The following discussion and analysis should be read in conjunction with our
unaudited interim condensed consolidated financial statements and the related
notes (Interim Financial Statements) that appear elsewhere in this quarterly
report on Form 10-Q. This discussion contains forward-looking statements
reflecting our current expectations that involve risks and uncertainties. Actual
results may differ materially from those discussed in these forward-looking
statements due to a number of factors. For further information regarding
forward-looking statements, please refer to the "Special Note Regarding
Forward-Looking Statements and Projections" immediately after the index to this
report above.
Overview
Alimera Sciences, Inc., and its subsidiaries (we, our or us), is a
pharmaceutical company that specializes in the development and commercialization
of prescription ophthalmic pharmaceuticals. We focus on diseases affecting the
back of the eye, or retina, because we believe these diseases are not well
treated with current therapies and affect millions of people globally. Our only
product is ILUVIEN®, which has received marketing authorization and
reimbursement in numerous countries for the treatment of DME. In the U.S. and
certain other countries outside Europe, ILUVIEN is indicated for the treatment
of DME in patients who have been previously treated with a course of
corticosteroids and did not have a clinically significant rise in intraocular
pressure. In 17 countries in Europe, ILUVIEN is indicated for the treatment of
vision impairment associated with chronic DME considered insufficiently
responsive to available therapies. ILUVIEN is also now indicated in 16 countries
in Europe for prevention of relapse in recurrent non-infectious uveitis
affecting the posterior segment of the eye (NIU-PS).
We market ILUVIEN directly in the U.S., Germany, the U.K., Portugal, and
Ireland, and have made ILUVIEN available in the Nordic Region (Denmark, Finland,
Norway and Sweden) with the support of an exclusive wholesaler. In addition, we
have entered into various agreements under which distributors are providing or
will provide regulatory, reimbursement and sales and marketing support for
ILUVIEN in Austria, Belgium, the Czech Republic, France, Italy, Luxembourg, the
Netherlands, Spain, Australia, New Zealand, Canada and several countries in the
Middle East. In addition, we have granted an exclusive license to Ocumension
Therapeutics for the development and commercialization of our 0.19mg
fluocinolone acetonide intravitreal injection in China, East Asia and the
Western Pacific. As of March 31, 2021, we have recognized sales of ILUVIEN to
our international distributors in the Middle East, Austria, France, Italy,
Spain, Luxembourg and the Netherlands.
Where We Market ILUVIEN to Treat Diabetic Macular Edema (DME)
ILUVIEN has received marketing authorization for the use of ILUVIEN to treat DME
for the indications and in the countries shown in the following table:
Countries
Where ILUVIEN
Countries Has Countries Where
Where ILUVIEN Has Received ILUVIEN is
Received Marketing Reimbursement Currently
Indication for the Authorization Approval to Marketed
Treatment of DME to Treat DME Treat DME to Treat DME
Treatment of DME in U.S., Australia, U.S., Kuwait, U.S., Kuwait,
patients who have been Canada, Kuwait, Lebanon and the Lebanon and the
previously treated Lebanon and the United Arab United Arab
with a course of United Arab Emirates Emirates
corticosteroids and Emirates
did not have a
clinically significant
rise in intraocular
pressure
Treatment of vision The United The U.K., The U.K.,
impairment associated Kingdom (U.K.), Germany, France, Germany, France,
with chronic DME Germany, France, Italy, Spain, Italy, Spain,
considered Italy, Spain, Portugal, Portugal,
insufficiently Portugal, Ireland, Ireland,
responsive to Ireland, Luxembourg and Austria,
available therapies Austria, the Netherlands Luxembourg,
Belgium, Denmark, Sweden,
Denmark, Norway, Finland and the
Finland, Sweden, Netherlands
Poland, Czech
Republic, the
Netherlands and
Luxembourg
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Where We Market ILUVIEN to Treat Recurrent Non-Infectious Uveitis Affecting the
Posterior Segment of the Eye (NIU-PS)
ILUVIEN has received marketing authorization for the use of ILUVIEN to treat
NIU-PS for the indications and in the countries shown in the following table:
Countries Countries
Where ILUVIEN Has Where ILUVIEN Has Countries Where
Received Received ILUVIEN is
Marketing Reimbursement Currently
Indication for the Authorization Approval to Treat Marketed
Treatment of NIU-PS to Treat NIU-PS NIU-PS to Treat NIU-PS
The prevention of The U.K., The U.K., The U.K. Germany,
relapse in recurrent Germany, France, Germany, Ireland Ireland,
NIU-PS Spain, Portugal, (private sector), Luxembourg,
Ireland, Austria, Luxembourg and Denmark, Sweden,
Belgium, Denmark, the Netherlands Finland and the
Norway, Finland, Netherlands
Sweden, Poland,
Czech Republic,
the Netherlands
and Luxembourg
We launched ILUVIEN for the NIU-PS indication in Germany and the U.K. during the
third quarter of 2019, the Netherlands during the fourth quarter of 2020 and
Luxembourg in the first quarter of 2021. In addition, we secured reimbursement
of ILUVIEN for NIU-PS with the major private insurers in Ireland in the first
quarter of 2021.
ILUVIEN became commercially available in Finland, Denmark and Sweden during the
first quarter of 2021 through our exclusive wholesaler partner.
Effects of the COVID-19 Pandemic
The unprecedented events of the COVID-19 pandemic, and its unpredictable
duration, in the regions where we have customers, employees and distributors
have had an adverse effect on our sales of ILUVIEN and thus on our net revenues
and may in the future have an adverse effect on our liquidity and financial
condition. These adverse effects of the pandemic on us have resulted from the
following, among other factors:
•Governments and private parties imposed limitations on in-person access to
physicians, which adversely affects us in at least two ways. First, these
limitations can affect patient access to treatment. Because ILUVIEN is
administered only by an injection into the eye, telemedicine is not a viable
substitute when administration of treatment is required. Second, limitations on
in-person access to physicians also makes it difficult or impossible for our
sales representatives (including those employed by our distributors) to meet
with retina specialists and their staff to educate them about ILUVIEN.
•Our business is also negatively affected by patients' concerns in the current
environment. Prior to the pandemic, most of our ILUVIEN sales were driven by the
use of ILUVIEN to treat diabetic macular edema, or DME. Given that health
authorities have cited diabetes as a factor that places a person at higher risk
for severe illness from the COVID-19 pandemic, many DME patients are unwilling
to visit their physicians in person (even if otherwise permitted) for fear of
contracting the COVID-19 coronavirus.
•In addition to the effects of limitations on in-person access to physicians,
limitations on travel within and between the countries in which we market and
sell ILUVIEN, as well as various types of "shelter in place" orders, have
curtailed our in-person marketing activities.
These limitations and other effects of the COVID-19 pandemic have had an adverse
impact on our revenues beginning late in the first quarter of 2020 and
continuing through the date of this report. We expect these factors to continue
to adversely impact our revenue and capital resources, and the extent and
duration of that impact is uncertain at this time, particularly in light of the
emergence of COVID-19 variants that may increase the transmissibility of the
coronavirus or be more deadly, or both. As more and more people in our markets
are vaccinated and as governmental restrictions are gradually lifted, however,
we look forward to the prospect of a return to more normal conditions later this
year and continuing the growth trends we saw prior to the COVID-19 pandemic.
(Please refer to "Special Note Regarding Forward-Looking Statements and
Projections" above.)
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In response to these developments, we have implemented measures to mitigate the
impact of the pandemic on our financial position and operations. These measures
include the following:
•We are continuing to manage our cost structure, managing spending where
possible to mitigate any anticipated loss of revenue.
•Because we believe that our employees are critical to both (a) serving our
customers and patients through alternative forms of engagement as the
pandemic-related restrictions continue, and (b) realizing the long-term value of
ILUVIEN, we have maintained our staffing levels and do not currently have any
plans to reduce them.
Recent Development - Transactions with Ocumension Therapeutics
On April 14, 2021, we entered into a transaction with Ocumension Therapeutics,
incorporated in the Cayman Islands with limited liability (Ocumension), or one
of its affiliates. In the Ocumension transaction, we received a total of $20.0
million in cash under two agreements:
•a Share Purchase Agreement with Ocumension, pursuant to which we offered and
sold to Ocumension 1,144,945 shares of our common stock at a purchase price of
$8.734044 per share, or $10.0 million in total; and
•an Exclusive License Agreement (License Agreement) with a wholly owned
subsidiary of Ocumension, pursuant to which we granted an exclusive license for
the development and commercialization of our 190 microgram fluocinolone
acetonide intravitreal implant in applicator under Ocumension's own branded
label in China, East Asia, and the Western Pacific, in exchange for an upfront
payment of $10.0 million and aggregated potential sales milestone payments of up
to $89,000,000 upon achievement by the Ocumension subsidiary of specified
amounts of net sales of the licensed product in in the future.
For more information about the Ocumension transaction, see Note 16 of our notes
to the accompanying Interim Financial Statements and our Current Report on Form
8-K filed with the SEC on April 14, 2021.
Sources of Revenues
Our revenues for the three months ended March 31, 2021 and 2020 were generated
from product sales primarily in the U.S., Germany and the U.K. In the U.S., two
large pharmaceutical distributors accounted for 50% and 49% of our consolidated
revenues for the three months ended March 31, 2021 and 2020, respectively. These
U.S.-based distributors purchase ILUVIEN from us, maintain inventories of
ILUVIEN and sell downstream to physician offices, pharmacies and hospitals.
Internationally, in countries where we sell direct, our customers are hospitals,
clinics and pharmacies. We sometimes refer to physician offices, pharmacies,
hospitals and clinics as end users. In international countries where we sell to
distributors, these distributors maintain inventory levels of ILUVIEN and sell
to their customers.
License Agreement with EyePoint Pharmaceuticals US, Inc.
Under the July 2017 New Collaboration Agreement with EyePoint Pharmaceuticals
US, Inc. (EyePoint), we have rights to the technology underlying ILUVIEN for the
treatment of (a) human eye diseases, including uveitis, in Europe, the Middle
East, and Africa, and (b) human eye diseases other than uveitis worldwide.
During the three months ended March 31, 2020, the royalty amount was 6%, which
was reduced to 4% due to the recoverable balance of the Future Offset. During
the three months ended March 31, 2021, the royalty amount was 6%, which was
reduced to 5.2% due to the recoverable balance of the Future Offset. We will pay
an additional 2% royalty on future global net revenues and other related
consideration in excess of $75,000,000 in any year. (For more information about
our agreement with EyePoint, see Note 9 of our notes to the accompanying Interim
Financial Statements.)
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Results of Operations
Three Months Ended
March 31,
2021 2020
(In thousands, except share and
per share data)
NET REVENUE $ 11,214 $ 14,535
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND
AMORTIZATION (1,562) (1,927)
GROSS PROFIT 9,652 12,608
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES 3,213 2,883
GENERAL AND ADMINISTRATIVE EXPENSES 3,413 2,983
SALES AND MARKETING EXPENSES 4,818 5,870
DEPRECIATION AND AMORTIZATION 638 654
OPERATING EXPENSES 12,082 12,390
(LOSS) INCOME FROM OPERATIONS (2,430) 218
INTEREST EXPENSE AND OTHER (1,343) (1,292)
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET 125 (81)
NET LOSS BEFORE TAXES (3,648) (1,155)
PROVISION FOR TAXES - (43)
NET LOSS $ (3,648) $ (1,198)
NET LOSS PER COMMON SHARE - Basic and diluted $ (0.63) $ (0.24)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - Basic
and diluted
5,755,424 4,980,722
Net Revenue
We generate revenue from ILUVIEN, our only product. In addition to generating
revenue from product sales, we intend to seek to generate revenue from other
sources such as upfront fees, milestone payments in connection with
collaborative or strategic relationships, and royalties resulting from the
licensing of ILUVIEN or any future product candidates and other intellectual
property. Additionally, revenue from our international distributors fluctuates
depending on the timing of the shipment of ILUVIEN to the distributors and the
distributors' sales of ILUVIEN to their customers.
Net revenue decreased by approximately $3.3 million, or 23%, to approximately
$11.2 million for the three months ended March 31, 2021, compared to
approximately $14.5 million for the three months ended March 31, 2020. The
decrease was attributable to a $1.5 million revenue decrease in our U.S.
business related to the impact of the COVID-19 pandemic and a $1.9 million
revenue decrease in our International business due to lower distributor sales
and the negative effect of the COVID-19 pandemic. The COVID-19 pandemic created
a slower than anticipated drawdown of inventory and a decrease in demand in both
our direct and distributor markets.
Cost of Goods Sold, Excluding Depreciation and Amortization, and Gross Profit
Gross profit is affected by costs of goods sold, which includes costs of
manufactured goods sold and royalty payments to EyePoint under the New
Collaboration Agreement. Additionally, cost of goods sold by our international
distributors fluctuates depending on the revenue share attributable to the
respective contract.
Cost of goods sold, excluding depreciation and amortization, decreased by
approximately $300,000, or 16%, to approximately $1.6 million for the three
months ended March 31, 2021, compared to approximately $1.9 million for the
three months ended March 31, 2020. The decrease was primarily attributable to
decreased sales in both our U.S. and International markets.
Gross profit decreased by approximately $2.9 million, or 23%, to approximately
$9.7 million for the three months ended March 31, 2021, compared to
approximately $12.6 million for the three months ended March 31, 2020. Gross
margin was 86% and 87% for the three months ended March 31, 2021 and 2020,
respectively.
Research, Development and Medical Affairs Expenses
Currently, our research, development and medical affairs expenses are primarily
focused on activities that support ILUVIEN and include salaries and related
expenses for research and development and medical affairs personnel, including
medical science liaisons. Our research,
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development and medical affairs expenses also include costs related to the
provision of medical affairs support, including symposia development for
physician education, and costs related to compliance with FDA, EEA or other
regulatory requirements. We expense both internal and external development costs
as they are incurred.
Research, development and medical affairs expenses increased by approximately
$300,000, or 10%, to approximately $3.2 million for the three months ended March
31, 2021, compared to approximately $2.9 million for the three months ended
March 31, 2020. The increase was primarily attributable to an approximately
$530,000 increase in clinical study costs, chiefly consisting of administrative
and pass-through costs associated with the NEW DAY Study. This increase was
offset by a decrease of approximately $140,000 in travel expenses.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation for
employees in executive and administrative functions, including finance,
accounting, information technology, training and employee development. Other
significant costs include facilities costs and professional fees for accounting
and legal services, including legal services associated with obtaining and
maintaining patents and managing license agreements. We expect to continue to
incur significant costs to comply with the corporate governance, internal
control and similar requirements applicable to public companies.
General and administrative expenses increased by approximately $400,000, or 13%,
to approximately $3.4 million for the three months ended March 31, 2021,
compared to approximately $3.0 million for the three months ended March 31,
2020. The increase in general and administrative expenses were primarily
attributable to increases of approximately $350,000 in personnel costs and
$180,000 in professional fees, offset by a decrease of approximately $130,000 in
travel expenses.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of third-party service fees and
compensation for employees for the commercial promotion, the assessment of the
commercial opportunity of, the development of market awareness for, the pursuit
of reimbursement approval for and the commercialization of ILUVIEN, including
launch plans for ILUVIEN in new markets. Other costs include professional fees
associated with developing plans for ILUVIEN or any future products or product
candidates and maintaining public relations.
Sales and marketing expenses decreased by approximately $1.1 million, or 19%, to
approximately $4.8 million for the three months ended March 31, 2021, compared
to approximately $5.9 million for the three months ended March 31, 2020. The
decrease was primarily due to decreases of $490,000 in travel expenses, $450,000
in marketing costs related to cost controls we implemented to address the
COVID-19 pandemic and $100,000 in market access costs.
Operating Expenses
As a result of the increases and decreases in various expenses described above,
total operating expenses decreased by approximately $300,000, or 2%, to
approximately $12.1 million for the three months ended March 31, 2021, compared
to approximately $12.4 million for the three months ended March 31, 2020. The
decrease was primarily attributable to a decrease of approximately $1.1 million
in sales and marketing expenses, offset by increases of $400,000 in general and
administrative expenses and $300,000 in research, development and medical
affairs expenses as described above.
Interest Expense and Other
Interest Expense and Other was $1.3 million for both the three months ended
March 31, 2021 and 2020.
Basic and Diluted Net Loss Applicable to Common Stockholders per Share of Common
Stock
We follow FASB Accounting Standards Codification, Earnings Per Share (ASC 260),
which requires the reporting of both basic and diluted earnings per share.
Because our preferred stockholders participate in dividends equally with common
stockholders (if we were to declare and pay dividends), we use the two-class
method to calculate EPS. However, our preferred stockholders are not
contractually obligated to share in losses.
Basic EPS is computed by dividing net loss available to stockholders by the
weighted average number of shares outstanding for the period. Diluted EPS is
calculated in accordance with ASC 260 by adjusting weighted average shares
outstanding for the dilutive effect of common stock options, restricted stock
units and warrants. In periods where a net loss is recorded, no effect is given
to potentially dilutive securities, because the effect would be anti-dilutive.
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Common stock equivalent securities that would potentially dilute basic EPS in
the future, but were not included in the computation of diluted EPS because they
were either classified as participating and do not share in losses or would have
been anti-dilutive, were approximately 1,715,210 for the three months ended
March 31, 2021, and 2,434,367 for the three months ended March 31, 2020.
Results of Operations - Segment Review
The following selected unaudited financial and operating data are derived from
our Interim Financial Statements. The results and discussions that follow
reflect how executive management monitors the performance of our reporting
segments.
During the first quarter of 2021, our Chief Executive Officer (CEO), who is our
chief operating decision maker (CODM), changed the manner in which the CODM
monitors performance, aligns strategies and allocates resources, which resulted
in a change in our operating segments. Our operations are now managed as three
operating segments: U.S., International and Operating Cost. We determined that
each of these operating segments represented a reportable segment. Previously,
the business was managed as two operating segments: U.S. and International.
Our U.S. and International segments represent the sales and marketing, general
and administrative and research & development activities dedicated to the
respective geographies. The Operating Cost segment primarily represents the
general & administrative and research & development activities not specifically
associated with the U.S. or International segments and include expenses such as
executive management; information technology administration and support; legal;
compliance; clinical studies; and business development.
Each of our U.S., International and Operating Cost segments is separately
managed and is evaluated primarily upon segment income or loss from operations.
Other is presented to reconcile to our consolidated totals. We do not report
balance sheet information by segment because our CODM does not review that
information. We allocate certain operating expenses between our reporting
segments based on activity-based costing methods. These activity-based costing
methods require us to make estimates that affect the amount of each expense
category that is attributed to each segment. Changes in these estimates will
directly affect the amount of expense allocated to each segment and therefore
the operating profit of each reporting segment.
U.S. Segment
Three Months Ended
March 31,
2021 2020
(In thousands)
NET REVENUE $ 5,647 $ 7,068
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND
AMORTIZATION (751) (759)
GROSS PROFIT 4,896 6,309
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES 725 1,107
GENERAL AND ADMINISTRATIVE EXPENSES 241 260
SALES AND MARKETING EXPENSES 3,278 4,154
OPERATING EXPENSES 4,244 5,521
SEGMENT INCOME FROM OPERATIONS $ 652 $ 788
U.S. Segment - three months ended March 31, 2021 compared to the three months
ended March 31, 2020
Net revenue. Net revenue decreased by approximately $1.5 million, or 21%, to
approximately $5.6 million for the three months ended March 31, 2021, compared
to approximately $7.1 million for the three months ended March 31, 2020. Net
revenue during the three months ended March 31, 2021 was negatively affected by
the COVID-19 pandemic.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold,
excluding depreciation and amortization, decreased slightly by approximately
$10,000, or 1%, to approximately $750,000 for the three months ended March 31,
2021, compared to approximately $760,000 for the three months ended March 31,
2020. Despite the decrease in revenue, cost of goods sold only decreased
approximately $10,000 due to the increased costs of manufacturing and inspecting
the component parts of ILUVIEN.
Research, development and medical affairs expenses. Research, development and
medical affairs expenses decreased by approximately $370,000, or 34%, to
approximately $730,000 for the three months ended March 31, 2021, compared to
approximately $1.1 million for the
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three months ended March 31, 2020. The decrease was primarily attributable to
decreases of approximately $140,000 in personnel costs and $130,000 in
consultant costs.
General and administrative expenses. General and administrative expenses
decreased by approximately $20,000, or 8%, to approximately $240,000 for the
three months ended March 31, 2021, compared to approximately $260,000 for the
three months ended March 31, 2020.
Sales and marketing expenses. Sales and marketing expenses decreased by
approximately $900,000, or 21%, to approximately $3.3 million for the three
months ended March 31, 2021, compared to approximately $4.2 million for the
three months ended March 31, 2020. The decrease was primarily attributable to a
decrease of approximately $410,000 in marketing costs related to cost controls
we implemented to address the COVID-19 pandemic and a decrease of $340,000 in
travel expenses resulting from the COVID-19 pandemic.
International Segment
Three Months Ended
March 31,
2021 2020
(In thousands)
NET REVENUE $ 5,567 $ 7,467
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND
AMORTIZATION (811) (1,168)
GROSS PROFIT 4,756 6,299
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES 941 825
GENERAL AND ADMINISTRATIVE EXPENSES 587 550
SALES AND MARKETING EXPENSES 1,334 1,491
OPERATING EXPENSES 2,862 2,866
SEGMENT INCOME FROM OPERATIONS $ 1,894 $ 3,433
International Segment - three months ended March 31, 2021 compared to the three
months ended March 31, 2020
Net revenue. Net revenue decreased by approximately $1.9 million, or 25%, to
approximately $5.6 million for the three months ended March 31, 2021, compared
to approximately $7.5 million for the three months ended March 31, 2020. Net
revenue decreased due to lower distributor sales and the negative effect of the
COVID-19 pandemic. The COVID-19 pandemic created a slower than anticipated
drawdown of inventory and decreased demand.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold,
excluding depreciation and amortization, decreased by approximately $390,000, or
33%, to approximately $810,000 for the three months ended March 31, 2021,
compared to approximately $1.2 million for the three months ended March 31,
2020. The decrease was primarily attributable to lower sales.
Research, development and medical affairs expenses. Research, development and
medical affairs expenses increased by approximately $110,000, or 13%, to
approximately $940,000 for the three months ended March 31, 2021, compared to
approximately $830,000 for the three months ended March 31, 2020. The increase
was primarily due to an increase of approximately $140,000 in personnel costs.
General and administrative expenses. General and administrative expenses
increased by approximately $40,000, or 7%, to approximately $590,000 for the
three months ended March 31, 2021, compared to approximately $550,000 for the
three months ended March 31, 2020.
Sales and marketing expenses. Sales and marketing expenses decreased by
approximately $200,000, or 13%, to approximately $1.3 million for the three
months ended March 31, 2021, compared to approximately $1.5 million for the
three months ended March 31, 2020. The decrease was primarily attributable to a
decrease of approximately $130,000 in travel expenses.
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Operating Cost Segment
Three Months Ended
March 31,
2021 2020
(In thousands)
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES $ 1,538 $ 883
GENERAL AND ADMINISTRATIVE EXPENSES
2,396 1,901
SALES AND MARKETING EXPENSES 143 125
OPERATING EXPENSES 4,077 2,909
SEGMENT LOSS FROM OPERATIONS $ (4,077) $ (2,909)
Operating Cost Segment - three months ended March 31, 2021 compared to the three
months ended March 31, 2020
Research, development and medical affairs expenses. Research, development and
medical affairs expenses increased by approximately $620,000, or 70%, to
approximately $1.5 million for the three months ended March 31, 2021, compared
to approximately $880,000 for the three months ended March 31, 2020. The
increase was primarily attributable to an increase of approximately $560,000 in
clinical study costs associated with the NEW DAY Study.
General and administrative expenses. General and administrative expenses
increased by approximately $500,000, or 26%, to approximately $2.4 million for
the three months ended March 31, 2021, compared to approximately $1.9 million
for the three months ended March 31, 2020. The increase was primarily
attributable to increases of approximately $280,000 in personnel costs and
$210,000 in professional fees.
Sales and marketing expenses. Sales and marketing expenses increased by
approximately $10,000, or 8%, to approximately $140,000 for the three months
ended March 31, 2021, compared to approximately $130,000 for the three months
ended March 31, 2020.
Other
Three Months Ended
March 31,
2021 2020
(In thousands)
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES $ 9 $ 68
GENERAL AND ADMINISTRATIVE EXPENSES
189 272
SALES AND MARKETING EXPENSES 63 100
DEPRECIATION AND AMORTIZATION 638 654
OPERATING EXPENSES 899 1,094
SEGMENT LOSS FROM OPERATIONS $ (899) $ (1,094)
Our CEO, who is our chief operating decision maker, manages and evaluates our
U.S., International and Operating Cost segments based upon segment income or
loss from operations adjusted for certain non-cash items, such as stock-based
compensation expense and depreciation and amortization. We classify the non-cash
expenses included in research, development and medical affairs expenses, general
and administrative expenses, and sales and marketing expenses within the Other
within our Interim Financial Statements.
Operating expenses in the Other decreased by approximately $200,000, or 18%, to
$900,000 for the three months ended March 31, 2021, compared to approximately
$1.1 million for the three months ended March 31, 2020. This decrease is
primarily attributable to a decrease of $180,000 in global stock-based
compensation expenses.
Depreciation and amortization was approximately $640,000 and $650,000 for the
three months ended March 31, 2021 and 2020, respectively.
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Liquidity and Capital Resources
Overview
Since inception, we have incurred recurring losses, negative cash flow from
operations and have accumulated a deficit in stockholders' equity of
$396.6 million as of March 31, 2021. Although our cash position declined from
$11.2 million as of December 31, 2020 to approximately $8.3 million as of March
31, 2021, in mid-April 2021 we received a total of $20.0 million in cash from
the Ocumension transaction described above. We intend to use these funds to
continue to commercialize ILUVIEN®, to fund our NEW DAY clinical trial and for
general corporate purposes, which may include working capital, capital
expenditures, other clinical trial expenditures, acquisitions of new
technologies, products or businesses in ophthalmology, and investments.
As explained above in "Effects of the COVID-19 Pandemic," the unprecedented
events of the COVID-19 pandemic, and its unpredictable duration, in the regions
where we have customers, employees and distributors have had an adverse effect
on our sales of ILUVIEN and thus on our net revenues and capital resources. The
extent and duration of that impact is uncertain at this time, particularly in
light of the emergence of COVID-19 variants that may increase the
transmissibility of the coronavirus or be more deadly, or both.
Since January 2019, we have funded our operations through (a) cash received from
our sales; (b) net proceeds of the 2018 and 2019 Solar Loan and Security
Agreements that we obtained in January 2018 and December 2019, respectively; (c)
a $1.0 million sale of common stock to a private investor in October 2019; (d)
an approximately $1,778,000 loan (the PPP Loan) we obtained in April 2020 under
the Paycheck Protection Program established as part of the Coronavirus Aid,
Relief and Economic Security Act, or the CARES Act; which was forgiven in its
entirety, including interest, on April 16, 2021; and (e) the $20.0 million in
funds we obtained in April 2021 as a result of the Ocumension transaction. Our
loans do not include a revolving loan feature and have been fully advanced by
the respective lenders. We currently have no additional borrowing capacity, and
the 2019 Solar Loan Agreement generally prohibits any additional debt unless we
obtain the prior consent of Solar Capital.
Indebtedness
2019 Solar Loan Agreement. On December 31, 2019, we refinanced our then existing
$40.0 million loan and security agreement with Solar Capital and other lenders
by entering into the $45.0 million 2019 Solar Loan Agreement with Solar Capital
as Collateral Agent (Agent), and certain other lenders, including Solar Capital
in its capacity as a lender. Under the 2019 Solar Loan Agreement, we borrowed
$42.5 million on December 31, 2019 and $2.5 million on February 21, 2020 (the
Solar Loan). The Solar Loan matures on July 1, 2024. We used the initial
proceeds of the Solar Loan to pay off the previous $40.0 million 2018 Solar
Capital loan, along with related prepayment, legal and other fees and expenses
totaling approximately $2.3 million, which included $2.2 million in fees to
Solar Capital. We used the remaining proceeds of the Solar Loan to provide
additional working capital for general corporate purposes during 2020 and the
first quarter of 2021.
On May 1, 2020, we entered into a First Amendment (the Amendment) to the 2019
Solar Loan Agreement. The Amendment included revised covenants that applied to
our financial performance during 2020, all of which we met. The Amendment, among
other things, required that a minimum revenue covenant be measured at March 31,
2021 and at the last day of each quarter thereafter, with the minimum revenue
amount equal to a percentage of our projected revenues in accordance with a plan
we submitted to Agent in February 2021, and with such plan to be approved by our
board of directors (the Board) and Agent in its sole discretion.
On March 30, 2021, we entered into a Second Amendment (the Amendment) to the
2019 Solar Loan Agreement. The Amendment, among other things:
(a)reflected Agent's consent to our delivery of Board-approved annual financial
projections for 2021 by April 1, 2021 (which we have delivered);
(b)specified the minimum revenue amount, calculated on a trailing six-month
basis and tested at the end of each calendar quarter in 2021, that we must
achieve for each such period (Revenue Covenant);
(c)required that the Revenue Covenant be tested at March 31, 2022 and at the
last day of each quarter thereafter, with the minimum revenue amount equal to a
percentage of our projected revenues in accordance with an annual plan submitted
by us to Agent by January 15th of such year, such plan to be approved by our
Board and Agent in its sole discretion; and
(d)provided that in future years we must deliver to Agent and the Lenders as
soon as available after approval thereof by our Board, but no later than the
earlier of (x) 15 days after such approval and (y) February 28 of such year, our
annual financial projections for the
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entire current fiscal year as approved by our Board; provided that any revisions
to such projections approved by our Board shall be delivered to Agent and the
Lenders no later than seven days after such approval.
Paycheck Protection Program Loan. On April 22, 2020, we received an
approximately $1,778,000 loan (the PPP Loan) under the Paycheck Protection
Program established by the U.S. Small Business Administration as part of the
Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. The PPP
Loan was unsecured and was evidenced by a note in favor of HSBC Bank USA,
National Association (HSBC) as the lender. On July 21, 2020, we submitted an
application to HSBC for forgiveness of the PPP Loan. The PPP Loan was forgiven
in its entirety, including interest, on April 16, 2021.
Recent $20.0 million Capital Infusion from Ocumension
On April 14, 2021, we entered into the Share Purchase Agreement with Ocumension
Therapeutics, pursuant to which we offered and sold to Ocumension 1,144,945
shares of our common stock, at a purchase price of $8.734044 per share. The
number of shares sold was equal to 19.9% of the number of shares of common stock
outstanding immediately before the closing. The aggregate gross proceeds from
the sale of the shares were $10.0 million. In addition, we received a $10.0
million upfront license payment from a subsidiary of Ocumension pursuant to an
exclusive license agreement in which we granted an exclusive license for the
development and commercialization of our 190 microgram fluocinolone acetonide
intravitreal implant in applicator under Ocumension's own branded label in
China, East Asia, and the Western Pacific. For more information about the
Ocumension transaction, see Recent Development - Transactions with Ocumension
Therapeutics above in this Item 2, Note 16 of our notes to the accompanying
Interim Financial Statements, and our Current Report on Form 8-K filed with the
SEC on April 14, 2021.
Current Cash Position
As of March 31, 2021, we had approximately $8.3 million in cash and cash
equivalents, compared to $11.2 million as of December 31, 2020. In mid-April
2021, however, we received gross proceeds of $20.0 million in cash from the
Ocumension transaction described above. We have historically experienced
seasonality in our first quarter revenue each year. Given that seasonality and
the ongoing effects of the COVID-19 pandemic, we anticipated a corresponding
negative effect on our cash position as of March 31, 2021. In response to the
effects of the COVID-19 pandemic, we have adjusted, and we expect to continue to
adjust, our commercial spending to continue to operate with our existing cash
resources. Even after the Ocumension transaction, we may need to raise
additional capital to fund our business strategy, including the continued
commercialization of ILUVIEN and the retention of our current employees and
staff. The actual amount of funds that we may need will depend on many factors,
some of which are beyond our control. See "Effects of the COVID-19 Pandemic" in
this Item 2 above for an explanation of our strategy to conserve our cash and
otherwise mitigate the impact of the pandemic on our financial position and
operations.
We cannot be sure that additional financing will be available when needed or
that, if available, the additional financing could be obtained on terms that are
not significantly detrimental to us or our stockholders. If we were to raise
additional funds by issuing equity securities, substantial dilution to existing
stockholders could result, and the terms of any new equity securities may have a
preference over our common stock. If we were to attempt to raise additional
funds through strategic collaboration agreements, we may not be successful in
obtaining those agreements, or in receiving milestone or royalty payments under
them. If we were to attempt to raise additional funds through debt financing, we
would be required to obtain the permission or participation of Solar Capital,
which we might not be able to obtain. Our recurring losses and any potential
needs to raise capital create substantial doubt about our ability to continue as
a going concern for the next 12 months following the issuance of the Interim
Financial Statements for the filing of this Form 10-Q.
Sources and Uses of Cash for the three months ended March 31, 2021 compared to
the three months ended March 31, 2020
For the three months ended March 31, 2021, cash used in our operations was
approximately $2.5 million. The cash used in our operations was primarily due to
our net loss of $3.6 million and a decrease in accounts payable, accrued
expenses and other current liabilities of $1.3 million. Cash used in operations
for the three months ended March 31, 2021 was offset by a decrease in accounts
receivable of $1.3 million, $640,000 of non-cash depreciation and amortization,
$260,000 of non-cash stock-based compensation expense, $240,000 for non-cash
interest expense associated with the amortization of our debt discount and a
$110,000 decrease in inventory.
For the three months ended March 31, 2020, cash provided by our operations was
approximately $550,000. The cash provided by our operations was primarily due to
our net loss of $1.2 million, offset by $650,000 of non-cash depreciation and
amortization, $440,000 of non-cash stock-based compensation expense and $240,000
of non-cash interest expense associated with the amortization of our debt
discount. Further reducing cash from operations was a $2.8 million net decrease
in accounts payable, accrued expenses and other current liabilities and a
$150,000 decrease in long-term liabilities. These were offset by a $3.0 million
decrease in accounts receivable, a $180,000 decrease in inventory and a $50,000
decrease in prepaid expenses and other current assets.
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For the three months ended March 31, 2021, net cash used in our investing
activities was approximately $80,000, which was primarily due to capital
expenditures associated with the transfer of manufacturing to the facility at
Cadence.
For the three months ended March 31, 2020, net cash used in our investing
activities was approximately $25,000, which was due to the purchase of property
and equipment.
For the three months ended March 31, 2021, net cash used in our financing
activities was approximately $60,000, which was primarily due to payments of
finance lease obligations.
For the three months ended March 31, 2020, net cash provided by our financing
activities was approximately $2.4 million, which was primarily due to borrowing
the remaining $2.5 million under the 2019 Solar Loan Agreement.
Contractual Obligations and Commitments
On October 30, 2020, we entered into a Manufacturing Services Agreement (the
Cadence Agreement) with Cadence, Inc., under which Cadence will manufacture
certain component parts of the ILUVIEN applicator (the components) at its
facility near Pittsburgh, Pennsylvania. Under the Cadence Agreement, we will pay
certain per-unit prices based on regularly scheduled shipments of a minimum
number of components. The initial term of the Cadence Agreement expires on
October 30, 2025. After the expiration of the initial term, the Cadence
Agreement will automatically renew for separate but successive one-year terms
unless either party provides written notice to the other party that it does not
intend to renew the Cadence Agreement at least 24 months before the end of the
term. The Cadence Agreement may be terminated by either party under certain
circumstances. To date, we have been in the process of transferring the
manufacturing of parts to Cadence and have spent cash resources to purchase new
equipment, to update clean room facilities and to assist in the regulatory
approval process.
In January 2020, we entered into an agreement with the first of two contract
research organizations (CROs) for clinical and data management services to be
performed in connection with a multicenter, single masked, randomized and
controlled trial designed to generate prospective data evaluating ILUVIEN as a
baseline therapy in the treatment of DME and demonstrate its advantages over
using the current standard of care of repeat anti-VEGF injections (the NEW DAY
Study). The NEW DAY Study is planned to enroll 320 treatment-naïve, or almost
naïve, DME patients in approximately 42 sites around the U.S. For the three
months ended March 31, 2021, we incurred $895,000 of expense associated with the
NEW DAY Study. As of March 31, 2021, we expect to incur approximately an
additional $11,100,000 of expense associated with the study through December 31,
2024.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or
special purpose entities, that would have been established to facilitate
off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of
SEC Regulation S-K) or other contractually narrow or limited purposes. As such,
we are not exposed to any financing, liquidity, market or credit risk that could
arise if we had engaged in those types of relationships. We enter into
guarantees in the ordinary course of business related to the guarantee of our
own performance and the performance of our subsidiaries.
Impact of Recent Accounting Pronouncements
See Note 3 of our notes to Interim Financial Statements for a description of
recent accounting pronouncements, including the expected dates of adoption and
expected effects on results of operations and financial condition, if known.
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