EyePoint Pharmaceuticals, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; unaudited. EyePoint develops and commercializes ophthalmic products, including YUTIQ and DEXYCU, and is developing EYP-1901 and YUTIQ50.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $15.7 million | $2.5 million | $27.3 million | $11.7 million |
| Product sales, net | $5.8 million | $1.0 million | $14.2 million | $8.9 million |
| Operating loss | $2.0 million | $14.1 million | $24.6 million | $38.9 million |
| Net loss | $3.8 million | $15.6 million | $29.9 million | $46.4 million |
| Net loss per share | $0.03 | $0.15 | $0.24 | $0.45 |
| Cash used in operating activities | Not separately stated | Not separately stated | $20.3 million | $45.2 million |
- Q3 product sales comprised YUTIQ of $3.5 million, versus $0.1 million a year earlier, and DEXYCU of $2.3 million, versus $1.0 million. Nine-month sales were $9.9 million for YUTIQ and $4.2 million for DEXYCU.
- Q3 license and collaboration revenue was $9.5 million, principally a one-time payment under the Ocumension agreement. Total nine-month license and collaboration revenue was $11.6 million. Royalty income was $0.4 million for the quarter and $1.6 million year to date.
- At September 30, cash and cash equivalents were $28.7 million; working capital was $34.7 million; total assets were $76.8 million; and accumulated deficit was $495.2 million. Long-term debt reported on the balance sheet was $50.8 million.
- Nine-month financing cash flow was $27.0 million, including equity proceeds and a $2.0 million Paycheck Protection Program (PPP) loan. Shares outstanding increased to 131.4 million from 109.4 million at year-end 2019. October ATM sales further increased shares outstanding.
Changes versus comparable periods
- Nine-month revenue rose 133%, while product sales rose 58%. Management attributed the increase in total revenue largely to Ocumension payments, not solely to recurring product sales.
- Nine-month net loss narrowed by $16.5 million, and operating cash use decreased by $24.9 million. The prior-year comparison included a $3.8 million loss on extinguishment of debt.
- Q3 operating loss and net loss improved substantially year over year as revenue increased, including the Ocumension milestone payment. Sales and marketing expense fell 32% in Q3, primarily due to reduced DEXYCU sales-force and marketing costs; R&D expense rose 17% and G&A rose 33%.
- COVID-19 disrupted product demand, particularly DEXYCU following cataract-surgery disruptions and YUTIQ due to fewer office visits. Demand began to recover modestly, but management expected reduced levels to continue while restrictions persisted.
Outlook, risks and unusual items
- Liquidity and going concern: The company reported recurring operating losses and stated that substantial doubt remained about its ability to continue as a going concern for one year from issuance of the statements. It believed October 31 cash of $30.5 million, expected receipts, ATM financing and spending reductions could fund current and planned operations into 2021, but cautioned that funding might be insufficient and additional capital may not be available on acceptable terms.
- Financing and debt: The CRG term loan bears 12.5% annual interest, with quarterly interest-only payments and maturity on December 31, 2023. In October 2020, CRG waived the 2020 product-revenue covenant and reduced the 2021 covenant from $80 million to $45 million. The $2.0 million PPP loan forgiveness application was pending; forgiveness was not assured.
- Capital raised after quarter-end: In October, EyePoint received $5.7 million net from its ATM facility after selling approximately 12.1 million shares, at a weighted-average price of $0.49. This provided cash but diluted existing shareholders.
- Development: Management expected to file an IND for EYP-1901 in Q4 2020, with a Phase 1 trial to follow FDA acceptance. YUTIQ50’s trial timing and investment requirements were still being evaluated. These were expectations, not guaranteed milestones.
- SEC investigation: The company received an SEC Enforcement Division subpoena in May concerning product sales and demand, revenue recognition, projections and related disclosures. It stated it was cooperating and had not identified GAAP-inconsistent accounting to date; the duration, scope and outcome remained uncertain.
- Listing risk: Nasdaq had notified the company that its share price did not meet the $1 minimum bid requirement. The disclosed compliance deadline was December 28, 2020; failure to regain compliance could lead to delisting.
- Other notable items: April restructuring costs were approximately $0.6 million; management expected the plan to be substantially complete by year-end and cited expected annual savings of about $7 million, plus approximately $10 million of one-time savings from canceled or deferred spending. The pandemic could also affect revenue estimates, receivables, inventory and asset valuations.
- No formal financial guidance was provided. Management emphasized uncertainty around pandemic impacts, commercialization, future funding and continued operating losses.
Investor verification points
- Separate recurring product and royalty revenue from the $9.5 million Ocumension payment; review the related royalty expense and the milestone rights relinquished.
- Track YUTIQ and DEXYCU demand recovery, customer access, reimbursement and the effects of COVID-19 on sales and cash forecasts.
- Confirm available liquidity, subsequent ATM proceeds and dilution, cash-burn trends, and whether additional financing is needed to extend the stated runway.
- Monitor CRG covenant compliance and debt terms, as well as the outcome of the PPP loan-forgiveness application.
- Follow the SEC investigation and Nasdaq bid-price compliance status, including any material developments or consequences.
- Check whether EYP-1901’s IND filing and Phase 1 start, and decisions on YUTIQ50 development, proceed on the anticipated timelines.