Alimera Sciences Inc (ALIM) 2018 Q2 法說會逐字稿

Greetings, and welcome to Alimera Sciences Second Quarter 2018 Results Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Jacob Goldberger of CG Capital. Please go ahead.

Thank you all for joining us today for the Alimera Sciences second quarter 2018 financial results conference call. With me on the call today are Dan Myers, Chief Executive Officer; and Rick Eiswirth, President and Chief Financial Officer.

Yesterday, the company issued a press release announcing second quarter 2018 results. Today's call is being webcast and a recording will be posted to the company's website. Following remarks by management, we will open the call up to your questions.

During this call, management may make certain forward-looking statements regarding future events and the company's future expected performance. These forward-looking statements reflect Alimera's current perspective on existing trends and information and can be identified by such words as expect, plan, will, may, anticipate, believe, should, intend and other words of similar meaning.

Any such forward-looking statements are not guarantees of future performance and involve certain risk and uncertainties. Such forward-looking statements are based on current expectations and involve inherent risk and uncertainties, including factors that could delay, divert or change any of them and could cause the actual results to differ materially from those projected in its forward-looking statements.

These risks are described in the risk factors in the management's discussion and analysis section of Alimera's annual report on Form 10-K for the fiscal year ended December 31, 2017, and Alimera's quarterly report on 10-Q for the 3 months ended March 31, 2018, which are on file with the Securities and Exchange Commission and available on the SEC's website.

Additional factors may also be described in those sections of Alimera's quarterly report on Form 10-Q for the quarter ended June 30, 2018, to be filed with the SEC soon. These forward-looking statements speak only as of the day of this presentation. Alimera undertakes no obligation and specifically declines any obligation to publicly update or revise any such forward-looking statements, whether because of new information, future events or otherwise, except as required by applicable law. Alimera's press release include certain non-GAAP financial measures. Alimera does so because it uses those non-GAAP financial measures to measure performance and believes that such non-GAAP financial information can enhance an overall understanding of the company's financial performance when considered together with GAAP figures, adjusted EBITDA, exclude certain noncash items. This non-GAAP metric, however, is not a measure of financial performance under GAAP and should not be considered a substitute for GAAP net loss and may not be comparable to similarly titled measures reported by other companies. Non-GAAP financial measures should be read in conjunction only with financial operating information reported under GAAP when understanding Alimera's performance.

For a reconciliation of these non-GAAP financial measures to its most directly comparable GAAP financial measures, see the table located in Alimera's earnings release from yesterday and in the last slide of this presentation.

In addition, any unaudited financial information is preliminary and does not purport to project financial positions or operating results of the company. Actual results may differ materially. All numbers discussed in this call and on the slides accompanying this presentation are approximate unless otherwise indicated. For the benefit of those of you who may be listening to the replay of this call, this call is held and recorded on Tuesday, July 31, at approximately 9 a.m. Eastern Time.

Since then, Alimera may have made additional comments related to the topics discussed and filed its quarterly report on Form 10-Q for the quarter ended June 30, 2018. Please reference Alimera's most recent press releases and filings with the SEC.

Now I'd like to turn the call over to Dan Myers, CEO of Alimera.

Thank you, Jacob, and thank you all for joining us today. The second quarter of 2018 shows continued progress in the adoption of ILUVIEN. I'm pleased with our performance during the second quarter as we posted record consolidated net revenue of $10.9 million, the highest quarterly revenue we've reported since the launch of ILUVIEN.

End-user demand in the U.S. for the period was the highest we have ever experienced, posting double-digit growth in ILUVIEN usage over the second quarter of 2017. We grew the end-user demand by 12% over Q2 2017 within our single indication of DME.

We reported record revenue in our international segment as well, posting growth of 26% over the second quarter of 2017. We also made significant strides in increasing access to ILUVIEN in Europe. I'd like to thank our management team for their contribution and their hard work.

With our revenue growth, we continue to make progress towards generating positive operating income. You will remember from previous calls that we made a strategic decision to add additional sales and other customer-facing roles in the U.S. and Europe this year to increase our presence with the physicians.

Despite the consequential increase in cost, I'm pleased to report that our adjusted EBITDA loss for the second quarter of 2018 was less than $1 million. As we move further into 2018, we remain optimistic about our potential to continue growing ILUVIEN revenue and improving our bottom line.

We continue to pursue an indication for uveitis, affecting the posterior segment of the eye, in the European Union countries in which ILUVIEN is already approved to treat DME. We plan to submit additional data to the Medicines and Healthcare Product Regulatory Agency, or the MHRA, in the fourth quarter this year, and we anticipate receiving a recommendation for approval prior to the end of the first half of 2019.

Meanwhile, our European organization is well into the launch planning phase for that indication.

Now I would like to ask Rick to go into more details from the commercial side for the quarter.

Thank you, Dan, and good morning, everyone. You've often heard us discuss a disconnect between our reported GAAP revenues in the U.S. and the downstream sales to physicians and pharmacies where the product is ultimately used. For those of you viewing the webcast, this chart shows the historical comparison between our quarterly GAAP sales and our end-user demand experience each quarter. You can see that the lack of correlation was significant quarter-to-quarter through the end of 2017, but there has been an immaterial difference so far in 2018.

Our U.S. reported revenue softened during this period due to the timing of distributor purchases. In the second quarter of 2017, Alimera's distributors purchased approximately 15% more units than they sold to end users, increasing the stock on hand during that quarter. In the second quarter of 2018, there was no material difference between the number of units acquired by Alimera's distributors and end-user unit sales by those distributors to physicians and pharmacies.

As the management team, we used end-user demand as a metric to measure ILUVIEN's growth because it represents actual usage of ILUVIEN by physicians and sales driven by our sales team. Again, for those of you on the webcast, Slide 5 shows you that we had record U.S. end-user demand in the second quarter of 2018, increasing 12% to 955 units, compared to 850 units in the second quarter of 2017.

Additionally, our quarter-to-quarter comparisons of end-user demand show that we have consistently grown in every quarter over the prior-year period since launch. This chart shows the cumulative growth of ILUVIEN end-user demand in the U.S. since launch in early 2015. Although some eyes have been re-treated, most of this use represents new eyes or prescriptions for ILUVIEN.

Year-to-date, we have increased the number of eyes being treated with ILUVIEN by over 20%, compared to the cumulative total at the end of 2017. It is important to remember that ILUVIEN is a unique, long-lasting therapy that is not injected in the same patients every month. Our commercial personnel worked with the physicians to identify all new patients each month as 1 injection of ILUVIEN will work for up to 3 years.

We anticipate a favorable impact toward the end of 2018 and in 2019 as increasing number of patients reached the third anniversary of their injection, although the need for and timing of a retreatment will depend upon the specific situation of each individual patient.

Revenues in our international segment increased 26% to approximately $2.9 million in the second quarter of 2018 from approximately $2.3 million in the second quarter of 2017, record revenue in our international segment. This was driven by revenue growth of 19% in our direct markets, comprised of 11% end-user growth and the positive impact of currency fluctuations. The remaining increase resulted from sales to our distributor partners.

Revenue from our international distributors includes both stocking orders for inventory and a revenue share of distributors' end-user sales. There are several highlights from our international segment in the second quarter, reflecting our expanding footprint.

In Italy we see continued adoption as more local formularies are open to use ILUVIEN, which led to record quarterly end-user demand for our partner SIFI.

In Spain, we reached agreement with the authorities on pricing and reimbursement. Our partner, Brill, is now working to establish ILUVIEN on regional formularies and expects to launch ILUVIEN in the Spanish market with broader access in the first quarter of 2019.

In France, our partner, Horus, anticipates receiving favorable reimbursement later this year and is preparing for first quarter 2019 launch.

And in Ireland, we established reimbursement agreements with a number of health insurance providers, paving the way for additional usage.

We remain very optimistic about the opportunity for ILUVIEN, especially in the Southern European markets of Italy, Spain and France. These markets are known for their use of intraocular steroids and utilize a significant amount of OZURDEX compared to other countries.

During the second quarter of 2018, our consolidated global revenue grew 5% to $10.9 million, compared to $10.4 million in the second quarter of 2017. In the U.S., net revenue decreased by 1% to approximately $8 million from approximately $8.1 million in the second quarter of 2017. As I mentioned, this decrease in net revenue resulted from lower distributor order -- distributor orders compared to the second quarter of 2017, despite double-digit growth in U.S. end-user demand.

Looking at our cost structure, our consolidated global operating expenses were approximately $12.6 million for the second quarter ended June 30, 2018, compared to approximately $11 million for the second quarter ended June 30, 2018, an increase of approximately 15%. The increase was primarily due to increases in headcount in the U.S. and Europe to increase our presence with physicians and one-time cost savings associated with our clinical trials that were not repeated in 2018.

Our GAAP net loss was approximately $4 million for the second quarter ended June 30, 2018, compared to a net loss of approximately $2.8 million for the second quarter ended June 30, 2017. GAAP, basic and diluted net loss per share for the second quarter ended June 30, 2018, was $0.06 per share on 70,000,000 weighted average shares outstanding, compared with GAAP basic and diluted net loss per share of $0.04 per share on 65,500,000 weighted average shares outstanding during the second quarter ended June 30, 2017.

We report our financial results in compliance with GAAP, but we believe that the non-GAAP measure of adjusted EBITDA provide a useful measure of our operating performance. Adjusted EBITDA is earnings before interest, taxes, depreciation, amortization, stock-based compensation expenses, net unrealized gains and losses from foreign currency exchange transactions, and gains and losses from the exchange -- from the change in the fair value of a derivative warrant liability and losses on extinguishment of debt.

Importantly, we continue to make long-term progress toward breakeven, despite increasing spending on our customer-facing personnel this year. Our adjusted EBITDA loss for the second quarter was approximately $980,000. This compares to a $500,000 gain for the second quarter ended June 30, 2017, when we were operating with a smaller sales presence.

Turning now to our balance sheet, as of June 30, 2018, we had cash and cash equivalents of $16.7 million. As disclosed in June, we announced that we had terminated our at-the-market equity program.

Before we open the discussion for questions, I would like to give a few highlights on our progress in the full 6 months of 2018 and the growth of ILUVIEN. Year-to-date, we've reported $20.7 million in revenue, which is up 22% over the first 6 months of 2017.

Additionally, end-user demand in the U.S. and in our international direct market is up 16% over the same period. It's been a strong start for the year, and we remain bullish about the opportunity for ILUVIEN.

With that, I would like to turn the call back over to the operator for questions.

(Operator Instructions) Our first question comes from Andrew D'Silva with B. Riley FBR.

Just a couple quick bookkeeping ones to start, could you please just let me know what cash flow from operations and CapEx was for the quarter? And then while you're pulling that data, looking at inventory, there was a substantial uptick at the end of Q2 versus pretty much any other previous quarter. Any insight there? Is this in preparation to send first time stocking orders to new countries in the EU you haven't sold into previously?

Yes, so the increase in the international markets was there were some stocking orders that went into France and Spain during the quarter. They are expecting that they will sell some end-user units over the remainder of the year as they continue to work on, in Spain getting on the regional formularies and in France, getting on actual national pricing. So they did take a little bit of a product in the second quarter to prepare for that.

Yes, yes. So actually, what I was asking was the inventory that you have on your balance sheet ended at $2.1 million for the second quarter. And for example, in the first quarter, it was $1.2 million and then in the end of the year '17, it was $1.5 million. I've never seen it at $2.1 million before. Is there a reason why the inventory went that high? And is it for new country launches?

Andy, some of that is for new country launches and some of that is just the normal flow. We have to -- we build batches at about 800 units at a time. So you're just going to have some normal fluctuations up and down, but we're comfortable that we've got the right amount of inventory, but not too much, considering the geographic spread we're getting right now.

Okay, perfect. And were you able to pull that cash flow from operation to CapEx?

I am pulling it right now.

Awesome. And while you're doing that, I will just ask my next question. Thanks for the insight on the inventory. As it relates to the uveitis data that was just released for the 2 Phase III trials that you are using for EU approval, are those the final bits of data needed to expedite everything in Europe for the first half '19 type 2 variation launch? Or do you need anything additional that hasn't been released yet? And then, for the label, do you think it will be listed as a second line treatment? Or since there's no like VEGF issue here, is it an option that you could be a first-line treatment or mirror OZURDEX?

Yes. So Andy, your first question, yes. That was the last bit of information that the MHRA authorities had asked us for. So we're pleased that we've now been able to kind of complete their to-do list and now, it's just of course moving through the process, which, as we said earlier, we think we can see some positive outcome from that in the first half of next year. You are correct in the fact that there are no anti-VEGFs indicated or used in the treatment of posterior uveitis that we don't anticipate having any language that would suggest this is the second line therapy. So perhaps, there could be some doctors who, due to their DME experience, want to use a short-acting steroid just to do a little test on any potential IOP, but that would be strictly their personal preference. That would be -- we don't anticipate any labeling that would require that.

Okay, that's great. That would really -- I mean, right out of the gate, you should be able to see a much more quick adoption relative to the number of patients would be less, but as a percent of the whole, likely a quicker adoption with uveitis versus DME.

Yes, we certainly expect that. As you know, the market is smaller, but we think the barriers to entry are lower. So you're right, we look for some exciting numbers next year. And also, one of the things about that uveitis indication is, we believe, although we can't quantify it, there could be some value to doctors who have been a little slow in their adoption for DME, having a positive experience with uveitis, might also help us from the DME side. That's again hard to quantify, but we think anecdotally, we may see some uptick for that as well.

Okay, perfect. And just my final question. Any insight on how patient flow or adoption is looking at this point for a second time treatments for DME? Are you seeing anything that you can provide insight on as far as when you would expect the timing of patients to come back for their follow-ons? Like I know 3 years has just passed in U.S. about 6 months or so ago, so anything there would be useful as we model layering effects.

Yes, I think -- Andy, unfortunately it's a little bit too early to tell. We are starting to see some of the retreatments in the U.S. trickle in, and we know that they're happening, but we just don't have a lot of experience there to say -- I mean we do know from some of the trials and things we've looked at, some patients are injected before 3 years and some go as long as 42 months, even 48 months without needing to be reinjected. So we're not really forecasting or assuming we're going to see significant uptake in that towards -- until right towards the end of this year or even into 2019.

Okay, perfect. And I guess the last thing which would be that cash flow stuff.

Yes, so the cash used in operations is about approximately $3.4 million. You'll see more details on that when we file a Q later this week.

Our next question comes from François Brisebois with Laidlaw.

I just wondered, does the ex U.S. growth have to deal with the timing of distributor orders that you're seeing in the U.S.?

You will see a little bit of that in the European sales as distributors take on stock. It should not be as material of an impact as what you see in the U.S. because typically, those distributors will buy product and pay for sort of our cost of goods upfront and then pay us a revenue share when they actually sell the product. But you did see an uptick this quarter. As I said earlier that Spain -- the Spanish and the French distributors took some product to sort of prepare for limited amount of sales in the second half of the year as they prepare for launch in 2019.

Okay, great. And then I see that this year, first quarter and second quarter, there is less of that discrepancy between the timing of distributor orders and the end-user demand. Is there any reason for that? Or reason looking -- going forward that there would be less discrepancy? Or how should we think of that?

Well, it appears to us that they're getting a little bit better at their ordering patterns and ordering more consistently with our volume. With that said, we sort of made a commitment to disclose both of those numbers going forward, so you have that transparency. So year-to-date, they've been almost dead on. I think 5 or 6 units off in the U.S., but it's hard to tell what it would be, depending on how the days fall at the end of the third quarter. So we'll provide you the detail at that time.

Okay, and then the 19% increase ex U.S., where you sell directly versus 82% with international distributors, is that in line with expectations? Is that pretty much what you guys expected or?

I mean we're pleased with it. It's good growth. But we certainly want to continue to do better, and we want to see the end-user sales come up. Same thing in Europe, as we expect to see in the U.S., we expect over time we'll see more of the retreatments come through in Europe too.

Okay, great. And then in terms of sales and marketing and G&A on the OpEx side going forward, with the -- with reps, is this something that -- going forward, is there any guidance you guys are able to give or?

I think that we're pleased with our sales infrastructure at this point in time. We've been operating with a full team. I think we had 1 vacancy for a couple of days or a couple of weeks in the second quarter. We've got a full team in place now, so we think the dollars you're seeing spent on sales is pretty good. You will see some seasonality in the marketing spend, depending on when the timing of some of the bigger ophthalmology shows are around the country. For example, EURETINA in Europe is in the third quarter and a lot of prep work for AAO, which occurs in the fourth quarter in the U.S., that prep work occurs in the third quarter too.

Okay, great. And then in the prepared comments in the press release, there's a mention of you guys expect to see continued momentum throughout 2018. Is that end-user demand? Is that -- just sometimes, in the past, the -- if you just look at last year, the second quarter was stronger than the third quarter. When you talk about continued momentum, what does that imply?

Yes, so I think you will see continued growth in the quarter-to-quarter comparisons of the prior year. We do expect there to be some seasonality in the third quarter as you've seen in the past. I will point out though, that in the U.S., specifically, the third quarter last year is when we had a low point of reps. So we do have the full team in place this year for the third quarter, and we do have expectations for it. So the goal is to continue to grow the end-user demand in quarter-to-quarter comparisons over the prior year, and we just have to accept that we've got to deal with some of the seasonality because we don't do recurring scripts of this product.

Frank, one other aspect -- Frank before you leave though, one other aspect to that though, if recall, we made this comment last year, as our user base gets broader and since this is a physician-driven procedure, we don't have recurring of scripts. When the doctor takes leave of the office, so does ILUVIEN in some cases. And I think one of the issues that we're seeing now is the -- our distributor here in the U.S. is able to understand better ordering patterns because we're not seeing quite the sort of volatility, if you will, when you have a broader user base. So we don't have quite as many situations where 1 big user goes on vacation for 2 weeks, and we suffer in that particular month. I'm hopeful as we expand our user base, that sensitivity gets a little softer because you just simply have more users of ILUVIEN. So we'll see how that plays out in the back half of the year, but I think that's part of what we look at and see the momentum building. I think it's because we're getting more and more users that are becoming greater adopters.

Okay, understood. That's interesting, and then just lastly, in terms of the user study impact. Are you guys any getting any feedback from the sales reps or docs about the treatment burden going down as having more of an impact on their prescribing habits?

Well, we do think that the user study continues to have a positive impact. And the sales team is certainly getting good feedback from out in the field. We had several presentations at the ASRS recently in Vancouver. And the activity around the booth was very, very significant. We had doctors driven there by interest generated from these presentations. And in the week since, we've also had doctors calling in and looking to get in touch with their reps and stuff from that. So we do think it's having an impact, and we're going to continue to promote that because we do think that reduction in treatment burden is a very significant positive for the use of ILUVIEN.

(Operator Instructions) Our next speaker comes from -- next question comes from Yi Chen with H.C. Wainwright.

My first question is among the 955 user-demand unit in the second quarter, how many of them are from June? Do you have the new information on how many of them are from patients with phakic eyes and how many of them are patients with pseudophakic eyes? And also, have you observed any recent trend in adoption among patients with phakic eyes?

So Yi, we don't have transparency into the specifics for every patient on whether they're phakic or pseudophakic. I think that historically, the majority of the patients have been pseudophakic patients. I would say 80-20, but we have been showing better data and information of the doctors on the use of ILUVIEN in phakic patients, and we do think that, that is starting to improve. We had 1 physician at the booth and was actually doing a good job talking to other doctors at the ASRS talking about the need to protect the retina first and his willingness to treat the phakic patients. So I think the more of these doctors see the benefit of having that consistent low-dose, long-term delivery in the eye and really providing that consistent protection for the retina, they're willing to deal with the cataract. But at this point in time, the majority of those patients are still pseudophakic.

Okay. My second question is, once the -- once ILUVIEN obtains the approval in EU for posterior uveitis, do you plan to launch immediately with all the existing sales force and distributors in the EU countries? Or do you plan to initially target a few key markets within the European Union?

Yes, so the initial push will be across the European markets as best we can, but there will be challenges with respect to reimbursement in some of those countries. So for example, in Germany, we're okay with pre-pricing, and we can expect sales fairly quickly in Germany. Whereas in the U.K., you need to go through the NICE process. And so the process will be a little bit different in each country, and they'll kind of come on in stages. But certainly, from a rep perspective, they will be able to promote towards uveitis and discuss the uveitis data once we have the approval. And you wouldn't need to expand the sales force because they're covering the same doctors.

Ladies and gentlemen, it appears that there are no further questions. I'll now turn the call back to management for closing remarks. Thank you.

Thank you, operator. So thank you for your time this morning. We look forward to building from our momentum in the second quarter and reporting our presence in the third quarter. We expect attendance at several large ophthalmology meetings coming up in the third quarter and more exposure of our user data. So we look forward to updating you on that in November. Thank you.

This concludes today's conference. All participants may disconnect. Have a great day.