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Alimera Sciences (NASDAQ:ALIM)

Q2 2013 Earnings Call

August 12, 2013 4:30 pm ET

Executives

Richard S. Eiswirth - Chief Financial Officer, Principal Accounting Officer, Chief Operating Officer, Vice President, Treasurer and Secretary

Charles Daniel Myers - Co-Founder, Chief Executive Officer, President and Director

Analysts

Adam Darity

Simos Simeonidis - Cowen and Company, LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Alimera Sciences Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Rick Eiswirth. You may begin.

Richard S. Eiswirth

Thank you. Good afternoon, everyone, and welcome to the Alimera Sciences conference call to update you on our commercialization of ILUVIEN in Europe, and to review our second quarter financial results. A press release regarding these results was issued this afternoon and is available on our website. On the call with me today is Dan Myers, our President and Chief Executive Officer.

Before we begin our prepared remarks, I would like to remind you that various statements we make during this call about the company's future results of operations and financial position, business strategy and plans and objectives for Alimera's future operations are considered forward-looking statements within the meaning of the Federal Securities Laws. Our forward-looking statements are based upon current expectations that involve risks, changes and circumstances, assumptions and uncertainties. These risks are described in the Risk Factors and management's discussion and analysis of financial condition and results of operations sections of Alimera's annual report on Form 10-K for the fiscal year ended December 31, 2012, which is on file with the SEC and available on the SEC's and Alimera's websites.

Additional factors may also be set forth in those sections of our quarterly report on Form 10-Q for the quarter ended June 30, 2013, to be filed with the SEC in the third quarter of 2013. We encourage all investors to read these reports and our other SEC filings.

All of the information we provide on this call is provided only as of today, and we undertake no obligation to update any forward-looking statements we may make on this call or on account of new information, future events or otherwise. Please be advised that today's call is being recorded and webcast.

Additionally, adjusted net loss and adjusted net loss per common share, non-GAAP financial measures, will be discussed on this conference call. A reconciliation to the most directly comparable GAAP financial measures can be found in our press release, which is available on the SEC's and Alimera's websites.

And with that, I would like to turn the call over to Dan Myers, our President and Chief Executive Officer. Dan?

Charles Daniel Myers

Thanks, Rick. We are very pleased we've begun generating revenue from ILUVIEN sales in Germany and U.K. in the second quarter of 2013. Today, ILUVIEN has been used by 14 physicians in the U.K. and Germany to treat 30 patients suffering from the effects of chronic diabetic macular edema. As you may recall, one of the key outcomes from the FAME study was identifying the subpopulation of chronic DME patients. Patients with a shorter duration of disease, non-chronic if you will, responded as well to available therapies as they did to ILUVIEN. But with the chronic or longer duration disease patient, visual acuity response to ILUVIEN was significantly better during the FAME Study, indicating that these chronic patients were insufficiently responsive to available therapies and therefore had very limited options for treatment.

The initial response has been very positive among the early adopting physicians, as well as patients, with reports of important improvements in visual acuity. As a result of the early success, some patients have even been treated with ILUVIEN in their second eye. A specific example comes from Dr. Albert Augustin, head of the Department of Ophthalmology at the City Hospital in Karlsruhe, Germany, where a 68-year-old pseudophakic patient with macular edema, which was unresponsive to repeated anti-VEGF and steroid injections, showed an impressive anatomic improvement after an ILUVIEN injection in both eyes. The patient gained 2 lines of best corrected visual activity in both eyes over a 4-week period after the injection of ILUVIEN. The patient also tolerated the medication well and did not develop an increase in intraocular pressure. Physicians are seeing firsthand the potential benefit to patients using ILUVIEN.

It's important to consider the ILUVIEN uptake to date, in light of the market access environment currently in Europe and the hurdles this presents in patient acquisition of ILUVIEN, our teams have been working to overcome these since the initial commercial trial, but history tells us this can take some time.

The situation in the United Kingdom to date [ph] has been greatly affected by the National Institute for Health and Care Excellence or NICE, and their final appraisal determination in January to not recommend ILUVIEN for our labeled indication. However, as we announced in June, NICE's Appraisal Committee has issued a positive Appraisal Consultation Document or ACD recommending ILUVIEN for the treatment of pseudophakic patients with chronic DME considered insufficiently responsive to available therapies. We are hopeful that the ACD, which the Appraisal Committee is expected to discuss later this month, will lead to a new Final Appraisal Determination or FAD in early September, confirming the recommendation in the ACD.

We believe the implementation of the guidance, if published, will be supported by the National Health Service, resulting in adoption and uptake beginning as early as fourth quarter of 2013.

In Germany, the challenge is more complex, involving individual negotiations with 2 dozen key statutory health insurers and associations to secure reimbursement agreements for patients. Until these agreements are in place, patients in Germany are required to seek reimbursement through an individual funding request. The resulting administrative birth can take a number of weeks to conclude, and we believe this is partly responsible for the slow commercial adoption of ILUVIEN in Germany.

Today, the number of individual funding request under consideration for reimbursement in Germany is more than 3x the number of patients who've actually received ILUVIEN.

We believe our preparation for commercial launch in France is progressing well. As we announced last month, the Transparency Commission of the French National Health Authority issued a favorable opinion for the reimbursement and hospital listing of ILUVIEN by the French National Health Insurance.

We are pleased with the comparative clinical benefit rating we received, as only 11.6% of all new products under CT initial review in 2013 received this level or better. Additionally, we anticipate that patients will be reimbursed for 100% of the cost of ILUVIEN as part of the specific program for chronic diseases.

This opinion is expected to provide support in our pricing negotiations and discussions in the coming weeks. We anticipate these negotiations to take approximately 3 months, which could allow for the commercial launch of ILUVIEN in France in early 2014.

We continue to work on pricing and reimbursement in Italy, Spain, Portugal and Austria, but do not currently plan to commercialize ILUVIEN in those countries until we achieve positive cash flow and sustainability in Germany, the United Kingdom and France.

In conclusion, while the second quarter ILUVIEN sales were modest, we believe that we understand the reimbursement hurdles and are making progress in the U.K., and are aggressively pursuing reimbursement in Germany. Our sales teams continue to educate physicians and their staff on the insufficiently responsive patient, where ILUVIEN's benefits of efficacy and long-term drug delivery can provide new hope. We believe that ILUVIEN has positioned to assist the large and growing patient population in need.

Now I'll turn the call back over to Rick to briefly discuss our first quarter financials.

Richard S. Eiswirth

Thank you, Dan. Turning to our financial results for the second quarter of 2013, we began generating revenue from ILUVIEN totaling $179,000 on the sale of 18 units. Net loss attributed to common shareholders for the quarter ended June 30, 2013, was $21.3 million or $0.67 per common share, compared with net loss attributed to common shareholders of $4.7 million or $0.15 per common share for the quarter ended June 30, 2012. Net loss attributable to common shareholders for the quarter ended June 30, 2013, was impacted by a noncash warrant valuation adjustment of $6.7 million, resulting from the increase in our common stock price, noncash accretion of a beneficial conversion feature of $5 million associated with the decrease in the conversion price of our Series A Convertible Preferred Stock, and a loss of $153,000 related to the early extinguishment of debt.

On June 30, 2013, the conversion price of our Series A Convertible Preferred Stock was adjusted to $2.66 per share of common stock because we have not received final positive guidance from NICE regarding the reimbursement of ILUVIEN in the U.K. as of that date. Adjusted net loss attributed to common shareholders, a non-GAAP measure that excludes the noncash warrant valuation adjustment, the accretion of the beneficial conversion feature and the loss on early extinguishment of debt, was $9.5 million or $0.30 per common share for the quarter ended June 30, 2013, compared to $4.7 million or $0.15 cents per common share for the quarter ended June 30, 2012.

Research and development expenses for the second quarter of 2013 increased to $2.2 million compared to $1.9 million for the second quarter of 2012. The increase was primarily attributable to approximately $240,000 in costs associated with contracting medical science liaisons to engage with retina specialists in the study of ILUVIEN in Germany and the U.K. and in France.

General and administrative expenses in the second quarter of 2013 were $2.4 million compared to $1.5 million in the second quarter of 2012. The increase was primarily attributable to an increase in our professional fees associated with the establishment of our infrastructure and tax planning for expansion in Europe.

Sales and marketing expenses in the second quarter of 2013 increased, as expected, to $4.9 million, compared to $1.1 million for the second quarter of 2012. The increase was primarily due to increased costs associated with contracting with Quintiles Commercial for services in connection with our launch of ILUVIEN in Germany and in the U.K. during the second quarter of 2013.

We expect continued increases in sales and marketing expenses as we continue to execute on our plans for ILUVIEN's commercialization in the EU.

As of June 30, 2013, we had cash, cash equivalents and investments of $31.9 million compared to $49.5 million as of December 31, 2012. In May 2013, our U.K. subsidiary entered into a loan and security agreement with Silicon Valley Bank to provide additional working capital in the amount of $5 million, and up to an additional $15 million under working capital line of credit. The line of credit will be utilized to finance eligible accounts receivable in the U.K., Germany and France, and replaces the $20 million line of credit previously provided by Silicon Valley Bank to finance accounts receivable in the U.S.

The debt facility provides us with additional resources as we work to strengthen our market position of ILUVIEN in Europe. Currently, we have no outstanding borrowings on the line of credit.

Now I'll turn the call back over to Dan for closing comments.

Charles Daniel Myers

Thanks, Rick. We're very pleased to be seeing the physicians and patients benefit from injections of ILUVIEN in the U.K. and Germany. As you know, we've worked hard over the past several years to make this a reality and our people are committed to ensuring that many more long-standing chronic DME patients can experience the potential benefits of ILUVIEN in these countries and future markets.

Now with regards to the FDA, before we head into the Q&A session of this call, I want to remind everyone that we do not have any material updates at this time. We currently have had our standard mid-cycle review with the FDA, but as you know, we are not in position to comment on that meeting. We look forward to updating you on the status of our October 17 PDUFA date of our NDA for ILUVIEN.

I will now turn it back over to the operator for any potential questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Amit Bhalla of Citi.

Adam Darity

This is Adam in for Amit today. I just wanted to clarify one point to, I think Dan have said initially that 30 patients have been treated, and then, Rick, I believe you said that 18 units have been implanted. Can you help me reconcile those 2 numbers?

Richard S. Eiswirth

Yes, certainly. The number of patients and physicians that experienced ILUVIEN that didn't quit at the beginning were as of today versus the 18 units that we referenced were actually the sales in the second quarter.

Adam Darity

Okay. All right. That makes sense. Okay. And then, maybe could you comment on how many patients had multiple eyes done, or had both eyes done?

Charles Daniel Myers

Adam, I can't comment on them, it's been anecdotal to the clinical account specialist. I do know of 3. It's been 3 to 4. So call it at this point maybe 10%. That would be an estimation.

Adam Darity

Okay. And then, maybe you can help, what are the expectations for the rest of this year and maybe as we look into 2014, on the number of physicians that you're targeting and expect to be in contact with and have prescribing ILUVIEN, as well as the number of centers that you're hoping to be into by the end of this year?

Charles Daniel Myers

I don't have right in front of me the exact number of hospitals or clinics or individual physicians. I can tell you that in our mapping of our territories and mapping of our CAS in those 3 countries, we have coverage with approximately -- we're still finalizing between 16 and 17 CAS, or sales representatives is how you want to call it, that we will cover 100% of the centers that do implants either through a hospital setting, clinics or private settings. I would not address right now the number of accounts per rep. I did not have that in front of me.

Adam Darity

Okay. And then, maybe you can talk a little bit about the expectations for the product launch, I mean, it sounds like everything is positive so far, it's just reimbursements been a little slow to trickle in. What are your expectations this quarter and as we look through the rest of this year for the actual trajectory?

Charles Daniel Myers

Well, I think, what you said is accurate. I think, the reimbursement and market access has been, as I said in my earlier comments, one of the biggest impediments. I think, we can say that physicians that have implanted, and I have had a chance to talk to personally a few of them, there's also have been good in what we would like to see. I also think we've been fortunate that early on, the physicians understand the patients that we should be using ILUVIEN on. As you know, in any launch, it's really key that the doctors don't basically try your product on just any patient because it's new product and I want to just get an experience with it. It's very important with our indication that the doctor use the product on label. And I think, early on, identifying these patients and knowing what kind of patient ILUVIEN works best on has been a real positive because we have had very good outcomes in the early limited early adoption. But clearly, as we've said in our early comments, the uptake has been a little slower than we expected primarily because of market access and those hurdles. So I think, the key is going to be more the fourth quarter and the exit ramp that we come out of. And so I think you'll see still a little bit of a flattening of the uptake for the next few months as we work through not so much the demand creation, but the access to the product, and hopefully, that will show us what -- we could be that dreaded hockey stick I know people hate to see. But I think, more importantly, would be the fourth quarter, how we exit the year, because we hope to have most of these reimbursement and market access hurdles behind us by the time we exit the year and get a start on 2014.

Adam Darity

Okay. And then, just one last one. On the KKs in Germany, how penetrated are you so far with some of the reimbursement and contracts there? Are you still on target to hit about 60% in 3Q?

Charles Daniel Myers

Yes. Towards the end, it depends on what -- if you talk about our finalized contract, I mean, some of these, as you know, the contract, it gets down to a lot of granular work towards the end. I can tell you this, so far, we had interaction and are currently working with KKs that represent about 43% of the market. So -- now that's not suggesting they're all contracted yet, but we're in meetings and active work with 43% at this stage. We've been in touch or at least made contact in the process of scheduling an appointment, which would account for about 90% of the market, so we're actively engaged with the right key accounts, we're actually kind of in the midst of discussions with about 43% of the coverage and have reached out to about 90% of the coverage.

Operator

The next question is from Simos Simeonidis of Cowen and Company.

Simos Simeonidis - Cowen and Company, LLC, Research Division

Can you tell us from the 18 units that were sold in the first quarter, how many were in the U.K. and how many in Germany?

Richard S. Eiswirth

About 90% of those were in Germany at this time.

Simos Simeonidis - Cowen and Company, LLC, Research Division

90% was in -- Okay. And then, for the 30 patients that have been treated so far as of today, is it pretty much the majority still in Germany?

Richard S. Eiswirth

Yes, that's correct. The majority is occurring in Germany because we've been able to facilitate the reimbursement there through the KKs. However, as Dan mentioned earlier, we continue to have challenges with NICE, the NICE process dragging out the reimbursement in the U.K.

Charles Daniel Myers

And Simos, let me elaborate on it just for a moment, it's kind of a double-edged sword, and of course, you know very well the NICE process from prior history. The good news is when we got the ACD sort of reversal, if you will, with the anticipation of the positive final termination in September, what we found and a little bit of an unfortunate position, is doctors who had patients they might have implanted during the summer, if in fact they know the NICE and National Health Services is going to pay for this in the coming months, in a few cases, decided they're going to wait and let their patients determine if they're eligible for coverage versus private pay. Obviously, a patient who is not a pseudophakic patient will still be a private pay, but if you're a pseudophake, then there are some doctors who unfortunately are waiting to see how the NICE reimbursement will go because, clearly, that will be to the benefit of the patient. So it's a little bit of a double-edged sword on this NICE approval.

Simos Simeonidis - Cowen and Company, LLC, Research Division

Right. That makes sense. You talked about the spending a little bit, how should we think about it going forward for the next 2 quarters? I mean, should we expect a slight increase as you're ramping up your efforts in Europe or would you spend the first half of the year would be a good proxy for 3Q or in 4Q?

Richard S. Eiswirth

You will continue to see some increases in the sales and marketing expenses over the latter half of the year as we ramp up and prepare for the launch in France, and deploy the full sales team in the U.K. on, hopefully, completion of the NICE guidance.

Simos Simeonidis - Cowen and Company, LLC, Research Division

Okay. Great. And finally, Dan, I know you can't talk about the FDA because you're a few weeks away, 2 months away, but is there any more meetings that are supposed to happen between now and then, I assume there are?

Charles Daniel Myers

Yes. I can comment on that. We did have the mid-cycle review meeting, and the FDA, at that meeting, did assure us that they would been in continued dialogue, if we had follow-up questions and other issues to clarify. The minutes of that meeting are just now being submitted, it took place just a little over a week ago. And so, until we get agreement on the meeting minutes so we can all agree what was said and wasn't said there, the course forward is as far as when we would ask for another meeting or clarification would be determined in the coming weeks.

Operator

[Operator Instructions] There are no further questions at this time. I'll turn the call back over to Dan Myers for closing remarks.

Charles Daniel Myers

Thank you for listening to today's call. We look forward to updating you on our progress in the coming months. And operator, we will now conclude this call.

Operator

Thank you. Ladies and gentlemen, this concludes today's program. You may now disconnect. Good day.

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