Q2 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 Second Quarter 2023 Financial Results 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 November 10, 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
Thank you.
Good morning, and thank you all 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 or operational results. 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 Alimera's most recently-filed periodic reports, on Form 10-K and Form 10-Q, as well as Alimera's press release that accompanies this call, particularly the cautionary statements in it.
Today's conference call includes adjusted EBITDA and adjusted net product revenue, non-GAAP financial measures that Alimera believes can be useful in evaluating its performance. We should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, please see the reconciliation table located in Alimera's earnings press release. The content of this call contains time-sensitive information that is accurate only as of today, August 10, 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 on the call.
The second quarter has been full of exciting developments and strong performance for Alimera, and I'm encouraged by the foundation we are building to transform Alimera into the place to be in treating retinal disease. As you probably know, we made a transformative transaction during the second quarter to acquire the commercial rights to YUTIQ from EyePoint Pharmaceuticals. This brings together the only 2 approved long-term intravitreal therapies that help patients maintain vision longer with fewer injections by delivering continuous microdosing to reduce the recurrence of retinal disease. Importantly, this transaction has allowed us to leverage our U.S. commercial infrastructure with a second indication, as we already have in our international markets, and it provides a critical mass of revenue to help ensure the long-term stability of Alimera.
The second half of Q2 is primarily focused on incorporating YUTIQ into our operations and cross training our teams to sell both ILUVIEN and YUTIQ. Our expanded team now covering 35 territories across 6 regions, up from 29 territories in the first half of the year, was fully trained and in the field selling both ILUVIEN and YUTIQ beginning the week of July 24. We have also expanded our thought leader liaison, medical science beyond and reimbursement support teams in the field.
I want to thank everyone at Alimera for the significant effort that went into achieving this important milestone in less than 10 weeks since the closing of the transaction.
Despite some distractions created by this process, the acquisition had an immediate positive impact on Alimera, allowing us to deliver positive adjusted EBITDA in the second quarter despite only having the product in our portfolio for 6 weeks during the quarter. Our global business continues to grow as we saw record quarterly global ILUVIEN end user demand of 1,601 units, up 13.5% over Q2 of 2022, including outstanding growth in our International segment, which was up 25% over the second quarter of last year. And since the acquisition, we added another 440 units of YUTIQ end user demand during the quarter, bringing total demand to over 2,000 units for our fluocinolone acetonide franchise. Based on numbers reported by EyePoint, the YUTIQ end-user demand for the full quarter was 1,001 units, up 11% over the second quarter of 2022. That demand drove record quarterly revenue of $17.5 million.
We are pleased with this result, but we believe revenue could have been even higher during the quarter as a result of some aspects of planning for the acquisition of YUTIQ and the incorporation of YUTIQ into our commercial infrastructure.
Prior to the transaction, we had some turnover in our field team associated with the new commercial entrants in Retina who are building their sales teams, and we maintain those vacancies longer into Q2 than we normally would in order to sort out the new territory alignment with YUTIQ on board. We also invested time out of the field of the legacy ILUVIEN sales force to learn about YUTIQ and chronic non-infectious uveitis affecting the posterior segment. Further, we had distributors reducing inventory at hand for YUTIQ and a shifting timing [discrepancy] with our international distribution partners as we combined YUTIQ into our supply chain.
In the second half of the year, we not only expect this to correct itself, but we also believe that further incorporating YUTIQ into our commercial structure will yield further revenue growth and increased adjusted EBITDA for the second half of the year. Now that both products are merged together, we expect to have a broader presence with our customers at industry meetings. Recently, at the American Society of Retinal Surgeons, we showcased both products at the booth and we're pleased with the feedback we received from physicians on having the product combined in our company. We were also able to hold Alimera's first YUTIQ advisory boards at that meeting.
And with that, I'll now turn the call over to Russell, who will review our financials in more detail.
Russell L. Skibsted
Thanks, Rick.
Product revenue was up 20% to approximately $17.5 million for the second quarter of 2023 compared to about $14.6 million for Q2 '22. The increase was primarily due to the addition of YUTIQ into the U.S. portfolio midway through the quarter. U.S. product revenue increased 34% to approximately $11.9 million for the second quarter of '23 compared to U.S. product revenue of $8.9 million for the same period in 2022. This included approximately $3 million in YUTIQ revenue from the date of acquisition, which was May 17.
As Rick mentioned, we believe the revenue could have been higher without turnover related to the new commercial entrants and our need -- and the need for our field teams to spend time training for both products. Further, as we work to transfer the distribution of YUTIQ to our vendors, distributors reduced the inventory on hand, purchasing 18% fewer YUTIQ units from us than they sold to end users. We recently completed the transition to our supply chain vendors and expect this difference to be rectified this quarter.
International net product revenue remained flat at approximately $5.7 million in Q2 '23, which was the same for Q2 '22. As Rick said, end-user demand was outstanding in our International segment. It was up 25% over the second quarter last year, but we experienced shipping timing discrepancy with our international distribution partners who sold 21% more units to end users than we were able to ship to them during the second quarter. We expect this to be corrected in the second half of this year.
Total operating expenses were approximately $16.3 million for Q2 in '23 compared to approximately $14.4 million in the same period last year. The increase was primarily due to approximately $630,000 in bad debt expense and approximately $1.2 million in amortization of the new intangible asset related to the YUTIQ transaction.
As of June 30, 2023, Alimera had cash and cash equivalents of approximately $18.8 million compared to $13.1 million at March 31, 2023.
On May 17, in conjunction with the closing of the YUTIQ transaction, we completed the second tranche of the financing from the first quarter which added $69 million in equity, plus we raised an additional $20 million in term debt. The tranche to equity was comprised of about $2.4 million in common stock and $66.6 million in Series B preferred. On August 1, our shareholders approved the issuance of shares of common stock upon the conversion of the Series B preferred, which triggered the mandatory conversion of the Series B into common stock and prefunded warrants to purchase common stock. The conversion will be completed on August 15, where the Series B preferred from both tranche 1 and tranche 2, will be converted into approximately 45 million shares of common stock and common stock equivalents for approximately 2 million shares.
Rick will now give you his closing comments.
Richard S. Eiswirth
Thank you, Russell.
We're well on our way towards our goal to grow Alimera into a company uniquely focused on retina specialists and their patients. The addition of YUTIQ to our portfolio makes this 1 of very few companies to have multiple commercial products focused in the retina space. It also significantly transforms our financial outlook and stability.
For the remainder of the year, we expect to continue looking at ways to bring YUTIQ and ILUVIEN together in our commercial and [legal] activities and further leverage our infrastructure to drive improved financial performance, positioning Alimera for a strong 2024. As we said following the transaction, we expect to generate more than $100 million in revenue and $20 million of EBITDA in 2024.
Before I turn the call over to the operator for questions, I also want to highlight that we completed enrollment in our landmark NEW DAY study. Remember, this is a head-to-head comparison of ILUVIEN and the leading anti-VEGF in naive or near-naive patients suffering from diabetic macular edema or DME. From this trial, we expect paradigm shifting data in early 2025 that will facilitate much earlier usage of ILUVIEN in the treatment of DME to help patients see better longer with fewer injections.
And with that, I will turn the call over to the operator for questions. Thank you.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Alex Nowak with Craig-Hallum.
Alexander David Nowak
Okay, great. And congrats on getting the acquisition obviously closed, but also integrated here throughout this quarter.
As you now are integrated with the sales team, how has the initial traction been with a single unified sales team going out and selling both ILUVIEN and YUTIQ, maybe in the last even couple of weeks here?
Richard S. Eiswirth
Yes. So Alex, I think -- I mean, we're obviously only about 3 weeks into having the teams out there on a combined basis, but I would say early feedback is good. I talked to quite a few physicians at ASRS last week and all are, frankly, similar to what we hear from investors and others, it's about time these 2 products are together. And I think it provides a great opportunity to talk to a physician that is already using ILUVIEN about using YUTIQ for uveitic indications and vice versa, right? It's an easy door opener for somebody that may not have been using 1 of the products to say, look, you're already using a long-term, low-dose steroid in this indication, why not think about it an expanded utilization? And so it provides a great opportunity for the reps.
I think the reps are pretty excited about it, and what I'm hearing from the field is good already. And we're seeing a little bit of an uptick in utilization, but it's a little bit too early to conclude on what that means for the whole quarter.
Alexander David Nowak
That's great to hear.
And if you exclude YUTIQ from the sales in Q2, it did look like ILUVIEN was a little bit more flat than maybe I would have thought. Just anything in particular going on there? Or maybe this is just a disruption with the sales force, with some of the territories sitting out there longer than expected?
Richard S. Eiswirth
Yes. I think -- I mean, we did have some territories open because we held some of those positions open, thinking that there would be some people to bring over from EyePoint experience in those trips, and we did that. And we did that, and it obviously took us a little bit longer to get the transaction closed. So we had some positions open, as I said.
I do think there was a a small impact in May as Apellis made a big effort to push the launch of SYFOVRE out there and get the attention of doctors. We're trying to figure out how to integrate SYFOVRE into their practices. And because explaining ILUVIEN to their patients just takes a little bit longer, they strayed away from some of those conversations. So we might have seen a little bit of that in May, but I think more of it is related to just slightly less presence on the street over the course of the second quarter both because of some of the open positions, but then we did take people out of the field, whether it was for training at home or even brought them into Atlanta for training on the product. So reduced some of the availability in the field a little bit.
Alexander David Nowak
Okay. Understood.
And then expenses going into Q3 here. If I look at your OpEx, you probably did around $15 million or so for Q2. What's the sort of the step up to Q3? And then follow-up question to that is Q3 kind of the run rate on expenses from there? Or any additional expenses that go into Q4?
Russell L. Skibsted
If I'm -- this is Russell.
If I'm understanding the question, it can help understand our expenses going forward. I mean, the nice part about this transaction is that we're able to fit YUTIQ into our existing infrastructure, so there's not really a very large amount of additional expenses that we're adding. But the incremental expenses we do have, I think, are primarily related to the commercial side of things. And I think, yes, what you'll see in Q3 is probably -- I wouldn't expect it to go much above what we were looking at in terms of cash expenses.
So yes, I think if you make those math adjustments, I think you're probably in the ballpark.
Alexander David Nowak
Okay. Perfect.
And then just last question is just the next steps on NEW DAY. Expected time line for readout now that you had the last patient enrolled?
Richard S. Eiswirth
Yes. So the last patient was enrolled in early June, so we would expect last patient last visit in December of 2024, and then some early readouts in the first quarter of 2025.
Alexander David Nowak
Excellent. All right. Well, congrats on all the progress here. Thanks for the update.
Richard S. Eiswirth
Thanks, Alex. We appreciate it.
Operator
Our next question comes from James Molloy with Alliance Global Partners.
James Francis Molloy
On YUTIQ, you guys, I apologize if I missed it earlier in the call. Had some trouble logging in. Did you break out what of the U.S. sales, the $11.85 million U.S. sales? What was YUTIQ? What was ILUVIEN?
Richard S. Eiswirth
Yes. It was roughly about $3 million of that was a pickup from YUTIQ.
James Francis Molloy
Okay. Great.
And then it was mentioned earlier, the sort of the turnover related to the acquisition of the reps, how many reps you guys have currently? Can you walk -- can you expand on that a little bit? How was -- maybe I misunderstood what that meant. Were the reps leaving? Or can you walk me through that, please?
Richard S. Eiswirth
Yes. So well, Jim, as of today, we have -- we expanded from -- we had 29 territories historically at Alimera supporting ILUVIEN. We've expanded to 35 territories, so now we have 35 territories across 6 regions supporting both products. And all 35 of those reps are cross-trained on both products as of -- and out in the field as of July 24.
The turnover that we referenced was, as you know, there were -- there was 1 geographic attribute product approved earlier this year, 1 just recently approved last week, and those 2 companies have been building their commercial teams. We lost a few reps to those entrants into the market in the first half of the year, and I made the decision to sort of leave those open because we were looking at some of the team from EyePoint that have been supporting YUTIQ. We wanted to bring the expertise on board, and so we left those roles open until the close of the transaction.
James Francis Molloy
Excellent. Congrats, too, on getting the EBITDA positive and income from ops, just take out a couple of the noncash things positive in the quarter. Long had been a goal. I saw too that the COGS came down pretty good, at least in the quarter. Is that sort of -- is that related in any way to YUTIQ? Or it's just sort of fluctuations that kind of happen quarter-to-quarter?
Russell L. Skibsted
I was going to say it's due to just natural fluctuation quarter-to-quarter.
Richard S. Eiswirth
Yes. Yes. I was going to say, Jim, you got fluctuation quarter-to-quarter based on the extent it goes to the distributor partners. So where we sell to our partners in France or Italy or Spain, since we have a lesser share of the revenue, the COGS looks higher in those quarters. And as we said, we had some shipments that were deferred into the second half of the year to those partners.
James Francis Molloy
Okay. Great. Understood.
And maybe last question on the [culture], bringing the debt up by about $20 million or so from the first quarter and tripling it from last year, what's the thinking on bringing in debt versus equity? I know we certainly got a lower cost of capital at risk and goes bankrupt from too much liquidity.
Richard S. Eiswirth
Yes. So I mean, if you -- as we've said, we're very excited about the leverage that this transaction creates for us. We've given guidance in the last 2 calls that we are pretty comfortable, we're very comfortable with more than $100 million in revenue next year and $20 million in EBITDA. So $20 million in EBITDA generates a substantial amount of cash for us, and as that continues to grow, we think we'll be in a position to service that debt as it starts to amortize.
James Francis Molloy
Congrats on the good quarter.
Richard S. Eiswirth
Absolutely. Yes.
Operator
(Operator Instructions) Our next question comes from Yi Chen with H.C. Wainwright.
Yi Chen
My first question is, going forward, do you think YUTIQ will serve as the main driver for top line growth? Or do you think ILUVIEN could provide pretty solid growth as well?
Richard S. Eiswirth
Yi, that's a great question.
We are -- our goal is to drive top line revenue and utilization of the franchise of the low-dose fluocinolone acetonide asset. I do think there are some aspects about YUTIQ that make it easier to adopt, and if that is the way into certain accounts, we will certainly leverage that. I think we're going to look at the mix of our promotional activities in 2024 across both brands and indications based on what we see over the next couple of months as we're planning for 2024.
So I certainly think that's a possibility that we try to leverage YUTIQ and are able to grow it faster than ILUVIEN, but we need to learn a little bit more -- get a little more experience in the field first.
Yi Chen
Got it. Got it.
And do you think the fact that you now market YUTIQ in the U.S. will have a positive impact on your international sales of ILUVIEN for both indications?
Richard S. Eiswirth
Probably a little bit too early to tell on that as well, although I'll tell you, there are some learnings and some strategies about the way EyePoint had been taking YUTIQ to market in the U.S. that we can certainly learn from, right, and try to adopt in Europe as well, and we intend to do that. I think 1 of the big advantages of bringing the products together is there are some things that were working really well with ILUVIEN, some things that are working really well with YUTIQ. And on the flip side, maybe some things that weren't working so well with both brands, and we can try to create best practices across both, which we will try to do across our global markets.
Yi Chen
Okay.
And last question, do you believe that adjusted EBITDA will be positive for the second half of the year?
Richard S. Eiswirth
Yes, I do. Yes, I do. And I think you'll continue to see improvements in the EBITDA line, obviously. We, frankly, were very pleased to see positive EBITDA in the second quarter because we had planned a lot of the work around the integration of the 2 products together and bringing them into the same sales force. So we're pleased to see, what, $900,000 of adjusted EBITDA now. I think you'll see significant improvements to that in third and fourth quarter.
Russell L. Skibsted
Plus we only had YUTIQ for half the quarter.
Richard S. Eiswirth
That's right.
Well, I want to thank everybody for -- Go ahead, I'm sorry.
Operator
Sorry, I was just saying this concludes our question-and-answer session, and I'm just turning the call back over to you, Rick.
Richard S. Eiswirth
Thank you very much.
I want to thank everyone for participating in today's call and your interest and support of Alimera. We do look forward to sharing significant progress on bringing these 2 assets together when we report our third quarter results in November.
Thank you very much, and have a great day.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.
