pSivida Corp (NASDAQ:PSDV)
Q2 2016 Results Earnings Conference Call
February 08, 2016, 04:30 PM ET
Lori Freedman - VP of Corporate Affairs, General Counsel & Secretary
Paul Ashton - President & CEO
Len Ross - VP, Finance
Suraj Kalia - Northland Securities
Matt Kaplan - Ladenburg Thalmann
Thomas Yip - FBR & Company
Good day, ladies and gentlemen, and welcome to the pSivida Second Quarter 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference, Ms. Lori Freedman, Vice President of Corporate Affairs. Ms. Freedman, you may begin.
Thank you, Andrea. Good afternoon, everyone and thank you for joining us. Earlier this afternoon, we released our second quarter financial results for fiscal 2016. A copy of this release is available 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; and Len Ross, Vice President of 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 maybe, 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 year ended June 30, 2015. 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.
Thank you, Lori, and good afternoon everyone as we discuss the results for our fiscal 2016 second quarter.
This was a really great quarter for us. The principal highlight was of course the truly extraordinary topline results from our first Phase 3 clinical trial for Medidur for posterior uveitis. These great results will pave the way for an expected acceleration of our application for EU marketing approval to later in 2016 by using the results from only the one Phase 3 clinical trial.
And finally coming off these favorable results, we completed an underwritten stock offering in the first week of January increasing our expected cash runway into the fourth quarter of calendar 2017 and enhancing our investor base with well-regarded institutional investors.
Now, let's get into the details. The topline results from our first Phase 3 trial for Medidur for posterior uveitis was truly spectacular. This trial was a 129-patient, multi-center, randomized, and double-masked study in which 87 eyes were treated with Medidur and 42 control eyes received a sham injection.
The trial met its primary end point for efficacy, which was the prevention of recurrence of disease at six months with extraordinarily high statistical significance at p-value of less than 0.00000001.
Only 18.4% of Medidur treated eyes had a recurrence of disease in the first six months compared to 78.6% of control eyes. In exploratory analyses of the data, we also saw very favorable effects on visual acuity through six months follow-up.
All Medidur-treated eyes showed improved visual acuity i.e. gaining 15 or more letters from baseline at month six compared to controls that was statistically significant and few Medidur-treated eyes experienced a loss of 15 or more letters from baseline anytime through six months and that was also statistically significant.
In another exploratory analyses, we also saw favorable effects of Medidur treatment on cessation of systemic therapy. Of the 65 patients receiving systemic therapy at baseline, fewer of the Medidur-treated patients were still receiving it at six months compared to control patients that was also statistically significant.
The safety results of the trial were also very positive. In terms of side effects, we saw a smaller increased risk of elevation of intraocular pressure, IOP, than we had anticipated and less than that which was seen in the Phase 3 trials of our licensed product ILUVIEN in DME.
Through six months, 10.9% more Medidur-treated eyes had an increase in eye pressure, both 21 mmHg compared to controls. The actual numbers were 27.6# versus 16.7.
Now, in addition, of the 64 studies eyes with a natural lens at some baseline, 9.5% of the Medidur-treated eyes compared to 4.8% of controls required surgery through six months.
Now because elevated IOP is the side effect of steroid treatment, we had expected to see the incidence of IOP elevation in Medidur-treated eyes relative to controls. We had expected to see that increase at time. However, elevation of IOP can also be a natural consequence of posterior uveitis.
So interestingly, through the last follow-up visit, some of those patients have been followed for as long as 24 months. The difference in elevated IOP levels above 21 between Medidur-treated and control eyes had actually narrowed.
So through the last follow up, only 6.6% Medidur; sorry, I shall say that again, through the last follow-up visit, only 6.6% more Medidur-treated eyes than control eyes had experienced significantly increased IOP compared to the 10.9% difference seen through six months.
This same narrowing was observed for incisional surgery. Only 1% more of the Medidur-treated eyes than control eyes required incisional surgery through the last follow-up visit to 2% difference at six months. We'll keep a close watch on this as more data comes in, but the converging trend is extremely encouraging.
As a result of these very favorable results, we plan on acceleration of a regulatory approval strategy in Europe. We've met with the U.K. Medicine Healthcare Products Regulatory Authority or MHRA in late October to discuss requirements for approval in the EU.
The MHRA advices that consistent with published points for consideration of the European Agency for evaluation of medicinal products, an application for product treating a condition like posterior uveitis could be based on one trial if results are, "statistically compelling and clinically relevant." We believe the data from our first trial should meet that standard.
As a result, we're now planning to submit for EU approval towards the end of 2016 using the existing six-month and 12-months data from the first Phase 3 trial. Data from a short duration study of our proprietary redesigned inserter, which is starting shortly and safety data from the Phase 3 study, which is currently enrolling patients together of course with reference of the ILUVIEN Phase III trials.
We've requested a meeting with the FDA to confirm its requirements for an NDA submission in light of our recent Phase 3 data, assuming the FDA will continue to require data from two Phase 3 trials, we’d expect to file an NDA in 2017.
Now, next I'd like to update you on development work for osteoarthritis. As you may recall, we have been working with Hospital for Special Surgery or HSS to develop an implant to provide sustained treatment for severe osteoarthritis of the knee.
Last year there were over 700,000 total knee replacements in the U.S. alone due to osteoarthritis and our goal is to provide treatment that would significantly delay or forestall the need for total joint replacement.
Our proposed product is a specially manufactured screw that houses an embedded Durasert device, surgically inplanted into the knee in an outpatient procedure. The implant delivers the corticosteroid dexamethasone, and better known osteoarthritis treatment.
It delivers it directly into the joint on a sustained basis. While a prototype has an expected six-month duration, we plan to adjust the design to provide sustained treatment for years from a single implant.
As previously reported, a six-month open-label, investigative, sponsored study of osteoarthritis implant is planned. The principal investigator has been advised by the FDA that it will require stability data on the implants to be used in the study prior to its initiation.
Although this type of data is routine and not difficult to produce, it will take time. As a result we expect the study to begin enrollment this summer.
We continue to advance our other development programs although we have no new news to report at this point. Our Tethadur research is continuing to progress we'll, our pre-clinical work using Durasert to deliver tyrosine kinase inhibitors, a class of anti cancer drugs, to treat AMD remains promising.
Now turning to ILUVIEN, we had licensed microinsert that provides three years of sustained treatments for diabetic macular edema from a single injection.
We believe ILUVIEN is an important treatment alternative of patients with DMA who are typically treated with either laser therapy or repeated intraocular injections of the anti-VEGF drugs Eylea, Lucentis and the off-label Avastin.
Licensed to Alimera Sciences, ILUVIEN was launched in the United Kingdom and Germany in the second quarter of 2013 and then in Portugal and the U.S. in the first quarter of 2015. We're entitled to 20% of net profits from Alimera's sales of ILUVIEN on a quarter-by-quarter, country-by-country basis.
While we've received over $55 million to date from Alimera, primarily in license fees, contingent note repayments and milestones, we have not seen any material net profit payments to date and cannot predict when we will do so.
Because of the effectiveness and convenience of ILUVIEN for DME, we remain optimistic that going forward our share of the profits will become significant.
Moving to our financial picture, we're in a strong financial position. We ended the second quarter with $21.1 million in cash and enhanced that balance with $16.4 million in net proceeds from a $17.8 million underwritten common stock offering.
The financing significantly improved our financial condition and enhanced the execution of holdings in our company, including biotech and healthcare.
Now I'll ask Len to take us through the financials. Len?
Thank you, Paul, good afternoon, everyone. I will briefly review our second quarter fiscal 2016 results reported earlier today, starting with our financial position.
As Paul noted, at December 31, 2015, we had cash, cash equivalents and marketable securities of $21.1 million, compared to $24 million at the end of the previous quarter.
Together with the estimated net proceeds of $16.4 million from our January 2016 share offering, we believe our capital resources are sufficient to fund our current and planned operations into the fourth quarter of calendar 2017 without taking into account any potential future amounts that we might receive under our ILUVIEN collaboration agreement.
Net cash usage of $2.9 million in the fiscal 2016 second quarter was lower than the $4.5 million in the previous quarter, primarily due to the timing of CRO payments for the Medidur clinical development, proceeds from exercise of stock options and refundable foreign research and development tax credits, and the absence of incentive compensation awards that were paid in the prior quarter.
We currently expect net cash used in operating activities during the remainder of fiscal 2016 to average close to $5 million per quarter, primarily reflecting expected higher CRO payments and costs associated with our planned future regulatory filings for Medidur.
As noted previously, we expect cash used from operations to be variable quarter-to-quarter, particularly with respect to the timing and amounts of the CRO payments.
Turning now to our second quarter of fiscal 2016 results, revenues totaled $526,000 for the quarter ended December 2015, compared to $521,000 for last year's quarter. Research and development expense totaled $3.7 million in the fiscal 2016 second quarter, an increase of $954,000 or 34%, compared to $2.8 million in the prior year period. This increase was primarily attributable to higher CRO expense accruals for the clinical development of Medidur.
General and administrative expense increased by $173,000 or 9%, to $2 million for the three months ended December 31, 2015, from $1.9 million in the prior year quarter, primarily due to higher professional fees and stock based compensation.
Net loss for the quarter ended December 2015 was $5.2 million or $0.18 per share, compared to a net loss of $4.1 million or $0.14 per share for the prior year quarter. For the first six months of fiscal 2016, total revenues were $992,000, compared to $25.8 million for the same period of fiscal 2015.
This difference was predominantly due to revenue recognition of the $25 million ILUVIEN FDA approval milestone in the first quarter of fiscal 2015.
Research and development expense increased by approximately $1.7 million to $7.2 million for the fiscal 2016 year-to-date period, compared to $5.6 million for the same period in the prior year. The increase was primarily attributable to higher CRO costs related to Medidur, as well as increased pre-clinical study and other third party costs.
General and administrative expense increased by $407,000, or 11% to $4 million for the six months ended December 2015, from $3.6 million in the prior year period, primarily attributable to higher professional fees and stock based compensation.
Income tax benefit was $83,000 for the six months ended December 2015, compared to income tax expense of $188,000 for the prior year period, primarily due to $260,000 of federal alternative minimum tax expensed in the prior year period in connection with the $25 million ILUVIEN FDA approval milestone.
In addition, tax benefit amounts in both periods consisted of foreign research and development tax credits. Net loss for the six months ended December 2015 was $10.1 million or $0.34 per share, compared to net income of $16.5 million or $0.54 per diluted share for the prior year period.
I will now turn the call back over to Paul.
Great, thanks, Len. To sum up it was a really good quarter.
Key points are one, our Medidur program for posterior uveitis is looking extremely good with the first trial hitting its primary efficacy endpoints with high statistical significance and positive safety data.
In light of the outstanding topline results, we plan to file for EU approval based on only one Phase 3 trial with a plan of filing in Europe by the end of 2016. We also plan to meet with the FDA to confirm its requirements for an NDA, with a filing based on the results of two trials expected in the first half of 2017.
With respect to severe osteoarthritis of the knee, we expect the investigator-sponsored study to begin enrollment this summer following submission by the investigator of the requested stability data for the implants.
Three, work with both our Tethadur and Durasert development programs continues on pace. And, four, with $21 million in cash at the end of December and $16.4 million from our recent financing, our cash position is strong. At this point, we would be happy to take your questions.
Operator, would you please initiate the Q&A portion of the call?
Absolutely [Operator Instructions] And our first question comes from the line of Suraj Kalia with Northland Securities. Your line is open.
Good afternoon, everyone. So, Paul, a few questions on Medidur's posterior uveitis trial and one question on the osteoarthritis product. You mentioned in your prepared remarks that you would be talking to the FDA about filing for an NDA.
I guess the question I have Paul, is can you give us some directional color or confidence levels you'll see for the FDA reverting their stance and saying this study, the results were so compelling we can move ahead? Or they would still need the second Phase III study?
That's a great question and it's a question that we shall be asking. I wouldn't want to speculate as to what they might say at this point.
Fair enough. And hey Paul, obviously from an Alimera perspective, we have seen how ILUVIEN over the years, you and I have talked many times about this in the past.
You'll have obviously seen, admittedly it's in a different indication for ILUVIEN, when you think about going direct with Medidur, what do you think are things that you all can improvise, put in place right now so that when you'll get an NDA you'll hit the ground running and some of the past mistakes that's my opinion, mistakes are avoided?
Well, we're beginning the presses now of engaging a whole team of advisors to help us with those decisions as to what needs to be in place one. So this is not rocket science. People launch products all the time. Our job is to talk to as many people as possible, or as many good people as we possibly can and to simply listen to the advice that we get.
How many feet on the ground would you need? Let's assume first half Calendar '17 is when you'll get NDA approval how many feet on the ground? Can you give us some directional color of your thought process?
Well, I am assured by various people that it's an off-the-cuff estimate is around 25 to 30 sales reps. Now, that's a good off-the-cuff estimate no doubt, but I am much more interested in understanding when people have had a chance to dig into the market more carefully to come up with exactly how many that needs to be.
And perhaps at least as importantly, ensuring the product is reimbursed as quickly as possible because I think getting reimbursement is quite crucial.
Fair enough. Two other questions, Paul and I'll hop back in queue. Just continuing on Medidur, for my edification, Paul, obviously the results was spectacular on the first Phase 3. We don't see any reason why the second Phase 3 should be any different.
Just from a science perspective Paul, how do you, when you have loss of visual acuity in the treatment arm, how do you reconcile that with the recurrence of posterior uveitis?
The reason I ask is only 4.6% of the Medidur eyes lost visual acuity, but 18.4% had recurrence. Is it just the math that's -- that way it works? Or is this a more underlying thing that we should keep an eye out for?
That is 4.6% losing at least 15 letters. It doesn't mean to say that some didn't lose. Basically just didn't raise to the 15-letter mark and the FDA typically regards 15 letters as being something in the line in the sand. So by protocol, it's certainly possible for someone to have a recurrence of uveitis, but not having without having lost 15 letters.
Okay. Okay. So it's primarily math. Okay. Got it. And finally Paul, just going on to osteoarthritis, you guys know about Carbylan and Flexion and Anika There is a lot of interest in the space.
I think it's about fair to say six months a year ago, together these companies were trading probably more than $1 billion in market cap on the promise of products relieving pain in osteoarthritis. So I can understand the enthusiasm that -- and you guys probably have some idea about how the Durasert-type of product would work in osteoarthritis.
Paul at least from my perspective, what are the things that you're seeing to the extent that you can share that could help us get some comfort level on -- because some of these competing studies, there is either a question of placebo effect. There is either a question of efficacy or the duration of efficacy.
One of the things that specifically comes to mind is you're putting an insert right in the knee, how do you segregate any intermittent pain or acute pain, or whatever, simply by the process of having a physical object in there? Any color on this would be great. Thank you for taking my questions.
Hey, great. So the implant itself is it's a screw, so it's inserted away from any load-bearing joints. So it should be painless. There should be no foreign object sensation when the patient has one of these things put in.
Another thing to emphasize here is that we're targeting patients who have severe disease. These are people who are potentially in fact certainly, in the queue for a total joint replacement. So it's not a moderate thing.
So a minor tweak or relatively small discomfort in the knee, those are not the patients we're going after. We're going after people with severe disease. Unfortunately, there is a lot of them, at least 700,000.
So I think the combination or I should also add that regarding the technology we know, in inverted commas, “that the technology will release drugs for a very, very long time”.
We also know, in inverted commas, “that the drug we're choosing to release dexamethasone, does work”. So a lot of the variables, shall I say, that you perhaps have with some other technologies really aren't there in this case. So I hope that answers the question.
Thank you. Our next question comes from the line of Matt Kaplan with Ladenburg Thalmann. Your line is open.
Hey, Paul, thanks for taking my question. Just quickly, can you give us a sense in terms of where you are with second Phase 3 in India and how that trial is enrolling?
Yes, that's enrolling. It's one of those things we'll know when it's fully enrolled, when it's fully enrolled. It's been about according to schedule.
Great. And then -- go ahead.
And frankly, some of how that proceeds will be a function of any guidance we get from the FDA.
Sure. And then in terms of the European filing, what do you need to complete to be able to, additional work that you need to complete to facilitate that filing in Europe? And I guess secondly, will that information that you are able to generate, will that help you in U.S. potentially as well?
And the answer to the second part of that is absolutely, it's essentially the same data. We need to complete our CMC, chemistry, manufacturing and control data. We need to be able to show that we can manufacture these implants to scale under the appropriate conditions.
We obviously can, but generating the voluminous amount of paperwork to support your validations and all those things is going to take a time. And frankly, that is likely to rate determining. We also need data from our soon-to-be-initiated study of our new inserter that allows the implants to be injected down a 27-gauge needle, that will not be rate determining.
So basically both, obviously both of those pieces of information are needed to support the NDA as well. So there is not additional data. It's just for the NDA. It's just -- that part is the same.
The second was the NDA. Great. And I guess -- and then just a quick update on your Durasert pre-clinical program if you could, when you -- any visibility in terms of getting that into the clinic?
That is the AMD work, I presume.
Yes, we're screening compounds now and when we come -- when we determine the dose that we'll need and the agent that's best, we'll go forward. So that's -- yeah, we're in the middle of screening. We'll know when we see it.
Perfect. And then just last question going back to Medidur in terms of your meeting with the FDA, when should we -- can you give us a sense, in terms of when that could potentially occur?
Probably we'll be able to announce something in May. It rather depends on one, when you have the meeting and two, perhaps most importantly, when you get the minutes back from the meeting but we -- I'm expecting May will be appropriate.
Well, congrats on terrific data and the progress.
Great. Thank you.
Thank you. And our next question comes from the line of Vernon Bernardin with FBR & Company. Your line is open.
Hey good afternoon, everyone. This is actually Thomas Yip asking a couple of questions for Vernon. He's out-of-pocket today. Just want to make sure that the NDA submission in the first half of 2017, just wondering if that assumes the FDA will require data from only one Phase 3 trial?
No, that's assuming the FDA will want data two Phase 3 trials
Okay. So in that case, would there be any additional say CMC studies or any other small studies that will be required if they -- if the FDA mandates only one Phase 3 trial data?
No. Well we're doing the CMC work anyway.
We're doing the -- yes, we're doing the inserter study anyway. If the FDA wants to see data from a second Phase 3, then we will give them that data.
Okay. So I…
That is just another thing we're doing anyway.
I see. So assuming the best case scenario where the FDA requires only -- there is very impressive Phase 3 data that you already have, is it safe to assume that the NDA will proceed shortly after your talks complete with the FDA?
No. As I alluded to earlier, it will take until Q4 to generate the CMC section. So the data that the Europeans want, which is CMC inserter data, etcetera, that's essentially the same package of information that the FDA will need.
Okay. I got it. Thanks very much.
The FDA will need that and they may, and currently to be clear, our last communication with them was that they would require data from the second Phase 3 trial, as well. I will see if that's still the case.
Okay. Just one final question regarding Durasert, can you tell us a little bit about the nature of the data that will be required to file an NDA on osteoarthritis?
It’s the standard -- standard stability data. Accelerated storage and that kind of good stuff.
For the Ophthalmics group, they've often, almost always, have accepted stability data from non-clinical batches. The folks reviewing the osteoarthritis want to see stability data from the actual batch that is going to be used in the clinical trial. So it's not a big thing. It slows things down a little.
Okay. So really nothing out of the ordinary which is good. Okay. That's all the questions I have. Thank you so much again for taking my questions and I hope you have another great quarter.
Great, thank you.
Thank you. And this does conclude today’s Q&A session. I would now like to turn the call back over to Mr. Paul Ashton for closing remarks.
Great, thank you. Well again I'd like to thank you all for joining us today and I look forward to speaking with you again on the next quarter. In the meantime of course, if you have any additional questions, please feel free to contact us. Thank you. Bye-bye.
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may now disconnect. Everyone have a great day.
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