Alimera Sciences Inc. (ALIM) CEO Rick Eiswirth on Q1 2021 Results - Earnings Call Transcript

Alimera Sciences Inc. (NASDAQ:ALIM) Q1 2021 Earnings Conference Call April 29, 2021 9:00 AM ET

Company Participants

Scott Gordon - Core IR

Rick Eiswirth - President and Chief Executive Officer

Phil Jones - Chief Financial Officer

Conference Call Participants

Alex Nowak - Craig-Hallum Capital

Yi Chen - H.C. Wainwright

James Molloy - Alliance Global Partners

Operator

Ladies and gentlemen, thank you for standing by. Good morning and welcome to Alimera Sciences' First Quarter Fiscal Year 2021 Financial Results and Corporate Update Conference Call. [Operator Instructions]

After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded by a playback-purposes. A webcast replay of the call will be available approximately 1 hour after the end of the call through May 13, 2021.

I would now like to turn the call over to Mr. Scott Gordon of CORE IR, the company's Investor Relations firm. Please go ahead, sir.

Scott Gordon

Good morning and thank you for participating in today's conference call. Joining me from Alimera's leadership team are Rick Eiswirth, President and Chief Executive Officer; and Phil Jones, Chief Financial Officer. During this call, management will be making forward-looking statements including statements that address Alimera's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Alimera's most recently filed periodic reports on Form 10-K and Form 10-Q, the Form 8-K filed with the SEC today, and Alimera's press release last evening, particularly cautionary statements in it.

Today's conference call includes adjusted EBITDA, a non-GAAP financial measure that Alimera's believes can be useful in evaluating its performance. For a reconciliation of this non-GAAP financial measure to net loss, please see the reconciliation table located in Alimera's earnings press release. The content of this call contains time-sensitive information that is accurate only as of today, April 29, 2021. Except as required by law, Alimera disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Rick Eiswirth.

Rick, please go ahead.

Rick Eiswirth

Thank you, Scott, and good morning to everyone on the call. With the dual headwinds of both the typical seasonality in our business in the early part of the year and the continued presence of COVID-19, the first quarter was challenging as we indicated it would be on our fourth quarter conference call in early February. First quarter demand for ILUVIEN as a higher-priced product is generally lower than fourth quarter due to seasonality as insurance plans and deductibles reset in the U.S. and hospital budgets' reads are re-established in our European markets.

That was the case again this year, however, we've also seen the typical seasonal rebound as end-user demand picked up over the course of the quarter and returned Q4 levels by the end of March across most of our markets. In particular, our U.S. demand showed growth month-over-month during the first quarter. Our business is still impacted by the pandemic as patients are skipping and postponing visits and certain parts of Europe remain in lockdown conditions.

As a result, we don't expect the full global recovery to occur in our business until the second half of this year. But based upon the overall trends we've seen recently, we believe that we will return to growth in the current quarter. Importantly, while we navigated through the COVID-19 and continue to manage the residual challenge of the pandemic, we are executing on our key longer-term growth initiatives including launches of ILUVIEN in new markets and adding additional license or distribution agreements. Our International segment is profitable and leverageable and our expansion strategy to gain market share outside the U.S. remains a key priority. As most of you know, earlier this month, we entered into an agreement to license exclusive rights to develop and commercialize our ILUVIEN intravitreal implant for diabetic macular edema and other retinal diseases to Ocumension Therapeutics, a China-based ophthalmology company in China and Western Pacific countries under its own separate branded label. In exchange, we received a $10 million upfront license payment and potentially we can receive up to $89 million and sales-based milestone payments. Additionally, we will be the exclusive manufacturer for Ocumension and we'll supply commercial goods to Ocumension and an agreed-upon transfer price once the product is approved and launched in licensed territories. Simultaneous to the licensing transaction, Ocumension also made a $10 million equity investment in our common stock and we received a 4-year warrant giving us the right to purchase up to 1 million shares in Ocumension.

The aggregate $20 million cash infusion from the Ocumension transaction significantly strengthens our balance sheet and provides us additional funding to pursue our strategy to create a unique global company focused solely on the treatment of retinal diseases. Anticipated future milestone payments and commercial product supply under the Ocumension agreement offer potential for additional revenue streams. And the warrant we received from Ocumension provides another opportunity for us to capture future value and non-dilutive financing from this transaction. We are very pleased to have Ocumension as our partner in China and other Asian markets where diabetes is a major issue and the ILUVIEN technology can make a real difference to patients diagnosed with DME in that region. Although the Ocumension relationship may not provide additional revenues for 3 to 4 years while they pursue approval in the region, we have continued to execute on expansion strategies that can drive revenue in the near term during the pandemic.

In the second half of 2020, we signed a distribution agreement with Nordic Prime as our distribution partner in the Nordic region. This agreement covers the distribution of ILUVIEN in Sweden, Denmark, Finland, and Norway, all countries where ILUVIEN has marketing approval for both DME and posterior uveitis. In the first quarter of 2021, we announced the publication of pricing for ILUVIEN in Denmark for both the DME and posterior uveitis indications and we recently saw the first end-user demand in both Finland and Denmark and expect ILUVIEN to be commercially -- commercialized throughout the Nordic region during 2021. We are continuing to work with our French partner Horus Pharma to expand into the Benelux region. Recently, we announced the launch of ILUVIEN for both indications in the Netherlands and earlier in the quarter, Luxembourg's Ministry of Health approved ILUVIEN reimbursement for DME.

In Ireland, the three largest private insurers, which together represent approximately 50% of covered lives in Ireland, recently approved ILUVIEN reimbursement for the prevention of relapse in recurrent noninfectious uveitis affecting the posterior segment of the eye in private hospitals under its plans. And in Scotland, we achieved reimbursement for ILUVIEN for noninfectious posterior uveitis. Our distribution partner in Austria Meritus Medical commenced sales of ILUVIEN in October of last year and is currently awaiting reimbursement in the Czech Republic. And additionally, we are continuing to work with our distribution partners to achieve reimbursement approval for the posterior uveitis indication in Italy, Spain, and France this year. As Europe against open back up, we believe that this indication will provide a significant contribution to our sales growth in the future.

We also continue to advance our NEW DAY trial, which is the first and only head-to-head comparative study of an approved corticosteroid therapy against the current anti-VEGF standard of care for the treatment of diabetic macular edema. NEW DAY is a randomized, controlled, multicenter study designed to demonstrate reduced disease recurrence, a reduction in treatment frequency, better disease control, and reduced retinal damaged compared to the current standard of care therapy in naive and near-naive patients. Enrollment in the NEW DAY Study has been adversely affected by the pandemic with fewer patient visits in general and some facilities not yet seeing new patients who are our target patient population. Currently, we have 32 patients randomized in the study and an additional 5 in the storage screening phase. In an effort to speed up enrollment, we are evaluating several changes to the protocol to make it easier for clinical sites to identify and enroll patients in this environment.

And we expect to introduce these changes to sites next month in order to accelerate enrollment over the rest of the year. It is important to remember that ILUVIEN has now been utilized to treat over 37,000 eyes globally. This significant real-world experience as well as the results from our prior clinical trials support the NEW DAY Study design and give us confidence that we can achieve a successful outcome. We believe that the positive results from the NEW DAY Study would position ILUVIEN as a formidable competitor to the $7.5 billion standard of care and to provide a significantly greater revenue opportunity for Alimera.

For 2021, we remain focused on three core goals which are #1, restoring ILUVIEN sales growth to rates we experience before the pandemic. Absent the COVID-19 challenges, we remain confident we can grow our business organically in all our markets, increasing both the number of physicians using ILUVIEN and the frequency of us. #2, expanding the number of international territories in which ILUVIEN is approved, reimbursed, and launched with our direct sales organization and through our distribution partners. This includes both diabetic macular edema and the approval on uptake of ILUVIEN's noninfectious posterior uveitis indication in new and existing territories. And #3, advancing the NEW DAY Study by driving patient enrollment.

We do remain focused on the management of our resources and our financial performance while the pandemic continues, which we believe we have done well. With the Ocumension transaction, we have significantly strengthened our balance sheet which gives us more flexibility to drive growth in ILUVIEN utilization as physician offices increased capacity and patient flows returned around the world. And with that, I'll turn the call over to Phil who will review our financial results for the quarter.

Phil Jones

Thanks, Rick, and hello everyone. During the first quarter of 2021, our consolidated net revenue was down approximately 23% to $11.2 million compared to $14.5 million in the first quarter of 2020. This comparison reflects pre-pandemic performance for almost all of the first quarter of 2020 versus the current ongoing COVID-19 environment.

U.S. net revenue was approximately $5.6 million for the first quarter of 2021, a decline of approximately 21% from the $7.1 million reported in the 2020 period.

U.S. end-user demand which represents units purchased by physicians and pharmacies from our distributors was down 14% in the first quarter of 2021 to 737 units compared to 855 units in the first quarter of 2020. The decrease was due primarily to the continued impact of COVID-19 on the patient's ability to return to retinal offices. As we have previously shared, our GAAP revenues in the U.S., do not always correlate with end-user demand due to the timing of purchases by our specialty distributors. In the first quarter of 2021, Alimera's U.S. distributors purchased approximately 10% fewer units than they actually sold end users.

This difference is unusually high and it represents approximately $550,000 more end-user demand than we're reporting as GAAP revenue for the U.S. segment in the quarter. Net revenue from our International segment decreased approximately 25% to $5.6 million for the first quarter of 2021.

This compares to $7.5 million reported for the same period last year. The decrease was due to the impact of COVID-19 on both our direct and distributor markets. Consistent with our U.S. demand, end-user demand in both our international direct and distributor markets improved over the course of the quarter. However, currently, all of our international distribution partners are holding higher levels of inventory associated with the slow demand in 2020. Total operating expenses were approximately $12.1 million in the first quarter of 2021, a reduction of approximately 2% compared to $12.4 million reported in the first quarter of 2020.

The increase in overall operating expense over the prior COVID-19 impacting quarters represented our desire to drive more engagement with physicians in anticipation of a return to more normal operating activities. In Q1 2021, we reported a net loss of approximately $3.6 million compared to a net loss of approximately $1.2 million in Q1 2020. Basic and diluted net loss per share for the first quarter of 2021 was $0.63 on approximately 5.8 million weighted average shares outstanding. This compares to base -- to a basic and diluted net loss per share for the first quarter of 2020 of $0.24 on approximately 5 million weighted average shares outstanding. We reported an adjusted EBITDA loss of $1.3 million in the first quarter of 2021 compared to positive adjusted EBITDA of $1.3 million dollars in Q1 2020. On March 31, 2021, we had cash and cash equivalents of approximately $8.3 million compared to $11.2 million in cash and cash equivalents that we reported on December 31, 2020.

As Rick mentioned earlier, our cash and cash equivalents increased by $20 million for the cash we received from the Ocumension license and equity transactions that we announced in early April. As a result, we believe that we are in a strong financial position going forward. We also received confirmation from our lender that our PPP loan of $1.8 million was completely forgiven. And with that, I'll turn the call over to the operator to open up the call for questions.

Operator?

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Alex Nowak of Craig-Hallum Capital.

Alex Nowak

Can you just give us a breakdown of what you're seeing month-to-month, specifically in April? Are you seeing a month-over-month trend continuing into April, are you pleased with that recovery that you are seeing at the retinal clinics in April, and then just how does that compare in the U.S. versus O-U.S.?

Rick Eiswirth

Alex, I mean I would say it still remains inconsistent. We've had some good weeks in April, and we've had some tough ones. I think that we experienced a little bit of a slowdown over the Easter holiday and it feels to me like it did. Back in Christmas, people have more aggressively taken breaks at holiday time. So we saw a little bit of a slowdown over the Easter holiday.

But generally the daily sales continue to improve and I would say that's pretty consistent across all the markets, absent the Easter week.

Alex Nowak

And then just speaking to the inventory sitting in the channel, outside the U.S. I don't feel mentioned there is still some high inventory out there, but is it as high as it was in Q4 or do you see inventory draw down a bit here in Q1?

Rick Eiswirth

Yeah, it's -- I mean it's definitely, beginning to draw down some. We saw some good sales picking up over the course of the quarter in France, which is one of our largest distributor markets as we've said. We've seen sales start to pick up in Spain. But we continue to see pockets of shutdowns pop up in some of those countries as well. So I think it's going to continue to be inconsistent for a little bit longer, but certainly, they are bleeding down some of that inventory they held at the end of the year.

Overall, we do see improvements in end-user demand in all of those countries.

Alex Nowak

I guess when you speak with the rental clinics, are they hearing about a pent-up demand or there is a backlog of patients that either need to get anti-VEGFs or ILUVIEN and that could ultimately benefit as these clinic starts to reopen, patients come back?

Rick Eiswirth

Yeah, I think so. I think that we're doing a good -- the clinics are much, much more open and in fact, our face-to-face access with the physicians steadily improved over the quarter and continues to be pretty good in April. I think the challenges the diabetic patients that specifically we treat have been a little bit slower to come back, I mentioned this on our February call because they were waiting in the queue to get their vaccine and they didn't want to take a chance of losing the spot to get the vaccine. And frankly, that's something that we underestimated, we didn't really foresee that happening as we planned out the quarter.

But we do think that is getting better and some of those patients are coming. I have talked to physicians, had dinner with a physician just 2 days ago and they're seeing quite a bit of patients because of that pent-up demand. I think one of the challenges that we've got to fight through is when they're seeing this huge volume of patients is they're very quickly going back to the habit of doing anti-VEGF after anti-VEGF, right. So we've got to get more and more face time to try to break through that. So I think trying to deal with the backlog, they're sort of settling into some of the old habits and we've got to get back to breaking that.

Alex Nowak

Just on the Ocumension deal, obviously that helps bring in some additional capital. Do you expect to invest more aggressively? Specifically, if you look at the P&L, would you expect your operating expenses to go up here over 2021 now that you have the capital? And really what are going to be the primary areas you'd like the target, is it more R&D, is it more real world studies or is it building out a bigger sales force? So any thoughts there.

Rick Eiswirth

Alex, it's a great question and we are taking a hard look at that right now. It's hard to give specifics on that, but we do think one of the things we've always felt like is that ILUVIEN was underfunded even from day one as a small company. And so with a little bit more cushion on the balance sheet, we are evaluating ways that we can invest to try to drive revenue a little bit faster in the second half of the year as things open up. I don't know exactly what that's going to be, but I'll tell you that it's probably not increased sales force, it's probably more air cover for the sales team in various ways like more advocacy support around having a higher level medical science conversation at the advocacy level, to get more peer-to-peer conversation going out there. So we're looking at that, probably something we'll be prepared to talk about as we end the second quarter move into the third quarter.

Alex Nowak

And then just last question. Just what is the current penetration of uveitis in Europe? If I remember back to the last call, really uveitis was only within a handful of hospitals in the U.K. and Germany. You mentioned Denmark in the prepared remarks, but where are the near-term opportunities within Europe and then also expanding within U.K. and Germany?

Rick Eiswirth

Yes. So I think it's still low-penetration because it's been hard to get and convert new hospitals during the pandemic. It's only been launched in Germany and the U.K., so we think as things open up and we can get into more of those hospitals in Europe, we will be able to see more uptake uveitis in those markets.

I would say the biggest opportunities for us are going to be the rest of the Big 5, getting the approval and reimbursement in Spain, Italy, and France for uveitis, we believe, will make a big difference. Candidly, our French launch has been the most successful than any of our European launches and my expectation would be that we would see the most rapid uptake there you know once we have pricing and reimbursement.

Operator

Our next question comes from Yi Chen of H.C. Wainwright.

Yi Chen

My first question is has Ocumension provided any guidance on how quickly we can get ILUVIEN on the Asian market?

Rick Eiswirth

Yeah. Yi, right at this point in time, we're expecting it to be about 3 to 4 years because the current expectation is that they will have to run some clinical trials locally and they're looking at how to do that. However, they -- we do believe that they will continue to look for ways to get there faster and the situation with the Chinese FDA is I would say is evolving on a regular basis. And so there may be some upside to that but at this point, we're suggesting it's probably going to be 3 or 4 years.

Yi Chen

And do you still believe at this point the NEW DAY trial can complete enrollment in early 2022?

Rick Eiswirth

That's our goal this point time but certain we hope that some of these changes will speed things up because we need to improve the pace. Based on where we are now with a lack of access to some of these new patients, it's been challenging to date, but we hope some of the changes we plan to make over the next month or so. We'll speed that up.

Operator

[Operator Instructions] The next question comes from James Molloy of Alliance Global Partners.

James Molloy

Rick, I had a quick question on the -- excellent deal on the Ocumension bringing in good chunk of cash. Are there additional Ocumension type deals out there that you guys are working on, that you see, what are sort of the market for additional geographies?

Rick Eiswirth

So, Jim, there's nothing that's eminent out there but we do believe that the geographic expansion is a key part of our strategy going forward. And there are some big markets, we would certainly be interested in trying to access the Indian market where we already have quite a bit of data on ILUVIEN, potentially the Russian territories and maybe even South America. So don't have anything eminent at this point but we are always looking for other places to make ILUVIEN available because we do think it is a very valuable patient -- product for patients.

James Molloy

So you are aware what's -- the latest been going on with India, the absolute disaster that COVID there. Any thoughts on how that may impact if that bleeds over into Europe at all?

Rick Eiswirth

Not at this point, Jim. No.

James Molloy

And then any suggested guidance here in the second quarter on what the year looks like? And you guys have almost tripled the stock here year-to-date in the teeth a first quarter that was as you guys guided down 20%. So I think your message has been excellent. Any thoughts on what 2020 may -- 2021 may be looking like.

Rick Eiswirth

Jim, we always have typically said mid-to-high teens growth. I don't think we'll be able to be quite back to that but it's hard to say at this point. But I don't think we'll be back to the normal mid-to-high teens growth, but I think you'll definitely see some growth over the second quarter of last year and some sequential growth as well.

James Molloy

Okay. And maybe last question would be the OpEx numbers you guys posted in the R&D, G&A, and sales and marketing, are these kind of in line what you expect and maybe the sales and marketing going up a little as the sales hopefully kick in through the rest of the year.

Phil Jones

Yeah, Jim. That is correct. We do -- we are putting a little bit of money behind things as you well know. People are being able to get out a little bit more, so that travel, a lot of the things that were kind of hampered previously are opening up. And we see our salespeople doing more traveling, more engagement with the doctors and we will bring the number of back-up to what I would think would be more along the lines of that that Q4 2019, Q1 2020 overall spending levels.

James Molloy

And then last question -- I know I typically ask the question on the calls. It's hard to question-answer of course. But any potential acquisitions or opportunities coming in now with I guess $38 million pro forma on the books that are looking at attractive?

Rick Eiswirth

So, Jim, we're out there looking. The one thing I would say about the Ocumension transaction is it frankly, it does give us some dry powder to have a bigger seat at the table in some of those conversations, right. So I think there are parties out there that we've talked to in the past that frankly with that currency in the bank, it just allows us to have a little more serious conversation. So we plan to look a little bit more aggressively with the balance sheet strengthened.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Rick Eiswirth for closing remarks.

Rick Eiswirth

Thank you, and thank all of you for participating on today's call and for your continued interest in Alimera. We do look forward to sharing our progress at our next quarterly conference call when we report our second quarter results and we expect that to be in late July or early August. Thank you all very much and have a wonderful day.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.