Alimera Sciences, Inc.
Q3 2019 Earnings Call Transcript

Published: 30 Oct 2019

[Operator:]

Ladies and gentlemen, thank you for standing by. Good morning, and welcome to the Alimera Sciences Third Quarter 2019 Financial Results and Corporate Update Conference Call. At this time, all participants will be in a listen-only mode. [Operator Instructions]. Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes.A webcast replay of this call will be available approximately one hour after the end of the call through January 30, 2020. I would now like to turn the conference over to Jules Abraham, Director of Public Relations for Core IR, the company's Investor Relations firm. Please go ahead, sir.

[Jules Abraham:]

Thank you, Chuck. Good morning and thank you for participating in today's conference call. Joining me from Alimera's leadership teams today are Rick Eiswirth, President and Chief Executive Officer; and Phil Jones, Chief Financial Officer. During this call, management will be making forward-looking statements, including statements that address Alimera's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Alimera's most recently filed periodic reports on Form 10-K and Form 10-Q, the Form 8-K filed with the SEC today and Alimera's press release that accompanies this call, particularly the cautionary statements in it.Today's conference call includes adjusted EBITDA, a non-GAAP financial measure that Alimera believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as substitute for results prepared in accordance with GAAP. For a reconciliation of this non-GAAP financial measure, to net loss its most directly comparable GAAP financial measure, please see the reconciliation table located in Alimera's earnings press release. The content of this call contains time-sensitive information that's accurate only as of today, October 30, 2019. Except as required by law, Alimera disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.It's now my pleasure to turn the call over to Rick Eiswirth. Rick?

[Richard Eiswirth:]

Thank you, Jules, and good morning to everyone on this call. I'm excited to speak with you today about our third quarter performance. During the quarter, continued to increase the use of ILUVIEN globally, executing our business plan to grow organically and expand geographically with approximately 1,800 eyes being treated with ILUVIEN in our markets in that period. We reported consolidated net revenue for the quarter of $12.9 million. This represents an increase of 16% over the third quarter of last year and sequential growth of 18% over our recent second quarter, both representing significant improvement after disappointing topline in our second quarter. I'm extremely proud of our international employees and partners who have contributed greatly to these results, delivering a 62% increase in revenue for our International segment compared to the same period last year, with the incremental growth across all of our markets. Importantly, our fully staffed U.S. sales organization has reestablished a more consistent presence with physicians in the U.S. I'd like to thank everyone in our U.S. organization for the effective teamwork that was put behind this. The result was very positive as we experienced a 6% increase in end user demand over the recently completed second quarter.It's clear that ILUVIEN is promotion sensitive and we've taken steps to minimize the chance for the disruption in our sales force that we had in the first half of the year. At our recent U.S. sales meeting, we rolled out a revised incentive structure, which includes a long-term deferred compensation plan, a heightened employee recognition program and greater involvement of key sales people in strategic planning and execution. I believe our U.S. sales force is highly energized and engaged and that our team is in an even better position now going into the fourth quarter. Sales force effectiveness, consistency and retention are important in our international segment as well. I'm pleased to announce that during the quarter, we hired Steve Laub as our VP of International Sales to improve our sales effectiveness in our international markets. Steve has over 25 years of sales and general management experience having both Andy Young in the U.S. and Steve in Europe now brings consistency in our sales approach and gives us the ability to leverage our messages and sales platform globally. The addition of Steve will also enable Philip Ashman, our Chief Operating Officer and SVP Commercial Operations Europe to focus more on our strategic direction and possible expansion.We are unique as a small ophthalmology company having a presence, both internationally and in the U.S., and our international business has contributed materially to our growth and we expect it to continue to do so.During the third quarter, we made great progress on our strategic initiatives within this international segment. Our recent expansion into France and Spain contributed greatly to our growth this quarter. Those two markets are very receptive to the use of corticosteroids to treat DME and France ranked first in monthly end user demand for ILUVIEN across all of our international markets in the third quarter. Because of the strong success we've had with the launch of ILUVIEN in France, we announced during the quarter that we expanded our agreement with Horus Pharma, our French distribution partner to sell ILUVIEN in the three Benelux countries

[Philip Jones:]

Thanks, Rick, and hello everyone. During the third quarter of 2019, our consolidated net revenue grew 16% to $12.9 million, compared to $11.1 million in the third quarter of 2018. Sequentially, or compared to the second quarter of 2019, our consolidated net revenue was up 18%, as we re-establish certain sales territories and continue to deliver strong performance in our international segment.US net revenue was approximately $8.7 million for the third quarter of 2019, up approximately 2% from $8.5 million for the same period in 2018. Sequentially, US net revenue was up 19% versus the second quarter of 2019. US end-user demand which represents units purchased by physicians and pharmacies from our distributors was essentially flat in the third quarter of 2019, a decrease in slightly to 973 units compared to 977 units from the third quarter of 2018. As we have previously shared, our GAAP revenues in the US, do not always perfectly correlate with end-user demand due to the timing of purchases by our specialty distributors.Net revenue from our international segment increased 62% to approximately $4.2 million for the third quarter of 2019, compared to approximately $2.6 million for the same period last year. This was driven by growth across all markets. Research, development and medical affairs expenses were flat at $2.8 million during the third quarters of 2018 and 2019. General and administrative expenses for the third quarter of 2019 were approximately $3.1 million, compared to approximately $3.4 million for the same period last year.This decrease was primarily attributable to decreases in personnel cost. Sales and marketing expenses during the third quarter of 2019 were approximately $6.4 million, up 16% compared to $5.5 million for the third quarter of 2018. The increase was primarily attributable to increases in marketing costs associated with the launch of our direct-to-patient advertising program, personnel-related costs and costs to attend an exhibit at medical conferences.Total operating expenses increased by $600,000 or 5%, to $13 million for the three months into September 30th, 2019, compared to $12.4 million for the three months ended September 30th, 2018. In both the third quarter of 2018 and 2019, we reported adjusted EBITDA losses of $500,000. With the rebound of our US business and our continued growth in the international segment, we expect to generate breakeven to positive adjusted EBITDA moving forward. Net loss for the three months ended September 30th, 2019, was approximately $3.1 million, a decrease in comparison to the net loss of approximately $3.5 million for the three months ended September 30th, 2018.Our basic and diluted net loss per share for the three months ended September 30th, 2019, was $0.04 per share on approximately 71 million weighted average shares outstanding. This compares to basic net income per share for the third quarter of 2018 of $0.40 per share on approximately 88 million weighted average shares outstanding, which includes approximately 17.9 million participating securities.Diluted net income per share for the third quarter of 2018 was $0.39 per share, on approximately 88.5 million weighted average shares outstanding, which includes approximately 18.5 million dilutive and participating securities. On September 30thr, 2019, we had cash and cash equivalents of approximately $7.9 million, a decrease from the $13 million in cash and cash equivalents, that we reported on December 31st, 2018. During the third quarter, we spent an unusually large amount of cash to fund working capital. Because of the seasonality of our business during the summer months and with the timing of our growing distributor orders, the majority of our revenue was generated during the second half of the quarter, resulting in a large receivable balance at quarter end.We anticipate that the collection of these receivables along with growth of our business will result in neutral to positive cash flow from operations over the next two quarters. Prospectively, our goal is to operate the company to generate positive adjusted EBITDA and maintaining cash neutrality after our debt service. We believe this is possible in 2020.Many of you are aware that last week, we announced a $20 million common stock purchase agreement with Lincoln Park Capital Fund, a Chicago-based institutional investor. Under that agreement, Lincoln Park purchased $1 million of our registered common stock at $0.50 per share, which represented a 35% premium to the closing market price of the stock on October 24th, 2019.We are very pleased with Lincoln Park's capital commitment and the flexibility that this agreement provides if we need additional capital to efficiently fund our growth, maintain a strong balance sheet and to pursue potential strategic growth opportunities. In closing, I'd like to comment on our performance for the year-to-date. Our consolidated revenue for the first nine months of 2019 is $36.6 million, compared to $31.5 million for the first nine months of 2018. This represents a growth rate greater than 16%. With our US business strengthening and with our continued progress internationally, we believe that we are positioned to finish this year strong.It's important to note that our fourth quarter of last year included a one-time revenue benefit of $2.4 million from the Ozurdex out-of-stock situation in Europe. Excluding the impact of this benefit in year-over-year comparisons, we expect our full year 2019 to remain consistent with our year-to-date results.With that, I'll now turn the call back over to Rick to wrap up our prepared remarks. Rick?

[Richard Eiswirth:]

Thank you, Phil. As I said earlier, we are very pleased with our third quarter and what we are accomplishing at Alimera. I believe what we have created at Alimera is special. And I want to share a few facts that I recently shared with our team at a sales meeting.Our product is now approved in 23 countries from DME and 17 countries for non-infectious posterior uveitis. ILUVIEN is now commercially available for patients in 12 countries. Over 14,000 eyes have been treated in the US and over 25,000 eyes have been treated globally since launch. We recently received analysis from one of our investment banks last week, which ranked us as the 10th largest ophthalmology company based on 2018 revenue. There is no one like us in the ophthalmology space, retina-only focused and with the commercial footprint in both the US and internationally. And we have done this efficiently with approximately 130 employees. It's a great platform that we can continue to leverage into the future and we have a great product that we believe still has the potential for significant utilization globally.We look forward to increasing share in all markets through the remainder of this year and in 2020. We also intend to continue pursuing our strategy to leverage our worldwide sales infrastructure and build a leading company dedicated to retinal physicians and their patients. And with that overview, we are now ready to take questions. Operator?

[Operator:]

[Operator Instructions]. And our first question will come from Andrew D'Silva of B. Riley FBR Incorporated. Please go ahead.

[Andrew D'Silva:]

Good morning, congrats on the sequential rebound. And then also, apologies if you can't hear me very well, we are having power outages here in California at the moment. Just a few quick questions for me, just starting off with some quick bookkeeping ones. If you could let me know what cash flow from operations and CapEx was for the quarter? And then, while you're pulling that, Rick, could you please just discuss the current status of the sales force? Specifically, where they were as a group when they started the third quarter and where they are today? I'm just looking for insight and how you're charting their progress and the Group's development as a whole.

[Richard Eiswirth:]

Well, I think that the team is continued to get stronger over the quarter, I believe, at one point in the quarter, we did turnover one rep. And, we have one vacant territory right now, candidly, there were more of our underperforming territories. And so, we're continuing to have to upgrade some territories in there, but I would say that the team is just continued to get stronger and build over the course of the last three months. A couple of our newer reps that have joined us in 2018 are actually leading salespeople in the month of October.It's continued to get better. Like in any sales force I think you have a bell curve. We have some really strong performance that stands out at the top end of the bell curve. You've got the pack in the middle and then you have some underperformers and our team looks about like that. So, there is plenty of room for us to continue to improve, but very, very pleased with the progress we've made over the last three to six months and in rebuilding the team and the quality of people that we have onboard.

[Philip Jones:]

And Andrew, to your point on the cash flow. Cash flow from operations in Q3, we had a burn of $3.9 million, CapEx was a $110,000 spend, and just as a point of clarification, the commentary we mentioned, the issue with the impact from working capital. There was a $2.8 million impact from working capital included in that $3.9 million burn.

[Andrew D'Silva:]

Okay, perfect. And then, as you know, we ran some channel checks recently. It looks like OZURDEX had shortages, again, are you seeing benefits there? And then similar, our checks indicated some EU use of ILUVIEN for uveitis, is there any way to quantify the benefit in the region? Or, how are you at least tracking progress now that you have the label expansion?

[Richard Eiswirth:]

With respect to OZURDEX, Andy, we've heard the same rumors about it either being out of stock or on hold. However, we don't believe we've seen much impact from that yet. It seems to us, at least what we've been hearing from the field, that ILUVIEN did a good job going into their larger accounts and getting some of their larger accounts to stock up. For at least the month of October, it appears those accounts have had OZURDEX on the shelf and have been able to use that and we haven't seen an impact of that. With respect to uveitis, the uveitis indications we said was launched in late September in Germany, and we do think we're seeing an impact there. We're seeing an improvement in sales in October. In the UK, the NICE guidance, or the Trust, had until October 1st to implement the NICE guidance for reimbursement. We do believe we're seeing an impact in October. We don't believe uveitis impacted the third quarter materially at all. It's very, very difficult for us to identify specifically where unit's going, because we don't see individual prescriptions. So we don't know when a unit goes out the door, whether it's going to uveitis patients in DME patient, but we are seeing a bump in sales as we start the fourth quarter. We do think it's having an impact.

[Andrew D'Silva:]

Okay. Good to hear. And then, this is my last question. I believe certain regions, like Portugal, and you've referenced brands that historically had very strong per capita basis at least, utilization of corticosteroids. I was wondering if any upcoming regions like Belgium, the Netherlands or Luxembourg, or even Canada, and it's been about a year since you obtained approval there. Are any of these new target regions similar from their corticosteroid utilization?

[Richard Eiswirth:]

Andy, I would say no. I mean, there is nothing that is material out there as it is in Southern Europe. Both because of the size of the countries, on the size of the populations, in the way they use steroids. However, I would say that as we go into some of these newer markets like Belgium and the Netherlands and Luxembourg and in other countries that we are launching the drug from a much, much better position. As I've said before on some of these calls, unfortunately, I think the way the drug was launched, both in Europe and the U.S. a few years ago, it was launched, much more towards refractory patients and being a three year alternative to anti-VEGFs and with the stress around, this should be used earlier, it treats the disease consistently every day, it does something the truth there is don't do, I think we're positioning the drug much better for these launches. And so, frankly, I think our partner in France Horus [ph] has done an outstanding job of launching it under that theme and our position, and I think that has contributed greatly to their launch as well. So the hope is that our positioning is better every time in a new market now.

[Andrew D'Silva:]

Okay, great. And in Canada is any sort of update there?

[Richard Eiswirth:]

Canada, the Canadian partner is still working on pricing and reimbursement there, they don't expect to have anything well into next year, at best. That's often an 18 month process at lease. So I think it'll be a [indiscernible].

[Andrew D'Silva:]

Okay, awesome. Okay, guys. Hey, thank you very much for taking the questions. And good luck was note 2019.

[Operator:]

Our next question will come from Alex Nowak of Craig-Hallum Capital Group. Please go ahead.

[Alexander Nowak:]

Good morning, everyone. I want to dive into the recent financing decisions. So, just given you guided to cash flow breakeven here in the next year -- over the next couple of quarters and you have sufficient cash today, the financing agreement, it's got on prior to us that you're planning to go out here in purchase an asset. So I was just hoping we could potentially get some color there, what sort of assets do you plan to target? Is the $20 million in capital even going to be sufficient to cover that, would this be a commercial asset or a late-stage pipeline product and just how would an acquisition impact the cash flow breakeven projections?

[Richard Eiswirth:]

Well, so, Alex a couple of points there. I mean I think the credit the facility that we put in place, is we think is good housekeeping Because I think there's a lot of uncertainty over the next 12 months on what's going to happen with the capital markets and the ability to raise money in those capital markets with the election and other factors contributing to that. So we wanted to make sure we had access to capital over a period of time if we needed it.You're right on point that one of the reasons we would like to have more capital is to look for other things to talk into this organization. I can't comment specifically on any transaction, our product that we are looking at [indiscernible] would look at. Although I will tell you just in general, obviously, the priority would be something pharmaceutical.We would love to get another pharmaceutical asset for the retina space, the closer to commercialization. And it is the better because it's the best leverage for what we want to do. At the same time we are also open to looking at devices in the retina space because retina positions, unlike other areas we typically keep farm and retina and separate retina physicians are doing surgery one or two or three days a week in addition to treating in the office and we've talk to physicians about that and we think if we could find the right thing there, it could give us the opportunity for a longer, more quality call with that position as well because you get more time on the surgical arena than the office. So we're very open. But the focus is something that serves the rest of physicians and their patients.

[Alexander Nowak:]

Okay, understood. But I guess why I get distracted buying an asset right now instead of putting our heads down refocusing on ILUVIEN, because in my opinion, I think ILUVIEN has been this undervalued asset that you've had. I think there still potential left in there. Why I get distracted from that, is I guess the question.

[Richard Eiswirth:]

Well, so I wouldn't necessarily call it a distraction. Look, I think, strategically, we have a job to continue to grow this company for the long haul and deliver value. I think from an operational perspective, every day, we are focused on ILUVIEN, and I think we're getting a lot better at what we're doing in ILUVIEN and doing that. I think strategically, executive level, we've got to evaluate ways to make this company bigger and stronger because it's been viewed as a single product company. And I think that's contributed to some of the pressure on our stock price over time. But at the same time I agree with you. We've got to find the right asset that's not a distraction. And frankly, although we've been pursuing this strategy, it's why we don't have a second asset on hand right now because we will be picky and we will make sure we find the right thing that can be leveraged by our team and is accretive to the story not dilutive in the form of a distraction.

[Alexander Nowak:]

Okay, understood. Just kind of switching over to international, it's been one of the bright spots here over the last couple of quarters. What was the reason for the management change over here on the international segment.

[Richard Eiswirth:]

There was no change in the international segment at all. It was -- we added to it. So we did not have a VP of sales over there and what we've done is we've hired a VP of Sales to parallel when Andy is doing here. So Steve Laub [ph] has been sort of inserted in the middle between Philip Ashman and the country managers over there to just provide more control and more consistency of the sales effort and work closely with Andy Young we operate sort of functionally in Europe. So we have a VP of Marketing, we have a VP of Medical Affairs and we now have a VP of Sales to manage all the functions across the countries and get consistency across Europe.

[Alexander Nowak:]

Got it, okay. And what is the new consistent international run rate here, as you look forward per quarter? Is the $4 million to $5 million a good target here over the next couple of quarters?

[Richard Eiswirth:]

I mean I think we're getting close to that $4 million rate. I mean I think our direct business is somewhere in the $3 million range and getting stronger and we will continue to have distributor income, that's a little bit more inconsistent quarter-to-quarter, but I think a $4 million rate is a pretty good run rate at the moment.

[Operator:]

And our next question will come from James Molloy of Alliance Global Partners. Please go ahead.

[James Molloy:]

Hey, guys, thanks for taking my question. I have just more on Alex's question on the acquisitions, can you speak a little bit to what you're seeing in the space, is it more of a buyer's market are there can opportunities you're able to look at or one or two and then any potential engagement, but give us on potential timing of an acquisition would be great.

[Richard Eiswirth:]

Jim, I can't really give any more color than that. I couldn't speak about any specific acquisition. I will tell you that there's limited opportunities that are near commercial in the space. So we also need to look at things that are a little bit earlier in the pipeline. Our goal we said was to do something in the six to 18-month time range from when I came on board. And as I said, we're still in the middle of that and we are still pushing for that. But as I responded to Alex question earlier at the same time, we're not going to take a risk on the wrong asset to add this as well, because we think ILUVIEN is extremely underutilized and there's a lot of potential to grow the revenue with that. So, we'll be opportunistic, but we're going to be very smart and prudent about it as well.

[James Molloy:]

Could you speak a little bit too I guess the guidance for the fourth quarter I think it was said to be consistent with what you've seen so should we be looking at in 13 and 11 -- and 13 range for fourth quarter '19 or what sort of the range if you're looking for there? And then, I guess what the last question two on the retreatments have been a big a big question mark one of the three year disconnect anything you've seen in the quarter two those coming back in and how that might look going forward?

[Richard Eiswirth:]

Yes. So a couple of things. I think what Phil's comments were characterize there as he referenced 16% year to growth and that we feel like will be consistent with that level of growth absent the Ozurdex revenue last year. Does that makes sense?

[James Molloy:]

One more time, sir.

[Richard Eiswirth:]

So what Phil referenced in his comments when he was giving you some guidance towards the end of the fourth quarter were saying year-to-date, we've been about 16% and he thinks that 16% will hold true absent the onetime OZURDEX revenue last year.

[James Molloy:]

Okay, great. And then the commentary on OZURDEX had earlier in the call is that foreshadowing perhaps another -- is there any reason to think there might be another shortfall for OZURDEX in the fourth quarter [indiscernible].

[Richard Eiswirth:]

So we would say -- I mean I would say that that's possible, but nothing that we are counting on at this point. What we had heard and some of the rumors out there is that OZURDEX was going to be out of stock or unable to ship in October and a couple of markets. I believe we heard in France in the U.S and in Germany, maybe. However, as we've been out there talking to accounts, it appears as I said earlier that Allergan really got a lot of their larger accounts and frankly a lot of the accounts that we're in, as well to stock in OZURDEX prior to the shortage and that they've been able to use what's on in their inventory in the month of October. So we have not seen an impact of yet. And if they're able to start shipping again in early November as we've heard there probably won't be any one-time impact from that this quarter.

[James Molloy:]

Got it, thanks. Just last question on the NASDAQ listing, can you speak a little bit about the current thinking on getting that squared away?

[Richard Eiswirth:]

So we have a prospectus on file, and we've got a shareholder vote on a reverse stock split next Monday. So our plan is to address that before the end of the month of November.

[Operator:]

And our next question will come from Yi Chen of H.C. Wainwright. Please go ahead.

[Yi Chen:]

Thank you for taking my question. Just to confirm that the current shares outstanding is 74.4 million, roughly.

[Richard Eiswirth:]

That would be correct roughly, after the take down from Lincoln Park Capital.

[Yi Chen:]

What will be the fully diluted shares currently?

[Richard Eiswirth:]

The fully diluted shares would -- yes 107. And that would include again all the preferred and the inside of participation shares for options and stuff.

[Yi Chen:]

107?

[Richard Eiswirth:]

Yes, 107 million.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Richard Eiswirth for any closing remarks. Please go ahead, sir.

[Richard Eiswirth:]

I want to thank all of you for participating on today's call and for your interest in Alimera Sciences. We do look forward to sharing our progress on our next quarterly conference call when we report our fourth quarter results for 2020 -- for early 2020. Thanks, and have a good day.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.