EyePoint Pharmaceuticals, Inc. (EYPT) Q2 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the pSivida Fiscal Second Quarter Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would like now to turn the conference over to Doug Sherk. You may begin.

Thank you, operator and good afternoon everyone. Thank you for joining us today to review pSivida’s fiscal 2017 second quarter and first half results, which ended on December 31, 2016 and as well as recent corporate developments. Making prepared remarks on today’s call are Nancy Lurker, pSivida’s President and Chief Executive Officer and Len Ross, Vice President of Finance. In addition, Dr. Dario Paggiarino, Vice President and Chief Medical Officer, is with us this afternoon and all three are available for questions during the Q&A session. Before we begin, I’d like to remind you that all the 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 can impact our future results and financial condition, we refer you to pSivida’s filings with the SEC, including its annual report on Form 10-K for the year ended June 30, 2016. The company undertakes no obligation to update any forward-looking statement in order to reflect recent events or circumstances that may arise after this conference call. Now I’d like to turn the call over to pSivida’s President and Chief Executive Officer, Nancy Lurker.

Thank you, Doug and good afternoon everyone. I appreciate everyone taking the time to join us this afternoon. This was my first full quarter with pSivida, and with each passing month, I become more impressed with the team and the opportunities afforded by our proven and well-validated science. At the same time, I continue to believe that our technology is an undervalued asset despite having developed 3 of only 4 FDA-approved, sustained release treatments for back of the eye diseases. We are working very hard to change this situation and have made solid progress since we last talked in early November. Over the next several quarters, we have three overarching objectives for our company. First, we expect to complete European Union and U.S. FDA registration filings during 2017 for our Durasert 3-year uveitis product. Second, we expect to continue the recent progress of several programs using our unique Durasert sustained release technology. And third, we are striving to add at least one additional collaboration partnership with a drug manufacturer utilizing Durasert. Achieving these objectives in a cost-efficient manner is paramount to our team. One of my first acts as CEO was to pre-prioritize pSivida’s development program profile from one that was higher risk, longer term in its focus to one that is now moderate risk and achieves results near term. We have several significant data and regulatory milestones this year and I believe achieving these milestones should benefit our shareholders. Our Durasert 3-year treatment for posterior segment uveitis is our most advanced clinical program. Posterior segment uveitis impacts approximately 80,000 to 100,000 patients in the United States and another 80,000 to 100,000 patients in Europe. We have few options to treat this chronic inflammatory disease, which is the third leading cause of blindness. The Durasert uveitis second Phase 3 study met its enrollment target and the timing for the readout is planned by the end of second quarter. If you recall, the FDA required two Phase 3 studies for filing, and the first Phase 3 study met its primary efficacy p-value of less than 0.001 and yielded safety data that is consistent with the known effect of ocular corticosteroid use. We are very pleased with the primary efficacy and safety results at 6 months and the safety and durable efficacy results at 12 months. We remain optimistic the second Phase 3 study readout will be positive due to the robustness of the first Phase 3 trial data and the fact that trial designs are similar. As we discussed during the fiscal first quarter conference call, the European regulators required us to submit a pediatric protocol prior to the EU submission. We submitted the protocol. We received their comments and we expect to have final follow-up discussions during the next coming weeks. The end result is that we continue to expect to file the EU application during the second quarter of calendar 2017. In the U.S., we expect to file the NDA during the second half of calendar 2017. We have a number of Durasert technology product development opportunities, including our next generation Durasert bio-erodible, shorter duration treatment for posterior segment uveitis and for using collaborations with other drug manufacturers with their small molecules. We recently conducted market research for both our 3-year Durasert for uveitis and 6-month bio-erodible for uveitis. Physicians were very positive about Durasert’s proven ability to deliver a consistent daily micro-dose of a corticosteroid. The consistent daily micro-dose is believed to be one of the reasons behind the efficacy results we are seeing from the clinical studies. In addition, the physicians were impressed with the product’s ability to prevent recurrent flares that often lead to blindness. Further, our market research also covered physicians’ level of interest in the 6-month bio-erodible for uveitis. That feedback was also very positive for the need for such a shorter acting product. As a result, this research has enhanced our confidence and the market potential for Durasert 3-year uveitis once we receive approval. And in addition, it has also reinforced our prioritization of the 6-month Durasert bio-erodible for uveitis programs and we are conducting formulation testing now. Our objective is to begin preclinical safety and PK studies of this product in the second quarter of calendar 2017. We are also initiating efforts to form collaborations with other drug manufacturers for combining their small molecule drugs with this shorter duration form of Durasert to address patient needs in other indications. Another clinical program underway is the Durasert implant for severe osteoarthritis of the knee. As we have reported, the Hospital for Special Surgery in New York and pSivida announced the opening of an investigator-sponsored IND of Durasert to treat severe OA of the knee. The Durasert implant is designed to provide long-term pain relief for severe knee OA, which if affected could potentially result in the delay of knee replacement surgery. To-date, 5 patients have received the implant and the Hospital for Special Surgery expects to have the final patient implanted during the next month. While a safety and tolerability study changed from baseline in weekly mean of pain intensity scored at rest during activity and at night will be assessed weekly through 24 weeks. We are currently in discussion with HSS about the next steps for this program. Turning to our TKI program for wet AMD, the evaluation of additional TKIs are underway and we have identified multiple suitable TKI candidates for further formulation work. We have determined that pending the evaluation of TKI candidates, we intend to advance this program only through the development of a corporate partnership. Finally, there is our Tethadur preclinical program that applies proprietary technology to achieve the sustained release of large molecule, such as biologics, through a silica-based technology. Preclinical activities on this program are continuing and we are implementing a strategy to pursue partnerships to advance the program’s development. In addition to our ongoing programs, we have also taken steps during the past few weeks to expedite potential collaborations based on our proven Durasert technology with other drug candidates. Deb Jorn, who has joined pSivida in November, is heading up this effort, and she and the team are focused on establishing additional new collaborations and EU outlicensing partnership and preparing for the U.S. launch of our Durasert 3-year uveitis program. Once again, our objective is to enter into at least one new additional collaboration agreement prior to the end of the current calendar year. Before I turn the call over to Len, let me summarize why we are excited. First, on the regulatory front, we plan on submitting the EU marketing approval application for our Durasert 3-year treatment for posterior segment uveitis in the second quarter of the current calendar year. And in the U.S., we continue to expect to submit the NDA in the second half of the calendar year. Second, we will be announcing the results of our second Phase 3 clinical trials in posterior segment uveitis by the end of the first half of calendar 2017. Again, we feel very good about the prospects for a positive outcome of the study due to the positive results of the first Phase 3 study. Third, we are also looking forward to the implantation of the 6 patient for OA at HSS, the data evaluation and then working with HSS to determine the next steps. And lastly, Deb and her team continue to foster relationships with potential collaboration and outlicense partners. Our goal is to enter into at least one additional collaboration agreement with drug developers for our Durasert technology and an EU out-license for our 3-year uveitis product. We are also making very solid progress on both those fronts. I will now turn the call over to Len Ross for a brief review of our first quarter financials. Len?

Thank you, Nancy and good afternoon everyone. I will briefly review our fiscal second quarter and first half results that we reported following today’s close. Revenue for the second fiscal quarter ended December 2016 was $6 million compared to $526,000 for the prior year quarter. The year-over-year increase was primarily attributable to the recognition of deferred collaborative research and development revenue totaling $5.6 million, resulting from the terminated collaboration agreement with Pfizer disclosed in late December. Second quarter operating expenses were $6.1 million compared to $5.8 million a year earlier. The general and administrative expenses were higher in this year’s quarter compared to the prior year, primarily due to severance related costs. Our research and development costs were lower in this year’s second quarter, primarily due to the higher expense accruals associated with the Durasert Phase 3 clinical trials in the year ago quarter. The net loss for the quarter ended December 31, 2016 was $67,000 or a breakeven on a per share basis compared to a net loss of $5.2 million or $0.18 per share for the prior year quarter. At December 31, 2016, cash, cash equivalents and marketable securities totaled $17.5 million. During the second quarter, we used approximately $5 million for operations and we anticipate a somewhat higher rate of cash usage from operations in the third fiscal quarter due to the timing of annual insurance policy renewals and clinical milestone payments. As we have noted on previous calls, the timing and amounts of our CRO clinical milestone payments have continuously fluctuated from quarter-to-quarter. The Board and management are consistently evaluating strategies to provide the company with the resources required to achieve our objectives and are keenly focused on those strategies that would minimize shareholder dilution. I will now turn the call back over to Nancy for her closing comments.

Thank you, Len. Our focus on moderate risk near-term potential product development programs should yield promising results. The feedback we received from our recently conducted market research validates that our Durasert 3-year uveitis product meets an unmet need in the marketplace as well as the initial physician interest in the 6-month program for uveitis. In summary, we have a number of solid catalysts this year. And I look forward to providing updates as we continue to make progress. Operator, we are ready now to take questions.

Thank you. [Operator Instructions] And our first question comes from Matt Kaplan from Ladenburg Thalmann. Your line is now open.

Hi guys, can you hear me?

We can hear you. Hi Matt.

Hi Nancy. Thanks for taking the questions. I guess starting off just focusing on the European filing for the 3-year Durasert, can you give us a sense in terms of where you are in finalizing the pediatric study protocol with European regulatory authorities?

Yes. We are very close and we are actually quite pleased with the progress that we have made. They have been very responsive. And as a result, as I have said, we remain very confident that we will be able to close it out and file in the second quarter of fiscal – of calendar year 2017.

Okay, very good. And then drilling down a little bit with respect to your plans in Europe, where are you in your European partnering discussions as you get closer to filing, when can we expect a potential partnership?

Well, let me just say this that we have been – first of all, Deb Jorn, who is our Executive Vice President of Corporate Development has done a fantastic job leading that effort and we have been in contact with tens of multiples of companies around the potential out-license. And we are on track. Obviously, I am not going to go into specifics in terms of timing, but we have a very thorough process for that auction. And so far, we have had good responses. So I would expect that certainly before the second half of the year is out that we may be able to answer that question. If not, in the third quarter would be the goal, by the third quarter of calendar 2017. As you know, though Matt, I just want to caution that obviously as you get into due diligence and then final negotiation, sometime things can take a little longer than anticipated.

Fair enough. I guess, do you expect to have multiple kind of regional or country specific partnerships or would it be one kind of for the entire region in the Europe?

Yes. You know what, I am not going to predict at this time. Let me just say again, it could be either one of those. And we will see what the level of interest is. Obviously, as you are going – someone who has got global reach, they are a much, much larger company, if you are going to a more regional approach, then you are going to be dealing with obviously more mid-size to smaller players.

Great. And then with your osteoarthritis of the knee program, congrats on the progress there. Can you give us a sense in terms of how the first five patients that you have treated so far, how did they look and what are the results there?

I am going to actually turn that over to Dr. Paggiarino who is our Chief Medical Officer to discuss the HSS program.

Yes. Matt, so first of all, this was as you recall a safety study primarily in a small number of patients. So the first objective was to evaluate safety, but also to have the opportunity to have a preliminary assessment of the effect on pain and function. And overall, to-date, the data seem to suggest that the treatment is well tolerated and there may be some indications of – that these patients are doing well. So we look forward for the six patients we enrolled in the study.

And how should we – how should we think about in terms of the presentation or announcement of the data once the six-patient is valuable, will that be in a press release or we will have to wait to it till it’s presented at a medical meeting or how will that work?

Yes. First of all, we are in a collaboration with HSS, so we will have to work with them on that. And right now, we are looking at it will be summer time before anything gets released just because of the timing of the enrollment of the patients. And I am not going to speculate at this time how we would release those data.

And when you said in your prepared remarks, you are kind of looking at the next steps for the program, what are you contemplating in terms of next steps at this point?

Yes. So the next steps with HSS is going to be finalizing how we are going to work together going forward. So any number of types of arrangements are currently being considered with HSS.

Okay. And that includes doing a larger type of Phase 2 study or...?

Yes. So first of all, there is a big math – there is the basic structure of the agreement and then there is the clinical plan going forward. So both of those items need to be – need to still be worked on. We were in the process of both of those discussions now.

Okay, very good, that’s helpful. Well, thanks for taking my questions and congrats on the progress across the board.

Okay. Thank you, Matt.

Thank you. And your next question comes from Suraj Kalia from Northland Securities. Your line is now open.

Good afternoon folks. Thank you for taking my question. So Nancy, let me start out with the Durasert bio-erodible, a couple of sub-questions within this question, why six months, is it just because uveitis occurs or at least most of the recurrence occurs within the first six months to nine months, is that why you are all choosing a six-month, is it because of the technology or is it simply because as a way to reduce IOP and glaucoma numbers in the bio-erodible implant?

Yes. So those are all very good questions. And again, I am going to answer some of them. I am going to turn some of it over to the Dario again. But let me just say this, in general, with our technology, we can time the release depending on the molecule that’s in there from one month by month all the way out to 36 months. So it’s not a matter of that’s what the technology will allow, because we could – literally with our corticosteroid, we could time it for eight months, we could time it for 12 months. It doesn’t matter. We have that level of sophistication around how much we release over what time period. The reason we have gone for six months is because consistently, when we have gone out and done market research and there has been prior market research that’s been done at pSivida as well as this most recent market research that we did as well as when we are in discussions with potential collaboration partners with their small molecules, consistently what comes out is that six months is an ideal window where physicians want to be able to say, alright, most – as you know, most drugs for back of the eye disease are administered with monthly injections, that’s typical. So you are not typically going to get payer response or the value that you need unless you can get beyond three months with patients, because if you end up with just two months to three months, we got to come back in, it’s not that much of an improvement over a monthly injection. And so then the second thing is, is they don’t want to go beyond six months, because it takes too long before they see the patient again, you run the risk of saying – and regardless, either with our 3 years, they would still expect they are going to see the patients back in the office on a semiregular basis. So, 6 months seems to be that nice window when it is long enough that you are getting a real advantage over monthly injections, but not so long as well that they run the risk of losing the patient to oversize. So I am going to turn it over to Dr. Paggiarino if he wants to add anything to that.

No, I think I don’t really have much to add. I think it gives the flexibility of treating physicians to those patients with the flexible schedule.

But Nancy, would I be too far off in saying that maybe unintended or an unintended effect of this could be reducing high IOP and/or glaucoma incidents in these patients who are treated with the bio-erodible implant, could that be a direct correlation?

It’s hard to speculate on data. We will – I think the clinical data will have to speak to that. Now, the advantage of – so I don’t want to speculate on the effect on eye specifically certainly the advantage of the bio-erodible by itself is that the components of the inserts are absorbed. So they may allow maybe dosing, but in terms of side effect profile of a bio-erodible [indiscernible] I think it’s too early to hit through that.

Yes. But let me just add, Suraj as well, that clearly with the Durasert technology in general, we have made enormous progress since Retisert was put on the market. And so our intraocular serum levels of corticosteroid are much, much lower than when you get to with the bolus injection that occur monthly, even some of the competitor who is out there, when they are injecting, you get a much higher spike in corticosteroid and there is a good correlation, though it’s not been proven positive. It’s certainly there is a correlation between that and IOP.

Got it. And how much do you all intend to spend on this program?

We are not going to disclose that. But let me just say this right now that relative to other clinical programs, it’s modest in cost and we are going to be highly conscious to do it in the most cost efficient manner. You can imagine because we will be looking at this as potentially a supplemental new NDA to our current NDA that the cost could be lower than a new NDA.

Got it. In terms of the pediatric indication in Europe Nancy, help me understand or at least remind me, why pediatric, why now, why go down this – I mean is uveitis a big issue in pediatrics and forgive me if I am just end of the day, I am sort of brain-dead and maybe it is but...?

You have been on too many calls, Suraj.

Yes, its earnings seasons, so forgive me.

Look, it’s not a problem at all. We are required to. We submitted a waiver. I believe we disclosed this early. We submitted a waiver. That waiver was denied. So the European regulatory authorities are basically, as a condition of filing requiring us to have an approved pediatric protocol. It is extremely rare in children to see this condition and that is why we requested a waiver. However, the regulatory authorities believe since the conditions still exist, they would like to see that we conduct this study. And again, I want to reiterate the study, we do not – will not need to be started until after we get the drug approved.

Got it. And finally Nancy, maybe I missed this, any update on your CSO strategy, that would be great? Folks, thank you for taking my questions.

No update at this time. It’s still too early. We would expect to start that post-filing in the U.S.

Thank you.

Thank you. And our next question comes from Vernon Bernardino from FBR & Company. Your line is now open.

Hi Nancy. Thanks for taking my question. Most of them were related to the certain implants in severe osteoarthritis, but just going back as far as the study is concerned, how do you decide, for example, you have dosed five patients, how do you decide how and when to proceed to the next patient in this case the six patients?

That’s strictly related to the patient enrollment criteria. And again, this is an investigator sponsored study, so we are not involved in that. And that is strictly related to making sure that the patients meet the enrollment criteria.

And can you remind us, in particular what that is, such that it’s met and then they proceed onto the next patient?

Yes, again, I will have Dr. Paggiarino answer these questions.

So the plan was to enroll six patients and the – with the objective of waiting essentially safety and efficacy, preliminary efficacy. And so the criteria of these are patients who are candidates for knee replacement and they will obviously benefit from the improvement companion function. And so the targeted number was six patients and on the basis that, that would allow again a preliminary assessment, but also the ability to work with the insert and really refine the insertion technology, so to speak from the surgeon.

Okay. And it’s an exciting opportunity obviously, but can you confirm that one other things you might disclose is a data on delay of knee replacement surgery or no?

No, that’s not one of the in criteria.

These are candidates, yes.

Right. These are candidates. And remember, we expect to disclose the results after the end of six months and that is the end points are pain measured on WOMAC score, which is a very well validated pain score, as well as overall knee movement and articulation. It’s not – at this early stage Phase 1 it’s not delay of TKR, though we would expect it potentially as we move into Phase 2 that could be one of the endpoints.

Okay. So we won’t see any data as far as on TKR?

No.

Okay, alright. Just want to confirm that. That’s all the questions I have. Thank you.

You’re very welcome.

Thank you. And our next question comes from Guy Dietrich from Dietrich Capital Partners. Your line is now open.

Hi Guy.

Hi, Nancy. How are you today?

Good.

I have got a two-part question. Given the FDA has indicated they are potentially embarking on a much more streamlined approval process, I am wondering if I can get a little more transparency on your thinking on this subject and how it could favorably impact pSivida? And then secondly, given the strength of your first Phase 3 trial for posterior uveitis, which really had superb results, despite these really compelling results, the FDA requested a second Phase 3 trial, which may not be concluded until mid-year. So I wonder given the dynamics in place right now and I realize it’s sort of a moving target, have you considered sort of a more rapid and perhaps filing an NDA just based on the strength of your first Phase 3 trials while continuing the second one?

Yes. So, actually good question, Guy, and we did consider that. And in fact, we did go back and show the FDA our first Phase 3 trial results, because they were so robust and the FDA still wants us to finish and file along with the second study. So we did attempt to do that. I will also say that we continue to look at other ways that we could approach this to expedite things. We have retained outside consultant who has got a lot of expertise in this as well as obviously continue to rely on our internal regulatory expertise. And it continues to fall in line that right now, we need to continue to file both studies and we are filing them as quick as possible after we get the results in. As to whether or not we would anticipate anything to speed up, I think again what we have heard from, again, both our internal regulatory as well as external is that you need to get the FDA – new FDA commissioner in place. It’s going to probably take just a little bit of time. So I would expect that if anything, it probably wouldn’t impact us on the current regulatory filings, perhaps it could impact when we file – potentially file for our 6-month bio-erodible.

Okay, thank you.

Thank you, Guy.

I am showing no further questions at this moment. I’d like to turn the call back to management for any further remarks.

I want to thank everyone for participating in today’s call and I look forward to many potentially positive events that are going to occur this year. So thank you for your time and I look forward to updating you on our next call.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone, have a great day.