Filing summary
Entity and period: The filing identifies the registrant as pSivida Corp. and its subsidiaries, not EyePoint, Inc. It is a Form 10-Q for the three months ended September 30, 2013 (the company’s fiscal first quarter), with comparative results for the three months ended September 30, 2012.
Business context
pSivida develops sustained-release drug-delivery technologies, focused mainly on chronic diseases of the back of the eye. Its programs include Medidur for posterior uveitis, the Latanoprost Product for glaucoma and ocular hypertension, and research using its Durasert and BioSilicon platforms. ILUVIEN is licensed to Alimera; Retisert is licensed to Bausch & Lomb.
Financial results and liquidity
| Metric | Quarter ended Sep. 30, 2013 | Prior-year quarter or comparison |
|---|---|---|
| Revenue | $0.597 million | $0.553 million; up 8% |
| Research and development expense | $2.504 million | $1.523 million; up 64% |
| General and administrative expense | $1.811 million | $1.620 million; up 12% |
| Operating loss | $3.718 million | $2.590 million |
| Net loss | $3.687 million; $0.14 per share | $2.551 million; $0.11 per share |
| Operating cash flow | $(3.777) million | $(1.621) million |
| Cash and cash equivalents | $14.546 million | $6.899 million at June 30, 2013 |
| Marketable securities | $1.908 million | $3.374 million at June 30, 2013 |
Total cash, cash equivalents and marketable securities were $16.454 million at September 30, 2013. Current assets were $19.112 million versus current liabilities of $2.857 million. Total liabilities were $8.498 million, primarily deferred revenue; the company reported no borrowings or credit facilities. The filing does not present a gross margin measure. The reported losses and revenue indicate that the company remained loss-making and reliant on financing and partner-related cash flows.
Financing activities provided $9.981 million in the quarter, mainly from a July 2013 public offering. The company issued 3,494,550 shares at $3.10 per share, receiving approximately $9.9 million net of issuance costs. Shares outstanding were 26,791,561 at September 30 and 26,963,136 as of November 8, 2013.
Material changes and management commentary
- Revenue increased $44,000, mainly because of higher Retisert royalty income. Royalty income was $424,000 in the income statement; the notes report $425,000 from Bausch & Lomb, reflecting rounding.
- R&D expense rose $981,000, largely due to approximately $1.2 million of costs for the first planned Phase III Medidur trial, which began in June 2013. Management expected significant Medidur trial costs to continue during fiscal 2014.
- Operating cash use increased by $2.156 million year over year. Management attributed higher cash outflows principally to approximately $1.1 million in incentive-compensation payments and $610,000 in CRO payments, as well as lower collaboration and royalty cash inflows.
- Management believed the $16.5 million of cash, equivalents and marketable securities, together with expected Retisert royalties and other expected collaboration inflows, would fund planned operations through calendar 2014, including expected Medidur Phase III costs. This estimate excluded potential Alimera milestone or net-profit receipts. Funding beyond 2014 was uncertain and expected to depend on collaboration receipts, future agreements and/or financing.
- Alimera began ILUVIEN launches in the U.K. and Germany and expected a French launch in 2014. In October 2013, after the quarter end, Alimera received a third FDA Complete Response Letter for ILUVIEN in diabetic macular edema. FDA cited benefit-risk, safety, clinical and statistical issues and indicated a new clinical trial with at least 12 months of follow-up would be needed; manufacturing-facility deficiencies were also cited. An FDA advisory committee meeting was scheduled for January 27, 2014.
Outlook, risks and unusual items
- pSivida was entitled to 20% of defined ILUVIEN net profits, subject to offsets for certain net losses, but reported uncertainty about whether and when Alimera would generate payable profits in individual countries.
- Under the Pfizer agreement, Pfizer could obtain worldwide rights to the Latanoprost Product upon specified conditions, including a potential $20 million option payment after proof of concept, plus royalties and milestone payments. The timing and exercise of the option were uncertain.
- The company had a $10.4 million contractual commitment for services under its Medidur Phase III CRO agreement as of September 30, 2013; actual costs depended on trial progress and enrollment.
- On November 1, 2013, pSivida signed a five-year lease for new Watertown office and laboratory space, with minimum payments totaling $2.013 million over the initial term and a $150,000 cash-collateralized letter of credit.
- Management cited continuing operating losses, dependence on additional capital and collaboration income, clinical and regulatory outcomes, commercialization and market acceptance, and potential dilution or unfavorable financing terms as key risks. Routine legal matters were not expected to have a material effect. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Confirm the intended issuer and period: this source is pSivida Corp.’s September 30, 2013 Form 10-Q, despite the request metadata naming EyePoint, Inc. and 2013 Q1.
- Track the FDA’s follow-up requirements and Alimera’s response to the ILUVIEN CRL, including the new-trial, advisory-committee and manufacturing issues.
- Monitor Medidur Phase III enrollment, progress and costs against the CRO commitment and management’s stated funding horizon through calendar 2014.
- Check whether Alimera generates distributable ILUVIEN profits or Pfizer exercises its Latanoprost Product option; neither was assured in the filing.
- Assess cash burn, financing needs and potential dilution, as well as the effect of the new lease and other operating commitments.