By Brian Marckx, CFA
READ THE FULL EYEG RESEARCH REPORT
Q2 2018 Financial Results, Operating Update…
EyeGate (EYEG) reported Q2 2018 financial results and provided a business update. As it relates to the financials, Q2 included additional recognition of the milestone payments earned from Valeant. Through Q2, EYEG collected $13.5M from Valeant related to upfront payments and development milestones associated with the development agreements for EGP-437 in anterior uveitis and post-cataract surgery. In terms of how these payments are recognized on EYEG’s financial statements, as a reminder an updated FASB standard governing revenue-recognition for contracts with customers resulted in a $9.5M adjustment to EYEG’s deferred revenue balance (as of Jan 1, 2018) – this is solely an accounting adjustment with no cash effect.
In terms of operating expenses, R&D expense was $1.8M, down considerably from both Q2’17 ($2.3M) as well as from Q1’18 ($2.5M). The yoy decrease was largely attributed to less spend related the EGP-437 cataract surgery program. The mixed phase IIb results, announced in February of this year, put this program ‘under review’ by EYEG. Meanwhile, SG&A expense was $1.2M in Q2, flat yoy and up 26% from $954k in Q1. While we had previously expected that operating expenses would trend higher through the end of 2018 and into 2019 based on anticipated ramping of the EGP-437 anterior uveitis (AE) program and CMHA-S/OBG in PRK and PE, the disappointing EGP-437 AE phase III data prompted downward revisions to our forecasted near-term R&D spend. More on this topic below.
Cash: Bolstered by the $10.1M, net ($11.3M gross), raise in April from the sale of 14.7M shares of common stock and 6,536 shares of convertible preferred, as well as from a $1M milestone payment from Valeant (in Q2, related to Ph3 AE study enrollment completion), cash balance was $12.6M at Q2 quarter-end. While were hopeful that topline data of the phase III AE study would be positive and result in another (cash) milestone payment from Valeant, that unfortunately was not the case. Nonetheless, current cash balance provides EYEG with breathing room and should get them to (at least) readout of the two OBG pilot studies – at which point a subsequent raise could be at a better-than-current valuation.
Operational Update: Both OBG Pilot Studies Moving Fast but Disappointing EGP-437 Ph3 Anterior Uveitis Results…
The last few months have been somewhat bitter-sweet for EYEG’s development programs. The good news is that both current OBG programs – in PRK and PE – are not only tracking anticipated timelines, but are rapidly moving through their respective human pilot studies with both fully enrolled as of earlier this week. Our hope has been that, given the already-established strong safety profile of hyaluronic acid (as supported by its extensive use for optic care in both pets and humans) and the potential for superior efficacy (or adjunctive/second-line status) to current leading eye therapy compounds (such as cyclosporine and lifitegrast), that OBG could have the makings of a platform-type technology with utility across several ocular hydration and healing commercial categories (including both Rx and non-Rx). Recent IDE approval and subsequent rapid enrollment of both studies has us hopeful that these parallel programs will continue to move swiftly. And, assuming results are positive – and build on the positive data from the initial PRK pilot study data (see below), that could provide more insight into what the potential commercial opportunity might look like (in at least, these initial two target indications) for OBG in eye therapy. As EYEG is shooting to have top-line data from these pilot studies before the end of this year, our wait may not be long.
Refresher on the OBG programs
As a reminder, OBG is the lead CMHA-S candidate which came from the Jade Therapeutics acquisition and is being developed for corneal repair indications. The strong safety profile of the compound and expected (relatively streamlined) de novo 510(k) FDA pathway (in November 2016 FDA confirmed de novo 510(k) is an appropriate pathway for OBG to pursue in seeking U.S. regulatory clearance), means the development-to-commercial timeline could be relatively short. See our Appendix for more background on the compound.
As we have noted in recent updates, 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 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 further updates from these OBG programs.
Initial PRK Pilot Study Results…
Photorefractive keratectomy (“PRK”) is a type of vision-correction laser eye surgery - recovery from which includes regrowth of the epithelium (i.e. thin outer layer of the cornea). In January 2017 EyeGate announced encouraging top-line results of its first human OBG pilot study in patients that had undergone PRK surgery. While the study was small, results indicate that OBG may be associated with faster corneal healing following eye surgery as compared to standard of care. The pilot study compared OBG to artificial tears with bandage contact lens (BCL) in patients undergoing bilateral PRK.
Ocular Bandage Gel photoreactive keratectomy pilot study
‣ Objective: evaluate safety and performance of OBG eye drop administered 4x/day for 14 days with or
without a BCL as compared to artificial tears and a BCL in healing of corneal epithelial defects
‣ Primary efficacy endpoint: complete wound closure by Day 3
‣ Design: prospective, randomized, controlled study in up to 39 subjects undergoing bilateral PRK surgery.
Subjects randomized to one of three cohorts;
◦ Arm 1 (n=12): EyeGate Ocular Bandage Gel 4x/day for 2 weeks after surgery without a BCL
◦ Arm 2 (n=14): EyeGate Ocular Bandage Gel 4x/day for 2 weeks after surgery in combination with a BCL
◦ Arm 3 (n=13): Artificial tears 4x/day and BCL
Topline results of the pilot study, which was the first in-human study of OBG, showed a greater proportion of OBG-treated patients versus those treated with standard of care met the primary endpoint of complete wound closure by Day 3. Specifically, the data showed that 10 of the 12 (83%) patients treated with OBG alone (i.e. no BCL) met the primary endpoint, compared to 9 of the 14 (64.3%) OBG+BCL patients and just 7 of the 13 (53.8%) artificial tears+BCL patients.
Remaining wound surface area on Days 1 (24 hours following surgery) and 3 were also assessed and similarly favored the OBG-alone cohort which had an average wound size of just 18.5mm on Day 1 and 0.02mm on Day 3. This compares to 39.5mm and 0.37mm in the SOC patients at Days 1 and 3, respectively.
View Exhibit I
While specifics were not provided relative to adverse events, EYEG did note in their PR that the study demonstrated safety and tolerability.
New PE and PRK Pilot Studies…
These new pilot studies will hopefully further validate OBG’s effectiveness in speeding healing of corneal wounds and, in the case of PE, reducing symptoms such as moderate dry eye. As of September 24th, both studies were fully enrolled with top-line data expected by year-end.
‣ PRK: designed largely similar to that of the initial PRK study, with some exceptions. The most significant difference is that this new PRK study does not include an OBG+BCL cohort (as the initial study did) but instead incorporates two OBG-alone treatment arms, differentiated by treatment regimen and overall number of administrations. Clearly, the reason for this new PRK pilot study incorporating two OBG-alone cohorts (and not using an OBG+BCL) arm is because of the superior efficacy of the OBG-alone group in the initial study (see results above). One of the OBG-alone cohorts will be dosed at the same regimen as was used in the first study (i.e. QID for 2 weeks), while the other OBG-alone arm will use a slightly more front-end weighted (i.e. 8x/day for 3 days, then QID for 11 days) dosing schedule and include 21% more aggregate administrations (i.e. 68 vs 56). Presumably, the aim of this new pilot study is determine optimal dosing for later-stage studies (assuming success of this second pilot study).
Control, which consists of artificial tears (AT) 4x/day for two weeks, is similar to the initial study. Also similar to the initial study, will enroll up to 45 patients (initial study had data on n=39) which have undergone bilateral PRK. Primary endpoint (per clinicaltrials.org) which will be assessed via (a masked) designated reading center, is time to complete corneal re-epithelization (i.e. wound healing) as assessed on Day 3 (same as initial study). (The following is from EYEG’s April 2018 investor presentation (while listed on clinicaltrials.org, not all details are included) so it is possible the actual design may be somewhat different);
‣ Randomized, masked, controlled 2-weeek study in up to 45 subjects undergoing bilateral PRK
‣ Subjects randomized to one of three cohorts (n=15 per arm);
◦ Arm 1: OBG every 2 hrs (8x/day) for 3 days then QID (i.e. 4x/day) for additional 11 days
◦ Arm 2: OBG QID for 2 weeks
◦ Arm 3: BCL (Acuvue Oasys plano lens) + AT QID for 2 weeks
‣ Primary efficacy endpoints based on fluorescein staining:
◦ Time to corneal re-epithelization and
◦ Proportion of subjects with complete corneal re-epithelization of epithelial defect on day 3
◦ Evaluated by a masked reading center (Tufts) using digital photography of fluorescein stained slit lamp photos and image analysis
‣ PE: this is our best-guess of the PE study design based in information in EYEG’s April and Sept investor presentations. It is possible that the actual design may differ somewhat from what we have here. Given that this study could provide some early support for OBG in a dry eye targeted indication, we will be quite eager for detailed results (hopefully by year-end). PE study will include 30 patients; 15 x 2 arms (OBG or saline). Specific inclusion/exclusion criteria were not disclosed (although will be of interest if and when disclosed). Primary outcome is decrease in fluorescein staining of the cornea from baseline (Day 0) to each of the four visits. Additional details include;
◦ 42-Day trial: 2-week wash-out/run-in followed by 4 weeks of two arms
• Day-14 screening: all subjects stop all topicals and take saline QID OU for 14 days
• Day-0 randomization: OBG QID for 28 days vs saline QID OU for 28 days
• Staining completed on Days 7, 14, 21, 28
◦ Primary outcome is decrease in fluorescein staining of the cornea from baseline (Day 0) to each visit (Days 7,14,21,28) between the treatment and control arms
The bad news as it relates to EYEG’s pipeline was the dismal topline phase III data of EGP-437 in anterior uveitis that was announced earlier this month. It is not only disappointing, it is surprisingly poor given that we believed the prior phase III data was highly suggestive of (non-random) efficacy favoring EGP-437. We don’t see value in rehashing the initial data or in comparing those results to that of this new (i.e. second) phase III study – but, for reference, it is in our Appendix.
EGP-437 Phase III top-line data
As a reminder this was expected to serve as a confirmatory study to the prior phase III EGP-437 study in anterior uveitis. If successful (i.e. demonstrate non-inferiority) this confirmatory study data, along with results of the first phase III anterior uveitis study would have been used as the primary support for an NDA filing. That is now not likely to happen.
Design details include…..randomized, double-blind, placebo-controlled and designed to demonstrate non-inferiority of EGP-437 combination therapy to prednisolone acetate ophthalmic suspension (1%). N=251 (~125 each arm) with anterior segment uveitis (ACC count > 11) enrolled at approximately 60 U.S. sites. Patients were randomized to EGP-437 combination therapy or prednisolone acetate ophthalmic suspension (1%). Primary efficacy endpoint was the same as the initial phase III study (i.e. ACC count of zero at Day 14). Study details are listed on clinicaltrials.gov, trial ID NCT02517619
The design of this study, while similar to the initial phase III anterior uveitis trial, had some important differences which we thought would improve the chances of meeting the primary efficacy endpoint. This includes its larger size (greater chance of fleshing out statistical significance), three EGP-437 combination treatments (1.5 mA-min @ 2.7mA) instead of two (4.0 mA-min @ 1.5mA) and randomization based on severity of the disease (to eliminate the potential bias of more severe patients which was seen in the AGP-437 arm in the initial study).
As the top-line data show, it was far from a success. While 42% of EGP-437 patients reached ACC count of 0, that was crushed by the 60% of control patients that did. Even worse, Chi-square shows the difference was statistically significant favoring control. The slide below is from EYEG’s September presentation.
View Exhibit II
This is the third consecutive clinical study of EGP-437 (anterior uveitis initial ph3, cataract surgery ph2, and anterior uveitis confirmatory ph3) which failed to show statistical significance on the primary endpoint. While the first AE phase III study and the CS phase II study data were, in our opinion, compelling enough to justify continuing ahead, this latest data certainly does not seem to support that theme.
As such, unless the full data set tells a different story or upon further examination investigators find an error in the data or methodology or in how the study was conducted (we are not holding out much hope), we think the chances of a path forward may now be thin for EGP-437. That is, at least as it relates to anterior uveitis – but also perhaps as it relates to the platform. This failure combined with the rapid progress of OBG over the last few months probably means that, at the very least, the pause button is hit on EGP-437 until readout of topline data from the OBG PRK and PE pilot studies.
We also think that, assuming continued success in the PRK/PE studies, that CMHA-S programs could reasonably be expanded to include other indications given its safety profile and potential broad applications related to corneal wound healing. Importantly, adding indications could be a fairly streamlined process, and not necessarily require pivotal superiority (to SOC) studies. And as a reminder, in addition to Ocular Bandage Gel, Jade had already initiated development programs for CMHA-S in other applications including as an ocular surface shield and for treatment of bacterial keratitis – both of which have been funded by federal grants. OBG could have much broader utility, including outside of healing. This is something that we alluded to earlier this year following PoC data for OBG as a delivery vehicle (see below).
OBG Proof-of-Concept in Sustained Delivery of Antibiotics…
OBG could prove to be somewhat of a platform-type technology. Importantly, adding indications could be a fairly streamlined process, and not require pivotal superiority (to SOC) studies. 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 Exhibit III
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.
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