Alimera Sciences Inc (ALIM) 2014 Q3 法說會逐字稿

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. Mr. Eiswirth, Chief Operating Officer and Chief Financial Officer. Please go ahead.

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 or 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 may be 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 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 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's and Alimera's websites.

Now, I would like to turn the call over to Dan 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 US during first quarter of 2015 for the broad label for DME. In this case, our persistence as an organization paid off, not only for us, but for the US 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 diseases as well as reduce [botulinum] 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 US physicians as it requires them to undergo a course at 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.

Recent availability of Ozurdex in the US 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 the US 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 US and have seen these same traits in our European commercial organization as well as they continue to drive commercial launches in Germany and the UK.

Within two weeks of US approval, we created a memorable presence at the American Academy 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 (inaudible) for Front Row program, which will have interested practices with information and services ahead of the anticipated first ship date.

I will speak more to our commercial preparation for the US market later. I wish to turn your attention to the commercial progress of our European business during the third quarter. In particular, we continued to increase sales of ILUVIEN in the UK during the quarter with shipments up over 30% from the second quarter. As UK 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 thickness reduction seen shortly after the injection, consistent with our clinical trial results. Today, we received initial orders from approximately 50% of our targeted hospitals in the UK and roughly 60% of those hospitals have reordered again.

As you may recall, clinics in the UK 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 US market, where both anti-VEGF and corticosteroid therapy have been used off-label for several years. We continue to work hard in the UK 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 potential for this DME market.

Our UK 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 improving 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 UK and Germany, we plan to launch ILUVIEN in Portugal later this year, leveraging our success in the UK 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 that it will bring and as well as respect the need to maintain a consistent price level across the EU. We are hopeful that we reach an agreement with the pricing authorities in 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 ten additional European Union country approvals through the mutual recognition procedure. In June of 2014, we received a positive outcome from this MRP and this led to the receipt of marketing authorization in late July through early September of 2014 in Norway, Denmark and Sweden.

The regulatory process in Ireland, the Netherlands, Belgium, Luxembourg, Finland, Poland and Czech Republic is in the national phase, in which each country grants marketing authorization. We will continue to work closely with these additional countries during the national phase with the goal of obtaining ILUVIEN marketing authorization in each one of those countries in the next several quarters.

Now, back to the US marketing opportunity. There is a high prevalence of DME in the US 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 one 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 in 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, 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 US. In just a short few weeks, we acquired our field sales management team with a combined tenure of over -- 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 by mid-November.

Internally, we are also rapidly [fitted] the support physicians needed to ensure execution of launch in the US. 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 US commercial price for ILUVIEN will be between $8,000 and $9,000 per injection, which has been communicated at the 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 have 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 US market next year.

Lastly, we are pleased to announce that we've 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.

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 UK were up over 30% compared to the second quarter of this year. GAAP cost of goods 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 German inventory expiration due to slower-than-expected initial sales.

Excluding this reserve, non-GAAP adjusted cost of goods 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 US, 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 was primarily attributable to an increase of approximately $780,000 in personnel costs 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 was primarily attributable to a decrease of $520,000 in costs incurred for market access assistance in the UK 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 the 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.

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 suffered from DME is growing every day.

Our momentum in the UK, 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 US 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 Instructions) Boris Peaker, Cowen.

Sorry, can you hear me now?

Yes, we can, Boris.

Great, I apologize for that. So, thanks for taking my question. I do 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?

Yes, Boris, we will list in the Orange Book. The prior longer-life patent that we had, that expires in 2020, covered the device itself sort of the core and end-caps of ILUVIEN. This new pattern is more specific to the formulation of ILUVIEN inside that device.

I see. Okay, 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?

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've 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 at that time.

Got you. 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?

Boris, this is Dan, hi. Well, certainly from just the product characteristics that I said in my earlier comments, the efficacy is rarely 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 the management of IOP versus the incident rate. And as I went through my numbers earlier, 62% of patients in that 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 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 on 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 on -- the trade off being certainly worth it that managing IOP versus losing visual acuity is an easier benefit to risk and most patients would probably accept and we believe the retinal community to accept.

When you get past that point, I think the biggest debate becomes when do I opt into steroid therapy? If we believe that 50% of patients are not going to adequately respond anti-VEGF therapy and we get more and more confirmation of that with every [add com] or every physician interaction that we have, then how long does one go with anti-VEGF therapy and put the patient through these monthly or bi-monthly injections before they can see that this patient might do better on 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 our anti-VEGF product for three consecutive injections and you're not getting an adequate response, then it'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 than that.

Well, thank you very much for that detailed answer and I'll jump back into the queue.

Suraj Kalia, Northland Securities.

Good afternoon, gentleman. Yes, 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?

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 US. So, that would include some back-office support as well as sales operations, 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 it is only from 29, as I said, three years ago to 32. So, the correct number now is 32 sales reps. They'll report into four regional sales directors, who, as I said in my earlier comments, we've already identified and are in the process of recruiting these 32.

So, the movement of 29 to 32 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 it still makes this a very efficient marketing opportunity as far as related to costs associated with the revenue.

Fair enough. And, Dan, post-FDA approval, how have the interactions in Europe, specifically Germany, UK been influenced, again now that you'll have FDA approval and the label is broader, are you all seeing any collateral benefits of a FDA approval?

We haven't yet, Suraj. And that's a great question, because I think the day we get the approval with broader label, there was quite a bit of excitement from our employees over in the European countries, because I think they do feel like there will be some effect in a positive way from the broader label.

Now, maybe earlier, it will be more with the retinal community than 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 would be more of a long-term view of going back to some of the regulatory authorities and trying to broaden the label with this indication and also with the knowledge we now have of ILUVIEN in the commercial setting, because we're gaining a lot more knowledge of ILUVIEN and the managing of IOP and the side-effects, 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 begin to try to understand this whole concept in Europe of where to place ILUVIEN vis-a-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 of the aggressive approach in the US of going to ILUVIEN after as little as three anti-VEGF, perhaps six, then that will influence where we see doctors in Germany, Portugal and the UK 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 to where the 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 therapy. So, it's always been a very nebulous phrase. I hope that it will become clearer as we have more users in the US around a broader label.

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, 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 will suit on both, but what do you think as the low-hanging fruit and how do you expect to go about it?

Right. Certainly the low-hanging fruit, immediately as the [all list of] patients that are MSLs and our sales representatives early on can help indentify that have been on 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 it moved to patients who have been refractory to anti-VEGF therapy and have already had multiple injections. The caregiver or the patient is little fatigue by the fact that they haven't had the kind of response that they would hope. As we said, we think there is many as 40% to 50% of patients that 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 from 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, the incident of IOP rises lower perhaps in a 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 I 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'll see us positioning ILUVIEN as a sequential therapy after anti-VEGF therapy.

Last two questions, one for Dan and one for Rick and I'll hop back in queue. Dan, my apologies. I was hopping in the [green codes] and if you can give some color on France, reimbursement in Germany, a case-by-case how [it has been capping] 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 FY15 would be great. Thank you for taking my question, gentlemen.

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 set group in France in June. We thought we made some progress in coming to a potential agreement on a public price that, as I said earlier, would reflect the value of ILUVIEN and protect the pricing that we now have in the UK, Germany and Portugal.

Just to remind everyone, we have a public price of GBP5,500 in the UK and approximately EUR7,900 in Germany, which was agreed to also in Portugal. So, we thought Germany became a good reference point for Portugal and the Portuguese authorities agreed with that. And so, we were 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 than we think this 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 the 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 somewhat unique in the German market and culture and we just had act 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 UK and I'm absolutely certain will be in the US.

We have an intimacy with the doctors in the US and the UK that I think makes a very efficient for us to go into a doctor's office and be able to have genuine discussions 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 have just not been 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 are more encouraged at conferences and some of the conventions that I have attended to see the interaction of the German physicians with our sales people and of those. And so, I think we're gaining on it, it's painfully slow. I think we would all agree that we not had the uptake there we would have liked to seeing, 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.

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

Gentlemen, thank you.

(Operator Instructions) Caroline Corner, Cantor Fitzgerald.

Hi, guys, congratulations on the quarter. Definitely a busy and exciting time for you guys. 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 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 UK kind of buys 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?

Yes, I guess I would tend to agree with the general comment that that you referenced that if one looks at AMD, excuse me, wet AMD, in contrast to DME, whether there's a sense of urgency 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, but frankly than DME. I would counter that a bit with our view that DME patients or diabetics in general, I should say, are 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 [visit-at], one of the great challenges was awareness for AMD patients. And so that I think drives a bit of this sense of urgency. I don't think that though diminishes the value of a product like ILUVIEN, where if you do treat that 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 would certainly be (inaudible) versus a more aggressive or acute disease.

Wet AMD plays very well to a long-term chronic steroid like ILUVIEN. So I think we align very well with DME, but I do agree back to that sort of intimacy, I talked about having sales people, we can go into the doctor's 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.

Okay, thanks, that's helpful. And then, they 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?

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

Yes, we think about 45% of these patients will be Medicare patients and another 45% will be the 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 the vast majority of those payers, they will pay based on usage on the FDA label 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 place significant hurdles in front of us, because DME itself is not such a huge component of their budget. I think the other thing is to benefit to us. Priced between $8,000 and $9,000 and 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 be Medicare or commercial payer.

Thanks. 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?

From a cost standpoint, absent the $2 million that we recorded for the excess fee payable to our consultant, I would expect that to increase 30% to 40% next year as we bring on some of the medical support staff, medical science liaisons warranty that section of the P&L. So, we'll see some increase for that. 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 account of that 30% to 40% increase I'm projecting.

Thanks. That's everything from me. Thank you.

Boris Peaker, Cowen.

Thanks for taking the follow-up. 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 is 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?

Well, at this time, to answer your question directly, we are currently not working with any other institutional organization to develop formal guidelines. I think it's a little early there. I can tell you in the UK, we have worked 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 US. So, it's a bit early to have had that activity. We would certainly entertain working in that area.

I think the fact that we've had US retinal physician using anti-VEGF in DME for quite some time as well as corticosteroids off-label for quite some time, unlike the community in the UK, 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, AAO, there is just paper after paper and panels discussions and so forth about anti-VEGF therapy to a number of injections.

I think you're seeing now in the last three to four meetings, where more and more of the discussion around inflammation in DME is becoming, I should say, better understood the role of inflammation as a multi-factorial aspect of DME. So, I think there's just been a general understanding again been made in the last year or so and you see that in a lot of debates and a lot of discussions and panel discussions among the retinal community. So, I think you're going to have a little more of the discussion now in the next six to eight months as to primarily round our label, what is the course of corticosteroids mean? Is that one intravitreal triamcinolone, which would certainly be four milligrams, which is a large dose of steroid. With that suffice to say, if I didn't see an 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 an indicator for us, 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 in the next six to eight months as we begin to really see where ILUVIEN fits. And I think it's going to come more in discussions and interactions amongst the doctors versus some formal guidelines that you might see within the next six months or so.

Well, thank you for that clarification.

Mitch Drucker, Ladenburg.

First of all and foremost, congratulations on a great try, a great accomplishment, tremendous, tremendous.

Thank you.

It seems like you really kept a close eye on the expenses. A loss of $0.17 seems very normal when you just first starting out here in the United States. When listening to some of these and 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.

Yes, our estimates actually mention 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 little aggressive to think that until doctors get more comfortable using ILUVIEN that there'd be a significant number of new patients coming right out of the launch mode, but certainly we are hopeful that as we see those patients come into the market and there is a comfort level with managing the IOP associate with ILUVIEN. It does give us some comfort that a lot of those patients would be than as for ILUVIEN.

As I mentioned earlier, with 585,000 patients available in the US, and then by the way, I think there is a similar number slightly lower maybe in the other 17 countries in the EU, we do think there is a large number of patients that can 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 still get a pretty exciting opportunity. So you're right, I think there is a large opportunity here and we're very excited.

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'm aware of this of course, but I would hope my doctors are aware of the benefits of convenience just using ILUVIEN.

Yes, it's a good point and I think to wrap up on that thought, I think to expand them out a bit, this is of course a DME, it is about the patient, because many of these patients have already lost the ability to drive. They are not necessarily mobile. So, in many cases, these are people who are working daily lives, taking their parents or their grandparents to see the doctor to treatment of disease on a monthly or bi-monthly 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 anti-VEGF therapy to continue to have to disrupt their lives to bring patients in on a monthly, bi-monthly basis, certainly ILUVIEN should be considered as an alternative to that and we'll continue to make that point throughout the marketplace.

Again, great, great, great, great, great success this quarter. And it looks great going forward.

Thank you.

You are welcome.

Thank you. At this time, I'm showing no further questions, I would like to turn the call back over to Dan Myers for further remarks.

Thank you, operator. And thank you for your 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 in the other side of FDA approval and where we are looking for a launch. We look forward to finish the year strong, getting the launch in 2015 in first quarter and updating you in future conference calls. Thank you.

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