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Executives

Rick Eiswirth – COO and CFO

Dan Myers – President and CEO

Analysts

Adam Darity – Citi

Michael Faerm – Credit Suisse

Chris Holterhoff – Oppenheimer

Alimera Sciences Inc. (ALIM) Q2 2012 Earnings Call August 9, 2012 4:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Alimera Sciences Second Quarter 2012 Earnings Conference 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) And as a reminder, this conference is being recorded.

I would now like to introduce your host for today, Mr. Rick Eiswirth, Chief Operating Officer and Chief Financial Officer. Sir, please go ahead.

Rick Eiswirth

Thank you. Good morning, everyone, and welcome to the Alimera Sciences’ conference call to discuss our second quarter 2012 financial results. A press release regarding these results was issued earlier this afternoon and is available on our website. On the call with me today is Dan Myers, our President, and Chief Executive Officer.

Before we begin our prepared remarks, I would like to remind you that various statements that we make during this call about the company’s future results of operations and financial position, business strategy and plans and objectives for Alimera’s future operations are considered forward-looking statements within the meaning of the federal securities laws.

Words such as anticipate, believe, estimate, expect, intend, may, plan, contemplate, predict, project, target, likely, potential, continue, will, would, should, could or the negative of those terms and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Our forward-looking statements are based upon current expectations that involve risks, changes and circumstances, assumptions and uncertainties. These risks are described in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and the Results of Operations” sections of Alimera’s quarterly report on Form 10-Q for the quarter ended March 31, 2012, and Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which are on file with the SEC and available on the SEC’s and Alimera’s websites.

Additional risks, which may also be described in those sections of Alimera’s quarterly report on Form 10-Q for the quarter ended June 30, 2012, which we expect to file no later than next week. We encourage all investors to read these reports and our other SEC filings.

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

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

Dan Myers

Thanks, Rick. We’ve made great progress in recent months as we prepared to launch ILUVIEN on our own in 2013 in selected countries. We now received marketing authorization for ILUVIEN in five of the seven EU countries that we initially targeted Austria, the UK, Portugal, France and Germany and on target to begin generating revenue during the first quarter of 2013.

With our recently announced $40 million convertible preferred stock financing that we expect to close in the third quarter, combined with our existing cash on hand, we believe that we’ll be fully funded to commercially launch and sell ILUVIEN on our own in Germany, the UK, and France.

Rick will provide a little more color on this shortly. We’ve begun the recruiting process for our key management positions and are engaging with a contract commercial organization to build on our field personnel. Our initial focus is to place medical science liaisons and market access specialists in the field to cultivate the market for our formal launch early next year. In July, we received a letter from Germany’s Federal Joint Committee indicating that the automatic obligation to submit a dossier on ILUVIEN per the AMNOG Law would not be necessary, and that a benefit assessment would not be required.

This is due to the fact that fluocinolone acetonide, the active ingredient in ILUVIEN, was available on the German market prior to January 2011. This allows us to launch ILUVIEN without price restriction in Q1 of 2013. Following Germany, we expect to launch in the United Kingdom and France later in 2013.

Regarding the UK, there has been misleading and incomplete information recently around the issuance of the Appraisal Consultation Document or ACD (ph) that we received from the National Institute for Health and Clinical Excellence or NICE. NICE publishes ACD as part of the Single Technology Appraisal process. Following the first appraisal committee meeting, the committee acknowledged that ILUVIEN showed greater efficacy than a sham injection in people with chronic diabetic macular edema. However, their preliminary recommendation is that ILUVIEN is not recommended for the treatment of chronic diabetic macular edema given the current cost of ₤5,500 and other variables included in our submission.

As some of you may or may not know, the process with NICE requires the submission of a cost affecting this model. As you can imagine, this model is extremely complex with multiple variables, only one of which is obviously price. We have reached agreement on the majority of the variables in the model. However, there do remain some assumptions that are still open for discussion. This document is not NICE’s final guidance on the technology and the recommendation may change after consultation. We, along with NICE’s consultant and the public, have the opportunity to provide further comments by the end of August in preparation for the second appraisal meeting in September. This interim guidance provides us additional information on key issues and important variable in NICE’s evaluation of the cost effectiveness of ILUVIEN.

The final appraisal determination or FAD is not scheduled until November. We look forward to responding to the committee and working toward a positive recommendation in the FAD. Former marketing authorizations are pending in Spain and Italy. We’re continuing the process of establishing pricing and reimbursement in those markets and will evaluate our options for commercialization in those markets in 2013.

Outside of the initial seven countries, of which we sought approval for ILUVIEN, we intend to pursuit the mutual recognition procedure in the first half of 2013. We will prioritize our pursuit of marketing authorizations for ILUVIEN based on the size of the available diabetic population and the ease or complexity of obtaining adequate pricing and reimbursement.

Our initial targets are likely to be the Netherlands, Belgium, Sweden, Denmark and Finland. On the U.S. front, we met with the FDA in June to discuss the NDA November 2011 complete response letter regarding our New Drug Application. Based on our meeting, we intend to resubmit our NDA in response to the CRL for ILUVIEN with data from our two previously completed pivotal Phase III clinical trials, also known as the FAME study.

The resubmission will focus on the population of patients with chronic DME considered insufficiently responsive to available therapies, the same indication for which regulatory approval for ILUVIEN has been granted in several EU countries. We also expect to continue enrollment of patients in the ILUVIEN physician utilization study that was temporarily suspended after the issuance of the CRL. This study was conducted at the request of the FDA to provide data on our new applicator prior to launch. Today, we have enrolled 63 patients in this study and we expect to increase the number of patients enrolled to approximately 100 by the end of the year.

With that, I’ll now turn it back over to Rick on the call and let him briefly discuss our second quarter financials.

Rick Eiswirth

Thank you, Dan. Turning to our financial results for the second quarter of 2012, net loss for the quarter ended June 30, 2012 was $4.7 million, or $0.15 per common share. That compares with a net loss of $5.2 million, or $0.17 per common share for the second quarter ended June 30, 2011.

Research and development expenses for the second quarter of 2012 increased to $1.9 million, compared to $1.8 million for the second quarter of 2011. The majority of our research and development expenses incurred to-date have been related to the development of ILUVIEN. General and administrative expenses in the second quarter of 2012 were $1.5 million, compared to $1.9 million in the second quarter of 2011.

Marketing expenses in the second quarter of 2012 were $1.1 million, compared to $1.3 million for the second quarter of 2011. Marketing expenses were used primarily for assessing the commercial opportunity of, and developing market awareness and launch plans for ILUVIEN in Europe.

We expect our marketing expenses to begin increasing in the third quarter as we prepare for our commercial launch of ILUVIEN. As of June 30, 2012, we had cash, cash equivalents and investments of $22.3 million, compared to $33.6 million as of December 31, 2011.

This cash and cash equivalents balance excludes any amounts to be received upon the closing of the Series A Preferred financing. Only July 7, 2012 we entered into a securities purchase agreement with Palo Alto Investors, Sofinnova Ventures and New Enterprise Associates for a $40 million Series A Convertible Preferred Stock financing.

The closing of the financing is subject to customary closing conditions, including the approval of the holders of a majority of our outstanding shares of common stock at a special meeting of our stockholders, as required under the applicable regulations of The NASDAQ Global Market.

Stockholders holding approximately 56% of our common stock as of July 17, 2012 have entered into separate agreements with Alimera whereby they have agreed to vote all of their shares in favor of the transaction. We expect the financing to close during the third quarter of 2012. When we’ve closed the financing, we will be expanding our Board of Directors to nine members and Dr. Garheng Kong, managing member of Sofinnova Venture Partners, will be elected to fill the new Board seat.

Now, we’ll turn the call back over to Dan for closing comments.

Dan Myers

Thanks, Rick. The second half of this year will be an exciting time for Alimera as we will be focused on building the infrastructure and commercial plans for the launch of ILUVIEN in Germany, the United Kingdom and France and developing our resubmission to the FDA.

And with that, I’ll turn it back over to the operator for any questions. Operator?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question comes from the line of Amit Bhalla from Citi.

Adam Darity – Citi

Hi, Dan and Rick. This is actually Adam in for Amit today.

Dan Myers

Hi, Adam.

Adam Darity – Citi

Hi, I just had a question on the UK approval process. If you could just go into – provide a little more color on what gives you the large amount of confidence in the process? And then if you could even compare it to a similar situation with another ophthalmology drug or any other color you can provide on that process?

Dan Myers

Sure, I don’t know if I could give a lot beyond what I said earlier, I think the reason for my optimism maybe is a piece I can handle for you on that, is that, when we got the appraisal consultation document back, and as we began to work with our consultants on where we have potential disagreements, that gives us the feeling that for a majority of the variables in the model, we seem to see the world in the same light. And so, we believe as we come back and negotiate with – and that’s clearly what this sort of – these meetings become, an opportunity to do a little more give and take maybe than what we are typically used to in the U.S., much more of an interim process.

And so that’s where we are now and I think what we saw in those comments gives us confidence that we can find a place where the cost effectiveness of ILUVIEN will be acknowledged by NICE.

Adam Darity – Citi

Okay. And then, as far as the comments that you did receive, are you expecting anything worse than what you – what they gave you or were you expecting anything better?

Dan Myers

No, actually they were very reflective of the meeting, just maybe for others that, getting back to their – give me some color, maybe I could add that, we had a meeting on July, the 11, in London. And at that time, the model that we had been developing obviously from months prior was basically debated amongst the group of consultants as well as key opinion leaders that – we were attending, but we did not present at that meeting. The format is one that Alimera would have representation there more as an observer as opposed to presenter and would be clarifying any questions or anything asked of us from the NICE committee.

So, we clearly had a sense of that – of that committee meeting, and how it went. And I think it, I was not able to – but I think if you talk to Ken Green, our CSO, who led that effort, when he came back, I think the feeling he had was reflected for the most part of what the outstanding issues that were brought up in that meeting were reflected in the ACD.

Adam Darity – Citi

Okay, thank you. Thank you very much.

Operator

Thank you. And our next question comes from the line of Michael Faerm from Credit Suisse.

Michael Faerm – Credit Suisse

Hi, good afternoon. Thanks for taking the question. Based on the differences that NICE has articulated with your modeling assumptions, what’s your sense of how much lower the price needs to go to satisfy them relative to the £5,500 you have proposed?

Dan Myers

Mike, it’s a good question. It’s just premature to be able to answer it for really the following reason, not that we won’t have to address this issue eventually. But, at this point what we’re doing is taking – there’s probably a half dozen variables that we’re looking at that – was cited in the ACD, as I said, one of which is always price. And I don’t think we have a feel yet on the sensitivity of those variables in the ultimate cost effect and this hurdles that you have to get over. And that’s going to take us a little more time. Obviously, it has to be reconciled before the end of August because our response prior to the September meeting has to be in by the end of October.

So, until we can see which of these variables has the kind of impact that is greater than or less than price, I really can’t answer it, because obviously, the easy answer is, just lower your price and you’ll obviously have a better cost effect in this model vis-à-vis meeting the hurdle. But we don’t know at this point that if we reach consensus on other variables in the model, they might actually have more impact than price. And until we know that, I don’t think we can comment on whether we need to actually lower the price.

Michael Faerm – Credit Suisse

So the process from here then is, you’ll go back to them with a new cut at the model, and then try to reach an agreement on price. Is that sort of how you – where you go from here?

Dan Myers

Yeah, that’s exactly what will happen. So we’ll redo the model based on the input we got. We will submit that at the end of August. They of course, then receive it, review it and there will be another meeting in September much like the first meeting we had, this will be a second shot at it. Clearly your hope is that you’ve narrowed down any areas of disagreement or interpretation such that in a perfect world, you have agreement. If you don’t, then we have obviously another round of this going through towards the final appraisal determination in November.

Michael Faerm – Credit Suisse

And does NICE’s decision last year – the no decision on Lucentis, in DME, give you any cause for concern? I realize the cost levels are very different, but ILUVIEN having the higher upfront cost, I’m just wondering if you think that decision has any implications for the decision on your product?

Dan Myers

That’s a good question and I think it’d be easy to try to draw parallels to that, but I just think as you know and we’ve talked for years now, the dosing and the administration, the individual cost are just so different between the two products. And I don’t think you can draw any conclusion. I will say that we tried to learn something from that process because we did have people on the ground at that meeting, we have seen the reports and we did try to use that in learning where are the areas that NICE tends that one should be more conservative.

And I have to say, I think where we have had places, where we’re looking at variability and we had to choose where to be more aggressive or concerned. I think we’ve taken a more conservative route. In most instances and I guess that goes back to Adam’s question a little earlier, maybe I can add to buy the confidence and maybe that’s another element I didn’t speak to earlier.

We believe we’ve taken a pretty conservative path where there was an opportunity to be more aggressive in a variable or more conservative. So, maybe to answer your question, if any aspect of last year’s meeting had any impact on us, it would be more and more the tone and approach to the meeting. I don’t think you can actually assign any objective variables as a real competitor.

Michael Faerm – Credit Suisse

And last question in Germany, it sounds like you’re not subject to any restrictions there. Where do you intend to price the product in Germany?

Dan Myers

We’ll be announcing that shortly. Typically the announcement of price is usually about 30 days prior to the actual distribution of product. And as we’ve mentioned in our Analyst Call with you guys last month and maybe someone will ask us later, so I’ll cover it now.

We’re still in production of our three validation batches that will become our first commercial batches in Europe. Those should be shipped into Brecon in Wales, which is our entry point in the continent somewhere mid-to-late October. So we’d have product into the distribution channels in November. So, obviously that would say we will be announcing a determining price in Germany in the early fall.

Michael Faerm – Credit Suisse

Okay, great. Thank you.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Chris Holterhoff from Oppenheimer.

Chris Holterhoff – Oppenheimer

Hi, good afternoon, guys. Just another question on the UK approval process, I’m just wondering if you think you’ll have to generate any additional information or data for NICE or if this is really just a price negotiation?

Dan Myers

I’m not sure I agree with your latter point completely that this is just a price negotiation, but as I’ve said in my earlier comments, certainly price is one of the more obvious variables that can be a large driver. So having said that, as far as any other data that we have to generate, the answer would be no. This is all around the cost effect in this model; remember this really isn’t about clinical effectiveness.

As I’ve said earlier, the committee, we believe and we were there in the minutes of the ACD, I think reflect that the clinical effectiveness or the utilization in a practice for clinicians in the UK, I think it’s pretty much been established. I think we know that ILUVIEN works.

So, as far as any clinical data, this is really not about a clinical assessment per se as you would in a classic registration trial. This is more about the classic balance in the UK of when the government is paying, cost versus effectiveness.

Chris Holterhoff – Oppenheimer

Okay, that’s helpful, thanks. And then just last, can you remind us of your expectation for, I guess, range of the gross margins for ILUVIEN in Europe?

Dan Myers

I’ll turn it over to Rick, obviously.

Rick Eiswirth

We haven’t given specific guidance on that, but I can tell you that the royalty that we ultimately want, obviously, we talked about before is – that’s not a royalty, it’s a profit share of 20%, and then it approximates 14% to 15% royalty. So, you can back kind of the profit from there.

Chris Holterhoff – Oppenheimer

Okay, okay. That’s helpful. Thanks a lot.

Operator

Thank you sir. And I see no further questions in the phones at this time. I would like to turn the conference back to Dan Myers for any concluding remarks.

Dan Myers

Thanks for listening today’s call. We’ll be attending a number of investor events during the third quarter, so hope to see many of you there and we look forward to updating you on the progression of the ILUVIEN launch in EU on our third quarter earnings call. Operator, this will conclude our call.

Operator

Thank you, sir. Ladies and gentlemen, this does conclude today’s conference. We thank you for your participation, and you may now disconnect. Everyone have a good day.

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