EyePoint Pharmaceuticals, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited consolidated results; amounts below are in U.S. dollars.
Business context
EyePoint develops and commercializes ophthalmic products. Its U.S. products are YUTIQ for chronic non-infectious posterior-segment uveitis and DEXYCU for post-operative ocular inflammation. It also receives royalties on licensed products and is developing EYP-1901 and YUTIQ50.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $4.1m | $7.2m | $11.6m | $9.2m |
| Net product sales | $3.7m | $6.7m | $8.4m | $7.9m |
| Operating loss | $11.2m | $10.2m | $22.6m | $24.8m |
| Net loss | $13.0m | $11.5m | $26.1m | $30.7m |
| Net loss per share | $0.10 | $0.11 | $0.22 | $0.30 |
- Q2 product mix: YUTIQ sales were $2.9m versus $6.7m; DEXYCU sales were $0.8m versus none in the prior-year quarter.
- Cash flow: Operating cash used was $21.5m in the first half, compared with $30.4m in the prior-year period. Investing cash used was $0.04m; financing provided $22.1m. Cash, cash equivalents and restricted cash ended at $23.0m, including $22.8m of cash and cash equivalents.
- Liquidity and balance sheet: Current assets were $39.8m and current liabilities $9.6m; working capital was approximately $30.2m. Total assets were $69.7m, total liabilities $65.5m, and stockholders’ equity $4.2m. Long-term debt carrying value was $50.3m.
- Debt: The CRG senior secured loan carries 12.5% annual interest, with up to 2.5% payable in kind, and matures December 31, 2023. The company also received a $2.0m PPP loan at 1% interest; forgiveness was uncertain. The filing reports $1.8m of interest expense in Q2 and $3.6m for the first half.
- Margins: The filing does not provide a clear consolidated gross-margin figure.
Changes versus prior comparable periods
- Q2 revenue fell 43%, principally as COVID-19 restrictions reduced physician visits and elective cataract surgeries. Product sales declined 45% year over year; management noted a modest demand recovery in June.
- First-half revenue rose 26%, mainly because EyePoint recognized approximately $2.0m of upfront license revenue from Ocumension for DEXYCU in China. First-half product sales increased 6% despite pandemic-related disruption.
- Q2 net loss increased 13%, as lower revenue outweighed reduced operating expenses and higher interest expense. First-half net loss improved by $4.6m, partly because the prior-year period included a $3.8m debt-extinguishment loss.
- EyePoint raised $20.0m net in a February 2020 public share offering. Shares outstanding increased from 109.4m at year-end 2019 to 125.2m at June 30, 2020.
Outlook, risks and unusual items
- Going concern: The company has recurring losses and insufficient product revenue to fund near-term operations. Management cited substantial doubt about the company’s ability to continue as a going concern for one year from issuance of the financial statements. It expects existing cash, anticipated revenue and cash conservation to fund current and planned operations into 2021, but states this is not assured.
- COVID-19 and restructuring: The pandemic materially reduced demand and cash flows. The April restructuring reduced the external DEXYCU sales force and other spending. Management estimated approximately $7m in annual savings and $10m in one-time savings from other planned spending cancellations and deferrals; completion was expected by year-end 2020.
- Debt covenant: The CRG agreement requires at least $45m of annual 2020 YUTIQ and DEXYCU revenue. EyePoint said it did not expect to meet this covenant and was discussing it with CRG. Without compliance or a waiver, lenders could accelerate repayment and enforce collateral rights.
- SEC investigation: The company received an SEC Enforcement Division subpoena in May concerning product sales and demand, revenue recognition, projections, and related reporting and compliance. EyePoint said it was cooperating and had not identified GAAP-noncompliant accounting items to date; the outcome and potential impact were unknown.
- Nasdaq listing: EyePoint received notice that its share price failed the $1 minimum bid requirement. The stated compliance deadline was December 28, 2020; failure to regain compliance could lead to delisting.
- PPP and financing: Loan forgiveness was not assured. The filing also describes uncertainty about whether issuing equity before forgiveness could breach PPP loan terms. The company terminated its ATM sales agreement effective August 4, 2020.
- Development outlook: EyePoint anticipated filing an IND for EYP-1901 in Q4 2020, with a Phase 1 trial expected after FDA acceptance. The timing and investment needs for a YUTIQ50 study remained under evaluation.
- Other notable item: The company recorded $0.6m of restructuring charges in Q2, with $0.3m unpaid at June 30.
Important facts for investors to verify
- Whether product demand recovered after Q2 and how COVID-19 affected YUTIQ and DEXYCU sales, cash burn and inventory.
- Whether CRG waived or amended the 2020 revenue covenant, and the company’s compliance with all other loan terms.
- Cash runway, access to additional financing, and progress toward the stated funding outlook into 2021.
- Any developments or findings in the SEC investigation and their financial or operational consequences.
- PPP loan forgiveness status and implications of the loan’s ownership-change provisions.
- Nasdaq bid-price compliance and progress toward the EYP-1901 IND and clinical-development milestones.