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Expert Financial Analysis and Reporting

pSivida: One Step Away from Upgrading the Stock (PSDV, Hold, $2.80))

Investment Overview

pSivida holds a unique, leading position in developing inserts that provide long acting delivery of drugs to the retina in the back of the eye. Eye drops cannot deliver drugs effectively to the retina and systemic therapy requires large doses of drug to be delivered in order to allow some small part of the dose to cross the blood-brain barrier (the eye is part of the brain); this usually leads to side effect issues. The two pre-eminent drugs used in treating retinal disease (specifically age related macular degeneration and diabetic macular edema) are the VEGF antibodies Lucentis and Eylea which had combined sales of about $10 billion in 2015. This is despite the fact that they require injections into the eye about every six weeks for the duration of therapy. There is a great unmet need for drugs with longer duration of action

pSivida has developed three of the four insert products that have been FDA approved for use in retinal disease. These are Vitrisert for the treatment of cytomegalovirus infections in HIV patients, Retrisert for posterior uveitis (licensed to Bausch & Lomb) and Iluvien for diabetic macular edema (licensed to Alimera). Each of these products are not bio-degradable. Allergan introduced the fourth and only other insert Ozurdex, a biodegradable product approved for diabetic macular edema like Iluvien. Each of these products deliver steroids; VEGF antibodies are a more difficult delivery challenge. pSivida is still in the pre-clinical stage in the effort to develop inserts that can deliver antibodies.

The two issues that will drive the investment prospects for pSivida over the next few years are sales progress for Iluvien and the pipeline product Medidur. The latter is a significantly improved product (over Retrisert) and much needed product for treatment of posterior uveitis which was very successful in its first phase 3 trial and is now involved in a second pivotal trial and the Company is guiding toward an NDA filing in 1H, 2017. Please refer to the SmithOnStocks website for more detailed reports on pSivida that give much more detail on Iluvien and Medidur.

Investment Thesis

The next step I am waiting on to recommend the stock is based on the ability of Alimera to continue to adequately support the Iluvien launch. I have been impressed by the launch, so far, of Iluvien in the US but Alimera has a strained balance sheet, is cash strapped and will probably need to soon raise more capital to continue to drive the launch. There have been rumors (denied) that management is trying to sell the Company. I think that Iluvien is on the path to being a successful product, but this uncertainty with Alimera’s finances could cause concern in 2016.

The pending first quarter conference call from Alimera potentially could be the catalyst for an upgrade. Alimera has done well to date since a 1Q, 2015 launch, but (to repeat myself) the Company is in a very cash strained situation and may not have the financial resources to properly market and support Iluvien. I estimate that Alimera ended 2015 with about $30 million of cash and I am projecting a burn rate of $23 million in 2016. Alimera needs to do a financing in 2016, but we are obviously in an uncertain (weak) biotechnology market and the Company has a strained balance sheet with $34 million of notes payable and $68 million of convertible preferred stock. The gating factor for my recommending pSivida is some clarification on how (if?) Alimera will finance itself. There is also a possibility that some company, presumably with much stronger financial resources, could acquire Alimera. This would be a significant positive for pSivida.

The other element of the investment thesis is Medidur, an insert used in treating posterior uveitis. Medidur completed one very successful phase 3 trial in December 2015 and has an excellent chance of gaining approval in Europe in 2017 and the US in 2018. Estimates place the US market for posterior uveitis at 400,000 eyes and at the same price as Iluvien, $8,000 per insert, this would be a $360 million addressable market. Posterior uveitis is a leading cause of blindness that has blinded about 30,000 Americans. There are two drugs approved for this condition:  Retrisert in 2005 and Allergan’s Ozurdex in 2012. Both have significant drawbacks in that Retrisert requires a surgery for insertion and Ozurdex is short acting.

Adequately supported (and I am not sure that Alimera can do so), I think that Iluvien may have worldwide sales potential of over $300 million. PSivida receives 20% of net profits in each country which works out to be about a royalty of 15% to 20% of sales so this could contribute $45 to $60 million of pretax profits at peak sales, say in 2020 or so. Medidur could potentially contribute as much to pretax profits in the 2020+ time frame.

The five year outlook for pSivida could be quite strong with the big if in the equation being whether Iluvien will have sufficient marketing resources behind it. The pipeline is also quite strong. The Company has an interesting new delivery technology called Tethadur in pre-clinical development  that may be able to deliver VEGF antibodies and is also developing an insert (a screw in the knee) to treat severe osteoarthritis for which phase 1 could begin in 2016.

pSivida raised $18 million in January bringing the cash balance to about $37 million. This should carry the Company through 2018. I see no need for a financing in 2016 and early 2017.


First Phase 3 Trial Was Very Successful

On December 22, 2015 pSivida announced that it had completed its first phase 3 trial of Medidur in chronic posterior uveitis. This was a 129 patent trial, that was randomized (there were 87 eyes treated with Medidur and 42 with control) and double blinded. The primary efficacy endpoint was prevention of recurrence of disease at six months and on an intent to treat basis produced an amazingly positive p value less than 0.00000001. In Medidur-treated eyes only 18.4% experienced recurrence of posterior uveitis as compared to 78.6% of control eyes.

The key safety issue for Medidur because a steroid is its active pharmaceutical ingredient is intraocular pressure. In the Medidur-treated eyes, 27.6% experienced intraocular pressure (IOP) above 21 mmHg for at least one observation in the trial as compared to 16.7% of control eyes. Interestingly and importantly, the incidence of IOP seems to decreasing over time in Medidur treated eyes. This may be because posterior uveitis on its own causes an increase in IOP so that effectively treating the disease reduces intraocular pressure over time.

Other measure of efficacy were also impressive as 23.0% of Medidur-treated eyes versus 4.9% of control eyes showed improvement in visual acuity gaining 15 or more letters from baseline on the Early Treatment Diabetic Retinopathy Study (ETDRS) Eye Chart (a statistically significant p = 0.011). Also, 31.0% of control eyes compared to 4.6% of Medidur-treated eyes had lost 15 or more letters from baseline on the ETDRS Eye Chart for at least one observation (a statistically significant p less than 0.0001). These measures are weighed heavily by FDA in judging efficacy of ophthalmic products.

The principal investigator on the study, Dr. Glenn Jaffe, Duke University Robert Machemer Professor of Ophthalmology and Chief of the Division of Retinal Ophthalmology said "The results of this Phase 3 trial are extraordinary. With a single injection, Medidur showed the ability to control the recurrence of posterior uveitis, improve visual acuity and prevent vision loss. The high level of statistical significance achieved in this trial is dramatic and, along with the compelling benefit-risk ratio, suggests an important treatment option for patients who are typically treated with repeated systemic steroids, immuno-suppressants or biologics, often facing recurring attacks of the disease as well as systemic side effects."

Regulatory Filings in the US and Europe

In the US, the FDA will probably require two well controlled trials. PSivida has already begun enrolling the second trial which will enroll up to 150 patients in approximately 15 centers in India. Assuming favorable results from the second Phase 3 trial, an NDA is anticipated in the first half of 2017. pSivida plans to seek FDA approval of Medidur based on six-month data from the two Phase 3 trials and a short-duration utilization study of pSivida’ s redesigned proprietary inserter, together with data referenced from the Phase 3 trials of Iluvien for DME. Medidur uses the same active steroid and micro-insert as Iluvien so that it can reference the safety data from the Iluvien trials in its NDA filing.

The U.K. Medicines and Healthcare Products Regulatory Agency (MHRA) advised pSivida that, an application for a product treating a severe condition like posterior uveitis could be based on statistically compelling and clinically relevant results from just one pivotal trial. The MHRA provided this specific advice in formal minutes of a meeting with pSivida held on October 29, 2015 (prior to the Company's receipt of topline results for its first Phase 3 clinical trial). With the very positive phase 3 results now available, pSivida plan to file for EU marketing approval of Medidur based on one trial in 2016. Approval is likely in 2017. In the US, pSivida may market Medidur on its own, but in Europe and elsewhere in the world will seek a marketing partner.


Alimera is exclusively focused on the commercial development of Iluvien. It effectively has no pipeline. The initial launch in the US early in 2015 resulted in $8.8 million of sales through the first nine months of the year and I am $16 million for all of 2015. European sales could reach $7 million if 2015. My worldwide sales estimate for Iluvien in 2015 is $23 and my 2016 sales estimate is $37 million.

I have been impressed by the US launch in 2015 because Iluvien did not receive a J code until January 2016. This J code greatly facilitates reimbursement and should be a major boost to sales in 2016. If Alimera were well capitalized, I would be positive on the stock bit it is in a weak financial condition. The timing of the receiving of the J code could be a little tricky. Physicians have a substantially better chance of being reimbursed if they bill under a J code. Because of this, they may have delayed purchasing Iluvien until the J code was received. This potentially could cause a negative sales surprise in 1Q, 2016 even though it is a major positive for 2016.

Pipeline is Promising


pSivida is working on an entirely new delivery system called Tethadur. I am not going to go into a description of the technology at this time. Its promise is that it can deliver antibodies and other proteins in a sustained release product. Because antibodies aggregate and clump together, pSivida’s current systems used in Medidur and Iluvien cannot effectively deliver antibody products. You may recall that I earlier stated that the antibody products Eylea and Lucentis have sales of about $10 billion but have the severe disadvantage of requiring intraocular injections every six weeks or so. Tethadur is a biodegradable insert that promises much longer duration of effect. There have been reports that pSivida is in pre-clinical planning with Roche in regard to delivering Lucentis with Tethadur. Perhaps we will get more information later this year and the filing on an IND could be a catalyst for the stock.

Osteoarthritis Insert

The Company is also developing a bone screw insert for delivering steroids to the knee over a long duration comparable to Iluvien and Medidur. This would be used to treat severe osteoarthritis of the knee. The FDA has required that pSivida demonstrate that it can deliver a consistent dose of steroid from the insert prior to entering human trials. PSivida plans to file an IND in 2016.

Financial Condition is Strong

I estimate that pSivida ended 2015 with about $19 million of cash. Following the successful phase 3 trial of Medidur, the Company raised $18 million in January bringing the cash position to $37 million. At the recent quarterly burn rate of $4 million per quarter, this would carry the Company into 2018. I do not see the need for financing in 2016 and perhaps early 2017.


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