Alimera Sciences, Inc.
Q3 2014 Earnings Call Transcript

Published: 9 Nov 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Alimera Sciences third quarter 2014 earnings conference call. As a reminder, this conference is being recorded. And I would like to introduce your host for today's conference, Mr. Rick Eiswirth, Chief Operating Officer and Chief Financial Officer. Please go ahead.

[Richard 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 third quarter 2014 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, and the quarterly report on Form 10-Q for the quarter ended June 30, 2014, which are on file with the SEC and available on the SEC's and Alimera's websites. Additional factors maybe set forth in those sections of our Form 10-Q for the quarter ended September 30, 2014, to be filed with the SEC in the fourth 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 applicable to common stockholders, and adjusted net loss applicable 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.

[Daniel Myers:]

Thanks, Rick. This has been an extremely exciting quarter for Alimera, not only did we continue to grow our European sales, but we received FDA approval for ILUVIEN in late September. We anticipate being able to launch ILUVIEN in the U.S. during the first quarter of 2015 with a broad label for DME. In this case, our persistence as an organization paid-off, not only for us, but for the U.S. retinal community and patients who seek a long-term treatment option for DME. We found a significant market opportunity entry for ILUVIEN, represented by the 40% to 50% of DME patients, who are refractory to the current standard of care, known as anti-VEGF agents. But additionally, being the only corticosteroid for DME with multi-year delivery from a single injection, ILUVIEN has the potential to penetrate a segment of the other 50% to 60% of the market, due to the corticosteroids uniquely addressing the multi-factorial nature of the disease as well as reduced burden of injections for both patients and physicians. Obviously, corticosteroids are well-known for the side effect of increased intraocular pressure in a portion of patients. Our indication is favorable for U.S. physicians, as it requires them to under go a course of corticosteroid therapy to determine if there is a significant rise in intraocular pressure. As our data showed, 62% of patients had no increase in IOP; and of those who did, the vast majority were controlled by intraocular pressure lowering medications. This is consistent with other corticosteroid trials in DME. The recent availability of OZURDEX in the U.S. market provides an approved ocular steroid for DME that can be used as a diagnostic by physicians to evaluate IOP response and mitigate the side effect with ILUVIEN. ILUVIEN is truly unique to the retinal community and those who suffer from DME, because of the consistent low-dose and long-term durability. We believe that those features along with the benefits of proven, rapid and sustained vision improvement in DME patients has the potential to address unmet needs in U.S. and European market estimated at several billion dollars. I'm very proud of the team here at Alimera, demonstrating that same durability and consistency in pursuing the approval of ILUVIEN in the U.S., and I see the same traits in our European commercial organization as well, as they continue to drive our commercial launches in Germany and U.K. Within two weeks of U.S. approvals, we created a memorable present at the American Academic of Ophthalmology, offering doctors an opportunity to gain training on our 25-gauge applicator, to learn about our upcoming AccessPlus program for reimbursement assistance, and to sign up for our Front Row program, which will provide interested practices with information and services ahead of the anticipated first ship date. I will speak more on our commercial preparation for the U.S. market later. I wish to turn your attention to the commercial progress of our European business during the third quarter. In particular, we continue to increase sales of ILUVIEN in the U.K. during the quarter, with shipments up over 30% from the second quarter. As U.K. physicians continue to gain knowledge of how to identify insufficiently responsive DME patients, and to understand the importance of the multi-factorial treatment for this disease, we have seen broader adoption. The ongoing positive clinical feedback from physicians, after the use of ILUVIEN, continues to be encouraging with visual acuity gains and retinal fitness reduction seen shortly after the injection, consistent with our clinical trial results. Today, we have received initial orders from approximately 50% of our targeted hospitals in the U.K. and roughly 60% of those hospitals have reordered again. As you may recall, clinics in the U.K. have only recently gained experience using injectable treatments for DME, and many hospitals are just beginning to establish a service for this indication. This is starkly different from the U.S. market where both anti-VEGF and corticosteroid therapy have been used off-label for several years. We continue to work hard in the U.K. market to educate and inform hospitals of the availability of ILUVIEN, and its inherent benefits in light of insufficient responses to previous treatments. We are pleased with the growing momentum in sales and significant untapped attention for this DME market. Our U.K. sales and medical team is working hard to increase usage at existing hospitals, while continuing to seek out new accounts. In regard to Germany, I'm pleased to update you that we have hired new clinical account specialists as part of our strategy, to bring our commercial team in-house and improve the interaction with physicians. This new direct sales force is making a concerted effort to educate physicians on the identification of chronic DME patients and the benefits of ILUVIEN in this population. In addition to our efforts in the U.K. and Germany, we plan to launch ILUVIEN in Portugal later this year, leveraging our success in U.K. of educating patients on the DME treatment model and the importance of long-term option for patients. In July of this year, we reached agreement with the marketing authorization body of the Portuguese Ministry of Health for the pricing and reimbursement of ILUVIEN for the public sector in Portugal. We have our sales and medical team in place and we plan to make ILUVIEN commercially available in Portugal in this current quarter. While we had hoped to launch in France later this year, we have not reached an agreement to this point on price with the French pricing authorities. We intend to be persistent in our efforts to obtain a price, reflective of the value of ILUVIEN it will bring and as well as respect the need to maintain a consistent price level across the EU. We are hopeful that we'll reach an agreement with the pricing authorities in the France, but until then we will not have any immediate launch plans there. We achieved additional significant milestones in other parts of Europe as well during the third quarter. You may recall that in September 2013, we submitted an application to the MHRA in the United Kingdom, as a reference member state for 10 additional European Union country approvals to the mutual recognition procedure. In June of 2014, we received a positive outcome from this MRP, and this led to the receipt of marketing authorizations in late July through early September '14 in Norway, Denmark and Sweden. The regulatory process in Ireland, the Netherlands, Belgium, Luxemburg, Finland, Poland and Zech Republic is in a national phase, in which each country grants marketing authorization. We will continue to work closely with these additional countries during the national phase, with a goal of obtaining ILUVIEN marketing authorization in each one of those countries in the next several quarters. Now, back to the U.S. marketing opportunity. There is a higher prevalence of DME in the U.S. and the patient population continues to grow. It is estimated there will be over 575,000 patients with clinically significant DME by the beginning of 2015, when we expect to launch ILUVIEN. It is also important to note that the incidence of new cases of clinically significant macular edema is expected to be in excess of 115,000 new cases next year. While anti-VEGF is the current standard of care for most patients, we believe there is a growing sentiment amongst retinal physicians that DME is not simply an anti-VEGF mediated disease, but when that progresses or shifts over time much the way diabetes does. As it transitions to more of an inflammatory disease with the involvement of additional cytokines, the use of steroids and treatment becomes more important as it progresses. In fact, recent studies indicated that as many as 50% of DME patients are not effectively managed with anti-VEGF therapies. That means that arguably over 285,000 patients will be in need of steroid therapy for their DME next year. In an effort to capitalize on this opportunity, we have worked hard to ramp our sales force in the U.S. In just a few short weeks we have hired our field sales management team with a combined tenure of 100 years experience in ophthalmology; and the majority of our medical affairs team, which includes medical science liaisons and have brought aboard key members of our managed market teams with an objective to complete this round of hiring my mid-November. Internally, we are also rapidly filling up the support physicians needed to ensure execution of launch in the U.S. In fact, a training class of 20 new employees left our facility just hours ago today. As we mentioned during a conference call last month, the U.S. commercial price for ILUVIEN will be between $8,000 and $9,000 per injection, which has been communicated to recent American Academy of Ophthalmology meeting to our future customers. Enthusiasm for ILUVIEN has been high, both from the physicians at the academy meeting as well as the new hires we brought into our organization. Many of these people have been in the retinal industry for years and are anxiously awaiting the opportunity to introduce ILUVIEN to the broader U.S. market next year. Lastly, we are pleased to announce that we recently learned that our licensing partner, pSivida Corporation, has been granted an additional patent licensed to us, covering the formulation of ILUVIEN through August 2027. This is significant, as it more than doubles the length of the patent protection for ILUVIEN. I'll now turn the call back over to Rick Eiswirth to discuss our third quarter financial results.

[Richard Eiswirth:]

Thank you, Dan. Turning to our financial results for the third quarter. We generated $2.4 million of revenue from ILUVIEN sales in the third quarter of 2014 compared to $2.2 million in the second quarter of 2014 and $758,000 for the third quarter of 2013. During the third quarter, sales in the U.K. were up over 30% compared to the second quarter this year. GAAP cost of good sold, excluding depreciation and amortization, increased by approximately $310,000 or 517% to approximately $370,000 for the three months ended September 30, 2014, compared to approximately $60,000 for the three months ended September 30, 2013. The increase was attributable to our increase in net revenue during the three months ended September 30, 2014 and a reserve of $180,000 for potential Germany inventory exploration due to slower than expected initial sales. Excluding this reserve, non-GAAP adjusted cost of good sold was approximately $190,000. Non-GAAP adjusted gross profit was $2.2 million or 92%. Research and development expenses increased by approximately $2.1 million or 117% to $3.9 million for the three months ended September 30, 2014, compared to approximately $1.8 million for the three months ended September 30, 2013. The increase was primarily attributable to a $2 million success fee for a consultant that was engaged to assist with our pursuit of the approval of ILUVIEN in the U.S., which was payable following the FDA approval. General and administrative expenses in the third quarter of 2014 increased by approximately $900,000 or 43% to approximately $3 million compared to $2.1 million in the prior-year period. The increase is primarily attributable to an increase of approximately $780,000 in personnel cost, as we expanded our team after the commercial launch of ILUVIEN in the EU. For the third quarter of 2014, sales and marketing expenses decreased by approximately $800,000 or 18% to approximately $3.7 million compared to $4.5 million in the prior-year quarter. The decrease is primarily attributable to a decrease of $520,000 in cost incurred for market access assistance in the U.K. in 2013, in preparation for the implementation on the NICE guidance for reimbursement. During the third quarter of 2014, we saw a decrease in the fair value of Alimera's derivative warrant liability, which resulted in non-cash income of approximately $2.3 million compared to non-cash income of approximately $6.2 million for the three months ended September 30, 2013. GAAP net loss applicable to common stockholders for the third quarter of 2014 was $7 million compared to GAAP net loss applicable to common stockholders of approximately $1.1 million for the third quarter of 2013. GAAP net loss applicable to common stockholders for the quarters ended September 30, 2014 and 2013 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 the reserves for potential inventory expiration, previously noted. GAAP basic and diluted loss per share for the three months ended September 30, 2014, was $0.17 per share, based on 41.1 million weighted average shares outstanding. GAAP basic and diluted loss per share for the three months ended September 30, 2013, was $0.04 per share based on 31.6 million weighted average shares outstanding. Non-GAAP adjusted net loss applicable to common stockholders for the third quarter of 2014 was approximately $8.9 million compared to non-GAAP adjusted net loss applicable to common stockholders for the third quarter of 2013 of approximately $7.9 million. Non-GAAP adjusted basic loss per share for the three months ended September 30, 2014 and 2013 were $0.22 per share and $0.25 per share, respectively. As of September 30, 2014, Alimera had cash and cash equivalents of $61.4 million compared to $12.6 million at September 30, 2013. In September 2014, Hercules Technology Growth Capital, Inc. made an additional advance of $25 million to us under the $35 million term loan agreement we entered into with Hercules in April 2014. This $25 million was used in October 2014 to satisfy Alimera's milestone payment obligation to pSivida, resulting from the FDA approval of ILUVIEN. With that, I will turn the call back to Dan for closing comments.

[Daniel Myers:]

The third quarter has been transformational for Alimera Sciences, as we received FDA clearance for ILUVIEN, and have quickly brought on experienced managers to execute the anticipated launch during the first quarter of 2015. Our passion for delivering the only multi-year treatment from a single injection to those suffering from DME is growing everyday. Our momentum in the U.K., our commitment to Germany, the excitement of our new team in Portugal and the positive physician feedback we've received on ILUVIEN motivates us to develop U.S. launch that will provide both physicians and patients with a treatment option worth waiting for. At this time, I'll turn it back over to the operator for any potential questions.

[Operator:]

(Operator Instructions) Our first question comes from Boris Peaker with Cowen.

[Boris Peaker:]

I'd just like to start with the IP by your partner. I just want to understand what specifically is novel about that? And also is that going to be listed in the Orange Book?

[Daniel Myers:]

Yes, Boris. We were listed in the Orange Book. The prior longer-life patent that we had that expire in 2020 covered the device itself, so the core and the end-caps of ILUVIEN. This new patent is more specific to the formulation of ILUVIEN inside that device.

[Boris Peaker:]

My next question in terms of payers, now that you've announced the price or imagine we had some discussion with payers, I'm just curious what the feedback from that has been?

[Richard Eiswirth:]

Well, we're just starting those discussions. Some of the people that were in-house today were the payer directors, who will be out in the field and starting those conversations over the next couple of weeks. We have had done some advisory boards and done some research with the payers. The general sense that we heard is that as long as the product is priced below $10,000, it's not going to get great scrutiny, because although the DME market is a very large market, it is a small portion of the budget of these large commercial payers for the Medicare budget, so we don't expect it to get much scrutiny. That could change in the future, based on utilization, but that will be a good problem for us to have it that time.

[Boris Peaker:]

And my last question, I guess also part of our your outreach with physicians, I'm sure that you're doing that right now, I'm just curious, what is the most common pushback that you get on ILUVIEN?

[Daniel Myers:]

Well, certainly from just the product characteristics, as I said in my earlier comments, the efficacy is really a debate or is really a question, does ILUVIEN work? It's more to the degree that the management of IOP will be an issue. And clearly as we say, we're continuing to educate and work on management of IOP versus the incident rate. And as I went through my numbers earlier, 62% of patients in our trial never experienced any IOP rise, and then there was another group of the patients within the IOP rise that were easily manageable. So I think the number of patients that would be significant management of IOP in commercial practice is going to be a modest number. But as I've said earlier, we now have some steroids that are approved in DME that you can actually use to mitigate that risk. So it begs the question then, once you get comfortable with managing IOP, which will certainly be one of our top priorities in 2015 to educate retinal physicians with how to do that and using the glaucoma community as well. And that's a lot of work we've done with glaucoma KOLs to help educate the retinal physicians. The trade-off being certainly worth it at managing IOP versus losing visual acuity is easy and benefit to risk and most patients would probably accept. And we believe the retinal community would accept. When you get past that point, I think the biggest debate becomes when I do opt into steroid therapy? If we believe that 50% of patients are not going to adequately respond to anti-VEGF therapy and we get more and more confirmation of that with every AdCom or every physician interaction that we have, that how long does one go with anti-VEGF therapy and put the patients through these monthly or bimonthly injections, before they can see that this patient might be better on a steroids, specifically ILUVIEN. And that number varies quite frankly right now between three injections to six, depending on how conservative or aggressive the retinal physician happens to be and how comfortable they are with steroids. Clearly, we want to continue to manage the expectations such that we think the data suggests, if you've used anti-VEGF product for three consecutive injections and you're not getting an adequate response, so that's highly likely you're never going to get an adequate response. And so I think that will again be a big point for us to debate and discuss, and hopefully influence in 2015 of just how many injections does one use, before they move to ILUVIEN. We would maintain this closer to three, some maybe a little more conservative to that.

[Operator:]

Our next question comes from Suraj Kalia with Northland Securities.

[Suraj Kalia:]

Dan and Rick, first and foremost congratulations again on ILUVIEN approval, it's been a long and arduous journey. So, you guys deserve it. Dan, let me start out with you, if I look in the press release and I think so in your commentary also you talked about 50-reps in the field, if I remember correctly, three years ago, you were talking about 29. Can you give us some color on the delta and what you have observed in the field that tells you I need more feet on the ground now?

[Daniel Myers:]

Right. Actually, we might have just miscommunicated that. The actual number, Suraj, hasn't changed that much, when we put 50 people that would be the total commercial organization needed to market that product in the U.S. So that would include some back office support as well as sales operation, sales training, field management, MSLs, et cetera. So that's the entire organization. When you get down to actually, as you said, feet on the street, those people actually calling on the doctor from the sales force, we've actually have had a bit of delta, but its only for 29, as I said, three years go to 32. So the correct number now is 32 sales reps. They'll report into four regional sales directors, who we as I said in my earlier comments, we've already identified and are in the process recruiting these 32. So the movement of 29 to 32, it just reflects a little bit of growth in the number of retinal physicians that are out there in the call points. We still think with 32 we can adequately cover, and I think you still makes there is some very efficient marketing opportunity as far as related to cost associated with the revenue.

[Suraj Kalia:]

And, Dan, post-FDA approval, how have the interactions in Europe, specifically Germany, U.K. been influenced? Now that you'll have FDA approval and the label is broader, are you all seeing any collateral benefits of the FDA approval?

[Daniel Myers:]

We haven't yet, Suraj. And that's a great question, because I think the day we got the approval with the broader label, there was quite a bit of excitement for my employees over in the European countries, because I think they do feel like there will be some effect in a positive way for the broader label. Now, it maybe earlier, it will be more with the retinal community, then it might be with the regulatory authorities, because we do think this provides us an opportunity over the long-term to potentially go back, but that will be more of a long-term view of going to back to some of the regulatory authorities and try to broadened the label with this indication, and also with the knowledge we now have of ILUVIEN the commercial setting, because we're gaining lot more knowledge of ILUVIEN and the managing of IOP and the side-effect, et cetera, in a real life experience. I think the early influence you're going to see is more with the retinal community as they began to try to understand this whole concept in Europe of where to place ILUVIEN vis-à-vis the labeling of insufficiently responsive patients. It's sort of back to my comment with Boris a moment ago, I think the more they see in Europe, may I say, kind of more the aggressive approach in the U.S. of going to ILUVIEN after as little as, three anti-VEGF, perhaps six. So that will influence where we see doctors in Germany, Portugal and the U.K. deciding to use ILUVIEN. So my initial hope is simply that we would see the FDA approval and the broader indication move ILUVIEN up at least in the treatment paradigm, as it relates where a doctor would use ILUVIEN. Again, knowing that they have to come to a place where they believe in Europe that they've had insufficiently response to available therapies. That's always been a very nebulous phrase, hopefully that will become more clear as we have more uses in the U.S. around the broader label.

[Suraj Kalia:]

Again, Dan, as you guys, and I'm norm just looking out forward two, three quarters down the line, once your people are on the ground, and assuming they're experienced enough and they hit the ground running, how do you all expect to position ILUVIEN as first-line therapy or second-line therapy, given the label, I know that's freedom on both, but what do you think as the low-hanging fruit and how do you expect to go about it?

[Daniel Myers:]

Well, certainly the low-hanging fruit immediately is the bolus of patients that are MSLs and are sales representatives early on can help identify that have been previous steroid therapy, which of course, there are patients out there who've had prior steroid therapy and doctors know that they haven't had any intraocular pressure rise, it kind of makes it a no-brainer to move to a longer-term steroid treatment. Then from there, I think you'd move to patients who have been refractory to anti-VEGF therapy and have already had multiple injections. The caregiver or the patient, are little fatigue by the fact that they haven't had that kind of response that they would hope. And as we've said, we think there's many as 40% to 50% of patients who could fall into that category, and the opportunity to have one injection over a longer period of time becomes appealing to them. To answer your question about first or second-line therapy, clearly the indication provides for ILUVIEN to be used at any stage, first or second-line based on the judgment of the retinal physician. I think practically speaking, and I think to keep our credibility as an organization and our sales reps credibility in front of the doctor, most would agree still that for the short-term or the near-future clearly anti-VEGF agents are going to continue to be standard of care, and for the most part they would continue to be first-line therapy, until the doctors again become comfortable enough managing the IOP. And I think further into late 2015, maybe 2016, it does start to beg the question, if you have experienced now at ILUVIEN and you are comfortable that; a, incident of IOP rises lower perhaps in the commercial setting that we saw in the clinic and only time is going to tell us that and you gain comfort in managing what IOP rises we do see, well, then I do you think it becomes an interesting discussion to have of would a patient be a viable candidate for ILUVIEN first-line. But I think early on, you will see us positioning ILUVIEN as a sequential therapy after anti-VEGF therapy.

[Suraj Kalia:]

Last two questions, one for Dan and one for Rick and I'll hop back in queue. Dan, my apologies, I was hopping in between calls. And if you gave some color on France, reimbursement in Germany, a case-by-case how things are shaping up there from a payment perspective? And Rick, specifically for you, any color, and I'm not asking for guidance, just directionally an OpEx for FY '15 would be great.

[Daniel Myers:]

So as I said, in the comments about France, honestly we've been a bit disappointed. I think those who've been on earlier calls know that we had anticipated launching ILUVIEN in France last month. We have had some very positive meetings with the CEPS group in France in June. We thought we had made some progress in coming to a potential agreement on a public price that as I said early would reflect a value of ILUVIEN and protect the pricing that we now have in the U.K., Germany and Portugal. Just to remind everyone, we have a public price of £5,500 in the U.K. and approximately €7,900 in Germany, which was agreed to also in Portugal. So we thought that Germany became a good reference point for Portugal and the Portuguese authorities agreed with that. And so we are very adamant about launching in countries where we can protect that price and we can realize the value. That doesn't mean certainly that we are not going to launch in France, it means that we continue to have negotiations with them. And quite frankly, we just haven't come to the place where we've agreed to a price that we think justifies launching the product and having any risk of diminishing the pricing in other countries due to a lower price that we think is fair. Back to Germany, we have as I said in the last couple of conference calls, we converted from a Quintiles contract sales organization to a direct organization, because we just felt like the talent and the availability of a country manager at the level we wanted and sales representatives at level we wanted, the opportunity was just better when we can hire them directly into Alimera. We found some resistance in Germany from high-talented individuals that would not want to work for a contract organization. And that seemed to be somewhat unique to the German marketing culture, and we just had to adapt to that. I continue to press the German organization to become, what I call, a high-touch organization, which I very much think we've become in the U.K. and I'm absolutely certain we will be in the U.S. We have an intimacy with the doctors in the U.S. and the U.K. that I think makes it very efficient for us to go into a doctors' office and able to have genuine discussions about where to use ILUVIEN and where the appropriate side effect profile management falls. In Germany, quite frankly, we still have been introducing Alimera as a company. As you know, we did not have a lot of KOLs there, because we didn't have a lot of onsite investigators there. And the level of our sales representatives they just have not being able to give us that same sort of interaction with the German doctors. I think we've now gotten over that hurdle. That does take a little time to develop these relationships, but every time I go over there I'm more encouraged at conferences and some of the conventions that I've attended to see the interaction of the German physicians with our sales people the boost and so forth. So I think we're gaining on it. It's painfully slow. I think we would all agree that we not have the uptick there we would have like to see, but I think we put the corrective actions in place and are going to see that start to move for us in 2015. Rick, I'll turn the other question over to you that Suraj had asked.

[Richard Eiswirth:]

Yes. Suraj, you had asked about incremental expenses in the U.S. I believe, and consistent with what we've said before, we expect the incremental cost of the commercial launch in the U.S. to be about $30 million on an annual basis to account for the sales force incremental marketing dollars, back-office support, et cetera.

[Operator:]

Our next question comes from Caroline Corner with Cantor Fitzgerald.

[Caroline Corner:]

I just had a question and follow-up, I'm talking about the refractory patients, the patients refractory to the anti-VEGF. Regeneron reported earlier this week and they tempered their EYLEA projections a little bit. A lot of that was based on, according to them, their DME experience so far. They said that, compared with wet AMD they're seeing, less urgency to treat DME, and that lasers are heavily entrenched as well. And they also mentioned that anti-VEGF DME market is not developed. It seems to me that some of your experience in the U.K. kind of lies in the face of that. I was just wondering if you could comment a little bit on that and essentially how your sales reps are going to get around some of those challenges.

[Daniel Myers:]

I guess, I would tend to agree with the general comment that you referenced that, if one looks at wet AMD in contrast to DME, whether there is a sense of urgency in getting the patients in to treat. I would say overall that's probably a true statement, that wet AMD is a very aggressive disease and diagnosing that patient and getting to therapy as quickly as possible to preserve his visual acuity as best possible is probably a higher profile quite frankly than DME. I would counter that a bit with our view that DME patients or diabetics, in general, I should say, are very much more attuned to their disease. Diagnosing the DME patient, knowing that they are predisposed to visual disturbance or visual loss is much higher in the DME or the diabetic population than it is into the general aging population where understanding what the progression at wet AMD is not always something that those patients are aware of. I know, when I was at Novartis, and we were launching Visudyne, one of the great challenges was awareness for AMD patients. And so that I think drives a bit of this sense or emergency. I don't think that though diminishes the value of our product ILUVIEN where if you do treat the DME patient, you have that patient with a low dose steroid, you can begin to maintain that, and I think that long-term chronic-type disease, which certainly DME is versus a more aggressive or acute disease wet AMD plays very well to a long-term chronic steroid like ILUVIEN. So I think we aligned very well with DME. But I do agree back to that sort of intimacy I talked about of having sales people who can go into the doctors office, work with the technicians, helping them identify these diabetic patients who probably do need to come back in and understand if they're candidate for ILUVIEN will be a key point of our training and our execution next year.

[Caroline Corner:]

And then, they had also mentioned having challenges around the private payers, given that DME patients, most of them are not on Medicare. You did mention in comments that in Medicare, it's offset, but can you talk a little bit about where you are with private payers right now?

[Daniel Myers:]

Rick, maybe you should break out in order just to break that into different categories.

[Richard Eiswirth:]

Yes. We think about 45% of these patients will be Medicare patients, and another 45% will be commercial payers, and then the other 10% will fall into Medicaid and DOD, et cetera. Our discussion with the private payers to date indicates that in the vast majority of those payers, they will pay based on usage on the FDA level initially out of the gate, because of the severity of the disease. And I think that's the case for about 90% of them. Those with the smaller budgets may scrutinize the utilization of ILUVIEN more out of the gate, because of the size of the price tag and the impact on those budgets. But as I said before, I think the larger ones are not going to play significant hurdles in front of us, because DME itself is not such a huge component of their budget. And I think the other thing that's a benefit to us is price between $8,000 to $9,000 in just about any comparison to another available therapy out there. Over the course of three years, ILUVIEN will provide a significant economic benefit to the payer, whether it'd be Medicare or a commercial payer.

[Caroline Corner:]

And then my last question, looking at R&D line, Rick, if you could comment on where you think that line might go over the next couple of years and then specifically what's next in R&D pipeline that we should be excited about?

[Richard Eiswirth:]

From a cost standpoint, absent the $2 million that we recorded for the success fee to be payable to our consultant, I would expect that to increase in 30% to 40% next year, as we bring on some of the medical supports staff, medical science liaisons warranty that section of the P&L, so we'll see some increase for that. And we don't have any large trials planned at this point in time, but there will be some Phase IV studies done with some submissions or investigator-sponsored studies, but I think they'll be taking into account that 30% to 40% increase I'm projecting.

[Operator:]

And we have a follow-up question from Boris Peaker with Cowen.

[Boris Peaker:]

I just had a general question kind of thought in the response to what you mentioned earlier and that is, in terms of physicians deciding when to stop treatment with VEGF and perhaps with anti-VEGF and perhaps consider steroid, I mean now with their two brand steroids approved, do you think that there's going to be new guidelines or are you working with any organization that would come up with guidelines? What's your thought process on kind of institutionalizing some kind of structural guidelines to help this process along?

[Daniel Myers:]

Well, at this time, to answer your question directly, we are currently not work with any other institutional organization to develop formal guidelines. I think it's a little early there. I can tell you in the U.K., we have work very closely with Royal College of Ophthalmology in setting up treatment guidelines, but then again, they are a year or so ahead of the curve from the U.S. So it's a bit early to have had an activity. We would certainly entertain working in that area. I think the fact that we've had U.S. retinal physicians using anti-VEGF in DME for quite sometime as well as corticosteroids off-labeled for quite some time, unlike the community in the U.K., makes it a little less concerning that these guidelines are not in place. I think they've had panel discussions, you go to retinal meetings, the ASRS, the AAO, there is just paper after paper and panel discussion and so forth about anti-VEGF therapy, the number of injections. I think you're seeing now in the last three to four meetings, where more and more the discussion around inflammation in DME is becoming, well I should say, better understood the role of inflammation as the multi-factorial aspect of DME. So I think there is just been general understanding again been made in a last year or so. And you see that in a lot of debates, in a lot of discussions, the panel discussions among the retinal community. So I think you're going to have a little more of a discussion now in the next six to eight months as to primarily around our label, what is the course corticosteroids mean? Is that one intravitreal triamcinolone, which would certainly be 4 milligrams, which is a large dose of steroid; with that suffice to say, if I didn't see in IOP rise or a significant rise, would I be comfortable into ILUVIEN; is it going to be more like I said in my earlier comments that a short-term, but a lower dose steroid like OZURDEX might serve as a bit of indicator for us, if I don't see IOP that I can't manage with OZURDEX without leading to ILUVIEN. So I think that's what's going to be more or less the discussion point over the next six to eight months as we begin to really see where ILUVIEN fits. And I think it's going to come more out in the discussions and interactions amongst the doctors versus some formal guidelines that you might see within the next six months or so.

[Operator:]

Our next question comes from Mitch Drucker with Ladenburg.

[Mitch Drucker:]

First of all and foremost, congratulations on a great try, a great accomplishment, tremendous, tremendous. It seems like you really kept a close eye on the expenses. A loss of $0.17 seems very nominal when you're just first starting out here in the United States. When listening to some of these I guess other analysts from other firms, I don't think they're taking into account from listening to you, Dan, that most of the treatment or a lot of the treatment that's been in the past in the United States is off-label. And here, ILUVIEN of course, seems a like a more direct and it seems like it's not off-label. So I would believe people would welcome that. And second is, I think, you mentioned as 125,000 new patients every year have come down with this breakdown. And of course, they are not exposed to any therapy in the past. So it seems like a virgin market for ILUVIEN.

[Daniel Myers:]

Yes, our estimates actually mentioned 115,000 new patients as far as an incident. As I said earlier, whether those patients initially would be candidate for ILUVIEN, early on quite frankly I think it's a little aggressive to think that until doctors get more comfortable using ILUVIEN, that there would be a significant number of those new patients coming right out of the launch mode. But certainly, we are hopeful that as we see those patients coming to the market and there is a comfort level with managing the IOP associate with ILUVIEN, it does give some comfort that a lot of those patients would be candidates for ILUVIEN. As I mentioned earlier with 585,000 patients available in the U.S., and then we by the way think there is similar number, slightly lower maybe in the other 17 countries in EU, we do think there is a large number of patients that could benefit and that $8,000 to $9,000 per implant, one could model any amount of penetration that they care to model and I think you'd still get a pretty exciting opportunity. So you're right I think there is a large opportunity here and we're very excited.

[Richard Eiswirth:]

Last but not least, I think it's tremendous that I only have to go for one or two treatments, just as an individual, who doesn't like to go doctors in general, but you know I'm facing blindness from diabetes and I only have to go for a few treatments, it's a no-brainer that I'm going to -- well, if I am aware of this of course, but I would hope my doctor is are aware of the benefits of convenience just from using ILUVIEN.

[Daniel Myers:]

That's a good point I think to wrap up on that thought. I think to expand on that a bit, this of course, is DME, a lot of this it's about the patient, because many of these patients have already lost the ability to drive, they are not necessarily mobile. So in many cases there is a certain -- these are people who are working daily lives, taking their parents or their grandparents to see the doctor to treat retinal disease on a monthly or bimonthly basis. So we not only think the patient benefits, but we think there is a strong case to be made to the caregiver that if they are not seeing the kind of response with an anti-VEGF therapy to continue to have to disrupt their lives to bring patients in on a monthly, bimonthly basis. Certainly, ILUVIEN should be considered as an alternative for that and we'll continue to make that point as we're out in the marketplace.

[Operator:]

And at this time I am showing no further questions. I would like to turn the call back over to Dan Myers for further remarks.

[Daniel Myers:]

Thank you, operator. And thank you for you time and the level of questions and the interest level in ILUVIEN and Alimera. We're obviously excited for a lot of reasons and where we find ourselves now and the other side of the FDA approval and where we are looking for a launch. And we look forward to finish the year strong, getting the launch in 2015 in first quarter and update you in future conference calls.

[Operator:]

Ladies and gentlemen, thank you for you participation in today's conference. This does conclude the program. And you may all disconnect.