[Operator Instructions] Good afternoon, ladies and gentlemen, and welcome to the Q3 2017 pSivida Corp. 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, Doug Sherk. Please go ahead.

Thank you, Blair, and good afternoon, everyone. Thank you for joining us today to review pSivida's fiscal 2017 third quarter results, which ended March 31, 2017, as well as recent corporate developments. Making prepared remarks on today's call are Nancy Lurker, pSivida's President and Chief Executive Officer; Deb Jorn, Executive Vice President on Corporate and Commercial Development; Len Ross -- and -- excuse me, and Len Ross, Vice President, Finance. In addition, Dr. Dario Paggiarino, Vice President and Chief Medical Officer, is with us this afternoon and will be available during the Q&A session. Before we begin, I'd like to remind you that all statements other than statements of historical fact 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, 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 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; and for those of you listening from Australia, good morning. I appreciate everyone taking the time to join us to review our 2017 fiscal third quarter results and corporate update. I want to begin today's call by emphasizing that throughout our organization there is a high level of enthusiasm. This is due to the substantial achievements we've made over the past few quarters on the regulatory, clinical and collaborative fronts. I continue to be impressed with our Durasert technology, and our efforts these past few months have created several near-term milestones, especially as we approach the end of our fiscal year in June. As evidenced by our progress, the reprioritization of pSivida's development program, one from higher risk, longer term in its focus to one that is now more moderate risk and nearer term, is expanding the pipeline and yielding positive results. We have increased the number of shots on goal. Let me review the status for each of our programs and the substantial developments you can look for in the coming months. I will then ask Deb Jorn, our Executive Vice President of Corporate Development, to provide some details on our recent market research and collaboration agreements. I'll begin with Durasert 3-year for posterior segment uveitis and then move on to the other programs. Our most advanced clinical program is our Durasert 3-year treatment for posterior segment uveitis. 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, who have few options to treat this chronic inflammatory disease, the third leading cause of blindness in the developed world. The FDA required 2 Phase III studies, and if you recall, the first Phase III study met its primary efficacy p-value of less…

Thank you, Nancy. Good afternoon, everyone. It is certainly an exciting time for pSivida as we kick off launch planning for our new investigational Durasert 3-year product for the treatment of noninfectious posterior uveitis. As part of the process, we recently completed market research with retina and uveitis specialists to assess their reaction to the product profile, and importantly, gauge their level of interest in using the product. The profile tested was based on the efficacy and safety results at 6 and 12 months from the first Phase III study. The feedback from specialists was overwhelmingly positive. The level of interest in using the product was assessed on a scale of with 1 to 10, with 10 -- excuse me, with 1 being low and 10 being high. The level of intent among specialists ranged from an 8 to a 10. This strong level of interest in using the product was driven by our first Phase III study results, demonstrating a significant and durable reduction in the recurrence rates of uveitis, improvements in best corrected visual acuity, or so-called BCVA, and a favorable tolerability profile at 12 months. Specialists viewed the Durasert 3-year insert as an important addition to their current treatment options, given its ability to provide consistent long-term control of chronic posterior uveitis versus currently available treatment options. Less recurrences or flares was perceived as an important -- was perceived as important for preserving vision over the long term. We look forward to providing physicians with this new treatment option to help improve the lives of patients suffering from the debilitating effects of this potentially blinding disease. Now let me turn and spend a few moments updating you on our business development initiatives. Since joining pSivida 6 months ago, my major focus has been to significantly increase the number of collaborations with leading pharmaceutical companies, leveraging our proven and proprietary Durasert technology platform. We have already signed one feasibility study agreement well ahead of schedule, and we are in active discussions with other pharmaceutical companies to establish additional collaboration agreements. In addition, we have been focused on securing an EU outlicense partner for the 3-year Durasert uveitis product. We are well into the process with several potential partners, and we expect to finalize a partnership later this summer. With that, thank you, and I will turn it over to Len.

Thank you, Deb, and good afternoon, everyone. I will briefly review our fiscal third quarter results we reported following today's close. Revenue for the third fiscal quarter ended March 31, 2017 was $590,000 compared to $324,000 for the prior year quarter. Third quarter operating expenses were $5.8 million compared to $5.4 million a year ago. The net loss for the quarter ended March 31, 2017 was $5.1 million or $0.15 per share compared to a net loss of $5 million or $0.15 per share for the prior year quarter. During the third quarter, net cash used in operations totaled approximately $4.6 million, and we anticipate net operating cash usage of approximately $5 million in each of the next few quarters. During the fiscal 2017 third quarter, we issued approximately 1.4 million shares of common stock for gross proceeds of approximately $2.5 million, through the utilization of our existing at-the-market or ATM program. At March 31, 2017, our cash, cash equivalents and marketable securities totaled $15.4 million. Subsequent to the balance sheet date, we have continued to strengthen our balance sheet through further utilization of the ATM program and have issued approximately 3.6 million additional shares of common stock for gross proceeds of approximately $6.3 million. At April 30, our cash balance was approximately $19.9 million. Given the 15% annual limitation, as defined, on the issuance of shares pursuant to the listing rules of the Australian Securities Exchange, or ASX, without stockholder approval, we expect to conclude the current utilization of the ATM program in the coming days. I'll turn the call now back over to Nancy for her closing comments.

Thank you, Len. Before opening call up to questions, I'd like to follow up on Len's comments regarding the use of our ATM. In order to execute the strategy we've laid out for you, which is to grow the top and bottom line and thereby increase shareholder returns, we have to invest in the programs we are implementing, and that requires additional resources. At the same time, our Australian stock exchange listing means that we are limited in terms of equity rate up to 15% of our shares outstanding before getting shareholder approval. Our board evaluated a variety of financing strategies and determined that the most efficient and minimally dilutive one, given the boundaries that we have to operate within, was the ATM. The results from the effort illustrate it was the right decision and was well executed. At the same time, we are filing a proxy today for a special meeting of shareholders to fulfill an Australian stock exchange requirement to get shareholder approval to allow us to sell up to an additional 15% of our shares. Approval would enable us to maximize our options as we seek the resources required to execute our strategies in 2018. Our entire team is focused on executing several near-term objectives, including reporting the top line results from the second pivotal Phase III study in June; submitting our filing with the EU regulators in June; finalizing an EU outlicense partnership for our 3-year uveitis product during the summer months; leveraging the clinical study data being presented at leading medical conferences to reinforce the strength of our science and [Audio Gap]; continuing our collaborations with biopharmaceutical companies as well as entering into others; filing our NDA in the U.S. during the fourth quarter of calendar 2017. This is perhaps the most exciting period in the history of the company. It's important that we maintain this positive momentum, and it's important that we explore available strategies to meet the future capital resources needs required to achieve the company's growth objectives during 2018 and beyond, as well as maximize shareholder value. In summary, we have a number of key milestones over the next few months, and I look forward to providing updates as we continue to make solid progress. Operator, we're now ready to take questions.

[Operator Instructions] Your first question comes from the line of Suraj Kalia from Northland Securities.

Nancy, can you hear me all right?

Absolutely.

Perfect. Okay. So, Nancy, forgive me, I've been hopping between 4 calls. In case some of this has already -- you guys have given some additional color, my apologies. The biopharma partner you'll sign in the quarter -- any -- did you all give any details on whether it's -- it was in osteoarthritis; it was something else; what the terms of the deal was; duration of the deal?

No. We can't. We have not disclosed anything. We did file an 8-K with minimal information.

Got it. And I presume you guys are precluded, confidentiality reasons, not to talk about it.

Oh, yes.

Whether it's -- which therapeutic segment and whatnot?

Absolutely. So, if we are successful, I would anticipate that down the road we can certainly disclose more.

Nancy, there is, as you very well know -- you and I have talked about this multiple times on osteoarthritis -- you guys are stealthily working on something that has eluded a lot of other companies. I know the data for the Phase I HSS study is going to be towards the latter part of the year. Any directional -- any color you can give on how that's shaping up on the 6 patients? I know there were pain scores and whatnot that -- what should we expect by the end of the year, and what should we look [indiscernible] Phase II?

Yes. Let me just say this. It is an open-label study. However, right now, we anticipate releasing results after the end of the 24-month period, the 6 months of efficacy. And that's a combination of efficacy, pain as well as signs and symptoms of movement. However, we will evaluate. If it merits [ it we ] will only do that in collaboration with HSS, if we should decide to discuss any of the results a little earlier. I can't promise that, because it is open-label. But obviously we are in close contact with our collaboration partners, and we're very pleased with the direction of the collaboration.

And since it's open-label, admittedly, some of the patients have been recent and we don't know how they're performing. I can appreciate that. Have you been approached by any strategic to co-fund, if I can create that word co-fund, this trial and/or work together on this product at this stage?

Yes. You're asking very good questions, Suraj. Obviously, I can't disclose anything. But let me just say this: that we are certainly evaluating our next steps with this. Our goal is to leverage this technology platform, and it's really a platform technology, because this can be used in multiple joints in the body and potentially down the road use other small molecules beyond just dexamethasone, which is currently in the implant right now. So we will be working closely with our partner, HSS, and looking at the options to maximize the value to both us and HSS. At this time I can't disclose anything more, but suffice it to say we are actively engaged and actively looking at how to -- what the next steps are.

And finally, Nancy, and I'll hop back in queue, the third party CRO strategy -- still thinking about 20, 30 people would suffice for Durasert uveitis?

Yes. So first, I think you mean CSO, contract sales organization.

Oh, CSO, sorry.

I'm going to -- that's okay. I'm going to turn that question over to Deb Jorn.

That's what happens when you're toggling between 3 different calls, so my apologies.

That's all right. Go ahead, Deb.

Hi, Suraj. Well, as you know, the number of prescribers, because this is an orphan disease, is very limited. So therefore we can go to market with a very small sales force, utilizing a CSO to cut costs. And also, we will have very favorable gross margins and that should contribute to our bottom line and lead to substantial return to our shareholders in a reasonable period of time, we believe, following launch.

Yes. And just to clarify, it's 15 to 20…

20.

Right. Yes.

15 to 20 representatives.

They should be good enough. Okay. Fair enough.

The next question comes from the line of Matt Kaplan from Ladenburg Thalmann.

One of the new things you mentioned in terms of your prepared remarks was talking about an ex-U.S. partnership expected this summer. Can you give us some details in terms of how to think about that -- what the structure would be, and how that would work? Nancy Lurker^A: Okay. I'm going to also turn that over to Deb. Obviously, we can't disclose a lot of details on that.

You bet. Nancy Lurker^A: But go ahead, Deb. Deb Jorn^A: Well, it would be an outlicense where the partner would be responsible for the sales and marketing and bringing the product forward to the marketplace, including securing reimbursement in all the countries. This will be a centralized procedure, so there will be a number of countries we'll be looking to have that partner immediately move forward to launch it.

So should we expect kind of upfront payment, royalties, milestone payments, that kind of thing? Nancy Lurker^A: Yes. I would -- you should plan on the typical deal. Obviously, just remember it is uveitis, which is a orphan disease. So given that, and the fact that it is relatively small revenue-wise, as I've stressed, profitability should be good because, as I've mentioned, our gross margins are good on this, our COGS are very low and we don't expect to have a big, robust field force. Nevertheless, because it is a relatively small category, you're not going to see large upfronts.

Got it. That's helpful. Thank you. And also in your remarks, you were talking about your [Audio Gap] the analysis and survey that you've completed. Can you give us a little bit more color on that as well, in terms of how -- and how will doctors incorporate this into their practice, and when would they use it in terms of what line of therapy, are they thinking about?

Okay. During the discussions, we specifically asked physicians where this would fit into their treatment paradigm. And certainly what we've heard was, a lot of patients would be potentially switched from products such as OZURDEX. OZURDEX has a certain duration, be it 2 to 4 months, in terms of controlling the condition. So this was seen as for that chronic patient a maybe more appropriate, longer-term control of a chronic condition. And also with Retisert, primarily because Retisert requires surgical implantation whereas this product is an intravitreal injection and also has a much lower concentration of fluocinolone acetonide, the active corticosteroid, and given the tolerability profile shown in our 12-month data from the Phase III. So to answer your question, I think they believe that this is a incredible option for patients with chronic recurring rather than the multiple injections that currently has to happen, and/or use of systemic therapy.

Yes, and let me just add to that, Matt, which is that, just recall that for uveitis the only real treatment option that's available right now are corticosteroids. HUMIRA is approved for systemic use for uveitis, but clearly due to the cost, and of course you do have a -- you've got many tolerability considerations to take into effect. That is not something that we would expect nor doctors indicate would be used in any way first or even second line, but more primarily as a last resort. So again, corticosteroids are their only option in treating uveitis. So obviously, and it certainly showed up in the research, that we would expect to be used fairly soon in the treatment of these patients.

Since many of them have already been on -- the chronic patients have been on therapy for some time with multiple injections, the thought was that the doctor would likely move those patients -- the appropriate patients right away to this longer-duration product.

Great, great. That's helpful, thanks. And then I guess one last question on the implant program that you have, specifically, in the knee osteoarthritis. You mentioned you're also thinking about pursuing other products besides steroids. Can you give us a sense in terms of what type of products to add to that delivery system?

Yes. So, let me say this. I want to be -- the -- just add a caveat, which is, that is strictly in the planning stage. So that's not something that we anticipate doing right away. Our main goal right now is to start to plan for Phase II for our knee osteoarthritis program, which currently has a terrific steroid in it, dexamethasone. But beyond that, you could envision nonsteroidal anti-inflammatories in the implant; small molecule antibiotics; others might be antifibrinolytics. Just some examples. We have not explored all the other options, nor have we prioritized them, but I'm simply putting out there that this can go many different directions as we look at using this implant in treating the entire orthopedic patient community.

The next question comes from the line of Yi Chen from H.C. Wainwright.

Hi. Thank you for taking my questions. Nancy, my first question is, assuming the data coming out from the second pivotal Phase III trial is positive, do you expect anything else -- any other [ hurdle ] before submitting the NDA?

I'm sorry. Ask the question one more time.

Assuming you have positive data coming from the second pivotal Phase III study in June, do you expect any other hurdles from the FDA before submitting the NDA? Nancy Lurker^A: Well, first of all, let me just say this. You can never predict for sure, and so I'm not -- I -- we obviously plan to have a pre-NDA meeting with the FDA, and certainly we will learn more there. I will just say that when you look -- if -- when you look at our first Phase III study, and again, we do not know the results of our second Phase III study, but should our second Phase III study be as positive as our first Phase III study, that's pretty powerful data to go into the FDA with. And I'm just going to leave it at that because it's difficult to predict these things.

Okay. Second question. I know you will start preclinical studies for the shorter-acting Durasert. So, when the shorter-acting version of Durasert enters clinic, I guess it is a bio-erodible version versus the non-erodible version for the long-acting Durasert, correct? So, will there be any difference in terms of clinical trial design and endpoints?

Yes. So, let me just say this. We are right now in the preclinical stage and the approach to how we bring this to market is still under evaluation. So, obviously, our goal is to get it to market as soon as possible, and there's any number of ways we can do that. So we're evaluating our option set now.

Okay. My final question -- so, after you finish the Phase III trial, the ongoing Phase III trial, and when you move forward with other projects, what are the likely operating expenses or cash burns -- quarterly cash burn that we can expect for the rest of the year?

Okay. So if you're saying for the rest of 2017?

Or 2018, if you have -- you can provide some comments, that would be [indiscernible].

We haven't given any forward guidance into that. We haven't given any forward guidance. Let me give you thematically where we're going with this. Obviously, we're keeping a tight control on expenses. We have our ongoing Phase III study costs. So, we certainly do not expect expenses to go down. I can say that. And what we do expect is modest -- potentially modest slow increases quarter-over-quarter as we start to slowly begin to plan for and then start to build out the commercial infrastructure. Which, again, I want to reiterate: we do not expect to have by any means a large commercial infrastructure here. You do not need it, which is another reason why we're going to use a contract sales organization. So we're talking a couple marketers. You've got some -- obviously, we've got a couple of people from managed care. You're going to need a couple people on the medical affairs side. But very, very small footprint. But we're -- I'm not giving forward guidance at this time. Okay. Sorry. Len, why don't you just add one comment?

Yes. I think in my earlier comments I indicated that at least for the next few quarters we expected operating cash use to be about 5 million a quarter, and that's consistent generally with what it has been and reflects obviously the ongoing cost of the Phase III clinical development program, which still has a ways to go before it's totally complete.

[Operator Instructions] The next question comes from the line of Shekhar Basu from Basu Capital.

Thank you for taking my call. I appreciate it. I just wondered, the existing product from Alcon -- how much in revenues is that doing? Can you just remind us please?

Do you mean Allergan, the OZURDEX?

Sorry, Allergan, yes.

Yes. It's about $420 million, I believe.

Well, no, it's projected. It's projected for this year. It did around $263 million in 2016 worldwide.

Right.

Okay. And my second question was that your product device is inserted for a period of 3 years, and I just wondered, in terms of the adverse events and any inflammation or IOP elevation that one can get in the event that there's adverse event, if the patient -- what is -- well, how does the physician feel about managing that, because they can't really take the insert out, can they?

Yes, I will answer. That is correct. You don't take the insert out. Now, this is obviously an insert that is delivering fluocinolone and in -- although it's delivering fluocinolone a very low rate, and the effects -- we see some effect that are typical of steroids. So, effect on IOP; cataract. But without going to the details about the specific incident, we feel very comfortable about the fact that these are manageable, they are expected, and they -- again, consistent with the pharmacological effect of steroids in the eye. But overall I think the feedback from the investigators is positive and I think the data will clearly define the safety profile of this insert.

Yes. That was Dr. Dario Paggiarino, our Chief Medical Officer. Dario, why don't you just comment on the pivotal Phase III 001 data around IOP elevation, which was very minimal?

It's very minimal. So in terms of the -- if we look at the data, now we have 12-month data, so if we look at the IOP elevation at 12 months it's very modest. We're talking about 2 or 3 millimeters compared to the sham, which also has very modest. So on average we see very little increase compared to sham. We also -- importantly, we see a modest elevation that is stable over time. And again, as we collect more data, I think it's very important to establish that safety profile.

Okay. And one last question, if I may. On the CSO decision, I don't know how many CSOs actually are able and capable of promoting a very small product to a very small audience. Typically, CSOs are able to do a second or third detail, but not a first detail typically. So I'm just wondering, has the ophthalmic category -- are they really able to "push it" appropriately?

Yes. Well, you asked the right person, because I was the CEO of PDI, which was the second-largest CSO in the United States for 7 years until we sold it to Publicis. So I'm very, very familiar with CSOs. And let me assure you, since I know the category so well, that we are very confident. We know, in fact, indeed, that CSOs absolutely manage small field forces like this. It's not like it used to be in the heydays. If you go back when I first started at PDI, we would hire 300 to 500-person teams, and over the years as -- because of what's gone on in the size of -- the shift of pharma into these small specialty disease areas, the average size of teams has gone all the way down to 50, and we often launch teams for people even with 3 reps. That was not atypical at all. So it's very, very doable. And the other key point I just want to make is, remember that one of the errors that people seem -- most people don't understand about CSOs is that they don't -- these reps that they hire, they hire directly for your needs. So it's not their rep. It is their reps, but they're hired and dedicated to a particular product. So in our case, we would lay out for them the profile of the rep that we want them to go out and hire for us. And then they're very, very good at knowing all the representatives across the United States in every therapeutic category and then accessing that -- those databases that they have and recruiting those reps specific to whatever therapeutic area you want them to do. It doesn't matter if it's ophthalmology, hospital, rare disease -- you name it, they can do it. So we're quite confident on that front, that this is eminently doable.

And in fact at my previous [ clients ], we hired PDI. We had a small orphan drug product, and actually I utilized Nancy's company, PDI, and we built out a team of 5 individuals.

There are no further questions at this time. I will turn the call back over to Mr. Sherk for closing remarks.

Thank you, Blair. Before we end the call, I would like to note that in connection with the special meeting of stockholders referenced by Nancy earlier in the call today, the company will be filing a definitive proxy statement concerning the special meeting with the United States Securities and Exchange Commission. Before making any decision on how to vote at the special meeting, the company's stockholders are urged to read the definitive proxy statement and any other relevant documents filed with the SEC when they become available, because they will contain important information. The company's stockholders can obtain free copies of the definitive proxy statement and other documents when they become available by contacting the Company Secretary in care of pSivida Corp., 480 Pleasant Street, Watertown, Massachusetts 02472. In addition, documents filed with the SEC will be available at no charge on the SEC's website at www.sec.gov. The company and its executive officers and directors may, under SEC rules, be deemed to be participants in the solicitation of proxies from stockholders of the company in connection with the special meeting. Certain information about such individuals, such as their ownership of shares of company common stock and their interest in the solicitation with respect to special meeting will be more specifically set forth in the definitive proxy statement concerning the special meeting that will be filed with the SEC, which will be available, again, free of charge on the SEC and the company as I previously noted. With that, I'd like to turn the call back to Nancy for closing comments.

Thank you very much for your time. We appreciate it, and I look forward to keeping you further updated as we achieve our many milestones that are coming forward. Thank you again.

This concludes today's conference call. You may now disconnect.