Alimera Sciences, Inc. (ALIM) on Q3 2022 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by. Good morning and welcome to the Alimera Sciences Third Quarter 2022 Financial Results and Corporate Update Conference Call. at this time, all participants are in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Participants on 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 one hour after the end of the call through February 14, 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.
Scott Gordon: Thank you, Danielle. 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 Phil Jones, 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, the Form 8-K filed with the SEC today and Alimera's press release that accompanies this call, particularly the cautionary statements in it. Today's conference call will include references to adjusted EBITDA and to adjustments in net product revenue to exclude fluctuations in foreign currency exchange rates, each of which is a non-GAAP financial measure. Please see the explanatory language and reconciliation tables located in Alimera's earnings press release. The content of this call contains time-sensitive information that is accurate only as of today, November 14, 2022. 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.
Rick Eiswirth: Thank you, Scott, and good morning to everyone on the call. We're very pleased to have delivered another strong performance for ILUVIEN global end-user demand with record third quarter demand in both our U.S. and international segments. Both were up 27% over the same period a year ago. Year-to-date, we are also posting record performances in end-user demand, up 32% in the U.S. and 16% in Europe compared to the same nine-month period last year. Our reported revenue of $13.6 million for the third quarter grew 11% over the third quarter of 2021, but was negatively impacted by the weakening euro and British pound sterling that reduced our reported revenue by approximately $800,000. On a currency-adjusted basis, our revenue growth was 18% compared to the prior year quarter. Year-to-date, through the end of the third quarter, 2022 consolidated net revenues were $40.1 million compared to $34 million for the same nine-month period in 2021, representing 18% growth. But year-to-date revenues were also negatively impacted by approximately $1.9 million due to the exchange rate fluctuations. On a currency-adjusted basis, our revenue grew 23.5% year-to-date. In the U.S. segment, we saw third quarter revenues increase 27% to $8.9 million year-over-year. Our focus on increasing face-to-face interactions with customers across multiple formats continues to drive the strong performance as we saw end-user demand of 1,061 units, a record third quarter for our U.S. segment and growth of 27% over 837 units in the third quarter of last year. We are finding success with our Challenge '22 program, a performance initiative being driven by our regional sales directors. In this program, the reasons are hyper focused on certain key accounts and work to drive cross-functional collaboration and workflow within each account. This 360-degree effort has so far demonstrated significantly positive results with accounts in this program growing at 3x the rate of the broader account base. The success of this program is serving as a model for the entire organization, and it's consistent with one of our key guiding principles of cross-functional collaboration. As a result, beginning in January 2023, we will broaden the scope of this program by increasing our sales regions to five without increasing the number of sales territories, allowing more time for the regional directors to focus on these initiatives while providing the coaching and leadership of their respective sales teams. Additionally, the positive PALADIN study data results and follow-on data presentations and publications continue to be well received by retina specialists. We intend to publish even more data sets from PALADIN throughout next year. These compelling data are enabling our U.S. commercial team to highlight the benefits of ILUVIEN while addressing any challenges to the usage of ILUVIEN. As a reminder, the PALADIN study demonstrated that patients with diabetic macular edema or DME, who received a single dose of ILUVIEN demonstrated statistically significant improvements in best corrected visual acuity, central subfield thickness and treatment burden at 36 months as well as proving that side effect of intraocular pressure can be effectively mitigated when ILUVIEN is used in accordance with our U.S. FDA label. The data also shows that patients often achieve better results when ILUVIEN is used earlier in the treatment pathway for DME. Dr. Sam Mansour, Medical Director of the Virginia Retina Center, presented new data from the PALADIN study at the American Academy of Ophthalmology Conference in October. That data demonstrated that ILUVIEN can improve eye health by reducing retinal thickness and the patients receiving an ILUVIEN implant required 46% fewer therapies to manage their DME in the PALADIN study on average. These results reinforce the efficacy benefit of ILUVIEN, demonstrate that DME can achieve better results with significantly fewer injections and further support the hypothesis of our NEW DAY study. Turning to our international business. We reported $4.7 million in product revenue during the third quarter, down approximately 10% year-over-year. However, international segment revenues were materially impacted by the effects of the foreign exchange rate fluctuations, which reduced our reported revenue by approximately $800,000. Currency-adjusted basis, our international business was up 6% over the prior year period. Our overall international segment is strong with end-user demand having grown 16% year-to-date over the prior year, but our international results reflect that some countries have been slower to return to growth than others. We expect almost all countries to return to growth in 2023. Our opportunity to grow ILUVIEN behind the non-infectious posterior uveitis indication remains a priority in our strategic growth. Over the first nine months, we obtained reimbursement in six European countries for our non-infectious uveitis indication, driving strong performance in our French and Spanish market specifically. As a result, we saw record monthly end-user demand in our international segment in October. We expect that sales for this indication will continue to fuel the sales growth of our international segment. Turning to corporate initiatives. In September, we agreed to study ILUVIEN's ability to prevent visual acuity loss associated with radiation retinopathy for the DRCR Retina Network. The study labeled Protocol AL anticipates enrolling 600 patients across three treatment arms with primary choroidal melanoma that will undergo radiation treatment for their condition. Patients will receive either an ILUVIEN implant, repeated injections of anti-VEGF therapy or sham injections. In each arm of the study, patients will be monitored for the emergence of macular edema. The objective is to determine if ILUVIEN or anti-VEGF therapy can prevent or significantly reduce the occurrence and recurrence of radiation retinopathy. This study is anticipated to begin in the first quarter of next year, and we look forward to participating in Protocol AL with the DRCR Retina Network to find the best solution for patients at risk for this treatment complication. Turning to our landmark clinical study, the NEW DAY study. We continue to enroll patients with the objective to demonstrate the benefits of ILUVIEN as baseline therapy for all patients diagnosed with DME, provide a significant reduction in the frequency of necessary injections and lead to better long-term outcomes. This head-to-head trial against the current standard of care is now more than 70% enrolled. We have not enrolled patients for the study as fast as we would have liked in part due to the health care staffing shortages in the U.S. having caused a bit of slowdown during the summer months. We now anticipate completing enrollment in early 2023 rather than the end of this year. Assuming the primary objective of the NEW DAY study trial is met, we believe that ILUVIEN will become a formidable competitor to the $7.5 billion standard of care DME treatment and provide a significantly greater revenue opportunity for Alimera. And with that, I'll now turn the call over to Phil to review our third quarter financial results.
Phil Jones: Thanks, Rick, and hello, everyone. During the third quarter of 2022, our consolidated net revenue was $13.6 million, up 11% versus the prior year. As Rick previously shared, third quarter 2022 revenue was negatively impacted by currency fluctuations. On a currency-adjusted basis, revenue growth was 18%. U.S. net revenue was $8.9 million for the third quarter of 2022, an increase of 27% from the $7 million reported in the 2021 period. U.S. end-user demand, which represents units purchased by physicians and pharmacies from our distributors, increased 27% in the third quarter of 2022 to 1,061 units compared to 837 units in the third quarter of 2021. Net revenue from our international segment in the third quarter of 2022 decreased to $4.7 million from the $5.2 million that we reported in the third quarter of 2021. The 10% decline in our international net revenue was due primarily to the impact of negative foreign exchange given the rise in the U.S. dollar relative to the euro as well as the mix of end-user demand across our European markets. The foreign currency impact was approximately $800,000 for the quarter. Taking into account the impact from the exchange rates, our revenue growth was approximately 6% in the quarterly comparison. Importantly, international end-user demand was up approximately 27% year-over-year driven by the recovery from COVID-19 and the increased utilization of ILUVIEN for non-infectious uveitis. Total consolidated operating expenses were $15 million in the third quarter of 2022, an increase of 20% compared to the $12.5 million reported in the third quarter of 2021. The higher operating expenses were driven by an increase in promotional and medical program investment intended to accelerate growth as we and our customers anticipate the office business and medical procedures to increase in the latter part of 2022 given the recovery from COVID-19. Additionally, we saw increased expense in research, development and medical affairs associated with product improvements, NEW DAY study costs and travel related to increased engagement with clinicians. We reported an adjusted EBITDA loss of $2.5 million in the third quarter of 2022 compared to an adjusted EBITDA loss of $1.1 million in Q3 2021. For the three months ended September 30, 2022, we reported a net loss of $5.3 million compared to a net loss of $4.2 million for the three months ended September 30, 2021. Basic and diluted net loss per share for the third quarter of 2022 was $0.75 on approximately 7 million weighted average shares outstanding. This compares to basic and diluted net income per share for the third quarter of 2021 of $0.60 on approximately 6.9 million weighted average shares outstanding. On September 30, 2022, we had cash and cash equivalents of $5.5 million compared to $7.9 million in cash and cash equivalents that we reported on June 30, 2021. After our cost structure prospectively, given the current macroeconomic environment and the lack of available capital in the public markets, we plan to limit our cash operating expenditures to less than $12 million per quarter in 2023, an approximate 15% decrease to ensure the generation of positive adjusted EBITDA and neutral to positive cash flow. After the close of Q2, we announced that Alimera was undertaking a series of initiatives to reduce operating costs to improve cash flow. The previously announced initiatives are expected to realize operating expense savings of up to $3 million annually, and we have taken a number of actions to achieve this objective. With health care access now fully reopened and our renewed focus on face-to-face interactions with our customers, we have decided that we can rationalize costs further by eliminating certain external programs, such as our direct-to-patient advertising campaign. We believe that this will save the organization an additional $2 million in operating costs annually for total savings of $5 million per year when all cost rationalization initiatives are fully implemented. We are focused on pulling these cost savings through in 2023, which we believe will enable us to continue to grow our ILUVIEN business while becoming sustainably EBITDA-positive. We plan to offer more details and guidance on our financial outlook when we report our fourth quarter and year-end earnings results next year. And with that, I'll turn the call back over to Rick.
Rick Eiswirth: Thank you, Phil. We are very pleased with our demand growth year-over-year across the business. Our focus on face-to-face interactions with our customers is paying off as retina specialists are adopting ILUVIEN more and more in their practices due to the benefits of the therapy. We believe the continued progress in our NEW DAY trial and the upcoming study evaluation -- evaluating radiation retinopathy will increase visibility of ILUVIEN's utility in the treatment of retinal disease. And to complement our growth initiatives, we are committed to rationalizing our operating expenses to achieve sustainable positive EBITDA beyond this year. That concludes our prepared remarks. I'll now turn the call over to the operator for questions.
Operator: The first question comes from Alex Nowak of Craig-Hallum Capital Group. Please go ahead.
Alex Nowak: Rick, Phil, over the past couple of quarters, the Company has accelerated spend because we thought it was necessary to accelerate the sales growth. What is the risk here as you decrease the investments now that we're just not going to see sales grow as quickly as it has been or we start to see a sales decline in next year or in the future years? And maybe expand a bit more on some of the programs that you're cutting beyond just the direct-to-patient program?
Rick Eiswirth: Yes. So Alex, I do think it's very sustainable. We are really focused on making sure that all the dollars going forward are centered around the face-to-face engagement with the physicians, right? So anything that is not related to that sort of hand-to-hand combat on the ground, feet on the street, being with the doctors very frequently, are the things that are going to be cut because we think the more engagement we have the doctors, that's really what drives the utilization. So, we think we'll still have plenty of money to spend, and we don't plan any cuts in the structure of our field team. In fact, the goal is to make sure we continue to protect all those people, just like we did at the outset of pandemic to maintain those relationships and continue to invest in advisory board formats, educational programs things like that, with the doctors as a group. So as Phil alluded to, we did do some restructuring in our European operations earlier this year. You do see some of the impact of the severance costs and things like that running through the third quarter, which is one of the reasons it's higher than normal. And we are going to eliminate the DTP program going forward. We think that was very successful in generating some awareness while offices were shut down or access to patients and physicians wasn't as good, but -- and we do think that the money spend around the face-to-face engagement with the physicians is more impactful and more powerful.
Alex Nowak: Okay. That all makes sense. And I guess as you think about next year -- well, let's say, Q4 this year, Q4 seasonally is a very strong quarter for you. So I'd expect to see maybe some cash flow-positive in that quarter. But what do you think about 2023? Should we expect the business to be at a cash flow-neutral, maybe cash flow-positive, run rate based on what you're seeing on the sales side, what you're seeing around the cost that you're going to make?
Rick Eiswirth: Yes, I do. I do think that in 2023, you will see us be cash flow-neutral to positive. If you look at the expense projections, we just projected trying to get down below $12 million a quarter from an operating expense standpoint. You can do the math and see that it only takes very moderate growth to be positive cash flow at that level of expense and certainly less than what we have been seeing from a growth standpoint. So, we think we're being very conservative there, and we'll be able to drive that positive cash flow next year.
Alex Nowak: Okay. And maybe expand a bit more on the sales force structure changes for just really at the beginning of 2023. Are reps going to be moved around to different territories? Are there new -- going to be new rep additions? Just how are you thinking about any disruption, time for ramp around the reps? Or is it pretty straightforward?
Rick Eiswirth: No. There shouldn't be any disruption there. We're actually -- there's no change to the field territories. We'll still have roughly 30 territories. We're just going from four regional directors to five. So we're reducing the span of control from seven or eight reps per regional director to five to six, and that's to allow a little bit more flexibility in those regional director schedules to focus on key accounts, right? So in our Challenge '22 program this year, we really tried to focus that cross-functional effort around 18 to 20 accounts. We think we can expand that 30 to 35 accounts next year. And I'm really pleased that the fifth regional director was an internal promotion. It's a gentleman that has run sales team in the U.S., ran global training for us, is very, very familiar to the entire U.S. sales team and has actually been a regional director in other organizations in the past. So he's a perfect fit for us, and it should be a very seamless transition for our team as we sort of reallocate the reporting lines there.
Alex Nowak: Okay. That makes sense. And maybe can you talk through month by month what happened throughout Q3? Typically, we do see end-user demand increase sequentially in Q3. It didn't look like it happened, excluding all the FX impacts and whatnot. So just what are you seeing in the market? And then obviously, October sounded pretty good, but what are you seeing in October, so far in November? And then just lastly, it looks like there's $21 million in debt that went into the current line on the balance sheet. Just curious, was there some sort of covenant that was tripped? Or what was the reason for the move from long-term debt to current debt?
Rick Eiswirth: Yes. Sure. So Alex, to be honest with you, Q3 was a little bit inconsistent. We had a strong July. We had a record in August. I think August in the U.S. was the strongest August -- strongest month we've ever had in the history of the Company. And then it dropped off a little bit in September. One of the things we think we are seeing a little bit is being -- phased through is there are a lot of Vabysmo or faricimab samples out there in the marketplace. And we do think that there are a few doctors that are trialing the sample faricimab units in a patient for one more shot at the anti-VEGF before they switch over to steroid. And so we may be dealing with a little bit of a cycle there. Revenue popped back up pretty strong in October again, but we also know they put a lot of samples out there this month. So that may be one issue. We've got to cycle through temporarily, let them try this faricimab. We don't think and a lot of the doctors we talk to, and specifically our Chief Retina Specialist, that there's really any difference now that's going to perform, but it's perceived as a stronger anti-VEGF. And if you got a free sample there, we think they're giving that a shot. So I think that is having a little bit of an impact -- did have a little bit of impact on the third quarter. With respect to the debt, the debt is listed as current there because technically, the debt starts to amortize early next year. We're in the process of working with our lender -- our existing lender, Solar, who we've had a really strong relationship to address that going forward. And I think we'll be able to solve that. I think our business from a global demand standpoint, as we've talked about today, is -- it's really stronger than it's ever been despite the little bit of challenges there with faricimab. So, we feel real good about going into 2023. We feel real good about the ability to manage the cash and are comfortable that we'll be able to work something out with Solar in the -- by the end of the year.
Operator: The next question comes from Laura Sorel of Alliance Global Partners. Please go ahead.
Laura Sorel: This is Laura Sorel on for Jim Molloy. So regarding the agreement with Jaeb Center study of ILUVIEN in radiation retinopathy as mentioned, with the initiation expected to commence next year, when do you expect an overall interim look to be announced for this trial in particular? And then also for the NEW DAY study, what is the overall time line for this trial following expectations to complete enrollment early next year? And when might top line data be reported?
Rick Eiswirth: Yes. So for the DRCR study, I think from a confidentiality standpoint, we need to let them speak publicly about their time lines. But it is anticipated they'll start next year. It's a 600-patient study, so it will take a while to enroll. And it's most likely going to take two years to enroll that study. So, the data will -- it will be quite some time before that data is actually available. With respect to the NEW DAY study, it is a 18-month end point. And so, the hope is we have completed enrollment by the end of the first quarter, and then we would still have data in 2024.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Rick Eiswirth for closing remarks.
Rick Eiswirth: Thank you. I want to thank everybody for participating on today's call and your continued interest in Alimera, and we look forward to sharing our ongoing progress when we report our fourth quarter and full year 2022 results early next year. Thank you and have a great day.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect
