Business context and reporting period
pSivida Corp. and subsidiaries (the company identified in this filing; the request refers to EyePoint, Inc.) filed this unaudited Form 10-Q for the quarter ended December 31, 2016, the second quarter of fiscal 2017. The company develops sustained-release drug products, principally for chronic eye diseases. Its lead candidate, Durasert three-year uveitis, was in Phase 3 trials; ILUVIEN and Retisert generated collaboration and royalty revenue.
Unless noted otherwise, figures below are in U.S. dollars and millions. The filing presents financial statements in thousands.
Financial performance and position
| Metric | Three months ended Dec. 31, 2016 | Six months ended Dec. 31, 2016 |
|---|---|---|
| Revenue | $5.971 | $6.248 |
| Research and development expense | $3.165 | $7.343 |
| General and administrative expense | $2.900 | $6.185 |
| Operating loss | $0.094 | $7.280 |
| Net loss | $0.067 | $7.229 |
| Net loss per share | Reported as — | $0.21 |
| Operating cash used | Not presented quarterly | $11.495 |
At December 31, 2016, cash and cash equivalents were $11.685 million and marketable securities were $5.847 million, totaling $17.532 million. Current assets were $18.535 million and current liabilities $4.927 million. Total liabilities were $4.984 million; the company reported no borrowings or credit facilities. Total assets were $19.746 million and stockholders’ equity $14.762 million.
Six-month investing cash inflow was $7.868 million, mainly reflecting net maturities of marketable securities; financing cash inflow was $9,000. Cash and cash equivalents declined by $3.628 million to $11.685 million. No gross margin is presented; the filing does not provide a clear measure of product-level margins.
Material changes versus comparable periods
- Quarterly revenue rose to $5.971 million from $0.526 million, and six-month revenue to $6.248 million from $0.992 million. The increase was predominantly a one-time $5.6 million recognition of deferred Pfizer collaboration revenue after the agreement terminated.
- Quarterly net loss narrowed to $0.067 million from $5.186 million; six-month net loss narrowed to $7.229 million from $10.119 million. The improvement reflects the Pfizer revenue recognition, not a demonstrated recurring revenue increase.
- Six-month operating cash use increased to $11.495 million from $7.667 million, despite the lower net loss. The cash-flow reconciliation included a $5.585 million reduction for amortization of noncurrent deferred revenue.
- Retisert royalty income declined 30% year over year for the quarter and 24% for the six-month period. No ILUVIEN direct-sales net-profit share was received in either comparable period.
- Six-month G&A expense increased 54% to $6.185 million, largely due to CEO-transition and other severance costs, professional fees, and legal expenses. The company recorded $0.472 million of restructuring costs for closing its U.K. research facility and consolidating R&D in the U.S.; it did not expect further restructuring charges.
Outlook, risks and contingencies
- Management estimated that December 31 liquidity, together with expected inflows under existing collaboration agreements, would fund planned operations, including the two Durasert Phase 3 trials, through approximately the first quarter of fiscal 2018. This estimate excluded potential Alimera receipts. The company warned that it had no assured future revenue and that additional financing or cost reductions may be needed.
- In February 2017, after quarter-end, the company established an at-the-market program allowing sales of up to $20 million of common stock, subject to exchange rules and other constraints. Sales could dilute shareholders; availability and terms were not assured.
- The first Durasert Phase 3 trial met its primary endpoint with statistical significance, and results remained favorable through 12 months. The second trial completed enrollment of 150 patients in September 2016; top-line results were expected by the end of the second quarter of calendar 2017. The company expected to file an EU marketing application in that quarter and, subject to favorable second-trial results, a U.S. NDA in the second half of calendar 2017. These are forward-looking expectations, not completed milestones.
- Pfizer did not exercise its option following the company’s discontinuation of the Latanoprost Product program; the agreement terminated December 26, 2016, and the remaining $5.6 million deferred revenue was recognized. The company could resume development after calendar 2017 if it did not conduct R&D on the product during that year.
- Alimera disputed an audit finding on ILUVIEN commercialization and sought repayment of $354,000 previously remitted. Arbitration was ongoing, with proceedings stayed through February 28, 2017 for settlement discussions. The company continued to record $136,000 as deferred revenue and $218,000 as accrued expenses pending the outcome.
- Key risks include the need for future capital, clinical and regulatory uncertainty, dependence on Alimera’s commercialization and financial condition, declining Retisert royalties, and the arbitration outcome. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the second Durasert Phase 3 results and planned EU and U.S. regulatory filings occurred on the stated timelines and supported approval.
- How long available liquidity actually supports operations, given $11.495 million of six-month operating cash use and reliance on uncertain collaboration receipts or financing.
- Whether the $20 million ATM program was used, its proceeds and dilution, and any applicable issuance limits.
- The resolution and financial effect of the Alimera arbitration, and whether ILUVIEN generated subsequent net-profit or sublicense receipts.
- Whether recurring revenue can replace the one-time Pfizer recognition and offset declining Retisert royalties and ongoing development costs.