Filing identity and reporting period
The supplied filing is pSivida Corp.’s Form 10-K for the fiscal year ended June 30, 2017, not a 2016 fourth-quarter filing for Eyepoint, Inc. The filing text does not provide a clear basis to reconcile that metadata discrepancy. Unless stated otherwise, figures below are in U.S. dollars.
Business context
pSivida develops sustained-release drug-delivery products, principally for chronic eye diseases, using its Durasert platform. Its lead candidate, Durasert three-year uveitis, was in Phase 3 development. Approved products included ILUVIEN, marketed by Alimera for diabetic macular edema (DME), and Retisert, licensed to Bausch & Lomb. The company reported one business segment.
Financial performance and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $7.539 million | $1.620 million |
| Operating expenses | $26.115 million | $23.394 million |
| Operating loss | $18.576 million | $21.774 million |
| Net loss | $18.485 million | $21.547 million |
| Operating cash flow | $(20.490) million | $(16.316) million |
| Cash and cash equivalents at year-end | $16.898 million | $15.313 million |
- FY2017 revenue included $5.6 million of noncash revenue recognized when the Pfizer collaboration agreement terminated. Thus, the revenue increase does not by itself indicate a comparable increase in recurring sales or cash receipts.
- Royalty income fell 21% to $970,000, primarily reflecting Retisert royalties. R&D expense was $14.880 million, up 3%; general and administrative expense was $11.235 million, up 25%.
- Operating and net margins were deeply negative, approximately 246% and 245% of revenue, respectively.
- Cash flow from investing was positive $13.577 million, mainly from maturities of marketable securities. Financing provided $8.503 million, primarily from net ATM share-sale proceeds. The company ended the year with no marketable securities.
- The balance sheet reported total liabilities of $5.341 million and stockholders’ equity of $13.336 million. No borrowings or debt balance are listed in the supplied balance-sheet information; this is not a guarantee that no other contractual obligations exist.
Changes and unusual items
- Revenue rose 365% year over year, largely due to the one-time $5.6 million Pfizer-related recognition; FY2016 revenue had fallen sharply from FY2015, which included a $25 million ILUVIEN FDA-approval milestone.
- In July 2017, after fiscal year-end, pSivida amended its Alimera agreement. It licensed EMEA rights for three-year uveitis and replaced the ILUVIEN net-profit share with sales-based royalties: 2% initially, rising from 2019 to 6% on annual sales up to $75 million and 8% above that threshold, subject to offsets for Alimera’s accumulated commercialization losses.
- The company closed its U.K. research facility and consolidated R&D in the U.S.; FY2017 included $472,000 of restructuring costs. G&A also included $1.2 million of severance for former senior executives.
- An Alimera arbitration over 2014 ILUVIEN reporting was settled in May 2017; $136,000 of net-profit participation and resolution of a $204,000 audit-cost reimbursement contingency were recognized in FY2017.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls, but included a going-concern explanatory paragraph.
Outlook, commentary, and risks
- Management said available cash and expected collaboration receipts were expected to fund planned operations only through approximately the first quarter of calendar 2018. The auditor and management cited substantial doubt about the company’s ability to continue as a going concern; additional financing was not assured.
- Management planned to file an FDA NDA for Durasert three-year uveitis in late December 2017 or early January 2018 and, if approved, to pursue U.S. commercialization, potentially using a contract sales organization. The filing is forward-looking; approval and launch were not assured.
- Both Phase 3 trials met the six-month recurrence-prevention endpoint with p<0.001. In the first trial, recurrence was 18.4% with treatment versus 78.6% in controls at six months, and 27.6% versus 85.7% at 12 months. Steroid-related risks included elevated eye pressure and cataracts; second-trial 12-month results were expected in the first half of 2018.
- Management expected FY2018 R&D expense to increase approximately 10%–15%, mainly for manufacturing, quality, medical affairs, and regulatory preparation.
- Key risks include financing needs and dilution, dependence on Alimera and its financial condition for ILUVIEN-related receipts, FDA review and manufacturing readiness, clinical safety and efficacy, reimbursement and competition, and declining Retisert royalties. Retisert royalties were expected to potentially decline and were subject to patent expiration, with the latest identified patent expiring in April 2020.
Important facts for investors to verify
- Confirm the issuer and reporting period: this text identifies pSivida Corp. and FY2017, despite the request metadata.
- Review the audited statements and cash-flow notes for cash runway, financing after year-end, and the exact nature of liabilities and commitments.
- Check whether the planned NDA was submitted and accepted, and track FDA requirements, manufacturing inspections, and subsequent clinical data.
- Verify Alimera’s liquidity, ILUVIEN sales and royalty calculations, and the remaining recoverable-loss offsets under the amended agreement.
- Assess potential share dilution: the company raised funds through its ATM program, and reported substantial outstanding options and other equity awards.