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ALIM > SEC Filings for ALIM > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for ALIMERA SCIENCES INC

Form 10-Q for ALIMERA SCIENCES INC


14-Aug-2013

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS 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 our forward-looking statements may not occur and actual results could differ materially from those projected in our 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 our product candidates;

•          uncertainty as to our ability to commercialize (alone or with others),
           and market acceptance of, ILUVIEN in the EU;


•          our inability to successfully market and sell ILUVIEN following
           regulatory approval in additional markets;

• the extent of government regulations;

•          uncertainty as to the pricing and reimbursement guidelines for ILUVIEN
           and our product candidates;


•          uncertainty as to the relationship between the benefits of ILUVIEN and
           our product candidates and the risks of their side-effect profiles;


•          dependence on third-party manufacturers to manufacture ILUVIEN and our
           product candidates in sufficient quantities and quality;

• uncertainty of clinical trial results;

• limited sales and marketing infrastructure; and

• our ability to operate our business in compliance with the covenants and restrictions that we are subject to under our loan agreements.

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. You are advised, however, to consult any further disclosures we make on related subjects in any annual, quarterly or current reports that we may file with the Securities and Exchange Commission.
We encourage you to read the discussion and analysis of our financial condition and our unaudited interim 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, 2012, 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.


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Overview
Alimera Sciences, Inc., and its subsidiaries (we, Alimera or the Company), is 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 only commercial product is ILUVIEN®, which has received marketing authorization in Austria, the United Kingdom, Portugal, France, Germany and Spain, and has been recommended for marketing authorization in Italy, for the treatment of vision impairment associated with chronic 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. ILUVIEN has not been approved by the U.S. Food and Drug Administration (FDA).
We launched ILUVIEN in the United Kingdom and Germany, in April and May of 2013, respectively, and currently plan to launch ILUVIEN in France in early 2014. We are also currently pursuing reimbursement in the United Kingdom, Germany and France. In January 2013, the United Kingdom's National Institute for Health and Care Excellence (NICE) published final guidance indicating that ILUVIEN is not cost effective for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies given the cost of £5500. We submitted a simple patient access scheme (PAS) for ILUVIEN to NICE for consideration under its rapid review facility. In June 2013, the NICE Appraisal Committee issued a positive Appraisal Consultation Document (ACD) on ILUVIEN for the treatment of pseudophakic patients with chronic diabetic macular edema (DME) considered insufficiently responsive to available therapies, taking the PAS into consideration. The ACD recommends a change to the published guidance issued by NICE in January 2013. The NICE Appraisal Committee is expected to meet again in August 2013 to consider additional consultation and comment on the ACD and communicate its decision at a later date. There is no guarantee, however, that NICE will change its final guidance as a result of this latest recommendation by the Appraisal Committee. If NICE fails to change its published guidance, our business may be materially and adversely affected. We submitted a New Drug Application (NDA) in June 2010 for ILUVIEN in the U.S. with the U.S. Food and Drug Administration (FDA) and in December 2010, we received a Complete Response Letter (CRL) from the FDA regarding our NDA. The primary concerns expressed in the CRL centered on the benefits of ILUVIEN in treating DME patients versus the risk of its side effects. Further analysis of our two completed Phase 3 pivotal clinical trials (collectively, the FAME Study) data through its final readout at month 36, demonstrated that a pre-planned subgroup of chronic DME patients demonstrated a greater benefit to risk profile than the full population dataset in our original NDA filing. We submitted our response to the CRL to the FDA in May 2011, including additional safety and efficacy data through month 36 of the FAME Study with an emphasis on the chronic DME subgroup. 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. In its second CRL, the FDA indicated that we would need to conduct two additional clinical trials to demonstrate that ILUVIEN 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 have submitted a response to the second CRL to the FDA, which included additional analysis of the benefits and risks of ILUVIEN based upon clinical data available from the FAME Study, including special assessments of the fundus photographs. Additionally, data from an ongoing study assessing utility of the commercial injector was submitted. We received a Prescription Drug User Fee Act (PDUFA) goal date of October 17, 2013. We do not plan to conduct additional trials for DME at this time. We commenced operations in June 2003. Since our inception we have incurred significant losses. As of June 30, 2013, we have accumulated a deficit of $261.5 million. We expect to incur substantial losses through the projected commercialization of ILUVIEN as we:

• complete the registration of ILUVIEN for DME;

•          continue to execute the commercial launch of ILUVIEN in the European
           Union (EU);


•          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 new product candidates
           either currently in our pipeline, or that we may license or acquire in
           the future.

As of June 30, 2013, we had approximately $31.9 million in cash and cash equivalents.


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We launched ILUVIEN in the United Kingdom and Germany, in April and May of 2013, respectively, and currently plan to launch ILUVIEN in France in early 2014. We believe that we have sufficient funds available, including amounts available under our 2013 Line of Credit, to fund our operations for the commercialization of ILUVIEN in these EU countries. We do not expect to have positive cash flow from operations until 2014, if at all. If ILUVIEN does not generate sufficient revenue, or we do not maintain compliance with covenants under our loan agreements, we may adjust our commercial plans so that we can continue to operate with our existing cash resources or seek to raise additional financing. Our Agreement with pSivida US, Inc.
We entered into an agreement with pSivida US, Inc. (pSivida) in February 2005, which was subsequently amended and restated in March 2008, for the use of fluocinolone acetonide (FAc) in pSivida's proprietary delivery device in February 2005. 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. The agreement provides that after commercialization of ILUVIEN, pSivida will be entitled to 20% of the net profits, by country, as defined in the amended and restated agreement. In connection with this arrangement we are entitled to recover 20% of commercialization costs of ILUVIEN, as defined in the agreement, incurred prior to product profitability out of pSivida's share of net profits, by country. As of June 30, 2013 and December 31, 2012, pSivida owed us $8.0 million and $5.6 million, respectively, in commercialization costs. Due to the uncertainty of future profits from ILUVIEN, we have fully reserved these amounts in the accompanying unaudited interim financial statements.
We will owe pSivida an additional milestone payment of $25.0 million if ILUVIEN is approved by the FDA. If we were to enter into any sub-license of ILUVIEN, we must share 20% of net profits and 33% of any lump sum milestone payments received from a sub-licensee, as defined in the agreement, with pSivida. Our Loan Agreements
2010 Term Loan
We entered into a loan and security agreement with Silicon Valley Bank (SVB) and MidCap Financial LLP (MidCap and together with SVB, the Lenders) in October 2010, which was subsequently amended in May 2011 (as amended, the 2010 Term Loan Agreement). Pursuant to the 2010 Term Loan Agreement, in October 2010 we borrowed an aggregate of $6.25 million from the Lenders (the 2010 Term Loan). The 2010 Term Loan Agreement also provided for the ability to drawdown an additional $11.0 million subject to FDA approval of the NDA for ILUVIEN by December 31, 2011, which was not obtained.
In August 2011, we began repaying the outstanding principal under the 2010 Term Loan in 33 equal monthly installments plus interest at a rate of 11.5%. At maturity, we were also required to make an additional interest payment equal to 4% of the total amount borrowed. We paid to the Lenders an upfront fee of $62,500 upon execution of the 2010 Term Loan Agreement and an additional fee of $50,000 in connection with the May 2011 amendment. In accordance with the Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) 470-50-40-17, Debt - Modifications and Extinguishments (ASC 470-50-40-17), we were amortizing the deferred financing costs on the 2010 Term Loan and the $50,000 modification fee over the remaining term of the 2010 Term Loan, as modified.
In October 2010, in connection with entering into the 2010 Term Loan, we issued SVB a warrant to purchase up to 15,909 shares of our common stock and MidCap a warrant to purchase up to 23,864 shares of our common stock. Each of the warrants were exercisable upon issuance, had a per-share exercise price of $11.00 and a term of 10 years. We estimated the fair value of warrants granted using the Black-Scholes option pricing model to be $389,000. We allocated a portion of the proceeds from the 2010 Term Loan to the warrants in accordance with ASC 470-20-25-2, Debt Instruments with Detachable Warrants. As a result, we recorded a discount of $366,000 which was amortized to interest expense using the effective interest method. The Lenders were also issued warrants to purchase up to an aggregate of 69,999 additional shares of our common stock, which were exercisable only upon the drawdown of the additional $11 million subject to FDA approval of the NDA for ILUVIEN by December 31, 2011, which was not obtained. In May 2013, we repaid all amounts owed to the Lenders under the 2010 Term Loan, including the final interest payment equal to 4% of the total amount borrowed, and a 1.0% prepayment penalty on the then outstanding principal owed to MidCap. In connection with the repayment of the 2010 Term Loan, we recognized a loss on early extinguishment of debt of $154,000 associated with the remaining unamortized deferred financing costs, unamortized discount associated with the Lenders' warrants, the final interest payment, the prepayment penalty and a lender fee and warrants associated with a new term loan. 2010 Revolving Loan Agreement
In October 2010, we entered into a loan and security agreement with SVB, which was subsequently amended in May 2011 (as amended, the 2010 Revolving Loan Agreement), pursuant to which we obtained a secured revolving line of credit from SVB against eligible U.S. domestic accounts receivable with borrowing availability up to $20.0 million. Upon entering into the 2010 Revolving Loan Agreement, we paid to SVB an upfront fee of $100,000. As of December 31, 2012, no amounts under the 2010 Revolving Loan Agreement were outstanding or available to us. In May 2013, we terminated the 2010 Revolving Loan Agreement. 2013 Loan Agreement
On May 7, 2013, Alimera Sciences Limited (Limited), our subsidiary, entered into a loan and security agreement (2013 Loan Agreement) with SVB to provide Limited with additional working capital for general corporate purposes. Under the 2013 Loan Agreement, SVB has made a term loan (2013 Term Loan) in the principal amount of $5.0 million to Limited and has agreed to provide up to an additional $15.0 million to Limited under a working capital line of credit (2013 Line of Credit). No advances were made at closing under the 2013 Line of Credit. The 2013 Term Loan provides for interest only payments for six months followed by 36 monthly payments of interest, plus principal. Interest on outstanding borrowings under the 2013 Term Loan is payable at the rate of 7.50%. Borrowings under the 2013 Line of Credit will be advanced at 80% of eligible accounts receivable as defined in the 2013 Loan Agreement. Interest is payable on the balance of eligible accounts financed at the rate of 2.75% above SVB's most recently announced "prime rate." Limited is also required to pay SVB on a monthly basis an unused line fee equal to 0.25% per annum of the average unused portion of the 2013 Line of Credit during the preceding month. The maturity dates are June 30, 2015 with respect to the 2013 Line of Credit and October 31, 2016 with respect to the 2013 Term Loan.
In connection with entering into the 2013 Loan Agreement, Limited paid SVB a facility fee of $25,000. Additionally, we re-priced warrants to purchase an aggregate of up to 31,818 shares of our common stock previously issued to SVB in connection with the 2010 Term Loan; 15,909 of which were previously exercisable only upon the drawdown of the additional $11.0 million of the 2010 Term Loan subject to FDA approval of the NDA for ILUVIEN by December 31, 2011. Upon re-pricing, each of the warrants was exercisable immediately at a per-share exercise price of $2.86 and had a remaining term of 7.4 years. We estimated the incremental fair value received by SVB using the Black-Scholes option pricing model to be $46,000. In accordance with ASC 470-50-40-17, we classified the repayment of the 2010 Term Loan as an extinguishment of debt and expensed the facility fee and incremental value of the warrants associated with the 2013 Term Loan as part of a loss on early extinguishment of the 2010 Term Loan. Warrants to purchase up to an aggregate of 54,090 additional shares of our common stock, which were exercisable only upon the drawdown of the additional $11.0 million of the 2010 Term Loan subject to FDA approval of the NDA for ILUVIEN by December 31, 2011, which was not obtained, remain outstanding.
In connection with the 2013 Line of Credit, Limited paid commitment fee of $100,000. In accordance with ASC 470-50-40-17, the Company capitalized the commitment fee and $49,000 of deferred financing costs remaining on the 2010 Revolving Loan Agreement as deferred financing costs, which are being amortized over the remaining term of the 2013 Line of Credit.
If Limited repays the 2013 Term Loan prior to October 31, 2016, it will pay to SVB a prepayment penalty of 3% of the total principal amount if the prepayment occurs within one year after the funding date and 2% of the total principal amount if the prepayment occurs between one and two years after the funding date , provided in each case that such prepayment penalty will be reduced by 50% in the event of an acquisition of Limited (either alone, or in connection with the acquisition of us or any of our subsidiaries). In addition, if Limited terminates the 2013 Line of Credit prior to June 30, 2015, it will pay to SVB a fee of $112,500, which termination fee will be reduced by 50% in the event of an acquisition described above.
Limited also agreed to customary affirmative and negative covenants and events of default in connection with these arrangements. Further, we, on a consolidated basis with our subsidiaries, must maintain a minimum "adjusted quick ratio," tested as of the last day of each month, of at least 1.5:1.0. The adjusted quick ratio is the ratio of (x) our consolidated, unrestricted and unencumbered cash plus net billed trade accounts receivable to (y) our current liabilities (including all obligations owed to SVB) minus the current portion of deferred revenue. The occurrence of an event of default could result in


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the acceleration of Limited's obligations under the 2013 Loan Agreement and an increase to the applicable interest rate, and would permit SVB to exercise remedies with respect to the collateral under the 2013 Loan Agreement, including foreclosure on our intellectual property. As of June 30, 2013, we, on a consolidated basis with our subsidiaries, were in material compliance with all of the covenants of the 2013 Term Loan and 2013 Line of Credit.
Limited's obligations to SVB are secured by a first priority security interest in substantially all of Limited's assets. We and certain of our subsidiaries are guarantors of the obligations of Limited to SVB under the 2013 Loan Agreement pursuant to separate guaranty agreements. Pursuant to the guaranties, we and these subsidiaries granted SVB a first priority security interest in substantially all of our respective assets.
The weighted average interest rates of our notes payable approximate the rate at which we could obtain alternative financing; therefore, the carrying amount of the notes approximated their fair value at December 31, 2012 and June 30, 2013. Financial Operations Overview
Revenue
We began generating revenue from ILUVIEN in the second quarter of 2013, but do not expect positive cash flow from operations until 2014, if at all. In addition to generating revenue from product sales, we intend to seek to generate revenue from other sources such as upfront fees, milestone payments in connection with collaborative or strategic relationships, and royalties resulting from the licensing of our product candidates and other intellectual property. We expect any revenue we generate will fluctuate from quarter to quarter as a result of the nature, timing and amount of any milestone payments we may receive from potential collaborative and strategic relationships, as well as revenue we may receive upon the sale of our products to the extent any are successfully commercialized.
Research and Development Expenses
Substantially all of our research and development expenses incurred to date related to our continuing operations have been related to the development of ILUVIEN. In the event the FDA approves our NDA for ILUVIEN, we will owe an additional milestone payment of $25.0 million to pSivida. We anticipate that we will incur additional research and development expenses in the future as we evaluate and possibly pursue the regulatory approval of ILUVIEN in additional jurisdictions, the development of ILUVIEN for additional indications, or develop additional product candidates. We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of:

• salaries and related expenses for personnel;

•          fees paid to consultants and contract research organizations (CRO) in
           conjunction with independently monitoring clinical trials and
           acquiring and evaluating data in conjunction with clinical trials,
           including all related fees such as investigator grants, patient
           screening, lab work and data compilation and statistical analysis;


•          costs incurred with third parties related to the establishment of a
           commercially viable manufacturing process for our product candidates;


•          costs related to production of clinical materials, including fees paid
           to contract manufacturers;

• costs related to upfront and milestone payments under in-licensing agreements;

• costs related to compliance with FDA, EU or other regulatory requirements;

•          consulting fees paid to third-parties involved in research and
           development activities; and


•          costs related to stock options or other stock-based compensation
           granted to personnel in development functions.

We expense both internal and external development costs as they are incurred. We expect that a large percentage of our research and development expenses in the future will be incurred in support of our current and future technical, preclinical and clinical development programs. These expenditures are subject to numerous uncertainties in terms of both their timing and total cost to completion. We expect to continue to develop stable formulations of our product candidates, test such formulations in preclinical studies for toxicology, safety and efficacy and to conduct clinical trials for each product candidate. We anticipate funding clinical trials ourselves, but we may engage collaboration partners at certain stages of clinical development. As we obtain results from clinical trials, we may elect to discontinue or delay clinical trials for certain product candidates or programs in order to focus our resources on more promising product candidates or programs. Completion of clinical trials by us or our future collaborators may take several years or more, the length of time generally varying with the type, complexity, novelty and intended use of a product candidate. The costs of clinical trials may vary significantly over the life of a project owing to but not limited to the following:


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• the number of sites included in the trials;

• the length of time required to enroll eligible patients;

• the number of patients that participate in the trials;

• the number of doses that patients receive;

• the drop-out or discontinuation rates of patients;

• the duration of patient follow-up;

• the phase of development the product candidate is in; and

• the efficacy and safety profile of the product candidate.

Our expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Generally, these agreements set forth the scope of work to be performed at a fixed fee or unit price. Payments under the contracts depend on factors such as the successful enrollment of patients or the completion of clinical trial milestones. Expenses related to clinical trials generally are accrued based on contracted amounts applied to the level of patient enrollment and activity according to the protocol. If timelines or contracts are modified based upon changes in the . . .

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