Business Context and Reporting Period
Company: pSivida Corp. (formerly pSivida Limited)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended June 30, 2008
Business Overview: pSivida is a drug delivery company focused on ophthalmology and oncology. It holds two FDA-approved products (Retisert and Vitrasert), both licensed to Bausch & Lomb. Its primary development candidate is Iluvien (for diabetic macular edema), licensed to Alimera Sciences, which is in Phase III trials. The company also develops BioSilicon technology, with BrachySil (for pancreatic cancer) in early clinical trials. Effective June 19, 2008, the company reincorporated from Western Australia to Delaware, USA.
Key Financial Metrics
| Metric | 2008 | 2007 | 2006 |
|---|---|---|---|
| Total Revenue | $3.48 million | $1.79 million | $1.04 million |
| Net Loss | $(75.67) million | $(81.20) million | $(46.96) million |
| Loss Per Share (Basic/Diluted) | $(4.17) | $(7.36) | $(6.24) |
| Cash and Cash Equivalents | $15.61 million | $2.67 million | $6.69 million |
| Total Assets | $55.78 million | $107.22 million | $165.50 million |
| Long-Term Debt | $0 | $0 | $2.91 million |
| Accumulated Deficit | $(224.54) million | $(148.87) million | $(67.66) million |
Revenue Composition (2008): Collaborative research and development ($3.33 million) and Royalties ($0.15 million).
Operating Expenses (2008): Total operating expenses were $88.48 million, driven primarily by a $60.1 million goodwill impairment charge. Research and development expenses were $14.43 million.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 95% to $3.48 million, primarily due to $3.26 million recognized from the amended collaboration agreement with Alimera Sciences. This was partially offset by a decrease in Retisert royalties.
- Goodwill Impairment: The company recorded a full goodwill impairment charge of $60.1 million in 2008, reducing goodwill to zero. This was driven by a decline in the company's share price deemed other than temporary.
- Intangible Asset Impairment: In 2007, the company recorded a $45.3 million impairment of Retisert intangible assets due to Bausch & Lomb withdrawing its European marketing application. No such charge occurred in 2008.
- Debt Extinguishment: In 2007, the company incurred a $23.4 million loss on the extinguishment of convertible notes. In 2008, the company had no outstanding debt.
- Cash Position: Cash and cash equivalents increased significantly from $2.67 million in 2007 to $15.61 million in 2008, bolstered by a $12.0 million cash payment from Alimera and a $18.4 million equity offering in July 2007.
Guidance, Outlook, and Risks
Liquidity and Capital Resources: Management believes it can fund operations through at least June 30, 2010. This projection relies on continued funding from Pfizer ($500,000 quarterly), Alimera funding for Iluvien, and the resumption of Retisert royalties (expected no earlier than fiscal 2010).
Strategic Outlook:
- Iluvien: The primary product candidate is in fully recruited Phase III trials for diabetic macular edema. Alimera has assumed full financial responsibility for development.
- BrachySil: Completed an initial safety trial for pancreatic cancer and commenced a dose-ranging trial.
- Retisert: Royalty payments are currently suspended as Bausch & Lomb retains royalties to recoup a $3.0 million advance payment. The company does not expect to receive Retisert royalties until at least fiscal 2010.
Material Risks and Contingencies:
- Internal Controls: Management identified a material weakness in internal control over financial reporting related to the application of U.S. GAAP to complex transactions, resulting in a $4.7 million restatement of prior periods.
- Collaboration Dependence: The company relies heavily on partners (Alimera, Pfizer, Bausch & Lomb) for development and commercialization. Partners may terminate agreements without penalty.
- Regulatory Approval: Future success depends on FDA approval of Iluvien and BrachySil, which is not guaranteed.
- Stock Price Volatility: The company's stock price is subject to significant volatility, impacting derivative liability valuations and goodwill impairment testing.
Investor Verification Checklist
- Alimera Collaboration Terms: Verify the status of the Phase III trials for Iluvien and the likelihood of the $25 million milestone payment upon FDA approval.
- Retisert Royalty Resumption: Confirm sales trends of Retisert to estimate when the $2.8 million retention threshold will be met and royalties will resume.
- Internal Control Remediation: Review the company's progress in addressing the material weakness in internal controls over financial reporting.
- Derivative Liabilities: Monitor the fair value of outstanding warrants (denominated in AUD) as they are revalued quarterly and impact net income.
- Cash Burn Rate: Assess whether the current cash balance of $15.6 million is sufficient to fund operations through 2010 without additional dilutive financing.