On Wednesday, May 8th, Eyepoint Pharmaceuticals (EYPT) will be releasing its commercial and financial updates for the 1st quarter of 2019. Eyepoint is a commercial-stage specialty pharmaceuticals company focused on treating ophthalmic disorders. Eyepoint has FDA approval for two products: Yutiq and Dexycu. For a more in-depth look at Eyepoint, I strongly recommend reading the overview written by our COO, Sultan Beardsley: MS Enters Another Biotech Stock.
- Analysts are expecting EPS is (0.14) on $3.39 million of revenue
- Yutiq and Dexycu were launched in the first quarter, but I am managing my expectations for this quarter
- The Icon milestone will likely be paid in the second quarter
- Alimera reported another strong quarter of growth, masked by seasonality
- I am expecting Eyepoint to receive around $500,000 in royalties for the first quarter
The estimated earnings per share for the first quarter of 2019 is -0.14, with a range of -0.14 to -0.09 per Yahoo Finance. With regards to revenue estimates, analysts are expecting $3.39 million, ranging from $2.79 to $3.98 million. With this in mind, Eyepoint has missed EPS estimates over three of the past four quarters, with the only beat being the fourth quarter of 2018.
Are the EPS Estimates too Ambitious?
It is hard to determine if Eyepoint will post a very large difference in EPS this quarter as compared to last quarter. On the last conference call, management discussed that research and development costs will be winding down, but there was no guidance on how much of this may be offset by increased commercialization expenses. While they may have commercial revenue from their products, I do not expect it to be very substantial yet. For reference, Yutiq was launched in early February and Dexycu was launched in mid-March. This means it is very early in the launch for two products whose use is very specialized. While I do not doubt the long-term potential of these products, I am managing expectations for this first quarter.
Furthermore, these commercial launches incur costs, which will likely result in an increase in operating expenses as alluded to above. As part of Eyepoint’s acquisition of Icon Biosciences, Eyepoint is required to make a one-time milestone payment of $15 million within 30 days of the first commercial sale of Dexycu. Eyepoint has said they anticipate this payment will be in April, meaning it will likely not be on the books for the first quarter. As a reminder, Eyepoint is also required to pay 12% royalties on the net sales of Dexycu.
Alimera Sciences (ALIM) has licensed a product, Iluvien, from Eyepoint. Interestingly, Iluvien is a fluocinolone acetonide intravitreal implant, very similar to Eyepoint’s Yutiq. Iluvien is FDA approved for the treatment of diabetic macular edema (DME). Iluvien is also approved in Europe for the treatment of DME. Under a restructured licensing deal from 2017, Alimera gained an expanded license for Iluvien, which included the treatment of non-infectious posterior uveitis in Europe. This is the indication that Yutiq is approved for in the US.
Terms of Iluvien License
Under the terms of this deal, Eyepoint will receive a 6% royalty on sales of Iluvien up to $75 million, at which point the royalty rises to 8%. There are additional terms to this agreement. As Alimera has incurred commericalization losses on Iluvien, a resettlement plan of $25 million was agreed upon. Initially, $10 million was cancelled in lieu of an upfront payment. Now, in the years of 2019 and 2020, 50% of the sales-based royalties in excess of 2% will be used to offset the remaining amount. In conjunction with this license, Eyepoint withdrew its European marketing application for Yutiq.
On April 29th, Alimera released their first quarter earnings report. In the first quarter, they recorded $12.9 million in net sales for Iluvien. This is up 34% compared to the first quarter of 2018, but down slightly from the fourth quarter of 2018 where they reported $15.1 million in net sales. There are several factors that are playing out for Alimera currently. First, is the drug shortage of a competitor’s product, Ozurdex. This has positively impacted recent sales of Iluvien. Conversely, there is seasonality seen with insurance claims and distributor purchases, and typically the first quarter for many drug companies comes in lower than the previous fourth quarter. Despite the lower revenue in the first quarter as compared to the fourth quarter, end user demand was up 10%.
For Eyepoint, it is estimated they are entitled to approximately $774,000 using the 6% royalty rate. However, once one removes the royalty revenue that is being used to offset Alimera’s commercial losses that was discussed above, Eyepoint will likely see closer to $516,000 in royalty revenue for the first quarter. Using the analyst’s revenue expectations above, this would suggest Eyepoint need to produce around $2.8 million in sales between Yutiq and Dexycu to reach expectations.
Other Alimera Updates
In late March, Alimera announced that it had received approval for the expanded label of Iluvien in Europe. Now, Iluvien will be approved to treat NIPU in addition to the prior approval for DME. This represents an expanded addressable market for Alimera to tap into. Based on the European process, each of the countries will finalize the label for the new indication to ensure it meets each country’s requirements. While approved, Alimera will need to also get reimbursement. Alimera notes that once the label is approved in Germany, they can launch within Germany without needing to pursue reimbursement. In other countries, Alimera will need to pursue reimbursement for this indication, which will be essential for its success.
The numbers may not be the most important factor this earnings report. Any discussion of launch progress on Yutiq and Dexycu will likely weigh heavily on the stock price. Having both Yutiq and Dexycu on the market for less than a quarter, I am trying to manage revenue expectations for this quarter. We can expect to see Eyepoint add roughly $500,000 in royalty revenue to its books for the first quarter, but unless there was extremely rapid uptake in first commercial quarter, I find it hard to expect Eyepoint to post enough additional revenue to reach analysts’ expectations.
This is in no form a recommendation to purchase/sell equities and investors should perform additional due diligence prior to investing.
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