Alimera Sciences, Inc.
Q1 2017 Earnings Call Transcript

Published: 10 May 2017

[Operator:]

Greetings, and welcome to the Alimera Sciences First Quarter 2017 Results Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jacob Goldberger of CG Capital. Thank you. You may begin.

[Jacob Goldberger:]

Thank you, and thank you all for joining us today for the Alimera Sciences First Quarter 2017 Financial Results Conference Call. With me on the call today are Dan Myers, Chief Executive Officer; Rick Eiswirth, President and Chief Financial Officer; and Dr. Christopher Riemann, Voluntary Professor, University of Cincinnati, Department of Ophthalmology and Member, Board of Directors of Cincinnati Eye Institute. Yesterday, the company issued a press release announcing first quarter 2017 results. Today's call is being webcast and a recording will be posted to the company's website. Following remarks by management, we will open up the call to your questions. During the course of this call, management may make certain forward-looking statements regarding future events and the company's future expected performance. These forward-looking statements reflect Alimera's current perspectives on existing trends and information and can be identified by such words as expect, plan, will, may, anticipate, believe, should, intend and other words of similar meaning. Any such forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties. These risks are described in the Risk Factors in the Management's Discussion and Analysis sections of Alimera's annual report on Form 10-K for the fiscal year ended December 31, 2016, which is on file with the Securities and Exchange Commission and available on the SEC's website. Additional factors may also be set forth in those sections of Alimera's quarterly report on Form 10-Q for the quarter ended March 31, 2017, to be filed with the SEC in the second quarter of 2017. You will see in Alimera's press release, the company is offering non-GAAP financial measures. Alimera does so because it believes that such non-GAAP financial information can enhance an overall understanding of the company's financial performance when considered together with GAAP figures and is used both by management and by Alimera's lender to measure performance. Adjusted EBITDA and adjusted operating expenses exclude certain noncash items. These non-GAAP metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for GAAP net loss and operating expenses and may not be comparable to similarly titled measures reported by other companies. Non-GAAP financial measures should only be read in conjunction with financial information reported under GAAP when understanding Alimera's operating performance. For a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure, see the table located in Alimera's earnings release from yesterday. In addition, any unaudited or pro forma financial information is preliminary and does not report to project financial positions or operating results of the company. Actual results may differ materially. For the benefit of those of you who may be listening to the replay of this call, this call was held and recorded on Tuesday, May 9, at approximately 8 a.m. Eastern Time. Since then, Alimera may have made additional announcements related to the topics discussed herein. Please reference Alimera's most recent press releases and current filings with the SEC. The forward-looking statements contained in this presentation are expressly qualified by the cautionary statement contained or referred to in this presentation. Alimera cautions investors not to rely too heavily on the forward-looking statements it makes or that are made on its behalf. These forward-looking statements speak only as of the date of this presentation. The company undertakes no obligation and specifically declines any obligation to publicly update or revise any such forward-looking statements, whether because of new information, future events or otherwise, except as required by applicable law. Now I'd like to turn the call over to Dan Myers, CEO of Alimera.

[Dan Myers:]

Thank you, Jacob. Good morning, everyone, and thank you for joining our call. We have a special caller for you today, as we have asked Dr. Chris Riemann, who is the Voluntary Professor at the University of Cincinnati and the Director of Vitreoretinal Fellowship and a member of the Board of Directors of Cincinnati Eye Institute to join us to discuss ILUVIEN, and how he and his partners at the prestigious Cincinnati Eye Institute have incorporated ILUVIEN into their practice. He will also provide some insight into the perspectives of other retinal specialists. I am certain you will find it of great interest. First though, I'll provide you with some narrative on our progress during the first quarter, and Rick will summarize our financial results and provide more commentary. In the first quarter of 2017, we grew global end-user unit demand by ILUVIEN -- for ILUVIEN by 32% in comparison to the first quarter of 2016. We reduced our cost structure, which we believe positions us to achieve positive cash flow later this year, as we have had previously communicated. And this week at the Association for Research and Vision and Ophthalmology, or ARVO, in Baltimore, we're presenting a significant number of posters and presentations on ILUVIEN from both Europe and the United States, and we have furthered our partnerships to ensure the expanded availability of ILUVIEN in additional countries this year. Our end user unit demand based on purchases by doctors and hospital pharmacies grew consistently across both our U.S. and International segments for the first quarter of 2017, in comparison to the first quarter of 2016. In the U.S., end user unit demand grew 34% in the first quarter of 2017 in comparison to the first quarter of 2016. Our usage data indicates an increase in the number of physicians use ILUVIEN and more frequent usage by those physicians. We believe this broader and deeper usage is a strong indicator that more physicians value the unique, long-term, continuous microdosing deliverance of ILUVIEN and are making it a more consistent part of their treatment regimen. In our International segment, we also saw end user unit demand growth of 32% in the first quarter of 2017 in comparison to the first quarter of 2016. We believe this is because the continuous microdosing of ILUVIEN makes it the only available therapy to treat DME consistently every day for an extended period of time without frequent injections of higher dose therapies. With this daily therapy, ILUVIEN represents a paradigm change in the way the physicians treat DME. Most physicians rely on the availability of data to change their practice patterns. And this is particularly true of ILUVIEN, because of its unique duration of therapy. Because of ILUVIEN's cost and the duration of the delivery of fluocinolone acetonide, doctors want more and current data. With the short term treatment, they can start trial and stop the drug if it does not meet their expectations. However, with ILUVIEN, many physicians want to see the results in the real world. More data on ILUVIEN is now available than ever before and more is coming. As we previously disclosed, 27 abstracts were accepted for presentation at the ARVO conference here in Baltimore. Two abstracts will be presented on the podium later this morning, including 1 being designated as The Top Topic and 25 are being presented throughout the course of the meeting. This information is available in our press release from last Monday morning. These posters and presentations represent the largest body of evidence regarding ILUVIEN ever made at a scientific or industry meeting. Most of the information at ARVO is based on real world experience and evidence generated in Europe, including the IRIS and METASOFT studies that we've mentioned on prior calls, but also include data generation from the U.S. The ARVO meeting is a significant platform for Alimera to present this data and provides a great platform to leverage as real world evidence. Over the remainder of 2017, our commercial and medical teams in the field will further educate the physician community. One area we are very excited about is the availability of more data coming from the U.S. During the first quarter, we closed enrollment in our PALADIN study, which assessed 186 eyes and 152 patients. Additionally, we began collecting data for our user study, which is a retrospective analysis of 130 patients treated at 4 practices in the U.S. that represent some of the larger uses of ILUVIEN in commercial setting since its launch in early 2015. In the user study, in addition to assessing safety and efficacy, we will be evaluating the reduced treatment burden for patients receiving ILUVIEN. Data from both of these U.S.-based studies will be made available at industry meetings and other venues later this year. We've only made preliminary assessments at this time, but we expect the data will show positive results consistent with our experience in Europe, and we anticipate a positive and welcome reception for physicians. Based on the response from Europe and the recent increase in adoption, we expect increased availability of data in the U.S. will positively impact usage in the U.S. On our fourth quarter call, we outlined our intention to contain our expenses in 2017 and focus on driving to operational profitability. During the first quarter, we closed the enrollment of the PALADIN and iris clinical studies, realized cost savings and identified other efficiencies. I'm very pleased to say that we believe we have right-sized our cost structure for the current environment and believe that we can achieve operating income later this year based on those adjustments. Rick will provide greater detail with he comments on our financial situation. Concerning expansion, we believe momentum is building in our go-to-expand in other countries. As we previously announced in February, ILUVIEN received a reimbursed price in Italy for pseudophakic patients. And we expect SIFI, our Italian distributer, to initiate commercial sales during the second quarter, making ILUVIEN available in the 4th largest country in the EU with a diabetic population of over 3.5 million people according to the International Diabetes Foundation. We believe this sales by our Italian distributor could be significant in our International segment in the latter half of the year. In March, we announced agreement with Brill Pharmaceuticals for distribution in Spain. Brill is working to make ILUVIEN available on a name patient basis and will pursue a reimburse price in that country. Spain is the fifth largest country in the EU, with a population of approximately 46 million people and over 10% of the population is afflicted with diabetes. Knight Pharmaceuticals, our distributor partner in Canada, submitted ILUVIEN for regulatory approval in February with the decision expected in late 2018. In the first quarter, our partner in the Middle East, MEAgate, submitted for regulatory approval in the United Arab Emirates and Kuwait. If you're not aware, according to the International Diabetes Federation, Saudi Arabia, Kuwait, Qatar, Bahrain and the UAE, in that order, have the highest percentage diabetes prevalence in the world, both diagnosed and undiagnosed. As MEAgate awaits regulatory approval, they are pursuing name patient sales. We expect that patients by our Middle Eastern distributer will positively contribute to our International segment in the second half of the year. We also made initial sales in Austria in the first quarter, leveraging our German infrastructure, and we expect to begin selling in Ireland in the second quarter, leveraging our resources in the U.K. Overall, we are very pleased with our expansion efforts internationally through the first quarter. Having been only available in the United States, Germany, the United Kingdom, Portugal and the United Arab Emirates in 2016, we expect ILUVIEN will now be available in additional countries of Austria, Italy, Ireland, Spain and several other countries in Middle East beyond the UAE. This will more than double our geographical footprint outside the USA by the end of 2017, and we're very proud of this expansion. With that, I'd like to turn the call over to Rick, who'll take us through the first quarter financials and provide more commentary. Rick?

[Rick Eiswirth:]

Thank you, Dan. Turning to our revenues on a GAAP basis, we recognized $6.6 million in revenue in the first quarter of 2017 in comparison to $5.8 million from the first quarter of 2016. Although, this represents only a 14% increase, it is important to note, as Dan said earlier, that the end-user unit demand based on purchases by hospitals and doctors grew 32% globally over the same period a year ago. In the United States, we recognized $4.4 million in revenue in the first quarter of 2017, which represented a 7% increase over $4.1 million in the first quarter of 2016, while end-user demand grew 32%. As I've previously stated, the difference in end-user demand growth and the revenue growth in the U.S. is due to the purchasing patterns of our two distributors. In our International segment, revenue increased 29% from $1.7 million in the first quarter of 2016 to $2.2 million in the first quarter of 2017, which was consistent with end-user growth in Europe of 33%, offset slightly by decreases in the value of the pound and the euro. Both the U.S. and Europe end-user demand are consistent with our expectations for the full year 2017. In order to do drive revenue growth in 2017, we're relying on continued growth in our existing markets coupled with expansion availability of ILUVIEN internationally. Gross margin remains consistent at 91% in the first quarter of 2017 compared to 93% in the first quarter of 2016. We are pleased with the reductions we have made in our operating expenses. Our operating expenses for the first quarter of 2017, including research, development and medical care expenses, sales and marketing expenses, general administrative expenses, and depreciation, amortization expense, totaled $11.5 million compared to $14.2 million in the first quarter of 2016, representing a decrease of $2.7 million or 19%. Our GAAP operating loss for the first quarter of 2017 improved to $5.5 million compared to $8.8 million for the first quarter of 2016, a decrease of $3.3 million or 38%. As we discussed on our last call, we're focused on driving Alimera to financial independence this year, which requires revenue and gross margin exceeding our operating expenses, excluding any noncash items. Therefore, we believe that the non-GAAP measures of adjusted EBITDA and adjusted operating expenses will be a more relevant measure of our operating performance. The company defines earnings before interest taxes, depreciation, amortization, adjusted EBITDA, of net income loss from operations before depreciation, amortization, non-cash stock-based compensation expense and to the extent they included in the calculations of earnings, net unrealized gain or loss from foreign currency exchange transactions and gains or losses from the changes in the fair value of derivative warrant liability. Adjusted EBITDA is basically our operating loss after adding back the noncash charges for depreciation, amortization and stock-based compensation. Adjusted EBITDA for the three months ended March 31, 2017, improved to a loss of approximately $3.7 million compared to a loss of $9.4 million for the same period last year, a 61% improvement. This was due to an increase in global revenue and lower operating expenses as a result of the cost savings initiatives we put in place in late 2016 and early 2017. What is important to note in our operating performance this quarter is, that we believe we are in cusp of achieving profitability. Our adjusted operating expenses for the period, net of non-cash items, was just $9.7 million. During the fourth quarter of 2016, we generated approximately $9.8 million of gross profit. Given our high gross margins and now lower operating expenses, we believe to achieve breakeven adjusted EBITDA, the company will need to generate approximately $11.2 million of quarterly revenue or between $44 million of $45 million of annualized revenue. Achieving this milestone and operating performance is management's top priority, and we're committed to achieving profitable revenue growth this year. I will now turn to our balance sheet. As of March 31, 2017, Alimera had cash and cash equivalents of $26.7 million. For other financial information related to the quarter ended March 31, 2017, we refer to the press release available yesterday afternoon. With that, I'm pleased to introduce Dr. Chris Riemann of the Cincinnati Eye Institute to discuss ILUVIEN in the treatment of DME. Dr. Riemann?

[Dr. Christopher Riemann:]

Rick, thanks so much for the opportunity to speak here today. Good morning, everybody. So I'm a retinal surgeon here at the Cincinnati Eye Institute. I've been in practice for 18 years. I'm busy, and I'd like to kind of take you through the rationale why I think this is a great drug. So we've known as retinal specialists for a long time that steroids have a role in treating, diabetic macular edema. We know from the molecular biology that diabetic macular edema is multi-factorial, and before we had anti-VEGFs, we used the steroids, specifically Kenalog and preservative-free Kenalog to treat diabetic macular edema to great effect. The side effects, however, were a real dealbreaker with these first-generation crude steroids, especially intraocular pressure problems, cataracts and then infections and pseudoinfections. One of the problems with Kenalog was we would give this drug that's really not designed or approved for intraocular use, we would give this off-label in to people's eyes, and there would be this weird immune response, because the immune cells in the eye would try to eat these little crystals and would [indiscernible] themselves and rupture themselves while trying to eat the crystals. So we were able to treat many diabetics. We gave lots of steroids, because it's the only alternative we have until anti-VEGFs came on the scene. And when anti-VEGFs came on the scene, they were this massive wow effect drug for a different disease for age-related macular degeneration. It had a better side effect profile in terms of intraocular pressures. The pseudoinfection, the inflammatory responses weren't there, because the anti-VEGFs were solutions and not suspensions of drugs. They had an amazing efficacy against age-related macular degeneration visual loss. But it had an effect on diabetic macular edema, but it wasn't the magic bullet for diabetic macular edema. So we all got caught up, the entire segment got caught up in anti-VEGFs and a shot of Avastin or a shot of Lucentis or shot of Eylea. And for these patients and when we transitioned using these drugs from age-related macular degeneration to diabetic macular edema, we were excited to see treatment effect, but they weren't treatment effects that were as good as what they were for age-related macular degeneration. In fact, there is no great data out there that clearly shows that somewhere between 37% and 64% of diabetic macular edema patients don't respond well to anti-VEGF drugs. And with almost a decade of experience using anti-VEGFs for diabetic macular edema, we realized that what we initially thought was, oh look, we had all these terrible side effects with these crude first-generation steroids and we don't have these with anti-VEGFs. We realized, well, actually we do have issues with elevated IOP. And we do have issues with cataracts, because a shot a month into somebody's eye can cause complications, where the needle -- patients move and sometimes doctors miss. And if you're giving millions of people a shot on the eye once a month, that's a lot of injections and that causes damage to the back of the lens capsule of the cataract. And so there is data now that shows that, in fact, doing cataract surgery on eyes that have had a large number of anti VEGF injections is not easy. It's froth with a higher complication rate. And then, we've -- there is a ton of data out there showing that there is a major problem with infections with these anti VEGF drugs. You all may remember in 2011, front page New York Times and Wall Street Journal articles, talking about how Avastin injections were causing infections because of a couple of compounding pharmacies that weren't doing what should they have been doing and that led to, I'd say, a bunch of research being done, and now it actually turns out that the compounded Avastin has a -- despite what we read in The New York Times, the compounded Avastin anti VEGF actually have a much lower infection rate than drugs that are drawn up out of a vile in the clinic. So there is somewhere between 1 in 1,000 and 1 in 4,000 risk of an infection with every injection that's given. And if we're giving a shot a month for three years, which is not unusual, if you multiply that out, that's not an insignificant cumulative risk of an infection when you give monthly anti VEGFs. In addition to the infection risk, the downside to these monthly anti VEGF injections is a crushing treatment burden for both patients and for providers. Many of my patients come in from many, many, many miles away. They can't see, that's why they're coming to see me, which means their family member who is working has to take a half a day off to drive an hour to bring them into one of my offices, then they spend too much time in my office and then they have to drive, it's a half day or a full day of their life that's lost once a month. That's not sustainable for many patients and their families. So we're here to talk about ILUVIEN, not about anti VEGF. And the really exciting thing about ILUVIEN is that, it really is a next generation steroid. And it takes all -- a lot of what's good about steroids and incorporates that in the treatment and it jettisons a lot of what's not good about steroids. And it avoids the major problems of anti VEGF, which are treatment burden and lack of efficacy. So I wanted to just throw up the U.S. FDA indication and talk about the main side effect problem that we have with steroids, which is the IOP spike. So ILUVIEN contains corticosteroid and is indicated in the treatment of diabetic macular edema in patients who have been previously treated with a course of corticosteroids and who did not have a clinically significant rise in intraocular pressure. So there is about a third of patients where if you give them steroids, they get a significant rise in intraocular pressure. And the FDA indication says that we need to define each patient prior to giving them the ILUVIEN, and we need to define them as known steroid non responders. And that's important because if we look at the IOP related events in the same trial, so this is the Phase III trial that resulted in ILUVIEN being approved, about 1/3 of patients had IOP elevations greater than 10 millimeters of mercury. About that fraction of patients needed to go on to some resemblance of eyedrops and about 5% of patients needed actual IOP lowering surgery. As compared to controls, we would expect that. That's what we've always seeing giving steroids. But the really neat thing is that, if you look at the patients in the same trial that were known steroid nonresponders, none of them needed surgery. And if you look at the patients that were unknown steroid responders in the study. So the study was designed so that the known steroid responders were excluded. The unknown responders or patients that we didn't know if they were steroid responders or not steroid responders, those patients were allowed to be enrolled in the study. And then there were patients that were the known steroid responders, and they were allowed to be enrolled in the study. And the main, the issue was an elevated intraocular pressure that was so elevated that eyedrops couldn't handle it and they need to progress to surgery. That percentage in the 72 patients that met the current FDA criteria was 0% surgery. And as that sinking in to myself and my colleagues, our utilization of this drug continues to rise. So we're already talked about the FDA indication. Why is ILUVIEN so much better than some of the other steroids that are out there? Well, one of the main reasons for it is that, the drug, the fluocinolone is very, very lipophilic, which means that they can have super, super low concentrations in aqueous. In this case, 200-fold lower than dexamethasone. But because of lipophilic, it gets absorbed into the retina and it has an effect on the retina. So here if you look to the left, you see steady state, on the left graph, you see steady-state fluocinolone levels in rabbit eyes for a span of 240 days. And if you look at the human data, we know that this graph actually extends out to up to 3 years, and if you compare that with the right graph, these are monkey eyes getting OZURDEX that dexamethasone in place, you see that there is a brief pulse that then drops down to 0 very quickly over just a month or 2. So why do I use ILUVIEN? This is a next-generation steroid technology that is a game changer. It is not like the crude steroids of the past. It doesn't have the side effect issues. It gives you this continued microdosing for a span of 3 years, because of its near 0-order kinetics. In my patients, I have a consistent long-term treatment effect that's at 2 years and counting now. I gave my first ILUVIEN about 2 years ago. And it's breathtaking how happy these patients are. They get 1 shot, and as opposed to having to come in to get a shot a month or a shot every 2 months over and over and over and over again, they get their treatment effect. They come back. They're happy. My visits would then turning to social visits as opposed to, that are further and further apart as opposed to treatment visits. The infection risk, we're giving 1 injection with a presumably 1 in 4,000 infection risk as opposed to 30 injections or more, shot a month with a cumulative infection risk that's much, much higher. And then in terms of the IOP risk, which is what we're really the most worried about, it's clearly manageable because of the label on the unique pharmacology and the need to know prior to giving the short of ILUVIEN that these are known steroids non-responders. Now of course, if you have an unreliable patient who doesn't show up, that's a problem. Patients have to show up for their follow-ups for us to check their pressure. But I'm using a ton of ILUVIEN, and I plan on using a ton more. And the really interesting thing looking at the data that Rick was showing a little while ago is that ILUVIEN has been around and has been out longer in Europe than it is here in the United States. And it look as if the year-over-year growth in Europe may have hit that infection point. It's 30%, whereas in United States, people are little vary, they want real-world data. In Europe, it's been out longer. They understand, "Hey, this stuff works," and it is safe. And it will be exciting to see that continue to grow. And with that, I'll hand it back over to Dan, of course, happy to take any kind of questions.

[Dan Myers:]

Thank you, Dr. Riemann. So operator, at this point in time, we will open the call for Q&A.

[Operator:]

[Operator Instructions] Our first question comes from the line of Boris Peaker with Cowen & Company. Please proceed with your question.

[Boris Peaker:]

Congratulations on making excellent commercial progress. My first question is, I just want to take advantage of Dr. Riemann being here. Thank you very much for giving this great overview of the use of ILUVIEN. But you did mention OZURDEX in our discussion. I just want to get a sense as OZURDEX a competitor? Or do you see kind of a stepping stone to ILUVIEN? Where does that fit in for the treatment paradigm?

[Dr. Christopher Riemann:]

That's a great question. I don't think it's a competitor. I think that it's a different drug that works at along a very different timeline. I think that there are clinical instances where short-term steroids are appropriate, and there a clinical instance where long-term steroids are appropriate. I personally will use OZURDEX to do my steroid challenge. If I give people anti-VEGF drugs and they fail the anti-VEGFs, which like I said, happens remarkably frequently, then I will give them a OZURDEX. And what I'm looking for is, I'm looking for a treatment effect, do to steroids work? And then, I'm looking to make sure that there's an absence of catastrophic side effect. And if I see both of those, which takes me about a month or two to assess, before the OZURDEX wears off, which is they say, you give it every six months, but it actually wears off after 10 weeks, I'll flip in an ILUVIEN. So that you get that taper of the OZURDEX instead of tapering it to zero, it tapers to that low-dose, steady-state ILUVIEN. And so far, that's the treatment paradigm I've been very, very happy with.

[Boris Peaker:]

So would it be fair to say for the community, in general, that OZURDEX or just increased use of OZURDEX is a predictor of the future ILUVIEN uptake? Or you don't think necessarily that the two are correlated?

[Dr. Christopher Riemann:]

I think it's probably correlated. Everybody has a different treatment paradigms. There are some folks that likes the idea of giving a shot and then being able to turn it off by just not giving another short if something comes up. But even the OZURDEX data is very, very clear. If after -- I think, it's within knowing the IOP response rate, it's high after one shot, it's very high after two shots, and it's almost -- it's 94%, 95% after three shots, three injections. So I think there will always be some folks that especially if the patient is unreliable, you don't want to put something in their eye and then have them not show up for years, because the IOP response is potentially worrisome if they -- if you give them a steroid and then they show up two years later, and they've developed a high pressure that's been untreated, because they haven't shown up. So I think that OZURDEX will be used in less compliant patients, and ILUVIEN will be used for more compliant patients.

[Boris Peaker:]

Great. And my last question, you mentioned that it sounds to me that there are familiarity, personal familiarity and familiarity with the data seems like one of the key blocks to physician using OZURDEX -- ILUVIEN today. Just curious is there any other reasons you believe, maybe, some of your colleagues are hesitant in using ILUVIEN today? And how that could change over time?

[Dr. Christopher Riemann:]

I think familiarity is a big one. I think there is probably regional differences. There is a strong financial incentive to use the anti-VEGFs. The pricing of the anti-VEGFs is $2,500 or $2,000 to $2,500 per dose. And there is a small percentage of that, that physicians get to keep as a handling fee. That's been identified by CMF as a problem and is probably going to go away. I think that another -- and the interesting thing is, is that -- and I don't know if the data bears this out, but if you look at the ratio of retinal specialists to patients, places were -- that are more saturated with providers tend to use more higher cost drugs, because they're moving through fewer patients. And that data is just now coming out as CMS is publishing the cost-effectiveness with the hedis heated scores for all of us. It will be interesting to see how that pans out. So doctors know that they're being watched with or with -- and the paradigm has been very clearly put out there that high-quality, low-cost emphasis on low cost care is going to be rewarded by Medicare. And there are centers that I know of -- ophthalmic centers that -- who have received hedis scores that were -- that are low and they've got Medicare penalties, and then there are centers that I know of that have received hedis scores, where they've gotten an attaboy, and there -- and they've gotten up to 70% bonuses on their entire 2017 Medicare billings. If that's not an incentive to be low cost, I don't know what is. And Alimera -- the ILUVIEN if you look at the cost of a shot a month of a branded anti-VEGF and compare it to the ILUVIEN is expensive, but it's 1 shot in the last three years or two years and counting is what I can say. It's a breathtaking cost saving

[Operator:]

Thank you. Our next question comes from the line of Michael Wood with Oppenheimer. Pleas proceed with your question.

[Michael Wood:]

Doctor, sort of on the that same line, if you could just give us a better background of patients come in, you can do to it the cheap way or the more expensive way. If you could just go over that a little bit more with, I would appreciate that, so that I can understand. I think what you're saying is that, if you lower the cost of your practice, you're going to get rewarded. Some doctors obviously are not going to be interested in doing that right away. But if you could explain the impact financially on the doctor of switching from the current practice over to ILUVIEN, that would be great?

[Dr. Christopher Riemann:]

So it's interesting. There is a long -- there is a shortsighted view. And that is, if I don't give my shot a month of anti VEGFs and I lose my dues that you get with the drug. But that's a very shortsighted view, and because what happens is the treatment burden. How do you do well as a physician? You do well as a physician by seeing a lot of patients and taking care of a lot of people with disease. And when your clinic is clogged with these monthly injections, a crushing burden of injections. So at the Cincinnati Eye Institute, we have seven retinal specialists, and we give over 25,000 injections a year. And just let that number sink enough, that's the same number of injections. It's an assembly line. And when your clinic is clogged with these injection patients, you don't have room for a new consult. So the long term view in order to maintain a viable practice, so if you can decrease your injection burden, then you can see new consults and the new consults you -- actually end up doing better in the long run. And it's just a question of getting that message out there, that financial message out there. Aside from the fact that we shouldn't be looking at finances anyway, we should be doing what's right for our patients. Did that answer your question?

[Michael Wood:]

Yes. What I'm hearing from you though -- and again, excuse me, I'm new at this. But what I'm hearing is that, you have a doctor's office that needs to see patients in the current practices clog in his office. How can it get better than that?

[Dr. Christopher Riemann:]

Because patients are coming for monthly shots. Those are lower reimbursement visits, whereas, new consults, patients that come in with real disease that then end up going to surgery and end up with other -- getting other care. That's going to -- if you look at the total life cycle of revenue of that patient, if you're stuck with these kinds of low revenue injection patients, that's not as good as getting new patients and doing new consults, doing testing and so on and so forth.

[Michael Wood:]

Thank you very much.

[Operator:]

Thank you. Our next question comes from the line of François Brisebois with Laidlaw. Please proceed with your question.

[François Brisebois:]

Just for you quickly one here on, you talked about OZURDEX as a little bit of stepping stone and you have one to two months to make sure they're non -- there is no IOP rise when they are on OZURDEX. [Indiscernible] comfortable, you take one to two months, is that kind of the average to switch on to ILUVIEN? Or that's taking longer or more hesitant? And how much is the data coming out at these ARVO presentations helping that?

[Dr. Christopher Riemann:]

So I think, it's too, that's a great question. I think, it's too early to really know the answer to that. The fact that the European uptake year-over-year is higher than the American uptake is evidence of the fact that as more real-world data gets out there and there is more familiarity, it's interesting that is lot of these decisions are really multifactorial. And you factor in the biopsychosocial aspect of things and expectations of patients, and how far they have to drive and how reliably they show up and what their other medical comorbidities are. A really interesting statistic is that, if you look at the number of times that people go to the doctor, that gets tracked now. We live in a world of Big Data. And most people go to the doctor, maybe, 4 times year on average, diabetics, with diabetic macular edema. They have more than just diabetic macular edema. These are unbelievably ill people. And they go to the doctor on average every 2 weeks. So if, and that's not including monthly anti-VEGF injections. So if you add monthly anti-VEGF injections that can oftentimes just take their treatment burden and, to a point where they just say, "I can't do this anymore," and they just stop. And the interesting thing is, that if you look at patients that are that ill, some of them will get sick and disappear on you, because they've had a heart attack or they've had gangrene of an extremity or that sort of a thing. So there are, when we look at each and every patient, it's this multifactorial decision. And the ability to use ILUVIEN in those patients, they need to be able to show up. They do not have end stage cardiac disease. They need, they may end up in a cardiac rehab inpatient facility for after their heart transplant for 4 months or something like that. But by and large, I think to answer your question, we're seeing more familiarity by more surgeons with this still very new drug, and doctors gravitate to what works, and this stuff works. So I anticipate a significant uptake coming in the United States and globally over the next, say, 1 to 3 years.

[François Brisebois:]

Great. Okay. And then you had, I thought it was interesting how you mentioned the liability of patients. From, just anecdotally, do you have an idea of the breakdown of reliable patients versus the ones that if you give them an injection, they might not come back? Is it 50-50? Or --.

[Dr. Christopher Riemann:]

It's tough. It's multifactorial. I would say, most patients do their best to show up. The folks that just kind of say, "Oh, I can see now," and blow off coming back, that's very low. I'm going to say, that's in the 5% to 10% range. Most folks that are diabetic understand that they need to go to the doctor to stay alive. They're plugged in, and they're taking their insulin. They're taking their meds. If they don't take their meds, they get very sick very quickly. We understand that the medical care is something that they need in order to survive and have quality of life, so most of them are pretty compliant. But very sick ones are ones where perhaps I might be a little bit reticent to give them an ILUVIEN, because some of them won't show up, because they just blow us off, they're unreliable. That's a pretty small fraction. And then some of them won't show up, because they can't because life happens and other medical things happen where they live really far away. And that's also pretty small fraction. So I would say that most patients, probably a good 75%, you asked for a number, I'm making this up, but I'm making it up as honestly as I can, I think probably, three quarters of patients from a reliability standpoint on both sides of that would be excellent candidates for this drug.

[François Brisebois:]

Okay, great. And then one last one here for Dan, Dan or Rick. In terms of the seasonality, it's been little bit of an issue in the first quarter in the past. But any idea why this year was a little tougher on the U.S. side?

[Rick Eiswirth:]

Well, I think that the seasonality that we deal with is tied into the insurance renewals at the beginning of the year, and so you have all these patient's kind of reevaluate, and doctors have to reassess what the benefits each patient has under their new insurance plan, what the deductibles are et cetera. And it's not only limited to us. Normally when a benefit investigation goes through to our Access Plus system, it takes two to three days to get done, and because of the backlog in the system with a lot of high-priced drugs going through the same thing, it was taking two to three weeks at times to get a benefit investigation done. So that's certainly bogged on the process. And the other pieces is we did have a significant fluctuation in the distributed orders. As I indicated on the last call, the distributors took on more inventory in the fourth quarter of last year. And they sort of used up that end inventory, had a net decrease inventory this year, so that sort of compounded the view of the seasonality.

[Dr. Christopher Riemann:]

And I'll jump in this is Chris. I'll jump also. In the winter, patients have harder time making it to the doctor. They just do. Bad weather, older patients, bad weather, bad joints, they're in a wheelchair, they've got diabetic foot problems and so on and so forth. That's a challenge as well. We see a drop-off in our clinic volume every first quarter by 30%.

[Operator:]

Our next question comes from the line of Yi Chen with Rodmand & Renshaw.

[Yi Chen:]

My first question is to Dr. Riemann. Do patients always respond to dexamethasone and fluocinolone the same way in terms of efficacy and IOP increase? Because I've heard cases where doctors use OZURDEX and ILUVIEN at the same time on single patient. So do you have any experience of using those 2 drugs at the same time?

[Dr. Christopher Riemann:]

So a very insightful question. So OZURDEX and ILUVIEN are two very different drugs. OZURDEX therapy is basically a pulse high-dose steroid therapy, and ILUVIEN is a low-dose sustained-release therapy. I don't have any experience of using them simultaneously, because I want to see what happens with the OZURDEX. And if you think about that kind of first order decay that you see after the OZURDEX injection, I'll flip the ILUVIEN in to basically take that first order decay and instead of it going to 0 within 10 to 12 weeks, it will go to a low steady-state ILUVIEN level. So the interesting thing is, is that with OZURDEX over time, you will get tachyphylaxis and tachyphylaxis is when you have, basically, we think that it relates to an internalization of the nuclear steroid receptor. So the more steroids you get, the more -- the more steroid you give, the more the steroid receptors kind of auto self-regulates in a negative feedback kind of way. They kind of -- they internalize and they don't make themselves available. So you need oppressively higher and higher steroid doses in order to get the treatment effect. ILUVIEN avoids that by having -- by dribbling in just a tiny little bit of steroid that's enough to stimulate the steroid receptors to get the appropriate target -- end organ target effect, presumably without internalizing the steroid receptors.

[Yi Chen:]

Second question to Dan. Is there a solid relationship between the end-user unit demand and top line revenue of the quarter?

[Rick Eiswirth:]

YI, this is Rick. No, there's not. The end-user demand was up 32% both in the U.S. and Europe. The European top line growth from a reported revenue standpoint was up 29%, a slight discrepancy there is due to the decrease in the value of the pound and the euro. In the U.S., the revenue from a GAAP standpoint was only up 4% and the difference there is due to the timing of the distributor orders. So the key thing we'd like to focus on is the end-user demand is certainly growing, and up pretty strong in comparison to the same quarter last year.

[Yi Chen:]

So what exactly is the end-user demand? Is that the same as distributor orders or --?

[Rick Eiswirth:]

So in the U.S., we have two distributor customers, Besse Medical and McKesson Specialty, that actually bought the product from us. And then they ship the product and sell product directly to the doctors or the hospital pharmacies. And so the end-user demand is what is being sold by Besse and McKesson to the end users.

[Yi Chen:]

Final question, do you expect R&D expenses to further -- to go lower further in the coming quarters? And do you expect G&A and sales and marketing expenses to remain relatively stable for the coming quarters?

[Rick Eiswirth:]

We expect R&D and G&A to remain relatively stable. The sales and marketing will increase over the course of the year, because we do pay our reps on a commission basis, that scales over the year. So you will see increases in sales and marketing continue.

[Operator:]

[Operator Instructions] Our next question comes from the line of Sam Lee with S&P Capital.

[Sam Lee:]

My question is regarding renewals that might be coming through the Europe sale that happened in the early part of 2014. Do you see [indiscernible] coming through from older patients? Is that something you see as a trend? And my second question is regarding the breakeven revenue when do you see that happening, as you mentioned, later part of the year, but could you give us some light in terms of is renewal going to be playing a role in that at all?

[Rick Eiswirth:]

So Sam, your first question, I think was about re-treatments in Europe for patients that were treated early on getting to a three year point. We have some of those that are recurring. It's interesting, we candidly expected a little bit more of that in the first part of this year in Germany. But as we've gone back to find those patients, a lot of those patients, the ILUVIEN is still working, three years and even beyond and they are not necessarily in the retreatment yet. There will be some data coming available later this year on, I believe, it's about 50 patients in Germany that have three years of follow up. So we'll have some follow up on those patients later this year, but not all them are applying retreatment, because the drug is still working. And I'm sorry, I didn't -- I think, you've asked the question about when we would expect revenue in another territory, but wasn't clear on which territory you were looking for in the second half of the year?

[Sam Lee:]

Yes. My question was regarding, would the renewals be playing significant role later part of the year, as you would have grown revenue in other geos during 2014 launch? That was my question. And would that hold into the --.

[Dan Myers:]

Yes, I mean, there certainly will be some retreatments and things like that. But I don't expect it to be a material component of revenue at this point in time. We just -- we didn't have a huge amount of sales back in 2013. So the majority of our usage would be new patients getting to additional doctors and getting deeper into those doctors' practices. And as Chris or Dr. Riemann referred to earlier, certainly, the familiarity has more of an impact. We see that once when the doctors practice for a while, they begin to use it more often and make it a greater piece of their practice.

[Dr. Christopher Riemann:]

And I can jump in. I can say from a standpoint of renewal, it's only been out for two years here. So we're not anywhere close to the tail end of the efficacy of the drug. But in terms of renewal for the contralateral eye, all day long. So if I see that this works in eye 1, which is kind of the default answer. When I give it, patients come and they ask, can I have it in the other eye? So in terms of -- that's an end of one renewal. And this stuff works so well that a lot of times, the inflammatory component of diabetic macular edema, inflammation begets more vascular permeability, which begets more edema, which begets more information, and it's this vicious cycle. And if you can just shut it down and break the cycle for three years, which is what this drug does, then may be the ILUVIEN is still working. Well, it's working because even though the drug is gone, you've broken the cycle, you've settled the eye down. And maybe, you've put in some laser, maybe the patient's done a better job controlling their sugars and blood pressures, and now they can do well without treatment. There is also some preliminary data out there suggesting that you can actually get disease modification with intraocular steroid. And that's huge to be actually be able to step back the severity of the retinopathy as a whole by giving this drug. There's some data with anti VEGFs that suggest that as well. So and to be able to do that with 1 injection, it's really exciting.

[Sam Lee:]

Thank you so much.

[Operator:]

Thank you. Our next question comes from the line of Michael Wood with Oppenheimer. Please proceed with question.

[Michael Wood:]

Doctor, I've got another question, which is -- right on those same lines. Do you find patients asking for this upfront that you -- do you ever -- is there enough patient awareness now or anyone ever comes in and ask for it?

[Dr. Christopher Riemann:]

No. I think, they're doing a good job getting the message out to doctors. But I haven't seen any direct marketing campaigns. And would that be beneficial to the bottom line of the company? I think that, that might actually have an unwanted side effects. So patients are not for it.

[Michael Wood:]

No, no. I'm not saying direct to consumer, but what about what ends up happening just in general, from person to person telling another person?

[Dr. Christopher Riemann:]

I've had 1 of those, people in the waiting room talk. So there is --.

[Michael Wood:]

I mean, has this worked the way it's, if you guys are timing, it's going to eventually be that way, which you suggest or not?

[Dr. Christopher Riemann:]

Yes, but remember that there's trepidation, because the cataract issue is real and the IOP issue is real. So we don't hard sell it to anyone. And just because it works well on patient 1, doesn't mean that it's going to work really well on patient 2. There is, so the answer to your question is, yes, I think there is a component of that, but it's small. And there is a buzz, but we try to tamp that down, because when patients come in to say, "Hey, why am I getting a shot a month, and Mrs. Greg, I was talking to got one shot," that's a conversation we'd like to avoid. The decision-making is really multifactorial. And the amount of have that conversation would be impressive.

[Operator:]

Thank you. At this time, we've come to the end of our time for questions. I'll turn the floor back to the management for any final remarks.

[Dan Myers:]

Thank you. So in closing, I'd like to make a point that our end-user demand did increase quarter-over-quarter. We thank our cost savings plans that we are putting in place are driving us to our profitability target. And we look very much forward to giving you an update in the next few quarters on our progress toward that end. And I thank you for your attention. And Dr. Riemann, especially for your question-and-answer session, I think it was very beneficial. Thanks for everyone for joining us today, and have a good day.

[Operator:]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.