Alimera Sciences, Inc.
Q1 2014 Earnings Call Transcript

Published: 9 May 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Alimera Sciences, First Quarter 2015 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. At this time I would like to hand the conference over to Mr. Rick Eiswirth, Chief Financial Officer and Chief Operating Officer. Sir, you may begin.

[Rick Eiswirth:]

Thank you. Good afternoon, everyone, and welcome to the Alimera Sciences conference call to update you on our progress with ILUVIEN, our sustained-release intravitreal implant for diabetic macular edema or DME, and to review our first quarter 2015 financial results. A press release regarding these results was issued this afternoon and is available on our website. On the call with me today is Dan Myers, our President and Chief Executive Officer. Before we begin our prepared remarks, I would like to remind you that various statements we make during this call about the company's future results of operations and financial position, business strategy, and plans and objectives for Alimera’s future operations are considered forward-looking statements within the meaning of the federal securities laws. Our forward-looking statements are based upon current expectations that involve risks, changes in circumstances, assumptions and uncertainties. These risks are described in the Risk Factors and Management’s Discussion and Analysis of Financial Conditions and Results of Operations sections of Alimera's Quarterly Report on Form 10-Q for the fiscal year ended December 31, 2014, which is on file with the SEC and available on the SEC's and Alimera's websites. We encourage all investors to read these reports and our other SEC filings. All of the information we provide on this conference call is provided only as of today, and we undertake no obligation to update any forward-looking statements we may make on this call on account of new information, future events, or otherwise. Please be advised that today's call is being recorded and webcast. Additionally, the non-GAAP financial measures of adjusted cost of goods sold, adjusted gross margin, adjusted net loss attributable to common stockholders, adjusted net loss attributable to common stockholders per common share will be discussed on this conference call. A reconciliation of these measures to GAAP can be found in our press release, which is available on the SEC’s and Alimera’s website. Now, I would like to turn the call over to Dan Myers.

[Dan Myers:]

Thanks, Rick. And thanks everyone for joining our first quarter 2015 conference call. With the recent launch of ILUVIEN in the U.S. market as well as our expansion in Europe, this is an exciting time to provide you with a comprehensive business overview. After my comments I will pass the call back over to Rick who will discuss in more detail our financial and operational results. We’ll then open up the call for questions. This is our first call with reportable U.S. revenue and I’m pleased to report that we achieved solid results for their entry into the U.S. Overall we had a strong start to 2015 across the company with first quarter total sales of $3.9 million an increase of 86% compared to the same period a year ago. Obviously launching ILUVIEN commercially in the U.S. was a tremendous milestone for Alimera and we’re excited about the potential going forward. Our U.S. sales, reimbursement and medical teams began calling on accounts in February. As a result of the field teams efforts we recognized $2.4 million in U.S. sales in the quarter while those sales numbers include some inventory build for especially distributors the majority of units were sold further downstream to end users. Now one month into the second quarter, that inventory has turned over due to demand from physicians more than doubling from March to April. Awareness of ILUVIEN in the market place continues to grow and our presence in the general media and ophthalmology press has been significant. Physicians are writing about ILUVIEN in the ophthalmology journals and we are seeing more local network news coverage on the uniqueness of ILUVIEN for our patients suffering from the debilitating effects of diabetic macular edema. Earlier doctors in the U.S. are already seeing the clinical benefits that ILUVIEN has demonstrated in Europe. Just this week at the Association for Research in Vision and Ophthalmology meeting both U.S. and European physicians presented cases on the clinical efficacy of ILUVIEN in commercial settings to their colleagues that were equal to or better than what we saw in our clinical trials. These cases highlight the role that a low-dose continuous delivery steroid can bring to the market and we hope to build on this foundation to support our continued growth in the DME market. We believe an early indicator physician interest in making ILUVIEN part of a DME treatment paradigm as physician enrolment in our excess plus program would provide reimbursement support to the retina practice. We have seen significant growth in the number of physicians who have enrolled themselves in the program with approximately 650 patients enrolled today compared to the 270 enrolled physicians when we last spoke in March. This represents about 35% of the total registered retinal physicians in the U.S. Further, we believe a leading indicators availability of patients and physician usage is the initiation of benefit investigations by physician practises. An integral component of the buy and build process is to engage with carriers in advance to learn if a patient is eligible for coverage. Our access plus program provides the physician practise with essential resources to do this. Although eligibility does not guarantee payment to a practise because paper work has to be filled out correctly and timely, it does mean that the physician has identified a specific patient that is a viable candidate for ILUVIEN. We have seen significant growth in patients enrolled in our AccessPlus program. 102 benefit investigations were completed during the four weeks ended April 03rd increasing to a 165 new investigations during the four weeks ended May 01. And for the year, 395 benefit investigations have been completed with coverage available in 98% of the cases. This coverage is a result of the broad acceptance ILUVIEN has received from commercial carriers with posted policies being positive in support of ILUVIEN usage. We have on label coverage in 85% of the top 40 commercial insurance accounts representing 154 million insured lives. Our reimbursement team has been doing an outstanding job communicating clinical economic benefit of ILUVIEN to payers. Despite these early signs of success however we do expect to see some hurdles with the early adoption of ILUVIEN over these initial months of launch. Understanding the launch and uptake of a retinal product is not a simple task and I’d like to take a few moments to provide some perspective. As you may recall, physicians are mostly purchasing ILUVIEN on a buy and build basis, essentially this means the physician is paying for ILUVIEN and then seeking reimbursement from either the centers for Medicare and Medicaid services or the commercial payers. This process of receiving payment can be slow and represents a risk to the practise. This is not an issue of coverage because I explained earlier this looks very good for us, instead it’s an issue of inconsistent processing of claims by both physician practises and the carriers. These processing issues are caused by ILUVIEN not currently having J-code which then candidly [ph] to a to a protracted adjudication process. Currently, practices have limited visibility to payments of their claims or their colleagues and further with an $8800 price tag and this payment is substancial. The comfort level of practises would be higher if ILUVIEN already had a J-code but as the process work we will not have our J-code until January of 2016. The use of an unclassified J-code in this call wait and see approach by our customers is not unusual. Despite this issue we are seeing the early success noted above and practises are eager to note who has been paid and by which insurance carriers to alleviate their reimbursement concerns so they can focus on the benefits of using ILUVIEN for their patients. Both clinical efficacy and reimbursement are critical hurdles, we need to clear for the retinal community to fully embrace ILUVIEN but I feel confident in our ability to do so. Each day, new physicians who understand the need for ILUVIEN in their patient population are trying ILUVIEN and testing the sometimes turbulent waters of reimbursement. I’d like to now turn our European, turn down to our European business and share some key highlights. In the United Kingdom we’ve seen significant growth over the year ago quarter with our injection rate more than doubling in comparison. In fact, each month has doubled from its respective month a year ago. Our U.K. team has been able to generate expanding interest in ILUVIEN through further education on ILUVIEN’s role and the treatment paradigm by directly building center specific treatment pathways with the clinical teams. This activity clearly identifies the place for ILUVIEN in the management of patients who are insufficiently responsive to other available therapies consistent with our European label. In a number of key centers we have worked directly to support audits to identify potential patients and ensure assessment for ILUVIEN. The focus is clearly on those patients who are pseudophakic, in line with their restricted national institute of clinical excellence recommendation. As a result of this added clarity we are seeing strong growth in the use of ILUVIEN, together with a publication of an increasing number of case series confirming ILUVIEN’s impact on patient’s lives. We ended the first quarter achieving our highest monthly sales volumes in March in the U.K. we now have a good start in to the second quarter. We are also very pleased to announce the launch of ILUVIEN in Portugal in the first quarter of this month with month-over-month growth of sales albeit at limited number of units. Although we have a national price agreement in Portugal, a gaining factor and adoption is placement on hospital formularies which typically requires negotiation of a discount at hospital level. This is a tedious and bureaucratic process..

[Rick Eiswirth:]

This is a tedious and bureaucratic process and is delayed by a local controversy surrounding the hepatitis C drug's Sovaldi. This high-priced drug affected us as well as other pharma companies, causing negotiation delays. We were able to secure placement in two public hospitals early in the second quarter leaving the April sales that equalled the cumulative total in Portugal for the first quarter. Over the remainder of 2015, we are targeting the implementation of ILUVIEN in a total of 26 hospitals in Portugal. In Germany our sales in the first quarter remained flat but with a small, but consistent base of users. We remain enthusiastic about the market opportunity but have to consider 2015 a relaunch for ILUVIEN in Germany. So it could be safe to say that over the last two years we were not successful engaging with key opinion leaders to advocate ILUVIEN usage in Germany. In March, at the Ophthalmologists' Academy of Germany meeting in Dusseldorf, our new German team hosted an advisory board dinner with some carefully chosen German key opinion leaders, along with Dan and myself in attendance. The goal is to guide our feedback on the image of ILUVIEN in the market place, identify hurdles to adoption and to have them provide us with their thoughts on what actions we should take in light of the changing market access environment. The German team continues to regularly engage with these physicians in the field to build a stronger network of educated and supportive key opinion leaders and their insight have formed the basis of our funds. As the first quarter came to end, we refocused our resources on three key areas, namely gaining inclusion of ILUVIEN in the reimbursement contracts, broadening the base of the experience through a short term period of sampling and addressing the commercial attractiveness of ILUVIEN through other in territorial [ph] products, both in the hospital and for office space to ophthalmologists. In all three areas we are making progress and look forward to updating you at the end of the second quarter. Separately, we recently received marketing approval in Poland making it the 17th European country that we received approval in and completed their secondary filing in Europe; with these approvals we have a large market opportunity internationally to expand our business to provide patients with an effective and long acting treatment for DME. Turning to our financial results for the first quarter of 2015, we see that our net revenue increased $1.8 million, or 86%, to $3.9 million compared to $2.1 in the prior year period. The increase is primarily attributable to the U.S. sales of $2.4 million in the quarter following the U.S. launch, offset by a decrease in German sales. Cost of goods sold decreased by approximately $280,000, or 50%, to $280,000 for the first quarter of 2015, compared to $560,000 in the first quarter of 2014. This increase was primarily attributable to inventory reserves taken in the first quarter of 2014 associated with lower than expected sales in Germany, offset by an increase in cost of goods sold in the first quarter of 2015 primarily associated with the initial sales in the U.S. For the first quarter of 2015, research and development expenses increased by approximately 18%, to $3.3 million, compared to $2.8 million in the prior year period. The increase was primarily attributable to increases in personnel cost relating to an U.S. medical science liaison team hired following FDA approval of ILUVIEN in the fourth quarter in addition to scientific study cost for both our ongoing open label registry study in EU and a chart review study based in the U.S. and they help physicians understand the appropriate time to prescribe their patients ILUVIEN. General and administrative expenses in the first quarter of 2015 increased approximately 24% to $3.6 million compared to $2.9 million in the prior year period. This increase was primarily attributable to an increase in headcount as well as fees related to an audit of our internal controls over financial reporting that occurred during the three months ended March 31, 2015. For the first quarter of 2015, sales and marketing expenses increased approximately 115% to $7.1 million compared to $3.3 million in the prior year period. This increase in sales and marketing expenses was primarily attributable to personnel, promotional and reimbursement activity associated with the U.S. launch of ILUVIEN. GAAP net loss applicable to common stockholders for the first quarter of 2015 was $9.8 million, or $0.22 per share, compared with a GAAP net loss attributable to common stockholders of $20.8 million, or $0.58 per share, for the first quarter of 2014. GAAP net loss attributable to common stockholders for the quarters ended March 31, 2015 and 2014 was affected by certain non-cash items, including changes in the fair value of a derivative warrant liability, unrealized foreign currency gains and losses, and reserves for potential inventory expiration. Excluding the non-cash items and certain items that are expected to be non-recurring in nature, non-GAAP adjusted net loss attributable to common stockholders was approximately $12.2 million for the quarter ended March 31, 2015, compared to a non-GAAP adjusted net loss attributable to common stockholders of approximately $7.1 million for the quarter ended March 31, 2014. Non-GAAP adjusted net loss per share for the quarters ended March 31, 2015 and 2014 was $0.27 and $0.20 per share, respectively. GAAP net loss per share and non-GAAP adjusted net loss per share for the quarter ended March 31, 2015 was based on 44.4 million weighted average shares outstanding. GAAP net loss per share and non-GAAP adjusted net loss per share for the quarter ended March 31, 2014 was based on 35.9 million weighted average shares outstanding. As of March 31, 2015, Alimera had cash and cash equivalents of approximately $61.3 million, compared to approximately $76.7 million as of December 31, 2014. Our cash burn of approximately $15.4 million for the quarter was impacted by a significant increase and accounts receivables in the U.S. due to the extended terms provided to our distributors and further downstream to the end customers as well as the $2 million milestone paid related to the ILUVIEN approval by the U.S. FDA. With that, I will turn the call back over to Dan for closing comments.

[Dan Myers:]

Actually we’ll take questions at this point, again I apologize I’ve fought a cold for three days now. Thank you Rick for covering my other comments. So operator, now we’ll open up for questions. Operator [Operator Instructions] Our first question comes from Caroline Corner from Cantor Fitzgerald. Your line is open, please go ahead.

[Caroline Corner:]

Hi guys, congratulations on the progress especially in light of the payer challenges and your J-code, all good news. First question, just to potentially ask you to repeat something. You said there were 102 different conversations in the four weeks ending April 3, and 165 in the four weeks ending May 1. Those were physicians reaching out to payers? I'm sorry, I missed that.

[Dan Myers:]

No those are, so Caroline what those are, those are benefit investigations. So, through AccessPlus hotline, when a physician identifies a potential candidate for ILUVIEN they will use our AccessPlus hotline to help us do an investigation of what benefits or what insurance coverage that patient has available. And so a 102 of those were initiated in the four weeks ended April 03 and then a 165 in the four week period ending May 03. So you can see an increase, well we believe that’s an indicator, it’s not absolute because sometimes a doctor doesn’t necessarily complete that or sometimes an investigation is done outside of our system but that’s an indicator that a physician is identifying a specific candidate for ILUVIEN where they would use it. And typically that would lead to a sale.

[Caroline Corner:]

Got it. And then the J-code is going to be effective January 2016? That's already applied for ducks are in a row, etcetera?

[Dan Myers:]

That’s correct. That should be in place January 01, 2016.

[Caroline Corner:]

Okay. Great. And then when your sales force is out there communicating with smaller practices -- ones that can't as easily eat the $8,800 price tag for a long time period are you getting any feedback from doctors saying they are going to wait for that J-code? Is there a bolus of smaller doctors that we would expect once the J-code is in place that would be more likely to try, then?

[Rick Eiswirth:]

Yes, so I think there are three different things to consider in that discussion. I think, first of all you certainly will have some physicians that will just wait to get a J-code next year because there are some alternative products available to them. I think others as we addressed in the conversation will work more of a wait and see attitude and what they are waiting for is to see that some of their colleagues maybe in a larger practise that those the reimbursement payments are coming through. As Dan alluded to in the comments you know we have seen some Medicare claims being paid already and some under managed care organisations, but we are still early. I mean if you think even our earlier sales some of those haven’t been outstanding more than 90 days and we sort of plan for about 120 days adjudication process the way we set up the terms of the doctors. So, think over the course of the second quarter, we will see more of our end customers getting paid and then some of that word will spread and influence practises that maybe on the fence and then the other option that some of these smaller practises have is the availability of the user especially pharmacy. When they go to the AccessPlus hotline, if they don’t want to do the buy and build model and take the risk themselves, they can work through a speciality pharmacy so in effect they would write a prescription and that prescription will be filled and then the pharmacy would deal with that risk, but those pharmacies typically work very closely with the managed care organizations and they could be assured of payments.

[Caroline Corner:]

Okay. And in the U.S. market are you seeing any evidence with Regeneron out there, and they have Eylea for DME as well, they said on their call today that they are trying to increase DME awareness and just let these patients know that there are options for treatment. Are you seeing any effect there positively for your product just that patients are actually seeking solutions rather than just suffering through?

[Dan Myers:]

Caroline, I’ll try to take on myself. And again, I appreciate Rick covering most of this for us. We actually had some meetings at the ARVO meeting that I referenced in my comments and we discuss that with some of the members of our scientific advisory board as well as others on the outcome [ph] and we continue to hear that DME represents about 40% of their practise. So it’s a significant number, I am aware of the comments that you heard and certainly I can’t opine on those but we don’t at this point have any concern that certainly in the early launch when you are trying to identify the patients that the patient population issue will be an impediment to our numbers in the first year or so. I think there is a significant number of patients and doctors are beginning to realize don’t respond to anti-VEGF therapy in the DME area as they did in wet AMD. And so while in general that may be a statement about DME I think for the patients we will see early one as patients of ILUVIEN, that’s not a concern I have.

[Caroline Corner:]

Okay. Very good. And Portugal, you said that it’s been a gating factor has been hospital formularies but you are in two hospitals now. Your April sales were equivalent to first-quarter sales in Portugal. Did you also say that 26 hospitals is the goal market?

[Dan Myers:]

That’s correct, that’s correct. There is about 26 of the more significant hospitals in Portugal that we would expect to and are targeting maybe to get on their formula in between now and the end of the year.

[Caroline Corner:]

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

[Operator:]

[Operator Instructions] The next question comes from Jim Maloy [ph] from [Indiscernible]. Your line is open please go ahead.

[Unidentified Analyst:]

Hi, this is actually Frank Breeze [ph] on for Jim. Thanks for taking the question. I was just wondering are there any -- from the U.S. launch any anecdotal stories that you guys have been hearing?

[Dan Myers:]

Frank, could you elaborate a little more on the question.

[Unidentified Analyst:]

Just basically anything -- basically how is the three years resonating so far versus the three months? Any feedback from stories of maybe from patients that are actually benefiting?

[Dan Myers:]

Well I think as I said in my comments, you know we’ve had I think for ophthalmology especially an unusually high amount of just general media coverage because you know diabetes resonates with the entire U.S. population most people either have someone or know someone with diabetes. And so I think we’ve seen a lot of general media coverage around the uniqueness of the three year therapy. So I think you know from a or maybe disconnecting the patient perspective we have seen quite a bit of interest around a three year therapy, because clearly if a patient has a choice between getting a needle stuck in their eye every month or even every three months versus once every three years, I think that’s a pretty obvious answer what the patient would prefer. So in general we are of course getting a lot of anecdotal response from patients and chat lines that you know three years is a welcome opportunity for patient to be treated for DME. I think the flipside when you talk about versus three months, I think that leads you more to the position perspective and trying to understand more the management of potentially and we know in the fame trial it was about 38% of patients that might have some elevated intraocular pressure and so the three years is appealing to the doctor with sort of the understanding or the assurance that the IOP if it were to happen could be manageable. But then again our label sort of addresses that, because obviously our label states that a patient would have had a prior course of corticosteroids and not exhibited a significant rise in intraocular pressure. So I think that the debate around the three months is not so much about the efficacy because I think it’s a very winnable message to deliver that if I could deliver three years of efficacy versus three months, well that’s kind of a brand or discussion. The question is, is a drug that’s three months likely to give the doctor perhaps a diagnostic if I could on whether that patient would have an IOP response before I put in ILUVIEN. So I think it depends on which side of the fence you are looking at, certainly from the patient side, there is tremendous excitement about the three year implant. And we hear that from the physician side I think there is a cautious excitement about it, as long as I know with injection of a shorter term steroid I can mitigate the potential for IOP a rise in the management of IOP.

[Unidentified Analyst:]

Great. Thanks. Makes sense. And just one more -- remember on the Analyst Day on March 25, docs had mentioned potentially using ILUVIEN with anti-VEGF. I was just wondering if that had happened, or is there potential for that, or if anti-VEGFs don't work, then you go for ILUVIEN?

[Dan Myers:]

Well I think you know certainly it’s kind of early, so I think the jury is out on that and there will be more case studies coming out. I know you are referencing a case study that was presented at that Analyst Day from one of our doctors. I did not see specifically at ARVO in the other case studies in that regard, but I do think you are going to see more and more doctor’s report on that and I think its just time will tell. We don’t have any data on that at the time, but I think it will be interesting to see if we’ll see case studies in the future about the effect of concomitant there between anti-VEGF and ILUVIEN. But it’s still early for that.

[Unidentified Analyst:]

Great. Thank you very much.

[Operator:]

Thank you. [Operator Instructions] I’m showing no one in queue at this time. I would like to hand the conference back over to Mr. Dan Meyers.

[Dan Myers:]

Thank you. While my comments were focussed on the critical aspect of reimbursement we remain optimistic as this hurdle is simply a function of time. More importantly our case studies from Europe and the initial impressions from the U.S. physicians give us confidence that there is a significant patient population that will benefit from long term therapy such as ILUVIEN. I look forward to addressing these issues with you and giving you an update at our next quarterly update and I thank you again for joining the call today.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This concludes our program. You may all disconnect.