Alimera Sciences, Inc. (ALIM) Q3 2023 Earnings Call Transcript

Alimera Sciences, Inc. (NASDAQ:ALIM) Q3 2023 Results Conference Call October 26, 2023 9:00 AM ET

Company Participants

Scott Gordon - CORE IR

Rick Eiswirth - President, CEO & Director

Russell Skibsted - SVP & CFO

Conference Call Participants

Alex Nowak - Craig-Hallum

Yi Chen - H.C. Wainwright

Laura Suriel - Alliance Global Partners

Operator

Ladies and gentlemen, thank you for standing by. Good morning, and welcome to the Alimera Sciences Third Quarter 2022 [2023] (sic) Financial Results and 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 one hour after the end of the call through January 26, 2024.

Now I'd 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. Thank you, Nick, 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, future financial position, outlook and guidance and time line for achieving positive cash flow. 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, which is a non-GAAP financial measure. Please see the explanatory language and 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, October 26, 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.

Rick Eiswirth

Thank you, Scott, and good morning to everyone on the call. I'm excited to share our third quarter results, which demonstrate the leverage created by adding YUTIQ to our portfolio earlier this year.

We achieved record net revenue in the quarter of $23.4 million, up 72% over the third quarter of last year, driven by the sales growth of our 2 brands, ILUVIEN and YUTIQ. And importantly, we achieved positive $5.4 million in adjusted EBITDA in the third quarter.

In the U.S. segment, we saw third quarter net revenue increases -- increased 103% to approximately $18.1 million year-over-year. YUTIQ contributed $8.9 million to the quarter and continues to demonstrate significant growth with end-user demand reaching 1,045 units, an increase of 20% over Q3 of 2022.

ILUVIEN returned to growth with end user demand of 1,146 units for the quarter, an increase of 8% year-over-year. We believe there is a significant opportunity to grow sales of both ILUVIEN and YUTIQ moving forward in the U.S. behind our expanded sales force detailing both products and our other additional field personnel.

As we shared in August, our larger team, which represents over an 80% increase in reps detailing YUTIQ and over a 20% increase in reps detailing ILUVIEN began promoting both products in late July. We're still in the learning curve for our team, all who have taken on a new product. Continued training for both products is very important to our success. We held a launch meeting in July with all field employees and follow-up training in September. And we plan to continue to provide more medical and sales education in the field to further the knowledge and to increase their value to our customers.

I think we will continue to get better across both indications. And this is important because we believe there is a significant opportunity to cross-sell the second product to many physicians that use only 1 of the 2 products today.

For example, in the third quarter, only 27% of the accounts ordering, either YUTIQ or ILUVIEN, in the third quarter ordered both YUTIQ and ILUVIEN. This creates a significant opportunity for us moving forward.

Turning to our International segment. We reported $5.3 million in net revenue during the third quarter, an increase of approximately 13% year-over-year, driven by a return to growth in Germany and continued strong performance in our other direct markets. In our direct European markets, we saw a significant end user demand growth of 20.4% over Q3 of 2022.

However, end-user demand in our International segment was down 2% for the quarter caused by the rationing of stock by distributor partners during the quarter.

As you may have seen, we were pleased to have Jason Werner, who has an extensive background in ophthalmics and significant experience in previous roles in commercial development and corporate strategy, join us as Chief Operating Officer early last month. We're already increasing our investment in this area and Jason is working with our distributor partners and our manufacturers to improve inventory levels.

We do expect to have stocking levels at the distributor partners addressed early in Q1 next year with improvement over the course of Q4. As we continue to pursue the increased utilization of ILUVIEN and YUTIQ, we expect that the sharing and discussion of additional data with physicians will be a significant driver. We continue to believe that the PALADIN data set including improvement in visual outcomes, reduced treatment burden and control of retinal thickness variability is an excellent marker for our new day study outcomes.

As a reminder, the PALADIN study demonstrated that patients with diabetic macular edema to 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 demonstrating that the side effect, risk of intraocular pressure can be effectively mitigated when ILUVIEN is used in accordance with its FDA label.

This month alone, at the recent EURETINA meeting in Amsterdam, we had 4 presentations of this data. And in New York, at the Retina Society, we had an additional 4 presentations. Next month, at the American Academy of Ophthalmology in San Francisco, another presentation and 3 posters will highlight the efficacy and safety of ILUVIEN from this study.

From a clinical standpoint, we have several ongoing trials designed to further demonstrate the effectiveness of ILUVIEN and YUTIQ. Our over-enrolled NEW DAY study evaluating ILUVIEN's utility as baseline therapy head-to-head versus the leading anti-VEGF in the treatment of diabetic macular edema has completed enrollment of 306 patients and remains on track with top line data anticipated in the first quarter of 2025.

We are actively enrolling patients in our synchronicity study, which is a prospective open-label clinical study evaluating the safety and efficacy of YUTIQ for the treatment of macular edema associated with chronic noninfectious uveitis affecting the posterior segment of the eye and related intraocular inflammation. This is a 2-year follow-up study within an interim top line 6-month efficacy readout anticipated in the third quarter of 2024.

Additionally, we've completed a moment in the YUTIQ CALM study with 240 eyes. The CALM study is a registry study conducted in collaboration with the Cleveland Clinic, collecting real-world data to better understand the variety of conditions treated with YUTIQ for noninfectious uveitis affecting the posterior segment of the eye. We expect efficacy outcomes on individual and combined patient cohorts to be presented at medical conferences in 2024.

Also with ILUVIEN, we are working with the DRCR Retina Network to support Protocol AL. Protocol AL is a randomized clinical trial, evaluating either intravitreal faricimab injections for ILUVIEN intravitreal implants versus observation and the prevention of visual acuity loss due to radiation retinopathy following plaque radiotherapy.

Looking to the future, we are actively evaluating indication expansion opportunities to broaden the number of patients that either ILUVIEN or YUTIQ as long-acting steroid implants can help treat. We look forward to sharing further details in the coming months.

And with that update, I'll turn the call over to Russell to review our third quarter financial results in greater detail.

Russell Skibsted

Thanks, Rick, and hello, everyone. Thanks for joining us today. I am also very happy to report that net revenue was up 72%, to approximately $23.4 million in Q3 2023, which was almost $10 million more than the $13.6 million we reported in the third quarter of 2022. The increase was due to the addition of YUTIQ into our U.S. portfolio, combined with organic growth in ILUVIEN sales in both our U.S. and international markets.

Total end-user demand for ILUVIEN and YUTIQ during the quarter was up 233 units to 3,456 units over the 3,223 units for the same period last year. Net revenue in the U.S. increased 103% to approximately $18.1 million in Q3 '23. This compared to U.S. net revenue of $8.9 million in Q3 '22. The growth was attributable to growth in ILUVIEN sales year-over-year as well as the addition of YUTIQ.

U.S. end-user demand for ILUVIEN and YUTIQ during the quarter was up 260 units to 2,191 units over the 1,931 units for the same period last year. International net revenue also performed well, increasing 13% to approximately $5.3 million in Q3 '23. This compared to approximately $4.7 million in the third quarter of last year.

Growth in revenue was due to the increased sales in our direct markets, as Rick alluded to, where we receive higher net revenue per unit. International end-user demand for ILUVIEN during the quarter was down 27 units to 1,265 units over the 1,295 units for the same period last year.

Total operating expenses were approximately $18.8 million for Q3 '23, which compared to $15.0 million in the same period last year. This increase was primarily due to the increased operating costs associated with the addition of YUTIQ in the U.S. segment, and depreciation and amortization associated with the assets acquired. We received record adjusted EBITDA of $5.4 million in the quarter. This compared to an adjusted EBITDA loss of $2.5 million in Q3 '23.

As of September 30, 2023, we had cash and cash equivalents of approximately $8.3 million compared to $18.8 million on June 30, '23. Cash burned during the quarter was primarily a result of working capital investments required to support the addition of YUTIQ during the quarter. What this means is that in May, we began paying all of the expenses for YUTIQ but because of the payment terms with the distributors, we did not begin collecting on those sales that we made until this month. We expect to generate positive cash flow in the fourth quarter of '23 and in 2024.

With that, I will now hand the call over to Rick so he can give his closing comments. Rick?

Rick Eiswirth

Thank you, Russell. I commented on our last call that we are committed to leveraging our existing U.S. commercial infrastructure to achieve sustainable positive EBITDA beyond this year. This quarter was solid evidence that our strategy is working. We are also committed to growth and to support the significant revenue opportunities provided by both ILUVIEN and YUTIQ.

In 2024, we will look to leverage our broader commercial team and stronger financial position to increase our engagement with retina specialists, leverage the cross-selling opportunity presented by having 2 products and indications and drive utilization of both products.

As I noted earlier, we will evaluate indication expansion opportunities for our long-acting steroid implant to help more patients. This quarter was the first step in establishing a foundation to achieve our goals next year and we are reiterating our expectation to generate more than $100 million in revenue next year and at least $20 million of adjusted EBITDA in 2024. We will endeavor to update our revenue and EBITDA guidance as we progress through the integration and planning for 2024 with a goal to improve these targets.

This concludes our prepared remarks, and I'll now turn the call over to the operator for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] First question will be Alex Nowak, Craig-Hallum.

Alex Nowak

Good morning, everyone. Thanks for doing the call here. That 27% cross-sell number that you mentioned in the prepared remarks, where can that realistically go by the end of the year. I think that's a really important metric here as you complete the combination of the 2 assets.

Rick Eiswirth

Alex, I mean that's a really hard one to project. I mean I will say it's up a point or 2 since we took over the both products. So I think you're certainly seeing some impact there early, but I wouldn't expect to see major strides of that until we get into next year as we continue to get the entire team cross-trained really well across both products.

Alex Nowak

The next year with all that's kind of trading in place, then we can start to see that number climb up.

Rick Eiswirth

That's right.

Alex Nowak

Maybe expand a little bit on the OUS weakness there. I know you touched on it during the prepared remarks, but I was surprised seeing the OUS units decline quarter-over-quarter in such a dramatic fashion. Just expand on what was happening in the -- over in Europe this quarter?

Rick Eiswirth

Yes, sure. So as we talked a little bit about on the second quarter call, we have been a little bit behind in supplying some of the distributors in Europe. That's a factor of demand increasing in our other markets. And frankly, the early forecasting in the first part of the year from the distributor partners was -- and late last year was lower than expected, and we just have a long lead time product for manufacturing.

So we actually were really pleased with the demand growth in the direct markets. As we noted, they were up over 20%, I think 20.4%. What happens in some of the markets in Europe is if they are low on stock they have to ration the units going out so that they don't go out of stock. And so our partners in France specifically has had to, based on working some things out with the regulatory authorities, lower the number of units that they're shipping each quarter in order to just maintain an in-stock position. And so that's what I mean by rationing that.

So we do expect that to have a significant uptick back to levels they were at before once their stock is built up. And as I said in my prepared comments, we're working closely with them to rebuild stock over the course of the fourth quarter and think we'll be back to the point where they'll be fully stocked in Q1.

Alex Nowak

That makes sense. With regards to the U.S., we had some choppiness in the past couple of quarters with docs trialing new drugs, and that was essentially slowing the rate that they're moving over to ILUVIEN. Just thoughts on longer-lasting VEG -- anti-VEGF drugs, the thoughts on how docs are trialing, retina docs are trialing new drugs out there. It seems like that has reversed this quarter. Is that fair to assume?

Rick Eiswirth

Yes, a little bit of it. I mean, I do think the trial of faricimab out there is still a formidable. It's a challenge to us as we go forward. But I think the reality is doctors are learning as they trial faricimab that it is -- and this isn't saying anything neat, everybody -- it is -- anti-VEGF is a class of drug, right? And the reality is that there are patients out there that need something more than anti-VEGF therapy. It's been demonstrated in DRCR protocols that there's persistent edema in these patients even they receive recurring and very tightly spaced doses of anti-VEGF therapy. So I think we will work through that. But the use of faricimab is still pretty aggressive now. But there's still a need for the steroid to take the place of those anti-VEGF in certain patients.

Alex Nowak

And then just two more questions, if I can. Just the first one on the NEW DAY study, I think we all know that's a very important study for ILUVIEN. Maybe expand a little bit on the differences between the 2 YUTIQ studies. And just how can those outcomes there, how would that start to change adoption in the market like -- is it the same level as NEW DAY? Or are these more confirmatory studies?

Rick Eiswirth

Yes. So I'll start with CALM. So CALM is a registry study to collect real-world evidence on the use of YUTIQ in treating noninfectious posterior uveitis. One of the -- I guess, one of the challenges of the pivotal studies was there were no cohorts defined to look at specific types and specific cases of uveitis. And there's probably 25 to 30 different types of uveitis that are studied and treated in the back of the eye, right? So the idea is to hopefully develop some cohorts in the more specific types where ILUVIEN or an anti-inflammatory steroid would be used locally more effectively. And we hope to get that out of the CALM study. And we should continue to be able to produce some of that next year.

There are also some consensus papers coming out of Europe that we'll talk about specific types of uveitis where a long-term acting steroid is more applicable as well. So I think it will help doctors with patient identification earlier in their evaluation of uveitis in those patients. The synchronicity study is really -- it is very, very similar to the pivotal studies. However, the focus is around the more traditional retina specialists and the type of uveitis that they may treat that doesn't get referred out to the uveitis specialists.

So one example of that is post-operative inflammation, a lot of times when physicians look at that, there are characteristics of uveitis in that, right? And that's maybe a direct result of vitrectomy surgery or cataract surgery and a patient with postoperative inflammation is referred to that retina specialist. And so it's to identify the types where uveitis is present in those eyes because they've developed some sort of long-term inflammation in those types of situations or maybe a less severe type of uveitis, as I said, that is just going to be treated typically by the retina specialists.

Alex Nowak

Very helpful. Last question. You guided to $20 million of adjusted EBITDA. You confirmed that again this morning for 2024. But it also looks like you're almost at that run rate to begin with in Q3. When do we start to up that target for next year?

Rick Eiswirth

As I said, we are -- Alex, we're very bullish on next year. We do want to work through some of the rest of the pieces of the integration, as I said. We made a lot of progress there and some of our plans for 2024 before we update that guidance. I do think there are some places where we have been very conservative in spending in Q3 to make sure we could get the integration right and waiting for the working capital to turn, as Russell alluded to, but we do want to make sure we maximize the effort next year in getting in front of doctors and this cross-sell opportunity as well as looking at some opportunities to expand that label with potentially other indications. So right now, we're going to stick with over $100 million and over $20 million, but we'll give you updates on that as we move into the next year.

Alex Nowak

Thanks for the update. Appreciate -- congrats on all the progress.

Rick Eiswirth

Thanks, Alex. We appreciate your support.

Operator

Next question will be from the line of Yi Chen of H.C. Wainwright.

Yi Chen

My first question is, do you plan to add additional sales reps throughout 2024?

Rick Eiswirth

Yi, thanks. Good morning to you. That's a good question. I mean right now, we are only 3 or 4 months into having the team of 35 out there. So we want to see how productive and effective they are first. Obviously, if more face-to-face time at the rep level does yield positive benefits in 2024, I think we will continue to evaluate the potential to expand the sales force. But no decision has been made on that at this time.

Yi Chen

And could you comment on the percentage of international revenue that's represented by your direct sales force?

Scott Gordon

Percentage-wise we're looking at -- I'm going to say direct is roughly 2/3 of our total and distributors is roughly 1/3 of our international sales.

Yi Chen

And lastly, in the coming quarters, do you expect any seasonality in terms of YUTIQ sales, either in the U.S. or internationally?

Rick Eiswirth

Yes, I think you’re going to continue to have seasonality in the first quarter related to – these are both high-priced products. So in the U.S., the vast majority of patients start their deductible years over as of January 1 with new insurance plans or slight modifications in their insurance plans. So we always see quite a delay in January and February as doctors try to reevaluate, or excuse me, redo benefit investigations to make sure the insurance coverage is there. I think that’s pretty typical with some higher-priced products in this space. You also see a little bit of seasonality in the first quarter, some of the budgets in Europe are reset as they reset their budgets.

And then we often do see seasonality in Q3 as well, related to European holiday season and also holiday season in the U.S. in the third quarter also seems impacted as well.

Operator

Our next question will be from James Molloy of Alliance Global Partners.

Laura Suriel

This is Laura Suriel calling in for James Molloy. So for your net revenue this past quarter reported at $23.4 million, what's the specific breakdown of this value between both YUTIQ and ILUVIEN product revenues?

Rick Eiswirth

Well I think we -- in Russell's comments, he noted that's about $8.9 million of that was from YUTIQ.

Laura Suriel

And then also looking ahead, you mentioned that you're on track to deliver over $100 million in that revenue for next year 2024. Maybe just provide a bit more guidance on how this would be broken up again between both products, both in the U.S. and internationally.

Rick Eiswirth

As we noted in the release and some of the comments, our plan going forward is to really report the fluocinolone acetonide franchise on a combined basis. So we're not going to break out specific guidance on that. I mean, frankly, we benefit from increased usage of a long-term low-dose steroid in any indication. And we're still working out -- where the focus of the promotion would be extra on that. But overall, we're very confident with the $100 million number.

Laura Suriel

And then lastly, your share count now at 32 million for this past quarter. Can you just provide a bit more detail on the jump in the number here in comparison to this past second quarter at 8 million.

Rick Eiswirth

We're -- right now, we're at about 53.4 million shares of common outstanding.

Laura Suriel

And then also -- all right. Last question from us. Just any more updates on the ongoing Protocol AL trial that you had? And then just a first look into the data on when that might come out?

Rick Eiswirth

That’s a pretty lengthy trial. I mean that’s – it’s the target, the DRC has on the trial is about 600 patients. We’re hoping that they will start nrolment in the – late in the fourth quarter of this year but it’s probably a multiyear trial before you’d see any readout. It’s being run by the DRCR. So yes, it’s being run by the DRCR. So we don’t control the time line on that trial.

Operator

[Operator Instructions] This concludes our question-and-answer session. I'd like to return the call over to Mr. Rick Eiswirth for closing remarks.

Rick Eiswirth

Thank you. I want to thank everybody for participating on today’s call and for your interest in support of Alimera. We do look forward to sharing our ongoing progress when we report fourth quarter and full year 2023 results early next year. Thank you all very much, and have a great day.

Operator

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.