Good morning. My name is Bridget, and I'll be your conference operator today. At this time, I would like to welcome everyone to the EyePoint Pharmaceuticals Third Quarter 2020 Financial Results Conference Call. There will be a question-and-answer session to follow at the completion of the prepared remarks. Please be advised that this call is being recorded at the company's request. I would now like to turn the call over to George Elston, Chief Financial Officer of EyePoint Pharmaceuticals.

Thank you, and thank you all for joining us on today's conference call to discuss EyePoint Pharmaceuticals third quarter 2020 financial results and recent corporate developments. With me today is Nancy Lurker, President and Chief Executive Officer; Dr. Jay Duker, Chief Strategic Scientific Officer; and Scott Jones, Chief Commercial Officer. Nancy will begin with a review of recent corporate updates. Dr. Duker will then discuss pipeline developments for EYP-1901. And Scott will comment on recent progress made on our commercial activities. I will close with commentary on the third quarter 2020 financial results. We will then open up the call for your questions where we will be joined by Dr. Dario Paggiarino, Senior Vice President and Chief Medical Officer. Earlier this morning, we issued a press release detailing our financial results as well as commercial and operational developments. A copy of the release can be found in the Investor Relations tab on the corporate website, www.eyepointpharma.com. Before we begin our formal comments, I'll remind you that various remarks we will make today constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These include statements about our future expectations, clinical developments and regulatory matters and timelines, the potential success of our products and product candidates, financial projections and our plans and prospects. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K, which is filed -- which is on file with the SEC and in other filings that we may make with the SEC in the future. Any forward-looking statements represent our views as of today only. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. I'll now turn the call over to Nancy Lurker, President and Chief Executive Officer of EyePoint Pharmaceuticals.

Thank you, George. Good morning, everyone, and thank you for joining us. I'm encouraged by our third quarter revenue results, driven by a return of customer demand despite the COVID-19 pandemic and the country still not being fully open. We fully recognize that there is more work to do to get our commercial business back on an accelerating growth trajectory, and we're working hard to make that happen, while operating within the safety constraints of a national pandemic. We have made significant progress since the pandemic caused the country to lock down in March as evidenced by the following key events. Customer demand for DEXYCU is up over 120% in third quarter over second quarter for 2020. Customer demand for YUTIQ is up over 5% in third quarter over second quarter for 2020. Of note, YUTIQ never saw the significant decline in second quarter customer demand that DEXYCU experienced due to COVID-19, so the increase quarter-over-quarter is modest. We have added multiple new contracts of ambulatory surgery centers and integrated healthcare networks for DEXYCU, which should lead to increased orders over the coming quarters. We signed an important commercial alliance agreement with ImprimisRx in August, which has more than doubled the field force calling on physicians and ASCs for DEXYCU. We expect this to begin having a positive order volume impact over the coming quarters as field and ASC training efforts roll out. We expanded our YUTIQ field force from 10 to 16 over the course of 2020 and begin calling on retinal physicians, in addition to uveitis specialists, who also treat posterior segment uveitis. In August, we expanded our license agreements with Ocumension Therapeutics for YUTIQ and DEXYCU to also include South Korea and other jurisdictions across Southeast Asia. We have completed our GLP toxicology study for EYP-1901, our…

Thank you, Nancy, and good morning to all. Following the completion of the preclinical GLP toxicology study of EYP-1901, our team is actively working on completing and filing an IND application with the U.S. Food and Drug Administration in the coming weeks. EYP-1901 combines our bioerodible Durasert technology with vorolanib an anti-VEGF tyrosine kinase inhibitor molecule, and is being advanced as a potential 6-month sustained intravitreal treatment for wet AMD. Wet MD is a progressive debilitating ocular disease, and despite several FDA-approved medications, remains a leading cause of blindness. There is a significant need for longer lasting therapies to replace the relatively short duration of action of the currently approved anti-VEGF medications. This short duration of action, typically between 1 and 2 months, places an enormous burden on patients, families, providers and the healthcare system. Vorolanib has established efficacy signals observed in 2 prior human trials in wet AMD as an orally delivered therapy. Data from the prior Phase II trial of oral vorolanib demonstrated a decreased intravitreal anti-VEGF injection burden and a longer time to first treatment as compared to placebo. A small portion of patients in each dose group did not require another anti-VEGF injection after screening and initiation of oral therapy. I will note, though, that this trial was prematurely stopped due to gastrointestinal and hepatobiliary toxicity signals. However, no significant ocular adverse events were observed during this trial or the previous Phase I trial. We believe that by placing vorolanib in our bioerodible Durasert technology to locally deliver the drug to the posterior segment via sustained zero-order kinetics will be comparable or could even improve the results observed for the oral delivery of vorolanib without the systemic toxicities associated with oral anti-VEGF treatments. Durasert has demonstrated its safety in thousands of patients and 4 FDA-approved sustained…

Thank you, Jay. And let me first echo the comments Nancy made at the beginning of the call on encouraging customer demand trends during the quarter for both YUTIQ and DEXYCU. These trends are a result of many factors, including our successful contracting efforts with larger ASC chains, more and more healthcare facilities resuming operations, thus allowing more patient treatments, as well as our ongoing product education initiatives. Let me begin with YUTIQ for chronic non-infectious uveitis affecting the posterior segment of the eye. Customer demand for YUTIQ was approximately 450 units in Q3 compared to approximately 430 units in Q2, driven by increased patient office visits in the period. Our YUTIQ commercial efforts continue to include in-person and virtual engagements focusing on the long-acting advantages of YUTIQ, especially during the COVID-19 pandemic, as we work to expand our reach into the retinal disease market. In addition to providing steady and consistent anti-inflammatory control, YUTIQ can potentially reduce the frequency of patient office visits during the treatment, which continues to be a benefit in the COVID-19 pandemic. Our medical affairs team continues to seek opportunities to highlight YUTIQ at medical meetings, including the upcoming virtual AAO meeting. Let me now turn to DEXYCU for post-operative inflammation following cataract surgery. Customer demand for DEXYCU was up significantly over Q2 with approximately 4,700 units in Q3 compared to approximately 2,100 units in Q2. The advantages discussed with YUTIQ in the COVID-19 environment also apply to DEXYCU as treating physicians have appreciated DEXYCU's extended duration therapeutic treatment from a single injection. We have continued to execute on our goal of securing additional contracts and volume-based agreements with ASCs and integrated healthcare networks to expand DEXYCU access for patients. We recently secured agreements with Vantage Outsourcing and a large ASC chain to bring DEXYCU…

Thank you, Scott. As the financial results for the 3 months and 9 months ended September 30, 2020 were included in the press release that was issued this morning, I'll focus my comments today on a high-level overview for the quarter. For the 3 months ended September 30, 2020, total net revenue was $15.7 million compared to $2.5 million for the 3 months ended September 30, 2019. Net product revenue for the 3 months ended September 30, 2020 was $5.8 million, with $3.5 million for YUTIQ and $2.3 million for DEXYCU, compared to net product revenue for the 3 months ended September 30, 2019 of $1.0 million generated primarily by DEXYCU. Please note that the net product revenue represents product purchased by EyePoint's distributors, whereas customer demand represents purchases of product by physician practices and ASCs from EyePoint distributors. Net product revenue from licenses, royalties and collaborations for the 3 months ended September 30, 2020 totaled $9.9 million compared to $1.5 million in the corresponding quarter in 2019. This was driven by payments associated with the expansion of our license agreement with Ocumension for additional markets in Asia. Operating expenses for the 3 months ended September 30, 2020 were $17.7 million versus $16.6 million in the prior year period. This increase was driven by a $1.6 million increase in cost of sales, a $1.4 million increase in G&A expense and a $0.6 million increase in R&D expense being offset by a $2.5 million reduction in sales and marketing expense. Non-operating expense, net, for the 3 months ended September 30, 2020 totaled $1.8 million of net interest expense. Net loss for the 3 months ended September 30, 2020 was $3.8 million, or $0.03 per share, compared to a net loss of $15.6 million, or $0.15 per share, for the prior year quarter. Cash and cash equivalents at October 31, 2020, totaled $30.5 million compared to $28.7 million at September 30, 2020 and $22.2 million at December 31, 2019. We expect that our cash on hand and projected cash inflows from anticipated YUTIQ and DEXYCU product sales, licensing and research collaboration transactions, along with additional anticipated financing activities can fund the company's operating plan into 2021. Given our current assumptions for the extent of the COVID-19 related closures in various regions across the U.S., our careful management of cash should enable us to achieve some important catalysts, including the filing of the IND with the FDA for EYP-1901 and the initiation of the Phase I study. We continue to evaluate and pursue non-dilutive sources of capital, including ex-U.S. out-licensing opportunities for our commercial products and delivery technologies. I now turn the call over to the operator for questions.

[Operator Instructions] Our first question comes from the line of Raghuram Selvaraju with H.C. Wainwright.

This is [ Maz ] on for Ram. I was wondering, firstly, are ambulatory surgical centers well prepared to remain open during the resurging pandemic?

Yes. It's a very good question, they all are. So I will say that we can't predict what's going to happen during this resurgence. And we are being very cautious in terms of how we spend our capital to be prepared should we start to see a softening.

Okay. And I was wondering regarding your commercial alliance with ImprimisRx, are you seeing an initial expansion of product reach considering this company is prominently marketing their telemedicine platform?

Yes. Actually, you know the company well. Very good question. We are, and we've more than doubled our field force. It does take time for the new sales representatives both, whether it's in-person or teledetail, to educate the ambulatory surgery centers, get the office to get these surgical suites trained and then have them submit for reimbursement. So that -- we've always said, you won't see the productivity really kick in for 2 to 3 quarters. I will say that we are starting to see orders now coming in from that ImprimisRx sales team, though.

All right. That's very encouraging.

[Operator Instructions] Our next question comes from the line of Andrew D'Silva with B. Riley.

Just a couple of quick housekeeping ones to start. If you could just let me know what the CapEx and stock-based comp were for the quarter. And then while that's being pulled, if someone could just answer, I'm just curious on a couple of dynamics with DEXYCU. Are you now just ubiquitously including that agitation system to all centers that are expected to start selling the product? And do you believe that that's starting to bridge the proper utilization gap relative just to the handshaking? And then just more on the regulatory standpoint related to the physician monetization front from a pass-through standpoint, or where are we on a potential extension? And then where are you in initiatives to actually get a product-specific injection reimbursement established?

Andy, that's a lot of questions, but thank you. Okay. I've got them all down while George is coming up with the CapEx and options. So you had one question which was pertaining to what we call our Vortex. So for those listeners on the call, one of -- you have to shake the suspension of DEXYCU before you administer it because it does separate in the pre-supplied vial. So it's important that it's well shaken. We've now put into all our offices -- the answer is yes -- it's an automatic ultrasound spinner which in 30 seconds as opposed to -- actually no, it takes 5 seconds as opposed to having to shake it for a bit. You now get consistent suspension just by hitting that ultrasound shaker for about 5 seconds. So the answer is yes, that is helping a lot. So we're pleased with that. The second thing is we've also -- not only do we have that, but we've also implemented a few other things to make it easier for the offices and the ASCs, so that they are confident that when they administer it, that it's correct. But the second thing is we've also gone out and talked about a much better delivery technique. Sometimes when it was getting injected, it was popping out of the interior -- the posterior chamber behind the eye. And though it never caused any problems, it's still -- you had to explain to the patient why they're seeing this little tiny, we call it a pearl, at the bottom of their eye. We now have that addressed as well. So we're confident now we've got the right delivery technique and the right ability to make sure it's fully suspended in a very efficient way. As for the regulatory pass-through, getting the pass-through extended, and making sure that we try to get an injection code, I'm going to turn those questions over to Scott, our Chief Commercial Officer. He's leading those efforts.

So on the pass-through, we're still actively working on this. We do have -- I think you've probably heard this before, but there is existing legislation which would give CMS authority to extend pass-through based on the public health emergency. Those bills are waiting. We hope that they could be included in an upcoming stimulus package if one does happen either this year or next. Related to the injection code, the professional fee for the injection code, we are in the process of putting our application together. That would be for an early 2021 deadline and meeting in 2021 with the expectation of the code in 2022. So again, that's the process that we're going through right now, and we will be filing that shortly.

Thank you. George, did you happen to find that CapEx and stock-based comp number for the third quarter?

Yes. Andy, we'll file the Q I think tomorrow. But I think that in rough terms, our capital investment is $100,000, $200,000 year-to-date. We've been very tight with our spending. And that is largely driven on our expanded GMP facility here in Watertown to manufacture both YUTIQ and 1901. And then stock-based comp is around $4 million year-to-date, so as a non-cash item.

Okay. That's perfect. Thank you. And just a couple more quick ones for me. Can you give us just a little bit more color around or at least talk around what the commission or rev share is with Harrow? I think last time you mentioned it was between 28% and 40%. If you could help narrow that down a little bit, it'd be quite useful in modeling.

Yes. Andy, we can't disclose that. That's confidential. And we're not at liberty to disclose that certainly without Imprimis's agreement. So we're not going to disclose that. But let me just continue to stress, it's at the market rate that you would see for a deal. We're not overpaying, but we want to also make sure that we incentivize them to sell the product. And they are ramping that up.

Okay. And just last question is related to YUTIQ. And you may have mentioned this, but it was a little bit choppy from a connection standpoint. Is stocking nearing customer demand at this point? And if you can give any other, just color around what you're seeing with just inventory levels and how you kind of see the year playing out with those dynamics, that would be very useful. Thank you very much.

Yes. Good question. We have definitely reached an equilibrium, and we're not seeing any more of the gyrations that we saw last year. So we're very confident that what you're seeing -- again, there's a delay between when the orders come in and how that flows through the distribution channel. But we're seeing a consistent alignment between demand and then what ultimately gets ordered by the distribution channel. That's what gets recorded as revenues. So right now, I would not expect that we would see any choppiness between those 2, which is also why we're now disclosing customer demand. Now again, I want to caution everyone. You can't take the customer demand orders and just multiply that by our WACC and say that's what the quarter is going to look like, because you have a lag which goes on through the distribution channel. But as I said, the gap between what's in the distribution channel and what's coming in has narrowed substantially, and we don't see that changing.

Okay. Wonderful. Thank you very much for taking my questions, and best of luck closing out the year.

And I'm not showing any further questions, so I'll now turn the call back over to Nancy Lurker, CEO, for closing remarks.

Thank you, everyone, for taking the time to listen. I want to continue to stress that we are working very hard to ensure that we manage our cash and that we minimize the need to continue to draw additional cash in. We're highly conscious of the fact that we want to make sure that we're driving revenues while we're advancing our pipeline and very, very tight cash management. We remain confident in our ability to hit our milestones going into 2021. Thank you very much, and look forward to continued discussions.

Ladies and gentlemen, this does conclude the program. Thank you for participating. Everyone, have a great day.