Business context and reporting period
pSivida Corp. (the registrant named in this filing) develops sustained-release drug delivery products, primarily for chronic eye diseases. This Form 10-K covers the fiscal year ended June 30, 2016; the filing also reports results for the fourth quarter of fiscal 2016. The request metadata’s “2015 Q4” does not match the filing’s reporting period.
The lead independent candidate, Medidur for posterior segment uveitis, was in Phase 3 trials. Licensed product ILUVIEN was commercialized by Alimera, and pSivida received royalties from Retisert sales.
Financial performance and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $1.62 million | $26.57 million |
| Research and development expense | $14.38 million | $12.09 million |
| General and administrative expense | $9.01 million | $8.06 million |
| Operating income (loss) | $(21.77) million | $6.42 million |
| Net income (loss) | $(21.55) million | $6.35 million |
| Operating cash flow | $(16.32) million | $10.30 million |
| Cash, cash equivalents and marketable securities at year-end | $28.99 million | $28.54 million |
FY2016 revenue comprised $398,000 of collaborative R&D revenue and $1.22 million of royalty income. The filing does not report a gross margin measure; margins are not readily comparable given the revenue mix and the prior-year one-time milestone.
Cash and marketable securities totaled approximately $29.0 million at June 30, 2016. Management expected funding for planned operations into the second quarter of fiscal 2018, based on existing resources and expected collaboration inflows, excluding potential Alimera receipts. The balance sheet reported no borrowings; liabilities included $5.73 million of deferred revenue. FY2016 financing cash flow was $16.99 million, primarily from a January 2016 stock offering that generated $16.5 million net proceeds.
Material changes versus the prior comparable period
- Revenue fell 94% year over year, chiefly because FY2015 included a one-time $25.0 million ILUVIEN FDA-approval milestone. FY2016 had no comparable milestone and recorded no ILUVIEN net-profit participation, versus $43,000 in FY2015.
- Net results shifted from $6.35 million income to a $21.55 million loss. Operating expenses rose 16%, with R&D up 19%, principally from Medidur clinical development and other research costs.
- Operating cash flow shifted from $10.30 million provided to $16.32 million used. Cash and cash equivalents decreased by $3.81 million, while marketable securities increased.
- In July 2016, the company consolidated R&D in the U.S. and closed its U.K. facility. It estimated approximately $710,000 of pre-tax restructuring charges and annual pre-tax savings of approximately $900,000 beginning in fiscal Q2 2017.
Outlook, risks and unusual items
- The first Medidur Phase 3 trial met its six-month recurrence endpoint: recurrence was 18.4% with Medidur versus 78.6% in controls; reported significance was p<0.00000001. Results remained significant through 12 months. The company planned an EU marketing application in Q1 2017 based on that trial, and, subject to favorable second-trial results, a U.S. NDA in Q3 2017. These were plans, not assured outcomes.
- Management expected fiscal 2017 R&D expense to increase approximately 10–15% from fiscal 2016, partly reflecting Medidur submissions and wet-AMD studies.
- Medidur safety observations included more cataract surgery among treated eyes with natural lenses at baseline (45.2% versus 9.5% in controls). The filing also discusses steroid-related risks including elevated intraocular pressure and cataracts.
- Alimera’s commercialization and financial capacity were significant uncertainties. The filing describes covenant breaches that were waived, a need for additional or alternative financing, and no assurance of future ILUVIEN profit-share receipts.
- An Alimera arbitration challenged an audit finding of $136,000 in underpaid 2014 net profits. Alimera had remitted $354,000 including interest and audit costs; at June 30, 2016, the amounts were recorded as deferred revenue and accrued expenses pending resolution.
- Management warned that further capital may be needed beyond the stated runway and that financing may be unavailable or dilutive. The company had an accumulated deficit of $292.2 million and reported a history of operating losses.
Important facts for investors to verify
- Progress, enrollment timing and results of the second Medidur Phase 3 trial, and whether regulators accept the planned EU and U.S. filing packages and timelines.
- Actual cash burn, financing needs and runway relative to management’s estimate, which excludes potential Alimera receipts.
- Alimera’s financing, sales, covenant position and the outcome of the profit-share arbitration.
- Fiscal 2017 R&D spending and whether the U.K. consolidation delivers the estimated savings without disrupting development.
- Medidur’s longer-term safety profile, commercial prospects, reimbursement and commercialization strategy.
The filing reports unqualified independent audit opinions on the financial statements and internal control over financial reporting.