EyePoint Pharmaceuticals, Inc. — 2019 Form 10-K Summary
Business context and reporting period. EyePoint develops and commercializes ophthalmic drugs using sustained-release delivery technologies. This filing covers the 12 months ended December 31, 2019; the company changed its fiscal year-end from June 30, so the December 2018 full-year comparison is unaudited. In 2019, it launched YUTIQ for chronic posterior-segment uveitis and DEXYCU for post-surgical ocular inflammation in the United States. ILUVIEN is commercialized by Alimera under license.
Financial and operating highlights
| Metric | 2019 | Prior comparable period |
|---|---|---|
| Total revenue | $20.4 million | $4.6 million for year ended December 31, 2018 (unaudited) |
| Net product sales | $16.8 million | None |
| Operating loss | $47.9 million | $39.0 million |
| Net loss | $56.8 million | $86.1 million |
| Cash used in operations | $56.7 million | $33.5 million |
| Cash and cash equivalents at year-end | $22.2 million | $45.3 million |
| Long-term debt at year-end | $47.2 million carrying value | $17.6 million |
| Working capital at year-end | $30.2 million | Not stated here |
- YUTIQ contributed $12.0 million in 2019 net sales; DEXYCU contributed $4.8 million. Royalty income was $2.2 million and license and collaboration revenue was $1.4 million.
- Operating expenses totaled $68.2 million, including $29.8 million in sales and marketing, $17.9 million in general and administrative expense, and $15.4 million in research and development. Sales and marketing rose substantially as the company built its commercial operations.
- Reported cost of sales excluding acquired-intangible amortization was $2.7 million. Separately, $2.5 million of acquired DEXYCU intangible amortization was reported; the filing does not present a single gross-margin figure for product sales.
- Cash declined by $23.0 million during the year. Financing activities provided $33.9 million, including debt and equity proceeds, partly offset by repayment of the prior loan and a $15.0 million DEXYCU milestone payment.
Material changes versus the prior comparable period
- Product sales began in 2019 following the launches of YUTIQ and DEXYCU; there were no product sales in the 2018 comparison period.
- Total revenue increased by $15.8 million, while operating loss widened by $8.8 million. The prior-period net loss included a $45.2 million non-cash loss from remeasurement of a derivative liability; its absence in 2019 helps explain the lower net loss despite higher operating costs and interest expense.
- Cash used in operations increased to $56.7 million, reflecting operating losses and commercialization-related working-capital needs, including higher receivables, prepaid expenses and inventory.
- The CRG loan replaced the SWK loan in February 2019. EyePoint reported $51.1 million of CRG principal outstanding at year-end, versus the $47.2 million long-term debt carrying value on the balance sheet.
- Alimera royalties increased, while Retisert royalties ended after the relevant patent expired in March 2019.
Outlook, commentary, risks and unusual items
- Liquidity and going concern: Management said year-end cash, the February 2020 equity offering proceeds of approximately $20.3 million net, and anticipated product and licensing cash inflows were expected to fund the operating plan for the next 12 months. Nevertheless, management and the auditor disclosed substantial doubt about the company’s ability to continue as a going concern, given recurring losses, limited cash and uncertainty around product sales and financing. The financial statements include no adjustments for this uncertainty.
- Debt and covenants: The CRG facility bears 12.5% annual interest, matures December 31, 2023, and is secured by substantially all company and guarantor assets. It includes a $5 million minimum-liquidity covenant and future annual minimum revenue requirements of $45 million in 2020, $80 million in 2021 and $90 million in 2022. CRG waived the 2019 product-revenue covenant. The company had an option to draw up to a further $10 million subject to revenue conditions. Interest expense was $6.2 million in 2019, and the SWK refinancing generated a $3.8 million extinguishment loss.
- Commercial execution: Management reported fourth-quarter distributor demand up 59% sequentially for YUTIQ and 111% for DEXYCU, with repeat customers representing 87% and 98% of respective order volume. These are demand indicators, not reported quarterly net sales. DEXYCU had three-year Medicare pass-through reimbursement beginning April 2019, scheduled to expire in March 2022; management warned that later bundling could pressure sales.
- Development plans: EyePoint planned GLP toxicology studies for EYP-1901 in 2020, targeting a potential six-month treatment for wet AMD, diabetic retinopathy and retinal vein occlusion. It was evaluating timing and investment for a roughly 60-patient YUTIQ50 study. In March 2020, after the reporting year, the company announced positive 36-month follow-up data from a YUTIQ Phase 3 trial; this is a subsequent development, not a 2019 result.
- Key risks: Continued losses and need for additional capital; uncertain adoption, reimbursement and manufacturing supply for recently launched products; high-interest secured debt and revenue covenants; competition and steroid-related safety risks; reliance on collaborators and third-party manufacturers; and potential COVID-19 effects on procedures, sales, trials and financing. The company also disclosed that EW Healthcare beneficially owned 33.6% of outstanding shares as of March 5, 2020.
- Other filing matters: The auditor gave an unqualified opinion on the financial statements with a going-concern explanatory paragraph. Management and the auditor reported effective internal control over financial reporting. Management said routine legal proceedings were not expected to have a material effect.
Important facts investors should verify
- Whether reported demand translates into sustained net sales, collections and improving cash burn, particularly given customer concentration and the year-end receivables balance.
- Whether EyePoint can meet CRG liquidity and product-revenue covenants, and whether further borrowing or other financing is available on acceptable terms.
- The effect of DEXYCU’s Medicare pass-through expiration in 2022 and payer coverage and reimbursement for both commercial products.
- Commercial launch economics, including gross-to-net deductions, DEXYCU royalties and milestone obligations, and YUTIQ and DEXYCU manufacturing costs.
- Development timelines, funding needs and regulatory outcomes for EYP-1901 and YUTIQ50, and the impact of COVID-19 on commercial activity and clinical programs.
- Share dilution and capital-raising capacity: the February 2020 offering increased shares outstanding, and the filing disclosed limited authorized common shares remaining at the time.