Good morning. My name is Daniel and I will be your conference operator today. At this time, I would like to welcome everyone to the EyePoint Pharma Fiscal 2018 Fourth Quarter and Full Year Financial Results Conference Call. There will be a question-and-answer session to follow. Please be advised that this call is being recorded at the company’s request.

I would now like to turn the call over to Mr. David Price, EyePoint’s Chief Financial Officer..

Thank you, Daniel and thank you all for joining us on today’s conference call to discuss EyePoint Pharma fiscal 2018 fourth quarter and full year financial results.

Joining today’s call are Nancy Lurker, President and Chief Executive Officer; Leonard Ross, Vice President, Finance and Chief Accounting Officer, who will also be available during the question-and-answer session and Dario Paggiarino, Vice President and Chief Medical Officer.

Nancy will provide an overview of the progress made to date regarding our commercial preparations, ahead of two potential launches in the first half of 2019 and highlight upcoming milestones. I will provide an overview of 2018 fiscal fourth quarter and full year results. We will then open the call up for your questions.

Earlier this morning, we issued a press release, detailing the 2018 fiscal fourth quarter and full year results. A copy of the release can be found in the Investor Relations tab on the corporate website, www.eyepointpharma.com.

Before we begin our formal comments, I'll remind you that various remarks we will make today constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

These include statements about our future expectations, clinical developments and regulatory matters and timelines, the potential success of our product candidates, financial projections and our plans and prospects.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the risk factors section of our most recent quarterly report on Form 10-Q, which is on file with the SEC and in other filings that we may make with the SEC in the future.

Any forward-looking statements represent our views as of today only. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change.

Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. I’ll now turn the call over to Nancy Lurker, President and Chief Executive Officer of EyePoint..

Thank you, David and good morning, everyone. Thank you for joining us on today's call to review our fiscal 2018 fourth quarter financial results, recent operating and clinical achievements and commercial preparations, ahead of the launches of DEXYCU and, if approved, YUTIQ.

The upcoming months will be a transformative and a very exciting time for EyePoint. We have a lot to cover on this call, as we have many significant achievements.

For those new to the EyePoint story, the company is the result of pSivida Corporation’s acquisition of Icon Bioscience, which closed on March 28, 2018, at which time the company was rebranded to EyePoint Pharmaceuticals.

Since then, we have made tremendous progress in evolving the company from an R&D driven clinical stage company into an emerging commercial stage specialty pharmaceuticals company, focused on ophthalmology, using products derived from two technology platforms, from the pSivida and Icon portfolios.

The strategic acquisition of Icon added DEXYCU to our pipeline, which uses the Verisome drug delivery technology, allowing for a single injection that releases over time.

DEXYCU or dexamethasone intraocular suspension was approved by the US Food and Drug Administration on February 9, 2018 for the treatment of inflammation following ocular, otherwise known as eye surgery.

It's administered as a single intraocular injection in the posterior chamber at the end of cataract surgery and is the first long acting intraocular steroid approved by the FDA for the treatment of post-operative inflammation.

Last week, we announced that the Centers for Medicare and Medicaid Services or CMS has approved transitional pass-through status and reimbursement through a C-code. The code, C9034, will become effective on October 1, 2018.

DEXYCU complements our ophthalmology pipeline, especially our late stage candidate, YUTIQ, which is a three year treatment for posterior segment uveitis, which is currently under regulatory review by the FDA and has a PDUFA action date of November 5, 2018.

The potential launch of DEXYCU plus the potential approval of YUTIQ later this year will position us to launch two products in the first half of 2019, subject to the successful commercial scale-up of DEXYCU and FDA approval of YUTIQ.

We will be able to significantly utilize the commercial organization that we are currently building by leveraging our entire corporate and commercial infrastructure other than the field reps, all of which are dedicated to ophthalmology.

Before I highlight our preparations on the commercial front, I would like to highlight the distinct opportunities for each of these therapies. Let's begin with DEXYCU. In the United States, there are approximately 4 million cataract surgeries each year and growing with the aging population. It's the number one surgical procedure performed in the US.

There is a high unmet medical need among patients who undergo cataract surgery as the current standard of care, steroids drops, to treat inflammation post eye surgery is extremely challenging, requiring a burdensome schedule of up to 70 drops over a period of 30 days.

Many of these patients are elderly and may have health conditions such as cognitive impairment or osteoarthritis in their hands that make administering a lengthy steroid eye drop regimen difficult and confusing.

DEXYCU represents a major advance compared to the standard of care for these patients, since it will potentially eliminate the need for steroid eye drops after surgery, which is the most complicated dosing regimen of the three types of eye drops typically given after cataract surgery.

DEXYCU requires the administration of a single injection of 5 microliters of dexamethasone encapsulated in the fully bioerodible Verisome technology at the conclusion of surgery, which provides a steady release of drug over a number of days and weeks.

DEXYCU can eliminate the need for daily steroids drops that are currently administered on a titrating regimen for up to one month. In our pivotal Phase 3 clinical trial for DEXYCU, 60% of patients had zero anterior chamber cells by day 8 post cataract surgery.

Anterior chamber cells are a marker for inflammation and measuring the number of cells post-surgery on day 8 is the gold standard for clinical trials. This is a very good efficacy result. Further, as steroids are known to increase intraocular eye pressure, physicians want to know if DEXYCU will raise eye pressure.

In this same phase 3 pivotal clinical trial, the mean intraocular eye pressure increase in patients on DEXYCU versus placebo was 1.6 millimeters of mercury by day three, a very modest increase.

IOP, intraocular pressure, increased by less than 1 millimeters of mercury by day 8 and remained stable at around 14 millimeters of pressure through day 90, the last time point of the study. Our market research supports our confidence in the potential of DEXYCU.

Physicians consistently stated a very high intent to use DEXYCU over existing steroid drop treatments, particularly after becoming familiar with this efficacy and safety data. We’re in the process of continuing the scale up of commercial supplies of DEXYCU to support our planned launch in the first half of 2019.

Now, let's turn to YUTIQ, which contains a steroid, 0.18 milligrams of fluocinolone acetonide in a tiny micro-insert implant that lasts for three years and should we get FDA approval, will be indicated for non-infectious posterior segment uveitis, which represents the third leading cause of blindness in the US.

Currently, patients with posterior segment uveitis have limited treatment options and the most common treatment is frequent injections or systemic use of generic steroids or an implant that lasts only two or three months with a list price of $1400 per device. And over a three year period, this therapy can cost approximately $17,000.

If approved, YUTIQ could address this area of high unmet need and provide patients with a treatment option that has the advantage of delivering consistent, micro dosing for up to a three year time period without drug peaks and valleys.

Consistent drug delivery over an extended period of time is an important element of treatment, as the overall regimen aims to prevent flares, which can lead to blindness. The scientific data continue to support YUTIQ’s safety and efficacy.

At the 36th Annual Scientific Meeting of the American Society of Retina Specialists, known as ASRS, that took place from July 20 to 25, 2018 in Vancouver, three presentations highlighted 12 month efficacy and safety data, supporting YUTIQ.

In summary, efficacy results from a confirmatory three-year perspective Phase 3 study demonstrated a durable decrease in uveitic recurrence in injectable fluocinolone acetonide intravitreal insert, otherwise known as YUTIQ in eyes versus sham eyes.

Data from the first year of a three year study also show that the recurrence rate in fluocinolone acetonide randomized eyes was significantly lower than sham eyes, 37.9% versus 97.6% respectively for a p value of less than 0.001.

Lastly, in an analysis of a full intent-to-treat cohort at one year, a single intravitreal injection of fluocinolone acetonide not only provided effective anti-inflammatory treatment for one year, but also significantly reduced the need for adjunctive therapies, 6.9% of fluocinolone acetonide eyes versus 61.9% of sham eyes.

Based on these data, we continue to receive a very high degree of interest in YUTIQ from retina and uveitis specialists. In Q4 2018, we plan to report data for YUTIQ from the 24-month and in the first half of 2019 to 36 months follow up period from the first Phase 3 clinical trial.

On the commercial front, we've been making tremendous progress, building our infrastructure across multiple functions of the company in preparation for the US launch of DEXYCU and pending regulatory approval of YUTIQ. We strengthened our team with several key appointments, including David Price, who you heard from at the beginning of our call as CFO.

David brings over 25 years of experience in the healthcare, investment banking and accounting industries and most recently served as Chief Financial Officer of Concordia International Corporation, a publicly traded generic pharmaceutical company. On the regulatory front, Dr.

John Weet, our new Senior Vice President, Regulatory Affairs and Quality, brings over 40 years of experience in regulatory affairs to EyePoint. He has extensive experience in the oversight of US FDA relations and negotiations across multiple therapeutic areas, including ocular disease.

We also continue to add very strong commercial talent and all of these individuals are industry veterans with a strong track record of success, demonstrated during their careers. We're delighted to welcome them to the EyePoint team, as we continue building our foundation for the future.

We have also strengthen our Board of Directors with the appointment of Dr. Göran Ando, who was appointed in June 2018. Dr. Ando is the former Chairman of the Board of Novo Nordisk A/S and has a distinguished career in the global pharmaceutical industry that has spanned nearly four decades. Last week, we announced that Dr.

Ando was elected as Chairman of the Board. As part of this transition, Dr. David Mazzo will step down as Non-Executive Chairman, but will remain on the board and will continue to serve as Chair of the Compensation Committee. We think David Mazzo for his many years of service to EyePoint Pharmaceuticals as Chairman of the Board.

Turning to our commercial preparations, we've completed several initiatives ahead of our commercial launch that support our four pillar commercialization plan, which consists of hiring a top tier sales team, a robust medical education rollout, gain payor access and launch a superior marketing strategy.

We've made significant progress towards our goal, including we finalized an agreement with a premier contract sales organization. Our sales leadership team will lead the effort and work closely with the contract sales organization to build a dedicated EyePoint sales team.

We have deployed and are currently moving forward with executing a robust medical education program in the US. We have also begun our payor and reimbursement assessments. As we announced on September 5, we are also very pleased that DEXYCU has received from CMS, its pass-through transitional C-code, which allows for Medicare Part B reimbursement.

Further, if approved, YUTIQ will likely be covered by Medicare and other payors. Our marketing plans are in full swing. We are in the process of implementing new systems and processes to ensure that the company operates with robust data and metrics, as we transition to commercialization.

We have made tremendous progress and are confident in our commercial build out and in preparing for these important launches. In addition, we continue to work on our pipeline products or shorter acting 9 month YUTIQ, which remains on track to file in 2019, upon NDA approval for a three year YUTIQ.

We continue to progress our other preclinical products, specifically our tyrosine kinase inhibitor program and our collaboration for glaucoma with our pharma partner. With that, I will turn the call over to David to review our 2018 financial results for the fourth quarter and full year.

David?.

Thank you, Nancy. I first want to take this opportunity to say that I'm extremely honored and excited to have joined EyePoint during such an important time in its development. I was immediately impressed by the company's innovative ophthalmology pipeline and the company’s management team with deep experience in launching pharmaceutical products.

I look forward to being a member of this team through the next stage of growth and transition into a commercial entity. I will now turn to the financial results, which are outlined in our press release that was issued this morning. As of June 30, 2018, cash and cash equivalents totaled $38.8 million compared to $16.9 million as of June 30, 2017.

The total number of common shares outstanding at June 30, 2018 was 74.5 million. Net cash used from operations for fiscal 2018 totaled approximately $21.9 million compared to $20.5 million in fiscal 2017.

In June 2018, we received shareholder approval for a second tranche of growth capital under our agreement with EW Healthcare Partners and established healthcare focused investment firm, Rosalind Advisors and another accredited investor. Under the agreement, EyePoint sold approximately $25.5 million of units.

Each unit consisted of one share of common stock and one warrant to purchase of share of common stock. In addition, the transaction enabled the company to draw down an additional $5 million under our SWK loan facility. Now, turning to the income statement.

For the fourth quarter ended June 30, 2018, EyePoint recognized $0.7 million in revenue, the same amount as recognized for the three months ended June 30, 2017. For the full year 2018, revenues were $3 million compared to $7.5 million in 2017.

The 2017 revenue figure included the recognition of deferred collaborative research and development revenue, totaling $5.6 million, resulting from the termination of the Pfizer collaboration agreement.

Operating expenses for the three months ended June 30, 2018 increased to $10.5 million from $6.8 million a year earlier, due primarily to initial investments in sales and marketing, infrastructure and program costs, amortization of the DEXYCU’s intangible assets, professional services and stock-based compensation.

Non-operating expense in the current quarter totaled $24.6 million, which included a $24 million non-cash charge for the change in fair value of a derivative liability associated with the revaluation of the second tranche of transaction, immediately prior to the June 25, 2018 closing.

Net loss for the fourth quarter ended June 30, 2018 was $34.4 million or $0.62 per share compared to a net loss of $6.1 million or $0.16 per share for the corresponding fiscal 2017 period. Net loss for the 12 months ended June the 30, 2018 was $53.2 million or $1.15 per share compared to a net loss of $18.5 million or $0.58 per share for fiscal 2017.

As we advance the company's commercial readiness for the launch of DEXYCU and YUTIQ, if approved by the FDA, combined with the working capital required to launch these two products, we anticipate that we will continue to be cash flow negative through the next 12 months. I'll now turn the call back to Nancy for closing remarks.

Nancy?.

Thank you, David. Before we take your questions, let me highlight our anticipated near term milestones. First, we've been successful in securing C-code pass through reimbursement for DEXYCU. I will note that C-codes are granted quarterly based on applications submitted that must meet the pass through status criteria.

Second, we will continue to work collaboratively with the FDA to gain regulatory approval for YUTIQ on our set PDUFA date of November 5, 2018. Lastly, we plan to launch DEXYCU, subject to a successful commercial supply scale-up and YUTIQ, subject to favorable regulatory approval in the first half of calendar year 2019.

It's been nearly two years since I joined EyePoint and I'm so proud of the progress that the team has made in a short period of time. As we all work together as a team to build a commercial stage specialty pharma company, focused an ophthalmology, my level of excitement and enthusiasm about our prospects are even greater.

Our team is united in our passion and urgency to foster innovation in ophthalmology and lay the important groundwork to ensure our future growth and commercial success. I thank everyone for your time today and we look forward to keeping you updated on our continued progress. Operator, we're now ready to take your questions..

[Operator Instructions] And our first question comes from François Brisebois with Laidlaw..

All right. Thanks for taking the question. Sorry, I dropped off for a little bit here. So, sorry, if you’ve mentioned this. But I just wanted to hit a couple of things here.

First of all, I was wondering, in terms of the pass-through of C-code, I just was wondering if you could give a little more color on why you're only approaching or I guess not only, but you're approaching 40% of the population, which is Medicare Part B first and then attacking other patients and maybe a timeline on that? And then, I guess maybe an explanation as to why the C-code could potentially be more than three years from experiences with other [Technical Difficulty]..

Okay. Hi, François. Thank you for the questions. What I'm going to do first is turn it over to David just for a quick update on one of our financial comments. So, David, why don’t you answer that question and then I’ll answer to François..

Great. Thank you, Nancy. I just want to correct, inadvertently, I mentioned that our loss per share for the year ended June 30, 2017 was $0.58 per share. That should be $0.52 per share. So, I just want to correct the record for that. Thank you very much, Nancy..

Okay. So François, back to your question on the C-code, which you asked about the various books of business. So just for our listeners, there are different segments of the patient population. There's your Medicare Part B.

There's your commercial payors, there's your Medicare Advantage, which operates usually like a commercial book of business and then obviously Medicaid, VA and Department of Defense and then cash.

The majority of the approximately 4 million surgeries are Medicare Part B, which is approximately about 40% of the 4 million patients and then cash pay, excuse me, commercial and I'm going to wrap in Medicare Advantage, because that operates similar to commercial, runs about another 30% to 40%.

And then, you have the Medicaid, VA, DoD and cash pay business. Let me stress, we will be going after all pieces of the business, however, with commercial and Medicare Advantage, most of them -- some of them may want rebates. The problem with rebates is that that flows through to the average selling price, which affects the C-code.

So we will be going after all pieces of the business. We just want to be cautious for those payors that we believe and there will be some who will be more willing to pay the C-code rate and there's a good reason why they should. We fully expect to go after that piece of business.

And François, I’m sorry, your follow-up question around that was, repeat that please..

It's just, the C-code will be good for three years and I'm just wondering if there's potential for it to last longer than that?.

Oh, yes. So, obviously, we can't predict the future. Right now, the C-code will sunset after three years. Now, you can still use and get payment in the commercial book of business and in the Medicare Advantage book of business, which isn't as -- they can follow the C-code, but they're not required to follow the C-code.

The Medicare Part B book of business will use the C-code, just for the audience's reminder, the C-code -- the pass-through transitional payment expires after three years and then the product will get wrapped into the cataract bundled payment. So what we are working on now is to potentially work with CMS to change those regulations.

There's an active working group to effect that change and we believe that the current way it's written is not meant for drugs, because that bundled payment was primarily intended originally, if you look at the way the law -- the regulations were promulgated for surgical supplies and for the facility fee.

Drugs, because obviously, they generally cost substantially more than surgical supplies, it was never quite envisioned, at least that's our understanding that drugs [ph] was part of the bundled payment.

So we do believe there's a good case to make drugs separate and be paid just like all other drugs under Medicare Part B, which is an ASP plus today I believe it’s around 3.4%, as all other Medicare Part B drugs are paid. So let me reiterate that. So, we do have a working group.

We also are going to be working with Congress to potentially change the statutory regulation and there is a precedent for that. There was a bill that was passed for those drugs that had their C-code expire effective December 31, 2017. They got an extra two year extension.

So obviously, we can't predict the future, but we do believe there is a good case to be made that either the regulations will change and should change or the statutory law changes and we are working rather aggressively to try to effect those changes..

Okay. Great. That's very helpful. And then just one last one for me, in terms of finances, I just wanted to touch on the non-cash that was booked as a liability, 24 million from the second tranche. If you guys could just give a little more color on to how that's just a one-time event and not basically an operating expense..

So, I'll turn that over to David. Oh, sorry, Len, sorry, I apologize..

Thank you, François. As we previously disclosed in EyePoint’s 10-Q for the March 2018 quarter, the company's right and obligation to sell the common stock and warrants in the form of units to EW Healthcare and other participating investors in the second tranche was recorded as a liability on March 28, the date of the first tranche closing.

Such a liability is subject to mark-to-market valuation adjustments and as a result of the significant increase in our share price during the fourth quarter, the derivative liability increased by 24 million from March 31 through the settlement date of the shares that were issued in the tranche 2 closing on June 25.

While this charge is recorded in the profit and loss account, it is a non-cash non-operating charge and was a significant contributor to the increased net loss for the year compared to fiscal 2017..

And our next question comes from Andrew D'Silva with B. Riley FBR..

Good morning. Thanks for taking my questions. Couple of quick bookkeeping questions. First, what is the current outstanding share count? And then outside of changes in derivative liabilities, what were other non-cash charges during the quarter or year, stock-based comp, depreciation and amortization, things of that nature.

And while you're pulling that, can you give a little bit of color on the second tranche warrants.

If my understanding is correct, now that you've got the pass-through status [ph], they do have to be exercised or they expire, correct?.

Yes. So Andy, this is Nancy, Len [ph] will answer about the warrants. So go ahead, Len..

Yes. So in terms of non-cash charges, there was about 2,600,000 [ph] of stock based compensation during the year. There was about $1 million of amortization of intangibles. You may recall, there were previous intangibles that became fully amortized at the end of calendar ‘17.

And the intangible associated with the Icon acquisition is currently amortized at a rate of about 2.4 million a year, of which obviously there is just one quarter or a little over 600,000 in the current fiscal year..

And share count?.

The share count is 74.5 million shares outstanding. That's the same as at June 30..

Okay.

And David, on the warrant question?.

Sure. So, Andy, the warrants are exercisable. As of now, we have formally notified EW and the other investors of the C-code. That provides them with 15 business days upon which to exercise the warrants and we do anticipate that they will exercise those before 28 -- before or on the 28 of September, which is the last day..

Okay. Perfect.

And then with the pass-through status coming through, did that happen earlier than anticipated? I had it in my notes that you would target the beginning of calendar year ’19 to get that commenced, because I guess once the clock starts, it's 36 months, it would be 36 months from October 1 or it is 36 months from the date you actually launch the product?.

Yeah. So let me clarify, I’ve never stated when we would file the C-code. I've always said we would file the C-code as we get closer to commercialization. As to the timing, the C-code is effective October 1, 2018, but the three year time clock does not start until the quarter closes to the first commercial sale.

So in essence, the three year clock starts in the quarter that we would have the commercial sale or the quarter closest to the first commercial sale..

Okay. Great. That's good. And then when you were referencing the previous caller's questions, changing the statutory laws, you were essentially referencing taking DEXYCU from Medicare Part B to Part D.

Is that correct? Is that essentially what the?.

No. No.

We're simply saying – and again, this is still somewhat in flux, but we are looking at different ways that we can either get an extension on the C-code as the other drugs got an extension, but that requires a lot, a statutory change or make it, a statutory law, whereby after three years, it just reserves back to ASP plus, whatever the percent is.

So there's any number of ways we could tackle this, but right now, not to go back to Medicare Part D, because we're not in Medicare Part D.

We're in Medicare Part B, as you know, and Medicare Part D for our listeners is that part of the Medicare Drug segment, where drugs are administered either in a hospital or outpatient setting or a physician's office.

Medicare Part D generally applies to drugs that are delivered directly to the patients through the pharmacy and the patient self-administers..

Okay. Sorry. I misunderstood that. And then as far as your discussions with the FDA, anything abnormal that would give you any pause on getting the green light in November and does having Retisert and Iluvien in the market help you in the process, as you're going through discussions..

So let me comment that right now, generally, we don't comment on FDA discussions, but we are looking forward to a PDUFA date of November 5. I'll just leave it at that.

And as for Iluvien and Retisert, the only comment I’ll make on that is that we do have right of reference to the Iluvien safety database, which was obviously part of our application process to the FDA. And since that's been on the market for a number of years, there's a large body of safety data, which is generally quite benign.

Obviously, there's always some safety issues, but it's relatively benign..

Good. Fair enough.

And then last thing, just, can you let us know outside of regulatory approval for YUTIQ, what are the biggest items that you need to tackle between now and when you launch the products and then perhaps more importantly, what items are keeping you up at night and what should we do to chart your progress with that? And not coffee or caffeine [ph]?.

Yes. Good questions, Andy. Listen, like all launches, we have a significant ramp up that's occurring, but we're quite pleased with our progress. In fact, we've made tremendous progress on the commercial ramp up. So, for example, we've signed our contract with our contract sales organization.

We've built out entirely our commercial organization, except for actually hiring the sales representatives, which we won't do until we're closer to launch.

So we are actively implementing, specific for DEXYCU, which is approved, our medical education plan and doing a significant amount of outreach and we've got a robust publication plan, we've done a tremendous amount of work in that arena and our number one goal is to just raise awareness about DEXYCU as well as the potential upcoming launch of fluocinolone.

So, in your – in terms of -- I'm not going to answer in terms of what keeps me up at night. Obviously, there's a lot of work that still needs to be done, but as I said, we're making very, very good progress and we're very pleased..

All right. Great. Thank you so much for the color and good luck going forward..

Thank you..

[Operator Instructions] Our next question comes from Yi Chen with H.C. Wainwright..

Thank you for taking my question. Could you please comment now what the operating expenses could look like once both products are launched..

And we'll have David answer that question..

Sure. Hi, Yi. It’s David. We haven't put guidance out with regards to 2019 or post launch at this juncture.

Suffice to say that we believe that over time, we will have positive operating margin for the business once we get -- once we reach a level of sales that is at a more normal level post launch, but realistically, the level of expenses is something that we're not prepared to guide on at this juncture, [indiscernible]..

Thank you. And I'm not showing any further questions at this time. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a wonderful day..