EyePoint Pharmaceuticals, Inc. (EYPT) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q1 Fiscal 2018 pSivida Corp. Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Doug Sherk, you may begin.

Thank you, operator. Good morning, everyone. Thank you for joining us today to review pSivida's fiscal 2018 first quarter results for the quarterly period that end September 30, 2017 as well as recent corporate developments. Making prepared remarks on today's call are Nancy Lurker, pSivida's President and Chief Executive Officer; Len Ross, Vice President of Finance. In addition, we have Dr. Dario Paggiarino, Vice President and Chief Medical Officer; and Gregg Beloff, Chief Financial Officer; as well as Deb Jorn, Executive Vice President, all with us this morning 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 Q2 results and financial conditions, we refer you to pSivida's filings with the SEC, including its annual report on Form 10-K. 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 morning, everyone. I appreciate everyone taking the time to join us to review our 2018 fiscal first quarter results, operating achievements as well as outline our anticipated milestones. It's been a little less than 2 months since we last spoke with you, but during that short amount of time, we continued to make material progress towards meeting our overarching objective of transforming pSivida into a fully integrated commercial-stage pharmaceutical enterprise. I believe that there are few companies our size that have generated the regulatory, clinical and collaborative success that pSivida has consistently demonstrated over the past few quarters. We have added more value drivers this quarter and are positioned to do so throughout fiscal 2018 because we have an ambitious plan to leverage our proprietary technology. I'm confident we can excel and deliver the kinds of results that our shareholders expect from this management team and board. So first, let me begin with our Durasert 3-year for posterior segment uveitis product, and I'll discuss the progress being made in our other programs. As you know, this is our lead product and most advanced clinical program. We have successfully achieved the primary efficacy endpoint in 2 Phase III studies with high statistical significance for the prevention of recurrence of posterior uveitis in 6 months. Because of the strength of the data and our pre-NDA meeting with the FDA, which resulted in no changes to our proposed clinical data package, we remain on target to file the NDA some time in late December or early January. I want to remind you that our technology is proven and pSivida has already received FDA approval for 3 of the 4 sustained release drugs approved for back-of-the-eye diseases. During the first quarter, 2 leading retinal specialists presented Durasert data at the American Society of Retina Specialists or ASRS Annual Meeting and the EURETINA Congress held in Barcelona, Spain. Later today, I'll be heading to the American Academy of Ophthalmology, AAO annual meeting being held in New Orleans. This is a major medical conference and Dr. Careen Yen Lowder, who is currently with Cleveland Clinic Cole Eye Institute, will be presenting data on Durasert to this prestigious audience. The work that Dr. Lowder and the others do is important. It demonstrates the severity of uveitis and that the medical community acknowledges that this is a condition with a significant unmet need. Today, patients with posterior segment uveitis have limited treatment options. The current standard of care is frequent injection of steroids or an implant that lasts only 2 to 3 months with a list price of $1,400 per device or a 3-year equivalent price of nearly $17,000. Use of systemic steroids and immunosuppressors are associated with the potential for significant side effects. Steroid eyedrops have limited efficacy given their limited ability to reach the posterior segment of the eye. Further, today's treatment options are mainly directed at controlling flares, while Durasert is designed to help prevent flares for up to 3 years with a single injection administered in an office setting. This, for the third leading cause of blindness and a disease that impacts approximately 80,000 to 100,000 patients in the United States. The 0 order release pharmacokinetics, which is a consistent and controlled drug release over time, is a key feature of Durasert as it does not cause the burst of corticosteroid and rapid fall-off seen with other treatment options. In other first quarter development, we amended the existing collaboration agreement for ILUVIEN. Effective July 1, we changed the terms of the arrangement to a net sales-based royalty to pSivida, resulting in improved financial terms for the company. Alimera is also making regulatory progress in the EMEA region for posterior segment uveitis and has reported that they are on track to file their application in the calendar 2018 first quarter. In the U.S., we continue to refine our go-to-market plan. While premature to discuss specifics until we receive approval to market, we feel confident we have the experience, team and strategy to execute our launch plan with precision, which will only require 8 to 10 contract sales representatives at launch and this perhaps up to 15 to 12 -- 20 sales representatives over the longer term to cover the uveitis specialists. Of key importance, during the fiscal first quarter, we also entered into 2 collaboration agreements with pharmaceutical companies for front-of-the-eye diseases. Principally, to help prevent the development and progression of glaucoma. Our goal a year ago was to enter into at least one collaboration agreement in 2017. To date, we have signed 3 collaboration agreements, surpassing our goal, and we expect to develop other similar opportunities in 2018. Pursuing these 2 purposes, it extends our proven technology and it's a source of non-dilutive funding. These are proof-of-concept collaborations that if successful will provide us with the potential to expand into larger and more lucrative arrangements as well as to bolster our development pipeline. Something I want to highlight is the progress of our next-generation Durasert shorter-duration product for uveitis. We've mentioned before that having the ability to deliver a 9-month shorter-duration product, in addition to our 3-year product, has significant value for physicians because it would provide greater flexibility to adjust treatment options to individual clinical need. This project remains on track, and we expect to complete the GLP safety and pharmacokinetics study in the fourth quarter of calendar 2018. In addition, we are making solid progress on a bio-erodible Durasert, which we are using with our collaboration partners and in our TKI programs for major indications, such as glaucoma and wet AMD. The compilation of these various delivery devices gives us a unique product family which is unmatched by anyone else in this space. With regard to our Durasert implant for severe osteoarthritis of the knee, the final patient was enrolled in April and completed the 6-month follow-up in mid-October. We expect the Hospital for Special Surgery to report the initial 24-week data later this quarter. With that, I'll turn the call over to Len for a review of our financial performance. Len?

Thank you, Nancy, and good morning, everyone. I will briefly review our fiscal first quarter results that we reported earlier this morning. Revenue for the first fiscal quarter ended September 30, 2017, was $385,000 compared to $277,000 for the prior year quarter. The increase was due to revenue earned from a feasibility study agreement as well as the ILUVIEN net profit share reported by Alimera for our fourth quarter of fiscal 2017. The initial 2% sales base royalty report under the terms of our July 2017 amended collaboration agreement attributable to the quarterly period ended September 30, 2017, is scheduled to be received and paid by Alimera at the end of November 2017 based on net 60-day terms and, accordingly, will be recorded as revenue in our fiscal 2018 second quarter. Additionally, during October 2017, we received $750,000 in connection with one of the feasibility study agreements that Nancy alluded to in her earlier remarks. Our operating expenses for the 3 months ended September 30, 2017, totaled $6.4 million compared to $7.5 million a year earlier. The year-over-year reduction is primarily due to general and administrative costs associated with the company's management change that occurred in the prior year quarter. The net loss for the quarter ended September 30, 2017, was $6 million or $0.15 per share compared to a net loss of $7.2 million or $0.21 per share for the prior year quarter. During the quarter, net cash used in operations totaled approximately $6 million, and we anticipate net operating cash used in operations to average approximately $5.5 million to $6 million in each of the next few quarters. During the fiscal 2018 first quarter, we issued 843,784 shares of common stock for gross proceeds of approximately $1 million for the utilization of our existing aftermarket or ATM program. At September 30, 2017, we had cash and cash equivalents totaling $11.8 million. Subsequent to the first quarter, we extended the utilization of the ATM program, issuing approximately 5 million additional shares of common stock for gross proceeds of $6.2 million. I'll now turn the call back over to Nancy for her closing comments.

Thank you, Len. Before we take questions, let's review our significant near and short-term milestones. First and foremost, we continue to estimate filing the Durasert NDA in the U.S. in late December 2017 or early January. This has been in development for several years, and it will be a game changer for pSivida because we aim to commercialize the product ourselves in the U.S., a value driver that will improve our financial model for years to come. Next week, leading uveitis experts will be presenting clinical study data at the AAO conference, again, highlighting our proven technology to a prestigious group of retinal specialists, our target audience for Durasert. Following the successful 6-month data readout in June for the second Phase III study, we will be announcing the 12-month readout in the first half of 2018. Further development and successful completion of our GLP safety and PK studies of a shorter-duration Durasert for posterior segment uveitis in the fourth quarter of calendar 2018. Leveraging the existing collaboration agreements and seeking to enter others as we continue to have several ongoing discussions with biopharmaceutical companies. And finally, we anticipate HSS reporting the data for all 6 patients of the Phase I knee osteoarthritis study before calendar year-end 2017. In summary, our fiscal 2018 first quarter continued the excellence we established in fiscal 2017. Our goal is to maintain a high level of momentum in the current quarter and full year. Thank you, and operator, we're ready to take questions.

[Operator Instructions] Our first question is from Andrew D'Silva from B. Riley, FBR, Inc.

Just a couple of quick bookkeeping questions. First, maybe you can give me your depreciation and amortization and stock-based compensation for the period, if possible?

Stock-based compensation was $680,000 for the quarter. Depreciation and amortization is not a very large number in our financial statements. We do have amortization of intangible assets which will actually be fully amortized at the end of this calendar year. The total of amortization and depreciation was just over $200,000 in the quarter.

$200,000. That's perfect. And then could you please refresh my memory, as far as your revised royalty agreement, how is it tiered again from a percentage point over certain time periods? It's not consistent. It moves every year, correct? And can you give me a quick recap on where it does move to each year and what the rationale was for that, please?

Well, the royalty rate starts at 2% of their reported net sales. That continues through calendar 2018, at which point it increases to 6%. However, there is an offset of 50% of the difference between 6% and 2% that gets applied against the accumulated commercialization losses that are carried forward from the old agreement. That 6% gross amount applies on the first $75 million of net sales in a calendar year. It increases to 8% for any net sales in the calendar year above $75 million.

And then...

And then the 50% offset of the difference between 2% and 6% or 2% and 8%, as the case may be, applies in 2019 and 2020. And then the offset reduces to 20% until the accumulated losses are fully utilized.

And those accumulated losses, do you have a dollar amount estimate about what that would be?

Well, in the amended agreement that was filed, that amount was capped at $25 million, $10 million of it -- of which was canceled at the inception of the amended agreement and another $5 million gets canceled at the beginning of 2020. The remaining $10 million is what gets applied through the offset to the royalties.

Okay, great. And then previously, I think, you've noticed -- noted that you filed a waiver for a first-time small filer. Has that gone through yet?

Yes. We -- Andrew, we have not yet received that from the FDA. But we're tracking that pretty closely. And again, we remain confident that we will receive it because we certainly checked all the boxes that are required to achieve that waiver.

That would be great to see, absolutely. Just one more -- or 2 more quick questions. As far as the OA date ago, after everything is reported for at least the 24-week data, I mean is the strategy here if everything comes up positive just to look for a large strategic partnership to help move this through the regulatory process? Or is this something that internally you guys feel like you would like to at some point take on by yourselves?

So, Andrew, I've been consistent from the very beginning that we are commercializing this ourselves in the U.S. This is a small disease category. We are fully capable -- oh, I'm sorry, I thought you were referring to uveitis. I'm sorry, you're talking about osteoarthritis.

Correct.

Okay. Yes, thank you. All areas are certainly being explored. So right now, we've not made any definitive decision, but, certainly, if this was to move into Phase III, that's certainly something that we would look at and potentially sooner.

Okay, fantastic. And just last question, obviously, at least from where I'm sitting, you guys made a lot of progress in hitting your milestones and, in some cases, even exceeding them. When you talk to shareholders, what are they focusing on? And why is there, in your opinion, such a disconnect right now between what appears to be a very strong execution relative to -- how share price is doing? I'm just kind of a little baffled right now about what's going on.

Well, that's the million-dollar question, isn't it? What I would say is a couple of things. I can, look, I'm going to guess at this. I think all of us, it's never 100% clear why there is a disconnect, I'm glad you think there is. One is, clearly, I think anytime you are below $50 million cap company, you just simply don't get as much attention, and it is harder to drive momentum for below $50 million cap company, so I think that's one. The second could be that, let me just say that it's clear that we're going to -- going forward, we need to continue to raise capital to commercialize our product, but we feel like we're on track for a plan for that. So I am certainly optimistic that as we continue to execute, our shareholder value will be realized.

Our next question is from Suraj Kalia from Northland Securities.

So Nancy, a few questions. First of all, most -- remind us about the rationale for a shorter-duration Durasert? And please, was the supply erodible? or it's just a -- my memory fails me here, can you just remind us of the rationale?

Yes. So the shorter-duration 9 month will be non-erodible and that primarily is based on the fact that our ability to bring that to market is faster if we continue using the existing technology. If you recall, we will file this for uveitis. Then if we go down the bio-erodible path. But I think more importantly is the fact that as we talk to KOLs, again, I want to stress they remain quite enthusiastic about the 3-year launching because there is a huge unmet need, particularly for uveitis, to have these players control and to have long-term control. However, they also want to have dosing options, and that is no different than any other disease category. Physicians don't want to be locked into one dosing option. And right now, for uveitis, their dosing options are generic, bolus injections, which last about a month. Or there is, as we know, the OZURDEX implant, which is available, and depending on the patient, seems to last 2 to 3 months. That's it. So what they ideally would like and they've been very clear about stating this to us is that they would like a shorter duration of anywhere from 6 to 9 months. Right now it looks like our short duration will last about 9 months. And that's based on our current PK studies that we've been running. However, when we've asked them do you care if it's bio-erodible or non-erodible? Pretty consistently they've come back and said given the small size of the 3-year, and this will be an even smaller size of the short duration, they don't -- it doesn't -- they don't care. What they want is they want access to it. So we've made the strategic decision that we will go the shorter route and launch with the, should it be approved, launch with the shorter-duration non-erodible.

And Nancy, if the form factor is the same, if that -- then I presume the drug loading would be different so the PK profile relative to the 3-year insert, you are essentially carving out a different profile then I presume, if clinicians have come back and said, look, 50% recurrence for uveitis occurs in the first year, 9-month is sort of the sweet spot threshold. This much drug-loading, and this PK profile should begin enough, I presume that's the logic behind specifically choosing a 9-month product? Or going down that path?

Yes. No, I think you've got it -- that's not exactly correct. I'm going to have Dr. Dario Paggiarino, our CMO, answer that question.

Yes, so the rationale, I think, and Nancy alluded already to the fact that the doctors like flexibility and I think a short duration has a place. I think you were asking about the differences in the payload. Yes, of course, they are different to some extent, but the objective here is really to have a shorter-duration insert that really essentially matches the kinetics of a long-duration. So we expect that the delivery rates and the performance of the insert to really equal and parallel the longer duration, except for a shorter time.

Got it. Okay. And Nancy, forgive me, my phone just dropped out briefly. I heard something about some questions about the osteoarthritis product. Did you give any clarity on, let's say, by December, what would HSS, what kind of data would they release? Is it pain? Is it -- I know we have talked about vast scores and whatnot. Any color there would be great.

Well, so first all, let me say that we -- the data is -- the study is a pain and efficacy study -- excuse me, safety and efficacy study. So we fully expect that we will be seeing, now remember this is based on the KOOS score, not the WOMAC, both are well-validated pain scores. So the KOOS data, we would expect would be released, coupled with the safety data. So that's what we are expecting. And as we mentioned, the last patient's reported out. I do just want to caution that we are not in control of this study, HSS is. They have the IND and it's investigator-sponsored. We're in regular contact with HSS, and I know their intent, certainly, is to get the data out.

And Nancy would be -- and maybe you choose not to answer this, and I can certainly respect that. Will your overall data set include the number of implants per patient, the location, sort of, we can stratify and see how much was needed and basically triangulate it to basically the payload, for lack of better words?

I'm sorry, triangulate it for what? I didn't catch that.

Yes. For how many implants per patient to get a certain level of pain relief, that's one of the things that we have tried to figure out. Any color there would be great.

Yes. So, Suraj, it's very clear. And let me be -- it's very simple. Each patient received one implant. There is no deviation from that. So -- and remember, you are putting -- it's a small titanium screw so it does require a minor outpatient procedure to put that in. And that implant contained actually over slightly over 500 days worth of dexamethasone. However, we are only measuring pain and safety at 6 months.

Got it, fair enough. Okay. And finally, Nancy, the status of the European filing of Durasert?

Yes, well, I would suggest that if the people listen to the Alimera earnings call and reference that because I certainly don't want to speak for our partner, however, they referenced in their call that they are on track to file their uveitis application in Europe in first quarter 2018.

Our next question is from Yi Chen from HC Wainwright.

First question is, once you file the NDA, do you expect a review period for approximately 10 months?

Yes.

And when do you start to build up a sales team that the cost of that will actually show up in the income statements, during which quarter?

Yes, we've -- so let me be clear, we've not yet projected when we would start to see that. However, say that we -- assuming that the review stays on track, which we expect, but I want to caution, again, this is the FDA and things do happen, however, so far, everything looks to stay on track. Should we remain on track, I would expect that we would have the full team hired in 4Q of 2018. However, I want to say something which is, we would not put them on payroll until we get approval. Now, we do expect that we'll have some modest buildup as we go into the late half of 2018 because you've got to start to prepare to market. I'm also going to ask Deb Jorn, who's our Executive Vice President of Corporate Development and Commercial, if she wants to comment on any of that. Deb?

Yes. Well, certainly, we'll be judicious in the number of representatives we hire and the timing. But as Nancy said, we anticipate initially 8 to 10 representatives. And based on our negotiations along the way with the FDA, we'll have a sense of where we stand. So probably fourth quarter of '18 would be the right time to engage the sales organization. And as Nancy has also mentioned, it will be a contract sales organization, which will allow for maximal flexibility in terms of putting together that field force.

My last question is, can you give us some color on your expectation for the collaborative research and development revenue or and the royalty revenue that you expect for fiscal year 2018?

Yes. No. So let me be clear on that, we're not going to give projections around that. And these collaboration agreements, I want to make sure everyone understands, our feasibility studies, so it's basically, a, number one, making sure that our drug works -- excuse me, our -- their drug works in our Durasert formulation, that's number one. Number two, in some cases, we move into animal studies and then it's making sure that we get positive results from the animal studies. Should those -- all those data in any one of the collaborations be positive, then we would move into a broader, what I would call, more typical and robust collaboration agreement before you move into human clinical studies. As to revenues and royalties, et cetera, in our agreements, we typically have -- most of the money is paid upfront because they're covering our costs to produce the devices, run the initial studies and PK data. So what you've seen is that we will receive, and I think Len referenced that, $750,000 will show up in the next quarter from our agreement with our major pharmaceutical partner -- cash, excuse me, thank you. And right now, unless we get others struck, we'll have very, very, very modest additional milestones because most of these gets paid upfront.

At this time, I am showing no further questions. I would like to turn the call back over to Nancy Lurker, President and CEO, for closing remarks.

So thank you, again, for your time and attention. We appreciate it and look forward to a very productive and positive remaining fiscal 2018. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.