Alimera Sciences, Inc.
Q1 2016 Earnings Call Transcript

Published: 5 May 2016

[Operator:]

Greetings, and welcome to the Alimera Sciences First Quarter 2016 Results 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, Richard Cockrell. Thank you, Mr. Cockrell, you may begin.

[Rich Cockrell:]

Thank you, Tim. And thank you, everyone, for joining us today for the Alimera Sciences’ first quarter 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 evening, the company issued a press release announcing first quarter 2016 financial results. And today’s call is being webcast, will also conclude a financial - excuse me, a slide presentation which has been posted on the company’s website. Following remarks by management will open the call up to your questions. We expect the duration of the call to be approximately one hour. Now, 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 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 risk and uncertainties. These risks are described in the Risk Factors section and the Management Discussion and Analysis section of Alimera’s annual report on Form 10-K for the fiscal year ended December 31, 2015, which is on file with the Securities and Exchange Commission and available on the SEC’s website. Any factors - or, excuse me, additional factors may also be set forth in those sections of Alimera’s annual report on Form 10-K for the year ended March 31, 2016 to be filed with the SEC in the first quarter of 2016. In addition, any unaudited or pro-forma financial information is preliminary, and does not purport to project future financial positions or operating results of the company. Actual results may differ materially. Alimera also presents certain non-GAAP financial information and directs investors to the reconciliation of non-GAAP to non-GAAP contained in its earnings releases. For the benefit of those of you who may be listening to the replay, this call was held and recorded on Thursday, May 5 at approximately 10

[Dan Myers:]

Thank you, Rich. And thank you all for joining us today. I am pleased to report that during the first quarter of 2016 we recorded total revenues of $5.8 million, a 49% increase over the $3.9 million we recorded during the same period of 2015. This increase was primarily driven by the higher sales of ILUVIEN in the U.S. of approximately $4.1 million in the first quarter of 2016. In our international segment we sold $1.7 million of ILUVIEN in the first quarter of 2016. The first quarter gives me confidence that, our efforts to change physician behavior in addressing diabetic macular edema has been successful. And our continued account growth is a testament to our execution in developing the marketplace. Although the J Code adoption in January and February were slower than expected. We saw a record sales month for ILUVIEN in March, as well as more than double the first quarter benefit investigations than in the prior quarter. Unlike their colleagues in cardiology, rheumatology or other disciplines who have enabled to deliver consistent daily therapy with systemic dosing, ophthalmologists have only been able to treat retina disease with large drug doses administered on a frequent basis. ILUVIEN provides ophthalmologists with the ability to treat diabetic macular edema everyday by delivering a consistent and constant daily micro-dose of local drug therapy with a single injection lasting up to three years. This unique delivery method is unavailable with any other approved pharmaceutical therapy to treat DME. We are in the field everyday in the U.S., educating physicians about ILUVIEN and providing them with clinical and reimbursement support to help practices adopt ILUVIEN into their treatment paradigms. Each month we are increasing penetration into existing accounts, adding new accounts and driving the number of benefit investigations to make ILUVIEN more assessable to patients. Outside the U.S. we continue to see steady sustainable progress. In the first quarter of 2016 we began to see accounts become more comfortable with the availability of the J Code and the positive reinforcement of practices being reimbursed by carriers. Additionally, further review of clinical outcomes by our customer-base and the emergence of real-world data is building their confidence in the uniqueness of ILUVIEN’s consistent daily-dosing and effectiveness. Recently we made some adjustments to our sales efforts, replacing some of our field personnel with others who bring new skill sets involving key account managers, engaging senior management with our personnel and our customers in the field, and providing additional training and resources for our field personnel. These efforts have already yield the results in the U.S. marketplace. We finish the period with 363 accounts having used ILUVIEN today, adding 61 new accounts in the first quarter 2016, consistent with the 60 new accounts in the first quarter - fourth quarter of 2015. Turning to benefit investigations or BIs. In Q1 of 2016, we had 900 BI submitted compared to 371 in the fourth quarter of 2015, almost 2.5 times the amount from the fourth quarter. As we discussed on our fourth quarter 2015 call in March, the conversion process to actual injections take some time, as a physician may be checking on coverage during on visit with intensive injecting on the patient’s next visit. This growth in BI is very encouraging to us and as a strong indicator potential revenue growth moving forward. BI is our leading indicator of demand generation and initiated by retinal practices to determine the insurance coverage of a particular patient it has been identified as a candidate for ILUVIEN. Currently, these are important aspects of the sales process, as you may recall ILUVIEN is classified as a Part B drug, therefore the majority of practices purchase our product, and in fall with the insurance carrier for reimbursement under our buy-and-bill model, thereby assuming the collection risk, it’s critical that the practice feel assured that the patient’s insurance allows for coverage and that payment will be at a sufficient level. As I mentioned these BIs are indicators that a practice has identified the potential ILUVIEN patient that they wish to treat. However, in the future, we believe that as the market matured some practices will become comfortable with reimbursement and not allow benefit investigations to determine covers. Within our international segment, the first quarter results were much as anticipated. Germany has delivered its fifth consecutive quarter of unit volume growth recording a new high in terms of ILUVIEN implant sold. Unit sales in Portugal tripled in the first quarter 2016 compared to the first quarter of 2015. And this growth is attributed to further widening of market access to hospital contracts and the emergence of positive real-world experience with ILUVIEN for treating DME presented at the December 2015 meeting of the Portuguese Society of Ophthalmology. In UK, we successfully halted a recent period of decline in ILUVIEN use. This decline was a direct result of increased competition resulting from NICE’s recommendation for the reimbursement of EYLEA and Ozurdex in the treatment of DME last summer, and resulting use of these treatments in the UK treatment pathway. We expected to absorb this effect and to make a return to growth in 2016 and are pleased to report month-to-month growth throughout the first quarter. The overall revenue growth for our international segment was lower than we had originally expected due to softness in the UK. However, we have managed our expenditures accordingly and are delivering a bottom-line performance above expectations. As we look to the second quarter 2016, we expect to see a return to growth in our international segment, supported by the release of real-world data later this month at the Royal College of Ophthalmologists Annual Meeting in the UK. Looking at part of our current markets, we continue work with our distribution partners, we’ve been working with MEAgate International, our partner headquartered in the UAE to train their team in preparation for engagement with healthcare professionals. As you may know, the diabetic population in the Middle East is significant. In France, we continue to work with government agency to secure reasonable pricing, and in Italy really our partner SIFI is engaged in the same activity. We do expect to see revenue contribution from these partnerships in 2017. I’d now like to turn the call over to our President and CFO, Rick Eiswirth.

[Rick Eiswirth:]

Thank you, Dan, and thank you all for joining us today. Consolidated net revenues increased by $1.9 million or 49% to $5.8 million for the quarter compared to net revenue of $3.9 million for the first quarter of 2015. The increase was primarily driven by higher sales of ILUVIEN following its launch in the U.S. during the first quarter of 2015. U.S. net revenue was up 71% to $4.1 million during the period compared to $2.4 million reported in the same period last year. International net revenue increased by approximately $200,000 or 13% to $1.7 million for the three months ended March 31, 2016, compared to $1.5 million for the three months ended March 31, 2015. The increase is primarily attributable increase sales in Germany and Portugal, compared to the first quarter of 2015, offset by the lower sales in the UK. As Dan mentioned earlier, March was a strong month for us at Alimera. It is important to note that 50% of our first quarter revenue was generated in March. Consolidated gross profit increased by $1.7 million or 46% to $5.4 million for the period compared to $3.7 million for the same year ago period. Gross margin was unchanged during the periods at 93%. Consolidated research development and medical affairs expenses for the first quarter of 2016 decreased to $3 million compared to $3.3 million during the year ago period. The decrease was primarily attributable to $310,000 in state research and development tax credits that will be used to offset payroll taxes. And a reduction of $130,000 for U.S. compliance costs associated with the launch of ILUVIEN in the U.S. in the first quarter of 2015. Consolidated general and administrative expenses for the first quarter of 2016 decreased to $3.4 million, which compares to $3.6 million for the first quarter of 2015. The decrease was primarily attributable to reduction in professional and legal fees of $160,000 due to the addition of in-house counsel in the second quarter of 2015. Consolidated sales and marketing expenses remained flat at $7.1 million. Alimera’s GAAP net loss applicable to common stockholders for the period was $11.1 million, compared to $9.8 million for the same period last year. GAAP basic and diluted net loss per share for the first quarter of 2016 was $0.25 on approximately 45 million weighted average shares outstanding compared with GAAP basic and diluted net loss per share of $0.22 on approximately 44.3 million weighted average shares outstanding during the first quarter of 2015. The GAAP net loss attributable to common stockholders and a GAAP basic and diluted net loss per share were affected by certain non-cash items, including a loss on the early extinguishment of debt, unrealized foreign currency gains and losses, changes in the fair value of a derivative warrant liability and reserves for potential inventory expiration. Non-GAAP adjusted net loss attributable to common stockholders for the three months ended March 31, 2016 was $10.1 million, compared to a $12.2 million loss in the prior year period. Non-GAAP adjusted basic and diluted loss per share for the three months ended March 31, 2016 and 2015 were $0.22 and $0.27 respectively. Non-GAAP adjusted net loss attributable to common stockholders per share were based on approximately 45 million weighted average shares outstanding for the three months ended March 31, 2016 and approximately 44.3 million of weighted average shares outstanding for the three months ended March 31, 2015. Turning now to our balance sheet. As of March 31, 2016 Alimera had cash and cash equivalents of $23.9 million as we discussed on our fourth quarter 2015 call in March of this year, due to less than expected sales of ILUVIEN in January and February of 2016. Alimera did not achieve compliance with the revenue covenants of its debt facility with Hercules Capital. As a result, Alimera and Hercules entered into an amendment to the debt facility to waive the covenant violation and amend certain terms of the facility in March of 2016. Alimera is currently pursuing alternative or additional debt financing which it anticipates completing prior to the end of the second quarter of 2016. With that, I would like to turn the call back over to Dan for closing comments.

[Dan Myers:]

Thanks Rich. ILUVIEN presents a unique treatment option for retina specialist, providing the only continuous and consistent microdosing therapy for the large population of patients with DME. In the U.S., we are seeing a steady rise in the level of interest from physicians and the emergence of practices that are incorporating routine use of ILUVIEN into their treatment regimen. We’ve been encouraged by the anecdotal feedback and data that we’ve heard from these markets. I am very excited about what the future holds for Alimera. And I’m looking forward to sharing real-world data from our European markets with our physician customers and investors later this month. We believe this data will reaffirm both the safety and efficacy of ILUVEIN. With that, I’ll now turn the call over to the moderator to begin our Q&A session.

[Operator:]

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

[Boris Peaker:]

Good morning. And congratulations on the progress.

[Dan Myers:]

Thanks.

[Boris Peaker:]

I just want to understand. So at the current trajectory sales trajectory, do you have a sense of when you become cash flow breakeven?

[Dan Myers:]

We still think we can get to EBITDA breakeven by the end of the year, sometime in the fourth quarter of this year, but obviously positive cash flow would follow in 2017, because of the extended terms we provide the distributors.

[Boris Peaker:]

Got you. Okay. And in terms of the impact of the J Code, I mean, when will we see the full impact of it? Is it just a 900 or so submitted in benefit investigations now or are we going to see more of the J Code impact?

[Dan Myers:]

Well, we think you’re starting to see it in the March numbers as we alluded to the benefit investigations came through a very significant increase, a 150% increase that we saw in the fourth quarter over the course of the first quarter. There is a lag, we estimate on about an average of about 60 days between the time benefit investigation comes in and the patient ultimately gets treated. And that’s an average because of the range out there. But we did see record sales in March and we saw consistency with that in April. So we do feel like the impact of the J Code is upon us now. We do think it will continue to improve, because I think one of the things you will continue to see in the marketplace is there are physicians out there that even though there isn’t a J Code, they want to see a couple of claims reimbursed before they increase their usage and that will happen over the course of the year.

[Boris Peaker:]

Got you. And for your debt agreement with Hercules, just curious is there an opportunity for an agreement to avoid financing or you financing all together or would you have to refinance the entire debt facility as it stands now.

[Dan Myers:]

When I prepared the comments on specific parties at this point in time, but I will say that we’ve always had a good relationship with Hercules and we remain in dialogue with them at all times.

[Boris Peaker:]

Okay. Great. Thank you very much for taking my questions.

[Operator:]

Our next question comes from the line of Jim Molloy of Laidlaw & Company. Please proceed with your question.

[James Molloy:]

Hey, thanks. [That’s new thing] [ph] on my name, but not the company. I have a quick question on. Thanks for taking my questions. I have a quick question on the sales changes that you made. Can you talk a bit about little more specifics about what occurred there is that just in the U.S. or ex-U.S? And it hit on sort of - how many reps are currently profitable and what percentage of reps have to get the profitability before sort of you get to this EBITDA breakeven by year end?

[Dan Myers:]

Sure. Yes Jim, I’ll take that, because I think it’s kind of a perspective of having as many years I’ve had on the pharmaceutical side. I think one of the things we’ve come to realize and I think we started to see this in third and fourth quarter. This sales process looks a lot more like a device sale quite frankly than a pharmaceutical sale. Although, this is a drug and went through the NDA filing, when you start looking at the dynamics of the practice and the interaction of the sales rep with the doctor and patient flow and trying to manage outcomes, it really begins to resemble more of the interactions and the skill-sets required more of a medical device person in ophthalmology as opposed to pharmaceuticals. And so we really shifted a bit of our training and the skill set that require you may will now between a device sales person and a pharmaceutical sales person is quite different. So as we’ve upgraded the sales force in a few territories. Now, we began to look more for what the device mentality where you’re literally managing specific patients helping the doctor find specific patients versus that classic kind of old fashion detail if you where you come in and you sell features and benefits. This is a much more interactive sale with the doctor. So when I say, new skills, that’s primarily how you should think about it. It’s kind of a shift in how we manage the interaction with the doctors. We are excited that in March, we had over half of our sales people make their targets. We’ve been seeing a steady increase and the number of reps make their monthly targets quite frankly, January we just, I think, overestimated the uptake of the J Code and put ourselves a little behind the ball in the first quarter, but had a real good rebound in March. And when you start seeing over a half of your sales-force hit your on targets you start feeling like maybe the light-bulbs coming on for some of the sales people. And so we’re excited about March and where we see the sales-force go. And all those changes to answer your other question specifically in the U.S. we’ve not had any changes in the UK in the first quarter or the German market.

[James Molloy:]

Okay. Thank you. Just looking at, when you talk about EBITDA breakeven by year end. I assume that sort of in the quarter take out the R&D and spend $11 million to sell, just under $6 million. This quarter, is the current trajectory, does it have to be any step-edits to the numbers or just sort of the slow and steady growth will get you there?

[Rick Eiswirth:]

Well, we certainly need to have - inflection on sales, and as we alluded to - we start - feel like we’ve started to hit that inflection point in March and April, Jim, unfortunately two months doesn’t make a trend. So we still believe, we’ve got a lot of work to do, but as we’ve disclosed before, we think we need to get to $5 million - between $5 million and $5.5 million on a monthly basis to be that EBITDA positive or EBITDA breakeven level. And we feel like with the trajectory we have in March and now April that - it’s certainly achievable.

[James Molloy:]

Excellent. And a couple of quick questions, and if you look at - final question I should say, have - the doctors that are using - I know in the last call we talk - you guys talked about some folks start with Ozurdex getting the three months of the steroid work moving to ILUVIEN. Is there a certain percentage or is that the path doctors tend to use to get to ILUVIEN and can you talk a little bit about repeat docs versus new docs in the quarter?

[Dan Myers:]

Well, I think, do you have a little bit of mix bag and how steroid test are challenges done on some of these patients. I mean, I think, certainly there are doctors out there that use Ozurdex and use Ozurdex pretty frequently. And we need to continue to sell through that and so on the benefit of that consistent daily dose being there. And the ability of the treat the disease everyday for those patients. I think we do have some doctors that have used more ILUVIEN, that have sort of realized its switching somebody from the extremely high dose of corticosteroids, but they get from the bolus Ozurdex. It’s not necessary the best way to transition and are switching patients maybe off of IVTA or even using topical drops for that change. But I think from a modeling perspective as I’ve always said, I think it’s the most conservative way to do it, is to assume that most patients are going to transition to Ozurdex. I think that will change over time, but for now, I think that would be the general statement I would make is the most patients are going to transition to Ozurdex, become they come on ILUVIEN.

[James Molloy:]

Great. I’ll hop back in the queue to let some other folks ask some questions.

[Operator:]

[Operator Instructions] Our next question comes from the line of Laura Engel of Stonegate Capital Partners. Please proceed with your question.

[Laura Engel:]

Good morning. Thanks for updating us on the good progress. I wondered is you could tell us as far as hitting some of the marks by year-end, given run rate for the first quarter, what we could expect maybe continuing throughout the year as far as things you could trim if needed or is it again going to be maintain and support, if you could just comment on that?

[Rick Eiswirth:]

I mean, I don’t think we prepared to give specific revenue metrics, by quarter for the rest of the year, but we do think it’s achievable to get, like I said that $5 million to $5.5 million mark. I think from a sales team perspective we are comfortable with what we have here in place, and we’ve got the adequate support to do that, so when see many changes in the expense based make further investments in the sales marketing side at this point in time.

[Laura Engel:]

Okay. And then, when you look at BIs and you talk about the lack. Is there any sort of way we can further analyze that as far as any metrics of conversion or statistics you can provide as far as how many of those end up hitting the top-line or converted to the actual sales?

[Rick Eiswirth:]

We think that historically somewhere between 85% and 90% of our BIs are actually ultimately converted to sales. But as Dan alluded to - we think that gap, the gap between sales and BIs will widen over time, because some practices especially on the CMS side, we’ll get comfortable that the reimbursement is there and won’t feel the need to leverage our access cost system to do this benefit investigations for them. So I think it’s a good marker right now for an increasing demand, and we’ll continue to report that as long as we think it’s relevant, but I do think it will diminish and importance over time.

[Laura Engel:]

Okay, got it. I appreciate it. And I’ll get back in the queue. Thank you.

[Operator:]

Our next question comes from the line of Jim Molloy of Laidlaw & Company. Please proceed with you question.

[James Molloy:]

Okay, thanks. Thanks, guys. I just have a quick questions..

[Rick Eiswirth:]

I got it right.

[James Molloy:]

I know it’s a tough name to get it, I appreciate that. Have you guys looked at entertaining buy-out offers from other company to pick up your asset or on the other hand, always better to have more than one product in the bag. Are you looking at additional products bringing in to augment for your sales team?

[Dan Myers:]

Yes, I mean, regarding the first so, we aren’t prepared to comment on any of the strategic discussions we’ve had with other companies. I mean, certainly we think that if we can continue to make the progress we made and establish ILUVIEN as a treatment option that’s here to stay, which we certainly think we are, that it will prompt some interesting discussion to have going forward. We’re certainly open to entertaining those discussions. Regarding more specifically on the product side, clearly, we have an asset in the sales-force not on the U.S., but in Europe that we could leverage. There’s not a lot of assets out there that you can just drop in the bag and leverage the work we’re doing in the doctors’ offices. But we continue to talk to folks. We continue to look at that and we’re certainly open to it. But at this point in time, we’re not ready to comment on anything like that. But you’re right, Jim, it is something we need to look hard at.

[James Molloy:]

That’s all I had. Thank you very much for taking the follow-up.

[Operator:]

[Operator Instructions] Our next question comes from the line of Robert Smith, a private investor. Please proceed with your question.

[Unidentified Analyst:]

Yes, hi, guys. I’m wondering if you can compare the economics to the physician with the current standard of care versus ILUVIEN, and if you think that’s an issue in sort of the slow uptake in ILUVIEN.

[Dan Myers:]

Yes, I think it has been an area that we have to continue to educate the doctor on. I do think it has probably blunted some of the early growth that we think we’ll kind of fight our way through, because there’s a bit of a sticker shock for the doctor or the practice administrator when you look at the upfront cost of ILUVIEN at $8,800 versus an Ozurdex or EYLEA, Lucentis injections, who range from $1,000 to $1,200, $1,600 or so. But when you take the cost, Robert, of the therapy over the period of time that we’re treating the patient, it becomes almost a no-brainer. So we found readily acceptable position with managed care, because obviously they’re looking at this from a more of a co-P&L standpoint. Obviously, doctors don’t look at treating patients first and foremost through the economics. And so, as they step back and realize that you’re still going to see the ILUVIEN patient every three months, just like you do with the anti-VEGF patients, you’re still going to get paid for an office visit, you’re still going to get paid for the same testing and so forth. You’re just not going to stick a needle in their eye, necessarily every three months like you have to do with these other therapies. When you really start to step back and realize that the cost of ILUVIEN over three years is as much as a third or a half of the cost, and yet the doctor still seeing these patients on a routine basis, the economics begin to be attractive for the payer and the practice, because these patients are getting treated more cost-effectively, but the economics don’t work that much against the doctor as well. So I think this is an education. It’s clearly a paradigm change we’re bringing when you start thinking about one injection over three years. But at the end of the day, I don’t think the reluctance of a doctor to use ILUVIEN will be because of economic reasons. I think we can work through that quite effectively once we educate the doctor better on the three-year therapy.

[Unidentified Analyst:]

Okay. And just a follow-up, at year-end how many doctors were using ILUVIEN versus how many doctors are using it today? Are you seeing an acceleration that’s meaningful?

[Rick Eiswirth:]

Well, we did see an acceleration in the number of accounts. We went from about 320 accounts or so to about 385 over the course of - over the first quarter. So we know that the number of account continues to grow. I think one of the things that we need to get better at or what will happen with more usage of the doctors, more experience from the doctors that will use it more frequently. We don’t have enough practices ordering on a monthly basis, but the number of accounts is growing. And the number of accounts that are growing - or excuse me, that are ordering each month has continued to grow as well.

[Unidentified Analyst:]

Okay. And finally, do you have any contingency plans if you’re not able to get any more debt financing?

[Rick Eiswirth:]

We feel - at this point in time we feel comfortable in our ability to get the additional debt financing or refinance that debt. But we certainly have alternate plans as well.

[Unidentified Analyst:]

Okay. What would they be?

[Rick Eiswirth:]

We’re not prepared to comment on that at this time.

[Unidentified Analyst:]

Okay. All right. Thank you.

[Operator:]

There are no further questions at this time during the Q&A session. I will turn the conference back over to Dan Myers, our CEO, for closing remarks.

[Dan Myers:]

We’d like to thank you for taking the time to let us give you the update and a question-and-answer discussion. We’ll continue to update you as appropriate on our progress. And we look forward to giving you our 2Q update in the coming months. Thank you for your time.

[Operator:]

This concludes today’s teleconference. You may disconnect your lines at this time and have a wonderful rest of your day.