EyePoint Pharmaceuticals, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Amounts are in U.S. dollars; financial statement figures below are in millions unless stated otherwise. The company develops and commercializes ophthalmic products, including YUTIQ and DEXYCU, and is advancing the EYP-1901 and YUTIQ50 candidates.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $7.49 | $2.01 |
| Product sales, net | $4.69 | $1.23 |
| License and collaboration revenue | $2.02 | $0.07 |
| Royalty income | $0.78 | $0.72 |
| Operating expenses | $18.93 | $16.66 |
| Operating loss | $(11.44) | $(14.65) |
| Net loss | $(13.17) | $(19.24) |
| Net loss per share, basic and diluted | $(0.11) | $(0.20) |
| Cash used in operating activities | $(16.35) | $(13.33) |
- YUTIQ sales were $3.58 million and DEXYCU sales were $1.11 million. The company’s U.S. commercial launches began in February and March 2019, respectively.
- At March 31, cash and cash equivalents were $26.30 million; restricted cash was $0.15 million. Working capital was $39.4 million. Total current assets were $49.69 million and current liabilities were $10.30 million.
- Long-term debt carrying value was $47.72 million. The CRG senior secured loan bears 12.5% annual interest, is due December 31, 2023, and is secured by substantially all company and guarantor assets. Quarterly interest-only payments are required; up to 2.5% may be paid in kind if permitted.
- February’s public offering of 15 million shares at $1.45 per share generated approximately $20.3 million net proceeds. Shares outstanding rose from 109.4 million at year-end 2019 to 124.7 million at March 31, 2020.
Changes versus the prior comparable period
- Revenue increased 272% to $7.49 million, reflecting product sales growth and a $2.0 million upfront license payment from Ocumension for DEXYCU rights in Greater China. The payment accounted for most of the increase in license and collaboration revenue.
- Product sales rose 282%. YUTIQ sales increased to $3.58 million from $0.54 million; DEXYCU sales increased to $1.11 million from $0.68 million.
- Operating expenses increased 14% to $18.93 million. Research and development was $4.85 million, including a $1.0 million Equinox license payment; sales and marketing was $8.13 million; general and administrative expense was $4.36 million.
- Net loss narrowed by $6.06 million, principally because Q1 2019 included a $3.81 million loss on extinguishment of debt and a larger operating loss. Interest expense increased to $1.78 million from $1.02 million.
- Operating cash outflow increased to $16.35 million from $13.33 million, including a greater use of cash from changes in operating assets and liabilities. Financing cash flow included $20.3 million of net share-offering proceeds.
Outlook, risks and unusual items
- COVID-19: Management reported reduced product demand as physician offices and surgery centers closed or limited operations and elective procedures, including cataract surgery, were postponed. YUTIQ-related specialist visits continued at reduced frequency. The company reported no supply-chain disruptions as of the filing.
- Liquidity and going concern: The filing states that recurring losses and uncertainty about sufficient future product revenue raise substantial doubt about the company’s ability to continue as a going concern for one year from issuance. Management believed cash at March 31, the subsequent $2.0 million PPP loan, expected product and royalty inflows, and cash conservation could fund planned operations into 2021 under assumptions about the duration of pandemic closures; it cautioned that funding and operating success are not assured.
- Debt covenant risk: The CRG agreement requires 2020 YUTIQ and DEXYCU revenue of at least $45 million, with higher thresholds in 2021 and 2022. Management said it did not expect to meet the 2020 revenue covenant because of COVID-19 and was discussing the covenant with CRG. The 2019 revenue covenant had been waived. Failure to obtain a waiver could lead to default, accelerated repayment, penalties, and enforcement against collateral.
- Restructuring: On April 1, the company announced commercial-operation changes and workforce reductions focused primarily on the external DEXYCU sales force. It estimated approximately $0.6 million in termination-related charges and cash outlays, primarily in Q2. Management also cited approximately $7 million in annual savings and approximately $10 million in one-time savings from other planned spending cancellations and deferrals.
- Subsequent PPP loan: The company received $2.0 million on April 22 under a two-year loan bearing 1% interest. Forgiveness may be partial or full if program conditions are met; the filing gives no assurance of forgiveness.
- Pipeline: GLP toxicology studies for EYP-1901 began in March. Management expected to file an IND in Q4 2020, with a Phase 1 trial to follow. YUTIQ50’s clinical timeline and investment needs were still under evaluation. The filing also reported positive 36-month follow-up data from a Phase 3 YUTIQ study.
- Other notable items: The company paid Equinox $1.0 million upfront for vorolanib rights and recorded the amount as R&D expense. The Ocumension DEXYCU agreement provided a $2.0 million upfront payment and potential future milestones and royalties.
Important facts for investors to verify
- Whether COVID-19 restrictions and reduced demand persist, and how quickly YUTIQ and DEXYCU sales recover as offices and elective surgery resume.
- Whether EyePoint obtains a CRG waiver or otherwise complies with the 2020 revenue covenant, and the consequences for liquidity if it does not.
- Whether the cash runway extends into 2021 under actual sales, spending, and pandemic conditions, and whether further financing is needed.
- Whether the restructuring achieves the stated savings without materially impairing commercialization, particularly for DEXYCU.
- Whether the PPP loan qualifies for forgiveness and whether EYP-1901’s planned IND and clinical development timelines are achieved.
- How much future revenue depends on product sales versus upfront collaboration payments, milestones, and royalties, and whether product-revenue reserves and allowances remain appropriate.