Eyepoint, Inc. annual report, FY2015

Business context and reporting period

The supplied filing is pSivida Corp.’s Form 10-K for the fiscal year ended June 30, 2015—not a fiscal 2014 Q4 report. The company develops sustained-release drug-delivery products, primarily for eye diseases. Its lead development candidate, Medidur, was in Phase III trials; approved products included ILUVIEN, commercialized by licensee Alimera, and Retisert, licensed to Bausch & Lomb.

Financial results and liquidity

FY2015 revenue included a one-time $25.0 million milestone for FDA approval of ILUVIEN; the resulting profit and positive operating cash flow do not reflect recurring product profitability. Royalty income was $1.154 million, down 12% from FY2014. The filing reports no debt balance. Current assets were $29.838 million and current liabilities $3.348 million at June 30, 2015. Accumulated deficit was $270.666 million.

Material changes versus the prior comparable period

• Revenue rose by $23.092 million, chiefly from the ILUVIEN approval milestone; excluding that milestone, recurring revenue remained limited.
• R&D expense increased 26%, primarily because of higher Medidur Phase III clinical-trial costs. Management expected Medidur clinical-development costs to increase about $600,000, or 10%, in FY2016.
• Net income replaced the prior-year loss, while royalty income declined and Retisert royalties were not expected to grow materially.
• Cash and marketable securities increased; financing cash flow was only $235,000 in FY2015, compared with $19.044 million in FY2014, when equity offerings provided substantial proceeds.

Outlook, risks and unusual items

• Management estimated that $28.5 million of capital resources, together with expected collaboration cash inflows, would fund planned operations into early calendar 2017. This estimate excluded potential ILUVIEN profit-share receipts; additional financing may be needed thereafter.
• Medidur’s first Phase III trial was fully enrolled, with top-line data expected in Q2 2016. The company anticipated filing an NDA in the first half of 2017, subject to trial results and FDA concurrence. The second trial was being conducted in India.
• Alimera’s ILUVIEN commercialization was central to potential future revenue. pSivida received $43,000 in ILUVIEN net-profit participation in FY2015. The filing highlighted Alimera’s negative operating cash flows and accumulated deficit, which raised substantial doubt about Alimera’s ability to continue as a going concern.
• Key risks include Medidur trial outcomes and corticosteroid-related eye effects, market acceptance and reimbursement of ILUVIEN, dependence on commercial partners, competition, and the availability and terms of future financing. pSivida also noted that additional equity financing could dilute shareholders.
• The $25.0 million ILUVIEN milestone drove reported FY2015 profitability. No material legal proceedings were reported. Deloitte issued an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective.

Important facts for investors to verify

• Whether ILUVIEN sales generate sustained net-profit participation for pSivida, and whether Alimera can finance and execute commercialization.
• Medidur Phase III data, safety findings—particularly elevated intraocular pressure—and the expected NDA timeline.
• Cash burn and financing needs after the stated early-2017 runway estimate, including whether that estimate changes with trial costs or collaboration receipts.
• The extent to which FY2015 results depend on the nonrecurring $25.0 million milestone rather than recurring royalties or product-related income.
• Potential dilution from outstanding options and warrants and any future use of the company’s at-the-market share facility.