pSivida Corp's CEO Discusses F2Q 2014 Results - Earnings Call Transcript

Feb. 7.14 | About: pSivida Corp. (PSDV)

pSivida Corp (NASDAQ:PSDV)

F2Q 2014 Earnings Call

February 7, 2014 4:30 PM ET

Executives

Lori Freedman - IR

Paul Ashton - President and CEO

Leonard Ross - VP, Finance and Principal Financial Officer

Analysts

Suraj Kalia - Northland Securities

Juan Sanchez - Ladenburg

Anup Dalal - KVP

Operator

Good day ladies and gentlemen. Thank you for standing by. And welcome to the pSivida Corp's Q2 2014 Earnings Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded.

I would now like to turn the conference to our host, Ms. Lori Freedman. Ma'am you may begin.

Lori Freedman

Thank you, Eric. Good afternoon everyone and thank you for joining us. After the market closed today, we released our second quarter financial results for fiscal 2014. A copy of the release is available on the Investor section of our website at www.psivida.com. On the call with me today is Dr. Paul Ashton, President and Chief Executive Officer; and Len Ross, Vice President, Finance.

Before I hand the call over to Paul, I need to remind everyone that some of our prepared remarks are and answers to your questions may be forward-looking in nature. Forward-looking statements are inherently subject to risks and uncertainties. All statements other than statements of historical facts are forward-looking statements, and we cannot guarantee that the results and other expectations expressed, anticipated, or implied will be realized. Actual results could differ materially from those anticipated, estimated or projected in the forward-looking statements. For a more detailed discussion of risk factors that could impact our future results and financial condition, I refer you to our filings with the SEC including our Annual Report on Form 10-K for the fiscal year ended June 30, 2013. We undertake no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after this conference call.

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

Paul Ashton

All right. Thank you, Lori. And welcome everyone as we discuss the results of our second quarter of fiscal 2014. This was another very good quarter for us, with good progress on Medidur, ILUVIEN for DME and Tethadur. Progress on our lead development product Medidur continues on track. This product is an injectable sustained release micro-insert for the treatment of posterior uveitis, A serious disease of the back-of-the-eye, which is about the third or fourth largest cause of blindness in the U.S.

Enrollment for the first of our two planned pivotal Phase III trials for Medidur is expected to be completed by the end of the summer. Based on the clinical trial results for Retisert, the FDA approved product for the treatment of posterior uveitis that we developed and licensed to Bausch & Lomb and on the results of ILUVIEN for DME we expect our trials for Medidur will show that it is as effective as Retisert, but with a better safety profile. We're developing Medidur independently.

Turning to our lead licensed product, ILUVIEN for DME, we received very, very promising news in both the U.S. and the UK. ILUVIEN is an injectable sustained release implant for the treatments of Diabetic Macular Edema that we developed and licensed to Alimera Sciences. In December, Alimera reported that it had entered into labeling discussions with the FDA, with respect to ILUVIEN for DME but the FDA had scheduled a meeting with the Dermatologic and Ophthalmic Drugs Advisory Committee to provide assistance in the deficiencies identified in the FDA's October complete response letter and advice with respect to patient population in which the benefits of the drug product might avoid the risk.

As a result of the labeling discussions, that meeting was deemed unnecessary and has been canceled and Alimera plans to file a response to the CRL by the end of this quarter. This response will be based on data from the already completed clinical trials as well as recent safety data from patients in the United Kingdom and Germany.

Alimera reported that the FDA has indicated that new clinical trials will not be required in connection with its review of ILUVIEN for DME prior to approval. So we look forward to further progress on this application. A FDA approval would trigger a $25 million milestone payments to us from Alimera, who would also be entitled to a share of net profits on sales of ILUVIEN in the U.S.

In Europe where ILUVIEN has been marketed in the UK and Germany since mid-2013 and is scheduled to be launched in France this year, we look forward to continued growth in sales. In the UK this should be greatly helped by the recent recommendation by this UK's National Institute for Health and Care Excellence, NICE -- that with recommendation by them of ILUVIEN as a treatment option for the typically large subset of chronic DME patients who've previously undergone cataract surgery. With this recommendation treatments of these patients with ILUVIEN will not be covered by the UK's National Health Service.

Previously, ILUVIEN was available in the UK only to private pay and privately insured patients. We're very pleased with the rapid implementation of their recommendation from NICE. Indeed Alimera has already shipped product to UK National Health Service hospitals beginning in early January. Our ILUVIEN agreement has provided us with considerable cash thus far and we're optimistic that further revenues from this agreement will continue to help fund our growth.

Turning back to our product pipeline, we continue to be encouraged by the preclinical testing of potential products using Tethadur. Tethadur is our technology platform that's designed to deliver peptides, proteins and antibodies on a sustained basis. We are evaluating this as a means to achieve sustained release of peptides and antibodies for both ocular and systemic intramuscular subcutaneous administration. Sustained delivery of biologics is a very exciting opportunity from both a therapeutic and commercial viewpoint. Whether it’s daily, weekly or monthly, [indiscernible] or ocular injections, there is a series of issues and there is currently no sustained delivery for these biologics. A technology that will significantly reduce the frequency of injections could be expected to have a significant beneficial impact on therapeutic outcomes for many applications resulting in improved effectiveness, reduced adverse events, better patient compliance and improved convenience.

With patents for biological products with annual sales totaling over $50 billion expanding over the next five to 10 years, we believe that if we are able to successfully develop Tethadur, it could play an extremely important role in creating the next wave of some of these products. As we have said previously, a leading global biopharmaceutical company is evaluating Tethadur in ophthalmology on refunded evaluation agreement. We are also studying other ophthalmic as well as non- ophthalmic applications of this technology ourselves independent of the companies. This is progressing well and we expect to have some data available in midyear.

We are also studying ophthalmic and other applications of our Durasert technology alone and with potential partners. Medidur, ILUVIEN and Tethadur illustrate the true promise of our development strategy. We are moving to a specialty pharma model by using our different technology platforms to independently develop our own drug delivery products for already approved drugs and biologics to better treat diseases in the ophthalmic area and beyond. But we are also continuing to pursue collaborations and partnerships that leverage our technology platforms where appropriate. Medidur is a great example of a product but our expertise and costs and risks of the development make it appropriate for us to develop the product on our own.

Other products, particularly some of those would leverage Tethadur, may be great candidates or partners in light of patent protection, developments in regulatory costs and the expertise of existing networks with others. We think there could be potentially a huge number of applications of Tethadur. The partnering would also provide us with leverage to give us applications we otherwise wouldn’t have the resources or bandwidth to pursue. Also via partnering we will continue to evolve our technology platform and apply what we have learned to our own products. And of course partnering can provide critical financing for our own development work.

Now a great example of this is our licensed deal with Alimera. We have already received over $30 million from this collaboration and we expect that to increase as sales in Europe progress, and if ILUVIEN were to be approved in U.S. with a $25 million milestone and our share of potential US profit.

Now moving to finances which Len will cover in more detail in a moment, we ended the quarter with $15.7 million in cash. As I said before, we expect our quarterly cash burn for the near future to be more valuable than the past, depending on the timing of receipts and payments. This last quarter we also implemented an at-the-market or ATM program permitting registered sales of common stock. We briefly turned on the ATM in December raising approximately $1.5 million in proceeds. We have had access to it since and haven’t made any decision about using it in the future.

Now I will turn the call over to Len to take us through the financials.

Len Ross

Thank you, Paul and good afternoon everyone. I will briefly review our second quarter and fiscal year 2014 results reported earlier today, starting with our financial position. As Paul noted at December 31, 2013 we had cash, cash equivalents and marketable securities of $15.7 million. The net decrease of $800,000 compared to September 30, 2013, reflected approximately $1.25 million of proceeds received from initial sales of shares under the ATM facility and 1.2 million received from an existing collaboration agreement as well as the effect of increased cash outlays in the quarter related to the first of our Medidur Phase III trials.

We anticipate that the combination of our existing capital resources, together with expected and registered royalty income and other expected cash inflows under existing collaboration and technology evaluation agreements, will enable us to fund our current and planned operations through the first quarter of calendar year 2015. This includes expected cost through that date of our Phase III clinical trials of Medidur but excludes any potential milestone or net profit share receipts under our Alimera collaboration agreement.

We believe that the funding of our operations beyond the first quarter of calendar year 2015 depends significantly on first, possible cash flows from our Alimera agreement including the successful commercialization by Alimera of ILUVIEN for DME and a $25 million milestone payment due upon an approval of ILUVIEN. Second, payments we may be entitled to under our other existing in any future collaboration technology evaluation or other agreements. And third the net proceeds from any financing transactions in which we may engage, including our ATM program. Although we sold additional shares in early January resulting in net proceeds of $224,000 and we may sell additional common shares under this ATM program, we do not know whether and to what extent we will seek to sell shares and if so, whether we will be able to do so and on what terms.

Alimera commenced sales of ILUVIEN for DME in Germany and UK in 2013, and announced plans for a 2014 launch in France. Alimera has not yet achieved net profits as defined in the UK and Germany and we do not yet know if or when we will be entitled to such payments from Alimera or the resulting amounts we might receive based on the sales of ILUVIEN in those countries. Alimera has reported that it does not plan to commercialize ILUVIEN in other EU countries, for which marketing authorization has been or maybe received, until such time as it is generating positive cash flows from sales in the first three EU countries.

Turning now to our second quarter fiscal 2014 results, revenues totaled $592,000 for the fiscal 2014 second quarter, compared to $585,000 for the same period last year. Increased collaborative research and development revenue was offset by lower Retisert royalty income. Research and development totaled $2.5 million for the quarter ended December 2013, compared to $1.6 million in the prior year quarter. This increase was primarily attributable to approximately $1.1 million of outsourced contract research organization costs for the Medidur Phase III clinical trial, partially offset by lower personnel costs.

General and administrative expense approximated $1.7 million for both the 2014 and 2013 fiscal second quarters. Net loss for the quarter ended December 2013 was $3.5 million or $0.13 per share, compared to a net loss of $2.6 million or $0.11 per share for the prior year quarter. On a year-to-date basis, total revenues were $1.2 million for the six months ended December 2013, compared to $1.1 million for the same period of fiscal 2013.

Similar to the second quarter comparison, somewhat higher collaborative research and development revenue was largely offset by decreased royalty income from Bausch & Lomb. Research and development increased by $1.9 million to $5 million for the fiscal 2014 year-to-date period, compared to 3.1 million in the prior year. A 2.2 million net increase in the clinical and pre-clinical development cost, predominantly CRO costs incurred for the Medidur Phase III trial, was partially offset by lower personnel and stock based compensation costs.

General and administrative increased by 244,000 to $3.5 million for the six months ended December 2013, from $3.3 million in the prior year period, primarily attributable to higher professional fees. Net loss for the six months ended December 2013 was $7.2 million or $0.27 per share compared to a net loss of $5.2 million or $0.23 per share in the prior year.

I will now turn the call back over to Paul.

Paul Ashton

Great. Thanks a lot. To sum up, this quarter our clinical trials for our lead development product Medidur for posterior uveitis continued on track and we continued to progress our pre-clinical product development based on our Tethadur and Durasert technologies. Our lead license product ILUVIEN for DME made significant strides, both in the UK with expanded access to the products funded by the National Health Service and in the U.S. with the initiation of labeling discussions with the FDA on the and the planned response this quarter to CRL without the requirements of new clinical trials. We add it to our cash resources and gave ourselves potential future capital raising flexibility by putting an ATM in place, although we haven’t used it since December.

On our quarterly cash burn, we expect it will continue to show some variability in the near future, primarily due to the timing of clinical trial costs and payments from collaborating companies. I am very optimistic that 2014 will be a very good year for us as we have a number of catalysts including our own Phase III clinical trial program for our own product that’s moving forward, preclinical data on Tethadur products and hopefully increase in sales ILUVIEN to DME in the EU and FDA approval in the U.S.

At this point, we’d be happy to take your questions. Operator, would you please turn over the next portion of the call for the Q&A?

Question-And-Answer Session

Operator

Certainly. [Operator Instructions] And our first question comes from Suraj Kalia of Northland Securities. Please go ahead.

Suraj Kalia - Northland Securities

So, Paul as you make -- Alimera makes the final submission at the end of Q1, the type two response, is the expectation in terms of final approval sometime late Q3, Q4, if my timeline is still reasonably accurate?

Paul Ashton

Yes, it would a type two response. That is six month review.

Suraj Kalia - Northland Securities

So, say if we could speak to the other piece in next Q3, okay. And in terms of your discussions with Alimera, Paul, again to the extent that you can share, what’s the breakeven point, breakeven threshold for ILUVIEN sales in the EU, after which you all start generating -- start driving net profits to yourselves, the 20% royalty stream?

Paul Ashton

Well, it’s not quite that simple because it’s all done on a country-by-country basis. So it’s net profits in a given quarter in a given country.

Suraj Kalia - Northland Securities

And just in terms of a macro basis, you haven’t done an internal analysis that suggests that let’s say all these countries blended together if they -- Alimera does $5 million or $10 million in sales, above that you’ll would start deriving the royalties. I’m just trying to get a ballpark idea.

Paul Ashton

It’s a little -- it’s difficult to apply those kind of ballparks Suraj because it’s done on a country-by-country basis. And it’s the commercialization expenses incurred in that particular country. So in Europe for example -- in Europe they could be, in a given quarter unprofitable because this perhaps the long [ph] trust in France. However if in Germany they’re profitable, then things would be given based on the profitability in Germany. So it’s a little bit unrelated.

Suraj Kalia - Northland Securities

Fair enough. Final question Paul and I will get back in queue. In terms of the Uveitis trial, maybe I’ve missed this but did you talk about the status of the trial enrollment numbers or anything to that effect?

Paul Ashton

Yes, it’s progressing. We anticipate the enrollment will be complete by the end of summer in 2014. That is the first trial.

Operator

Our next question comes from Juan Sanchez of Ladenburg. Please go ahead.

Juan Sanchez - Ladenburg

Good evening Paul I only have one question on - I need some [ph] growth results. What’s your take on what kind of product we have here for the long term? Do you think this level of revenues is going to be maintained in the long term or do you think future - over the near term Uveitis developments or make this product less used than it is right now?

Paul Ashton

So regarding Ratisert, really over the last couple of years and Len please interject if I’m wrong, it’s been very variable one quarter to the next. So it’s difficult to come off with any long term trend. And it’s notable in that there really hasn’t been a long term trend at this point. I would imagine however that as and when Medidur is approved, then sales in Ratisert may take a significant hit.

Operator

Our next question comes from Anup Dalal of KVP. Please go ahead.

Anup Dalal - KVP

Paul, a couple of questions. First of all if you can comment on this, any color on what the product for the patients that have come out of the study so far, any color on the blended event rate in terms of recurrence.

Paul Ashton

For which study?

Anup Dalal - KVP

For the Phase III Uveitis study.

Paul Ashton

Too early, I have no information.

Anup Dalal - KVP

Okay, great. And the second question was, are your assumptions regarding discontinuation in the study sort of conforming to what you expected?

Paul Ashton

Discontinuation?

Anup Dalal - KVP

These people come out of the study early.

Paul Ashton

I haven’t looked. Its early stages.

Anup Dalal - KVP

Okay. And then last question, Paul, just strategically, how - there’s maybe an opportunity for you to potentially, in respect to the $25 million that Alimera owes you, you theoretically could take that down in exchange for higher economics on the backend. Other hand its upfront cash and important for you for obvious reasons. I wanted to see if you could give us any color on how you’re thinking about that. I’m sure that discussion is going to happen.

Paul Ashton

Interesting Phil, but I can’t really comment.

Operator

[Operator Instruction] I’m showing no further questions at this time.

Paul Ashton

Great then, I’d like to thank you all for joining us today. I look forward to speaking with you again next quarter. In the meantime of course if you have any additional questions, please feel free to contact us. Thank you.

Operator

Ladies and gentlemen, this does conclude today’s conference. Thank you for your attendance. You may now disconnect. Have a great day.

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pSivida Corp. (PSDV): FQ2 EPS of -$0.13 in-line.