EyePoint Pharmaceuticals, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Unaudited results; amounts below are in millions except per-share data.
Business context
EyePoint is a specialty biopharmaceutical company developing and commercializing ophthalmic products. It launched YUTIQ in February 2019 and DEXYCU in March 2019, its first direct U.S. commercial launches. It also receives royalties from licensed products, including ILUVIEN.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $7.210 | $0.715 | $9.222 | $1.643 |
| Net loss | $(11.498) | $(34.428) | $(30.736) | $(41.406) |
| Operating loss | $(10.165) | $(9.782) | $(24.816) | $(14.460) |
| Operating cash used | — | — | $(30.441) | $(10.901) |
- Q2 net product sales were $6.705 million, entirely YUTIQ; DEXYCU had no Q2 product revenue. First-half product sales were $7.932 million: YUTIQ $7.248 million and DEXYCU $0.684 million.
- Q2 cost of sales, excluding acquired-intangible amortization, was $0.706 million. First-half operating expenses totaled $34.038 million; sales and marketing rose to $14.595 million from $1.512 million as the company built its commercial organization.
- Cash and cash equivalents were $44.161 million at June 30; current assets were $58.573 million and current liabilities $10.721 million. Long-term debt was $46.250 million. The CRG loan bears 12.5% interest and is due December 2023; substantially all company assets secure it.
- First-half financing included $18.343 million net proceeds from an equity offering. Common shares outstanding increased to 106.3 million from 95.4 million at year-end 2018.
Changes versus prior period
- Revenue growth primarily reflects new YUTIQ and DEXYCU sales. Royalty income rose 35% in the first half to $1.220 million, mainly from higher ILUVIEN royalties and a higher royalty rate.
- First-half operating loss widened by $10.356 million as commercialization costs increased; R&D was slightly lower. Net loss improved versus 2018 partly because the prior-year period included a $26.278 million noncash derivative fair-value charge. The 2019 period included a $3.810 million loss on extinguishing the prior SWK loan.
- Operating cash use increased by $19.540 million year over year, including a significant increase in receivables and other current assets and inventory as commercial operations began.
Outlook, commentary and risks
- Management said YUTIQ demand exceeded expectations, while DEXYCU demand was below expectations, partly because ambulatory surgical centers were cautious about reimbursement and physicians used non-revenue samples for training. Management expected significant quarterly product-sales increases in the remainder of 2019.
- Management expected available cash and anticipated product-sale inflows to fund the operating plan into 2020, but stated that uncertainty over commercialization revenue and cash needs creates substantial doubt about the company’s ability to continue as a going concern for one year from issuance of the financial statements.
- The CRG loan requires minimum product revenue of $15 million in 2019, $45 million in 2020, $80 million in 2021 and $90 million in 2022, plus minimum liquidity. An additional $10 million loan draw is available only if specified product-revenue conditions are met. Failure to meet covenants could affect financing and liquidity.
- DEXYCU acquisition obligations include up to $95 million in sales milestones and sales-based earn-outs. The filing also reports a $15 million development milestone paid in April 2019.
- YUTIQ received a specific Medicare J-code expected to take effect October 1, 2019. As of July 31, management reported broad coverage and early launch activity, but reimbursement, demand, manufacturing, competition, clinical outcomes and access to additional capital remain risks.
- Bausch & Lomb informed EyePoint it considered the Retisert license agreement ended after certain patents expired; no Retisert royalty income was recorded in Q2 2019. The filing reports no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether YUTIQ and DEXYCU sales accelerate enough to meet loan revenue covenants, especially given DEXYCU’s slower-than-expected adoption.
- Cash burn, receivable collection and inventory levels, and whether the stated runway into 2020 remains achievable.
- CRG loan terms, covenant compliance, interest and exit-fee burden, and availability of the conditional additional draw.
- Product-revenue reserves, reliance on one third-party logistics provider, and the impact of reimbursement decisions on net sales.
- Potential dilution from equity issuance and equity awards; also note the CFO resigned July 8, 2019, and the CEO was appointed principal financial and accounting officer effective August 10.