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EYEG: Our Take On EYEG Moving Towards OBG-PRK Pivotal Study

By Brian Marckx, CFA



Q4 Financial Results, Operating Update…

EyeGate (EYEG) announced financial results for their fourth quarter ending December 31st. No revenue was booked in the quarter. For the full year, revenue was $1.7M, all of which relates to recognition of milestones from the EGP-437 development agreements with Bausch Health Companies (BHC). In the 10-K, EYEG discloses that they received a notice of termination from BHC on December 14th notifying them that BHC is voluntarily terminating these agreements effective March 14, 2019. This means all rights to the EGP-437 platform revert back to EyeGate.

While approximately $2.7M of deferred revenue remained on the balance sheet (as of 12/31/18), we have removed any assumed recognized revenue from BHC from our model (which has no cash implications as the payments had previously been received). EYEG notes that they continue to analyze the EGP-437 data from the respective studies in anterior uveitis and post-cataract surgery and that they “will be assessing our strategic options for EGP-437 going forward.” The decision by BHC to return full rights to EYEG comes as little surprise to us given the disappointing results from EGP-437 programs. As we noted in our Q3 update in November, we expected OBG to occupy all of EYEG’s focus given the positive results in both lead indications and conjectured that the company would mothball (or potentially option) EGP-437.

Operating expenses were $2.5M, down 40% yoy (from $4.2M), down 29% sequentially and about 18% lower than our estimate. The yoy and qoq difference mostly relates to R&D expense, which we think largely reflects lower activities of the EGP-437 programs. Meanwhile the two OBG programs continue to progress very rapidly. As a reminder topline data from the initial PE study and the second PRK study was announced in November. Additional information related to the results of both is included in EYEG’s most recent investor presentation – which we detail in the body of our report (see link to report). For the full-year, operating expenses were $12.5M, including $8.1M in R&D expense and $4.4M in G&A. This compares to $15.0M, including $10.3M in R&D and $4.6M in G&A in the prior year.

Cash: The reduced operating spend continues to show up in the cash flow statement. Cash used in operating activities, excluding changes in working capital, was $2.2M and $9.8M in the three and twelve months ending 12/31/18, which compares to $4.0M and $13.6M in the comparable prior-year periods. Cash balance was $8.0M at year-end which, at the current burn rate, represents approximately 11 months’ worth of operating capital. While we continue to expect that EYEG will need to go to the capital markets in the not-too-distant future, fortunately there are potentially significant upcoming milestones that we think could help bolster the appetite for and pricing of a financing. Among these are several that could relate to further clinical and regulatory progress of OBG in PRK and PE. As it relates to OBG-PRK, management hopes to submit an IDE to FDA seeking approval to commence a pivotal study in Q2 and complete the study in Q3 of this year.

Our comments summarizing the PRK and PE study data (see link to report for trial data)…
The PE and both PRK studies were relatively small and not necessarily fully powered for statistically significance. As such, we cannot make any concrete conclusions regarding efficacy of OBG versus standard of care for either potential indications. Despite that, we think the data does suggest an efficacy signal is present and safety has been a complete non-issue. As it relates to PRK, this second pilot study data supports the findings in the initial study, specifically that OBG may be associated with more rapid healing than standard of care.

And as it relates to PE the SPEED (i.e. reduction in symptoms) scores at two (Days 7 and 28) of the three (Days 7, 14, 28) were statistically superior favoring OBG and Day 14 just barely missed (p=0.0573) statistical significance (also favoring OBG). And, while the (disclosed) NEI staining results were not statistically different between OBG and control, there was a numerical difference supporting the former at Day 7 on the total cornea. And, again, these were relatively small studies and not expected to be powered for efficacy. In addition, the efficacy signal appears to have been even more pronounced in the central cornea – the area of the eye most susceptible to inflammatory response and permeated with nerve endings. NEI staining results of the central cornea favored OBG at every time point. So, efficacy in this part of the eye is arguably more important than the other regions or of the total NEI score. In fact, NEI total score has been criticized as it rates all (five) regions of the cornea as equivalent (in determining presence or severity of dry eye), despite certain regions (namely the central cornea) conveying more information about the underlying disease1.

Operational Update: EYEG Is Now Moving Towards Pivotal Study for OBG in PRK…
While we had previously hoped that, given what we think is compelling results of OBG in both PRK and PE (in efficacy and safety) and coupled with precedent of FDA granting De Novo classification for a dry eye medical device without support from an RCT/pivotal study, that EYEG might be able to follow a similar pathway. Specifically, we had hoped that a pivotal study would not be required and that the existing PRK / PE data would suffice to support an application seeking De Novo classification. Based on EYEG’s recent announcement related to expectations of filing an IDE in Q2, it appears that at least one more study will be required.

As a reminder, in November 2016 EYEG announced that, following a pre-submission meeting with FDA, the agency confirmed De Novo was an appropriate pathway for OBG to pursue in seeking U.S. regulatory clearance. Then, more recently in late-March 2019, EYEG announced that FDA “confirmed its path to a de novo filing” and that “FDA has agreed that based on the strength of data from the photorefractive keratectomy ("PRK") pilot study, EyeGate is ready to move forward with a pivotal study, which will allow for a de novo filing.”

Given the experience of TrueTear, which did not require a pivotal/comparator/RCT study in securing De Novo Class II classification (and marketing clearance), we were hopeful that OBG could successfully secure De Novo classification with just the existing clinical data. However, the March 2019 press release indicates that, at least as it relates to a PRK-related indication, a pivotal study will be required. EYEG notes that they plan to file an IDE seeking FDA approval to commence a pivotal study for PRK in Q2 of this year and to complete the study in Q3. If all goes well, they expect to file a De Novo application following completion of the study and indicate that they hope to U.S. regulatory clearance for a PRK indication in 2020.

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1 Abelson M. et al. How Do You Quantify The Qualitative? Review of Ophthalmology. August 2016