Alimera Sciences, Inc.
Q4 2017 Earnings Call Transcript

Published: 1 Mar 2018

[Operator:]

Greetings and welcome to the Alimera Sciences' Fourth Quarter and Year-End 2017 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Jacob Goldberger of CG Capital. Thank you. You may now begin.

[Jacob Goldberger:]

Thank you all for joining us today for the Alimera Sciences' fourth quarter and full-year ended 2017 financial results conference call. With me on the call today are Dan Myers, Chief Executive Officer; and Rick Eiswirth, President and Chief Financial Officer. Yesterday, the company issued a press release announcing fourth quarter and year-end 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 the call up 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 perspective on existing trends and information and can be identified by such words like expect, plan, will, may, anticipate, believe, should, intend, and other words of similar meaning. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties. Some of these risks are described in the Risk Factors and the Management's Discussion and Analysis sections of Alimera's most recent Annual Report on Form 10-K and quarterly report on Form 10-Q, which are on file with the SEC and available on the SEC's website. Actual results may differ materially from those expressed in the forward-looking statements. Alimera's press release includes non-GAAP financial information because Alimera believes that non-GAAP financial information can enhance an overall understanding of the company's financial performance when considered together with GAAP figures. These non-GAAP metrics, are not measures of financial performance under GAAP, are not substitutes for GAAP measures and may not be comparable to similarly titled measures reported by other companies. You should read Alimera’s non-GAAP financial measures along with its financial information reported under GAAP. For a reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure, see the table in Alimera's earnings release. For the benefit of those of you who may be listening to the replay of this call, it was held and recorded on Thursday, March 1 at approximately 9

[Dan Myers:]

Thank you, Jacob. Good morning everyone, and thank you for joining our call. Before I go into the detailed analysis of 2017, let me make it clear that we were not happy with the top line revenue result we posted for the year. However, in 2017, as we planned, we significantly reduced both our GAAP net loss and our adjusted EBITDA. We are proud that our underlying demand grew year-over-year and that we reduced our cost structure and then we refinanced our debt to provide us with more working capital. Rick is going to take you through the historical numbers in a few minutes. As a company, we believe we are healthier stronger and better position for revenue growth in 2018. While I believe we made the right overall decisions in 2017, we learned from the past year and are now focused on growth in 2018. I want to share a few reasons while why we feel we're well positioned for growth in 2018. We have a stronger balance sheet. We have more real-world evidence to drive the business. We have more countries in which we can sell ILUVIEN. We now have six partners working to expand the availability of ILUVIEN into additional countries, and we have filed a new indication for ILUVIEN in Europe. As we announced in early January, we refinanced our previous debt facility with the new $40 million facility from Solar Capital. This new facility gave us additional capital immediately and by eliminating the prior stringent liquidity covenants provides us access to our existing cash balances. Because of our stronger balance sheet, we can now invest in initiatives and opportunities to grow the business in 2018. We now have more real-world evidence and data across multiple datasets generated in the U.S. and Europe. Each of these real-world data sets consistently demonstrates the value of ILUVIEN in treating patients with diabetic macular edema. Our user study, which was the first real-world data set available with U.S. patients was rolled out in the second half of 2017. As a reminder, this study represents a cohort of over 20 physicians encompassing 130 patients in 160 eyes and four practices that received ILUVIEN prior to January 1, 2016. Before being injected with ILUVIEN these patients were treated with market leading anti-VEGFs, other available short-term steroids, and laser therapy. From this study, we are highlighting several key attributes of ILUVIEN. First, in the user study ILUVIEN reduced the recurrence of edema across all patient subsets evidenced by the significant reduction in treatment frequency following the injection of ILUVIEN. In the full user study population, the treatment frequency or burden was reduced from once every three months to once every 14 months. We believe ILUVIEN’s continuous microdosing provides consistent daily therapy, keeping the edema from occurring and creating retinal damage. Physicians tell us that managing edema is a critical disease management goal for DME and this reduction in treatment frequency is evidence of ILUVIEN's ability to assist with this goal. Second, ILUVIEN works very well with patients with good vision, who are receiving anti-VEGF and other acute therapy. 40% of the patients in the user study had 20/40 or better vision at the time of their ILUVIEN injection. After the ILUVIEN injection, these patients on average maintain their same good vision with a substantially decreased recurrence of DME. As a result, their need for treatment was reduced from once every three months to once every 22 months. This demonstrates that ILUVIEN is not just for difficult patients, as it failed (00

[Rick Eiswirth:]

Thank you, Dan. As Dan mentioned, I will discuss our 2017 financial results before I address our plans in early 2018 performance. We are reporting $35.9 million in global net revenue in 2017, which represents growth of 5% over the $34.3 million reported in the prior year. On a quarterly basis, consolidated net revenue decreased by approximately $1.6 million or 15% to approximately $9.1 million for the three months ended December 31, 2017, compared to net revenue of approximately $10.7 million for the three months ended December 31, 2016. For both the full-year of 2017 and the fourth quarter of 2017 a comparison of net revenue to the corresponding prior year period is adversely impacted by the timing of orders from our two large U.S. distributors. Those distributors significantly increased inventory levels in the fourth quarter of 2016, and over the full-year and significantly decreased inventory levels in the fourth quarter of 2017, and over the full-year of 2017. As a result, our U.S. net revenue increased by only $300,000 or 1% to $26.1 million for the year ended December 31, 2017, compared to U.S. net revenue of approximately $25.8 million for the year ended December 31, 2016. Despite our end user demand increasing at a greater rate of 12% over the same comparable period. We believe end-user demand or sales from our distributors to physicians and pharmacies represents the true market and growth of ILUVIEN. For the fourth quarter U.S. net revenue decreased by approximately $1.8 million or 22% to approximately $6.5 million in the fourth quarter of 2017, compared to U.S. net revenue of approximately $8.3 million in the fourth quarter of 2016. This was despite an increase in end-user demand of 8% in comparison to the fourth quarter of 2016. In our international segment, net revenue increased by $1.2 million or 14% to approximately $9.8 million for the year ended December 31, 2017, compared to approximately $8.6 million for the year ended December 31, 2016. This was driven by an increase in end-user demand in our direct markets of 6%, the initiation of sales to our Italian distributor, and increases in the value of the British Pound Sterling and the euro. For the quarter, international net revenue increased approximately $200,000 or 8%, approximately $2.6 million for the three months ended December 31, 2017, compared to approximately $2.4 million for the three months ended December 31, 2016. It is important to note that we achieved 2017 growth in end-user demand of 12% in the U.S. and 6% in our international segment where we sell direct, despite a significant reduction in our operating expenses, while we successfully focused on reducing our net loss and need for additional capital. Our operating expenses were reduced by $10.9 million or 18% in 2017 from approximately $59.8 million for the year ended December 31, 2016 to approximately $48.9 million for the year ended December 31, 2017. Our adjusted operating expenses, which exclude non-cash expenses of depreciation and amortization and stock-based compensation decreased by approximately $10.9 million or 21% from approximately $52.2 million for the year-ended December 31, 2016 to approximately $41.3 million for the year ended December 31, 2017. We believe that adjusted operating expenses best represents the cost of running our business. For the quarter, our GAAP operating expenses were approximately $13.8 million for the three months ended December 31, 2017 compared to approximately $15.1 million for the three months ended December 31, 2016, a decrease of 9%. Our adjusted operating expenses were $11.9 million for the three months ended December 31, 2017, compared to approximately $13.3 million for the three months ended December 31, 2016, a decrease of 11% or $1.4 million. Despite revenue growth below what we had hoped for in 2017, we were able to achieve the significant objective of reducing our losses in 2017. Our GAAP net loss was reduced by approximately $11.2 million or 34%. From $33.2 million for the year ended December 31, 2016 to approximately $22.0 million for the year ended December 31, 2017. GAAP, basic and diluted net loss per share for the year ended 2017 was a loss of $0.33 per share on 66.99 million weighted average shares outstanding, compared with GAAP, basic and diluted net loss per share of a $0.63 loss per share on 52.8 million weighted average shares outstanding during the year ended December 31, 2016, which represents a significant improvement year-over-year. We report our financial results in compliance with GAAP, but we believe the non-GAAP measures of adjusted EBITDA provide a more direct measure of our operating performance. Adjusted EBITDA is earnings before interest, taxes, depreciation, and amortization stock-based compensation net unrealized gains and losses from foreign currency exchange transactions, and gains and losses from the change in the fair value of a derivative warrant liability. Our adjusted EBITDA loss for 2017 decreased by $14 million or 61% from $22.8 million for the year ended December 31, 2016 to only $8.8 million for the year ended December 31, 2017, a substantial improvement. Alimera's GAAP net loss for the three months ended December 31, 2017 was approximately $7.2 million, compared to approximately $5.9 million for the three months ended December 31, 2016. GAAP basic and diluted net loss per share for the fourth quarter of 2017 was a loss of $0.10 per share on 69.1 million weighted average shares outstanding, compared with GAAP basic and diluted net loss per share of $0.09 per share on $64.8 million weighted average shares outstanding, during the fourth quarter of 2016. Adjusted EBITDA was approximately a $3.8 million loss for the three months ended December 31, 2017, compared to adjusted EBITDA of approximately $3.5 million - $3.5 million loss for the three months ended December 31, 2016. Turning to our balance sheet, as of December 31, we had cash and cash equivalents of $24.1 million. In January 2018, as Dan said, we completed a refinancing with Solar Capital replacing our then existing term loan. As a result, we gained additional capital and removed stringent liquidity requirements so that we can invest in business initiatives and opportunities where appropriate to grow the business successfully. We are making additional investments in 2018 for increased engagement with physicians, primarily re-establishing or increasing our field presence both in the U.S. and in Europe. As Dan mentioned earlier, although we are proud of our ability to control and contain cost in 2017 those measures had a greater impact on our ability to grow the top line than we had anticipated, and we believe a less consistent field presence contributed to that. We believe that consistent field engagement is critical for our success and changing the paradigm for the way physicians treat DME. Using the U.S. as an example, approximately 50% of our sales territories were staff consistently over the course of 2016 and 2017. In the territories that were staffed consistently, end user demand increased by an average of approximately 25% in 20 17 over 2016. However, the territories that when non-staffed consistently during this period suffered a decline in end-user sales of 5%. So, obviously that consistent sales presence does matter. We enter 2018, committed to maintain our U.S. field force at a target of 28 clinical account specialists, and our European teams at 20 sales personnel across Germany, the United Kingdom and Portugal. We’re also committed to increasing our medical support with additional new medical science liaisons and we anticipate being able to fund these positions with our existing resources. Based on our current liquidity and our expectations for future revenue growth, we believe that our existing cash resources are sufficient to fund our operations, including the investments discussed above. As good corporate governance, we do have an at the market facility or an ATM in place. However, with our current liquidity and our expectations of future growth, we do not have any current plans to utilize the ATM to raise equity for the foreseeable future. We believe that we’re already seeing the rewards of our efforts to leverage the user study, our real-world evidence, and a stronger and more consistent sales force. In both the U.S. and in Europe, we have seen record end-user sales in both January and in February, supporting our expectations for growth in 2018. With that, I would like to turn the call back over to the operator for any questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of François Brisebois from Laidlaw & Company. Please proceed with your question.

[François Brisebois:]

Hi, guys, thanks for taking the questions. Couple of things, obviously the cost issues were great, but the top line, as you said, a little disappointing in terms of revenues going forward is there any guidance to U.S. ex-U.S. in terms of the investments you will make in sales presence on how that might affect the topline or are you guys just standing away from guidance right now.

[Rick Eiswirth:]

You know Frank I think, as I alluded to in my comments we’ve had a very strong January and February. However, sales continue to be a little bit inconsistent and impacted by the timing of the distributed orders. So, I think we're going to refrain from providing guidance until we get a little bit more experience.

[François Brisebois:]

Okay, great. And then in terms of investments going forward with the new debt refinancing and the cash you guys have, you mentioned the sales presence, is that, how do we expect that to impact operating expenses and also, are you still thinking of maybe broadening the pipeline or are we still just focused on DME?

[Rick Eiswirth:]

So, with respect to expenses, our focus in 2018 is adding feet on the street, and that feet on the street is primarily sales representatives and MSL's from a global perspective and the goal is to keep other spending outside our personal-related costs flat. Our expectation is that our increase in expenses from 2017 to 2018 will be a little bit less than 10%. With respect to the pipeline, we are continually looking for other opportunities to expand the pipeline, and we are continually in dialogue with physicians out there, both at the executive level and with our MSL’s on where the next fit might be for ILUVIEN from a trial as well, but the focus at this time from their own perspective is to get the approval for uveitis in Europe.

[François Brisebois:]

Okay great. And then the end-user is going up, which is obviously the way to look at this, but in terms of the timing issues with distribution, is it something that would mean that first quarter would kind of be a little stronger than expected or is it something that could keep happening going forward, just trying to figure out how that could affect things from now on?

[Rick Eiswirth:]

Well, I think it will continue to be inconsistent. You know our hope is that Besse and McKesson will get more consistent in their ordering patterns, but we had not seen that yet. We do expect to report decent growth in the first quarter. That will be a combination though, more of - we were short distributed orders in January 2017 because the distributors did load up in the fourth quarter of 2016 as we previously discussed, but also, we do expect significant end-user demand growth in the first quarter as well. So, I think that the first quarter revenue is hopefully, at least through the end of February they do, distribute orders and end-user demand sort of matches up and so we want to have a difference there, but we have to see what happens in February with the timing of those orders. But I think it will be strong from an end user demand.

[François Brisebois:]

And then just lastly, just so, in terms of the user study, the data is great, but I just wanted, when did the sales reps officially have this in their hands when they talk to docs and is this more of an MSL job or a sales rep's job or how does that differentiate?

[Dan Myers:]

Franc it is a great question, it is a combination of both. We officially trained all the people around the October 1 from a field perspective so the sales reps in the field were able to start carrying that information in October and we had a presence in November at the AAO. So, we do think it started to take effect in the fourth quarter. That information though is also communicated by the MSL's and the rest of our medical and scientific communication team, but there are certain aspects of that study that don't necessarily line up with the label. So, from a compliance perspective we have to rely on other facets of the organization to get it out. So, the entire team is really focused on communicating that, and we expect to have more data similar to the user study coming out over the course of the year that again both the sales team and the medical will focus on communicating.

[François Brisebois:]

Okay. That’s very helpful. Thank you.

[Operator:]

Our next question comes from the line of Yi Chen of HC Wainwright & Company. Please proceed with your question.

[Yi Chen:]

Thank you for taking my question. Could you please comment on, why the - two U.S. distributor decide to lower their inventory levels in the fourth quarter and whether they are likely to maintain a low inventory level?

[Dan Myers:]

So, Yi, I am not sure I can specifically say why they chose to do it, other than they did. I can tell you that over the course of 2016 they increased their inventory levels by approximately 200 units, and in 2017 they brought those inventory down by about 150 units. So, it’s a swing of about 350 units over that period of time. As I said to Frank earlier, at least in January and February their ordering patterns are matching up with what they are selling to the end customers. So, the distributor purchases are matching up with end-user demand. Our hope is that it gets more consistent and stays that way throughout the course of 2018, but as we have done today we will continue to highlight those variances whether they are in our favor or out of our favor on each quarterly call?

[Yi Chen:]

Okay. And just to confirm, you mentioned that the user demand growth in 2017 was 12% in U.S. and 6% international, is that correct?

[Dan Myers:]

That is correct.

[Yi Chen:]

And regarding the operating expenses, do you expect sales and marketing expenses to continue to grow during 2018?

[Rick Eiswirth:]

Yes, so, overall, we would expect our expenses to be up a little less than 10% in 2018 versus 2017, and that is primarily focused on additional feet on the street as I said in the combination of the sales reps and MSL's.

[Yi Chen:]

Okay, got it. Thank you.

[Operator:]

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

[Unidentified Analyst:]

Good morning This is [John Scott] on for Boris. My first question is, is the distributor stocking and destocking correlated with any price increases or changes in discounting and are there limits on how much product the distributors are able to stock ahead of time?

[Rick Eiswirth:]

John, no they are not. There has been no change in our pricing. Very difficult to change pricing in the U.S. because most of this is purchased by the physicians through the buy bill model. So, you would create problems for reimbursement than if you change price. So, prices stay consistent and we had no limitations on what they can stock. I simply think, you know what’s happened in these periods is it has sort of been the timing of them ordering on a Monday or Tuesday and where that falls across the month.

[Unidentified Analyst:]

All right, thank you. And my last question, do you have estimates on how much products these distributors are still holding?

[Rick Eiswirth:]

I’m trying to check that right now. They hold - what we’ve seen is over the past several months, they’ve been trying to hold an average of about 200 units across both distributors. And as I said, that sort of remained consistent end of December through the end of February.

[Unidentified Analyst:]

Alright, thank you very much.

[Operator:]

Ladies and gentlemen, this concludes the end of the question and answer session. I would now like to turn the call back over to Dan Myers, CEO of Alimera Sciences for closing remarks.

[Dan Myers:]

Well, thank you for your continued interest in Alimera and the time we were able to spend today and the question and answers. As we discussed, we feel confident that 2018 will be a successful year for Alimera Sciences and I look forward to giving you an update on our first quarter performance in the coming months. Thank you.

[Operator:]

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