Lori Freedman - VP, Corporate Affairs, General Counsel and Corporate Secretary
Paul Ashton - President & CEO
Len Ross - VP of Finance & Principal Accounting Officer
Psivida Ltd. (PSDV) F2Q10 (Qtr End 12/31/09) Earnings Call February 10, 2010 4:30 AM ET
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 the conference. (Operator Instructions). I would now like to turn the presentation over to your host for today's call Ms. Lori Freedman Vice President, Corporate Affairs, General Counsel and Corporate Secretary. Please proceed.
Thank you Erica. Good afternoon everyone and thank you for joining us. After the markets closed toady 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 detail discussion of the risk factors that could impact our future results and financial conditions, I refer you to our filings with the SEC including our fiscal 2009 annual report on Form-10K which was filed on September 25, 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 would 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 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 developed a miniaturized, sustained release ingestible growth delivery products. These are products that can be small enough to be inserted into the body via an incision as small as 2000s 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 isolated 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 of achieving therapeutic drug levels at the target sight. Eye drops simply don't penetrate to the back of the eye and have never been clinically proven to achieve therapeutic drug levels and while taking drugs systemically, i.e. orally or intravenously, while that condition gives therapeutic ocular levels, the amount that has to be taken this way also opens the doors to unacceptable systemic toxicities.
Over the past few years, people have resorted to injecting drugs directly into the eye. 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 provides long-term main drug delivery to the eye. We now have a pipeline with multiple products in development for eye diseases and also localized conditions. There are now several generations of products and these reflect the on-going devolution of our cure Durasert technology.
Our first generation Durasert product BrachySil was approved by the FDA in 1996 for the treatments of CMV retinitis. That's an AIDS-associated infection. Our second generation Retisert product was approved for the treatment of post dated UVI just in 2005. These products are both licensed to and sold by Bausch & Lamb. Our third generation and most advanced Durasert product currently in clinical trial is Iluvien. Iluvien is not completing Phase III clinical trials in diabetic muscular edema, a huge indication affecting approximately a million patients in the US alone. About 10% of all diabetics will develop DME some stage in the disease. In terms of dollars, the DME market is being estimated at between $1.5 billion and $3 billion annually in the US and there are currently no FDA approved drugs for this disease.
Iluvien represents the next evolution of stage in insert design and its approved would be the first drug treatment for DME. Iluvien is so small that it can be placed into the eye band inserter 2000th of an inch across and very importantly, this can be done in an office visit. Iluvien inserts are design to release drug for either 1.5 or three years after single application depending on the dose.
Now Polymer Alimera Sciences is conducting two Phase III clinical trials of Iluvien in DME and supporting investigate response at Phase II trials Iluvien and less AMD by (inaudible) 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. From thousand patients who had already lost significant vision, were enrolled into the Phase III trials and patients were randomized to receive either low dose Iluvien, high dose Iluvien or controlled.
All patients could receive laser treatment as required. A laser is the only positive therapy that is approved and is effective in DME. Results showed that almost twice as many patients treated with Iluvien either the high dose or low dose. On the twice as many actually gained significant vision compared to control and by significant I mean three or more lines on a (inaudible). We are also very encouraged by the side effect profile for Iluvien. Based on these data, our partner Alimera has announced a plans to file a neutral application on a NDA for the low dose Iluvien in the second quarter this year.
Now I should point out that while the trials are three year studies, pSivida has indicated that they will accept two year data for approval with the commitment of 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 for sale in Q1 2011.
I am very pleased with our smoothly the Phase III Iluvien program has progressed. Alimera 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 these transaction for pSivida investors are number one, Alimera is obligated to pay all of the development costs for Iluvien 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 on three Alimera is obligated to pay us 20% of profit first sales of Iluvien 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 are currently paying us $800,000 per quarter. In April of this year though the interest rate goes up to 20% and Alimera is to start paying off the principal of $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. Though they are under instances such as certain IPO's, acquisitions or rather liquidity events and those of actual $15 million would be payable in full immediately.
Now this is great economic deal for us and its 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 position at Alimera on the (inaudible). This is essentially the same team that led the developments, FDA approval and commercialization of Visudyne a $300 million a year product all went to AMD.
Alimera is very focused on Iluvien. Its their only clinical stage product. They have raised approximately $100 million in a series of financing the most recent $10 million of which was an exercise of warrants after the Phase III days was announced. Now, while we are all obviously very excited and optimistic regarding the outlook for Illuvien that many other important programs underway in pSivida.
We have a collaboration agreement with Pfizer with respect with the Durasert in opthamology and Pfizer is allowed to shelter 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 the quarter and we are 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 of information of future goals as this development work progresses and as milestones are achieved. We're also hard at work on another key technology in our portfolio BioSilicon.
BioSilicion is bio-erodile form silicon. It can be manufactured using techniques column in the semiconductor industry. Basically, we create a honeycomb structure of nano-porous in the silicon. And this resulting structure then becomes bio-erodible. BioSilicon has the potential to deliver a wide variety of drugs including wall chemical entity, peptides and proteins. We believe this technology could be extremely valuable in the treatments of a range of diseases in many, medical fields. That some of them, we've made great progress over the last few years at pSivida, but 2010 could be truly transformational for us. We alluding [doing NDA] filing and advancements of our other development programs.
And now I got 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 similar remarks and then we'll take your questions.
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 predominately 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. And 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 with 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 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 brackets or dose range clinical trial and the assumption by Intrinsic of certain BioSilicon manufacturing responsibilities under our February 2009 supply agreement related to its exclusive license of food science and neutraceutical 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 $667,000 loss provision on the 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 decrease 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 the $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 exercised prices denominated in Australian dollars, which is different than the company's US dollar functional currency.
As we discuss last quarter because of potential exercise if 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-Scholes 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 warrant and assumes stock price volatility.
Changes in the fair value of these warrants are recognized as other income or expense in 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 two expire of these Australian dollar warrants principally through April 2011.
Moving on to our six months 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 Intrinsiq. 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 approximately $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 predominately due to a $3 million year-over-year swing in the change in fair value of derivatives related to the Austrian 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 equivalence 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 breakeven or positive cash flow from operating activities beginning in our fiscal fourth quarter ending June 2010. In addition, we anticipate a redemption of quarterly Retisert royalty payments from Bausch & 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 Iluvien and Alimera’s continued payment of the conditional note payments, we continue to believe that we can fund our operations that’s currently conducted through to the receipt of the $25 million milestone payment that would be due from Alimera upon an FDA approval of Iluvien. Through these collaboration agreements and ongoing costs 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?
Just a few quick comments before we move to the Q&A. We have entered into a very exciting phase of development with pSivida. In December we were very happy to get the top line two year base on Iluvien based on the (inaudible) Alimera has announced their turns 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 if favorable sales beginning as early as Q1, 2011. Iluvien is also in clinical (inaudible) three of the severe side diseases and we are 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 (inaudible) systems and long term protein delivery systems. In April of 2010, note payments from Alimera are set to very significantly increased helping to bridge it to receipt of the $25 million due on FDA approval to Iluvien and future profits for the payments. So we believe that we are very well positioned for a very exiting time ahead, and at this point we'd be happy to take your questions.
Operator would you please initiate the Q&A portion of this call?
(Operator Instructions). And our first question comes from the line of (inaudible). Please proceed.
The first question is whether or not Alimera is planning to ensure more analysis of the Iluvien data? At the coming conference, Angiogenesis conference next weekend in Miami and the second question is the BioSilicon platform. Have you (inaudible) this program in to the clinic and if so could you be more specific in terms of the timings and what kind of indications are you going after?
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 [Retinal] as John Hopkins Eye hospital, (inaudible) eye institute. I guess like most academics whose probably still putting those lines together so no doubt there will be additional information presented but I'm not quite sure as yet what that information will be. With respect to BioSilicon, yeah we're continuing to make great strides in that. We are looking initially having this be a potentially very simple means to deliver proteins but I've been doing this for quite a along time and (inaudible) 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.
(Operator Instructions). Our next question comes from the line of (inaudible).
As you indicated that Alimera has additional studies in the wet and dry-related age-related macular degeneration and retinal vein occlusion. 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 for (inaudible) in the future to be indicated in those indicators, what would be the kind of referral for pSivida?
Yeah those trials I believe still in well in patients have started growing should the product be approved in those indications? It would continue to be at 20% profits versus Alimera, though additional milestone [sometime].
And should I assume those studies would carry out mostly directed by Alimera at this moment and continued to be so going forward?
Yes. You could assume that.
(Operator instructions). We have a follow -up question from the line of (inaudible). Please proceed.
My last question is on the NDA package where there are not there is some addition non-clinical information that made just needs together or the information is in and its just a matter of putting together the electronic filing?
Typically there’s always little bit of information stability data this kind of thing that’s being collected at last minute. I don’t have that information available I'll just quantify. We don’t know exactly the phase that Alimera is currently in, but I would anticipate that people are generally collecting the last little pieces of information for the file and not just (inaudible).
We have no further questions at this time. I will turn the call over to Dr. Paul Ashton for any closing remarks.
Very 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 should you have any additional questions, please feel free to contact us directly. And thank you very much.
Thank you for your participation in today’s conference. This concludes the presentation. Everyone have a great day.