Lori Freedman - VP, Corporate Affairs, General Counsel, and Corporate Secretary
Paul Ashton - President and CEO
Len Ross - VP, Finance and Principal Financial and Accounting Officer
pSivida Corp. (PSDV) F4Q2012 Earnings Conference Call September 24, 2012 4:30 PM ET
Good day ladies and gentlemen and thank you for standing by and welcome to the pSivida Corporation’s Fourth Quarter 2012 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct the question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder today’s conference may be recorded.
It's now my pleasure to turn the floor over to Lori Freedman. Please go ahead.
Thank you, Huey. Good afternoon everyone and thank you for joining us. After the market closed we released our fourth quarter and full-year financial results for fiscal 2012. A copy of the release is available in 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, our 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 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 he results and other expectations express anticipated or implied will be realized. Actual results could differ materially from those anticipated, estimated or projected in the forward-looking statements. For more detailed 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 quarterly report on Form 10-Q for the quarter ended March 31, 2012. 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.
Great. Thank you, Lori. Welcome everyone as we discussed the results of the fourth quarter of fiscal 2012. This was another excellent quarter for us. Here are some of the headlines. First, the FDA cleared IND for the product for independently developing for the treatments of uveitis affecting the posterior uveitis segment permitting us to move directly into Phase III clinical trial.
Second, Alimera Sciences have continued to make progress on the commercialization of the ILUVIEN for DME in the EU. Marketing and authorizations have not been received in five EU countries and the commercial launch is planned for Germany, France and the UK in 2013. Alimera has also reported in France to resubmit the NDA in the U.S.
Third, we have made good progress on Tethadur, our peptide protein delivery system. We announced the execution of a funded technology evaluation agreement with the large biopharmaceutical company our first for this technology.
Number four is of course cash. We ended the quarter with over $14 million in cash and subsequently raised some additional 4.7 million in a registered direct offering.
Okay. So let’s get into some of the details. The uveitis affecting the posterior uveitis segment that’s the back-of-the-eye is a nasty disease. It affects just under 200,000 people in the U.S. but is one of the leading closes of vision loss, about third or four in the U.S. It's estimated as there are about 30,000 cases of blindness in the U.S. due to posterior uveitis. Uveitis is an inflammatory autoimmune disease that can have many triggers one can develop in the felicitation with diseases like lupus or MX or a variety of other conditions. Sometime they can be a genetic component such as the case in Behcet’s disease. And in many cases it's idiopathic. Thirdly, the disease in normally treated with off-label use of systemic drugs.
So, two FDA approved products of treatment disease, Retisert, Bausch & Lomb under license from us and OZURDEX sold by Allergan. Unfortunately for various reason neither of these products have succeeded in significantly changing the management of the disease for most patients. Uveitis continues to be managed largely by systemic steroids, and when the side effects of this treatment becomes too problematic by modulating drugs such as methotrexate, cyclophosphamide or Humera. These of course have their own systemic problems.
Our injectable micro-insert for posterior uveitis is the same ILUVIEN approved in several European countries for DME. So, why are we confident about the use of this product in uveitis, while micro-insert delivers fluocinolone acetonide, which is the same drug delivered by the Retisert device, which is FDA approved for uveitis. Retisert is extremely effective for a) must be surgically inserted and b) it has some significant side effects including increased intra-ocular pressure or IOP. In clinical trials, over 60% of patients develop an IOP above 30 millimeters of mercury at [some point] another 30% of patients needed a second operation to control this IOP. This is where we believe the ILUVIEN type micro-insert will be attractive to uveitis.
It's injected during an office visit so no need for surgery and so far, half of your IOP related side effects. In the DME Phase III studies conducted by Alimera, fewer than 20% of patients develop an IOP of over 30 millimeters compared with 60% for Retisert and most of these manage with eye drops only 5% requiring a surgery to lower pressure compared to a 30% for Retisert.
Now once it's reasonably out, ILUVIEN and DME got the complete response letter from the FDA, why do you think you will do any better in uveitis? Well, with the caveat that ILUVIEN for DME in the U.S. is not yet over and I will get into that shortly. It's important to point out that drugs are approved on the basis of the relative risks versus benefit. What maybe an assessable risk in the treatments of lung disease maybe unacceptable in another. For example, the well known side effects in many cancer drugs are acceptable to cancer but may not be acceptable for the less serious condition.
The approval of Retisert suggest to us that the FDA is willing to accept some side effects as an accessible trade off for an expected therapy in the treatment of this serious disease. And we are hopeful that our micro-insert will further improve the risk benefit ratio.
The FDA has cleared the IND for the micro-insert to go straight into Phase III clinical trials in posterior uveitis. The FDA has agreed that the primary end points for these studies can be the recurrence of the disease at 12 months and the FDA has agreed that we can reference much of the pre-clinical and clinical data including the human safety data already supplied under the NDA for DME.
For now completing the planning stage for these clinical trials, which will, between them, involve a total of approximately 300 patients. [Some profit] we are developing for uveitis will be virtually the exact same product Alimera is to commercialize in Europe with one exception. We have modified the insert of itself to allow the micro-insert to be administered via 27 gauge needle other than the 25 gauge used for ILUVIEN. This should make it still easier to use. Posterior uveitis insert is our own product and isn’t licensed to Alimera or anyone else.
Now let’s move to the progress Alimera is making in Europe towards commercializing ILUVIEN for DME. ILUVIEN has now received marketing authorization in Austria, France, Germany, Portugal and the UK as has been recommended for marketing authorization in Italy and Spain. Alimera has reported its plan to launch in Germany, UK and France in 2013. And furthermore, has announced agreement on a $40 million equity financing subject to stockholder approval on the usual closing conditions to provide it with the necessary capital to launch in Europe. Our agreement with Alimera entitles us to receive 20% of net profit as defined on a country-by-country basis.
You may ask, besides of the potential patient population and the seven European countries where ILUVIEN received marketing authorization or where authorization has been recommended. Well, the International Diabetes Federation estimates there are approximately 19 million people with the disease in those countries of whom over a million have DME. So, it's about the same size of the U.S. in terms of people.
So, what about the financial numbers, Alimera recently reviewed the size of the market and its views and its revenue expectations going out to 2017 are posted on the website.
With respect to ILUVIEN in the U.S., Alimera reported that it met with the FDA in the first quarter and effort to better on the stand the regulatory path for ILUVIEN and DME. Based on that meeting Alimera has said it plans to file a response, the complete response letter using analysis of data from the already completed same studies and focusing on the population of patients for which approval has now been granted in the countries in the EU.
As a reminder, approval in the U.S. was entitled to a $25 million milestone payment and 20% of net profit as I described earlier. The product to DME and posterior uveitis both utilize our Durasert technology, as there are two FDA approved products Retisert and Vitrasert. We have another application of this technology, a bioerodible micro-insert for the delivery of latanoprost for the treatments of glaucoma and increased intraocular pressure.
In glaucoma treatment one of the biggest problems is patient’s compliance. People simply don't take the eye drops properly if at all. The idea behind this product is a glaucoma patient so receive an injection of this micro-insert are regularly scheduled office visit. This is currently in an investigator sponsored study and is being developed under our agreement with Pfizer. Upon successful completion of this study our plan will be to move to a Phase II trial and at the end of that Pfizer has an option to pay us $20 million and assume all development activities. There would be up to $145 million in additional milestone obviously even triggered and a double-digit royalty if Pfizer was exercised. If Pfizer doesn’t exercise this option we could take the product forward ourselves with no payment with Pfizer. I should point out Pfizer has previously paid us approximately $10 million in licensed fees and R&D support.
Now, aside from Durasert, we are continuing to work on the delivery of peptides and proteins including antibodies using Tethadur, an application of our BioSilicon technology. I’m pleased to be able to tell you that we believe our work here continues to progress well and we have generated some data we find interesting in a variety of peptides and proteins. As I mentioned earlier, we have entered into a technology evaluation agreement with a large global biopharmaceutical company where we expected a possible developments to cover sustained release system for proteins in ophthalmology. Proteins are very interesting in ophthalmology. Proteins are very interesting in ophthalmology.
Genentech, Roche's Lucentis is a protein, an antibody fragment, that's injected into the eye approximately every four to six weeks for the treatments of wet age macular degeneration, AMD. One of the most successful commercial launches ever was approximately $800 million in sale in its first year. More recently, Regeneron's EYLEA, a fusion protein, which has similar efficacy to Lucentis achieved a similar feat in the same market. It is injected every six to eight weeks. So, along the same delivery system, requiring an injection every four to six months should offer a very attractive treatment profile.
So, also we had a very good quarter, we ended the quarter with $14.6 million in cash with no debt and we subsequently raised some additional 4.7 million via a registered direct offering of shares of warrant. With the expiration of unexercised warrant, we now have a relatively small warrant overhang at this point, 1.2 million warrants on a base of 23.1 million shares this compares to 7.8 million warrants on 20.7 million shares at the start of the year.
So, with that I’ll turn the call over to Len to take us through the financials. Len.
Thank you, Paul and good afternoon everyone. I will briefly review our fourth quarter and fiscal year 2012 results reported earlier today. Starting with our financial position.
As Paul mentioned at June 30, 2012 we had cash, cash equivalence and marketable securities of 14.6 million and net decrease of 9.5 million compared to 24.1 million at June 30, 2011. We anticipate that these capital resources together with the 4.7 million net proceeds of our recently completed registered direct offering and expected royalty income from Bausch & Lomb should enable us to fund our operations as currently planned through the end of calendar year 2013.
Alimera has indicated its intention to launch sales of ILUVIEN for DME directly in Germany, the UK and France during calendar 2013. However, the timeframe and amounts of the 20% share of net profits is defined measured quarterly on a country-by-country basis to which we would be entitled under the terms of our collaboration agreement are uncertain.
Our ability to fund planned operations beyond them including Phase III trials of posterior uveitis micro-insert will depend on the generation and timing of net profits from Alimera’s commercialization of ILUVIEN for DME in the EU and potentially in the U.S. or our ability to otherwise timely secure additional capital resources.
Turning to our results, for the year ended June 30, 2012 we reported total revenues of 3.5 million compared to 5 million for the same period last year. The revenue decrease was primarily due to recognition of 3.3 million of revenue in fiscal 2011 as a result of our amended Pfizer collaboration agreement compared to 754,000 recognized in the current year. This was partially offset by 1.1 million of collaborated research and development revenue that we recognized in fiscal year 2012 as a result of the July 2011 termination by intrinsic of its field of use license. Our royalty income from Bausch & Lomb increased slightly on a year-over-year basis.
Research and development expense totaled 7 million for the year ended June 30, 2012 compared to 6.9 million in the prior year period primarily attributable to increased personnel costs and the absence in the current year of a Federal Grant Award that we received in the prior year substantially offset by lower amortization of our intangible assets.
General and administrative expense totaled 6.9 million for the year ended June 2012 compared to 8.1 million last year. The decrease primarily attributable to reduced stock based compensation expense including reversal of amounts resulting from performance based options forfeitures, lower professional fees and the absence in fiscal 2012 of cash incentive compensation, the payment of which is subject to future conditions.
Fiscal 2012 operating expenses also included the 14.8 million intangible asset impairment charge that we recorded in the second quarter. Non-operating income was 207,000 for the year ended June 2012 compared to 1.2 million in the prior year period. The decrease was predominantly attributable to the change in fair value of derivatives related to outstanding Australian dollar investor warrants from 170,000 at June 30, 2011 to a derivative liability balance of zero at June 30, 2012. The vast majority of these warrants expired in fiscal 2011 and the remainder have expired in July of 2012.
Net loss for the year ended June 2012 which included the intangible asset impairment write down of 14.8 million was 24.8 million or $1.19 per share compared to a loss of 8.6 million or [$0.44] per share for the prior fiscal year.
Turning to our results for the fiscal fourth quarter ended June 30, 2012, we reported revenues of 699,000 compared to 3.7 million in the fourth quarter last year. The year-over-year revenue decrease resulted primarily from the initial 3.3 million of revenue that we recognized in the fourth quarter of fiscal 2011 in connection with the amended Pfizer collaboration agreement.
Research and development expense totaled 1.4 million for the three month period ended June 2012 compared to 1.9 million in the prior year quarter primarily attributable to lower amortization of intangible assets partially offset by increased personnel expense.
General and administrative expense totaled 1.6 million for the three month period ended June 2012 compared to 2.2 million in the prior quarter primarily attributable to reduced levels of stock based compensation and professional fees and the absence in fiscal 2012 of cash incentive compensation expense.
I will now turn the call back over to Paul.
Great. Thanks Len. So, to sum up, it's been an excellent quarter. The R&D for micro-insert for posterior uveitis has been cleared by the FDA. ILUVIEN has received marketing authorization in five EU countries and our licensee Alimera Sciences has said its plans to launch in France, Germany and the UK in 2013. They have reported agreements on a $40 million equity financing contingent on shareholder approval that will provide them with the cash to launch. After having met with the FDA, Alimera reported plans to resubmit the NDA for ILUVIEN.
The clinical trial for our bioerodible glaucoma product in ongoing and we are continuing to work on developing Tethadur our peptide protein delivery system. And last but certainly not least we ended the quarter with 14.6 million in cash and in August raised some additional 4.7 million to supplement our cash position.
At this point we would be happy to take your questions. Operator would you please initiate the Q&A portion of the call?
(Operator Instructions) Presenters I’m showing no questioners on the phone queue, I’d like to turn the program back over to you for any additional remarks.
Okay. Well, thank you all for listening. I can only presume that we did an excellent job of the update. So, thank you very much for your attention and I look forward to giving you further updates in our next quarter. Thanks very much.
Thank you, presenters. Again ladies and gentlemen this does conclude today’s conference. Thank you for your participation and have a wonderful day. Attendees may disconnect at this time.