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Expert Financial Analysis and Reporting

Comments on Alimera (ALIM, $4.46, Neutral) and pSivida (PSDV, $3.97, Neutral)

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Alimera (ALIM, no current opinion, $4.46)

Investment Overview

I believe that Iluvien has the potential over time to be a successful commercial product with US sales of over $200 million and European sales of somewhat less. However, new product launches are notoriously slow in both the US and Europe primarily because of reimbursement issues. The US launch is just starting and I am watching carefully to see how sales develop. The European launch has been disappointing as sales reached only $1.5 million in 1Q, 2015, two years after the first product launch in Germany, and decreased year over year.

My central investment thesis is that Iluvien has significant potential, but that it will take time to build the brand. This gives rise to the issue of financial staying power. Alimera burned $15 million of cash in 1Q, 2015 and has $61 million of cash. Of the $15 million burn, about $10 million was due to operational spending. The Company has about five to six quarters of cash and management hopes that within this interval that the Company will reach profitability. If not, Alimera already has a highly leveraged balance sheet with $30 million of notes payable and $69 million of convertible preferred. A slow launch combined with this strained balance sheet could result in the need to finance on difficult terms later this year or early next.

I am very interested in Alimera but remain on the sidelines to see how sales of Iluvien develop. On a very preliminary basis, I like what I have seen in a brief period of time for the US launch. However, Alimera is struggling through the reimbursement process in Europe and has bitten off a lot to chew in by launching Iluvien on its own on both continents.

Iluvien 1Q, 2015 Results in the US

Iluvien was launched in February 2014 in the US and contributed $2.4 million of sales. European sales were $1.5 million down from $2.1 million a year earlier. On a worldwide basis sales were $3.9 million which was an increase of 86% from $2.1 million. U.S. sales included some inventory build in the specialty pharmaceutical distributor channel of distribution. However, the company said that the majority of units were sold to end users. This implies $1.2 million or more of end user sales; the Company didn’t clarify further. Management said that this specialty pharmaceutical inventory already has turned over in the second quarter as demand through this channel more than doubled in April from March. This seems to imply that there will be good sequential growth in the US in the second quarter.

Access Plus Program Reimbursement

Reimbursement is a challenge for all new product launches, but Iluvien faces special challenges. If they do not choose to go through specialty pharmacies (which reduce economic returns) retinal specialists must buy the product at a cost of about $8,800 and then bill payors. Getting paid can take 3 to 4 months during which the physician must carry this as accounts receivable and there is no certainty that the physician will get paid. Hence, there is a strong financial disincentive to aggressive prescribing as accounts receivable could build rapidly and some claims might not be paid. This is a problem for all practices, but especially so for small ones. Alimera is offering in some situations that if reimbursement is not received within four months that Alimera will reimburse the practice and assume the accounts receivable.

Iluvien is running the Access Plus program that engages with payors in advance to determine if a patient is eligible for coverage. This provides the physician practice with resources needed to do this which they may lack. However, eligibility does not guarantee prompt payment as paper work for reimbursement has to be filled out correctly. A deliberate tactic of payors is to make it difficult to correctly file claims so that they can reject the claim as not being properly filed forcing the physician to refile. This floats the physician for the amount of the accounts receivable.

Alimera has seen significant growth in the number of physicians who have enrolled in Access Plus. There were 270 enrolled physicians as of March 7 and as of May 7 there were 650; the latter represents about 35% of the total registered retinal physicians in the U.S. There has been significant growth in patients enrolled in the Access Plus program. For the four weeks ended April 3, there were 165 new investigations and for the four weeks ended May 1 there were 395 investigations of which 98% were eligible for coverage. Because of the financial issue just described and other issues, not all of these 387 patients will be treated. However, it they were it would account for about $3.4 million of revenues.

Iluvien is approved for on-label usage in 85% of the top 40 commercial insurance accounts representing 154 million insured lives.

Iluvien Challenges, No Current J-Code

Medicare establishes an accepted level of reimbursement for injectable products like Iluvien called the J-code. Once this J-code is established, the physician files for reimbursement electronically under this code. The comfort level of getting paid increases significantly once a J-code is established which in the case of Iluvien will be on January 1, 2016.

However, there is always a lag between introduction of a product like Iluvien and receipt of a J code. During this time physicians must bill under a different, miscellaneous J code that is similar to the one that will ultimately be put in place. This requires paper forms to be filled out and can create complications and inconsistent processing claims. Private payors also base reimbursement off the J-code. Not having a J code can lead to a protracted adjudication process during which practices have limited visibility to payments of their claims.

Physician practices carefully watch what is happening to other practices and who has been paid and by which insurance carriers and proceed only when they have strong confidence they will get paid. This obviously leads to restraint in prescribing. Also, some physicians will just wait for the J-code, because there are some alternative products available to them.

Some Medicare claims are being paid already as are some under managed care organizations. Generally, it takes about 120 days to adjudicate claims. The Company hopes that by the end of the second quarter word will spread on reimbursement and encourage other practices to prescribe Iluvien. If physicians don’t want take the risk of getting paid, they can work through a specialty pharmacy, but this reduces the economic return. The physician writes a prescription that will be filled with the specialty pharmaceutical distributor who then deals with the reimbursement. Specialty pharmacies typically work very closely with the managed care organizations which provides much more assurance that they will be paid.

Identifying Patients and Competition

Alimera states that they are confident that physicians won’t have difficulty identifying patients who are eligible for Iluvien. There are a significant number of diabetic macular edema (DME) patients who don’t respond to anti-VEGF therapy or laser photocoagulation. While the anti-VEGFs Eylea and Lucentis have been fabulously successful in wet AMD, they seem less effective in DME. Iluvien does not directly compete with the anti-VEGFs but is used when they fail.

Iluvien does compete directly with Allergan’s Ozurdex which is the only other injectable steroid implant approved for DME. The major differentiation is that Iluvien can control the disease for up to three years with one injection and Ozurdex is injected about every three months. This is a major convenience factor in favor of Iluvien. However, steroids can cause troubling increases in intra-ocular pressure which is a significant risk factor that must be treated. The shorter life cycle of Ozurdex is an advantage from this standpoint as physicians only have to deal with the side effect for a few months as opposed to perhaps three years for Iluvien.

In Iluvien’s phase 3 clinical trials, about 38% of patients had meaningful increases in intraocular pressure that can be treated in most cases with intraocular eyedrops. This resulted in the FDA giving Iluvien a label that states that patients must have had a prior course of corticosteroids and not exhibits a significant rise in intraocular pressure, before they are given Iluvien. Alimera hopes that physicians will use Ozurdex as a diagnostic to see if a patient exhibits a significant rise in intraocular pressure. If they don’t Alimera thinks that they should be then given Iluvien. This is a key issue to watch.

Iluvien also increases the rate of cataract formation. Most of the patients receiving Iluvien are elderly and diabetic which also are risk factors that increase the rate of cataract formation. This means that most patients on Iluvien will have cataract surgery within the first year of receiving Iluvien. However, this is not as bad as it sounds because it is inevitable that most would get the surgery within a few years anyway. Importantly, the surgery is simple and safe and leads to much greater visual acuity apart from any effect of Iluvien.


Iluvien is being marketed in three European countries: the UK, Germany and Portugal. Alimera recently received marketing approval in Poland which is the 17th European country in which Iluvien has been approved. However, before marketing can begin in Europe (unlike the US) reimbursement approval must be gained. This has only been done in those three countries. Management does not break out sales by country but my guess is that of the $2.1 million of European sales in 1Q, 2015, the UK is about 1.4 million and Germany is about $0.8 million with negligible sales in Portugal.

The United Kingdom is seeing significant growth over last year, Alimera reports that the number of injections have doubled year over year. The focus is on patients who are pseudophakic which is in line with the restricted National Institute of Clinical Excellence (NICE) recommendation. The launch in Germany has been a disappointment which the Company attributes to reimbursement issues and having little support from key opinion leaders. The phase 3 studies did not include German sites so key opinion leaders had no experience with the product as the clinical studies were not carried out in Germany. Sequential sales in the 1Q, 2015 were about flat at $0.8 million which was disappointing to management. They are essentially relaunching the product in Germany by engaging with key opinion leaders to advocate Iluvien usage in Germany.

Iluvien was just launched in Portugal and limited units have been sold. They have a national price agreement in Portugal but the gating factor for adoption is getting placement on hospital formularies which require negotiation of a discount at hospital level. Iluvien’s high price has slowed discussions. They are currently on formularies at two hospitals and the goal is to be in 26 by the end of 2015.

pSivida (PSDV, Hold, $4.01)

Investment Thesis

I am focused on two potential catalysts for pSivida over the next 12 to 18 months: (1) the launch curve for Iluvien and (2) topline data on the first phase 3 trial of Medidur. The previous note on Alimera outlined the issues on Iluvien; I am looking for an inflection point that will indicate that the launch has caught traction. It is difficult to predict when that will be, but it may be in 1H, 2016. However, I must point out that there is considerable investor skepticism that Iluvien has a major role to play in treating diabetic macular edema.

The topline phase 3 data on Medidur for the treatment of posterior uveitis will likely be released in 2Q, 2016. Medidur uses the same active drug ingredient (the corticosteroid fluocinolone) as the ocular implant Retrisert which has been approved to treat posterior uveitis. Because of this, I assign a high probability of success for this trial. There is also a safety analysis for Medidur scheduled to release results very shortly. I am not expecting this to be a major event, but there is always the potential for surprise.

In my note on Alimera, I said that I beleived that Iluvien would be a major product, but I am concerned that it will take time to establish the product and Alimera’s balance sheet is strained. It is possible that Alimera may have to do some major financing under distress that could pressure the stock. This is not an issue for pSivida because they are not responsible for the spending involved in launching Iluvien. I think that pSivida is an interesting investment situation for the longer term but may not have important catalysts until 2016. Hence, I am waiting for what I think will be an opportunity to upgrade from a Hold to a Buy as opposed to acting now.

Medidur Targets Posterior Uveitis

Medidur is being clinically tested for the treatment of posterior uveitis. This disease affects about 175,000 people in the U.S. and will result in blindness for about 30,000. It is the third leading cause of blindness in developed countries. Medidur is essentially the same product as Iluvien as both are implants that use the same polymer delivery device and the same active ingredient-the steroid fluocinolone. The only difference is that Medidur is delivered with a smaller 27 gauge needle.

Regulatory Pathway for Medidur

pSivida had been hoping that Medidur could be approved on the basis of a single phase 3 trial based on the safety seen in the phase 3 Iluvien trial and toxicology studies from the Iluvien phase 3 trials. The hope was that they could file an NDA based on a single phase 3 trial that would lead to filing an NDA 4Q, 2016 or 1Q, 2017. However, the FDA has informed PSDV that a second phase 3 trial will be required. This was just announced on the May 11 conference call.

The primary endpoint for the two randomized trials will be recurrence of uveitis at twelve months and six months respectively after enrolment in the study. The first phase 3 trial is based on a primary endpoint of 12 months evaluation of patients, but the second will require only 6 months. As part of their contingency planning, this second trial has already been set up and is ready to go. It will involve 150 patients, all of whom will be enrolled in India. PSDV says that these two studies will support a worldwide filing. The Company says that it now expects to file an NDA in 1H, 2017. This implies a delay in filing of at most nine months according to the Company.

Medidur uses a smaller 27 gauge needle than the 25 guage needle used by Iluvien, which is a clinical advantage. Because of this, pSivida will be conducting a small utilization study for this inserter. This utilization study is very small and has a short end point which is looking at the efficacy of the inserter itself. pSivida says this will not affect the timing for filing the Medidur NDA.

Key Points for the Medidur Clinical Trials

In the first calendar quarter in 2015, enrollment was completed in the first phase 3 trial. The Company is expecting to report topline data in the second quarter 2016. pSivida expects to report very shortly a safety assessment comparing the incidence of elevated intraocular pressure in the two-thirds of patients who received Medidur to those in the control arm. Monthly elevation of intraocular pressure in the first three months can be an early indicator the seriousness of subsequent increases. This could also have implications for Iluvien.

Pipeline Products

The Company is doing pre-clinical work on wet and dry AMD with the technology platform underlying Iluvien and Medidur. They are expecting to get these products into the clinic in 2016.  Products using the Tethadur technology also remain in the pre-clinical stage. Progress has been slower than expected but the Company says there will be more details later this year about development plans for Tethadur.

They are working with the Hospital for Special Surgery on a slow release product for osteoarthritis. The hope is to file an IND this summer. Steroids are often injected in the joints of patients with osteoarthritis, but they cleared out of the joint very quickly and require frequent injections. Like Iluvien in ocular disease, this technology provides a lower and steady dose of steroid for a very long time.


The Company had cash and cash equivalents and marketable securities of $31.7 million in the just completed 3Q, 2015. The cash burn in the quarter was $4 million during the quarter. Management says that this cash can fund operations into 2017. The Company will likely raise more money late this year or early next. My guess is that the raise would be on the order of $15 million

Some Upcoming Events to Put on Your Calendar

Derma Sciences: Soon CMS decision on whether to reinstate Medihoney reimbursement

ImmunoCellular Therapeutics: May 29 10:00 AM EST Presentation at Marcum conference

Kite R&D Day June 23, 2015

NeoStem Presentation at Marcum Conference, May 28, 8:30 Am EST

Neuralstem Annual Meeting June 19

OncoSec Medical Presentation at Marcum Conference May 27, 1:00 PM


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