EyePoint Pharmaceuticals, Inc.
Q3 2017 Earnings Call Transcript

Published: 7 Nov 2017

[Operator:]

Good day, ladies and gentlemen and welcome to the Q1 Fiscal 2018 pSivida Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer-session and instructions will follow at that time [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Doug Sherk. You may begin.

[Doug Sherk:]

Thank you, operator. Good morning, everyone. Thank you for joining us today to review pSivida's fiscal 2018 first quarter results for the quarter which ended September 30, 2017, as well as recent corporate developments. Making prepared remarks on today's call are Nancy Lurker, pSivida's President and Chief Executive Officer; Len Ross, Vice President of Finance. In addition, we have Dr. Dario Paggiarino, Vice President and Chief Medical Officer and Gregg Beloff, Chief Financial Officer as well as Deb Jorn, Executive Vice President are all with us this morning and will be available during the Q&A session. Before we begin, I'd like to remind you that all statements, other than statements of historical fact, are forward-looking statements and we cannot guarantee that the results and other expectations expressed, anticipated or implied will be realized. Actual results could differ materially from those anticipated, estimated or projected in the forward-looking statements. For a more detailed discussion of risk factors that could impact our future results and financial conditions, we refer you to pSivida's filings with the SEC, including its annual report on Form 10-K. The Company undertakes no obligation to update any forward-looking statement in order to reflect events or circumstances that may arise after this conference call. Now, I'd like to turn the call over to pSivida's President and Chief Executive Officer, Nancy Lurker.

[Nancy Lurker:]

Thank you, Doug and good morning, everyone. I appreciate everyone taking the time to join us to review our 2018 fiscal first quarter results, operating achievements as well as outline our anticipated milestones. It's been a little less than two months since we last spoke with you, but during that short amount of time, we've continued to make material progress towards meeting our overarching objective of transforming pSivida into a fully integrated commercial stage pharmaceutical enterprise. I believe that there are a few companies our size that have generated the regulatory, clinical and collaborative success that pSivida has consistently demonstrated over the past few quarters. We have added more value drivers this quarter and are positioned to do so throughout fiscal 2018 because we have an ambitious plan to leverage our proprietary technology. I'm confident we can excel and deliver the kinds of results that our shareholders expect from this management team and board. So first, let me begin with our Durasert three-year for posterior segment uveitis product and I'll discuss the progress being made in our other programs. As you know, this is our lead product and most advanced clinical program. We have successfully achieved the primary efficacy endpoint in two Phase 3 studies with high statistical significance with the prevention of recurrence of posterior uveitis at six months. Because of the strength of the data and our pre-NDA meeting with the FDA which resulted in no changes to our proposed clinical data package, we remain on target to file the NDA sometime in late December or early January. I want to remind you that our technology is proven and pSivida has already received FDA approval for three of the four sustained release drugs approved for back-of-the-eye diseases. During the first quarter, two leading retinal specialists presented Durasert data at the American Society of Retinal Specialists or ASRS annual meeting and the EURETINA Congress held in Barcelona, Spain. Later today, I'll be heading to the American Academy of Ophthalmology, AAO annual meeting being held in New Orleans. This is a major medical conference and Dr. Careen Yen Lowder, who is currently with Cleveland Clinic, Cole Eye Institute will be presenting data on Durasert to this prestigious audience. The work that Dr. Lowder and the others do is important. It demonstrates the severity of uveitis and that the medical community acknowledges that this is a condition with a significant unmet need. Today, patients with posterior segment uveitis have limited treatment options. The current standard of care is frequent injections of steroids or an implant that lasts only two to three months with a list price of $1400 per device or a three-year equivalent price of nearly $17000. Use of systemic steroids and immunosuppressants are associated with the potential for significant side effects. Steroid eye drops have limited efficacy, given their limited ability to reach the posterior segment of the eye. Further, today's treatment options are mainly directed at controlling flares. While Durasert is designed to help prevent flares for up to three years with a single injection administered in an office setting. This was the third leading cause of blindness and a disease that impacts approximately 80,000 to 100,000 patients in the United States. The zero order released pharmacokinetics, which is a consistent and controlled drug release over time is a key feature of Durasert as it does not cause the burst of corticosteroid and a rapid fall-off seen with other treatment options. In other first quarter developments, we amended the existing collaboration agreement for ILUVIEN, effective July 1. We changed the terms of the arrangement to a net sales based royalty to pSivida, resulting in improved financial terms for the company. Alimera is also making regulatory progress in the EMEA region for posterior segment uveitis and has reported that they are on track to file their application in the calendar 2018 first quarter. In the US we continue to assign our go-to market plan. While premature to discuss specifics until we receive approval to market, we feel confident we have the experienced team and strategy to execute our launch plan with precision, which will ultimately require eight to ten contract sales representatives at launch and then perhaps up to 15 to 20 sales representatives over the longer term to cover the uveitis specialists. Of key importance, during the fiscal first quarter, we also entered into two collaboration agreements with pharmaceutical companies for front-of-the-eye disease principally to help prevent the development and progression of glaucoma. Our goal a year ago was to enter into at least one collaboration agreement in 2017. To-date we have signed three collaboration agreements, surpassing our goal and we expect to develop other similar opportunities in 2018. Pursuing these two purposes, it extends our proven technology and it's a source of non-dilutive funding. These are proof of concept collaborations that if successful will provide us with a potential to expand into larger and more lucrative arrangements as well as to bolster our development pipeline. Something I want to highlight is a progress of our next generation Durasert shorter duration product for uveitis. We've mentioned before that having the ability to deliver a nine-month shorter duration product in addition to our three-year product has significant value for physicians because it would provide greater flexibility to adjust treatment options to individual clinical need. This project remains on track and we expect to complete the GLP safety and pharmacokinetic study in the fourth quarter of calendar 2018. In addition, we are making solid progress on our bioerodible Durasert, which we are using with our collaboration partners and in our TKI program for major indications such as glaucoma and wet AMD. The compilation of these various delivery devices gives us a unique product family which is unmatched by anyone else in this space. With regard to our Durasert implant for severe osteoarthritis of to knee, the final patient was enrolled in April and completed the six-month follow up in mid October. We expect the Hospital for Special Surgery to report the initial 24-week data later this quarter. With that I'll turn the call over to Len for a review of our financial performance. Len?

[Len Ross:]

Thank you, Nancy and good morning, everyone. I will briefly review our fiscal first quarter results that we were reported earlier this morning. Revenue for the first fiscal quarter ended the September 30, 2017 was 385,000 compared to 277,000 for the prior year quarter. The increase was due to revenue earned from a feasibility study agreement as well as the ILUVIEN net profit shared reported by Alimera for our fourth quarter of fiscal 2017. The initial 2% sales-based royalty report under the terms of our July 2017 amended collaboration agreement attributable to the quarterly period ended September 30, 2017 is scheduled to be received and paid by Alimera at the end of November 2017 based on net 60-day terms. And accordingly, will be recorded as revenue in our fiscal 2018 second quarter. Additionally, during October 2017 we received 750,000 in connection with one of the feasibility study agreements that Nancy alluded to in her earlier remarks. Our operating expenses for the three months ended September 30, 2017 totaled 6.4 million compared to 7.5 million a year earlier. The year-over-year reduction is primarily due to general and administrative costs associated with the company's management change that occurred in the prior-year quarter. The net loss for the quarter ended September 30, 2017 was 6 million or $0.15 per share compared to a net loss of 7.2 million or $0.21 per share for the prior year quarter. During the quarter, net cash used in operations totaled approximately 6 million and we anticipate net operating cash used in operations to average approximately 5.5 to 6 million in each of the next few quarters. During the fiscal 2018 first quarter we issued 843,784 shares of common stock for gross proceeds of approximately $1 million through the utilization of our existing aftermarket or ATM program. At September 30, 2017, we had cash and cash equivalents totaling 11.8 million. Subsequent to the first quarter, we extended the utilization of the ATM program issuing approximately 5 million additional shares of common stock for gross proceeds of 6.2 million. I'll now turn the call back over to Nancy for her closing comments.

[Nancy Lurker:]

Thank you, Len. Before we take the questions, let's review our significant near and short-term milestones. First and foremost, we continue to estimate filing the Durasert NDA in the US in late December 2017 or early January. This has been in development for several years and it will be a game changer for pSivida because we aim to commercialize the product ourselves in the US, a value driver that will improve our financial model for years to come. Next week, a leading uveitis expert will be representing clinical study data at the AAO conference. Again, highlighting our proven technology to a prestigious group of retinal specialists, our target audience for Durasert. Following the successful six-month data readout in June for the second phase 3 study, we will be announcing the 12-month readout in the first half of 2018. Further development and successful completion of our GLP safety and PK study of a shorter duration Durasert for posterior segment uveitis in the fourth quarter of calendar 2018. Leveraging the existing collaboration agreements and seek to enter others as we continue to have several ongoing discussions with bio-pharmaceutical companies. And finally, we anticipate HSS reporting the data for all six patients of the Phase 1 knee osteoarthritis study before calendar year 2017. In summary, our fiscal 2018 first quarter continue the excellence we established fiscal 2017. Our goal is to maintain a high level of momentum in the current quarter and full year. Thank you and operator we're ready to take questions.

[Operator:]

[Operator Instructions] Our first question is from Andrew D'Silva from B. Riley FDR Inc. Your line is now open.

[Andrew D'Silva:]

Just a couple quick bookkeeping questions, first, maybe you can give me your depreciation and amortization and stock-based compensation for the period if possible.

[Len Ross:]

Stock-based compensation was 680,000 for the quarter. Depreciation and amortization is not a very large number in our financial statements, we do have amortization of intangible assets which will actually be fully amortized at the end of this calendar year. The total of amortization and depreciation was just over 200,000 in the quarter.

[Andrew D'Silva:]

And could you please refresh my memory as far as your revised royalty agreement, how is it tiered again from a percentage point over certain time period, it's not consistent, it moves every year, correct. Can you give me a quick recap on where it does move too each year and what the rationale was for that please?

[Len Ross:]

Well, the royalty rate starts at 2% of their reported net sales that continues through calendar 2018. At which point it increases to 6%. However, there's an offset of 50% of the difference between 6% and 2% that gets applied against the accumulated commercialization losses that are carried forward from the old agreement. That 6% gross amount applies on the first 75 million of net sales in a calendar year and it increases to 8% for any net sales in the calendar year above 75 million. And then the 50% offset of the difference between 2 and 6 or 2 and 8 as the case may be applies in 2019 and 2020 and then the offset reduces to 20% until the accumulated losses are fully utilized.

[Andrew D'Silva:]

And those accumulated losses, do you have a dollar amount estimate about what that would be?

[Len Ross:]

Well in the amended agreement that was filed, that amount was capped at $25 million, 10 million of which was cancelled at the inception of the amended agreement and another 5 million gets cancelled at the beginning of 2020. The remaining 10 million is what gets applied through the offset to the royalties.

[Andrew D'Silva:]

Okay. Great. And then previously, I think you've noted that you filed a waiver for the first-time small filer, has that gone through yet?

[Nancy Lurker:]

Yeah. We, Andrew, we have not yet received that from the FDA, but we're tracking that pretty closely and again we remain confident that we will receive it because we certainly check all the boxes that are required to achieve that waiver.

[Andrew D'Silva:]

That would be great to see. Absolutely. Just one more or two more quick questions. As far as the OA data go, after everything is reported for at least a 24-week data, I mean it's the strategy here if everything comes out positive, just to look for a larger strategic partnership to help move this through the regulatory process, so is this something that internally you guys feel like you would like to, at some point, take on by yourselves.

[Nancy Lurker:]

So, Andrew, I've been consistent since the very beginning that we are commercializing this ourselves in the US. This is a small disease category. We are fully capable. I'm sorry. I was actually referring to uveitis. I'm sorry. You're talking about osteoarthritis. Okay. Yeah. Thank you. All areas are certainly being explored. So right now, we've not made any definitive decision, but certainly if this was to move into Phase 3, that's certainly something that we would look at and potentially sooner.

[Andrew D'Silva:]

And just last question, obviously, at least from where I'm sitting, you guys made a lot of progress in hitting your milestones and in some cases even exceeding them. When you talk to shareholders, what are they focusing on and why is there, in your opinion, such a disconnect right now between what appears to be a very strong execution relative to how the share price is doing and I'm just kind of a little baffled right now about what's going on.

[Nancy Lurker:]

Well, that's the million-dollar question, isn't it? What I would say is a couple of things. I can - look, I'm going to guess at this. I think all of it's - it's never 100% clear why there's a disconnect. I'm glad you think there is. One is, clearly, I think any time you're a below $50 million cap company, you just simply don't get as much attention and it is harder to drive momentum for below $50 million cap company. So, I think that's one. The second could be that, let me just say that it's clear that we're going to, going forward, we need to continue to raise capital to commercialize our product, but we feel like we're on track for a plan for that. So, I am certainly optimistic that as we continue to execute, our shareholder value will be realized.

[Operator:]

Thank you. Our next question is from Suraj Kalia from Northland Securities.

[Suraj Kalia:]

So, Nancy, a few questions. First of all, remind us about the rationale for a shorter duration Durasert and was this a bio-erodible or it's just, my memory fails me here. Can you just remind us on the rationale?

[Nancy Lurker:]

Yes. So, the shorter duration 9-month will be non-erodible and that primarily is based on the fact that our ability to bring that to market is faster if we continue to use the existing technology. Recall, we will file this for uveitis. Then if we go down the bio-erodible path, but I think more importantly is the fact that, as we talk to KOLs, again, I want to stress they remain quite enthusiastic about the three-year launching because there is a huge unmet need, particularly for uveitis to have these flares controlled and to have long term control. However, they also want to have dosing options and that is no different than any other disease category. Physicians don't want to be lost into one dosing option and right now, for uveitis, their dosing options are generic, bolus injections, which lasts about a month or there is, as we know, the Ozurdex implant which is available and depending on the patient, seems to last two to three months. That's it. So, what they ideally would like, and they've been very clear about stating this to us is that they would like a shorter duration of anywhere from 6 to 9 months. Right now, it looks like our short duration will last about 9 months and that's based on our current PK studies that we've been running. However, when we've asked them, do you care if it's bio-erodible or non-erodible, pretty consistently, they've come back and said, given the small size of the three year and this will be an even smaller size of the short duration, they don't - it doesn't - they don't care. What they want is they want access to it. So, we've made the strategic decision that we will go the shorter route and launch with the - should it be approved, launch with the shorter duration non-erodible.

[Suraj Kalia:]

And Nancy, if the form factor is the same, and I presume as the drug loading will be different, so the PK profile relative to the three year insert, you're essentially carving out a different profile and I presume if clinicians have to come back and said, look, 50% recurrence of uveitis, 9 month is sort of the sweet spot threshold, this much drug loading and this PK profile should be good enough, I presume that's the logic behind again specifically choosing a 9-month product or going down that path?

[Nancy Lurker:]

Yeah. No. I think you've got it. That's not exactly correct. I'm going to have Dr. Dario Paggiarino, our CMO, answer that question.

[Dario Paggiarino:]

Yes. So, the rationale, I think as Nancy alluded already to the fact that the doctors like flexibility I think is shorter duration has a place, I think you are asking about the differences in the payload. Yes, of course, they are different to some extent, but the objective here is really to have a short duration insert that really essentially matches the kinetics of a long duration. So, we expect that the delivery rates and the performance of the insert to really equal and parallel the longer duration, except for a shorter time.

[Suraj Kalia:]

And Nancy, forgive me, my phone just dropped off briefly. I heard something about, some questions about osteoarthritis product, did you give any clarity on, let's say, by December what would HSS, what kind of data would they release, is it pain, is it, I know we've talked about last calls and whatnot, any color there would be great.

[Nancy Lurker:]

Well, so, first of all, let me say that the data is - the study is a pain and efficacy study, excuse me, safety and efficacy study. So, we fully expect that we will be seeing. Now remember, this is based on the KOOS score, not the WOMAC, both are well validated pain scores. So, the KOOS data, we would expect would be released, coupled with the safety data. So that's what we are expecting and as we mentioned the last patient has reported out, I do just want to caution that we are not in control of this study. HSS is, they have the IND and its investigator sponsored. We're in regular contact with HSS and I know their intent certainly is to get the data out.

[Suraj Kalia:]

And Nancy, would we - and maybe, you choose not to answer those, and I can certainly respect that. Would the dataset include the number of implants per patient, the location, so that we can stratify and see how much is needed and basically triangulate it to basically the payload for lack of better words.

[Nancy Lurker:]

I'm sorry, triangulated for what? I didn't catch that.

[Suraj Kalia:]

For how many implants per patient and to get a certain level of pain relief. That's one of the things that we have tried to figure out and any color there would be great.

[Nancy Lurker:]

Yeah. So Suraj, it's very clear and let me be - it's very simple. Each patient received one implant. There is no deviation from that. And remember, you're putting - it's a small titanium screw, so it does require a minor outpatient procedure to put that in. And that implant contains actually over - slightly over 500 days' worth of dexamethasone. However, we're only measuring pain and safety at six months.

[Suraj Kalia:]

And finally, Nancy, a status of the European filing of Durasert?

[Nancy Lurker:]

I would suggest that people listen to the Alimera earnings call and reference that because we certainly don't want to speak for our partner. However, they referenced in their call that they are on track to file their uveitis application in Europe in first quarter 2018.

[Operator:]

Thank you. Our next question is from Yi Chen from H.C. Wainwright. Your line is now open.

[Yi Chen:]

First question is, once you file the NDA, do you expect a review period for approximately ten months?

[Nancy Lurker:]

Yes.

[Yi Chen:]

And when do you start to build up a sales team that the cost of that will actually show up on the income statement through in which quarter.

[Nancy Lurker:]

So, let me be clear, we've not yet projected when we would start to see that. However, say that we assuming that the review stays on track, which we expect, but I want to caution again, this is the FDA and things do happen. However, so far everything looks to stay on track. Should we remain on track, I would expect that we would have the full team hired in 4Q of 2018. However, I want to say something, which is, we would not put them on payroll until we get approval. Now, we do expect that we'll have some modest build up as we go into the late half of 2018 because you've got to start to prepare the market. I'm also going to ask Deb Jorn, who is our Executive Vice President of Corporate Development and Commercial if she wants to comment on any of that? Deb?

[Deb Jorn:]

Well, certainly we'll be judicious in the number of representatives we hire and the timing, but as Nancy said, we anticipate initially eight to ten representatives. And based on our negotiations along the way with the FDA, we'll have a sense of where we stand. So probably fourth quarter of '18 would be the right time to engage with sales organization and as Nancy's also mentioned, it will be a contract sales organization which will allow for maximal flexibility in terms of putting together that field force.

[Yi Chen:]

My last question is, can you give us some color on your expectation for the collaborative research and development revenue and the royalty revenue that you expect for the fiscal year 2018.

[Nancy Lurker:]

So, let me be clear on that, we're not going to give projections around that. And these are collaboration agreements, I want to make sure everyone understands our feasibility study, so it's basically A, number one, making sure that our drug works excuse me, their drug works in our Durasert formulation that's number one. Number two, in some cases we move into animal studies and then it's making sure that we get positive results in the animal studies. Should those all data in anyone of the collaboration be positive, then we would move into a broader what I would call more typical and robust collaboration agreement before you move into human clinical studies. As to revenues and royalties et cetera, in our agreements we typically have most of the money as paid up front because they're covering our cost to produce the devices, run the initial studies and PK data. So, what you're seeing is that we will receive, and I think Len referenced that, $750,000 will show up in the next quarter from our agreement with our major pharmaceutical partner - cash excuse me, thank you. And right now, unless we get other struct, will have very, very, very modest additional milestone because most of this gets paid up front.

[Operator:]

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Nancy Lurker, President and CEO for closing remarks.

[Nancy Lurker:]

So, thank you again for your time and attention. We appreciate it and look forward to a very productive and positive remaining fiscal 2018. Thank you.

[Operator:]

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