InSite Vision's (INSV) CEO Tim Ruane on Q2 2014 Results - Earnings Call Transcript

Aug.13.14 | About: InSite Vision, (INSV)

InSite Vision Inc. (OTCQB:INSV) Q2 2014 Earnings Conference Call August 13, 2014 4:30 PM ET

Executives

Lou Drapeau – VP and CFO

Tim Ruane – CEO

Analysts

Scott Henry – ROTH Capital

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2014 InSite Vision Earnings Conference Call. My name is Kim, and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Lou Drapeau, please proceed.

Lou Drapeau

Thank you, Kim, and good afternoon, everyone. Welcome to the InSite Vision’s conference call to discuss our second quarter 2014 results and current operations. As the operator said, my name is Lou Drapeau, I am InSite Vision’s Chief Financial Officer. Also with me today is Tim 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, August 13, 2014. 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’ll talk about our financial results. Total revenues for the second quarter of 2014 were $6.3 million compared to $19.2 million for the same quarter of 2013. Royalties based on 8% of net AzaSite sales from Akorn were about $300,000 million for the second quarter of 2014 compared to royalties based on 25% of net AzaSite sales from Merck of $1.4 million for the second quarter of 2013.

The big news is InSite received the entire Q2 2014 royalty, where in the past all of the AzaSite royalties went directly to the former AzaSite note-holders which provided no benefit to the company.

In June 2014, InSite reached an agreement with the note-holders to purchase their notes plus accrued interest for a single payment of $6 million.

Also in Q2 2014, we entered into an amendment to the AzaSite license agreement with Akorn whereby InSite received a payment of $6 million, which was recorded as revenue in Q2 2014 in return for a lower royalty on net sales of AzaSite in North America.

The new tiered royalties range from a low of 8% to a high of 15% based on the level of net sales. InSite used the $6 million payment to fund the purchase of the AzaSite notes. AzaSite prescriptions continue to grow quarter-after-quarter after Akorn’s re-launch of the product in mid-February 2014.

Included in the second quarter of 2013 revenues, was $3.3 million from a minimum royalty true-up payment from Merck. You may remember that the minimum royalty payments ended September 30, 2013. Also included in the second quarter 2013 revenues was $14.5 million from the monetization of the Besivance royalty rise in April 2013.

Now turning to expenses, research and development expenses for Q2 2014 were $2.5 million compared to $3.5 million for the same quarter of 2013. For the second quarter 2014, our program expenses were largely related to the preparation for the filing of our new drug application or NDA for BromSite with the FDA which we expect will happen in the first quarter of 2015.

For the second quarter of 2013, program expenses were primarily related to the double AzaSite Plus, DexaSite Phase 3 study and the second BromSite Phase 3 study.

General and administrative expenses were $1.4 million for the second quarter of 2014 compared to $1.6 million in the same quarter of 2013. G&A expenses in the second quarter of 2013 were higher due to legal expenses incurred from the sale of the Besivance royalty rise in that quarter.

Interest expense was $1.4 million in the second quarter of 2014 compared to $2 million in the same quarter of 2013. The reduction in interest expense was due to principal payments on our AzaSite notes during 2013.

As I stated above, we purchased all of the AzaSite notes for a single payment of $6 million. We recorded a $36 million non-operating gain on debt extinguishment in the second quarter of 2014 which was composed of the $41.3 million of outstanding principle notes and $2.8 million of accrued interest which was offset in part by the remaining $2.1 million of original note issuance cost from 2008, legal and professional fees of less than $100,000 and the $6 million payment to the note-holders.

With this transaction completed, we’ve eliminated our substantial AzaSite debt while reacquiring the AzaSite royalty stream to help fund the company’s ongoing operations.

Reflecting all this positive news, our net income for the second quarter of 2014 was $37.1 million or $0.28 per share compared to a net income of $12.1 million or $0.09 a share in the same quarter of 2013. No provision for taxes was acquired to our existing tax loss carry-forwards from prior years.

At June 30, 2014, InSite Vision had cash, cash equivalents and short-term investments of $2.5 million, which will get us to the end of September. Tim will comment on our plans, secure additional funding shortly. Our usage of cash in the second quarter was $2.9 million which reflects the $6 million payment we made to purchase the AzaSite debt offset in part by $3.1 million of positive cash flows from operations in the quarter.

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

Tim Ruane

Thank you, Lou. We continued our business pace here at InSite Vision during the second quarter as we continued our pursuits to advance our product pipeline and our business development efforts to create sources of non-dilutive capital to continue to fund our operations.

Let me first address regulatory updates on our ongoing late stage pipeline pursuits. First, we are continuing ongoing efforts towards an NDA filing for BromSite for the treatment of inflammation and prevention of pain in the post-cataract surgery setting, a differentiated label and clinical indication.

As these efforts have progressed and given work scheduling challenges in the summer and through the end of the year holidays, we will not be able to meet our end of year guidance with the NDA filing. It is now clear the filing of the BromSite NDA with the FDA would shift into the first quarter of 2015.

At the end of May, we met with the Swedish medical products agency to discuss BromSite in a post Phase 3 pre-MAA setting. Our goal identical to working with the FDA was to gain agreement that we’ve completed, pre-clinical, clinical and manufacturing CMC work to support filing and approval as well as the differentiate label and indication and the 5ml fill volume for global commercialization.

As a result of that meeting, we believe the BromSite program can support the filing of a marketing authorization application or MAA with Sweden. We also discussed and believe this application should support the approval of a centralized filing in review procedures for BromSite in Europe, for which we are planning to file our formal request at the next scheduled opportunity which we are advised is in early September.

We should know the results of this centralized review request by year-end. But we’re quite optimistic BromSite should fit multiple requirements for this type of designation.

As you now know, we were also very busy during June, deep in negotiations with our AzaSite North American partner Akorn and with our note-holders. This was a deal we first pitched all involved parties back in January, so it clearly took time to quite literally drag this over the finish line.

The first result of these efforts was a renegotiation of the AzaSite North American license agreement with Akorn, and as Lou alluded to replacing the flat 25% net sales royalty with a tiered 8% to 15% royalty in exchange for a $6 million payment.

The second result of that was the 100% extinguishment of $44.1 million in principle and unpaid interest via a $6 million single payment from us to the note-holders instead of InSite the fault on the notes.

The third result was the return of the 8% to 15% tiered AzaSite royalty to InSite, as Lou said starting back to April 1 of this year through the full second quarter.

Any business development deal between two parties is challenging. This was an incredibly challenging tri-party deal to pull-off. And we’re thankful to all parties for their dedicated efforts to finding a solution to this problem that all parties involved to prosper from moving forward.

So, we also reported in second quarter what we believe was a very important piece of progress on our blepharitis program, specifically with DexaSite and our ongoing efforts to get the first product approved to treat blepharitis.

At the most recent FDA meeting, we specifically focused on DexaSite first avoiding the need or at least the need at present to further discuss AzaSite Plus and whether or not the combination rule, either should or should not apply.

With a very favorable safety profile, proven now in both the double-Phase 3 study and the 2008 blepharoconjunctivitis Phase 3 study, we were able to gain agreement with the FDA that given all of the historical data for other dexamethasone formulations that the results of a single Phase 3 study could be sufficient to support the approval, our DexaSite for the indication of blepharitis. And we were encouraged to formally outline all of those data as the next step.

And having now completed further analyses of both Phase 3 studies, we now believe we have sufficient prospectively defined efficacy results, results that were collected and outlined in our formal statistical analysis plan or SAP and efficacy results versus both vehicle and versus AzaSite to support both NDA and MAA filings for DexaSite.

So, what does this all mean given the fact that back in July, is we missed our primary end-point which was complete resolution of all clinical signs and symptoms. Well, first and foremost, we believe we can now advance DexaSite forward for the approval without the need for an additional Phase 3 study, using the existing data from both of the Phase 3 studies.

Via this path, we believe we can file a NDA with DexaSite in early 2016 following completion of required manufacturing in CMC work. Secondly, we are very encouraged by our upcoming post Phase 3 pre-MAA blepharitis meetings that are coming up with European Health Authorities.

Our 2012 meetings with these authorities which outlined the results of the 2008 blepharoconjunctivitis Phase 3 and the design of the then ongoing double study, was able to outline their concerns that in this population, the primary end-point required by FDA complete resolution of all clinical signs and symptoms might be over-reaching and unattainable.

As you can imagine, this was also fully discussed in our recent meeting with the FDA and they were very interested in what the Europeans would conclude from the result of our double-study analysis.

Accordingly, as we reported, we agreed to share the results of those minutes and meeting results with the FDA as a next step. Our first meeting is now scheduled for late September in Sweden and accordingly we will soon be filing the DexaSite briefing package with the Swiss Health Authority, including the safety and efficacy analysis showing DexaSite superiority over both vehicle and over AzaSite.

And just to add a final word to this program, as you’ve heard me state repeatedly before, this is an ongoing and iterative process and we look forward to further advancing the DexaSite program and continuing AzaSite Plus end-point discussions as we move forward, updates would be provided as we happen.

As our results in the second quarter showed, we are obviously very deep into business development activities and our efforts to secure non-dilutive capital fund our operations. Lou updated you on our current cash position and our runway through September.

Following our successful business develop efforts and balance sheet clean-up in the last quarter, we engage with our top shareholders about progress made and the prospects for future progress and our financing options.

Following those discussions, we and the board conducted a full review of our options and decided it would be in everyone’s best interest to extend our financial runway by pursuing a non-dilutive debt financing by a credit line facility whereby we would be able to draw down financial tranches as needed and continue with moving the company forward just as we did in the second quarter.

We are in advanced discussions on a debt financing credit line facility to extend our runway and we believe we will be able to make an announcement on this in the next several weeks. At this time though, we have no further details to report or share.

In the interim, we’ll continue to aggressively manage our cash position, continue our focused approach on our regulatory pursuits and to extend our cash runway and continue moving the company forward.

We appreciate your patience and your ongoing support at InSite Vision. Operator, we’ll now open the lines for questions.

Question-and-Answer Session

Operator

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

Scott Henry – ROTH Capital

Thank you, and good afternoon. Again congratulations on the progress on AzaSite in the debt, that worked out really well for all parties involved. Just a couple of questions. For starters, on BromSite, what is your confidence in first quarter ‘15 NDA filing?

Tim Ruane

High.

Scott Henry – ROTH Capital

Okay.

Tim Ruane

There is nothing fundamentally preventing us from getting the filing done other than manpower.

Scott Henry – ROTH Capital

Okay. And then, when you look into filing in Sweden, when should that happen, and it sounds like you’ve had meetings, it doesn’t sound like there is any issues, what would the timing there be? And what are the roadblocks you have to get over to file?

Tim Ruane

There really are no roadblocks, Scott. One of the things that is nice about Europe is the filing fees are approximately, is it $1 million Lou?

Lou Drapeau

Yes, but as you incur.

Tim Ruane

Yes, as you incur. So it doesn’t have a big $3 million or $3.2 million PDUFA fee like BromSite in U.S. does. The issue really is one-off. We need a local market company with an address and a presence. And then we need somebody who can put it into the European format. It is the same CMC package and formulation.

So we don’t have to make any – there is no additional manufacturing or other requirements. So really, this is a major focus of our partnering discussions. We obviously at the end of December of last year went 3 for 3, and talking with I think it was Sweden, Ireland and Austria on AzaSite, where they said file as it is. So, we have potential partnering opportunities there.

Now we have the official minutes from the meeting with Sweden. We were again encouraged to file for harmonized centralized review, we are going to do that and get approval.

We’ve obviously started to get the patent physicians solidified for this with the U.S. PTO, that was a major hurdle for us to get over because all of the potential partners and due diligence could read the U.S. PTO prosecution. We had been turned down as many companies do three times. And it’s gotten out to a single issue that we knew we could win.

So, it’s just slugging through the things to get the confidence that this is a real product with no real regulatory risk that can a winner in the marketplace.

Scott Henry – ROTH Capital

Okay. And what are your thoughts on doing an international deal for some or all of these products. What sort of timeline should we be thinking there?

Tim Ruane

Well, something that we’re working on right now. So, I can’t give you any more time than that. I mean, deals take time, and as you know from spending a lot of time in this sector, when you look around and take a global view of what is going on in this sector, there is a lot of movement right now. And it’s movement on big deals.

Scott Henry – ROTH Capital

Okay. And then, shifting gears to DexaSite, let’s say you complete the manufacturing and CMC work. Are there any other hurdles, what I’m trying to get at is, is there any risk for you being able to file that product in early 2016? And do you see, would you still, I assume have to have a pre-NDA meeting with FDA or what is the risk to that proposition?

Tim Ruane

Well, there are two major hurdle rates we have to get over with them that we believe we can and why we believe we will file and NDA on this. The first is, DexaSite is a suspension. And as a suspension product, the FDA and the European Regulatory Authorities require full scale manufacturing sites for your registration batches. That as opposed to a BromSite, where you did a – I believe 10% or 15% scale.

So that is a pretty hefty expense to have to bear and then FDA requires one year on the three registration batches of real-time, and Europe requires a minimum of six months. So, we’re working with Catalan (ph) right now to examine our options for getting two more registration batches on DexaSite, we already have one that I think was manufactured back at the end of ‘08 or early ‘09 that looks just rock solid.

We need at least two more and then remembering the formulation in Europe for DexaSite has a higher preservative level. So we’ll also be engaging at upcoming DexaSite meetings whether or not there is a way we cannot have to make five additional batches is there a way to bracket it and solve everybody’s needs.

So, there is still some more regulatory work to do there. We are actually sharing all the data on our analysis with the Europeans. We’re going to try to get them to agree as well, but we should confine with those data. And that will be a source of further discussion and at least one more pre-NDA, post Phase 3 meeting with FDA.

Scott Henry – ROTH Capital

Okay. May I, I’m going to ask the question a different way. All of that would seem to fall in the category of the manufacturing or CMC, what is the risk that the FDA just turns around and says, we want to know their perspective trial?

Tim Ruane

That could happen. That could happen. Right now we don’t think that will. We’ve done the biggest, the most comprehensive study that as we have said, if the Europeans have said they think that the endpoint is right they never did. They’re looking for data that quite frankly we think we have right now showing superiority over vehicle and showing superiority over an active control.

So, we think it’s the strongest package that’s ever been seen. What we’re trying to really position ourselves is this is like Restasis all over again. There’s got to be a starting point for industry in an area like this. And we think we have it and if we have to go down the road and force the issue, perhaps we will.

Scott Henry – ROTH Capital

Yes. I guess, what I’m wondering is, when you met with FDA and they send you the written minutes, in anyway did they specifically suggest that you would not have to do additional trials?

Tim Ruane

That was specifically in the minutes as they believe the results of one study could support the approval of DexaSite given all the historical data they’ve seen in the comfort they have from all other formulations. And given the fact that what they’re seeing from our safety profile on two Phase 3 studies. So, we do have that specifically in the minutes.

Scott Henry – ROTH Capital

Okay. And then, just a final question, I know you mentioned you’re looking at debt financing. And I know you don’t want to talk about it much more in detail. But would you put that in the category of some sort of debt-equity hybrid financing, is this one of those types of financing where someone gives you – you have to give a flag of warrants and an asset or royalties? I mean, how should we think about this, is this pure debt or is this some sort of hybrid?

Tim Ruane

Pure.

Scott Henry – ROTH Capital

Okay. All right, excellent. Thank you for taking the questions.

Tim Ruane

Thanks Scott.

Operator

(Operator Instructions). And thank you, ladies and gentlemen, that concludes our question-and-answer session. I would now turn the conference back to Tim for closing remarks.

Tim Ruane

Thank you all for your time. We appreciate your support of InSite Vision. We’ll continue our work here. And if there are any additional questions, we’ll be available the balance of the afternoon, the balance of the week. Thank you.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect and have a great day.

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