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Executives

Louis Drapeau - Vice President and Chief Financial Officer

Timothy Ruane - Chief Executive Officer

Analysts

Scott Henry - Roth Capital Partners

Tim Schwartzman - Roth Capital Markets

InSite Vision Inc. (OTCQB:INSV) Q4 2012 Earnings Call March 5, 2013 4:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 InSite Vision Incorporated Earnings Conference Call. My name is Shiquana, and I will be your coordinator for today. At this time, all participants are in a listen only mode. We facilitate a question-and-answer session towards the end of this conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr. Lou Drapeau, Chief Financial Officer. Please proceed, sir.

Louis Drapeau

Good afternoon, everybody, and welcome to InSite Vision's conference call to discuss our 2012 year end results and current operations. As the operator said, I am Lou Drapeau, InSite's Chief Financial Officer, also with me today is Timothy Ruane, our Chief Executive Officer.

Before beginning our 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 Form 10-K and Form 10-Qs, which identify specific factors that may cause actual results or events to differ materially from those described in forward-looking statements.

The content of this conference call contains time-sensitive information that may be accurate only as of the date of this broadcast March 5, 2013. The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

Now, I would like to discuss our financial results. Revenues for the year ended December 31, 2012 were $21.6 million, compared to $15.9 million for 2011, an increase of $5.7 million, or 36%. Revenues for the fourth quarter of 2012 were $5.4 million, compared to $3.1 million for the same quarter of 2011, an increase of 73%. The significant increase in total revenues for both periods was largely due to higher AzaSite minimum royalties from Merck.

For 2012, total AzaSite royalties from Merck were $19.5 million, compared to $13.9 million for 2011. Included in the AzaSite royalties for 2012 were $11.9 million of minimum royalty true-up payments required under our license agreement with Merck. In 2011, the royalty true-up payments from Merck totaled $3.9 million. Earned AzaSite royalties from Merck declined 24% to $7.6 million in 2012 from $10 million in 2011, which reflects the continuing decline in prescriptions for a AzaSite in the United States under Merck.

Our fourth quarter 2012 revenues included $2.1 million of earned royalties from Merck on net sales of AzaSite in the United States, compared to an earned royalty of $2.2 million for the same quarter of 2011, a decline of 5%. AzaSite minimum royalty true-up payments by Merck increased to $2.6 million in the fourth quarter of 2012, compared to none in the fourth quarter 2011 due to our agreement with Merck earlier this year to pay the minimum royalty true-up on quarterly basis versus annually.

For 2013, minimum AzaSite royalty under our agreement with Merck is $19 million, which is the final year of the minimum royalty commitments. Under our revised agreement, Merck will pay us quarterly through the fourth quarter of 2013, the higher of the earned AzaSite royalty or one-fourth of the $19 million minimum royalty which is $4.75 million. Merck may terminate the license agreement with six months notice.

Besivance, which is marketed by Bausch & Lomb globally for the treatment of bacterial conjunctivitis, or pink eye again saw a significant increase in net sales for 2012 compared to 2011 Insite Vision recorded $2.1 million of Besivance royalty revenue in 2012 compared to $1.2 million in 2011, an increase of 75%. Fourth quarter 2012 Besivance royalty increased 32% over the fourth quarter $2011 to $660,000.

Now turning to expenses, research and development expenses for 2012 were $15.5 million compared to $7.3 million in 2011. Q4 2012 R&D expenses were $4.1 million compared to $2.9 million for the same quarter of 2011. The increased for both, the 2012 year and the fourth quarter of 2012 was due to our investment in the ongoing double Phase 3 study of AzaSite Plus and DexaSite for the treatment of blepharitis and the BromSite Phase 3 study for reduction of pain and inflammation after cataract surgery.

General and administrative expenses for 2012 were $5.8 million compared to $5.6 million for 2011. G&A expenses for the fourth quarter of 2012 were $1.4 million compared to $1.2 million for the same quarter in 2011. While overall reflecting our stable corporate cost structure and headcount, the small increase in 2012 was due to increased financial reporting and investor relations services. Our net loss for 2012 was a $8.3 million or $0.06 per share compared to a net loss of $6.9 million, or $0.06 per share in 2011.

For the fourth quarter of 2012, our net loss was $1.8 million or $0.01 per share compared to $3.2 million or $0.02 per share for the same quarter of 2011. At December 31, 2012 Insite Vision had cash, cash equivalents and short-term investments of $9.3 million, which represents the usage of cash of $3.9 million for the fourth quarter of 2012 compared to a usage of $2.9 million for the fourth quarter 2011. The increased usage of cash during 2012 is principally due to the double Phase 3 study and the BromSite Phase 3 study as noted before, and these studies and their expenses will be tailing off in 2013.

We are currently in the process of monetizing our Besivance royalty stream with the expected completion of this non-diluted financing this month, we anticipate we will be able to fund our ongoing operations through the end of 2013 and beyond. Lastly, I'd like to give you an update on our non-recourse AzaSite notes, which are solely serviced by the North American AzaSite royalties from Merck and are not secured by any other asset of Insite Vision. The notes accrue interest at 16% payable quarterly and have a principle balance of $51.9 million at December 31, 2012.

Assuming that Merck does not terminate our agreement, the notes will have a principle balance of about $41 million in the fourth quarter 2003, when final minimum royalty payment is received. After that, unless AzaSite site sales increase significantly from their current level, we could be in default on the notes by mid-2014. Importantly, the situation impacting our note holders has no effect on our operations or on our ability to advance our late-stage product candidates in their development.

Now, I would like to turn the call over to Tim Ruane, our CEO. Tim?

Tim Ruane

Thank you, Lou. I am pleased to speak with you today to report on our fourth quarter and full year 2012 performance, update you on our partners and business development efforts, provide IP legal updates and I’ll close with an update on our late-stage clinical trial and anticipated results. As usual, we will be taking questions at the end of the call.

During the fourth quarter, we continue to work with our partner Merck as a follow-up to the August 13th announcement, where we renegotiated the schedule of payments on the AzaSite minimum royalties. At that time, if you remember default on our non-recourse debt which was approximately $58 million in principle at that time was not only pending but highly likely.

Fortunately, through our efforts Merck agreed to restructure the going forward payment schedule and included makeup payments back to the fourth quarter of 2011, which allow us to avoid default at the end of the quarter and made key additional principle payments in both, the third and fourth quarters of this year. This renegotiation obviously avoided the default, but also managed to reduce the debt principle from the $58.5 million at the end of 2011 to $51.9 million at the end of 2012.

Today, as Lou mentioned assuming Merck does not terminate the agreement by April 2nd, we expect to receive three additional payments of $4.75 million each over the next three quarters which could reduce the principle to $41.2 million by the end of 2013 when the minimum royalty payment ends and we revert to receive an organic 25% royalty.

Obviously, this business development activity provided us with time. Approximately eight quarters by our calculations closer to seven quarters now to continue to work with both, Merck on addressing the AzaSite performance and also time to work with the note holders to find solutions to their debt situation.

We’ve been quite active on both fronts since then. And although we have no announcements to make today, simple math makes one thing perfectly clear. If by the end of 2013 the AzaSite prescription trends have not reversed, the ongoing declining trend, in fact have grown in 2013 by more than 50%, the royalty revenues will not service the interest on the debt. That means the lowest principle amount that will be will be $41.2 million in the fourth quarter of 2013 when we will begin to repeat the same experiences toward default we went through during the first three quarters of 2012. If the solution to the debt is not indeed found, default on these non-recourse notes will occur sometime between Q1 and Q3 of 2014 depending upon AzaSite sales levels and whether they decline further.

With regard to Bausch & Lomb, we continue to be very pleased with the progress they are making on the global commercialization of Besivance. As Lou mentioned, their commercial success with Besivance has allowed us to run a business development process whereby we are seeking to monetize that royalty stream into a non-diluted financing. We anticipate completing the process this month.

So as I typically do let me transition now to the directly controllable part of our business. During the first quarter, we continued to execute on our intellectual property legal objectives, but we have little new information to disclose. With regard to our ongoing patent interference litigation with the University of California San Francisco, or UCSF we are continuing to integrate our efforts with Merck and we are still awaiting a ruling from the Federal District Court in Washington D.C. We have no further guidance or information on the timing of the decision at this time.

With regard to Paragraph IV ANDA case with Sandoz, we continue to be pleased to have full strength of Merck defending the ANDA case and our routine interactions with Merck to careful coordinate both cases as they both progress along specific court designated timelines and instructions. To that end, during early December, additional expert witness depositions were arranged and completed on behalf of the court, and since then we have been going through court mandated mediation meetings, preparing pretrial motions and refining our legal position following the expert testimony in December. We are now advised that if this matter proceeds to trial it will be in July 2013. As a reminder, the 30-month stay in the ANDA case ends in November of 2013 on the last AzaSite minimum annual royalty period. Moving forward to 2013, we will routinely update you on the situation as we have more information to report.

Now onto our late-stage clinical assets in progress, in terms of our R&D investments to advance the pipeline, I'll begin with BromSite Phase 3 study which has not. I repeat, not, yet been unblended. As reminder from July 31st to November 29th of last year that's four months, we enrolled a total of 268 patients across 14 sites on the BromSite Phase 3 study. On January 13th, we announced completion of the study as the last patient went off the follow-up period and since then we've been working closely with our CRO to cleanup and complete the database in preparation for unblinding and analysis. As is also typical, we resubmitted our final statistical analysis plan or SAP to the FDA for a final sign off prior to unblinding. The FDA has 30 days to review and approve this SAP and we are simply awaiting their sign off. That study results from the BromSite Phase 3 are pending and eminent. We did this final SAP submission to the FDA as we are simultaneously doing the exact same process with certain European health authorities who indicated they wanted a slightly different analysis plan using the same endpoints and we did not want to get into a situation with the two SAPs with somehow be at odds with each other.

As we have stated earlier, we believe unlocking the pathways to filings in both, the U.S. and Europe are important to our partnering efforts. Similarly, we have not yet initiated enrollment on the second Phase 3 BromSite study as we are awaiting these SAP sign-offs which is obviously directly applicable to the second Phase 3 study. As evidenced by the enrollment of the first Phase 3 study, in our clinical team hands these studies can be executed quite quickly. These studies are positive could allow us and/or a partner to file European applications for BromSite in 2013 and U.S. NDA in 2014.

In summary, and for those of you who keep calling me to ask what the problem is, there is no problem we see with the study. We are simply doing our jobs to make sure we do the best job possible in aligning the regulatory requirements of both, the U.S. and the European health authorities to get maximum value out of the current and existing data sets and therefore the best regulatory and commercial pathway forward. We think that puts us in the best partnering position.

The next thing you will see on the BromSite Phase 3 study be the primary endpoint results and its P value in form of the press release. At an upcoming banking conference, we'll be webcast presentation we'll be announcing a more robust analysis of primary, secondary and other endpoints. This presentation will also be posted to our website at the time. I look forward to reporting these results to you in this quarter.

With regard to the double Phase 3 study from November 16 of 2011 to September 9th of last year. That's 10 months we enrolled 907 patients with moderate to severe blepharitis across 44 study sites. We anticipate completion of the study soon as of last Thursday’s update a mere 22 patients were still on study in the follow-up period.

In summary, and again for those of you how keep calling me to ask what the problem is, this is a very large study with the six month follow-up. The next thing you see on the double Phase 3 study will be completion of the study in the form of the press release and any additional guidance we have, if any, as to the potential timing of results.

Following that press release we will begin working closely with our CRO on data entry cleanup and completion of the database in preparation for unblinding and analysis, but as a reminder, this is the largest and most quantitative Phase 3 study ever done in blepharitis and accordingly we anticipate a longer process, longer than the BromSite Phase 3 study for example between completion of the study, locking of the database and unblinding. Our current estimate for announcing the top line results of this study is at the end of Q2 of this year.

I appreciate your patience. I know that people are nervous about there not being an announcement of the data yet, but I can assure you this is an exciting time from where we sit at Insite Vision.

Operator, we'd be happy now to open the call to questions.

Question-and-Answer Session

Operator

Yes, sir. (Operator Instructions). Your first question comes from the line of Scott Henry. Please proceed.

Scott Henry - Roth Capital Partners

Thank you. A couple of questions, Tim. For starters, entering a new year, did you want to put any guidance out there for spending on SG&A and R&D to help us with our models?

Timothy Ruane

At this point in time, Scott, I don’t think we are, because obviously we think we have a monetization of the Besivance royalty right in our hands and want to guide after we get that done.

Scott Henry - Roth Capital Partners

Okay. So, you sound pretty confident that that will be the plan to monetize the Besivance royalty.

Timothy Ruane

To be honest, we had talked and as early as last week with a board meeting that we hope to have it done as well as have word from the FDA on our SAP to have that ahead of this event, so we would be talking about 2013 guidance on spend, the additional Phase 3 study in order to do that, but we just between getting final things done. It did not happen by yesterday at five.

Scott Henry - Roth Capital Partners

Okay. And then with the ongoing patent litigation AzaSite, it's not clear that you have a lot of motivation to put a lot of time and resources into this process. Are there possibilities of a the settlement discussion, or somehow to make sense that everyone is working in the right direction?

Timothy Ruane

It's an excellent question, but let me kind of lead back up to the first part you made. I think, we are highly motivated in putting a lot of our intellectual resources and time, but not necessarily shareholder capital in addressing both of these issues, both in the court system. Now obviously Merck is handling the full expense of the ANDA case. That was a renegotiation we announced in 2011, because we are originally responsible for it including their expenses and we have been bearing the expense of the USPTO case from the beginning.

Obviously from time-to-time as we get to certain either logical points in the litigations or court mandated points as we have just entered with the ANDA case with the subject of settlement has come up between us and Merck and we've had discussions with the involved parties.

Now I can see what people would think we wouldn't be quite motivated on that, because if we didn’t settle, we'd be settling with the note holders' money, not our money because we don’t see the proceeds of that obviously and obviously any settlement the typical settlements for an ANDA cases you let an authorized generics in earlier, which obviously would affect when a generic would come in. Typically these are done I think the most common one. I have seen six months earlier the settlement of the case. And obviously if we were to settle with the UCSF any upfront payment that they would want, any back payments or any future-looking royalties, goes directly towards in a 50-50 offset between us and Merck and also goes against the minimum royalties.

So, we talked quite a bit about it. We've looked at it quite a bit, we've looked at the issue the cleaning this up now with the minimum royalties in front of us might give us the maximum amount of way to get the settlement, but so far we really haven’t reached agreement with either UCSF, with Sandoz or come to meeting of the minds even with Merck and ourselves about that, but you can bet we talk about it, work on it quite a bit. Similarly, that's obviously part of our discussions with the note holders.

Scott Henry - Roth Capital Partners

Okay. Great. Thank you for that color. Shifting to pipeline located double trial readouts in late 2Q and you do a confirmatory trial for both, the AzaSite Plus and DexaSite, should we be thinking about an NDA in the first half of 2015? Would that be the timeline they would seem to make sense when I look at it?

Timothy Ruane

Well, I think the first thing we have to do too is obviously get the readout of the results and find out are we doing a two-arm study, meaning just DexaSite against the DuraSite or are we indeed doing another four-arm study and what that would cost and what the size it would be based on the data that we have, but if you want to look at the worst-case scenario I guess that we have to repeat the second Phase 3 study because our P values is like 0.05 and not highly significant where we could file early. Under that scenario, I think we’ve shown that from the time it would take us to activate the study to completing enrollment we are looking at the last time was 10 months, let's say 10 months again maybe it's a little faster because we've done it once before.

Scott Henry - Roth Capital Partners

Okay. That's fair. And shifting to BromSite just remind me have you started the second Phase 3 trial yet?

Timothy Ruane

We have not. Simply because we are waiting for the European authorities to sign off on the way they want to view the primary and secondary endpoints and similarly we have to coordinate that with FDA. Because what we really want is, both regulatory authorities to look at the same Phase 3 study and say it meets our needs.

Now, we're not talking about different endpoints. We're talking about different statistical analyses of the same endpoints and how we can line them up, and Europe was looking at it just a little bit differently than the U.S. and that's germane to second study, but in terms of clinical trial material we already have it ready to go. In terms of the [CRO] exactly who were to use we have quote and they are; and we've begun pre-work in that. We're going to be using the same CRO again, so this will be something that if we put some fuel in the tank, get the read on from Europe, pull the trigger in all likelihoods we anticipate again a very fast enrollment period and pretty fast results, because started that what July and we're going to have a readout March. We would like to have those results ideally by year-end.

Scott Henry - Roth Capital Partners

Okay. The final question, DuraSite 2 next-generation drug delivery system, can you talk about kind of the progress over the past quarter and how we can come to gauge progress on that system and what are the metrics we should be thinking about?

Timothy Ruane

Okay. Well, I'll give one piece of info and that we submitted data from multiple abstracts of the submissions to ARVO and one of the ones that has been accepted. We'll be putting out a press release with the title of all of them at the appropriate time, but one of them is on the pivotal DuraSite 2 data which uses ketorolac. That system looks just spectacular. Since that time we are going to confidentiality with multiple interested parties review the data, talked about the different ways to look at it and right now I think we’re kind of in a holding pattern that we are still waiting for the USPTOs which is everybody knows is slow at best, backlogged at worst and now obviously subject to sequestration type of delays we are just waiting for a notice of allowability on the seminal foundational patent at which we would then pay the fee and wait for final issuance of the patent.

So, we will have full data set of that in the public domain at ARVO as well as other data from what we are doing and we've been formulating it ourselves on certain drugs that we have in our pipeline, because we don’t think there’s any reason to move forward with a DuraSite formulation unless it's something that's already beyond pre-clinical, so we're really looking at if this patent issues as we believe it will, this is going to be the whole new very superior platform for us to move forward our own pipeline and really to that end we started talking parties and looking for back of the eye indications and back to the eye API that otherwise might have to be injected into the eye where we might be able to use DuraSite 2 to get into the posterior chamber.

And as you know, having the ability to even think about getting high concentrations in the anterior chamber which we've clearly proven in man and getting into the posterior chamber which we improvement in animals and that was with DuraSite. If we can do it with DuraSite 2 the potential to replace into vitriol injection or largely supplemented with a topical eye therapy that is a significantly different market we're competing in today.

Scott Henry - Roth Capital Partners

Okay. Great. Thanks for taking the questions and I look forward to seeing you guys at our conference in a couple weeks. Hopefully, we’ll see some of BromSite data there.

Operator

Your next question comes from the line of [Derrick]. Please proceed.

Unidentified Analyst

Good afternoon. I have two questions. First, is there any indication at all that Merck is going to try to move a AzaSite this year and do something about the declining sales. And two, have there been any advances with potential foreign partners with any of the products including AzaSite?

Timothy Ruane

Let me address the first question. We obviously are in routine discussions with Merck. I would have to say at this point in time we are not bullish that there will be any change in the situation by Merck and even if there is a change it will be too little, too late. As I said in my scripted remarks, sales on AzaSite would have to increase 50% this year to have the North American royalty rate service the interest rate on the non-recourse notes. We are not aware of any clinical trials ongoing or plan by Merck and we are not aware of any new promotions or any other efforts to change the trajectory of declining week-on-week scripts, so that’s why once we got through the period of renegotiating the timing of the minimum royalties that would buy us more time to see if they were going to come up with anything different or if we could find a way to work with a note holders to make the notes go away.

On the second question, we have during 2012 routinely reported on our efforts to unlock the regulatory pathways for a AzaSite, for the blepharitis program and for the bromfenac programs in Europe. We have also been working with the contract manufacturing organizations to find European appropriate supply chain. We believe we have answered all of those questions and we have been an active partnering discussions for Europe, including AzaSite.

Unidentified Analyst

I just find it so hard to understand why Merck bought out whatever that company was called and then does nothing with the product. Do you have any idea what they’re up to?

Timothy Ruane

Big companies make mistakes all the time and they can afford to make them. While the part of $431 million for Inspire Pharmaceuticals to us is unthinkable. It's a rounding error on their quarterly income statement.

Unidentified Analyst

By and large what it sounds like it is that come next year the note holders is just going to take over the AzaSite royalty and that will be the end of it?

Timothy Ruane

Correct. If nothing is done, and we just accept the status quo, it will go off our book some time that will vanish from our balance sheets either Q1 if sales continue to decline. Q2 if they decline maybe a little, or Q3 if they are on kind of the steady course. At that point in time, we would book a revenue and the debt would be off our books.

Unidentified Analyst

So, when you say nothing is there any possibility that you see that something positive might happen?

Timothy Ruane

Yes, or we wouldn’t keep working on it and talking about it.

Unidentified Analyst

Are you at liberty to say what the possibilities might be?

Timothy Ruane

Not at this point, but our goal simply would be to find a way to make the debt go away.

Unidentified Analyst

And keep the product?

Timothy Ruane

Obviously, if we made the debt go away, the North American royalty stream would start our income statement and balance sheet which I think would be quite well rewarded by the equity markets.

Unidentified Analyst

Well, if you can find a way to do it, it seems to me be a miracle then.

Timothy Ruane

We don't like to be overconfident, but we like to be confident in thinking that we know what we are doing.

Unidentified Analyst

Time will tell. Good luck.

Operator

(Operator Instructions). Your next question comes from the line of (Inaudible). Please proceed.

Unidentified Analyst

Hello, everybody. This is (Inaudible) on the investor board. Tim, I’d like to know is there any money coming in the foreseeable future as income? The reason I asked that question is because of the size of your personal compensation makes me think that there must be something wonderful on the horizon as far as income is concerned. Can you fill this in please?

Timothy Ruane

By income do you mean, revenues?

Unidentified Analyst

Yes. I do.

Timothy Ruane

Well, obviously right now the nearest term revenue opportunity we have is the BromSite following the second Phase 3 an NDA and then revenues if we keep the product rights ourselves, or revenues that would come in from the royalty stream from that. Additional sources of revenues would be a European partner who could file a AzaSite first, BromSite second and hopefully the blepharitis program addition. But in terms of cash coming in, the next likely non-dilutive financing will be the monetization of the Besivance royalty.

Unidentified Analyst

What was the timeframe to that?

Timothy Ruane

We believe it will be completed by the end of this month.

Unidentified Analyst

That's encouraging. How much cash left? Is that going to last too much longer? You think you are going to have to do more equity financing?

Timothy Ruane

At this point in time, we don’t know. We don’t think so. If we get the Besivance monetization done we'll have more cash to fund operations as Lou said through 2013 and beyond.

Unidentified Analyst

Okay, but you must be very optimistic to rationalize your personal situation here. That's the only thing I can say about. I just hope everything works out and we don't go broke.

Timothy Ruane

Well, we are not sitting here doing this as charity work on behalf of shareholders. We believe we are going to be successful. If we didn’t believe were going to be successful, we fold up the company and distribute the remaining cash.

Unidentified Analyst

Yes. Okay. On behalf of shareholders something coming in would be nice for the stock price so I assume.

Timothy Ruane

I don’t think anybody will disagree with you on that.

Unidentified Analyst

I am sure. They wouldn’t. I guess I did still have the view where I see any opportunities up and coming maybe I am too much of a pessimist. I don't know.

Timothy Ruane

We're considering the fact that we are going to be unblinding data that is eminent on three Phase 3 products that we own 100% of the rights of. I don’t see how anybody at this point could be more optimistic. We are better off than 99% of all small cap companies like us and that we have near-term wholly-owned late-stage assets where the work has been completed in 2012 in spite of everybody telling us they didn’t think we really get it done, we got it done and we are getting ready to unblind. I don't know how you could be any less optimistic for the prospects of the company at this point in time.

Unidentified Analyst

I would love to be more. I would love to be take a kick in the (Inaudible) here.

Timothy Ruane

I'll be happy to deliver it.

Unidentified Analyst

Okay. Thank you.

Operator

Your next question comes from the line of Tim Schwartzman.

Tim Schwartzman - Roth Capital Markets

Yes. Hi. I got a couple of questions. One just relates to the general accuracy of the statements you make in your presentation I now believe now from a May shareholders meeting presentation, May of 2012, slide 15 I heard you say we believe our blepharitis program will allow us to file one and hopefully to NDAs in the U.S. in 2013. And based on what I heard during the prepared remarks, you are not going to be filing any NDAs in the U.S. for either product in 2013. Is that correct?

Timothy Ruane

As we stated in May, that was our guidance at that time when we were accruing the study and we were looking at follow-up period. As we have re-guided the street every single quarter since then when we have provided 100% transparency on every Phase 3 study as to how many patients were on how many were coming off the study, we have been forced to re-guide everybody to the fact the number one the follow-up period in the amount patients that were making at the six month was much longer than we had anticipated and obviously that means the study was going to take longer to complete, so yes we have changed guidance since then. Every quarter, we've given an update on that.

Tim Schwartzman - Roth Capital Markets

Okay. Well, let me give you another example, because I believe this is part of the patent. This is now the original press release for the DuraSite 2 platform, so additionally Insite will be finalizing and announcing a broad novel licensing program with DuraSite standard drug delivery technology in the ophthalmology industry. That was six months ago and we've heard nothing about that since then.

Timothy Ruane

I have updated every quarter on the DuraSite 2.

Tim Schwartzman - Roth Capital Markets

The language this was six months ago. The language will be finalizing you know it’s not reasonable to believe that you're going to make the traditional press release about finalizing and announcing a broad and novel licensing program when you have nothing further to say on it, certainly no announcement of the novel licensee program for six months. I mean all that does is it just hype. If you've got something to announce and do you say you are finalizing something then shareholders who believe that announcement have a right to expect I think with the announcement of the licensing program will follow within a quarter or two at the most.

Timothy Ruane

Well, I hear your position on that and I respectfully disagree. We are working with all other larger companies and others who work at a slower pace and in order to figure out what a licensing program would be you have to get in and test the waters. You also have to get the patent issued. We don’t control the timing of the patent office. We had hoped based on all the experience we’ve had in the past, the patent would issue by year-end, but as everyone in the industry knows, the patent office continues to be jammed up, continues to delay patent issuances on companies, all companies including ours and it's probably not going to get a subject to austerity issues.

Tim Schwartzman - Roth Capital Markets

Well, in responding to the previous caller's questions, you spoke of how optimistic you were. How can you possibly be? [The only] drug study, if you are negative then company, there's nothing left to the company, a very little left.

Timothy Ruane

What it's that you are referring to?

Tim Schwartzman - Roth Capital Markets

The ones that are pending the BromSite and the AzaSite Plus, the double study and you can be optimistic that you are going to a complete the study you can’t possibly be optimistic that they that the studies are going to successful that you have a positive announcement to make you.

Timothy Ruane

We described all along that that we think that the BromSite program is the lowest risk program we have in Phase 3 because of the design of the Phase 1, 2 data which was a randomized, double-blind study using the same endpoints in the Phase 1, 2 is in the Phase 3 and had a highly statistically significant of value over the DuraSite vehicle. We say that that's the lowest risk program, because we are essentially repeating that same study in a much larger two arm design and I think it's obvious that that is the lowest risk program.

On the blepharitis, program, we have always said that we thought that the DexaSite program was the next riskiest program and that the AzaSite Plus was the most risky program, because it had co-primary endpoints including the time to recurrence.

Tim Schwartzman - Roth Capital Markets

Louis, if I were you I would look at the dictionary definitions of hopeful and optimistic and understand the distinction. Yes you can be hopeful, for you to sit there and considering the company's performance over the last several years and the share price performance in particular, so you did the optimistic and express your feelings in terms of optimism as opposed to hope, well, your first-class sales man as far as CEO I have just more opinion about that to your first-class sales man, therefore I have got to stay.

Operator

Your next question comes from (Inaudible). Please proceed.

Unidentified Analyst

Yes. John (Inaudible) speaking, individual investor. I think what some of the people are trying to tell you Mr. Ruane is that the stock 52 weeks ago was $0.50. If all of these positives great solid announcements you continue to make quarter after quarter, why would the stock be $0.28 today, and why I don't understand. I think what some of them are trying to say to you is, this compensation must stop. We are shareholders. We do have something to say. If you remember correctly, you have the job because the other CEO got ousted from the company, so I think what people are saying is you can't come on quarter after quarter and tell us how great things are and you go to investor conferences and you can't even get the price up, so I mean. I think that's what they are trying to say. You can't keep getting this compensation and need board of directors can't keep throwing the money out at you people with the hopes that oh, yes, great so the stock goes to $0.55, and you will sell it and we get stuck. I have been 17 years and I have listened to it over and over and I understand what some of those people are saying. You need to start working on the price a little bit. You don't even care about AzaSite. That was our number one product for like six or seven years and now you are telling people, oh yes well the loan will go away. I just don't think you understand it. That's my opinion, I'll listen to your answer.

Timothy Ruane

I think, we understand it perfectly, I don't know if there was a question there, but I'll certainly comment on the fact.

Unidentified Analyst

Well, the question was your compensation. Why won't these compensation when the stock was 40% of its value.

Unidentified Analyst

The stock was 40% of its value, because Merck has done such a miserable job. It's clear to everybody. Is that the shareholders fault, or is it your fault for not doing more to get Merck cupping and going here. I know Merck is a big company. I understand it completely. I had some words with them, but it just has to stop. I mean, you'd say well, the loan is going to away. You think that that company with $41 million is not going to fight you for AzaSite? You are telling us that after January that if the loan goes away, you are going to keep AzaSite. Don't you think they are going to keep AzaSite?

Timothy Ruane

There's no ownership over AzaSite even in question here John. It has nothing to do with the.

Unidentified Analyst

Don't take control what AzaSite, the value of it?

Timothy Ruane

They have no involvement whatsoever with AzaSite. Merck controls AzaSite.

Unidentified Analyst

Okay. So, they give it up in January? They have no recourse against any other assets of the company. Their agreement is crystal clear. If you are asking do I believe they are doing to sue, the answer is no.

Unidentified Analyst

But they are going to lose $41 million.

Timothy Ruane

Correct. That is the bargain that they made. That's why it has a 16% coupon rate. Flipside of that is by the time they get paid, the last minimum royalty payment, if they are paid in full, they will be paid $70 million.

Unidentified Analyst

I believe that. I understand that. I understand that perfectly that 16%. My problem that I don't understand is, in other words AzaSite comes back to InSite Vision in January if Merck walks away from it?

Timothy Ruane

If Merck walks away from AzaSite or returns it to us, we get the product back and we have a 90-day obligation to attempt to re-partner the product. If we don’t find a commercially reasonable partner, which is going to be tough given the sales levels and the fact that nobody is going to pay us 25% royalty on the drug again.

Unidentified Analyst

Yes. Not when it's not doing any sales I mean.

Timothy Ruane

Exactly, then the asset is ours and the note holders simply get the same bargain that they get today, which is on the net a 21.5% royalty after Pfizer has paid and after [pay]. That's the best solution ever. If Merck announced to tomorrow, they will walk and given us back the asset, we'd be dancing.

Unidentified Analyst

Yes. Absolutely. I can understand that perfectly, but again don't you believe there is going to be a pipe down the line? You've only got money, all right so you are going to get maybe, I am going to get maybe $15 million, maybe, I don't know $15 million, $16 million, $17 million, $18 million, okay so there's another couple of quarters that will take you into the first quarter of 2014, but you are still going to need more money in order to close these deals. In order to close these trials, you are going to need more money. Is it going to be a pipe? What is it going to be?

It could be a variety of sources, but we do not know today, whether we have to have a pipe. We still own the rights to all of these products and the market today is putting a premium on de-risked Phase 3 programs. That's why we have maintained the rights. We could have partnered these drugs long time ago.

Unidentified Analyst

I understand that I have been thinking for a long time.

Timothy Ruane

Look, there certainly nobody at this table that has an ingrain desire to go do a pipe.

Unidentified Analyst

Well, okay. That's good. Knowing that, that also helps the shareholder. I mean because I have seen the stock go from 25 million shares to 30 million shares, to 50 million shares to now over a 100 million shares. I mean it just keeps going on and on.

Timothy Ruane

I hear you John, but you can't move forward looking in the rear view mirror.

Unidentified Analyst

I know that wouldn't be in the stock for 17 years if I felt that, I still have confidence in the company, but sooner or later we need to have I think what people are saying is, don't be so optimistic. Tell us the facts. I'd rather have that than okay it's going to be June and now it's not June, now it's going to be five months later, oh no. wait, it's going to be another five months. That's all I am saying is try your best to do the best for us. I mean.

Timothy Ruane

You know exactly what we are doing.

Unidentified Analyst

Okay.

Timothy Ruane

But we cannot control the external markets and how we get punished by Merck.

Unidentified Analyst

I know and obviously, it is so obvious that the market just does not, I mean let's face it. As long as you stay on the pink sheet, this is what's going to happen. I mean I haven't the money to get back on the NASDAQ. Yes. I mean got the price to get back on the NASDAQ. They talked about a reverse, maybe that's what you really need to go back and think about to get this price up to where somebody will buy. That's all I am saying.

Timothy Ruane

John, as a reminder, at the AGM meeting, two years ago.

Unidentified Analyst

I remember.

Timothy Ruane

We recommended and got contingent approval to do the reverse in preparation that if we got a pop, or if the debt went away and we didn't have negative equity, we'd have a very rapid move towards the major exchange.

Unidentified Analyst

Yes, but there are reasons to do reverse split. What I realize as an investor that many, many times a reverse split only saves a decimals of the company, but it hasn't been, Sun Microsystems and a few others have done reverse split, Citigroup and these things have worked out.

Timothy Ruane

That was exactly our position in the proxy. That was in the first year. That was our position in the proxy last year in which shareholders did not vote that in and that would be our position again this year. We completely agree that reverses which are a debt hold on holding a listing our reverses that are to improve the listing. We completely agree.

Unidentified Analyst

Well, I hope you'll look at that again. I voted in favor the last time and I thank you for the time.

Timothy Ruane

Thank you.

Operator

Your next question comes from the line of (Inaudible). Please proceed.

Unidentified Analyst

Hi. Thanks for taking my call. You touched on it on the last call, but if you could review the secured note holder for AzaSite if you think there is any at all possibility that they will if you do default on it, which looks likely if they can go after AzaSite Plus if it is approved.

Timothy Ruane

Good question. We have looked extensively at all of the agreements and gone through all of the different scenarios and one thing is perfectly clear. There is no tie to a AzaSite Plus at all and never was.

In the original Inspire agreement, there were two subject products in North America. One is AzaSite and the other is AzaSite Xtra. AzaSite Xtra was to be the extend the finish line product as it has issued intellectual property from another eight and a half years beyond AzaSite. Both of those products North American royalty stream would be captured by the note holders, so if AzaSite Xtra were to be developed and to get there one or two years ahead of time by Merck and bring the 25% royalty, it would be there. AzaSite Plus was included in the agreement as an option product and the option to license that by AzaSite expired six months after signature and it's no longer included.

Unidentified Analyst

Okay. That's good news. What has been the communication and the tone with the secured note holder.

Timothy Ruane

We had routine communication with them, normally following every one of these calls, we've also have lots of discussions with them about the situation, how it pans out. And to be honest, they are concerned, but they understand their position by the agreements. We would naturally like to find a way that was mutually acceptable to both parties to make the debt go away if we did that. There are a couple of really good things that happened to us one of the reasons AMEX wanted us off their exchange was with the debt on our books. We had negative equity.

Obviously to get back on, it would be great to have the debt gone, meet their market requirements and share price requirements, but the other thing is if we made that go way while the debt, while the North American royalty stream today from AzaSite is not enough to cover the 16% coupon rate, that would be a highly significant revenue stream to our income statement and bottom line.

Unidentified Analyst

Okay. Thank you.

Operator

At this time, there are no further audio questions. I would now like to turn the call back over for closing remarks.

Timothy Ruane

We appreciate everybody attending the call today. Lou and I will be in the office for the balance today. If there any additional one-on-ones or any questions you have. Thank you for your time and we will look forward to more announcements on the Phase 3 programs coming forward. Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.

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