Good morning. My name is Skyler, and I will be your conference operator today. At this time, I would like to welcome everyone to the EyePoint Pharmaceuticals' first quarter 2019 financial results conference call. There will be a question and answer session to follow at the completion of the prepared remarks.

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, Skyler, and thank you all for joining us on today's conference call to discuss EyePoint Pharmaceuticals first quarter 2019 financial results and recent corporate developments. With me today is Nancy Lurker, EyePoint's President and Chief Executive Officer.

Nancy will provide an overview of the recent progress made on our commercial launches as well as highlight upcoming milestones. I will then provide an overview of the first quarter 2019 financial results. We will then open the call up for your questions.

Earlier this morning, we issued a press release detailing these financial results as well as commercial and operational developments. 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 time lines, 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 annual report on Form 10-K, 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. The first quarter of 2019 has been a momentous start to the year for EyePoint Pharmaceuticals.

During the quarter, we launched not one but two products YUTIQ and DEXYCU are the first point that EyePoint has commercialize since our formation and our testament to progress we have made to date transition our company into a fully integrated commercial stage biopharmaceutical company focused on developing innovative treatment for ocular diseases.

Before I detail our early launch progress I want to thank our talented team at EyePoint and also the physicians and patients who participated in our clinical trials. We could not have achieved these two important milestones without you, I'm truly grateful for all of your efforts.

Since our commercial launch of YUTIQ and DEXYCU our team has worked tirelessly to ensure an efficient and streamlined efforts on behalf of our patients in need of new ocular disease treatment options. I'm pleased with our early progress and believe we have laid the right commercial foundation to enable future success.

Our 44% contract sales force 10 for YUTIQ and 34 for DEXYCU hit the ground running across the U.S. as each product launched in the first quarter. Our team is actively targeting high volume surgery centers and cataract surgeons for our phased DEXYCU launch and uveitis and retinal specialist for YUTIQ.

I will note that our launch data is based on a few weeks of sales data for YUTIQ and DEXYCU, therefore we will only be providing early launch metrics today and we look forward to providing additional commercial metric as we progress to future quarters.

Let me first start with an update on YUTIQ, fluocinolone acetonide intravitreal implant 0.18 milligram, which was launched in the U.S. on February 4th, for the treatment of chronic non-infectious posterior segment uveitis.

YUTIQ is our internally developed intravitreal implant micro-insert that is designed to consistently release fluocinolone for up to 36 months and is derived from our proprietary Durasert sustained release technology platform. Chronic non-infectious posterior segment uveitis, which is the third leading cause of blindness in the U.S.

has a current standard of care consisting of short-acting corticosteroid, which can result in increase in the recurrence of inflammatory uveitis flares that can ultimately lead to blindness.

YUTIQ has a differentiated product profile compared to these existing therapy because it delivers the drug via a consistent and long acting drug delivery mechanism, avoiding drug level peaks and valleys and often drug holidays that occur with other standard of care product.

The onetime administration conducted conveniently in the physician's office provides consistent treatment for up to 36 months. Retina and uveitis specialist continue to be very high supportive of YUTIQ as an innovative alternative to treatment uveitis.

YUTIQ is currently available for ordering and delivery to physicians' offices, our 10 key account managers or KAMs are calling predominantly for uveitis specialist and retinal and uveitis treating physician. As of today nearly all of our top 100 target specialists have been visited by our KAM team.

Feedback has been very positive with more specialist expressing their willingness to use YUTIQ. We have had over 300 benefit investigations for patients and initial indication of physician and patient interest in potentially using YUTIQ.

And the majority of these benefit investigations have been approved with only a prior authorization to ensure that its use is in accordance with the label.

Over 100 patients have now had YUTIQ administrated either through samples or product sales, while some offices continue to use the shared ILUVIEN J-code some insurers have required a separate code. In these cases a miscellaneous code is now being used.

We have also received preliminary notification of a permanent specific YUTIQ J-code, which will take effect in January 1, 2020. We have also received positive payer support with reimbursement for YUTIQ being approved for its labeled indication and minimal prior authorization requirements.

We believe with this positively reimbursement landscape is because YUTIQ treats an extremely serious disease that can lead to blindness and is modestly priced. 10 academic formularies have approved YUTIQ for use with 12 for use, and another 12 are pending and under review.

The current wholesale acquisition cost for YUTIQ is $8,340 and that lasts for up to three years. In conjunction with YUTIQ's product launch in February we also introduced EyePoint Assist, a program to ensure access to YUTIQ for eligible patients in need of financial assistance.

At the Association for Research in Vision and Ophthalmology conference last week otherwise known as ARVO we were very excited to present our 36 months follow up data from our first Phase III trial of YUTIQ in oral podium session entitled Treatment of Non-infectious uveitis that affects the posterior segment with the single intravitreal fluocinolone acetonide insert three year results.

These data further support the long lasting and advantageous product profile that YUTIQ has. YUTIQ's 36 months data were quite impressive with results showing a 56.3% recurrence rate of uveitis eye flares for YUTIQ more than 36% lower than eyes treated with sham at 92.9% recurrence rate.

Please note that these data indicate that patients with sham who received current standard of care are highly likely to have recurrence of flares, the P value was an impressive less than 0.001.

19.5% of YUTIQ treated eyes needed the assistance of adjunctive inter-ocular periocular injection medication for uveitis met inflation compared to 69% from sham treated eyes. Safety results showed no unanticipated side effects and continue to be consistent with those reported for previous analysis at 12 and 24 months.

IOP data at 36 months were especially impressive with main IOP elevation of 14.5 millimeters for YUTIQ versus 14.8 millimeters for sham. These positive and promising long-term results reinforced the feedback we are receiving from physicians regarding the potential of YUTIQ as a treatment option for this potentially blinding disease.

Turning now to DEXYCU, dexymethasone interocular suspension 9%, DEXYCU has a potential to alter the treatment paradigm for post-operative ocular inflammation. Our phased product launch for DEXYCU initiated on March 12th, for the treatment of postoperative inflammation following cataract surgery.

The current standard of care involves a complicated steroid drop regimen that typically is administered over four weeks and can require up to four drops a day with a take [indiscernible] of one drop a day over four weeks.

DEXYCU is a single injection administered at the end of cataract surgery that provides a tapered release of dexamethasone up to 22 days, avoiding the burdensome and complicated eye drop schedules.

The market opportunity for treatments associated with cataract surgery is very attractive as there were approximately 4.8 million cataract surgeries in 2018 in the U.S. alone and that was up 11% from 2017. At this time we intend to focus our direct sales efforts for DEXYCU in the U.S.

this market is growing rapidly as a result of the aging baby boomer population, as well as the propensity for cataract surgery to be conducted earlier in the disease due to the great technological advances in the surgery process itself.

Our 34 KAMs and commercial teams supporting the promotion of DEXYCU have been focused on a phased launch program to ensure that cataract surgeons and their ambulatory surgical center or ASC support teams are fully trained and certified on the preparation, application and administration of the product prior to being cleared to purchase DEXYCU.

This is standard practice with most surgical products.

We wish to receive very strong feedback in cataract surgeons who have expressed supportive interest and intent to use DEXYCU due to its ability to potentially replace steroid eye drops eliminate the need for patient copay for those patients with Medicare coverage and results in a non-disruptive administrative process at the end of cataract surgery.

Initial physician product training began first with our top key opinion leaders before rolling out to a broader group of physicians. KOLs have supported the training effort with some videoing the procedure to be used as an educational resource on technique.

Our phased launch involve the sample product for initial patient injections since launch over a 150 ambulatory surgical centers and over 200 surgeons have completed their trainings and certification program and are now certified to purchase DEXYCU.

Contracting with ASC clinics is ongoing and does require lead time to ensure reimbursement, payment term and the DEXYCU J-code are in their systems. Since launch over 1200 patients have now been injected with DEXYCU predominantly with sampled as a part of our certification program. Safety and adverse events reports have been consistent with our label.

Reimbursement for DEXYCU has been secured to the issuance by CMS of a specific and permanent J-code. J1095. DEXYCU has been granted three year transitional pass through status for the purposes of Medicare Part D reimbursement through March 2022.

As a result of the issuance of J-code 1095 reimbursement by Medicare Advantage and other commercial plans has become much more straightforward. And our market access team is working with all payers to secure reimbursement. As with YUTIQ, commercial payers are accepting the product for reimbursement under prior authorization to label.

More than 90% of those contacted representing over 160 million lives have authorized reimbursement in this manner. The wholesale acquisition cost for DEXYCU is $595.

Our medical education plan continues to support sales and marketing efforts for both products with our fully staffed medical science liaison team and medical affairs group that are working to expand our presence at key Congress's as well as proactively planned publications for continued data flow to the greater medical community.

Last week, we attended the American Society of Cataract and Refractive Surgery otherwise known as ASCRS. We were very pleased with a number of physicians who provided positive feedback from the use of DEXYCU. Specifically, they remarked very positively how quiet their patients' eyes were post-surgery.

This was a phrase used to describe lack of pain and inflammation. At this same conference, data supporting DEXYCU was presented in a paper session entitled Effective Dexamethasone Interlocutor Suspension 9% on IOP after Cataract Surgery results of two Phase III studies.

An analysis of the IOP data from two Phase III studies of DEXYCU showed that the IOP effect of DEXYCU was comparable to short-term topically administered prednisolone acetate or placebo in cataract surgery patients.

Mean IOP was only slightly elevated, to approximately 19 and 18 mmHg at postoperative Day 1 in the DEXYCU and prednisolone acetate arms respectively, and it returned to baseline in both arms by Day 3. These data first support DEXYCU safety profile specifically related to elevated IOP for the treatment of postoperative inflammation.

We are pleased with the initial results of our launches and look forward to updating you more on our commercial progress on our next quarterly call.

Moving now to our pipeline initiatives, we anticipate filing a line extension application for our shorter duration six months YUTIQ in 2019, which would provide dosing options to physicians when treating chronic non-infectious posterior segment uveitis.

Our product pipeline includes a sustained release bio-erodible device containing a tyrosine kinase inhibitor, or TKI, which is currently being studied in preclinical efficacy and safety studies in animal models for wet AMD we plan to initiate additional preclinical studies in 2019.

In parallel to our ongoing commercial product launches and pipeline developments, we continue to seek out opportunities through business development activities to augment our product pipeline and bring in new ophthalmology treatments for areas of high unmet medical needs in the ocular disease space.

We are also continuing to evaluate partnerships surrounding our Durasert and Verisome technologies. With that, I will turn the call over to David to review our financial results.

David?.

Thank you, Nancy. The financial results that I will now review are included in our press release that was received this morning. For the three months ended March 31, 2019, total net revenue was $2 million compared to $928,000. For the three months ended March 31, 2018. Net revenue from DEXYCU was $684,000 and for YUTIQ net revenue was $543,000.

Neither of these products have net revenue in the corresponding quarter in 2018. Net revenue from royalties and collaboration for the three months ended March 31, 2019 totaled $785,000 compared to $928,000 in the corresponding quarter in 2018.

Operating expenses for three months ended March 31, 2019, increased to $16.7 million from $5.6 million in the prior year period, due primarily to investments in sales and marketing infrastructure and program costs, professional services, stock-based compensation and the amortization of the DEXYCU intangible asset.

Non-operating expense net for the three months ended March 31, 2019 totaled $4.6 million and consisted of $777,000 of net interest expense and $3.8 million from the loss on extinguishment of debt related to the repayment of the SWK term loan.

Net loss for the three months ended March 31, 2019 was $19.2 million or $0.20 per share, compared to a net loss of $7 million or $0.15 per share for the prior year quarter. As of March 31, 2019 cash and cash equivalents totaled $43.4 million compared to $45.3 million as of December 31, 2018.

Net cash used from operations for the three months ended March 31, 2019 totaled $13.3 million compared to $4.8 million in the prior year period. There were approximately 95.6 million common shares outstanding at March 31, 2019. Let me now turn to our cash flow.

During the quarter ended March 31, 2019 we refinanced our prior debt balance and obtained a new $60 million debt facility. The initial $35 million draw enabled us to pay off our prior $20 million of debt and added $11.4 million of net proceeds to our balance sheet.

On April 1, 2019 we added another $18.6 million of cash to the balance sheet from the sale of 10,526,500 shares of common stock at $1.90. As of the closing of this transaction we had cash and cash equivalents of $62 million.

During April 2019 the company exercised this option to draw an additional $15 million under the CRG loan agreement and paid the $15 million development milestone that was due to the former Icon security holders following the first commercial sale of DEXYCU. At April 30, 2019, the company had $56.9 million of cash and cash equivalents.

We are optimistic that existing cash and cash equivalents at April 30, 2019 and cash inflows from anticipated YUTIQ and DEXYCU product sales will be sufficient to fund the company's current and planned operations through to the generation of positive cash flow, which is expected in 2020.

I'll now turn the call back over to the operator for your questions.

Skyler?.

[Operator Instructions] Our first question comes from Andrew D'Silva with B. Riley FBR. Your line is now open..

Hey, good morning. Thanks for taking my questions and congrats on both the product launches.

Just first out of the gate a couple of quick book keeping questions from me, can you maybe just let me know what stock-based comp, depreciation, cash flow from operations and CapEx was for the quarter? And then, David, while you're pulling that maybe Nancy could you let me know as it relates to sales and marketing during the quarter how close is the $7.3 million that you recognized in sales and marketing spends to the actual run rate we should expect going forward in a relatively steady state scenario?.

Let me actually turn to Dave for the run rate just because it's - there was an acceleration in the quarter. So I want to give you accurate figures for what the ongoing run rate would be in sales and marketing..

Yeah we didn't have people in place for the entirety of the first quarter, Andy. So the $7.3 million is not indicative of the run rate going to Q2 it will be slightly higher than that. We're not sort of guiding that type of expense at this point, but it will be just slightly higher than that $7.3 million..

Okay..

For me to give you other numbers that you're asking for, from an amortization and depreciation perspective the total there was $800,000, the stock-based comp is $1,238,000 and our CapEx was $182,000..

And cash flow from operations?.

Cash flow from operations was negative $13.3 million..

Okay, perfect. Thank you. And then as it relates to the 100 units YUTIQ that you referenced in your press release, does that correlate to what you sold into distributors? Or is that actually just end user demand effectively? And just maybe refresh my memory on how you recognize revenue.

I'm assuming it's - when you sell into your distributors and not when it actually gets sold to physicians, which I believe is the buy and bill model for them..

Yes, so the 100 an end user number. So it's actual sale from that perspective. Our net revenue at the moment, we are operating using our third party logistic provider, they provide us what's called the title model as we don't have operating licenses in every state yet. So they provide that service for us.

And therefore our revenue recognition is at the point at which we sell to that third party logistic provider under that title model..

And is that fairly close right now to….

Sorry, say that again..

Is that fairly close to end user demand right now?.

Yes, yes. At this point in time very much so..

Okay. Okay. And what were you going to say? I'm sorry, I interrupted you..

What I was going to say is, obviously, we sell to that - into that title model at a gross revenue at WAC [ph]. And then we have the relevant gross to net deductions that we take from that in terms of discounts and rebates, and that is the net revenue that we then recognize in the P&L..

And it's about a 10% to 15% discount, is that a fair assumption?.

It's at the higher end of that range..

Okay. Okay, perfect. And as it relates to Allergan, obviously, we touched on this a little bit last quarter, they had some supply constraints with OZURDEX. Did you see any of that domestically as you started to roll out the product? And if so, maybe give a little context on, how the market received YUTIQ with headwind for the [indiscernible]..

Yes, let me say, yes, our best understanding is that that stock out is relatively over. I mean, we can see it in our SAST [ph] data, which is the data that we purchased from Symphony which provides the claims data. So it seems that by the time we launched in February, the stock out that was relatively over.

So what you're seeing from us, and this was really reiterated by physicians, there's just high demand for YUTIQ. Because, again, you got to understand patients are wanting the product as well.

They're starting to hear about it, we certainly have had very, very good premarketing, and the Congress is another so our key account managers are finding that when they walk into their target list audiences. Physicians already know about it, and patients actually are asking for it.

You can understand from a patient's perspective why, again, this is a disease that every time you flare, you're losing more of your eyesight. I don't know about you, but that would terrify me. And as a result, what they want is they really want that long-term protection.

And then when you couple that with the continued impressive data now out to 36 months, which just shows that this is a remarkably efficacious and relatively safe product. And again, were modestly priced on an annual basis, particularly compared to OZURDEX. There just seems to be some really nice demand building for the product..

Okay, great. And just last question, as it relates to DEXYCU. I was at ASCRS, had an opportunity to talk to several physicians about just pass through status in general.

And I guess sometimes with other products, it wasn't related to DEXYCU, there have been issues or confusion with pass through, which sometimes results in providers not getting adequately covered under the bundled payment, at least for the pass through aspect.

Is that something you've heard or can you provide color on that and then - or any context?.

Yes. So unfortunately, this is a complicated area this pass through status. And by the way, I want to make sure your listeners, our listeners know, we're not bundled, we're out of the cataract bundle. So again, just to provide some context. Cataract surgery is a bundled payment by most payers, and certainly by Medicare.

So physicians and surgery centers and everything associated with the cost of this surgery, including the interlocutor lens is a flat fee. They have to operate within that flat fee. If they're cheaper they make more money, if they're more expensive they have to eat the cost.

DEXYCU sits outside of that bundle so they get paid for DEXYCU separate from the bundle and that last right now for three years we're actively working with CMS to change that because for drugs is the post-operative indication where you have right now alternative drugs being used through Medicare Part D that are retail it makes no sense to wrap this into a bundle when you have non-surgical options.

So back to your question there was one particular product that because this is a complicated area when they rolled out unfortunately they told the lot of practices that they were covered. They have a C-code, the C-code is more difficult for the payers systems to recognize. And so often times the C-code will get rejected.

And it has to be manually educated that takes time, which means the physician has already administrated the drug to the patient. They are not getting paid while they were waiting for this manual education, they are not happy about that.

The good news for DEXYCU is that we got issued a J-code, J-codes are standard code and we have a specific J-code that means it gets electronically adjudicated by the payers. So therefore we should not run into those delayed payment issues that other drugs did.

Now I also want to stay so these ASCs ambulatory surgery centers that can a bit jaded because they got burned in the past. So it's going to take a little time to get them convinced that they are going to get paid, frankly they are starting to order and as they did one or two orders paid their confidence level builds up..

Okay, I see what's going on. Just one point just for clarification sake when you're talking about the Part D aspect of things you're talking about the drops because that's not under the provider's responsibility it's going to be covered under the patient standard drug purchasing retail aspect..

Yes.

And so what happens is that for Medicare not the commercial payers, for Medicare when or as we do get wrapped into the bundle and we're working hard so that it doesn't happen a lot of Medicare claims will say I'm not going to eat this drug cost I'm just going to put my patients back on drops, because drops never get wrapped into the bundle because they are dispensed in the Medicare Part D and given out at the retail pharmacy.

And so it makes no sense for CMS to keep DEXYCU as part of - that in the future could get into bundle because patients have to have some type of steroid coverage regardless. And so Medicare has to pay for this whether it's to Medicare Part D or Medicare Part B.

I know that it gets complicated of you listeners or for our investors and it is unfortunately complicated area, but let me just say that right now we again are actively working with CMS to change these rules, CMS recognizes this doesn't make any sense.

And so we're fairly optimistic that we should be successful within the next three years not getting wrapped into the bundle, of course, I can't promise. So I want to be very clear, but we're actively working on that..

Okay, thank you very much. I will take the rest of the questions offline, but congrats on the launches and good luck going forward this year..

Thank you, Andy..

[Operator instructions] Our next question comes from Yi Chen with H.C. Wainwright. Your line is now open..

Thank you for taking my questions. Nancy, as we move along for the rest of the 2019 should we expect that research and development expenses to continue to drop? And also, how much higher can the sales and marketing expenses continue to increase during the rest of the year. Thanks..

Good questions, for R&D you will see a slight drop off as we wrap up our 36 months trial now that continued on an open label basis post unbinding them at the six month mark. But we're now finished with those trials.

So we do expect to taper off, however that's going to be countered with a slight increase as we begin to really do spend more on our TKI program. So net-net it should be a roughly about the same, with maybe a modest drop off. As for the spend on commercial and marketing, I believe David already commented and I'll let him add to that again..

Yes, I think the run rates that we had in Q1 is a little light of what our run rate will be going forward from Q2 through to the end of Q4. But certainly we will see it in its full amount in Q2 and that would be the appropriate run rate for the remainder of the year..

Okay, thank you.

And at this point, are you confident that you will be able to meet the revenue requirement in the debt covenant with CRG?.

Yes, very much so..

We are not concerned about that..

Thank you..

At this time, I'm sure no further questions. I'd like to turn the call back over to Nancy for any closing remarks..

Thank you. And I'd like to thank everyone for your time today. We're very excited about our product launches and we look forward to keeping you updated on our commercial launch progress, as well as other business matters in the coming quarters. Thank you..

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day..