EyePoint Pharmaceuticals, Inc. — Form 10-Q
Reporting period: Three months ended September 30, 2018. Although the request labels this 2018 Q1, the filing reports the quarter ended September 30, 2018. On November 1, 2018, the company changed its fiscal year-end from June 30 to December 31.
Business context and reporting period
EyePoint is a specialty biopharmaceutical company developing and commercializing ophthalmic products. It was preparing U.S. launches of DEXYCU, approved in February 2018 for post-operative inflammation, and YUTIQ, approved October 12, 2018 for chronic non-infectious posterior uveitis. Management targeted YUTIQ launch in the first quarter of calendar 2019 and DEXYCU launch in the first half of calendar 2019. ILUVIEN and Retisert generate partner royalties.
Financial results and liquidity
| Metric | Quarter ended Sept. 30, 2018 | Prior-year quarter |
|---|---|---|
| Revenue | $486,000 | $385,000 |
| Operating expenses | $14.0 million | $6.4 million |
| Operating loss | $13.6 million | $6.0 million |
| Net loss | $33.1 million | $6.0 million |
| Net cash used in operations | $11.8 million | $6.0 million |
- Revenue grew 26%, with royalty income rising 76% to $430,000; collaborative R&D revenue fell to $56,000.
- R&D expense increased 63% to $6.2 million, and sales and marketing expense was $3.6 million, reflecting commercial launch preparation. General and administrative expense rose 62% to $4.2 million.
- Net loss included an $18.9 million noncash loss from remeasuring warrant derivative liabilities before exercise. Interest expense was $815,000. The derivative liability was subsequently reclassified to equity upon warrant exercise.
- Cash and cash equivalents were $55.8 million at quarter-end, versus $38.8 million at June 30, 2018. Operating cash use was $11.8 million; investing cash use was $109,000. Financing provided $28.9 million from warrant exercises.
- Debt principal outstanding was $20.0 million, due March 2023, at three-month LIBOR (1.5% floor) plus 10.50%. The balance sheet reports long-term debt of $17.5 million, net of debt discount. A $15.0 million current accrued development milestone is also recorded.
Material changes and unusual items
- All 20.2 million Second Tranche Warrants were exercised in September at $1.43 per share, raising approximately $28.9 million and increasing issued shares. Common shares outstanding were 94.7 million at September 30.
- Operating expenses more than doubled year over year, principally reflecting DEXYCU manufacturing scale-up, hiring and medical affairs, and launch infrastructure. Sales and marketing costs were expected to rise further in coming quarters.
- Adoption of ASC 606 from July 1, 2018 produced a $218,000 cumulative adjustment to opening accumulated deficit for previously earned Alimera royalties.
- The company extended its Watertown lease through May 2025 and added space; base rent for the added total space was abated for four months after the September commencement.
Outlook, risks and contingencies
- Management stated that cash and expected collaboration receipts were expected to fund current and planned operations only into the second quarter of calendar 2019. The filing says recurring cash use and the absence of a probable additional capital source raise substantial doubt about the company’s ability to continue as a going concern for one year from issuance.
- Management planned to seek additional equity or debt financing and could reduce or defer expenses; financing availability and terms were uncertain. Failure to obtain capital could delay launches, clinical development, or other operations.
- The first U.S. commercial sale of DEXYCU triggers a $15.0 million development milestone payable within 30 days. Additional sales milestones and sales-based earn-outs may also be payable to former Icon securityholders.
- Key execution risks include securing adequate commercial supply, building launch capabilities, market acceptance and reimbursement, obtaining financing, and reliance on collaborators. Alimera’s ability to continue operating and commercialize ILUVIEN is also a stated risk.
- The filing reported no material change to previously disclosed risk factors, no material off-balance-sheet arrangements, and routine legal proceedings believed not to have a material effect.
Important facts for investors to verify
- Whether the planned YUTIQ and DEXYCU launches occurred on schedule and generated meaningful revenue.
- Cash burn, financing obtained after quarter-end, and the company’s actual runway relative to the stated second-quarter 2019 horizon.
- DEXYCU commercial supply, reimbursement and adoption, including payment of the $15.0 million launch milestone and any further contingent consideration.
- Debt terms, interest costs, and any subsequent changes to outstanding principal or liquidity.
- Whether Alimera’s financial condition and ILUVIEN sales support the royalty revenue assumed in management’s plans.