Q1 2023 Alimera Sciences Inc Earnings Call

Participants

Richard S. Eiswirth; President, CEO & Director; Alimera Sciences, Inc.

Russell L. Skibsted; Senior VP & CFO; Alimera Sciences, Inc.

Alexander David Nowak; Senior Research Analyst; Craig-Hallum Capital Group LLC, Research Division

James Francis Molloy; MD of Equity Research and Biotechnology & Specialty Pharmaceuticals Equity Research Analyst; Alliance Global Partners, Research Division

Yi Chen; MD of Equity Research & Senior Healthcare Analyst; H.C. Wainwright & Co, LLC, Research Division

Scott Gordon; Co-Founder, President & Editor-In-Chief; CORE IR

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Good morning, and welcome to the Alimera Sciences Corporate Update Conference Call. (Operator Instructions) Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately 1 hour after the end of the call through August 18, 2023.
I would now like to turn the call over to Scott Gordon of CORE IR, the company's Investor Relations firm. Please go ahead, sir.

Scott Gordon

Good morning and thank you for participating in today's conference call. Joining me from Alimera's leadership team are Rick Eiswirth, President and Chief Executive Officer; and Russell Skibsted, Chief Financial Officer.
During this call, management will be making forward-looking statements, including statements that address Alimera's expectations for future performance, operating and financial results and the impact of recent transactions. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements.
For more information about these risks, please refer to the risk factors described in now Alimera's most recently filed periodic reports on Form 10-K, Form 10-Q, the Form 8-K filed with the SEC and Alimera's press release that accompanies this call, particularly the cautionary statements in it.
Today's conference call includes discussion of forecasted adjusted EBITDA and non-GAAP financial measure that Alimera believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. Please refer to Alimera's press release for more information regarding Alimera's use of this non-GAAP measure.
This call also discusses certain historical financial information and operating results related to EyePoint Pharmaceuticals. This information has been derived from EyePoint's SEC filings. The content of this call contains time sensitive information that is accurate only as of today, May 18, 2023. Except as required by law, Alimera disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.
It is now my pleasure to turn the call over to Rick Eiswirth. Rick, please go ahead.

Richard S. Eiswirth

Thank you, Scott, and good morning to everyone. I'd like to thank you all for your patience for the last few days with the delay of our call. But given the nature of this pending news, we felt it was best to postpone.
This morning, we're announcing a transformative acquisition for Alimera. We are very excited to have acquired additional commercial rights for Yutiq from EyePoint Pharmaceuticals and specifically, the ability to add Yutiq to our U.S. portfolio. As you're aware, we've been looking for a retina asset to leverage the infrastructure we've built to support ILUVIEN for some time now.
We always thought that it was important to find the right first acquisition, and we believe we found a great asset in Yutiq. The concept of combining ILUVIEN and Yutiq, under one company and one commercial team has been a topic of discussion amongst investors, our customers and our employees for several years given their belief that bringing these 2 brands together makes such strategic sense.
For those of you who don't know, Yutiq is a 0.18 microgram fluocinolone acetonide intravitreal insert, much like our product ILUVIEN. And it is approved in the United States for the treatment of chronic noninfectious uveitis affecting the posterior segment of the eye. Our current product ILUVIEN is based on the same underlying technology licensed from one of EyePoint's predecessor entities. EyePoint has grown Yutiq into a significant brand in the retina space, having generated over $28 million in revenue in 2022.
This growth has been driven by strong messaging centered around the ability of a consistent low dose of corticosteroid to control the recurrence of uveitic inflammation resulting in a continuous calm for patients. This asset acquisition makes strong business sense for us for so many reasons. We are already very familiar with this asset, not only due to its similarities to ILUVIEN, but also because of our experience commercializing ILUVIEN for UBI indication in our European markets since 2019. Both products contain the same anti-inflammatory corticosteroid, fluocinolone acetonide.
And both use the same technology to deliver continuous microdose of the drug for up to 36 months. Historically, the messaging behind Yutiq's value has been very consistent with our ILUVIEN messaging. While we have promoted ILUVIEN as providing continuous microdosing to reduce the recurrence of diabetic macular edema or DME, Yutiq has been positioned to deliver sustained release for continuous calm in patients suffering from uveitis. Both the mechanism and the promise is the same for both products.
Further, both products share practically the same customer base in the U.S. and there is significant overlap with the retina specialists that we are already calling on daily to detail ILUVIEN. We will need to add uveitis specialists to our target list, which we estimate is between 300 and 500 new physicians. We're very excited to have several members of the Yutiq commercial team join Alimera to support this expanded market. As we integrate the individuals who have been supporting Yutiq into Alimera, we expect to increase the number of clinical account specialists known as CAS in their territories to 35 to 40 in the second half of the year. This planned integration and expansion means that there will be at least a 75% increase in the number of CAS detailing Yutiq to retina specialists every day and at least a 20% increase in the number of CAS detailing ILUVIEN.
We believe this will serve both brands well as the reach and frequency of engagement with physicians has been shown to impact utilization and an increased number of reps promoting both products will allow us to see more doctors more often.
Additionally, a second product should make each of these engagements more effective as our CAS will have more reasons to have a discussion with the retina specialists. In the past, we have been disadvantaged relative to our competitors because their products are on the market with multiple indications leading to greater familiarity by the retina specialists.
We expect that the ability to discuss the benefits of the only truly low long-term low-dose steroids across multiple indications will strengthen physicians relationships with Alimera and the recall for utilizing continuous micro technology to treat DME and uveitis and deliver that continuous calm.
And most importantly, this transaction will have a profound impact on the future finances of Alimera. We believe this transaction will be immediately accretive to revenue and contribute positive adjusted EBITDA in the second half of 2023. As we reported on Monday, in a typically seasonally low quarter for both products, we recognized $13.5 million in ILUVIEN revenue in Q1 2023, while EyePoint recently reported $7.4 million in Yutiq sales for the quarter.
On a combined basis, ILUVIEN and Yutiq generated $20.9 million in revenue in the first quarter. Because of the product similarities and the significant overlap in our customer targets, we believe that there will be synergies commercializing these products together.
We expect to begin seeing those synergies in the second half of 2023 and (inaudible) need to see more in 2024 as we further integrate Yutiq into Alimera. And as a result, we are expecting consolidated net revenues in excess of $100 million and positive adjusted EBITDA of over $20 million in 2024.
With that, I will now turn the call over to Russell to review our financial results for the first quarter and the financial details of the transaction.

Russell L. Skibsted

Thanks, Rick. First, a few comments about the first quarter. During the first quarter of 2023, our product revenue increased 14% to approximately $13.5 million. U.S. product revenue increased 10% year-over-year to $7.6 million for the first quarter. U.S. end-user demand, which represents units purchased by physicians and pharmacies from our distributors, increased 9% in the first quarter of '23 to 1,005 units, and this compared to 918 units in the first quarter of 2022. Net revenue from our international segment in the first quarter of '23, increased 18% to $5.9 million as compared to a year earlier.
The increase is primarily due to a 32% increase in units included in GAAP revenue in Q1 of 2023.
In late March, we announced a series of transactions to improve our capital structure, which we refer to as Tranche 1. We believe these important first steps laid a foundation for Alimera's future success. Not only did we add $12 million in new equity cap, but we also refinanced our term loan with SLR Cap, which lowered our cost of capital and extended the maturity of the facility. This allowed us to focus our cash on more strategic initiatives like the one we announced today. We believe that the repurchase of our Series A Preferred Stock returns real value to our common shareholders by eliminating the overhang of its $24 million liquidation preference.
Now regarding today's announced transaction. Under the terms of our agreement with EyePoint, we made an upfront payment of $75 million and will pay an additional $7.5 million in equal quarterly installments of $1.87 million each quarter in 2024. EyePoint will also receive potential royalties from 2025 through 2028 based on combined U.S. net revenues from ILUVIEN and Yutiq in certain -- I'm sorry, in excess of certain thresholds beginning at $70 million in 2025 and then increasing annually thereafter.
So how did we pay for it? We funded the upfront payment and obtained additional working capital with a $69 million private placement of Series B Preferred Stock and common stock, to a syndicate of investors led by Velan Capital and Caligan Partners, and borrowing an additional $20 million through an amendment to our existing term loan agreement with a SLR Capital.
The new Series B did not include any new warrants. Further, the Tranche 1 investors agreed to reduce the number of Tranche 1 warrants from about $5.7 million to $1.6 million.
We intend at our Annual Shareholder Meeting to have our shareholders vote to approve the issuance of common stock upon the conversion of the Series B Preferred. Once approved, and all the Series B Preferred converts to common stock, Alimera will have made great progress in simplifying its capital structure, which we believe is a great step in attracting broad interest from investors. So what did we get? We're getting an excellent product, as Rick mentioned, that is a strong year-over-year sales growth. We expect to add about $30 million in revenue from Yutiq in 2023.
Well, annually on a go-forward basis. We know the product, we know the indication since we've been selling it outside of the U.S. for quite a while. Not only do we expect significant growth in our top line, but because we have an existing commercial infrastructure and administrative infrastructure, we also expect a significant amount of this incremental revenue to drop to our bottom line, in very short order.
As Rick mentioned, with this transformational transaction, we are expecting our consolidated net revenue to be in excess of $100 million and our positive adjusted EBITDA to be $20 million in 2024. On March 31, 2023, we had cash and cash equivalents of $13.1 million. As mentioned earlier, in connection with the transaction, we funded the upfront $70 million payment -- $75 million payment to EyePoint with $89 million in new capital, from the proceeds of the $69 million private placement and from our borrowing of an additional $20 million under our existing terminal.
I will now turn the call back over to Rick for his closing remarks. Rick?

Richard S. Eiswirth

Thank you, Russell. As I said earlier, I'm very excited to complete this transaction. Our goal has been to grow Alimera into a company uniquely focused on retina specialists and their patients. The addition of Yutiq to our portfolio makes us one of very few companies to have multiple products focused in the retina space. It also significantly transformed our financial outlook and stability, positioning us to continue to look for additional products for our customer base and to leverage our commercial platform moving forward.
Before the call -- I turn the call over to the operator for questions, I also want to highlight that we are nearing completion of enrollment in our landmark NEW DAY study.
As of this morning, we needed only 3 more patients to be randomized to achieve our initial goal of 300 patients enrolled in this study. Remember, this is a head-to-head comparison of ILUVIEN and the leading anti-VEGF in naive or near naive patients suffering from DME. From this trial, we expect paradigm shifting data in early 2025 and that will facilitate much earlier usage of ILUVIEN in the treatment of DME to help patients see better, longer with fewer injections.
I now look forward to taking your questions. Operator?

Question and Answer Session

Operator

(Operator Instructions) And our first question comes from Alex Nowak of Craig-Hallum Capital Group.

Alexander David Nowak

Okay. Great. Congrats on the acquisition here, Rick and Russell. You've known the EyePoint team for a very long time now. Just why did it make sense now to bring on the Yutiq product here?

Richard S. Eiswirth

Well, Alex, I think -- I mean, first of all, EyePoint has done a fantastic job growing this into a material brand in the U.S., as I said, did almost $30 million in revenue last year, and we think they'll do over $30 million -- the product will do over $30 million this year.
We -- it's something we have discussed with EyePoint quite often along with time, and it just seemed like the right time for team for both companies to do it. I think they see an opportunity here to see their product moved into a commercial team that has a little bit further reach by adding it to now a team that will have 35 -- excuse me, 35 to 40 reps with it, get some more reach, and they will share some profitability on the back end.
So just makes sense to put the products together at this point.

Alexander David Nowak

No, it makes total sense. I just want to be clear, when we start to put the models together on the expense structure for Alimera here going forward. So we should expect about a 20% sales force increase.
Any additional expenses needed on the G&A line, any back office that will be needed to combine the 2 products?

Richard S. Eiswirth

Yes, you certainly are going to see more expenses to support the product because for the time being, we will continue to operate these as 2 brands. So you are going to have additional marketing dollars. You'll have additional support and market access and things like that.
So we will -- we're not prepared to give specific guidance on spending around it today because we need to do the work to integrate the product in, but we'll be able to give more insight into what the spending levels will look like when we talk to you after the second quarter.

Alexander David Nowak

And that kind of leads into my next question, which is it's always been interesting.
You've always had 2 companies selling a very similar drug, 2 different indications, but 2 different brand names and 2 different bags really from 2 different reps.
So I mean, how should we think about an acceleration in adoption of both of these products now that you can combine the brands at some point, you combine the products under one bag. The rep is in there more frequently. What could happen to adoption of these 2 products here over the coming years?
And then what are you assuming in that $100 million revenue guidance for that?

Richard S. Eiswirth

So Alex, there's a lot in that question there. Look, I think there's multiple reasons combining this in one bag can accelerate the growth of both products, right? One of the things that I referenced in my prepared comments was our competitors or other comparable drugs in this space like an OZURDEX or an EYLEA, they are approved for multiple indications, right? So every time the rep from Alimera or other person from Alimera talking to a physician, they're talking about retinal vein occlusion, they're talking about DME, they're talking about uveitis, or they're talking about what AMD depending on which one of the drugs they're promoting.
It adds to a more lengthy call and discussion with the doctor. And then frankly, as the doctor is able to pick up the drug and use it for multiple indications, it helps with a familiarity as a patient comes in, right? And they see that, that patient needs something new.
So I do think there's going to be a halo effect of whether a doctor is using Yutiq on ILUVIEN or a doctor that's using ILUVIEN on Yutiq and vice versa and just add more of an in-depth conversation and obviously, the relationships get strong with the doctor, the more you can talk about as well.
So I think there's a lot that goes into that, that we'll be able to leverage over time. As far as the $100 million goes, we have given guidance before that we feel like 10% to low teens growth for ILUVIEN makes sense and EyePoint or -- excuse me, Yutiq has actually been growing a little faster rate than that. We're not prepared to give us specific breakout on the $100 million, but we're pretty comfortable in that number for 2024.

Alexander David Nowak

Okay. That makes sense. And then just last question. Just when does the deal close?
Is it closing as of today? And then the royalty rate from 2025 to 2028, if you can provide some input there.

Richard S. Eiswirth

Yes. So the transaction actually closed as of yesterday morning. So the transaction has been completed or closed during the day yesterday. With respect to the royalty rate, it's going to be in the -- it's double digits, low to mid-double digits, and we're not going to discuss that specific rate for competitive reasons as we look for other products.
The royalty could be -- it will probably be in the single-digit millions.
Frankly, it's based on success. So EyePoint participates in the success of putting the product into the bigger sales force and the commercial team. And if it's a big number, it's only because we're very successful in messaging.

Alexander David Nowak

All right. That's great. Well, I appreciate the update. Congrats again.

Operator

The next question comes from Jim Molloy of Alliance Global Partners.

James Francis Molloy

Congratulations on getting the transaction done. I had a question on the royalty rate, why is the combination of ILUVIEN and Yutiq on -- that you'll be paying out? And looking at kind of sort of my estimates and consensus estimates had you guys do in the $60 million 2024 ILUVIEN already, which would indicate adding 30 -- mid-30 million of Yutiq in 2024, which seems like it slowed down the growth. It went from $17 million in '21 to $28 million in '22, that's a pretty good growth rate.
Is the $30 million expectation of 24s being conservative? I want to get your thoughts on what may be happening in the market?

Richard S. Eiswirth

Yes. So Jim, a couple of comments on the structure of the transaction. As Alex alluded to, there's various options that we would have in the future to potentially consolidate the brands, consolidate the labels. We haven't made any decision on what we want to do there strategically. We're going to look at a lot of options over the next couple of years. But certainly, both us and EyePoint were aware of the possibilities there that things could be blended under one brand.
And frankly, we think the brands together work better. And so that's why EyePoint is going to receive some participation in both brands going forward. With respect to the $100 million, again, I'm not going to give specific guidance to a number other than to say that we said over $100 million. We -- so we certainly would rather be in a position where we can underpromise and overdeliver as we move forward.

Russell L. Skibsted

I think if I can add one thing to it, too, is, Jim, the royalty is based on combined U.S. sales, not global sales. So we would -- the $60 million you referred to includes a significant amount of ex U.S. sales. So those would not be included in that trigger level or the royalties.

James Francis Molloy

Yes. Maybe one quick follow-up if I could, please. Of the $28.3 million they reported in '22 of Yutiq sales, how much of that is in the excluded various excluded countries?

Richard S. Eiswirth

Very, very little of it. Very, very little of it. The vast majority of that was in the U.S.

Operator

The next question comes from Yi Chen of H.C. Wainwright.

Yi Chen

My first question is how much increase in operating expenses, especially sales and marketing expenses shall we expect going forward?

Richard S. Eiswirth

Russell, do you want to address that?

Russell L. Skibsted

Yes. We will be -- so the answer is we are expecting some incremental increase, certainly not a one-for-one increase or if you think about what EyePoint is spending on that because we will have a lot of synergies that we're going to be able to provide. We're not -- as Rick mentioned earlier, we're not giving guidance on the total incremental increase partially because we need to complete the transition to find out how the steady state works.
I would say most of the incremental costs that we're looking at is going to be in commercial as opposed to any of the, let's call it, back office administrative additional costs that we have. So -- and as I mentioned in my prepared comments, I think there will be incremental costs, but we do expect because of the synergies, that a good deal of the incremental revenue that we bring in is going to be able to drop to the bottom line for us, which is going to -- which is why this is such a transformational transaction for us.
I don't know if that helped you, but we'll give -- we'll be able to give more guidance as we get the -- as we complete the transition.

Yi Chen

Got it. And is there any change in the way that your market ILUVIEN going forward now that you have your taking hand? I mean, is the target number of physicians or ophthalmologists you talked to increase significantly now that you market both, ILUVIEN and Yutiq?

Richard S. Eiswirth

Yes, I think so. I mean there certainly are specific physicians that treat uveitis that will -- that are going to be in our target base going forward. As I said in my comments, we expect to add maybe 300 to 500 physicians to our targets from looking at EyePoint's target list already.
And the way we're going to handle that is by increasing the sales force to between 35 to 40 reps. As far as the marketing and the messaging, we think the marketing and messaging is very, very consistent between the both products.
As I said, we talk about the how it works with the continuous microdosing to reduce the recurrence of the disease. Historically, Yutiq has been talked about with what it does deliver, which is that continuous calm, and we think it just makes perfect sense to continuous microdosing delivers continuous calm. So there'll be a lot of ways we can merge that messaging together.

Yi Chen

Got it. Last question is previously, both EyePoint and Alimera talked about a 6 months version of ILUVIEN. Do you think there is still a market demand for that? And is that still a development project on the table for you?

Richard S. Eiswirth

We certainly have the rights to be able to do that as we move forward as a result of this transaction. So those rights have been combined across both indications as well. It's not something that is on our development list right now. But now that we are in a situation where we expect to be generating material cash flow in years to come, we will certainly be looking at additional options for the technology.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Rick Eiswirth for any closing remarks.

Richard S. Eiswirth

Great. Thank you. Thanks, everyone, for participating on today's call and your interest in Alimera. Obviously, we're very excited about this transaction, and we're looking forward to sharing more details on it as we progress and report our second quarter results later on in the summer. Thank you all very much and have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.