Alimera Sciences, Inc.
Q3 2016 Earnings Call Transcript

Published: 6 Nov 2016

[Operator:]

Greetings and welcome to the Alimera Sciences’ Third Quarter 2016 results 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. It is now my pleasure to introduce your host, Mr. Jacob Goldberger. Thank you, Mr. Goldberger. You may now begin.

[Jacob Goldberger:]

Thank you all for joining us today for the Alimera Sciences third 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 the Company issued a press release announcing third quarter 2016 financial 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 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 Discussion and Analysis sections of Alimera's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, which are on file with the Securities and Exchange Commission and available on the SEC's website. Any additional factors may also be set forth in those sections of Alimera's Quarterly Report on Form 10-Q for the period ended September 30, 2016, to be filed with the SEC in the fourth quarter of 2016. You will see in Alimera's press release, the Company is offering non-GAAP financial information. 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. Non-GAAP adjusted net loss attributable to common stockholders excludes certain non-cash items. These non-GAAP metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for net loss attributable to common stockholders 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 purport 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 Thursday, November 3rd at approximately 10 AM 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 as a result 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.

[Daniel Myers:]

Thank you, Jacob, and thank you all for joining us today. In the third quarter, we grew revenues year-over-year in both the United States and internationally. We made significant progress in obtaining reimbursement in new markets. We strengthened our balance sheet with additional equity financing of approximately $26 million from the sale of our common stock. And in October, we amended our term loan with Hercules Capital, Inc., to extend the term and provide up to an additional $10 million in financing. Although revenue has grown 20% year-over-year, we believe that the potential for ILUVIEN is much greater. We believe this for several reasons. First, the real world evidence of ILUVIEN as compared to the FAME study demonstrates ILUVIEN's advantages. Second, our success in Germany and Portugal, where we have methodically used our real world data in our sales calls, medical messaging and promotional efforts, third, ILUVIEN's unique technology enabling physicians to treat DME consistently every day. We believe that ILUVIEN is the best available therapy to treat DME. Our real world data from Europe has consistently shown that ILUVIEN works as well, if not better, in the clinic than what we saw in our FAME study. Other intravitreal drugs available are not used as consistently in the clinic, and their clinical trials, due to the required frequency of injections and the associated burdens to the patients and cost. Therefore, these other therapies don't provide benefits consistent with their trial data. ILUVIEN, by its very design, ensures a treatment pattern that is consistent with the FAME study. We have been successfully leveraging our real world evidence in Germany, where we have now recorded six consecutive quarters of growth, and in Portugal, where we have more than tripled revenue over the third quarter of 2015. This growth has been achieved by leveraging the data at ophthalmology meetings and in publications, as well as developing case studies in additional cohorts of patients for peer-to-peer discussion. Now, with a year and a half of experience in the US, we're collecting that data, and we intend to provide the same scientific and medical support in 2017 in the U.S. Our sales softened in the U.S. at the beginning of the third quarter due to seasonality with lower sales in July, but rebounded with strong sales performance in August and September. In retrospect, this seasonality is not surprising, because ILUVIEN is designed to last three years and therefore, like medical device and surgical intervention, does not generate recurring prescriptions like other retinal therapies. We believe the seasonality in ILUVIEN is simply a result of physicians being out of the offices on a base of core users that remains relatively small. It's important to note that the impact of seasonality was unclear to us during the third quarter of 2015, as that was the first year of ILUVIEN's commercialization in the United States. Despite the impact of seasonality, we saw a slight uptick in physician usage in comparison to the second quarter. We continue to add new accounts, adding 47 accounts during the third quarter and bringing the total number of accounts having used ILUVIEN through September 30 to over 450. We believe this growth demonstrates the increasing demand for an alternative to anti-VEGF therapy and the acceptance of steroid use for the treatment of DME. Although we are pleased with our growing account base, we continue to work towards getting the broad and frequent usage that we think ILUVIEN merits. ILUVIEN requires a paradigm shift for physicians, having to break their current habit of using frequent bolus injections of anti-VEGF and short-acting steroids. In an effort to stimulate this change, we introduced a new marketing message in May emphasizing the unique value proposition of ILUVIEN, reinforcing that it is the only product available that allows physicians to treat the disease consistently every day. In our International segment, challenges in the UK overshadowed our strong performance in Germany and Portugal, as previously stated. As you may recall, in the UK the National Institute for Health and Care Excellence, or NICE, limits reimbursement for ILUVIEN to only eyes that are pseudophakic, meaning they have already had cataract surgery. The pseudophakic population in the UK is substantially smaller than most other countries, at about 15% of DME patients, because of the restriction on the use of cataract surgery. This significantly restricts our ability to grow our business in the UK at this time. We are preparing to engage with NICE regarding an expansion of the reimbursement guidance for ILUVIEN in the UK to broaden the availability to more patients. We expect to initiate discussions in the fourth quarter of 2016 and believe we have a strong case based on the real world evidence we have been accumulating in Europe and the UK that demonstrates the value of ILUVIEN in the phakic eye. We are very pleased to have recently announced the first sales and usage of ILUVIEN in the Middle East through our partnership with Meagate. Further, Meagate recently attained the HAAD reimbursement code for ILUVIEN from the regulatory authorities in Abu Dhabi. It is anticipated that other territories in the Middle East will adopt similar reimbursement coding. In the meantime, we will work with Meagate to obtain full approvals in key territories in the Middle East. Although we don't expect a material revenue contribution this year, we do believe that the Middle East will provide a substantial opportunity in the future due to the large diabetic population there and Meagate's ability to launch in multiple Middle East markets. In the Republic of Ireland, a small country of 5 million inhabitants, we received pricing approval in July, and we'll be leveraging resources from our UK team to promote and launch ILUVIEN in Ireland. We anticipate the first sales of ILUVIEN in Ireland in the fourth quarter of 2016. In Italy, our distribution partner, SIFI, is in active discussions regarding pricing for the Italian market, and we anticipate them having a published price by the end of 2016. If they are able to achieve this, SIFI anticipates launching ILUVIEN in Italy in the middle of 2017. In France, we continue to work to close the gap with pricing authorities regarding the appropriate price for ILUVIEN. Because of reference pricing throughout Europe, we are reluctant to make a significant concession in France, which would most likely erode our pricing in other countries. Our recent successes in Ireland and Abu Dhabi and our progress in Italy have strengthened us to resolve or maintain our current pricing levels. We are currently evaluating next steps in France and will decide whether or not we will continue to invest in that market by year-end. We will continue to work to expand our international footprint, extending the reach of ILUVIEN to new patients and leveraging our cost structure further. I would now like to turn the call over to our President and CFO, Rick Eiswirth.

[Richard Eiswirth:]

Thank you, Dan, and thank you all for joining us today. Consolidated net revenues increased by $1.4 million, or 20%, to $8.3 million for the three months ended September 30, 2016, compared to net revenue of $6.9 million for the three months ended September 30, 2015. The increase was primarily driven by an increase in sales volume as ILUVIEN continues to gain market acceptance in the United States. U.S. revenue was up 24%, to $6.2 million, during the third quarter of 2016 compared to $5 million reported during the same period last year. Although our reported revenue for the U.S. for the third quarter is down sequentially from the second quarter of this year, it is important to reiterate that physician demand, represented by sales from our distributors to doctors and pharmacies, were slightly up from the second quarter. Because we recognize revenue in the U.S. when we sell to our distributors, our revenue may be impacted at times by their irregular ordering patterns and the timing of their orders. The sequential decrease in revenue from the second quarter to the third quarter was due to a net increase in distributor inventory in the second quarter of this year, while our distributors' purchases approximated the physician demand in the third quarter. International net revenue increased by approximately $200,000, or 11%, to $2.1 million for the three months ended September 30, 2016, compared to $1.9 million for the three months ended September 30, 2015. Consolidated gross profit increased by $1.5 million, or 24%, to $7.8 million for the third quarter of 2016 compared to $6.3 million during the same year-ago period. Gross margin for the third quarter of 2016 expanded to 94% compared to 91.3% in the third quarter of 2015. Consolidated research, development, and medical affairs expenses for the third quarter of 2016 decreased to $3.3 million compared to $4.1 million during the same period last year, due primarily to costs incurred in the prior year for potential product enhancements. Consolidated general and administrative expenses for the third quarter of 2016 were $3.6 million compared to $3 million for the third quarter of 2015, due primarily to costs incurred in the current year to pursue financing alternatives. Consolidated sales and marketing expenses increased during the three months ended September 30, 2016, to $7.5 million compared to $6.9 million in the three months ended September 30, 2015, due primarily to increased promotional efforts to support ILUVIEN. Alimera's GAAP net loss applicable to common stockholders for the third quarter of 2016 was $9.2 million compared to $1.5 million for the same period last year. The GAAP net loss attributed to common stockholders was affected by certain non-cash items, including unrealized foreign currency gains and losses, changes in the fair value of a derivative warrant liability, and a loss on the early extinguishment of debt. Non-GAAP adjusted net loss attributable to common stockholders for the three months ended September 30, 2016, was approximately $8.6 million, a decrease of $1.2 million compared to non-GAAP adjusted net loss attributable to common stockholders for the three months ended September 30, 2015, of $9.8 million. GAAP basic and diluted net loss per share for the third quarter of 2016 was $0.16 on approximately 56.1 million weighted average shares outstanding compared with GAAP basic and diluted net loss per share of $0.03 on approximately 44.4 million weighted average shares outstanding during the third quarter of 2015. Turning now to our balance sheet, as of September 30, 2016, Alimera had cash and cash equivalents of $33.9 million. On August 16, as previously disclosed, we closed a public offering where we sold 18.9 million shares of common stock, resulting in gross proceeds of $26.5 million. Subsequent to September 30, 2016, we completed an amendment to our term loan with Hercules. The amendment allows for a longer term, a longer interest-only period, and amended financial covenants, which we anticipate give us sufficient funds to allow us to become cash flow positive in 2017. Further, the amended facility provides for up to $10 million in additional funds to be drawn down in the future for expansion elsewhere in Europe, or upon the achievement of positive cash flow, clinical trials for possible extension of the ILUVIEN label. With that, I would like to turn the call back over to Dan for closing comments.

[Daniel Myers:]

Thanks, Rick. ILUVIEN presents a true alternative treatment for DME which was previously unavailable to ophthalmologists. Thanks to the concerted efforts of our team here at Alimera, the market is waking up to the potential of continuous and consistent daily microdosing and the safety and efficacy of steroids. We believe - we continue to see interest grow among physicians, and more practices are incorporating ILUVIEN into their treatment regimens, and we are working diligently with physicians to gather clinical patient data to be shared at conferences and peer-to-peer settings, as we believe this will have an impact in motivating more physicians to both introduce ILUVIEN in their practices as well as increase usage among current customers. We have introduced a paradigm shift in the treatment of DME, and clinical experience supporting an improved quality of life for patients will, we believe, grow our business to the potential of this market opportunity. Today there is no alternative to ILUVIEN that can deliver the same consistent efficacy with such a low patient burden. Thank you for joining our call today. And with that, I'll now turn the call over to the moderator to begin our Q&A session.

[Operator:]

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Boris Peaker of Cowen. Please go ahead.

[Boris Peaker:]

Great. Thanks for taking my question. I'll start with just sales dynamics. I'm just curious; what fraction of ILUVIEN patients have had prior Ozurdex treatment? And is that fraction changing over time?

[Richard Eiswirth:]

Boris, I would still make an argument for modeling purposes for you that the majority of the patients are going to receive an Ozurdex first because that is the approved corticosteroid for the treatment of DME. But we do know that physicians are more and more looking to use IVTA because of the cost benefit of using IVTA as opposed to Ozurdex. And some of the physicians are starting to use a topical Durezol test because some of those believe Durezol's a more potent steroid and may be a faster way to see if there's a result there. And so some of our physicians who have used ILUVIEN and gotten more comfortable with it are defaulting to doing like a two-to-four-week test of topical Durezol to do the steroid test.

[Boris Peaker:]

But do you know quantitative? I'm just curious in terms of patients getting one or two Ozurdex and at some point transitioning to ILUVIEN. Is that a real market dynamic, or is that just a small fraction of patients?

[Richard Eiswirth:]

It's a pretty significant dynamic, but we don't know how to put a percentage on it. But I would say at least half of our patients to date are probably going through Ozurdex as the step.

[Boris Peaker:]

Got you. And then also, I'm just curious, if we compare sales, 2Q versus 3Q, I'm just curious. What happened in 2Q to generate this kind of a spike in revenue? Is it all just seasonality, or is there else something underlying it that may be going on?

[Richard Eiswirth:]

No, I think that we had growth throughout the second quarter. As I mentioned in my comments, we had some significant stock-in at the end of June, and the distributors had a net increase in inventory, which probably artificially inflated the number in the second quarter. In the third quarter, as Dan alluded to, we had significant seasonality in July, with the doctors being out of the office on vacation. But we rebounded and had strong sales in August and September. And if you look at the U.S. sales, end user demand - so when I say end user demand, what the doctors or the pharmacies are buying from the distributors - we actually had a slight uptick in that demand in the third quarter compared to the second. So trend is heading in the right direction, certainly, but it's a little bit distorted because of our small size right now, impacted by the distributor stocking and the timing of that.

[Boris Peaker:]

Great. And my last question is there's certainly a lot of discussion in terms of pricing these days. What is your strategy for price increases going forward?

[Richard Eiswirth:]

Boris, I don't anticipate that we would have price increases going forward, because the majority of our sales are done from a buy-and-bill model. Reimbursement to the doctors is based on a trailing average sales price. And so if we were to increase prices, doctors would suffer from a shortage on reimbursement for a period of time. So that's why, in ophthalmology and in retina specifically, you don't see many increases in price.

[Boris Peaker:]

Got you, okay. Well, thank you very much for taking my questions.

[Operator:]

Thank you. The next question is from Jim Molloy of Laidlaw. Please go ahead.

[Frank Breeze:]

Hi. This is actually Frank on for Jim. Thanks for taking the question. So I had a couple. Just in terms of breakdown in seasonality, how different were sales? Do you have it broken down to July, August, and September? Was it only July, and then August and September similar? And could you just give a little more color on what you just mentioned about the uptick in 3Q versus 2Q, if you look at it a certain way?

[Richard Eiswirth:]

Yes, so Frank, I don't want to get into the habit of releasing monthly sales numbers, but I will tell you we had a substantial decrease in July. The majority of the business was built back in August to where we saw it at the end of the second quarter, and we continued to see growth in September. So I do think there was definitely a seasonality impact in July. We probably saw some of that in August. As you know, dependent on what the school vacations are and things in different areas around the country, some of those vacations are taken in August as well. So we felt like we rebounded at the end of the second quarter, and we expect to be able to grow into the fourth. Yes, and September was a record month for us in end user demand.

[Frank Breeze:]

Okay, great. And then in terms of ex-U.S. - Germany and Portugal, why do you think Portugal is going so well, and which one is obviously, UK's behind. But in terms of Germany versus Portugal, can you talk more about those and why Portugal is doing so well?

[Richard Eiswirth:]

Yes, so I think Portugal - in southern Europe, corticosteroids seem to be used a lot more in southern Europe, and so we have that advantage going for us in Portugal, as well as Portugal was the one market that we had a little bit of runway while we were working on pricing to establish the team and see the market. So we did some clinical studies at the local level to allow physicians to get experience with the drug and got that on the podium right at the time we launched the drug more broadly across Portugal. And so I think the medical messaging that Dan was referring to earlier in the call has been very effective in Portugal, and we've continued down that route. So it's a combination of we were more prepared for that market, we've had great medical messaging, and they are very receptive to steroids. I think in Germany, you've seen us sort of get to the same place there. As you know, if you look back over the history of Alimera, we launched in Germany with a contract sales force. And as we have said before, that wasn't really effective. We put a team in place that really came onboard in April of 2015, and that new country manager was able to kind of rebuild his own team there, get his own sales force in place, and you've seen positive traction over the last six quarters there as we've gotten growth with that team being in-house. And I think that team is getting better and better in leveraging the real world data and medical and scientific support that we've sort of established in Europe there as well. We are getting momentum from that in the UK as well, but we are impacted negatively by that NICE guidance which significantly restricts the market there.

[Daniel Myers:]

Frank, this is Dan. I would add one other thing. You've got to keep in mind that now we're well into year three of the launch in Germany, and I think this whole issue of the side effect of intraocular pressure, the data in both our trial as well as Allergan's trial would have suggested that potentially a third of the patients might need some glaucoma therapy to treat a mild rise in IOP. And what we've seen in our real world data, it's been nowhere near that number because I think we know so much better which patients to treat and we're treating patients better in DME than we did 10 years ago when the FAME trial was initiated. So I think what we're starting to benefit in Germany, which I certainly hope we'll see next year in the U.S., is as doctors are beginning to have their own personal experience with ILUVIEN, they're realizing this whole myth of a majority of patients having intraocular pressure issues, or even worse, glaucoma filtration, it's just not panning out the way you might have seen in the trial. And of course, that's good news for us because that's why the peer-to-peer is so important, as doctors start realizing that the side-effect profile of ILUVIEN is actually very, very beneficial compared to the efficacy data.

[Frank Breeze:]

Great. Yes, that was actually my next question for the IOP real world data. That's good to hear. And then in terms of the growth of accounts, was that mostly in line with expectations, or is it lower just because of seasonality? I think you said there's over 450 now. Is that correct?

[Richard Eiswirth:]

Yes, I think that's pretty consistent with what we've done in the past, and we've been adding between 45 and 50 accounts every quarter for the last several quarters. I think the focus of the sales team is to continue to get further depth in the existing accounts. And so while we obviously continue to grow those accounts because the word about ILUVIEN is spreading and we get good participation from the physicians in our activities at meetings like the American Academy of Ophthalmology that Dan referenced, the focus of our reps on a daily basis is to drive deeper usage in the existing accounts. We're pleased with the growth in the overall accounts.

[Frank Breeze:]

Great. Thank you very much. That's it for me.

[Operator:]

[Operator Instructions] The next question is from Laura Engel of Stonegate Capital Partners. Please go ahead.

[Laura Engel:]

Good morning. Thank you for taking my questions. First, looking at the income statement, going forward the gross margin is 94%, around that the past two quarters. Is that something we look at longer term, and is there still room for improvement, or is that going to be the expectation for the next couple of quarters?

[Richard Eiswirth:]

No, I feel good about that for the next couple of quarters, although long-term, you will see margin contract a little bit because we will leverage distributors in some of these other markets. So I would think about it as we need to sell about three ILUVIEN in our distributor markets for every one ILUVIEN we need to sell in our direct markets and that will obviously have some impact on the margin.

[Laura Engel:]

Okay. And then second question, the press release references the extension of the ILUVIEN label. Is there anything specific you want to talk about as far as next steps or potential timing on something like that?

[Richard Eiswirth:]

No, as we mentioned during our second quarter call, we are evaluating potential trials in retinal vein occlusion and non-proliferative diabetic retinopathy. We continue to get feedback from both the physician population and looking at what the cost of those trials would be. Until we are positive cash flow, we don't intend to initiate any of those trials. So I think it will be sometime in the first half of 2017 before you see us make a decision.

[Laura Engel:]

Perfect. Okay, well, thank you, and I'll hop back in queue.

[Operator:]

Thank you. The next question is from Sam Lee of Sabre Investment Capital. Please go ahead.

[Sam Lee:]

Thank you. My question is mainly related to the cost structure. Back to the cost structure, we see from Q2 to Q3, my question is actually related to the fact that the trend around [indiscernible] physician outreach versus the actual physical sales team nowadays. So the digital reach has increased or sales reps in general as a trend in the industry, is it possible that the current cost structure is not leveraging that trend at all, or is it something you could do there? And my second is obviously around the upcoming, the proxy vote. What is the purpose behind that increase in capital? Is it needed for the next new trials, or something else that you'd like to share?

[Richard Eiswirth:]

I'm not sure I completely understood the question, but we're very comfortable with the cost structure we have in place right now. In the U.S., we have about 31 sales reps and there are about 2,000 retina specialists that are targets around the country, so we think that's pretty adequate to cover that space. That sales force is fairly consistent with what you see with the other companies that are marketing pharmaceuticals to the retina specialists. So we feel good about that. We don't see a need to significantly increase that cost structure. In fact, you saw a slight bump in the third quarter, which relates to some of the larger meetings of the year. As Dan referenced, the EURETINA conference that was in Copenhagen in Europe, the largest retina conference in Europe, and then the American Academy of Ophthalmology was in October this year, but there was a lot of prep work in the third quarter going to that. We believe that over the course of 2017, we will maintain the cost structure very consistently with what you saw in the first and second quarter of this year. With respect to the proxy that was filed, that was really a housekeeping matter. When we completed the offering of common stock in August of this year, we basically used up all of the available capacity for authorized shares in our Delaware charter, and so the shareholder vote is to basically approve additional shares for availability under that charter. We don't have any plans to issue any of those shares at this point in time, but we also needed to be in a situation where we had flexibility if anything came up, to have shares to issue if they were needed.

[Sam Lee:]

Okay, thanks.

[Operator:]

[Operator Instructions] Thank you. At this time I would like to turn the conference back over to management for any closing remarks.

[Daniel Myers:]

Well, I'd like to thank you for joining us today and your interest in Alimera Sciences. We look forward to updating you at further quarterly earnings calls as we move forward. Thank you for your time today.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.