Alimera Sciences Inc (ALIM) 2018 Q3 法說會逐字稿

Greetings, and welcome to the Alimera Sciences Third Quarter 2018 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jacob Goldberger of CG Capital. Thank you, sir. You may begin.

Thank you, Jesse, and thank all for joining us today for the Alimera Sciences Third 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 third 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 words such 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 risks and uncertainties. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them and could cause actual results to differ materially from those projected in its forward-looking statements. These risks are described in the Risk Factors and the Management's Discussion and Analysis sections of Alimera's annual report on Form 10-K for the fiscal year ended December 31, 2017, and Alimera's quarterly report on Form 10-Q for the 3 months ended June 30, 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 September 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 includes 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 excludes certain noncash items. These non-GAAP metrics, 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 information reported under GAAP when understanding Alimera's operating performance. For a reconciliation of adjusted EBITDA to its more directly comparable GAAP financial measures, see the table located toward the end of this presentation. For reconciliations of other non-GAAP financial measures to their most directly comparable GAAP financial measures, see the tables located in Alimera's earnings release from yesterday.

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 was held and recorded on Tuesday, November 6, at approximately 9 a.m. Eastern Time. Since then, Alimera may have made additional announcements related to topics discussed and filed its quarterly report on Form 10-Q for the quarter ended September 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 welcome to everyone. We are proud to announce that in the third quarter of 2018, we continue to grow the adoption of ILUVIEN and reduced our net loss and adjusted EBITDA loss. We posted another record quarter for consolidated net revenue of $11.1 million in the third quarter of 2018, a 13% increase from the same period in 2017. This was driven in part by third quarter end user unit demand for ILUVIEN in the U.S., which grew 17% over the third quarter of 2017.

As we've stated before, we are selling a unique product and what we believe is a better way to treat DME that requires us to be diligent in our preparation and persistent in our efforts. We believe this continued growth is evidence of our ability to educate and change physicians' attitudes and actions for treating DME. With this revenue growth, we continue to make progress towards generating positive operating income.

I am pleased to report that we reduced our adjusted EBITDA loss in the third quarter of 2018 by 47% in comparison to the second quarter of this year to approximately $521,000 this quarter. And we are closing in on breakeven adjusted EBITDA. In support of our business, we continue to generate new data that further reinforce the benefits of continuous microdosing and reducing the recurrence of DME for patients. And as we have said before, our expanding body of real-world data remains incredibly consistent with our pivotal trials and European postmarketing studies. The consistency of having an implant that delivers treatment everyday for up to 36 months holds true across all of our markets. We continue to tell our story and drive home this message of reducing the recurrence of the disease with a broad anti-inflammatory as this truly sets us apart from the acute options available. This same message is just as relevant for a posterior uveitis indication in our European markets. We expect to receive the approval in the first half of 2019.

With that, I would now like to ask Rick to go into details for the quarter. Rick?

Thank you, Dan. Good morning, everyone. During the third quarter of 2018, our consolidated global revenue grew 13% to $11.1 million compared to $9.8 million in the third quarter of 2017. Net revenue in the U.S. increased by 20% to approximately $8.5 million for the 3 months ended September 30, 2018. This compared to U.S. net revenue of approximately $7.1 million for the 3 months ended September 30, 2017.

The increase was attributable to increased end user demand and the increased sales through our distributors during the 3 months ended September 30, 2018. For the second consecutive quarter, we report record U.S. end user demand driving this revenue. We saw an increase of 17% to 977 units in the third quarter of 2017 (sic) [2018] compared to 837 units in the third quarter of 2017. As you can see in this chart, we have also grown in every quarter over the prior year periods since launch.

You have often heard us discuss the 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 experienced each quarter. You can see that the lack of correlation was significant quarter-to-quarter through the end of 2017, but that there have been minimal differences so far in 2018. If we look at distributor purchases in the third quarter of 2017, we see approximately 5% more units purchased than they sold to end users, slightly increasing the stock on hand during that quarter. This continues to reflect the improvement in the consistency between GAAP revenues and end user demand versus last year.

Net revenue in Alimera's international segment was approximately $2.6 million for both the 3 months ended September 30, 2018, and 2017. Net revenue decreased in our direct markets by approximately $360,000, due primarily to softness in the German market. In Germany, the market can be thought of as 2 segments, namely hospitals and private practices. The private practices are the larger segment and are where the majority of intravitreal injections are performed. These practices are reimbursed for each injection, which favors regular injection regimens of the acute anti-VEGF therapies and shorter-duration steroids and acts as a disincentive to use ILUVIEN. Historically, the majority of our ILUVIEN sales in Germany have been generated in hospitals. Strategically in 2018, we have attempted to aggressively sell into the higher-volume private practices. While the physician economics in those practices continue to pose challenges, our engagement with the hospitals decreased, which negatively impacted sales. We reevaluated this approach late in the third quarter and believe that a better balance in sales strategy would quickly bring ILUVIEN back to the previous level of sales in hospitals. At the same time, we are seeing significant increased interest in ILUVIEN in office practices due to the current shortage of Allergan's OZURDEX in Germany, which provides the opportunity to increase exposure to ILUVIEN in this segment. We believe both these factors will lead to a rebound in sales in the fourth quarter and a return to growth.

Net revenue in the countries in Europe where we sell through distributors increased $370,000 due to increased demand in the Middle East and Italy and stocking orders for our Spanish distributor in advance of planned 2019 launch. We are anticipating expanded growth in our distributor markets as additional countries come online with commercial activities in 2019.

In Spain, our partner, Brill, was able to obtain pricing in the third quarter and is now working with hospital formularies in advance of the planned launched in Q1 2019.

Our French partner, Horus, is currently engaged with the regulatory authorities and anticipates receiving an adequate reimburse price for ILUVIEN by the end of this year. Assuming an acceptable price is agreed upon, Horus is also planning a launch in the first quarter of next year. We remain very optimistic about the opportunity for ILUVIEN in these Southern European markets as Spain and France are known for their use of intraocular steroids and utilize a significant amount of Allergan's OZURDEX compared to other countries.

Sales to date in the Middle East have been on an inpatient basis. We are anticipating registration and pricing confirmation in the UAE and Kuwait prior to the end of the year, which we believe will lead to increased utilization of ILUVIEN in 2019. I would like to remind you that revenues from Alimera's international distributors vary depending upon the distribution arrangement including both stocking orders for inventory and a revenue share of the distributors' end user sales.

As Dan mentioned, we are pleased with our strides towards adjusted EBITDA breakeven. Looking at our cost structure, our total operating expenses were approximately $12.4 million for the 3 months ended September 30, 2018, compared to approximately $12.6 million for the 3 months ended September 30, 2017, a decrease of 2%. Combined with our revenue growth, this allowed us to reduce our GAAP net loss for the third quarter ended September 30, 2018, to approximately $3.5 million, compared to a net loss of approximately $5.3 million for the 3 months ended September 30, 2017, an improvement of 34%.

We report our financial results in compliance with GAAP, but we believe that the non-GAAP measure of adjusted EBITDA provides a more 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, gains and losses from changes in the fair value of a derivative warrant liability and losses on extinguishment.

Importantly, we continue to make long-term progress toward breakeven. Adjusted EBITDA was approximately $520,000 loss for the 3 months ended September 2018 compared to an adjusted EBITDA loss of approximately $1.8 million for the 3 months ended September 30, 2017, an improvement of 72%.

Because of the exchange of the then outstanding Series B Preferred Stock during the third quarter for our newly issued Series C Preferred Stock, for GAAP purposes, we are reporting a noncash gain of $38.3 million on the extinguishment of the Series B Preferred Stock attributable to common shareholders. This results in us reporting income of $30.9 million available to common stockholders during the quarter. GAAP basic net income per share for the third quarter ended September 30, 2018, was a positive $0.40 on 88 million weighted average shares outstanding.

And GAAP diluted net income per share for the third quarter ended September 30, 2018, was a positive $0.39 on approximately 88.1 million weighted average shares outstanding. This compares to basic and diluted net loss per share of $0.08 on 68.4 million weighted average shares outstanding during the 3 months ended September 30, 2017. The impact of the gain on the extinguishment of the Series B Preferred Stock was $0.45. Absent this gain, we would have reported a net loss per common share of $0.05 on 70 million weighted average shares outstanding, based upon the $3.5 million GAAP loss previously noted, an improvement over both the prior year and sequentially over the second quarter of 2018. Please see the non-GAAP net loss per common share reconciliation table included in our press release for a reconciliation of these amounts. As of September 30, 2018, we had cash and cash equivalents of $12.6 million and our net working capital balance was $23.7 million.

In summary, from a top line perspective, our revenue for the quarter and the year-to-date has been strong in comparison to the prior year despite the softness in Germany. For the full 9 months ended September 30, 2018, our consolidated net revenue has increased 19% to $31.9 million from $26.8 million in the prior year period. We are pleased with this growth at this point in the year, and we believe that we can maintain or improve the growth rate in 2019. We intend to add additional users and drive deeper penetration in the existing accounts; see more patients return for retreatments from 3 years prior; drive greater patient engagement in 2019; continue with our international expansion as ILUVIEN is launched in additional countries in 2019; and anticipate adding our indication for uveitis in Europe in the first half of 2019. Having just returned from the American Academy of Ophthalmology in Chicago last week, we are encouraged by the growing support for ILUVIEN in the retina community, both in the U.S. and in our international markets.

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

(Operator Instructions) Our first question is coming from the line of Andrew D'Silva with B. Riley FBR.

A couple quick bookkeeping ones first. If you could please just let me know what cash flow from operations and CapEx was for the quarter or 9 months whatever is easier? And then while you're pulling that can you just let me know what was the -- essentially catalyst or what was the reason that the hospital market declined or was a little softer in Germany. I know you noted that. I was just a little bit curious what the reason for it was?

Yes, so a couple of things, Andy, from -- cash flow from operations was a little over -- the cash flow spend on operations was a little over $3 million in the quarter. And most of that as you can see was an increase in working capital. CapEx was minimal. I'm trying to pull that right now, but that was de minimis for the quarter, less than $100,000, I believe. The catalyst or the issue in Germany was that strategically, we did expand the sales force a little bit in the first part of the year and we aggressively went after the private practices that are the high-volume practices, and, frankly, got a little bit distracted and didn't focus on the hospital business the way we probably should have or weren't spending the time to retain that business. So a little bit of a loss of focus trying to get to the higher-volume business, which proved a little bit of a challenge, because those doctors are economically motivated to continue the frequent injections of the acute therapies. So we've sort of rebalanced the call points heading into the fourth quarter and are getting back engaged at a high level with the hospitals than we were over the middle course of the year, and we believe, that combined with some of the exposure we're getting in those private practices because of the OZURDEX challenge or OZURDEX shortage in Germany will help us return to profitability or returning to growth in the fourth quarter in Germany.

Okay, that makes sense. It wasn't anything to do with just the typical European shutdown that takes place in Germany and obviously other regions as well?

No, no. It was simply a slight strategic misstep on our part.

Okay, fair enough. And then as we sort of think about adjusted EBITDA breakeven as the target for the fourth quarter, can you maybe give a little bit of context as how you see that shaking out? Is it sequential revenue growth coupled with kind of declining expenses from the third quarter to fourth quarter? Or is it one or the other? Just any color there would be useful.

No, I think it'll primarily be based around revenue growth. I mean, I think our revenue, we expect to continue to grow, and our expense base is pretty solid where it is.

Okay, perfect. And as we start thinking about new regions, France and Spain, could you just help us understand the rev rec in those regions? I'm assuming it's somewhat different than the domestic distributor model. And maybe just help us understand how the timing of revenue recognition works there too?

Yes, it will be a little bit choppy over 2019 as they're taking some of their initial stocking orders in and get into a flow or a pattern of usage. But I think that on a country-by-country basis, it'll be choppy. I think because we have multiple countries online now between Spain and Italy and France, you'll see it balance out over the year.

Okay, perfect. And then just the last question. I know this is probably a little bit difficult to pin down, but any anecdotal data points you can point to related to retreatment for first-time patients in DME would be useful either in Europe or in U.S. If you're hearing any of the physicians you have been talking to?

Andy, at this point it is very anecdotal. Because of the HIPAA compliance rules and everything, we don't have insight into individual specific patients that are being retreated. I can tell you that we have had discussions with doctors at AAO and other venues recently where they know they have patients coming up in 2019 for their third-year anniversary. Some are planning to inject immediately. Some are, sort of, on a watch-and-wait mode. So it will depend, but I expect that over the course of 2019, we'll get a lot more experience and visibility and hopefully be able to predict what happens in 2020 and 2021 once we have that experience behind us.

But you at least feel comfortable enough at this point to think there would be at least a some sort of a bump in '19 from first-time patients that were treated in 2015?

Yes, that's correct, that's correct.

(Operator Instructions) Our next question is coming from the line of Frank Brisebois with Laidlaw & Capital (sic) [Laidlaw & Company.]

Just a couple here. So are you seeing -- you mentioned that doctors and the incentive to sometimes treat more often, are you seeing any changes, value-based changes in reimbursement that could potentially have them get away from that?

Nothing specific but over the last several years, there's been a trend in the U.S. for a decrease in the amount that's being reimbursed for each injection. We have come down more than 50% over the last several years. So we think the trend is in the right direction for us. If the U.S. does move toward more value-based pricing, we feel like we are at an advantage. If you look at any of the cost-effectiveness models, ILUVIEN over the course of 3 years substantially reduces the treatment burden across the patient base and therefore should reduce the cost of the system.

And is this -- so something that you're seeing in the U.S. but not as much ex U.S.?

No, I think the same trends should occur in the ex U.S. as well.

Okay. So I'm just wondering the 3-year anniversary is coming up. Obviously, that's already happened in the EU. And this is flat here $2.6 million from third quarter of last year to this year. Why do you think that it might be different in the U.S. in order to -- for the 3-year anniversary patients to get another treatment versus in the EU or maybe it hasn't really grown this time?

I think we're seeing some of that, Frank, in the EU, but you have to remember, in Europe our label is much more challenging, right? So we are -- we have historically treated a lot more of, we would refer to as, the train wreck patients, where ILUVIEN is being used as a last resort. EYLEA came out during this 3-year period and was approved in Europe as well, and so doctors are -- have looked to figure out if it makes sense to switch a patient back from ILUVIEN to something like EYLEA in Europe versus the comparable products have been out in the entire time in the U.S. Also you have to keep in mind that our business simply just because of population is heavily weighted towards Germany and so when we have a challenge in Germany, it impacts the European sales disproportionally, and the doctors in Germany, as I mentioned in my prepared comments, are highly incented to continue to doing the monthly injections of the acute therapy.

Understood, okay. And then in terms of pipeline, are we -- I know you guys are making sure that we get to breakeven here in controlling expenses. Is this something as we've kind of seen the trajectory a little bit of this launch you guys thinking of growing the pipeline? Or how are you viewing them?

We are continuing to evaluate potential investments in additional indications. Retinal vein occlusion, nonproliferative diabetic retinopathy, as Dan has mentioned in the past. But frankly, we're also looking at investments -- additional investments in the sales force and more aggressively marketing the product too as we have better data coming onboard. So I think the primary goal is to drive revenue and look to increase the growth rate as I mentioned in some of my closing comments earlier.

Okay. And then just lastly, can you just have a comment -- make a comment about the balance sheet and how you see your situation in terms of the long-term debt. Obviously, it's been changed a couple of times, but how do you guys view your balance sheet right now?

Yes, so I think we're in good shape. We have $12.6 million in cash at the end of the quarter, our working capital balance is $23.7 million. We believe we've got enough cash and financing available to turn the corner. I think if we were to make more investments to try to drive the ramp-up, we might consider raising some money in the future, but right now the focus is on stability and managing the company at the breakeven rate we are with the resources we have.

It appears we have no additional questions at this time, so I'd like to pass the floor back over to Mr. Myers for any additional concluding comments.

Thank you, operator, and thank you for your time today. As Rick alluded to in his comments, we believe we'll have the strong value drivers coming up in the next few months. We look forward to updating you on our progress on future calls regarding physician and patient awareness, our geographic expansion, posterior uveitis indication in Europe and the 3-year retreatment of our patients in the U.S. Thanks for your time today, and we look forward to continued communication.

Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation, and you may disconnect your lines at this time.