Good morning. My name is Amanda, and I will be your conference operator today. At this time, I would like to welcome everyone to the EyePoint Pharma's Fiscal Period ended December 31, 2018 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.
I would now like to turn the call over to Mr. David Price, EyePoint's Chief Financial Officer.
Thank you, Amanda, and thank you all for joining us on today's conference call to discuss EyePoint Pharmaceuticals fiscal period ended December 31, 2018 financial results and recent corporate developments. With me today is Nancy Lurker, High Point's President and Chief Executive Officer. Nancy will provide an overview of the recent progress made on our commercial and pipeline programs as well as highlight upcoming milestones. I will then provide an overview of the 3 6 month financial results for the fiscal period ended December 31, 2018. We will then open the call up for your questions.
Earlier this morning, we issued a press release detailing these financial results as well as commercial and operational developments. A copy of the release can be found in the Investor Relations tab on the corporate website, www.eyepointpharma.com. Before we begin our formal comments, I'll remind you that various remarks we will make today constitute forward looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. These include statements about our future expectations, clinical developments and regulatory matters and time lines, the potential success of our product candidates, financial projections and our plans and prospects. Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10 ks, which is on file with the SEC and in other filings that we may make with the SEC in the future.
Any forward looking statements represent our views as of today only. While we may elect to update these forward looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. Therefore, you should not rely on these forward looking statements as representing our views as of any date subsequent to today. I'll now turn the call over to Nancy Lurker, President and Chief Executive Officer of EyePoint.
Thank you, David. Good morning, everyone, and thank you for joining us. 2018 was a transformative year for EyePoint Pharmaceuticals as we transitioned from a technology driven R and D company into an integrated commercial stage specialty biopharmaceutical company with 2 products now launched in Q1 2019 for the treatment of ocular diseases. These accomplishments are significant milestones for our company as they represent the first products that we have commercialized ourselves since our formation. Our achievements are a direct reflection of our talented and dedicated team who've worked tirelessly to ensure we are in a position for successful launches of both YUTIQ and DEXYCU in their respective markets.
In February this year, we launched YUTIQ, fluocinolone acetonide intravitreal implant 0.18 milligrams in the United States for the treatment of chronic non infectious posterior segment uveitis. YUTIQ is our internally developed intra vitreal micro insert that is designed to consistently release fluocinolone for up to 36 months. Recall that YUTIQ is derived from our proprietary DuraCert sustained release technology platform that has led to such marketed products as ILUVIEN, licensed to Alimera Sciences, as well as Retisert and Vitrasert licensed to Bausch and Lomb. Non infectious posterior segment uveitis represents the 3rd leading cause of blindness in the U. S.
One of the main issues with corticosteroids, the current standard of care is the lack of long term compliance, which often results in the recurrence of inflammatory uveitis eye flares that can ultimately lead to blindness. In clinical studies, YUTIQ significantly reduced the number of inflammatory uveitis eye flares due to its ability to deliver drugs for up to 36 months. Current treatments today last anywhere from 1 month with generic steroids and many systemic drugs to 2 to 3 months for more commonly used intravitreal treatments and up to 24 months with Retisert, which requires insertion in a surgical suite. The longer duration of YUTIQ coupled with its physician office administration should significantly improve patient compliance in this very serious disease. In addition, YUTIQ also delivers drug consistently every day and avoids the ocular drug level valleys that often occur with current treatment today.
Consequently, YUTIQ's clinical data and product profile have been very well received by retinal and uveitis specialists who've been highly supportive of this new treatment and expect YUTIQ to be a significant new addition to their treatment protocol for non infectious posterior segment uveitis. On the commercial front, YUTIQ is currently available today for ordering and delivery to physicians. And I'm pleased to report that initial field report suggest we are off to a strong start. Reimbursement is attained today from an existing J code and we have also filed for a new permanent and specific YUTIQ J code, which if granted will take effect January 1, 2020. Currently, payers are approving reimbursement for YUTIQ with minimal prior authorization requirements.
This is primarily due to the fact that YUTIQ treats an extremely serious disease that can lead to blindness and it's modestly priced. Based upon the existing J code, the wholesale acquisition cost for YUTIQ is approximately $8,340 In conjunction with YUTIQ's product launch, we also introduced EyePoint Assist, a program to ensure access to YUTIQ for eligible patients in need of financial assistance. I will go into more specifics of our launch efforts shortly as many of our YUTIQ activities are complementary to our DEXYCU initiatives. DEXYCU dexamethasone interocular suspension is our 2nd ophthalmology product launched just this week for post operative ocular inflammation. We are very excited to have launched DEXYCU and to now have 2 innovative ophthalmology drugs on the U.
S. Market. Our primary market focus for DEXYCU is for treatment immediately following cataract surgery. Recall that DEXYCU was acquired as a result of our acquisition of Icon Biosciences in March 2018 and it utilizes the proprietary Verisome sustained release technology. We believe DEXYCU has the potential to alter the treatment paradigm for postoperative ocular inflammation through a single injection at the end of cataract surgery that provides a tapered release of dexamethasone over 22 days, very similar to how steroid drops are administered.
DEXYCU can potentially avoid the inherent patient compliance risk with the current complicated steroid drop regimen that typically is administered over 4 weeks and can require up to 4 drops a day with 11% growth over 2017 and demonstrates how rapidly this market is growing as a result of the aging baby boomer population as well as propensity for cataract surgery to begin high unmet medical need among patients who undergo cataract surgery and physicians as this current standard of care to treat inflammation post eye surgery is extremely challenging and requires a burdens in eye drop schedule. Cataract surgeons have expressed a strong interest and intend to use DEXYCU due to its ease of use and non disruptive process. Physician product training is currently underway with an initial focus on our top key opinion leaders in the U. S. Rolling out to a broader group of physicians over the next number of weeks.
This stage launch for DEXYCU is strategically designed to ensure appropriate initial training for the physician and other members of the ambulatory surgical suite and follows best practices when administering drugs or new medical devices in the surgical suite. As previously reported, reimbursement for DEXYCU was secured in November 2018 through the issuance by CMS of a specific and permanent J code, J1095, through the healthcare common procedure coding system that became effective on January 1, 2019. As we previously mentioned, DEXYCU has been granted 3 year transitional pass through status for the purposes of Medicare Part B reimbursement. As a result of the issuance of this specific J code, reimbursement by Medicare Advantage and other commercial plans has become more straightforward and our market access team is working with all payers to secure reimbursement. The wholesale acquisition cost for DEXYCU is $5.95 Our internal sales and marketing organization is led by Tom Hadley, our Vice President of Marketing and Sales and Eric Toppy, who heads up our market access team.
Both Tom and Eric joined EyePoint early last year and bring extensive experience in executing on highly successful commercial pharmaceutical launches. They have assembled a very experienced and deeply talented commercial team, which includes impressive sales leadership and a total of 44 key account managers. In addition, field reimbursement managers, national account directors and field leadership. The key account managers or CAMs have been hired through our contract sales organization. All 44 CAMs, 10 for YUTIQ and 34 for DEXYCU are dedicated specifically to their respective products.
Recruitment and training of all CAMs has been completed and they are all active in the field as we speak. The 10 UT cams are dedicated to calling on uveitis and retinal specialists. The 34 DEXYCU cams focused on high volume ambulatory surgery centers for DEXYCU and high volume cataract surgeons. We are pleased to report that patients have already been treated with both products. We're excited about our product launches thus far and the interest from physicians and patients alike generated a significant buzz and level of interest across the ophthalmology community.
Our medical education plan supports these sales and marketing efforts with our fully staffed medical science liaison team and medical affairs group that continues to expand our presence at key congresses as well as proactively plan publications for continued data flow to the greater medical community. We look forward to updating you on our commercial progress on our next quarterly call. In addition to executing on 2 product launches, we continue to work on the development of our pipeline of early and late stage ophthalmic products. This year, we anticipate filing a line extension application for our short acting 6 month YUTIQ, which would provide dosing options to physicians when treating non infectious posterior segment uveitis. Our preclinical pipeline includes a sustained release bio erodible device containing the tyrosine kinase inhibitor or TKI, which is currently being studied in preclinical efficacy and safety studies in animal models for wet AMD.
Should these results be positive, we plan to continue additional preclinical studies throughout 2019. While we are focused on advancing our commercial products new ophthalmology treatments for areas of high unmet medical need in the ocular disease space. From a corporate standpoint, we recently announced the appointment of Doctor. David Geyer, the current Executive Chairman and Co Founder of Ophthotech Corporation, a biopharmaceutical company specializing in gene therapy treatments for ocular diseases to our Board of Directors. Doctor.
Guyer is a well regarded ophthalmology entrepreneur having led several public and private biotechnology companies focused on ocular diseases including Itech Pharmaceuticals until it was acquired by OSI Pharmaceuticals. We welcome him to our team and look forward to benefiting from his extensive experience in the ophthalmology drug development space. Separately, we also announced the appointment of Ron Honig in the newly created role of Senior Vice President, General Counsel and Company In this new role, Rod will oversee the company's legal activities, including the legal aspects of licensing, compliance, strategic transactions and business development. With that, I will turn the call over to David to review our financial results. David?
Thank you, Nancy. As a reminder, our Board of Directors approved a resolution to change the company's fiscal year end from June 30 to December 31. EyePoint believes this change of its fiscal year will align its financial reporting periods to that of our peer group in the industry and better facilitate the assessment of our financial performance. Within the next few days, we will file audited financial statements on Form 10 ks for the 6 month transition period ended December 31, 2018. The financial results that I will now review are included in our press release that was issued this morning.
As of December 31, 2018, cash and cash equivalents totaled $45,300,000 compared to $38,800,000 as of June 30, 2018. Net cash used from operations for the 6 months ended December 31, 2018, totaled $22,600,000 compared to $11,000,000 in the prior year 6 month period. There were approximately 95,400,000 common shares outstanding at December 31, 2018. Now turning to the income statement. For the 3 months ended December 31, 2018, revenues totaled $2,400,000 compared to $933,000 for the 3 months ended December 31, 2017.
The revenue increase was primarily attributable to the recognition of $1,700,000 from the upfront license fee received from Ocumension Therapeutics related to the November 2018 out license of Curacert 3 year uveitis for the Greater China region. Operating expenses for the 3 months ended December 31, 2018, increased to $13,400,000 from $6,700,000 in the prior year period due to the primarily to ongoing build of our sales and marketing infrastructure as well as program costs, professional services, stock based compensation and the amortization of the DEXYCU intangible asset. Nonoperating expense net for the 3 months ended December 31, 2018, totaled $589,000 and consisted of interest expense on the SWK term loan, net of interest income from cash equivalent investments. Net loss for the 3 months ended December 31, 2018, was $11,600,000 or 0 point 12 compared to a net loss of $5,800,000 or $0.13 per share for the prior year quarter. For the 6 month transition period ended December 31, 2018, revenues totaled $2,900,000 compared to $1,300,000 for the prior year 6 month period.
The revenue increase was primarily attributable to the aforementioned Ocumension upfront license fee and royalty income under existing collaboration agreements. This was partially offset by the absence in 2018 of revenues from feasibility study agreements. Operating expenses for the 6 month transition period ended December 31, 2018, increased to $27,500,000 from 13 $100,000 a year earlier, due primarily to the expansion of the company's leadership team, building our sales and marketing infrastructure as well as program costs, professional services, stock based compensation and the amortization of the DEXYCU intangible asset. Non operating expense net in the 6 months ended December 31, 2018, totaled $20,200,000 and consisted primarily of an $18,900,000 noncash change in fair value derivative liability as well as interest expense on the SWK term loan. Net loss for the 6 months ended December 31, 2018, was 44,700,000 dollars or $0.53 per share compared to a net loss of $11,800,000 or $0.28 per share for the prior year 6 month period.
Last month, we announced that we entered into a $60,000,000 debt facility with CRG, which enabled us to retire existing debt and to provide additional working capital to support our ongoing product launches as well as our general operations. The initial borrowing under this new facility was $35,000,000 of which approximately $23,000,000 was used to repay principal, prepayment and exit fees and other costs associated with this secured term loan obtained from SWK Funding LLC in March of 2018. EyePoint has the option at its sole discretion to borrow up to an additional $15,000,000 under the CRG facility prior to June 30, 2019, a further $10,000,000 should the company achieve certain sales milestones from our 2 commercial products on or before March 31, 2020. We believe our current cash and cash equivalents position is sufficient to fund operations and debt service obligations through the end of this year. In our future calls, we will be providing more information with regards to the metrics we will disclose to measure the progress of our 2 product launches.
I'll now turn the call back over to the operator for your questions. Amanda?
Thank you. Our first question comes from the line of Francois Brisebois of Laidlaw. Your line is open.
Hi, thanks for taking the questions. Congrats on the progress, 2 launches recently as well. So I was just wondering, the first question here was, the launch of DEXYCU in particular was so late in the quarter. Can you just talk a little bit about expectations for top line in the Q1 2019? And you mentioned the process of educating physicians in the sales, just so we can have an idea here.
Hi, Francois. Thank you for that. Yes, we'll have David answer that question. So go ahead, David.
Great. Thanks. Thanks, Francois. Yes, as you say, we've launched DEXYCU this week, only a couple of weeks left in this quarter. And as we've been saying, we want to make sure that all of our physicians who we work with are capable and trained associate appropriately with regards to DEXYCU and insertion of DEXYCU as well as helping the officers ensure that they can prepare it appropriately.
So we're doing what we call in service visits. And as a result of that, that training anticipate that over the next few weeks, our overall revenues will be minimal associated with DEXYCU, and really it will be a 2nd quarter revenue kick.
Okay, great. That's very helpful. And then in terms of OpEx, you had a nice little pullback in R and D. Obviously, you guys are transitioning from more of an R and D to a commercial company. But how should we think about this going forward, along the operating expenses?
Yes. That's a good question. What we're expecting is that, if you recall, we are continuing on the 3 years, that is now winding down for YUTIQ. So as a result, you should start to see those costs come down in 2019 substantially from 2018 on the R and D front. We do expect that we will be moving faster and with a little more expense on the TKI program.
However, that will probably still stay in the preclinical stage, which as you know is not as expensive. So overall, 2019, we would see lower R and D costs. But then if we continue forward with the TKI program, which we anticipate we would, you'd see that pick back up again in 2020.
Okay, great. And then just lastly, you guys talked about a strong start already to YUTIQ. I was just wondering what metrics we could be looking at in order to track
this launch?
Yes. I'll give you one metric that we watch very closely. And again, I'm not going to give you numbers today, but this would be one certainly we would give you going forward, which is the amount of physician demand that's coming in. We call those benefit investigations. So we have a hub on YUTIQ and virtually every physician and their offices are submitting reimbursement clearance, so to speak, through our hub.
And our hub is the one that will make sure that the patient qualifies for reimbursement. And then of course, if they don't, we have our EyePoint Assist program to help them. So that is a very good metric for looking at the amount of physician demand or patients that are being teed up to get the drug. And as I mentioned, good treatment options. So we do expect, as I've said repeatedly, that you're going to see a fairly large bolus of patients come in certainly in the Q1 of launch, probably going into the Q2 some.
And then I would expect that it will the growth rate will taper off to a more normal growth rate. So what we are seeing in the first several weeks of YUTIQALOG is exactly what we expected, which is a nice bolus of incoming physician requests for having their patients cleared for reimbursement. So again, I'm not going to give you numbers, but we certainly are doing absolutely what we would expect with this product, which is we're off to a good strong start.
Okay, great. And then sorry, I said last, but just wondering in terms of seasonality, obviously, sometimes, especially in the Q1 for the reimbursement issues. And then, I'm looking more 3rd quarter with the summer months. Is this something that we should expect to affect the top line just be it docs being off on vacation?
Yes, you're going to see this. It is ubiquitous in the pharmaceutical industry, particularly for office administered drugs. And we would expect you'll see the same thing for DEXYCU and YUTIQ. There will be some slight seasonality.
Great. All right. Thank you and congrats on the quarter.
Thanks, Francois.
Thank you. And our next product launches.
Product launches. I just first out of the gate, just a couple of quick bookkeeping questions. Can you maybe just let me know a stock based comp, depreciation and amortization, cash flow from operations and CapEx was for the 3 or 6 months ending December? And then I take it, since you announced the DEXYCU launch this week, you triggered the $15,000,000 sales milestone payment to ICON, correct? Should we model that in this quarter?
So David or Len will take those questions.
Yes, absolutely. Thanks, Andy. So given the transition period, it's easier for me to give you the 6 month period for those numbers because you have the quarter to the end of September as well. So the stock based comp for the 6 months is $2,500,000 The D and A number, the depreciation and amortization, dollars 1,600,000 Recall also that within those 6 months, there's a change in fair value of the derivative liability of $18,900,000 as a non cash item as well. The cash used from operations, dollars 22 point $6,000,000 I mentioned that in the prepared remarks for the 6 months period.
We have very, very minimal CapEx, about $100,000 of CapEx in the 6 month period. You're correct, the $15,000,000 milestone is triggered for the former owners of ICON and we have 30 days from launch in order to pay for that. And so that will fall in the second cash flow in the second quarter.
Got it. Perfect. Sorry, one more quick financial question. As it relates to the $60,000,000 debt facility. Are you expecting to tap all three tranches or do you expect just to utilize the first tranche $35,000,000 or the first two at $50,000,000 Just give me a little sense of what the plan is so I can think about how to model that from a balance sheet and free cash flow standpoint?
Yes. Certainly, in 2019, I'd mentioned in their remarks that we believe we have anticipation is that we would draw that other $15,000,000 that is at our behest that we would draw that. That's included in that assumption for getting us to cash through
to the
end of this year. The further 10, obviously, is subject to sales milestones, and that is not factored into any of my calculations at this point.
Okay. But that $25,000,000 sales milestone for the 3 month period prior to essentially the end of March 2020, is that something we think about the framework of how the company is being built in sales and marketing right now. Is that something that's viable in the next year or so to be able to hit that kind of
a run rate?
Clearly, at this juncture, we've refrained from providing any revenue guidance. We'll give an update on trading and the metrics associated with that as we come through the full second quarter. But I think suffice to say that having that as a milestone to trigger further cash availability is something that we had negotiated into that and had input into those numbers.
Okay. That's really good. That's great to hear. And then, moving over to YUTIQ. Can you just touch base on maybe how you're going to recognize revenue?
I know it's a buy and bill model, but are you essentially going to recognize when you launch into distributors? And then is there any sort of confusion at this point related to the product as it has a lot of similarities to ILUVIEN? Or is that is it fairly understood that ILUVIEN is for DME and YUTIQ is for uveitis?
So I'll take the second question. Yes. Yes, go ahead, David.
That's right. So let me in terms of the revenue recognition, initially, we are working under what's called the title model with Cardinal where they act as both the owner and also distributor for us. And therefore, that's the revenue recognition point is on shipment into Cardinal. Obviously, we would then have appropriate gross to net reserves, returns reserves, etcetera, associated with that. But that's from a revenue recognition point of view, that's where we are initially.
Ultimately, when we have all of our own licenses by state, we will be moving on to a more normal distributor model.
So to your second question about ILUVIEN and any confusion, there really hasn't been. And part of that has to do with the fact that in this space, physicians know very clearly that when they submit their claims, they have to be very clear about the disease codes that are being used. And as a result, they know that ILUVIEN is very clearly indicated for diabetic macular edema. And as they get more educated, YUTIQ is used for uveitis. So, so far, we've had no confusion around that at all.
And really, we don't anticipate it.
Okay. That's really good to hear. Just a couple more quick questions for me. I'm aware that Allergan has been having some supply constraints with Ozurdex meaningfully impacted their Q4, at least for that product line. Have you seen any benefit domestically for YUTIQ?
And then with Bosch's Retisert technology, I mean essentially very similar platform, I believe it's actually both based on DuraCirte. Is it safe to assume going forward that those sales should just essentially be transitioned over to YUTIQ? I mean, it's just a more invasive surgery process that you would assume that physicians would use that interventional injection?
Yes. So let me answer your last question first and then I'll tackle your first question. For Retisert, let me just explain to our audience about Retisert. Retisert is was our internally developed technology of the Durasert platform that got out licensed to Bausch Health, a fair number of years ago. That is a much larger insert.
It requires being inserted in the surgical suite. It actually has to get tethered into the eye. My understanding right now is there's not a lot of physicians who know how to do that anymore. A lot of doctors sort of moved away from using Redistr because of how invasive it is. The other issue is it lasts for up to 2 years and it does tend to have higher elevated intraocular pressure as a side effect because it releases at a higher rate of corticosteroids.
So given all of that and the fact that YUTIQ as just to reiterate is administered in the physician's office, doesn't require a surgical procedure. Therefore, there's a lot of costs associated with that. And also the cost of Retisert, my understanding runs anywhere from $14,000 to $18,000 now. So that's a lot of money to put out and we are priced at, as I mentioned, whack at $8,300 for 3 years. Let me remind listeners that's over that's a 3 year lasting insert.
So we're substantially less expensive. We're much easier administered in the physician's office and we don't have as much elevated IOP. So when you add all that together, we do expect that there'll be a fair amount of transition away from Retisert over to YUTIQ. And sorry. Go ahead.
Yes. Oh, no. And as for OZUR, yes, we are seeing some of that out in the field. As for how long that lasts, we have no insights at all nor do I really want to comment on it. And so when or if they will have complete coverage again, But we are seeing some of that out in the field that there is some outages of OZURDEX.
Thank you. Sorry for all the questions. My last one is just a very important quarter for you. With DEXYCU, I know it's just recent, but are you following a sell through model where you're going to recognize revenue going straight into the physicians? Or is it going to be similar from a stocking standpoint?
And then just any color on how you expect to ramp that product up? Because I remember there was just some inventory issues, and I wanted to make sure that all that was resolved so I don't get ahead of my skis.
No, absolutely. Yes, with regards to that, I think we will be recording revenue the same way as we are with YUTIQ. In the current state, we have the title model, as I mentioned, with our 3rd party logistic provider, and we'll continue to operate it that way. And we have inventory that is available for commercial sale.
Great. Thank you so much. Congratulations on the progress and looking forward to watching you launch these products this year.
Thank you very much.
Thank you. Our next question comes from the line of Yi Chen of H. C. Wainwright. Your line is open.
Thank you for taking my question. Could you comment on the pricing of DEXYCU? And also the distribution of the sales force between YUTIQ and DEXYCU, is it in any way indicative of the unit of products that could be sold in the coming quarters?
So the price of DEXYCU is $5.95 and the distribution of the Field Force, as I mentioned in my comments, was 10 reps are dedicated to YUTIQ. And we have, actually right now on the field we have 34, but we will be at 35. We have one vacancy we're still filling for DEXYCU. And let me comment as to the unit volume. Yes, now is it an exact proportion between reps and expected unit volume?
No, not at all. But you do size your field force based on potential. I want to remind people that we have gone out conservatively with our field force. We do not want to get ahead of ourselves on the field force. If demand comes through as we expect, we very well could size up the field force modestly to begin to capture more of the potential of these products, particularly DEXYCU.
If DEXYCU takes off in a very optimistic way and again, we're doing everything we can to set the table for that, then I would expect that we would grow our field force. I'm not going to give you numbers. It's not going to be double by any means, but certainly grow the field force to capture more of that revenue demand. But right now, we're going to be conservative until we start to see run rates on these products.
Got it. Thank you.
Thank you. At this time, there are no further questions. I'd like to turn the conference back over to Ms. Nancy Lurker for any closing remarks.
I want to thank everyone for your time this morning and very much look forward to future calls with you. We remain very excited about the launch of these two products. Their innovativeness out in the marketplace is already being very well received and we expect good things as we look forward. So thank you again for your time and we'll talk to you at our next earnings call.
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.