidur trials without cash from Iluvien net profits. Now at this point, we'd be happy to take your questions. Sylvie, would you please initiate the Q&A portion of the call.

[Operator Instructions] Your first question comes from the line from Matt Kaplan from Ladenburg Thalmann. Your line is open.

Paul, can your me hear me?

Yes, I can. Thank you, Matt. How are you?

Doing well, thank you. So couple of questions. Congrats on getting the buy in from the FDA on the six month end point. Now I guess both, Phase III studies for Medidur. What do you think the MHRA will require for Medidur approval in Europe?

I have a very good idea, but I'd prefer to wait until we get the official minutes of the meeting we’ve just had, just in case my very good idea is based on incorrect recollection.

Okay, fair enough.

And those will be soon.

Okay, good. That was my follow-up. And in terms of HSS, they - I guess they have their IND filed, when do you expect them to be able to initiate a study and what do you think that study could look like?

Let’s see what the FDA comes back to for any additional requirements. They filed for a Phase I/II study. And we’re anticipating patients to be those requiring a knee replacement surgery.

Okay. So patients - this will be prior to knee replacement and being able to take a look at what they're able to gain from…

Ready studies - we have had this in ophthalmology always, it's really good to a group of patients where there is an element of risk benefit analysis. So an example would be the first, estrogen plan [ph] that we did many years ago within a patient population - patients with a rare disease called ocular histoplasmosis, which is categorized by very aggressive blood vessel growth in through the retina. It was treated by essentially, completely detaching the retina surgically and trying to scrape out the blood vessels and then trying to get the retina to stay back on afterwards, it was a special procedure. So for us to put a steroid into the patient to prevent condition wasn't such an unreasonable thing. So, generally one would - for this type of thing it's good to try to pick a fairly severely affected patient population.

Okay, it makes sense. And then in terms of the work that you're doing and dry IND that seems obviously tremendous on that need. What are - I guess kind of next steps in terms of corporate getting something to an IND, what it would be, sometime next year?

We're looking at both, wet and dry AMD. Standard issues which are to generate sufficient preclinical data to demonstrate efficacy and to show safety, that was a long lasting impact you needed about six months or more safety data. And again it's going to be to some degree a function of what kind of patient population you choose to run the studies.

Okay. And then I guess with Tethadur, has your confidence changed at all with respect to being able to ultimate way deliver the antibodies as you would kind of anticipated when you started this program?

No, we haven't. I'm actually - I was confident because we have more data now with supporting - it's just taking very long time to generate it. As always with the whole new technology, there is always a series of missteps that you go through when you're develop it. And I told that we are towards the end of those at this point.

Then we'll see what the preclinical data shows.

Good. Thanks for taking my questions and congrats on the progress.

Your next question comes from the line of Suraj Kalia from Northland Securities. Your line is open.

Good afternoon, everyone.

Hi Suraj, how are you?

Good, sir. Yourself?

Very good, thank you.

My apologies if this has already been mentioned, just juggling between two calls. Paul, remind us again for the second Phase III study, baseline, basic characteristics, and you'll be I just presume they've were the same right?

Yes.

Okay. Paul, in terms of osteoarthritis product with HSS, assuming the IND is filed - I don't know if you gave a timeline. I guess I'm curious do we have the contours what kind of study or investigation would be needed?

Well, the IND that's been filed is I believe a six patient study and patients with existing patients, and patients who are anticipating a total replacement. So these are fairly severely affected patients.

I guess what I'm trying to understand is, are you looking at pain reduction, are you're looking at certain other clinical outcomes? Are you're looking at alleviation from let's say total knee replacement.

The primary endpoint for this study will be pain reduction but at this stage it's extremely appropriate to measure as many other things as you can.

Got it. And Paul, my apologies if this is an unfair question, but you know just given the trajectory of Iluvien so far, how would you all characterize what - are firing properly and what are not? Thank you for taking my questions.

I can't really comment on Iluvien because it's being sold by our partners, Alimera Sciences. So they would be better placed on to those questions I believe.

I am showing no further questions at this time. I would like to turn the conference back to Paul Ashton.

Thank you very much indeed. Thank you for joining us today and I look forward to speaking with you again next quarter, possibly sooner when we have the results of our Phase III trials. In the meantime if you have any additional questions, please feel free to contact us. Thank you.