Earnings Call Transcript - EYPT Q3 2020

Operator, Operator

Good morning. My name is Bridget, and I'll be your conference operator today. At this time, I would like to welcome everyone to the EyePoint Pharmaceuticals Third Quarter 2020 Financial Results Conference Call. There will be a question-and-answer session to follow at the completion of the prepared remarks. Please be advised that this call is being recorded at the company's request.

George Elston, CFO

Thank you for joining us on today's conference call to discuss EyePoint Pharmaceuticals' third quarter 2020 financial results and recent corporate developments. With me today are Nancy Lurker, President and Chief Executive Officer; Dr. Jay Duker, Chief Strategic Scientific Officer; and Scott Jones, Chief Commercial Officer. Nancy will start with a review of recent corporate updates. Dr. Duker will then discuss pipeline developments for EYP-1901, and Scott will comment on recent progress in our commercial activities. I will conclude with commentary on the third quarter 2020 financial results. We will then open the call for your questions, and we will be joined by Dr. Dario Paggiarino, Senior Vice President and Chief Medical Officer. Earlier today, we issued a press release detailing our financial results along with commercial and operational developments. A copy of that release can be found in the Investor Relations tab on our corporate website. Before we begin, I want to remind you that our remarks today include forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements concern our future expectations, clinical developments, regulatory matters and timelines, the potential success of our products and candidates, financial projections, and our plans and prospects. Actual results may materially differ from those indicated by these forward-looking statements due to various important factors, including those discussed in the Risk Factors section of our most recent annual report. Any forward-looking statements represent our views as of today only. While we may update these statements in the future, we specifically disclaim any obligation to do so, even if our views change. Therefore, please do not rely on these forward-looking statements as representing our views after today. I will now turn the call over to Nancy Lurker, President and Chief Executive Officer of EyePoint Pharmaceuticals.

Nancy Lurker, CEO

Thank you, George. Good morning, everyone, and thank you for joining us. I'm encouraged by our third quarter revenue results, driven by a return of customer demand despite the COVID-19 pandemic and the country still not being fully open. We fully recognize that there is more work to do to get our commercial business back on an accelerating growth trajectory, and we're working hard to make that happen, while operating within the safety constraints of a national pandemic. We have made significant progress since the pandemic caused the country to lock down in March as evidenced by the following key events. Customer demand for DEXYCU is up over 120% in the third quarter over the second quarter for 2020. Customer demand for YUTIQ is up over 5% in the third quarter over the second quarter for 2020. Of note, YUTIQ never saw the significant decline in second quarter customer demand that DEXYCU experienced due to COVID-19, so the increase quarter-over-quarter is modest. We have added multiple new contracts of ambulatory surgery centers and integrated healthcare networks for DEXYCU, which should lead to increased orders over the coming quarters. We signed an important commercial alliance agreement with ImprimisRx in August, which has more than doubled the field force calling on physicians and ASCs for DEXYCU. We expect this to begin having a positive order volume impact over the coming quarters as field and ASC training efforts roll out. We expanded our YUTIQ field force from 10 to 16 over the course of 2020 and begin calling on retinal physicians, in addition to uveitis specialists, who also treat posterior segment uveitis. In August, we expanded our license agreements with Ocumension Therapeutics for YUTIQ and DEXYCU to also include South Korea and other jurisdictions across Southeast Asia. We have completed our GLP toxicology study for EYP-1901, our lead development candidate for wet age-related macular degeneration, or wet AMD. And we remain on track for filing our IND later this year with the goal of starting our Phase I in early 2021. We amended our loan agreement with CRG to waive the 2020 net product revenue covenants and lower our 2021 net product revenue covenant with no additional incremental charges in connection with this amendment. We continue to manage our cash and burn, and as of October 31, 2020, cash and cash equivalents totaled $30.5 million. The increase in cash was driven, in part, by the purchase of approximately $5 million of common stock through our ATM facility by an established institutional biotech investor to increase an existing equity position. While we have more work to do, I am pleased with the commercial pipeline and operational progress we've made despite the challenges of the COVID-19 pandemic on our business. We are working diligently to ensure that we continue to drive revenues, manage our cash, move EYP-1901 forward and ensure we have the capital to execute on these objectives. Turning specifically to our third quarter performance, driven by the very positive sequential quarterly increase in underlying customer demand, we have reported total net revenues of $15.7 million, including net product revenue of $5.8 million with $3.5 million for YUTIQ and $2.3 million for DEXYCU. These results are encouraging as underlying customer demand is approaching pre-COVID-19 pandemic levels. We are actively monitoring COVID-19 cases across the U.S. to ensure we are complying with health and safety guidelines while continuing to call on our valued customers, virtually and in-person when appropriate, and providing much needed access to our ocular products. Turning to our pipeline, our team has continued to advance our R&D programs, including the recent completion of the IND-enabling preclinical GLP toxicology study for EYP-1901 on schedule. We plan to file our IND before year end and dose our first patient in the first quarter of 2021, assuming the FDA allows our IND with initial human data potentially available in the fourth quarter of next year. EYP-1901 is our potential 6-month sustained delivery, intravitreal anti-VEGF treatment being developed for wet AMD with potential expansion into other retinal disease that represents a $13.1 billion global anti-VEGF market. We're very excited about the potential for EYP-1901 as there is a significant need for extended treatments for patients to avoid frequent, often monthly eye injections for the rest of their lives. Finally, we remain focused on managing our balance sheet and our cash position. In August, we extended our exclusive license agreements with Ocumension Therapeutics for YUTIQ and DEXYCU to include additional markets in Asia. Under the expanded agreements, we received a one-time $9.5 million payment from Ocumension for rights to commercialize both products under their own brand names in South Korea and other jurisdictions across Southeast Asia and as a full and final payment of all milestones, but with royalties based on future sales still remaining payable to EyePoint. We're very happy to continue our work with Ocumension to bring our innovative products to the Asian markets. Based in part on the promising customer demand trends seen this quarter, we were able to amend the existing debt facility with our partner, CRG, resulting in a waiver of the net product revenue covenant for the 12-month period ending on December 31, 2020, and a reduction of the fiscal year 2021 net product revenue covenant to $45 million from $80 million without additional charges to our company. We appreciate the continued support of our partners at CRG who support our belief in the outlook for our products. As we approach the end of a challenging 2020, we remain focused on driving revenues of YUTIQ and DEXYCU and advancing EYP-1901 along its development plan while continuing to operate in a cost-efficient manner. I'll now turn the call over to Dr. Jay Duker, our Chief Strategic Scientific Officer, to provide an update on our lead development candidate, EYP-1901, as well as other pipeline initiatives.

Jay Duker, Chief Strategic Scientific Officer

Thank you, Nancy, and good morning to all. Following the completion of the preclinical GLP toxicology study of EYP-1901, our team is actively working on completing and filing an IND application with the U.S. Food and Drug Administration in the coming weeks. EYP-1901 combines our bioerodible Durasert technology with vorolanib, an anti-VEGF tyrosine kinase inhibitor molecule, and is being advanced as a potential 6-month sustained intravitreal treatment for wet AMD. Wet AMD is a progressive debilitating ocular disease, and despite several FDA-approved medications, remains a leading cause of blindness. There is a significant need for longer-lasting therapies to replace the relatively short duration of action of the currently approved anti-VEGF medications. This short duration of action, typically between 1 and 2 months, places an enormous burden on patients, families, providers and the healthcare system. Vorolanib has established efficacy signals observed in 2 prior human trials in wet AMD as an orally delivered therapy. Data from the prior Phase II trial of oral vorolanib demonstrated a decreased intravitreal anti-VEGF injection burden and a longer time to first treatment as compared to placebo. A small portion of patients in each dose group did not require another anti-VEGF injection after screening and initiation of oral therapy. I will note, though, that this trial was prematurely stopped due to gastrointestinal and hepatobiliary toxicity signals. However, no significant ocular adverse events were observed during this trial or the previous Phase I trial. We believe that by placing vorolanib in our bioerodible Durasert technology to locally deliver the drug to the posterior segment via sustained zero-order kinetics will be comparable or could even improve the results observed for the oral delivery of vorolanib without the systemic toxicities associated with oral anti-VEGF treatments. Durasert has demonstrated its safety in thousands of patients and 4 FDA-approved sustained release ophthalmic products, including our own YUTIQ. And its bioerodible construct has no new excipients from the non-erodible construct. Preclinical studies of EYP-1901 administered into the eye have shown promising anti-VEGF activity with no serious safety issues observed. Upon IND allowance by the FDA, typically 30 days assuming no FDA questions, we plan to initiate an open-label dose-escalating Phase I study of EYP-1901 in approximately 20 patients with wet AMD who were previously responsive to anti-VEGF therapy. The primary endpoint of the study will be safety with important secondary measures of best corrected visual acuity, central subfield thickness, and the need for rescue anti-VEGF injections using approved medications. Patients will be dosed at 1 of 4 dose levels of EYP-1901 1 to 2 weeks after their last anti-VEGF injection and then followed for 12 months with the 6-month time point being the key data readout. We look forward to rapidly initiating the study and dosing our first patient early in 2021. We believe EYP-1901 has the potential to be a disruptive and enormously beneficial option for patients and physicians for the long-term treatment of wet AMD. EYP-1901 also has potential utility for the treatment of diabetic retinopathy and retinal vein obstruction, and we anticipate pursuing these in the future. For our other pipeline initiatives, we are looking at pathways to advance YUTIQ 50 into the clinic, and we are assessing additional pipeline expansion opportunities using our Durasert technology along with potential product and technology in-licensing. We look forward to keeping you updated on these initiatives as we progress them forward and into the clinic. I will now turn the call over to Scott Jones, Chief Commercial Officer, for the commercial update.

Scott Jones, Chief Commercial Officer

Thank you, Jay. And let me first echo the comments Nancy made at the beginning of the call on encouraging customer demand trends during the quarter for both YUTIQ and DEXYCU. These trends are a result of many factors, including our successful contracting efforts with larger ASC chains, more and more healthcare facilities resuming operations, thus allowing more patient treatments, as well as our ongoing product education initiatives. Let me begin with YUTIQ for chronic non-infectious uveitis affecting the posterior segment of the eye. Customer demand for YUTIQ was approximately 450 units in Q3 compared to approximately 430 units in Q2, driven by increased patient office visits in the period. Our YUTIQ commercial efforts continue to include in-person and virtual engagements focusing on the long-acting advantages of YUTIQ, especially during the COVID-19 pandemic, as we work to expand our reach into the retinal disease market. In addition to providing steady and consistent anti-inflammatory control, YUTIQ can potentially reduce the frequency of patient office visits during the treatment, which continues to be a benefit in the COVID-19 pandemic. Our medical affairs team continues to seek opportunities to highlight YUTIQ at medical meetings, including the upcoming virtual AAO meeting. Let me now turn to DEXYCU for post-operative inflammation following cataract surgery. Customer demand for DEXYCU was up significantly over Q2 with approximately 4,700 units in Q3 compared to approximately 2,100 units in Q2. The advantages discussed with YUTIQ in the COVID-19 environment also apply to DEXYCU as treating physicians have appreciated DEXYCU's extended duration of therapeutic treatment from a single injection. We have continued to execute on our goal of securing additional contracts and volume-based agreements with ASCs and integrated healthcare networks to expand DEXYCU access for patients. We recently secured agreements with Vantage Outsourcing and a large ASC chain to bring DEXYCU to more ASCs and their patients. Additional negotiations are ongoing virtually and in-person, and we hope to drive these conversations and new agreements forward in the coming months. I will note that DEXYCU progress seen in the third quarter resulted nearly entirely from the existing EyePoint team as our new co-promotion agreement with ImprimisRx was signed in August and their sales specialists and inside sales team were engaged in product training through September. We believe ImprimisRx is an ideal partner to help expand the commercialization of DEXYCU as we're able to leverage their existing infrastructure and relationships with ophthalmologists, hospitals and ASCs. ImprimisRx is now marketing DEXYCU as a top priority product and will initially focus on leveraging their established customers to develop DEXYCU trials. EyePoint continues to retain responsibility for our internal sales and marketing teams, along with pricing, manufacturing and contracting. Together, we hope to transition the cataract market to DEXYCU from the burdensome steroid eye drop regimen. We expect to see an impact on customer demand beginning in the fourth quarter from the ImprimisRx commercial alliance. While we are encouraged by the improving customer demand for both products during the third quarter, sustained growth will depend on the continued easing of restrictions surrounding the COVID-19 pandemic in various U.S. regions and the return of patients for these procedures. Given the unclear trajectory of the pandemic and governmental response, it's difficult to project customer demand and revenue for the coming periods, but we are optimistic on trends from the third quarter. We will continue to move our efforts forward virtually, and in-person when able, to bring our products to patients in need. I would like to recognize and thank our commercial organization for their dedication and efforts through this changing and challenging market. I will now turn the call over to George to review the third quarter financials.

George Elston, CFO

Thank you, Scott. As the financial results for the 3 months and 9 months ended September 30, 2020 were included in the press release that was issued this morning, I'll focus my comments today on a high-level overview for the quarter. For the 3 months ended September 30, 2020, total net revenue was $15.7 million compared to $2.5 million for the 3 months ended September 30, 2019. Net product revenue for the 3 months ended September 30, 2020 was $5.8 million, with $3.5 million for YUTIQ and $2.3 million for DEXYCU, compared to net product revenue for the 3 months ended September 30, 2019 of $1.0 million generated primarily by DEXYCU. Please note that the net product revenue represents product purchased by EyePoint's distributors, whereas customer demand represents purchases of product by physician practices and ASCs from EyePoint distributors. Net product revenue from licenses, royalties and collaborations for the 3 months ended September 30, 2020 totaled $9.9 million compared to $1.5 million in the corresponding quarter in 2019. This was driven by payments associated with the expansion of our license agreement with Ocumension for additional markets in Asia. Operating expenses for the 3 months ended September 30, 2020 were $17.7 million versus $16.6 million in the prior year period. This increase was driven by a $1.6 million increase in cost of sales, a $1.4 million increase in G&A expense and a $0.6 million increase in R&D expense being offset by a $2.5 million reduction in sales and marketing expense. Non-operating expense, net, for the 3 months ended September 30, 2020 totaled $1.8 million of net interest expense. Net loss for the 3 months ended September 30, 2020 was $3.8 million, or $0.03 per share, compared to a net loss of $15.6 million, or $0.15 per share, for the prior year quarter. Cash and cash equivalents at October 31, 2020, totaled $30.5 million compared to $28.7 million at September 30, 2020 and $22.2 million at December 31, 2019. We expect that our cash on hand and projected cash inflows from anticipated YUTIQ and DEXYCU product sales, licensing and research collaboration transactions, along with additional anticipated financing activities can fund the company's operating plan into 2021. Given our current assumptions for the extent of the COVID-19 related closures in various regions across the U.S., our careful management of cash should enable us to achieve some important catalysts, including the filing of the IND with the FDA for EYP-1901 and the initiation of the Phase I study. We continue to evaluate and pursue non-dilutive sources of capital, including ex-U.S. out-licensing opportunities for our commercial products and delivery technologies. I now turn the call over to the operator for questions.

Operator, Operator

Our first question comes from Raghuram Selvaraju with H.C. Wainwright.

Unknown Analyst, Analyst

This is Maz on for Ram. I was wondering, firstly, are ambulatory surgical centers well prepared to remain open during the resurging pandemic?

Nancy Lurker, CEO

Yes. It's a very good question. They all are. So I will say that we can't predict what's going to happen during this resurgence. And we are being very cautious in terms of how we spend our capital to be prepared should we start to see a softening.

Unknown Analyst, Analyst

Okay. And I was wondering regarding your commercial alliance with ImprimisRx, are you seeing an initial expansion of product reach considering this company is prominently marketing their telemedicine platform?

Nancy Lurker, CEO

Yes, you're familiar with the company. That's a great question. We have more than doubled our sales team. It does take time for the new representatives, whether in-person or through tele-detailing, to educate the ambulatory surgery centers and train the surgical suites to submit for reimbursement. As we've mentioned, you typically won’t see the productivity impact for about 2 to 3 quarters. However, I can say that we are starting to see orders coming in from the ImprimisRx sales team now.

Unknown Analyst, Analyst

All right. That's very encouraging.

Operator, Operator

Our next question comes from Andrew D'Silva with B. Riley.

Andrew D'Silva, Analyst

Just a couple of quick housekeeping ones to start. If you could just let me know what the CapEx and stock-based compensation were for the quarter. And then while that's being pulled, if someone could just answer, I'm just curious on a couple of dynamics with DEXYCU. Are you now just ubiquitously including that agitation system to all centers that are expected to start selling the product? And do you believe that that's starting to bridge the proper utilization gap relative to the handshaking? And then just more on the regulatory standpoint related to the physician monetization front from a pass-through standpoint, or where are we on a potential extension? And then where are you in initiatives to actually get a product-specific injection reimbursement established?

Nancy Lurker, CEO

Thank you for the questions, Andy. I’ve noted them down while George works on the CapEx and options. One of your questions was about our Vortex. For those on the call, DEXYCU needs to be shaken before administration because it separates in the vial. It’s crucial for it to be well shaken. We’ve implemented an automatic ultrasound spinner in all our offices that accomplishes this in just 5 seconds, ensuring a consistent suspension without needing manual shaking. We’re pleased with this improvement. Additionally, we’ve introduced other measures to ease the process for the offices and ASCs, ensuring confidence in the administration. We’ve also refined our delivery technique, addressing issues where the injection sometimes shifted in the eye, which required explanations to patients about the small particles they could see. We believe our current delivery method and suspension process are now effective. For questions regarding the regulatory pass-through and injection code, I’ll pass those on to Scott, our Chief Commercial Officer.

Scott Jones, Chief Commercial Officer

We are actively working on the pass-through issue. There is existing legislation that could grant CMS the authority to extend the pass-through because of the public health emergency. Those bills are currently pending. We hope they can be included in an upcoming stimulus package, if one occurs this year or next. As for the injection code, we are preparing our application for an early 2021 deadline, aiming to meet in 2021 with the anticipation of having the code available in 2022. This is the process we are currently following, and we will be submitting that soon.

Andrew D'Silva, Analyst

Thank you. George, did you happen to find that CapEx and stock-based compensation number for the third quarter?

George Elston, CFO

Yes. Andy, we'll file the Q I think tomorrow. But I think that in rough terms, our capital investment is $100,000, $200,000 year-to-date. We've been very tight with our spending. And that is largely driven on our expanded GMP facility here in Watertown to manufacture both YUTIQ and 1901. And then stock-based compensation is around $4 million year-to-date, so as a non-cash item.

Andrew D'Silva, Analyst

Okay. That's perfect. Thank you. And just a couple more quick ones for me. Can you give us just a little bit more color around or at least talk around what the commission or rev share is with Harrow? I think last time you mentioned it was between 28% and 40%. If you could help narrow that down a little bit, it'd be quite useful in modeling.

Nancy Lurker, CEO

Yes. Andy, we can't disclose that. That's confidential. And we're not at liberty to disclose that certainly without Imprimis's agreement. So we're not going to disclose that. But let me just continue to stress, it's at the market rate that you would see for a deal. We're not overpaying, but we want to also make sure that we incentivize them to sell the product. And they are ramping that up.

Andrew D'Silva, Analyst

Okay. And just last question is related to YUTIQ. And you may have mentioned this, but it was a little bit choppy from a connection standpoint. Is stocking nearing customer demand at this point? And if you can give any other, just color around what you're seeing with just inventory levels and how you kind of see the year playing out with those dynamics, that would be very useful. Thank you very much.

Nancy Lurker, CEO

We have definitely reached a stable situation and are no longer experiencing the fluctuations we saw last year. We're confident that there is a consistent relationship between demand and orders processed through the distribution channel, which is reflected in our revenues. Currently, I don't anticipate any disruptions between these two aspects, which is why we are now providing insights into customer demand. However, I want to emphasize that you can't simply take customer demand orders and multiply them by our weighted average cost of capital to predict quarterly results, as there's a lag in the distribution channel. Nonetheless, the gap between what's in the distribution channel and incoming orders has significantly narrowed, and we expect this trend to continue.

Andrew D'Silva, Analyst

Okay. Wonderful. Thank you very much for taking my questions, and best of luck closing out the year.

Operator, Operator

And I'm not showing any further questions, so I'll now turn the call back over to Nancy Lurker, CEO, for closing remarks.

Nancy Lurker, CEO

Thank you, everyone, for taking the time to listen. I want to continue to stress that we are working very hard to ensure that we manage our cash and that we minimize the need to continue to draw additional cash in. We're highly conscious of the fact that we want to make sure that we're driving revenues while we're advancing our pipeline and very, very tight cash management. We remain confident in our ability to hit our milestones going into 2021. Thank you very much, and look forward to continued discussions.

Operator, Operator

Ladies and gentlemen, this does conclude the program. Thank you for participating. Everyone, have a great day.