EYEG: 3 of 4 FDA Questions Answered, OBG-PRK Study On-Track for Q3 Start

By Brian Marckx, CFA

NASDAQ:EYEG

Q1 Financial Results, Operating Update

EyeGate (EYEG) reported Q1 2018 financial results and provided a business update. As it relates to the financials, Q1 included a milestone (of sorts) in that it included initial recognition of revenue from the Valeant contracts related to EGP-437. The revenue relates to previous (cash) payments from Valeant. Through Q1 2018, EYEG collected $12.5M related to upfront payments and development milestones from the two Valeant agreements related to EGP-437 programs in anterior uveitis and post-cataract surgery. We note that an amendment to FASB standard updated rules regarding revenue-recognition for contracts with customers which resulted in a $9.5M adjustment to EYEG’s deferred revenue balance – this is solely an accounting adjustment with no financial or other effect.

In terms of operating expenses, R&D expense was $2.5M – which is inline with the quarterly average during 2017 and about 20% lower than what we had modeled. Importantly, development-program timelines remain intact with prior expectations. SG&A expense ticked down from both Q1 and Q4 2017 to $954k. Nonetheless, we continue to anticipate that operating expenses will trend higher, reflecting expected progression of the pipeline, including various clinical programs of EGP-437 and CMHA-S.

Operational Highlights: 3 of 4 FDA Questions Answered, 4th Expected in Q2 With OBG-PRK Study On-Track for Q3 Start…

There have been several operational-related highlights as of late. These include completion of enrollment in April of the EGP-437 phase III anterior uveitis study – which also triggered another Valeant milestone payment. Management continues to guide for top-line data in Q3. As we noted in our recent prior reports, assuming topline data is positive, we think this could represent the next potential inflection point in the share price. If all goes well, it’s possible an NDA filing could happen by early next year and move EYEG much closer towards a commercial-stage company.

Development timelines for the OBG programs are also intact – with EYEG making rapid progress on responding to FDA’s requests of more information related to the agency’s evaluation of the company’s IDE submission seeking approval for a second OGB-PRK pilot study. While FDA’s requests have resulted in delays in getting the IDE through the approval process, EYEG has been diligent in responding to their questions – which has been key to keeping timelines intact.

As a reminder, as of early 2017, EYEG was hoping to be able to begin a second pilot study in PRK surgery patients sometime in Q2 2017. That was delayed as the company worked to respond to FDA requests including filing an IDE amendment. The bulk of the agency’s requests related to validation of manufacturing process for OBG, including sterilization procedures of the final product. EYEG addressed FDA’s initial requests in an IDE amendment, filed March 8th. FDA responded on April 6th and noted four deficiencies - which relate to data that EYEG had previously submitted, the manufacturing process for OBG and sterilization of the final product. At that time EYEG noted that they expected to be able to sufficiently answer all of FDA’s requests by Q2 and anticipated that the study could commence in Q3 – those timelines appear to be unchanged.

On May 22nd EYEG announced that they filed a second amendment, which addressed three of the four cited deficiencies – only the filter validation requirement remains to be addressed. EYEG still anticipates that they will have the fourth and final issue sufficiently answered in a submission by the end of Q2. FDA has 30 days to respond from the date of the submission. If all goes well, EYEG hopes to have this second PRK pilot study kicked off in Q3. As we noted in our April 10th update, if that timeline proves accurate, it would equate to only ~3 month delay from EYEG’s most recent prior expectations. But, given our lack insight into the specifics or scope of the required remediation-related work for this final issue, we have similar lack of insight into the reasonableness (or not) of the proposed timelines. We do, however, acknowledge EYEG’s diligence in responding to FDA’s requests in the timelines that they have guided for.

FDA approval of the PRK IDE is also a gating factor for EYEG to pursue OBG for parallel indications – including punctate epitheliopathies (PE) – a pilot study for which is anticipated to be on-deck (assuming FDA greenlights the PRK clinical program) and will require a separate IDE. Punctate epitheliopathies are symptoms of early epithelial damage which can be caused by a variety of conditions including inflammation, dry eye, viral infection and others – this breadth means the potential U.S.

PE-related target market could be relatively huge and in the tens of millions of people (as compared to ~1M market size for PRK). That clearly makes this an attractive indication for label expansion. Importantly, adding indications could be a fairly streamlined process, and not require pivotal superiority (to SOC) studies. Assuming FDA approves the PRK-related IDE, EYEG anticipates a PE-IDE filing in Q3 – and since the manufacturing and sterilization questions would, at that point, have been answered, we think it’s likely there would not be the back-and-forth that the initial IDE has experienced. As such, it is conceivable that the PE pilot study could also begin in Q3 (or shortly after).

As we have noted in recent updates, while the delays to OBG clinical programs have been disappointing, we think the de-risked nature of OBG (based on the long history of HA being used in human eyes and its broad use and extensive successful testing for corneal repair in animals) means that the likelihood of eventual commercialization could be reasonably high if positive results of the first PRK pilot study (results of which were published in the Journal of Cataract & Refractive Surgery in March 2018) can be confirmed in this proposed follow-on pilot study (although eventual FDA approval would still require a pivotal study). As such, and coupled with the attractiveness and size of the OBG targeted markets (particularly that of PE), we continue to look forward to FDA’s action on this IDE.

OBG Proof-of-Concept in Sustained Delivery of Antibiotics…
OBG could prove to be somewhat of a platform-type technology. While EYEG’s main focus to-date with OBG has been on the healing benefits of hyaluronic acid, initial pre-clinical proof-of-concept indicates that it may have utility as a sustained delivery vehicle for (small molecule) antibiotics. The study showed that a solution containing moxifloxacin and OBG slowed release of the antibiotic as compared to a solution containing moxifloxacin and saline (i.e. standard solution). During the first four hours, 100% of the antibiotics were released from the standard solution while only 60% had been released from the OBG solution. The study also included the antibiotic besifloxacin – both of the release curves (below) for which were similar to those of moxifloxacin.

View Delivery Curves Chart

The study also indicated that the addition of antibiotics did not affect either the viscosity or pH values of OBG. Plans for follow-on studies have not yet been announced, although this could lead to a program investigating the ability of OBG to retain antibiotics (such as those used for the treatment of corneal ulcers) on the eyes longer, thereby reducing time (and treatment burden) to healing.

Cash: EYEG exited Q1 with $3.7M in cash on the balance sheet, which was further beefed-up in April. In April, they raised $11.3M gross ($10.1M net) via the sale of 14.7M shares of common stock and 6,536 shares of convertible preferred. The preferred are convertible into 20.4M shares of common, which implies the sale was priced at $0.32/share. 35.2M warrants, equal to implied 100% common coverage, were attached.

EYEG notes in their Q1 10-Q that current cash and cash expected to be received through the end of 2018 should be sufficient to fund operations for the next 12 to 15 months. We note that topline data of the phase III uveitis study, expected in Q3, should trigger another cash milestone payment.

DEVELOPMENT SNAPSHOT

EGP-437 in cataract surgery:
◦ In February 2018 EyeGate announced top-line results of its phase IIb study evaluating the safety and efficacy of EGP-437 in patients which underwent cataract surgery. While results showed that the primary endpoints were not met, details within the data indicate that there was a positive treatment effect. We should know more when the full data is analyzed and released. While statistical significance was not reached on the co-primary endpoints, both secondary measures did show statistical significance (p=0.0096 on mean change in ACC at Day 7 and p=0.0149 on mean change in pain score at Day 1). Relative to next-steps for this program, management notes in their Q1 10-Q that they “continue to review the data to determine next steps and to continue evaluating EGP-437 for the reduction of pain and inflammation following ocular surgery”.

EGP-437 in uveitis:
◦ EYEG hopes to have topline data from their ongoing phase III study in Q3 2018. Assuming positive, we think this could also represent the next potential inflection point in the share price. EYEG has indicated that prior delays related to study enrollment taking longer than they had expected. But, with 100% patients enrolled as of April 2018, we think this most recent timeline appears doable.

OBG:
◦ PRK: While FDA’s requests have resulted in delays in getting the IDE through the approval process, EYEG has been diligent in responding to their questions – which has been key to keeping timelines intact. On May 22nd EYEG announced that they filed a second amendment, which addressed three of the four deficiencies cited in FDA’s April 6th letter – only the filter validation requirement remains to be addressed. EYEG still anticipates that they will have the fourth and final issue sufficiently answered in a submission by the end of Q2. FDA has 30 days to respond from the date of the submission. If all goes well, EYEG hopes to have this second PRK pilot study kicked off in Q3. If that timeline proves accurate, it would equate to only ~3 month delay from EYEG’s most recent prior expectations.

◦ Punctate Epitheliopathies: this is a new target indication for OBG. Punctate epitheliopathies are symptoms of early epithelial damage which can be caused by a variety of conditions including inflammation, dry eye, viral infection and others. Assuming FDA approves the PRK-related IDE, EYEG anticipates a PE-IDE filing in Q3 – and since the manufacturing and sterilization questions would, at that point, have been answered, we think it’s likely there would not be the back-and-forth that the initial IDE has experienced. As such, it is conceivable that the PE pilot study could also begin in Q3 (or shortly after).

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