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Expert Financial Analysis and Reporting

pSivida: Game On for Iluvien (PSDV, $4.29)

Alimera (ALIM) and pSivida (PSDV) released some extremely encouraging news on Iluvien. They said that Alimera had entered into labeling discussions with the FDA and as a result, both parties have agreed that there is no need for the previously scheduled January 2014, Dermatologic and Ophthalmic Advisory Committee meeting. A reasonable assumption is that the labeling will restrict usage to chronic pseudophakic patients and/or patients who no longer respond to the VEGF drugs. Regardless of the label, this is pretty much what I think usage of Iluvien will be in the real world.

Alimera still has to respond to the CRL received last October and hopes to submit the response in 1Q, 2014. It will have to respond to concerns that the FDA has in regard to the facility at which Iluvien is manufactured. Alimera will also update the FDA on safety and efficacy data from the UK and Germany where Iluvien is marketed. No new clinical trials will be required.

The probability of approval in the US now seems to be extremely high based on the fact that labeling discussions are underway. This is usually done in the weeks immediately prior to the approval of an NDA. Ordinarily, we might expect a six month review following the resubmission, but I wonder if it could be quicker in this case. The issue with manufacturing is not well defined and it may or may not lengthen the time to approval. However, it does seem very likely that Iluvien is approved around or after mid-2014.

This is a big win for pSivida. I have written extensively on pSivida in three reports: (1) an initiation report How Iluvien May Benefit Alimera and pSivida, (2) pSivida: Previewing the October 17th PDUFA Date for Iluvien, and (3) Thoughts on pSivida in the Aftermath of the Complete Response Letter. These lay out my thoughts in detail on the importance of the Iluvien approval in the US. However, I will summarize some of the most important aspects of this potential approval.

PSivida is entitled to 20% of operating profits from Iluvien in the US and Europe which could be the equivalent of a royalty of 15% or more. My sales estimates for Iluvien in the US are in a range of $100 to $300 million by 2019 and Europe may have the same potential. Hence, the pretax income contribution of Iluvien to pSivida in 2019 could be $30 to $90 million.

The approval of Iluvien in the US triggers a $25 million milestone payment from Alimera. Combined with the $14 million of cash on the balance sheet as of the September quarter, pSivida has pro forma cash of $39 million. This takes away the concern that PSDV might be forced into financing at a depressed stock price.

This greatly increases the chances of approval for Medidur. This is the same drug in the same delivery device as used in Iluvien; the difference is that Medidur is being developed for posterior uveitis which is a more serious disease than diabetic macular edema. There is also the possibility that the one phase III trial now underway in posterior uveitis might be sufficient for approval. The market potential for Medidur in posterior uveitis may be comparable to Iluvien in diabetic macular edema.

The greater financial strength should allow the Company to put much greater resources into Tethadur, its new and entirely different technology for delivering drugs to the back of the eye. I have heard that this system is being studied in conjunction with one of the VEGF drugs, probably Lucentis. The goal is to deliver the product with fewer injections, possibly every three to six months. Perhaps we will hear more of this and other projects later this year. The favorable outlook for Iluvien and Medidur could cause investors to put more weight on pipeline projects. The concern that the Company would not have cash resources to move forward aggressively has been lifted.

I wrote upon the receipt of the CRL and the meltdown in the stock from around $5.00 to around $2.50 that “At current price levels, I want to hold on to my stock. As we approach the January 27, 2014 AdCom meeting, I think that the stock might trade up from current levels on anticipation of the possibility of Iluvien approval in pseudophakic patients.” The skepticism on the potential for approval was widespread at the time, but I thought there was a reasonable chance of approval. With this favorable outcome, I think that the $9 to $11 price target that I was talking about prior to the CRL is back in force.

For those of you who follow my reports, you know that I am sometimes right and sometimes wrong. This just comes with the territory when you are dealing in the highly volatile world of emerging biotechnology. I try not to pound my chest when I am right and to be philosophical when I am wrong. However, forgive me if I take a victory lap on this call.


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