Eyepoint, Inc. quarterly report, Q2 FY2014

Business context and reporting period

The filing is for pSivida Corp. and its subsidiaries, not a company identified in the filing as Eyepoint, Inc. It is a Form 10-Q for the quarter ended December 31, 2013 (the second quarter of pSivida’s fiscal 2014); the six-month figures cover the period from July 1 through December 31, 2013. Financial statements are unaudited. pSivida develops sustained-release drug delivery products, primarily for eye diseases, and relies on product development, royalties and collaboration agreements.

Financial results and position

Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.

• At December 31, cash and cash equivalents were $15.219 million, marketable securities were $0.502 million, and restricted cash was $0.150 million. Cash and marketable securities totaled $15.7 million.
• Total assets were $20.819 million; current liabilities were $2.151 million and total liabilities were $8.220 million. Liabilities included $6.840 million of deferred revenue; the filing reports no borrowings or credit facilities.
• Six-month financing cash inflow was $11.601 million, principally from equity issuance and option exercises. Cash increased by $8.320 million during the six months.
• Gross margin is not presented; revenue is primarily collaboration, research and development, and royalty income, while the reported operating expenses substantially exceed revenue.

Material changes versus comparable periods

• Quarterly revenue was nearly unchanged, up $7,000 (1%). Six-month revenue rose $51,000 (4%); higher collaboration revenue was largely offset by lower Retisert royalties.
• Quarterly R&D expense increased 58% and six-month R&D expense increased 61%, primarily due to outsourced clinical trial costs for the Medidur Phase III program. Six-month operating cash use increased $2.631 million year over year.
• Quarterly net loss widened by $906,000; the six-month net loss widened by $2.042 million. Accumulated deficit was $270.859 million at December 31.
• Equity funding included a July 2013 public offering and December sales under an at-the-market program. Common shares outstanding rose to 27,298,628 at December 31 from 23,297,011 at June 30. Additional shares sold under the ATM in January 2014 generated $224,000 net proceeds.
• Cash and marketable securities increased from $10.273 million at June 30 to $15.721 million at December 31, mainly reflecting equity proceeds, despite operating cash use.

Outlook, risks, contingencies and unusual items

• Management estimated that available resources, expected Retisert royalties and other anticipated collaboration inflows would fund current and planned operations through the first quarter of calendar 2015, including expected Medidur Phase III costs. This estimate excludes potential Alimera milestone or profit-share receipts; management expected additional resources would be needed for operations beyond that period.
• Medidur’s first of two planned pivotal Phase III trials was underway. The company recognized $2.4 million of related R&D expense over the six-month period and reported contractual CRO obligations of up to approximately $9.9 million at December 31; actual timing and amounts depend on trial progress and enrollment.
• ILUVIEN had launched in the U.K. and Germany, with U.K. NHS initial shipments beginning in January 2014. EU expansion and reimbursement remained uncertain. The FDA’s October 2013 third Complete Response Letter cited benefit-risk, safety and manufacturing-facility concerns. Alimera planned to respond in Q1 2014; FDA approval for DME would trigger a $25 million milestone to pSivida, but timing and approval were uncertain.
• Under the Alimera agreement, pSivida is entitled to 20% of defined net profits from ILUVIEN DME sales, subject to specified offsets. The company said it did not know when, or whether, Alimera would generate payable net profits.
• Pfizer held an option, subject to agreement terms, to license the latanoprost product after proof of concept; potential payments include a $20 million option payment and up to $146.5 million in additional milestones, plus royalties. These amounts are contingent, not assured.
• A new five-year Watertown office and laboratory lease was expected to commence March 1, 2014. Minimum payments for the initial term totaled $2.013 million, plus certain operating expenses and taxes. A $150,000 cash-collateralized letter of credit was provided.
• The filing notes routine legal proceedings that management did not expect to materially affect the company. It reports no material changes to previously disclosed risk factors. Principal risks include financing needs, clinical and regulatory outcomes, ILUVIEN commercialization, royalty trends, dilution, and dependence on collaboration partners.
• A $72,000 gain from selling fully depreciated equipment was recorded in the quarter. Management stated that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the period.

Important facts for investors to verify

1. Confirm the issuer and period: the supplied filing identifies pSivida Corp. and the quarter ended December 31, 2013, despite the request metadata naming Eyepoint, Inc. and 2013 Q2.
2. Track cash burn against management’s runway estimate through Q1 2015, and assess the availability, timing and potential dilution of further financing.
3. Monitor Medidur Phase III enrollment, progress, costs and remaining CRO commitments.
4. Verify FDA developments for ILUVIEN, Alimera’s EU commercialization and reimbursement progress, and whether any milestone or profit-share payments become payable.
5. Assess Retisert royalty trends, deferred revenue recognition, and the contingent nature of potential Pfizer payments and other collaboration inflows.