Alimera Sciences, Inc.
Q2 2014 Earnings Call Transcript

Published: 8 Aug 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Alimera Sciences Second Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Mr. Rick Eiswirth. Mr. Eiswirth, please begin.

[Richard S. 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 chronic diabetic macular edema, or chronic DME, and to review our second quarter 2014 results 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 annual report on Form 10-K for the fiscal year ended December 31, 2013, which is on file with the SEC and available on the SEC's and Alimera's websites. Additional factors may also be set forth in those sections of our Form 10-Q for the quarter ended June 30, 2014, to be filed with the SEC in the third quarter of 2014. We encourage all investors to read these reports and our other SEC filings. All 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, and 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 and Alimera's websites. Now I would like to turn the call over to Dan Myers. Dan?

[Charles Daniel Myers:]

Thanks, Rick. We're pleased with the commercial progress in our European business in the second quarter. Physicians have now injected more patients in a commercial setting than we were treated in our clinical trials, an important milestone in support of the broader adoption of ILUVIEN. Importantly, we have received positive initial feedback from physicians who have injected ILUVIEN, with many physicians reporting improvements in visual acuity or retinal thickness shortly after injection, which is consistent with our clinical trial results. In the United Kingdom, our second quarter revenue was similar to the first quarter revenue, as several hospitals in the U.K. stocked their pharmacies, following the implementation of the NICE decision for the reimbursement of ILUVIEN in the first quarter. With a 25% increase on a sequential quarterly basis in ILUVIEN injections in the second quarter, we are seeing additional trial and retrial. As our operations continue to expand, we expect to experience fluctuation in order patterns. And we believe that the underlying organic growth rate of injections in the U.K. is a good indicator of the effectiveness and demand that we are seeing with ILUVIEN. To date, we've received initial orders from 45% of the hospitals in the U.K., and roughly half of these now have reordered additional units. Although we are pleased with the strong start of the United Kingdom, there remains a significant untapped opportunity, not only to increase usage at existing hospitals as physicians gain experience, but to also enter into new hospitals. For some perspective, the U.K. market for treating DME, unlike the U.S. market, is still in its infancy, with clinics just recently gaining experience with Lucentis for DME and with many hospitals just now establishing their DME service. Until recently, laser photo coagulation was the only reimbursed therapy available in the U.K.'s national health system. Conversely, physicians in the U.S. have been treating DME with approved and off-label pharmaceutical products in addition to laser for several years and have integrated DME with their AMD practices. Recognizing this, our U.K.-focus sales team is working at the account level to support physicians in developing DME services, as well as educating them about the implementation of the NICE recommendations for ILUVIEN and other DME treatments. As we indicated on our first quarter call, we're making several improvements in Germany, as we seek to strengthen our team and continue to position ILUVIEN as the only option indicated for chronic DME patients. During Q2, we hired a country manager with ophthalmic experience, who has initiated the shift from a contract sales force with Quintiles in Germany to a direct sales force. All new hires in Germany are being hired directly by our European subsidiaries, and we expect to complete the transition of the rest of our German team from Quintiles to Alimera by the end of the year. As we initiate this restructuring in the second quarter, we operated with a fractional team in the field. Despite being short staffed, we were able to maintain our existing user base and are reporting flat revenue on a sequential basis from the first quarter of 2014. Our new country manager has recruited a high-caliber sales team, and we will enter September with a complete team that will target key physicians across Germany and drive awareness of ILUVIEN. Regarding further geographic expansion, we are planning to launch ILUVIEN commercially in France and Portugal by the end of the year. In Portugal, where pricing has been established, we have hired a country head and are in the process of building our direct sales team. In France, we are continuing discussions with the pricing and reimbursement authorities and expect to reach agreement during the fourth quarter. As we have previously noted, we will utilize the Quintiles contract sales force, based on each country's specific requirement. Because of the determination of pricing at the national level in both Portugal and France, similar to the provisions of NICE guidance in the U.K, we anticipate our adoption rate in these new markets to be more consistent with what we've seen in the U.K. than in Germany. We intend to leverage our experience with the U.K. in Germany, inclusive of understanding the DME treatment model in each country and the importance of educating the physician community, as we launch ILUVIEN in these 2 additional countries. During the second quarter, we achieved additional significant milestones in other parts of Europe as well. In June of 2014, ILUVIEN received marketing authorization from the Italian Medicines Agency for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies, the same indication as in the rest of Europe. We also received a positive outcome of the Repeat-Use Procedure in 10 additional EU countries in June. As you may recall, last year, we filed with the MHRA of the U.K. as the Reference Member State for these 10 additional European Union country approvals through the Mutual Recognition Procedure. In July, we were pleased to announce that Norway and Denmark were the first 2 countries to grant national marketing authorization. We will continue to work closely with the additional 8 countries during the national phase, as we seek to obtain ILUVIEN marketing authorization in each one over the next few quarters. Lastly, in the U.S., as we discussed on our prior call, the U.S. FDA acknowledged the New Drug Application we submitted in March as a class -- a complete class 2 response. We continue to anticipate a PDUFA date of September 26, 2014, and are encouraged by our opening and ongoing dialogue and interactions with the FDA. In the October 2013 complete response letter, the FDA referenced efficiencies in the methods and controls used for the drug product at our third-party facility where ILUVIEN is manufacture. In July of 2014, our third-party facility received notification that a pre-approval and good manufacturing practice inspection of the facility in connection with the NDA has been completed by the Los Angeles District of the Department of Health and Human Services, and that the LA District has recommended approval of the NDA by the FDA. This is only a recommendation, which the FDA is not obligated to follow. Only the FDA can issue an official approval of the NDA. Further, we believe that the FDA's recent approval of Ozurdex for the treatment of DME in June appears to indicate that the agency is addressing their concerns about side effects associated with corticosteroids for the treatment of DME through labeling. I will now turn the call back over to Rick to discuss our second quarter financials.

[Richard S. Eiswirth:]

Thank you, Dan. Turning to our financial results for the second quarter. Our revenues were essentially flat in a quarter-to-quarter basis, after you factor in a modest exchange rate gain. We generated $2.2 million of revenue from ILUVIEN sales in the second quarter of 2014, compared to $2.1 million in the first quarter of 2014 and $179,000 for the second quarter of 2013. Cost of goods sold for the second quarter of 2014 were $376,000 compared to $11,000 for the second quarter of 2013. GAAP cost of goods sold for the second quarter of 2014 were impacted by a reserve of $207,000 for a potential German inventory expiration later in 2014. This reserve relates to the initial inventory build of German product in late 2012 and early 2013 in advance of the expected launch in Germany, which has not progressed as initially expected. Excluding this reserve, non-GAAP adjusted cost of goods sold for the second quarter was $169,000. Non-GAAP adjusted gross margin was $2 million, or 91%, for the second quarter of 2014 compared to $168,000, or 94%, for the second quarter 2013. For the second quarter of 2014, research and development expenses decreased by approximately 18% to $1.8 million compared to $2.2 million in the prior year period. The decrease is primarily attributable to the completion of the physician utilization study in the fourth quarter of 2013, and costs associated with the April 2013 resubmission of the ILUVIEN NDA, offset by additional personnel hired in the EU following the commercial launch of ILUVIEN in Germany and the United Kingdom. General and administrative expenses in the second quarter of 2014 increased approximately 17% to $2.8 million compared to $2.4 million in the prior year period. The increase is primarily attributable to additional personnel hired following the commercial launch of ILUVIEN in Germany and the U.K. For the second quarter of 2014, sales and marketing expenses decreased approximately 37% to $3.1 million compared to $4.9 million in the prior year quarter. The decrease was primary attributable to decreases of nonrecurring marketing and market access costs incurred during the second quarter of 2013 in connection with the commercial launches in Germany and the United Kingdom, and savings associated with the transition of several management and market access roles in Germany and United Kingdom to Alimera that were previously contracted to Quintiles Commercial in 2013. During the second quarter of 2014, we saw a decrease in the fair value of Alimera's derivative warrant liability, which resulted in noncash income of approximately $8.1 million compared to a noncash expense of approximately $6.7 million for the 3 months ended June 30, 2013. GAAP net income attributable to common shareholders for the second quarter of 2014 was $1.1 million compared with GAAP net loss attributable to common shareholders for the second quarter of 2013 of $21.3 million. For the second quarter of 2014, GAAP basic net income applicable to common shareholders per share was $0.03, which includes the noncash beneficial change in fair value of the derivative warrant liability. On a diluted basis, we had a GAAP loss applicable to common shareholders per share for the second quarter of 2014 of $0.16, which excludes the noncash change in the fair value of the derivative warrant liability, as required by the treasury method. This was due to the fact that the warrants are assumed exercise and the incremental shares are included in the diluted weighted average shares outstanding for the period. We ended the second quarter of 2014 with cash and cash equivalents of $42 million compared to $31.9 million as of June 30, 2013. In April 2014, we entered into a loan agreement with Hercules Technology Capital Growth (sic) [Hercules Technology Growth Capital] -- for a term loan in the principal amount of $35 million. Hercules advanced $10 million to us and will advance the remaining $25 million in the event that the FDA approves ILUVIEN on or before October 31, 2014, and certain other conditions are satisfied. The additional $25 million will be used -- excuse me, the additional $25 million advance will be used to fund the $25 million milestone payment obligation that Alimera will owe in the event that the FDA approved ILUVIEN. We used the proceeds from the initial funding of $10 million under the term loan to refinance our 2013 term loan with Silicon Valley Bank, which resulted in net proceeds of $4.7 million. With that, I will turn the call back to Dan for closing comments.

[Charles Daniel Myers:]

Thanks, Rick. We are excited about the growth opportunities we have ahead of us throughout Europe and, potentially, the United States. As we continue to ramp up our commercial sales in the EU, we are pleased to see that we are addressing the unmet need of treating chronic DME with our 3-year treatment. As we learned in the U.K, before doctors knew the benefits of ILUVIEN, patients were turned away because many doctors did not have any answer or solution for their problem. Today, more patients are gaining treatment, and we will continue to build on this, not only in the U.K. and Germany, but into additional markets in the coming months. Sales trends are continuing in a positive direction, with record sales in July and both unit sales and injections reaching a new monthly high. I'll now turn it back over to the operator for any potential questions.

[Operator:]

[Operator Instructions] I'm showing no questions at this time, and I would like to turn the call back to Mr. Dan Myers for any further remarks.

[Charles Daniel Myers:]

Yes, thank you for listening to today's call. We look forward to updating you on our progress in the coming months. Operator, this concludes our call.

[Operator:]

Ladies and gentlemen, this does conclude today's -- thank you for participating in today's conference. This does conclude the program, and you may, all, disconnect. Everyone, have a great day.