EyePoint Pharmaceuticals, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Financial amounts below are in U.S. dollars; dollar figures are in millions unless otherwise noted. Statements are unaudited.
Business context
EyePoint is a specialty biopharmaceutical company developing and commercializing ophthalmic products. It launched YUTIQ for chronic non-infectious posterior-segment uveitis in February 2019 and DEXYCU for post-operative ocular inflammation in March 2019. Alimera markets licensed ILUVIEN, and Bausch + Lomb markets Retisert.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $2.509 | $0.486 | $11.732 | $2.129 |
| Net product sales | $1.009 | — | $8.941 | — |
| Operating expenses | $16.569 | $14.040 | $50.608 | $30.143 |
| Operating loss | $(14.060) | $(13.554) | $(38.876) | $(28.014) |
| Net loss | $(15.647) | $(33.126) | $(46.383) | $(74.532) |
| Basic and diluted loss per share | $(0.15) | $(0.44) | $(0.45) | $(1.27) |
| Operating cash used | Not provided for quarter | Not provided for quarter | $(45.213) | $(22.667) |
- Nine-month product sales comprised YUTIQ $7.303 million and DEXYCU $1.638 million. Q3 sales were $0.055 million and $0.954 million, respectively. The filing says Q3 YUTIQ sales were from initial orders to China partner Ocumension, with existing inventory used to meet demand.
- Product cost of sales, excluding acquired-intangible amortization, was $1.363 million for the nine months and $0.327 million for Q3. The filing does not report a product gross margin; these figures imply product revenue less that cost of sales of $7.578 million year to date and $0.682 million in Q3, before acquired-intangible amortization and other expenses.
- At September 30, cash and cash equivalents were $31.760 million; current assets $47.061 million; current liabilities $10.368 million; and working capital $36.7 million. Total assets were $79.067 million and stockholders’ equity $15.938 million.
- Long-term debt was reported at a net carrying value of $46.733 million. The CRG senior secured loan had $50 million advanced, plus $0.728 million of PIK interest added to principal. It bears 12.5% interest, has interest-only quarterly payments, and matures December 31, 2023.
- Cash, cash equivalents and restricted cash declined $13.501 million over the nine months to $31.910 million. Financing cash inflow was $31.919 million, including debt and equity proceeds; investing cash use was $0.207 million.
Changes versus comparable periods
- Nine-month revenue increased $9.603 million, driven by new product sales, a $1 million China development milestone and higher ILUVIEN royalties. Q3 revenue increased $2.023 million year over year.
- Operating loss widened by $10.862 million for the nine months, as commercialization expenses more than offset increased revenue. Sales and marketing rose $17.215 million year over year to $22.373 million; R&D fell $3.086 million to $11.237 million.
- Net loss improved year over year, but the comparison is materially affected by 2018’s $45.164 million derivative-liability fair-value loss. In 2019, the company recorded a $3.810 million loss on extinguishing its former SWK debt and higher interest expense.
- Operating cash use more than doubled to $45.213 million, partly reflecting working-capital investment in receivables and inventory. Cash provided by financing fell to $31.919 million from $82.490 million in the prior-year period.
- Common shares outstanding increased to 108.029 million at September 30 from 95.372 million at December 31, 2018, including an April offering and ATM sales.
Outlook, commentary and risks
- Management said cash on hand and anticipated YUTIQ and DEXYCU sales were expected to fund the operating plan into 2020, but additional capital would be needed to fund operations through 2020. The filing states that recurring losses and the lack of sufficient recurring revenue raise substantial doubt about the company’s ability to continue as a going concern for one year from issuance.
- The CRG agreement requires liquidity above at least $5 million and minimum annual YUTIQ/DEXYCU revenue of $15 million in 2019, $45 million in 2020, $80 million in 2021 and $90 million in 2022. These are debt covenants, not management revenue guidance. An additional $10 million loan draw is conditional on achieving specified trailing product revenue.
- Management reported positive commercial progress: YUTIQ orders were up 17% from Q2, with repeat customers representing 85% of Q3 order volume; DEXYCU orders were up 207%, with repeat customers representing 74%. Reimbursement and market uptake remain important uncertainties. November 2019 developments included VA and Vizient agreements, after quarter-end.
- Key risks include commercialization and reimbursement, manufacturing and supply, the need for additional capital and potential dilution or restrictive financing, competition, product safety and efficacy, regulatory matters and intellectual-property protection. Management reported no material change to previously disclosed risk factors.
- YUTIQ clinical presentations reported fewer uveitis recurrences than sham over three years, but also noted elevated intraocular pressure in some treated eyes and more frequent cataract extraction. Bausch + Lomb informed EyePoint that it considers its Retisert license agreement ended due to patent expiration; this reduced Retisert royalties.
- The company paid a $15 million DEXYCU development milestone to former Icon securityholders in April 2019. No material effect from routine legal proceedings was expected. Management concluded disclosure controls were effective and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether YUTIQ and DEXYCU sales, order growth and reimbursement progress can support the CRG revenue covenants and reduce cash burn.
- Liquidity runway and timing, terms and dilution impact of the additional capital management expects to raise.
- CRG loan principal, PIK interest, covenants, potential additional draw eligibility and the costs of prepayment.
- Product revenue quality and concentration: one third-party logistics provider accounted for 76% of nine-month revenue, and 93% of receivables at quarter-end were due from that provider.
- Accuracy of product revenue reserves: $0.907 million remained for chargebacks, discounts, rebates and returns at September 30.
- Resolution and financial implications of the Retisert royalty disagreement, and the evidence supporting continued YUTIQ and DEXYCU safety, efficacy and market adoption.