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| ALIM > SEC Filings for ALIM > Form 10-Q on 14-Aug-2012 | All Recent SEC Filings |
14-Aug-2012
Quarterly Report
Various statements in this report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties and are based on information currently available to our management. Words such as, but not limited to, "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "contemplates," "predict," "project," "target," "likely," "potential," "continue," "will," "would," "should," "could," or the negative of these terms and similar expressions or words, identify forward-looking statements. The events and circumstances reflected in the Company's forward-looking statements may not occur and actual results could differ materially from those projected in the Company's forward-looking statements. Meaningful factors which could cause actual results to differ include, but are not limited to:
• delay in or failure to obtain regulatory approval of the Company's product candidates;
• uncertainty as to the Company's ability to commercialize, and market acceptance of, ILUVIEN in the EU;
• the extent of government regulations;
• uncertainty as to the pricing and reimbursement guidelines for the Company's product candidates, including ILUVIEN in the various EU countries;
• uncertainty as to the relationship between the benefits of the Company's product candidates and the risks of their side-effect profiles;
• dependence on third-party manufacturers to manufacture the Company's product candidates in sufficient quantities and quality;
• uncertainty of clinical trial results;
• limited sales and marketing infrastructure;
• inability of the Company to successfully market and sell ILUVIEN following regulatory approval; and
• the Company's ability to operate its business in compliance with the covenants and restrictions that it is subject to under its credit facility.
All written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf. We undertake no obligation, and specifically decline any obligation, to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
We encourage you to read the discussion and analysis of our financial condition and our unaudited consolidated financial statements contained in this report. We also encourage you to read Item 1A of Part II of this report entitled "Risk Factors" and Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which contains a more complete discussion of the risks and uncertainties associated with our business. In addition to the risks described above and in Item 1A of this report, other unknown or unpredictable factors also could affect our results. There can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Therefore no assurance can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.
Overview
We are a biopharmaceutical company that specializes in the research, development and commercialization of prescription ophthalmic pharmaceuticals. We are presently focused on diseases affecting the back of the eye, or retina, because we believe these diseases are not well treated with current therapies and represent a significant market opportunity.
Our most advanced product candidate is ILUVIEN®, which has received marketing authorization in the United Kingdom, Austria, Portugal, France and Germany, and has been recommended for marketing authorization in Italy and Spain, for the treatment of vision impairment associated with diabetic macular edema (DME) considered insufficiently responsive to available therapies. DME is a disease of the retina that affects individuals with diabetes and can lead to severe vision loss and blindness.
We submitted a New Drug Application (NDA) in June 2010 for the low dose of ILUVIEN in the U.S. with the U.S. Food and Drug Administration (FDA), followed by registration filings in the United Kingdom, Austria, France, Germany, Italy, Portugal and Spain under the EU's Decentralized Procedure (DCP) in July 2010 with the United Kingdom acting as the Reference Member State (RMS). The RMS is responsible for coordinating the review and approval process between itself and the other involved countries, or Concerned Member States.
In November 2010, we received a Preliminary Assessment Report (PAR) from the RMS and in December 2010, we received a Complete Response Letter (CRL) from the FDA regarding our respective registration filings. The primary concerns expressed in both the PAR and the CRL centered on the benefits of ILUVIEN in treating DME patients versus the risk of its side effects. Upon further
analysis of the data from our two Phase 3 pivotal clinical trials (collectively, the FAME TM Study) through its final readout at month 36, we determined that a pre-planned subgroup of chronic DME patients demonstrated a greater benefit to risk profile than the full population dataset in our original filings.
We submitted our response to the CRL to the FDA in May 2011, including additional safety and efficacy data through the final readout at month 36 of the FAME Study with an emphasis on the chronic DME subgroup. In July 2011, we submitted a draft response to the PAR to the Medicines and Healthcare products Regulatory Agency (MHRA), the regulatory body in the RMS, which included a similar data package.
In November 2011, the FDA issued a second CRL to communicate that the NDA could not be approved in its then current form stating that the NDA did not provide sufficient data to support that ILUVIEN is safe and effective in the treatment of patients with DME. The FDA stated that the risks of adverse reactions shown for ILUVIEN in the FAME Study were significant and were not offset by the benefits demonstrated by ILUVIEN in these clinical trials. At the time, the FDA indicated that we would need to conduct two additional clinical trials to demonstrate that the product is safe and effective for the proposed indication. During the second quarter of 2012, we met with the FDA in an effort to gain a better understanding of the regulatory path for ILUVIEN in the U.S. Based upon this meeting, we plan to submit to the FDA a response to the second CRL to include additional analysis of the benefits and risks of ILUVIEN based upon clinical data available from the FAME.
After meetings and discussions with the MHRA, we finalized and submitted our response to the PAR to the MHRA in November 2011. In February 2012, we received a Final Assessment Report (FAR) from the United Kingdom Medicines Healthcare products Regulatory Agency (MHRA) indicating that the United Kingdom, Austria, France, Germany, Italy, Portugal and Spain had reached a consensus that ILUVIEN was approvable and that the decentralized procedure was complete. Upon receipt of the FAR, we entered the national phase with each of these seven countries. During the national phase labeling in each country's local language is finalized. As part of the approval process in these countries, we have committed to conduct a five-year, post-authorization, open label registry study of ILUVIEN in patients with chronic DME. ILUVIEN has received marketing authorization in the United Kingdom, Austria, Portugal, France and Germany for the treatment of vision impairment associated with DME considered insufficiently responsive to available therapies.
We currently plan to launch ILUVIEN in Germany, the United Kingdom and France in 2013, and are pursuing pricing and reimbursement in those countries. In July 2012, we received a letter from Germany's Federal Joint Committee indicating that the automatic obligation to submit a dossier on ILUVIEN, per the Arzneimittelmarkt-Neuordnungsgesetz law, would not be necessary, and that a benefit assessment would not be required. This allows us to launch ILUVIEN in Germany without price restriction. In August 2012, we received an appraisal consultation document from the United Kingdom's National Institute for Health and Clinical Excellence (NICE) with a preliminary recommendation that ILUVIEN is not recommended given the current cost of £5500 and other variables included in our submission to NICE. This document is not NICE's final guidance and the recommendation may change prior to NICE's final appraisal determination (FAD). We, along with NICE's consultants and the public, have the opportunity to provide further comments on the draft appraisal by the end of August in preparation for the second appraisal meeting in September 2012. The NICE FAD is not scheduled until November 2012.
ILUVIEN is also being studied in three Phase 2 clinical trials for the treatment of the dry form of age-related macular degeneration (AMD), the wet form of AMD and retinal vein occlusion (RVO).
We commenced operations in June 2003. Since our inception we have incurred significant losses. As of June 30, 2012, we have accumulated a deficit of $220.4 million. We expect to incur substantial losses through the projected commercialization of ILUVIEN as we:
• complete the clinical development and registration of ILUVIEN;
• prepare for the anticipated commercial launch of ILUVIEN in the EU in early 2013, at the earliest;
• continue to seek regulatory approval of ILUVIEN in the U.S. and other jurisdictions;
• evaluate the use of ILUVIEN for the treatment of other diseases; and
• advance the clinical development of other product candidates either currently in our pipeline, or that we may license or acquire in the future.
Prior to our initial public offering (IPO), we funded our operations through the private placement of common stock, preferred stock, warrants and convertible debt, as well as by the sale of certain assets of the non-prescription business in which we were previously engaged. On April 21, 2010, our Registration Statement on Form S-1 (as amended) was declared effective by the Securities and Exchange Commission (SEC) for our IPO, pursuant to which we sold 6,550,000 shares of our common stock at a public offering price of $11.00 per share. We received net proceeds of approximately $66.1 million from this transaction, after deducting underwriting discounts, commissions and other offering costs.
As of June 30, 2012, we had approximately $22.3 million in cash and cash equivalents.
In October 2010, we obtained a $32.5 million senior secured credit facility (Credit Facility) to help fund our working capital requirements. The Credit Facility consisted of a $20.0 million revolving line of credit and a $12.5 million term loan. The lenders have advanced $6.25 million under the term loan. In May 2011, the Credit Facility was amended to increase the term loan to $17.25 million, the remaining $11.0 million which would have been advanced following FDA approval of ILUVIEN, but no later than December 31, 2011. As a result of the issuance of the second CRL by the FDA in November 2011 regarding our NDA for ILUVIEN, the remaining $11.0 million is no longer available to us. Additionally, we may only draw on the revolving line of credit against eligible U.S. domestic accounts receivable, which we would not expect to have prior to the launch of ILUVIEN in the U.S. Therefore, the revolving line of credit, which expires in April 2014, is not currently, and may never be, available to us. On February 6, 2012, we received a letter from the lenders stating that the they reserve the right to assert that recent events, including the issuance of the second CRL and a decrease in the market value of our public equity securities, may represent a material impairment of the value of the collateral under the loan agreements. To date, the lenders have not made such an assertion, and in our opinion a material impairment of the value of the collateral has not occurred.
On July 17, 2012, we entered into a securities purchase agreement (Purchase Agreement) with certain investors, for a $40.0 million Series A Convertible Preferred Stock (Series A Preferred Stock) financing (Financing). The Purchase Agreement provides for the sale of 1,000,000 shares of our Series A Preferred Stock and warrants (each, a Warrant) to purchase an additional 300,000 shares of Series A Preferred Stock. For each unit consisting of one share of Series A Preferred Stock and a Warrant to purchase .30 shares of Series A Preferred Stock, the investors agreed to pay $40.00 (Original Purchase Price), which is expected to result in gross proceeds to us of $40.0 million, before deducting expenses payable by us. The Financing is subject to the approval of the holders of a majority of our outstanding common stock, as well as other customary closing conditions. In connection with the Purchase Agreement, stockholders holding approximately 56% of our common stock outstanding as of July 17, 2012 entered into separate agreements with us pursuant to which they agreed to vote in favor of the Financing. As a result, the investors and we expect the Financing will be approved by our stockholders and will close during the third quarter of 2012.
Each share of Series A Preferred Stock will be initially convertible into approximately 13.75 shares of our common stock, based on an initial conversion price of $2.91 per share (Conversion Price). The Conversion Price will be subject to standard broad-based weighted average anti-dilution adjustments prior to the date on which we have received and publicly announce the approval by the FDA of the NDA for ILUVIEN (FDA Approval Date), provided, that in no event shall the Conversion Price be adjusted below $1.00 (as adjusted for stock dividends, splits, combinations and similar events). The Original Purchase Price and the Conversion Price will be subject to adjustments for stock dividends, splits, combinations and similar events. The Warrants will be exercisable upon issuance at an exercise price of $44.00 per share of Series A Preferred Stock, provided, however, that the Warrants may be exercised, at the option of the holders, directly for the common stock that would otherwise then be issuable upon conversion of the Series A Preferred Stock covered by such Warrants.
The Series A Preferred Stock will be entitled to receive dividends and other distributions pro rata with the common stock. Each share of Series A Preferred Stock will automatically convert into common stock at the then applicable Conversion Rate, equal to the Original Purchase Price divided by the then applicable Conversion Price, upon the occurrence of both (i) the FDA Approval Date and (ii) the date on which we consummate an equity financing transaction pursuant to which we sell to one or more third party investors either (A) common stock or (B) other equity securities that are convertible into common stock and that have rights, preferences or privileges senior to or on parity with the Series A Preferred Stock, in each case having an as-converted to common stock price of not less than $10.00 per share (as adjusted for stock dividends, splits, combinations and similar events) and that results in gross proceeds to us of at least $30.0 million. The Series A Preferred Stock will not be redeemable and will not be convertible at our option.
We plan to proceed with the direct commercialization of ILUVIEN in the United Kingdom, France and Germany in 2013. We believe that, assuming the closing of the Financing, we will have sufficient funds available to fund our operations beyond the projected commercialization of ILUVIEN in these EU countries. We do not expect the generation of revenue until 2013, and therefore does not expect to have cash flow from operations until 2014, if at all. If ILUVIEN is not approved in additional jurisdictions or does not generate sufficient revenue, we may adjust our commercial plans so that we can continue to operate with our existing cash resources or seek to raise additional financing.
In April 2012, we established a wholly-owned subsidiary in the United Kingdom, Alimera Sciences Ltd., to facilitate transacting business in the EU. Since its inception there have been no employees of Alimera Sciences, Ltd.
Our Agreement with pSivida US, Inc.
In February 2005, we entered into an agreement with pSivida US, Inc. (pSivida)
for the use of fluocinolone acetonide (FAc) in pSivida's proprietary delivery
device. pSivida is a global drug delivery company committed to the biomedical
sector and the development of drug delivery products. Our agreement with pSivida
provides us with a worldwide exclusive license to develop and sell ILUVIEN,
which consists of a tiny polyimide tube with membrane caps that is filled with
FAc in a polyvinyl alcohol matrix for delivery to the back of the eye for the
treatment and prevention of eye diseases in humans (other than uveitis). This
agreement also provides us with a worldwide non-exclusive license to develop and
sell pSivida's proprietary delivery device to deliver other corticosteroids to
the back of the eye for the treatment and prevention of eye diseases in humans
(other than uveitis) or to treat DME by delivering a compound to the back of the
eye through a direct delivery method through an incision required for a 25-gauge
or larger needle. We do not have the right to develop and sell pSivida's
proprietary delivery device for indications for diseases outside of the eye or
for the treatment of uveitis. Further, our agreement with pSivida permits
pSivida to grant to any other party the right to use its intellectual property
(i) to treat DME through an incision smaller than that required for a 25-gauge
needle, unless using a corticosteroid delivered to the back of the eye, (ii) to
deliver any compound outside the back of the eye unless it is to treat DME
through an incision required for a 25-gauge or larger needle, or (iii) to
deliver non-corticosteroids to the back of the eye, unless it is to treat DME
through an incision required for a 25-gauge or larger needle.
Under the February 2005 agreement, we and pSivida agreed to collaborate on the development of ILUVIEN for DME, and share financial responsibility for the development expenses equally. Per the terms of the agreement, we each reported our monthly expenditures on a cash basis, and the party expending the lesser amount of cash during the period was required to make a cash payment to the party expending the greater amount to balance the cash expenditures. We retained primary responsibility for the development of the product, and therefore, were generally the party owed a balancing payment. Between February 2006 and December 2006, pSivida failed to make payments to us for its share of development costs totaling $2.0 million. For each payment not made, pSivida incurred a penalty of 50% of the missed payment and interest began accruing at the rate of 20% per annum on the missed payment and the penalty amount. In accordance with the terms of the agreement, pSivida was able to remain in compliance with the terms of the February 2005 agreement as long as the total amount of development payments past due did not exceed $2.0 million, and pSivida began making payments again in December 2006 in order to maintain compliance with the agreement.
The February 2005 agreement provided that after commercialization of ILUVIEN, profits, as defined in the agreement, would be shared equally. In March 2008, we and pSivida amended and restated the agreement to provide us with 80% of the net profits and pSivida with 20% of the net profits.
Total consideration to pSivida in connection with the execution of the March 2008 agreement was $33.8 million, which consisted of a cash payment of $12.0 million, the issuance of a $15.0 million note payable, and the forgiveness of $6.8 million in outstanding receivables. The $15.0 million promissory note was repaid pursuant to its terms with the proceeds from our IPO. We will owe pSivida an additional milestone payment of $25.0 million if ILUVIEN is approved by the FDA.
Our Credit Facility
Term Loan Agreement
On October 14, 2010 (Effective Date), we entered into a Loan and Security
Agreement (Term Loan Agreement) with Silicon Valley Bank and MidCap Financial
LLP (Lenders). Pursuant to the original terms of the Term Loan Agreement, we
were entitled to borrow up to $12.5 million, of which $6.25 million (Term Loan
A) was advanced to us on the Effective Date. We were entitled to draw down the
remaining $6.25 million under the Term Loan (Term Loan B and together with Term
Loan A, the Term Loan) if the FDA approved our NDA for ILUVIEN prior to or on
July 31, 2011. On May 16, 2011, the Lenders and we amended the Term Loan
Agreement (Term Loan Modification) to, among other things, extend until
December 31, 2011 the date by which the FDA must have approved the NDA in order
for us to draw down Term Loan B and increase the amount of Term Loan B by $4.75
million to $11.0 million. In addition, the maturity date of the Term Loan was
extended from October 31, 2013 to April 30, 2014 (Term Loan Maturity Date). As a
result of the issuance of the second CRL by the FDA in November 2011, we did not
drawn down Term Loan B by December 31, 2011 and the availability to draw down
Term Loan B expired.
We were required to pay interest on Term Loan A at a rate of 11.5% on a monthly basis through July 31, 2011, and since August 2011, we have been required to repay the principal in 33 equal monthly installments plus interest at a rate of 11.5%.
If we repay Term Loan A prior to maturity, we must pay to the Lenders a prepayment fee equal to 3.0% of the total amount of principal then outstanding if the prepayment occurs between one year and two years after the funding date of Term Loan A and 1.0% of such amount if the prepayment occurs thereafter (subject to a 50% reduction in the event that the prepayment occurs in connection with an acquisition of us).
To secure the repayment of any amounts borrowed under the Term Loan Agreement, we granted to the Lenders a first priority security interest in all of our assets, including our intellectual property, however, the lien on our intellectual property will be released if we meet certain financial conditions. The occurrence of an event of default could result in the acceleration of our obligations under the Term Loan Agreement and an increase to the applicable interest rate, and would permit the Lenders to exercise remedies with respect to the collateral under the Term Loan Agreement. We also agreed not to pledge or otherwise encumber our intellectual property assets. Additionally, we must seek the Lenders' approval prior to the payment of any cash dividends to our stockholders.
On the Effective Date, we issued to the Lenders warrants to purchase an aggregate of up to 39,773 shares of our common stock. Each of the warrants is exercisable immediately, has a per-share exercise price of $11.00 and has a term of 10 years. We estimated the fair value of warrants granted using the Black-Scholes option pricing model. The aggregate fair value of the warrants was estimated to be $389,000. We allocated a portion of the proceeds from the Term Loan Agreement to the warrants in accordance with Accounting Standards Codification (ASC) 470-20-25-2, Debt Instruments with Detachable Warrants. As a result, we recorded a discount of $366,000 which is being amortized to interest expense using the effective interest method. The Lenders will have certain registration rights with respect to the shares of common stock issuable upon exercise of all of their warrants. We paid to the Lenders an upfront fee of $62,500 on the Effective Date and an additional fee of $50,000 in connection with the Term Loan Modification. In accordance with ASC 470-50-40-17, Debt - Modifications and Extinguishments, we are amortizing the unamortized discount on Term Loan A and the $50,000 modification fee over the remaining term of Term Loan A, as modified.
We are required to maintain our primary operating and other deposit accounts and securities accounts with Silicon Valley Bank, which accounts must represent at least 50% of the dollar value of our accounts at all financial institutions.
On February 6, 2012, we received a letter from the Lenders stating that they reserve the right to assert that the occurrence of certain events, including the issuance by the FDA of the second CRL and a decrease in the market value of our public equity securities, may represent a material impairment of the value of the collateral under the Loan Agreements. To date, the Lenders have not made such an assertion, and in our opinion a material impairment of the value of the collateral has not occurred.
Working Capital Revolver
Also on the Effective Date, we entered into a Loan and Security Agreement with Silicon Valley Bank, pursuant to which we obtained a secured revolving line of credit (Working Capital Revolver) from Silicon Valley Bank with borrowing availability up to $20.0 million (Revolving Loan Agreement). On May 16, 2011, Silicon Valley Bank and we amended the Revolving Loan Agreement to extend the maturity date of the Working Capital Revolver from October 31, 2013 to April 30, 2014.
The Working Capital Revolver is a working capital-based revolving line of credit in an aggregate amount of up to the lesser of (i) $20.0 million, or (ii) 85% of eligible domestic accounts receivable. As of June 30, 2012 and December 31, 2011, respectively, no amounts under the Working Capital Revolver were outstanding or available to us. We may only draw on the revolving line of credit against eligible U.S. domestic accounts receivable, which we do not expect to have prior to the launch of ILUVIEN in the U.S. Therefore, the revolving line of credit, which expires in April 2014, is not currently, and may never be, available to us.
Amounts advanced under the Working Capital Revolver will bear interest at an annual rate equal to Silicon Valley Bank's prime rate plus 2.50% (with a rate floor of 6.50%). Interest on the Working Capital Revolver will be due monthly, with the balance due at the maturity date. On the Effective Date, we paid to Silicon Valley Bank an upfront fee of $100,000. In addition, if we terminate the Working Capital Revolver prior to maturity, we will be required to pay to Silicon Valley Bank a fee of $200,000, provided that such fee will be reduced by 50% in the event such termination is in connection with an acquisition of us.
To secure the repayment of any amounts borrowed under the Revolving Loan Agreement, we granted to Silicon Valley Bank a first priority security interest in all of our assets, including our intellectual property, however, the lien on our intellectual property will be released if we meet certain financial conditions. The occurrence of an event of default could result in the acceleration of our obligations under the Revolving Loan Agreement and an increase to the applicable interest rate, and would permit Silicon Valley Bank to exercise remedies with respect to the collateral under the Revolving Loan Agreement. We also agreed not to pledge or otherwise encumber our intellectual . . .
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