EyePoint Pharmaceuticals Inc (EYPT) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2010 Psivida Corp.

earnings conference call.

My name is Erica, and I'll be your coordinator for today.

At this time all participants are in a listen-only mode.

We will be facilitating a question-and-answer session towards the end of this conference.

If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you.

I would now like to turn the presentation over to your host for today's call, Ms.

Lori Freedman, Vice President, Corporate Affairs, General Counselor, and Corporate Secretary.

Please proceed.

Thank you, Erica.

Good afternoon, everyone, and you for joining us.

After the markets closed today, we released the second quarter financial results for Psivida.

If you do not have a copy of the release, one may be found in the investor section of our website at www.Psivida.com.

On the call with me today are Dr.

Paul Ashton, President and Chief Executive Officer of Psivida, and Len Ross, Vice President of Finance and Principal Accounting Officer.

Before I hand the call over to Paul, I need to remind everyone that some of our prepared remarks as well as answers to your questions will be forward-looking in nature.

These forward-looking statements are inherently subject to risks and uncertainties.

All statements other than statements of historical fact are forward-looking statements and we cannot guarantee that the results and other expectations expressed, anticipated or implied will be realized.

Actual results could differ materially from those anticipated, estimated or projected in the forward-looking statements.

For a more detailed assessment of the risk factors that could impact our future results and financial condition I refer you to our filing with the FCC, including our fiscal 2009 annual report on form 10-K, which was filed on September 25th, 2009.

The company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after this conference call.

With that, I'd like to turn the call over to Paul.

Hi.

Thank you, Lori, and welcome, everyone.

We're very pleased to be hosting our earnings release conference call and I appreciate all of you taking the time to join us today as we discuss the results of our second quarter of fiscal 2010.

We've had a very good quarter as we've continued to drive our business forward, and I'll start today with a brief overview of Psivida and our business strategy.

As many of you know, we at Psivida develop miniaturized, sustained-release, injectable drug delivery products.

These are products that can be small enough to be inserted into the body via an incision as small as two-thousandths of an inch across and have the ability to release drugs for months or years after a single application.

Our goal is to become the world's leader in miniaturized drug delivery systems.

Our main focus has been on developing products for the back of the eye.

These are diseases which we believe are very serious and underserved, and represent an estimated multi-billion-dollar market opportunity.

An estimated 10 million people suffer from potentially blinding back-of-the-eye diseases in the US alone.

A major problem in developing new treatments for back-of-the-eye diseases has been the difficulty in achieving therapeutic drug levels at the target site.

Eye drops simply don't penetrate to the back of the eye, and they've never been clinically proven to achieve therapeutic drug levels, and while taking drugs systemically, i.e., orally or intravenously, while that certainly can give therapeutic ocular levels, the amount that has to be taken this way often opens the doors to unacceptable systemic toxicities.

Over the past few years people have resorted to injecting drugs directly into the eye, and while this is effective, repeated injections into the eye, in some cases every couple of months for the rest of a patient's life, this is hardly ideal.

We have successfully developed tiny drug delivery inserts that can maintain therapeutic drug levels in the back of the eye for months or years after a single application.

We have developed two of the only three products approved by the FDA that provide long-term (inaudible) drug delivery to the eye.

We now have a pipeline with multiple products in development for eye diseases and other localized conditions.

There are now several generations of products, and these reflect the ongoing evolution of our Durasert technology.

Our first generation Durasert product, Vitrasert, was approved by the FDA in 1996 for the treatment of CMV retinitis.

That's an AIDS-associated infection.

Our second-generation Durasert product, Retisert, was approved for the treatment of posterior uveitis in 2005.

These products are both licensed to and sold by Bausch and Lomb.

Our third-generation and most advanced Durasert product, currently in clinical trials, is Illuvien.

Illuvien is now completing phase III clinical trials in diabetic macular edema, a huge indication affecting approximately a million patients in the US alone.

About 10% of all diabetics will develop DME at some stage in their disease.

In terms of dollars, the DME market has been estimated at between $1.5 and $3 billion annually in the US, and there are currently no FDA-approved drugs for this disease.

Illuvien represents the next evolution of stage and insert design, and if approved would be the first drug treatment for DME.

Illuvien is so small that it can be placed into the eye via an inserter two-thousandths of an inch across, and very importantly, this can be done in an office visit.

Illuvien inserts are designed to release drugs for either 1.5 or three years after a single application, depending on the dose.

Our partner, Alimera Sciences, is conducting two phase III clinical trials of Illuvien in DME and supporting investigator-sponsored phase II trials of Illuvien in wet-AMD, dry-AMD, and retinal vein occlusion.

At the end of December, we were very pleased to announce the top-line two-year data from the phase III DME trials.

Almost a thousand patients who'd already lost significant vision were enrolled into the phase III trials, and patients were randomized to receive either a low-dose Illuvien, high-dose Illuvien, or control.

All patients could receive laser treatments as required, and laser is the only other therapy is approved and is effective in DME.

Results showed that almost twice as many patients treated with Illuvien, either the high dose or low dose, almost twice as many actually gained significant vision compared to control, and by significance I mean three or more lines on an eye chart.

We were also very encouraged by the side effect profile for Illuvien.

Based on these data, our partner, Alimera, has announced their plans to file a new drug application on an NDA for the low-dose Illuvien, in the second quarter of this year.

Now, I should point out that while these trials are three-year studies, the FDA has indicated that they will accept two-year data for approval with a commitment to provide them with three-year data when available.

Alimera plans to request priority review for the product, which if granted could mean a decision as early as fourth quarter this year and potentially first sales in Q1 2011.

We're very pleased with how smoothly the phase III Illuvien program has progressed.

Alimera's execution has been outstanding and we look forward to the filing of the NDA.

Now in terms of the financial arrangements between the two companies, the most important points of this transaction for Psivida investors are number one, Alimera is obligated to pay all of the development costs for Illuvien.

That's including costs for other indications such as age-related macular degeneration and retinal vein occlusion.

On approval of an NDA for DME, Alimera is obligated to pay us a $25 million milestone payment, and point three, Alimera is obligated to pay us 20% of profits on sales of Illuvien and that's calculated on a country-by-country, indication-by-indication basis.

In addition, Alimera has issued us a $15 million conditional note at an annual interest rate of 8%, so they're currently paying us $300,000 per quarter.

In April of this year, though, the interest rate goes up to 20%, and Alimera is to start paying us the principal at $500,000 per month.

As Len will describe shortly, our expectation is that these and other anticipated payments will be sufficient for us to execute on our strategic plan.

Further, under certain instances such as certain IPOs, acquisitions or other liquidity events, the note -- that's $15 million -- would be payable in full immediately.

Now, this is a great economic deal for us, and it's also very important to recognize that we have an extremely good and very experienced partner in Alimera.

Alimera is headed by Dan Myers, the former head of Novartis Ophthalmics North America.

When he set up Alimera, he brought with him the heads of regulatory affairs, clinical development and marketing at Novartis Ophthalmics North America.

They now hold the same positions at Alimera under Dan.

This is essentially the same team that led the development, FDA approval and commercialization of Visudyne.

That was a $300 million a year product for wet-AMD.

Alimera is very focused on Illuvien.

It's their only clinical stage product.

They have raised approximately $100 million in a series of financings, the most recent, $10 million, of which was an [exercise of warrant] after the phase III data was announced.

Now, while we're all obviously very excited and optimistic regarding the outlook for Illuvien, there are many other important programs under way at Psivida.

We have a collaboration agreement with Pfizer with respect to the Durasert in ophthalmology, and Pfizer is our largest shareholder, having made two equity investments as part of this collaboration agreement.

They now own about 10% of our stock.

This collaboration is progressing well.

We continue to receive research and development funding of $500,000 per quarter, and we're very optimistic about this program.

Unfortunately, due to confidentiality issues I can't give you any details as to how the work is progressing at the moment, but I do look forward to providing more information on future calls as this development work progresses and as milestones are achieved.

We're also hard at work on another key technology in our portfolio, BioSilicon.

BioSilicon is a bioerodable form of silicon that can be manufactured using techniques common in the semiconductor industry.

Basically, we create a honeycomb structure of nanopores in the silicon, and this resulting structure then becomes bioerodable.

BioSilicon has the potential to deliver a wide variety of drugs, including (inaudible) chemical entities, peptides and proteins.

We believe this technology could be extremely valuable in the treatment of a range of diseases in many medical fields.

To sum up then, we've made great progress over the last few years at Psivida but 2010 could be truly transformational for us with the Illuvien NDA filing and advancements of our other development programs.

I'm now going to turn the call over to Len, who will take you through the financial results for the quarter.

After Len is finished, I'll have a few summary remarks and then we'll take our questions.

Len.

Thank you, Paul, and good afternoon, everyone.

I will take a few minutes to review with you the second quarter results that we issued this afternoon.

For the second quarter ended December 31, 2009, we reported revenues of $3.4 million, an increase of $460,000 from $3 million reported in the second quarter of last year.

This increase was predominantly due to the receipt of conditional note payments and development cost reimbursements from Alimera during calendar year 2009.

These amounts were recognized as revenue on a straight-line basis through December, 2009, which represented the end point of our performance obligations under the Alimera collaboration agreement.

They also included a cumulative catch-up for the pro-rata period from the March 2008 agreement date to the date that each payment was received.

Substantially, all of our revenues in each period were attributable to the Alimera collaboration agreement.

Any cash received from Alimera after December 31, 2009, will be recognized as revenue upon receipt or at such earlier date, if applicable, on which the amount to be received is both fixed and determinable and reasonably assured of collection.

Predominantly on the basis of the expected receipt of conditional note payments during the next two quarters, including $500,000 monthly principal payments scheduled to commence in April, we project total fiscal 2010 revenues attributable to Alimera of approximately $9.2 million compared to approximately $11.8 million for the fiscal year 2009.

This projected decrease primarily reflects the completion in December 2009 of the performance period during which all of the Alimera deferred revenue amounts have now been recognized as revenue.

With respect to our Pfizer collaboration agreement, we continue to receive research and development funding of $500,000 per quarter.

Cumulative Pfizer payments to date of approximately $4.8 million are recorded as non-current deferred revenue on our balance sheet at December 2009.

Because we are unable to define the time period of the company's overall deliverables and other obligations under the Pfizer agreement, none of these amounts are currently being recognized as revenue in our financial statement.

Net loss for the second quarter was $24,000, or $0.00 cents per share compared to a net loss of $870,000, or $0.05 per share for the prior year period.

Research and development expense for the second quarter totaled approximately $1.7 million, a $330,000 decrease from approximately $2.1 million reported in the second quarter of fiscal 2009.

This decrease was primarily due to reduced UK-based operating expenses resulting from completion of our BrachySil dose range and clinical trial and the assumption by Intrinsic of certain BioSilicon manufacturing responsibilities under a February 2009 supply agreement related to its exclusive license of food science and nutriceutical applications of BioSilicon.

General and administrative expense totaled $1.8 million in the second quarter compared to $2.3 million in the corresponding period of the prior year, a decrease of approximately $500,000.

This decrease was largely attributable to the absence in the current year period of a $667,000 loss provision on a note receivable recorded in last year's second quarter, partially offset by an approximate $100,000 increase in stock-based compensation resulting from June 2009 and November 2009 stock-based awards.

As a result of the year-over-year increase of revenues and the decreased levels of R&D and G&A expense, our loss from operations decreased from approximately $1.4 million in the prior year period to approximately $100,000 in the quarter ended December of 2009.

Non-operating income decreased by $200,000 to $79,000 for the second quarter of fiscal 2010 compared to $277,000 for the second quarter of fiscal 2009.

The net decrease was primarily related to the change in the valuation of our outstanding investor warrants that have exercise prices denominated in Australian dollars, which is different than the Company's US dollar functional currency.

As we discussed last quarter, because the potential exercise of these warrants would result in a variable amount of proceeds in US dollars, the fair value of these warrants at their respective dates of issuance were recorded as derivative liabilities subject to revaluation at each balance sheet date.

The revaluation of these warrants, determined using the Black Shoals model, is impacted by several variables, most notably net changes in both the company's share price and the US dollar equivalent warrant exercise prices, the expected remaining life of the warrants, and assumed stock price volatility.

Changes in the fair value of these warrants are recognized as other income or expense, a non-cash item in our statement of operations with a corresponding decrease or increase, respectively, in the balance of the derivative liabilities recorded on our balance sheet, which was $2.4 million at December 31, 2009.

Fluctuations in the fair value of these warrants, which could be substantial, will affect our future reported operating results until the last to expire of these Australian dollar warrants, principally through April of 2011.

Moving on to our six-month year-to-date results, revenues for the six months ended December 2009 totaled $6.8 million, an increase of $1 million compared to $5.8 million in the prior year period, due predominantly to our Alimera collaboration agreement.

R&D expense for the six months ended December 2009 totaled $3.5 million, an approximate $750,000 decrease compared to $4.3 million for the six months ended December 2008.

Consistent with the discussion of the second quarter results, this decrease was predominantly related to the completion of the BrachySil phase II clinical trials and the assumption of BioSilicon manufacturing responsibilities by Intrinsic.

And it also included an approximate $120,000 favorable foreign currency impact of the relative strengthening of the US dollar against the pound sterling.

G&A expense was $3.5 million for the six months ended December '09, a $1.8 million decrease compared to $5.3 million in the prior year period.

This decrease was primarily due to two factors -- first, the absence in the fiscal 2010 year-to-date period of $1.3 million of provision for losses on a note receivable recorded during fiscal 2009, and second, an approximate $500,000 decrease in legal audit and consulting fees primarily resulting from the Company having reincorporated in the US in June 2008.

As a result of the year-over-year increase of revenues and the decreased levels of R&D and G&A expenses, our loss from operations decreased from $3.8 million for the six months ended December 2008 to $220,000 for the six months ended December 2009.

Non-operating expense of $1.4 million for the fiscal 2010 year-to-date period compares to non-operating income of approximately $1.7 million for the corresponding fiscal 2009 year-to-date period.

This net change of $3.1 million was predominantly due to a $3 million year-over-year swing in the change in fair value of derivatives related to the Australian denominated investor warrants that I discussed earlier.

The non-cash expense of $1.4 million for the six months ended December 2009 was primarily due to a net increase in the market price of our shares during that period, which increased from $1.79 to $3.59, whereas the non-cash income of $1.6 million in the prior year period was primarily due to a net decrease in our share price from $2.90 to $0.94 during the six months ended December 2008.

The resulting net loss for the six months ended December 31, 2009 was $1.6 million, an approximate $275,000 increase compared to $1.3 million for the prior-year period.

I'd now like to move on to our cash balance.

At December 31, 2009, we reported cash and cash equivalents of approximately $5.1 million.

This represented a net decrease of approximately $800,000 compared to slightly less than $6 million at September 30, 2009.

The net cash decrease in the current quarter consisted of approximately $1.3 million of cash used in operating activities, partially offset by $484,000 of cash received from the exercise of certain US dollar investor warrants.

Cash used in operating activities was in line with the average of the most recent four quarters.

As Paul noted earlier, commencing in April of this year, we are scheduled to receive monthly conditional note payments, principal payments, from Alimera totaling $1.5 million per quarter, plus interest at an increased annual rate of 20%.

Assuming current operating expense levels, receipt of these payments from Alimera is expected to result in break-even or positive cash flow from operating activities beginning in our fiscal fourth quarter, ending June 2010.

In addition, we anticipate a resumption of quarterly Retisert royalty payments from Bausch and Lomb starting in July 2010, following the completion of an advanced royalty agreement that originated in 2005.

Based primarily upon the assumptions of Pfizer's continued payment of quarterly research and development funding, Alimera's continued funding of the development of Illuvien and Alimera's continued payment of the conditional note payments, we continue to believe that we can fund our operations as currently conducted through to the receipt of the $25 million milestone payment that would be due from Alimera upon an FDA approval of Illuvien.

Through these collaboration agreements and ongoing cost control, we are in a stable position with the opportunity to advance our strategic plan and to achieve some of the objectives that Paul has discussed.

I will now turn the call back over to Paul.

Paul?

Fine, thanks, Len.

Now, just a few quick comments before we move to the Q&A.

We have entered into a very exciting phase of development at Psivida.

In December we were very happy to get the top-line two-year date on Illuvien.

Based on this, our partner, Alimera, has announced their plans to file an NDA with the FDA in the second quarter of this year and to request priority review.

If granted, this could mean a decision as early as late 2010 and a favorable sales beginning as early as Q1 2011.

Illuvien is also in clinical trials for three other serious eye diseases and we're making great strides with our earlier-stage products.

Our collaboration with Pfizer is progressing well, and our other development activities are also accelerating.

These include bioerodable systems and long-term protein delivery systems.

In April of 2010, note payments from Alimera are set to very significantly increase, helping to bridge us to receipt of the $25 million due on FDA approval of Illuvien and future profits with payments.

So we believe that we're very well positioned for a very exciting time ahead, and at this point we would be happy to take your questions.

Operator, would you please initiate the Q&A portion of this call?

(Operator Instructions).

Our first question comes from the line of Juan Sanchez with Ladenburg.

Please proceed.

Good afternoon, guys.

The first question is whether or not Alimera is planning to share more analysis of the Illuvien data at their coming conference Angiogenesis Conference next weekend in Miami, and the second question is is the BioSilicon platform (inaudible) [you're advanced this] program into the clinic?

If so, can you be more specific in terms of the timing and what kind of indications are you going after?

Yes, to answer those questions in order, there will be a presentation at the Angiogenesis Conference in Miami on February the 20th.

That's going to be given by Peter Campochiaro, who is, I believe, the head of retina at Johns Hopkins' eye hospital, the Wilmer Eye Institute.

Yes, so like most academics he's probably still putting those slides together, so no doubt there will be additional information presented, but I'm not quite sure yet what that information will be.

With respect to BioSilicon, yes, we're continuing to make great strides in that.

We are looking initially at having this be a potentially very simple means to deliver proteins, but I've been doing this for quite a long time and until you actually have all of the bugs ironed out you, haven't got the bugs ironed out.

So when we get into clinical trials we'll be very happy to announce that, but we're not there yet.

Good, thank you.

(Operator Instructions).

Our next question comes from the line of Yale Jen with Maxim Group.

Please proceed.

Good afternoon and thanks for taking my questions.

You indicated that Alimera has the additional studies of AMD, the wet and the dry-related -- age-related macular degeneration and retinal vein occlusions.

Two questions -- first of all, would you be able to give us any sort of current status of those studies, and secondly, if these things come to fruition in the future to be indicated in those indications, what would be the economic condition -- or the benefit for Psivida?

Yes, those trials are, I believe, still enrolling patients at this [point].

Should the product be approved in those indications it would continue to be a 20% profit split with Alimera, so additional milestone payments.

Should I assume those studies were carried out mostly directed by Alimera at this moment and continue to be still going forward?

Yes.

Yes, you could assume that.

Okay, great.

Thanks a lot, I appreciate it.

(Operator Instructions).

We have a follow-up question from the line of Juan Sanchez with Ladenburg.

Please proceed.

Hi, guys.

My last question is on the NDA package, whether or not there is some additional non-clinical information that Alimera still needs to gather, or all the information is in and it's just a matter of putting together the electronic filing?

Typically, there's always last little bits of information, stability data, this kind of thing, that's being collected till the last minute.

I don't have that information available [at this time to] clarify.

Okay.

I do not know exactly the stage that Alimera is currently in, but I would anticipate that people are generally collecting the last little pieces of information for the file and (inaudible).

Okay, thanks a lot.

We have no further questions at this time.

I will turn the call over to Dr.

Paul Ashton for any closing remarks.

Well, thank you.

I'd like to thank you all for joining us today, and I look forward to speaking with you again next quarter.

In the meantime, if you have any additional questions please feel free to contact us directly.

Thank you very much.

Thank you for your participation in today's conference.

This concludes the presentation.

Everyone have a great day.