EyePoint Pharmaceuticals, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. EyePoint is a specialty biopharmaceutical company developing and commercializing ophthalmic products. It launched YUTIQ in February 2019 and DEXYCU in March 2019, beginning direct U.S. commercialization.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $2.012 million | $0.928 million |
| Net product sales | $1.227 million | None |
| Operating expenses | $16.663 million | $5.606 million |
| Operating loss | $(14.651) million | $(4.678) million |
| Net loss | $(19.238) million | $(6.978) million |
| Net loss per share | $(0.20) | $(0.15) |
| Cash used in operations | $13.334 million | $4.819 million |
- Q1 product sales comprised $543,000 of YUTIQ and $684,000 of DEXYCU. Royalty income was $720,000, up 78%; collaborative R&D revenue was $65,000, down 88%.
- Sales and marketing expense was $7.311 million, primarily reflecting commercialization build-out. R&D expense was $3.797 million, up 14%, and G&A was $4.610 million, up 102%.
- Product cost of sales, excluding acquired-intangible amortization, was $330,000. The filing does not provide a consolidated gross margin; product sales less this cost were $897,000 before other costs and acquired-intangible amortization.
- At March 31, cash and cash equivalents were $43.379 million; total current assets were $48.372 million and current liabilities $24.659 million. Total assets were $81.854 million and total liabilities $61.977 million. Long-term debt was $31.952 million.
- Cash, cash equivalents and restricted cash declined $1.882 million during the quarter. Financing activities provided $11.634 million, including the new loan proceeds, partly offset by repayment and refinancing costs on the prior loan.
Material changes versus Q1 2018
- Revenue increased 117%, reflecting first commercial product sales and higher royalties; there had been no product sales in Q1 2018.
- Operating expenses nearly tripled, led by new sales and marketing costs and higher G&A. The operating loss widened by $9.973 million and net loss by $12.260 million.
- Q1 2019 included $3.810 million of loss on extinguishment of debt and $1.020 million of interest expense. Q1 2018 instead included a $2.325 million expense from a derivative-liability fair-value change.
- Operating cash use rose $8.515 million. The prior-year quarter included $15.072 million of investing cash outflow related mainly to the Icon acquisition; Q1 2019 investing cash use was $182,000.
Outlook, risks and unusual items
- Management said early product sales were encouraging and expected significant quarterly product-sales increases during the remainder of 2019. It projected existing cash and anticipated product-sale inflows could fund current and planned operations through positive cash flow in 2020.
- That outlook is uncertain: EyePoint had no history of direct commercialization and said it lacked sufficient evidence to conclude that product revenues would probably fund operations. The filing states that substantial doubt about the company’s ability to continue as a going concern for one year remained.
- After quarter-end, EyePoint raised approximately $18.6 million net from an April 1 stock offering and drew another $15 million under the CRG loan. It also paid the $15 million DEXYCU development milestone in April. Cash and cash equivalents were $56.9 million at April 30.
- The CRG facility bears 12.5% annual interest, matures December 31, 2023, and is secured by substantially all company and guarantor assets. It includes liquidity and annual minimum product-revenue covenants: $15 million for 2019, $45 million for 2020, $80 million for 2021 and $90 million for 2022. An additional $10 million draw is contingent on prescribed revenue performance.
- Other key risks include product adoption, reimbursement and market access, manufacturing and supply, competition, clinical and regulatory outcomes, and the need for additional capital. The company also owes sales-based DEXYCU royalties and may owe additional acquisition milestones.
- Management reported effective disclosure controls and no material change in internal control during the quarter. It reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Subsequent YUTIQ and DEXYCU sales, launch costs, reimbursement progress and whether the 2019 loan revenue covenant is achieved.
- Cash runway and the assumptions supporting management’s anticipated positive cash flow in 2020, given the stated going-concern uncertainty.
- CRG debt terms, covenant compliance, remaining borrowing availability, interest burden and prepayment costs.
- Product-sales reserve estimates, DEXYCU milestone and royalty obligations, and any further sales-based acquisition payments.
- Share dilution: common shares outstanding were 95,554,228 at March 31 and 106,105,728 as of May 6, following the April offering.