Louis Drapeau – Chief Executive Officer, Vice President and Chief Financial Officer
InSite Vision Inc. (ISV) Q4 2008 Earnings Call March 4, 2009 4:00 PM ET
Welcome to the InSite Vision fourth quarter fiscal year 2008 financial results conference call. At this time all participants are in a listen only mode. (Operator Instructions). It is now my pleasure to introduce your host, Lou Drapeau, Chief Executive Officer, Vice President and Chief Financial Officer for InSite Vision.
Good afternoon, everyone and welcome to the InSite Vision conference call to discuss our full year and fourth quarter financial results. As I've already been introduced, my name is Lou Drapeau, the company's Chief Financial Officer and since November, the interim CEO.
Before beginning my prepared remarks, I'd like to remind you that the comments made during this conference call may contain forward-looking statements that involve risks and uncertainties regarding InSite Vision's operations and future results. I encourage you to review the company's filings with the Securities and Exchange Commission including without limitation the company's most recent Form 10-K and Form 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in our forward-looking statements.
The content of this conference call contains time sensitive information that may be accurate only as of the date of this live broadcast March 4, 2009. The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.
Today I will briefly review our progress over the last quarter. Following these remarks I will respond to questions that you've submitted via our website. So now let's begin.
As most of you are aware, the last half of 2008 was a time of important change for InSite Vision. In the fall we implemented a leadership transition which included my appointment as interim Chief Executive Officer, as well as the election of a new Board of Directors, including Dr. Evan Melrose, Rick Anderson, Tim Lynch, Tim McInerney, Robert O'Holla, and Anthony Yost. Dr. Melrose became Chairman of the company's board.
Working closely with our board, we undertook a comprehensive top to bottom evaluation of our business in order to develop and implement a well considered plan that will capitalize on InSite Vision's core asset, its cash, to build value for our shareholders and ultimately benefit patients.
Based on this analysis of our current product portfolio, market conditions and opportunities, in-house expertise, and our financial position, we have set a series of strategic priorities designed to enable us to achieve our objective advancing new and superior ophthalmic products for important eye care needs.
Today I would like to share our plans for 2009. Further, implementation of our strategy to drive shareholder value has already begun and on this call I will review some of our recent achievements.
The path forward in 2009 includes four primary pillars. First, support increased sales of AzaSite in the United States and abroad. Second, maximize the cash value of our current pipeline assets by seeking to enter into new development partnerships. Third, seek promising new late stage products and technology opportunities to end license or acquire to fuel our development activities or if the right opportunity presents itself, an M&A transaction. To that end we've engaged a major investment banking firm, Piper Jaffray and Co. to help source new opportunities for the company. And fourth, execute on our plan with operational discipline and cost containment.
Starting with the AzaSite, our ophthalmic product indicative for the treatment of bacterial conjunctivitis, we're working closely with our U.S. marketing partner, Inspire Pharmaceuticals to augment AzaSite sales among the specialty ophthalmic markets.
The product continues to perform well under Inspire's commercial efforts and sales were up 54% in the fourth quarter driven by a 30% increase in prescriptions. A substantial fraction of the AzaSite prescriptions are written by eye care physicians and in some case represent more than one bottle per prescription.
Yesterday Inspire announced that it entered into an agreement in the fourth quarter of 2008 with CVS Caremark, whereby CVS began stocking AzaSite in 6,400 pharmacies. In the near-term Inspire has committed to several activities to continue to drive sales, including patient and physician education and awareness campaigns and optimizing product reimbursement.
In addition, Inspire is planning to conduct technical studies of AzaSite in new indications, including Blepheritis. We're also focused on extending the availability of AzaSite internationally. We have submitted an application for marketing approval for AzaSite in Canada and anticipate receiving notification of results of that application before the end of the second quarter of this year.
This is later than we expected due to certain labeling details that are already being addressed. Once approved under our agreement with Inspire, Inspire is responsible for marketing of AzaSite in Canada. We are also seeking to secure commercial partners in Japan and certain key European countries. We anticipate finalizing these deals prior to the end of the second quarter of this year.
Currently we have partnered AzaSite in South Korea, four countries in South America, Turkey, and China. In all of these countries our partners are responsible for obtaining regulatory approval of AzaSite and commercializing the product after approval.
We anticipate the first international approval and commercial launch of AzaSite up in Canada will be in the first half of 2010. Secondly, turning to our current portfolio of ophthalmic products, including ISV-502 and our early stage product opportunities based on the DuraSite platform, we plan to continue to develop these existing assets as needed in order to pursue licensing opportunities that will maximize the cash value of these products.
In the fourth quarter of 2008, we completed our first Phase III trial of ISV-502, a topical combination antibiotic, corticosteroid product for the treatment of blepharoconjunctivitis. Blepharoconjunctivitis also known as lid margin disease is a chronic and difficult to treat disease of the inside and outside of the eyelid characterized by a variety of inflammatory symptoms.
There is no approved treatment for this frequently occurring condition. Knowing that results from the first Phase III were imminent, we made the decision to postpone the initiation of the second Phase III trial pending a review of the preliminary results.
The Phase III trial enrolled a total of 417 patients, randomized into one of three dosing groups comparing the anti-inflammatory and anti-microbial affects of ISV-502 compared to either AzaSite or a commonly used corticosteroid, dexamethazone alone.
The primary endpoint for the trial was the clinical resolution of all inflammatory symptoms present at the time of enrollment, which included lid margin redness or swelling, conjunctival redness or ocular discharge, and lid irritation in at least one eye. The secondary endpoint was bacterial eradication. Resolution or improvement of individual symptoms and safety were also assessed.
Preliminary Phase III study results announced in December indicated that ISV-502 was very well tolerated and improved clinical outcomes compared to a corticosteroid or antibiotic alone. However, the statistical significance was not achieved in all arms of the trial.
Based on these data, we'll be meeting with the U.S. Food and Drug Administration in mid-April to review these data and discuss the regulatory path forward for ISV-502. Although our projected development timelines for 502 have changed, we are encouraged by the data obtained in our first Phase III trial and look forward to the continued advancement of this product.
Given the consistent improvement of lid margin disease symptoms, the product's excellent safety profile and the lack of alternative treatment options, we are optimistic about the outcomes of our upcoming FDA discussions.
We plan to seek a partner before proceeding to the final phases of ISV-502's development and commercialization.
We are also seeking potential licensing partners for some of our early stage product candidates, as well as for several new applications of our DuraSite Technology. We announced today that we have been successful in completing the formulation and initial pre-clinical activities for a number of non steroidal anti-inflammatory drugs.
Now let's turn to besifloxacin. We announced in December that the FDA's Advisory Committee had unanimously recommended approval of Bausch & Lomb's besifloxacin ophthalmic suspension for the treatment of bacterial conjunctivitis, a product that is made by InSite's DuraSite drug delivery system.
We also understand that Bausch & Lomb is conducting a clinical study to determine the concentration of the besifloxacin in [ocmies humur] versus moxyfloxin and [cantifloxin] in cataract surgery patients. Yesterday Bausch & Lomb and Pfizer issued a joint press release announcing the co-promotion agreement involving both companies' prescription ophthalmic pharmaceuticals in the United States, including besifloxacin.
We are anticipating the approval and commercial launch of besifloxacin in 2009. InSite will receive a single-digit royalty on the global sales of the approved product. Our existing cash and existing sums from international InSite revenues, potential besifloxacin royalties and anticipated future licensing agreements will enable us to fuel our R&D pipeline applying our expertise in ophthalmology to identify and license or acquire in an optimized promising late stage new product candidates, either drugs or devices.
As mentioned, we have engaged Piper Jaffray to assist us in identifying promising strategic opportunities. We've also formed a board level committee to oversee a process for screening new product and or technology licensing opportunities with the assistance of management and our investment bankers.
InSite's leadership team has developed detailed criteria for our screening process. We will focus our efforts on ophthalmology and look for drugs or devices that are in late clinical stage all ready for the market.
Our ultimate goal will be to take InSite Vision to cash flow neutral or better with no or minimal fundraising. Finally, implementation of our strategy will be guided by milestone driven decision making and careful management of resources. To that end we implemented cost control measures and reduced operating expense through a streamlining of internal operations and a restructuring and reduction in force in December.
We will routinely evaluate expenses and continue to seek means by which we can enhance operating efficiencies. A disciplined combination of executing on plan and conserving our cash even when it requires difficult decisions will ultimately help build shareholder value and leverage our initial successes.
Turning now to financial results for the quarter, we have cash and cash equivalents totaling $37.5 million as of December 31, 2008. For the full year of 2008 we reported total revenues of $13.7 million. The net loss for the year was $21.3 million.
This is down from a net income of $5.5 million in 2007 due to the amortization of the upfront payments from the Inspire license agreement, which ended in April 2008, higher development costs for ISV-502, interest expense on the non recourse notes issued in the first quarter of 2008, and one time proxy and organizational restructuring costs.
As for guidance for 2009, we anticipate operating expenses will be substantially less than 2008. Due to the transformational activities planned for 2009, we will provide guidance as our strategic opportunities unfold.
As a last point I would like to address our communications with the NYSE Alternax Exchange. As we announced last December, the company received a notice from the exchange that InSite was not in compliance with certain continued listing requirements of the exchange. InSite has not been in compliance for many years but has been granted as Safe Harbor relief since our market capitalization indicated $50 million.
After June 2008 our market capitalization fell below this threshold and the Safe Harbor was no longer available. In January we submitted a plan to the exchange that would allow us to be in compliance with continued lifting requirements. After review of the compliance plan by the staff, the staff determined that the plan did not make a reasonable demonstration of the company's ability to regain compliance.
We have requested an oral hearing with the exchange to appeal this decision. We anticipate making this decision or this appeal within 45 days and if we are not successful with the appeal, the company's stock would be subject to the listing procedures from the NYSE Alternax. We have [PV], we believe InSite common stock would be eligible to trade, be traded, or be quoted on an alternative market.
I'd now like to answer some of the questions that were submitted prior to this call.
What is the status of the CEO search?
As many of you know, we've engaged an executive recruitment firm that's been conducting an active search. We've had a lot of interest in the position and identified several exceptional candidates. In order to make the most informed decision possible, on behalf of the shareholders the board has decided to first evaluate the target opportunities developed through our strategic process with our investment bankers prior to putting a new CEO in place.
During this period I have assumed the responsibilities of interim CEO, including overseeing the development and implementation of our go forward strategy, much as I did previously via [maran].
What is Inspire doing to penetrate the primary care and pediatric markets in the United States with AzaSite?
Inspire has made the strategic position to focus their AzaSite commercialization efforts on eye care doctors. Yesterday they announced that they were planning to start two Phase II clinical trials for AzaSite to treat Blepheritis. If successful this new indication could significantly expand the use of AzaSite in this indication.
While we continue to believe that the primary care and pediatric markets for AzaSite are very attractive, Inspire has not been able to find and accept a commercial partner or contract sales organization that will address these markets on terms that would be satisfactory.
What are you doing to market the stock?
Well we like our stockholders are disappointed with the performance of our stock and cannot control stock market activity. We are focused on building a strong successful company and long-term stockholder value and to that end have undertaken the many corporate and product focused initiatives discussed today.
What are you doing to advance the company's intellectual property?
We are in the process of filing patents for newly developed IP in the DuraSite, AzaSites, and corticosteroid this month. This IP was developed work in the past six months.
What is ISV doing in terms of a Plan B, in the event that Inspire is not able to deliver the necessary sales for AzaSite?
Under our agreement with Inspire they are required to pay InSite certain minimum royalties beginning in the third quarter of 2009, and ending five years later. While the amounts of these minimum royalties have not been disclosed, they are substantial. Should AzaSite not deliver the necessary sales to provide for these minimum royalties and Inspire does not pay us the minimum required royalty, Inspire would be in breach of the agreement. If the breach is not cured, the product would be returned to InSite.
Why is the share price of ISV declined more than the major industries in the past six months?
In my view there have been four major factors that affected our stock price. First, the relatively slow growth of AzaSite prescriptions relative to the initial expectations, particularly in the pediatric and primary care market segments; two, the ambiguous results of the first Phase III clinical trial of ISV-502; three, the lack of other positive news other than expense reductions in the period; and four, the dramatic flight of institutional investors and hedge fund out of the small cap biotech group.
As you heard today, we remain confident and are highly focused on building value for our shareholders.
What will happen to ISV's outstanding warrants if the share price does not go up to a level of the warrant strike price?
If the share price of ISV does not exceed the warrant strike price it is unlikely that the warrants will be exercised. If the warrants are not exercised they will expire at various dates shown in the table in our soon to be filed Form 10-K, the earliest which is March 2009, which is this month.
Does ISV have any options for refinancing its debt to achieve significant long-term savings below the current 16% rate?
There are always possible options in these troubled times. These notes could be available to purchase at significant discounts from their face value. We are alert to these possibilities and are prepared to act if attractive options are available. Remember that we have transferred a greater part of the commercial risk of AzaSite in North America to the note holders as the notes are non recourse to InSite.
Non recourses means that InSite is not obligated to pay these notes if the AzaSite growth is not sufficient to do so. To assume that risk most note holders will require substantial interest rate.
Could you explain how the endpoint minus the 502's first Phase III trials were set and why?
The clinical endpoints were agreed on with the FDA through discussions with ISV management and our clinical research organization [ORA], well before the start of the trial in December 2007. At that time based on my understanding, there was relatively little medical information about blepharoconjunctivitis available. So the FDA mandated its most stringent criteria, however, much has been learned since then which includes what has been learned from the results of our first Phase III trial.
We are cautiously optimistic that the FDA will see the results of our trial in a new light given the information currently available and allow us to proceed with a reasonable approach to the second Phase III trial.
Based on our clinical results today, we do believe that we have an efficacious product and plan to seek a partner to assist us in development and commercialization going forward.
What are the prospects for improving reimbursement coverage for AzaSite for managed care organizations?
As I noted before, Inspire is actively working to broaden the reimbursement coverage for AzaSite in the United States with considerable success. In general as we reimburse by most managed care organizations at the Tier 3 level and some at the Tier 2 level, this continues to be a area of focus for Inspire in 2009. At InSite we use HealthNet as our primary health insurance provider. AzaSite is covered on Tier 3 by HealthNet.
What license agreements for ISV-502 AzaSite Plus have been completed to date?
Currently ISV-502 is completely unencumbered by any license agreement for other than commercialized. As I noted before our intent is to seek a partner to assist us in its development and commercialization going forward.
Does the company's bonus plan permit management to receive a bonus if the company incurs a loss?
We subscribe to a well regarded survey to benchmark total compensation of our employees against peer companies. Most of our peer companies are in the development stage and are not profitable. All of our employees have a base salary, and a target bonus based on the achievement of certain objectives set by the board and long-term incentives, usually stock options that are intended to line employees with the objectives of stockholders.
This compensation structure is common industry practice and with our peers. In early 2008 the board approved a number of corporate objectives that would move the company forward. The board in 2009 awarded bonuses based on the objectives that were met.
So that's it for the questions. So I'd like to thank all of you who did submit the questions. They were very helpful.
To recap then, 2008 was a year of important transition for InSite in which it delivered solid financial performance overall. With a four prong plan in place to support the increased sales of AzaSite, the United States and broad, to manage the cash value of our current pipeline assets by entering into new development partnerships, to seek promising new late stage ophthalmic, biopharma and device opportunities to license or required fuel our R&D or the right opportunity presents itself, an M&A transaction, and to execute our plan with operational discipline and cost containment, we feel confident that the measures taken the past few months will enable us to successfully pursue our goal of advancing new and superior ophthalmic products for unmet eye care needs all the while building shareholder value. And that concludes our conference call today. I want to thank you for your time and your participation. Good day.
Thank you, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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