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PSDV > SEC Filings for PSDV > Form 10-Q on 13-Nov-2013All Recent SEC Filings

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Form 10-Q for PSIVIDA CORP.


13-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Note Regarding Forward-Looking Statements

Various statements made in this Quarterly Report on Form 10-Q are forward-looking and involve risks and uncertainties. All statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. All statements other than statements of current or historical facts are forward-looking statements, including, without limitation, any expectations of revenues, expenses, cash flows, earnings or losses from operations, capital or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning product research, development and commercialization timelines; any statements of expectations or belief; and any statements of assumptions underlying any of the foregoing. We often, although not always, identify forward-looking statements by using words or phrases such as "likely", "expect", "intend", "anticipate", "believe", "estimate", "plan", "project", "forecast" and "outlook".

The following are some of the factors that could cause actual results to differ materially from the anticipated results or other expectations expressed, anticipated or implied in our forward-looking statements: uncertainties with respect to: Alimera's ability to finance, achieve additional marketing approvals, obtain adequate pricing and reimbursement for, successfully commercialize and achieve market acceptance of, and generate revenues to pSivida from, ILUVIEN for DME in the EU; Alimera's ability to obtain regulatory approval for, and if approved, to finance, successfully commercialize and achieve market acceptance of, and generate revenues to pSivida from, ILUVIEN for DME in the U.S.; the ability to finance, complete and achieve a successful outcome for Phase III trials for, and file and achieve marketing approvals for, Medidur for posterior uveitis, including achieving acceptable risk-to-benefit and safety profiles in light of the CRL for ILUVIEN; initiation, financing and success of Latanoprost Product Phase II trials and any exercise by Pfizer of its option; ability of Tethadur to successfully deliver proteins, peptides and other large biologic molecules; ability to develop product candidates and products and potential related collaborations; initiation and completion of clinical trials and obtaining regulatory approval of product candidates; continued sales of Retisert; adverse side effects; ability to attain profitability; ability to obtain additional capital; further impairment of intangible assets; fluctuations in operating results; decline in royalty income; ability to, and to find partners to, develop and market products; termination of license agreements; competition and other developments affecting sales of products; market acceptance; protection of intellectual property and avoiding intellectual property infringement; retention of key personnel; product liability; consolidation in the pharmaceutical and biotechnology industries; compliance with environmental laws; manufacturing risks; risks and costs of international business operations; credit and financial market conditions; legislative or regulatory changes; volatility of stock price; possible dilution; absence of dividends; and other factors described in our filings with the SEC. You should read and interpret any forward-looking statements together with these risks. Should known or unknown risks materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected in the forward-looking statements. You should bear this in mind as you consider any forward-looking statements.

Our forward-looking statements speak only as of the date on which they are made. We do not undertake any obligation to publicly update or revise our forward-looking statements even if experience or future changes makes it clear that any projected results expressed or implied in such statements will not be realized.

Our Business

We develop tiny, sustained-release products designed to deliver drugs and biologics at a controlled and steady rate for weeks, months or years. Using our core technology platforms, Durasert and BioSilicon, we are focused on treatment of chronic diseases of the back of the eye and are also exploring applications outside ophthalmology. We have developed three of the four sustained-release products for treatment of retinal diseases currently approved in the U.S. or EU, and our lead product candidate began a Phase III clinical trial in the quarter ended June 2013. Our strategy includes developing products independently while continuing to leverage our technology platforms through collaborations and license agreements.

ILUVIEN, our most recently approved product, is an injectable, sustained-release micro-insert that provides treatment over a period of up to three years of vision impairment associated with chronic DME considered insufficiently responsive to available therapies. ILUVIEN is licensed to and sold by Alimera, and we are entitled to


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a share of the net profits less certain net losses (as defined) from Alimera's sales of ILUVIEN for DME. Alimera commenced the commercial launch of ILUVIEN for DME in the U.K. and Germany in the second quarter of 2013 and expects to launch in France in 2014. ILUVIEN has also received marketing authorization in Austria, Portugal and Spain, and has been recommended for marketing authorization in Italy. Alimera reported that it has filed with the Medicines and Healthcare products Regulatory Agency ("MHRA") in the U.K., as the Reference Member State, for ten additional EU country approvals through the Mutual Recognition Procedure.

In October 2013, Alimera received its third CRL from the FDA, which followed resubmission of its NDA for ILUVIEN for DME. Identifying concerns regarding the benefit-to-risk and safety profiles of ILUVIEN, the FDA stated that the NDA could not be approved in its present form. To address the clinical and statistical deficiencies identified in the CRL, the FDA indicated that results from a new clinical trial would need to be submitted, together with at least 12 months of follow-up for all enrolled patients. The FDA suggested that a meeting with the Dermatologic and Ophthalmic Drugs Advisory Committee may be of assistance in addressing the deficiencies identified and providing advice whether a patient population can be identified in which the benefits of the drug product might outweigh the risks. Alimera was notified by the FDA that an Advisory Committee meeting would be convened on January 27, 2014. In the CRL, the FDA also referenced deficiencies in the methods and controls at the facility where ILUVIEN is manufactured. Alimera and its third-party manufacturer are in the process of resolving these deficiencies.

Medidur, our lead development product, commenced the first of two planned pivotal Phase III clinical trials for the treatment of posterior uveitis in June 2013. Medidur uses the same Durasert micro-insert used in ILUVIEN and delivers a lower dose of the same drug as our FDA-approved Retisert for posterior uveitis. We are developing Medidur independently.

We are also developing the Latanoprost Product to treat glaucoma and ocular hypertension. Under an amended collaboration agreement, Pfizer has an option, under certain circumstances, to license the development and commercialization of the Latanoprost Product worldwide.

The Company is engaged in pre-clinical research with respect to both its BioSilicon and Durasert technology platforms. The primary focus of the BioSilicon technology research is the use of Tethadur for the sustained delivery of peptides, proteins, antibodies and other large biologic molecules in both ophthalmic and non-ophthalmic applications. The Company's research program also includes the use of Durasert technology in orthopedic applications and for systemic delivery of therapeutic agents.

Our FDA-approved product Retisert provides sustained release treatment of posterior uveitis for approximately two and a half years and is licensed to and sold by Bausch & Lomb.

Durasert™, Medidur™, BioSilicon™ and Tethadur™ are our trademarks, Retisert® is Bausch & Lomb's trademark, and ILUVIEN® and FAME™ are Alimera's trademarks.

Information in the Form 10-Q with respect to ILUVIEN, including its regulatory and marketing status, reflects information reported by Alimera.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with GAAP requires that we make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates, judgments and assumptions on historical experience, anticipated results and trends, and on various other factors that we believe are reasonable under the circumstances at the time. By their nature, these estimates, judgments and assumptions are subject to an inherent degree of uncertainty. Actual results may differ from our estimates under different assumptions or conditions. In our Annual Report on Form 10-K for the year ended June 30, 2013 ("fiscal year 2013"), we set forth our critical accounting policies and estimates, which included revenue recognition and valuation of our intangible assets. There have been no material changes to our critical accounting policies from the information provided in our Annual Report on Form 10-K for fiscal year 2013, with the exception of the following:

Recognition of Expense in Outsourced Clinical Trial Agreements

We recognize research and development expense with respect to outsourced agreements for clinical trials as the services are provided based on our assessment of the services performed. We have an agreement with a contract research organization ("CRO") to conduct the first of two planned Phase III clinical trials of Medidur for posterior


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uveitis. We were contractually obligated for up to $10.4 million for services under this agreement as of September 30, 2013. The timing of actual amounts owed under the agreement will depend on various factors, including patient enrollment and other progress of the clinical trial. Differences between the amounts paid and our estimate of the work completed are recorded as a prepaid asset or accrued liability. We make our assessments of the services performed based on various factors, including evaluation by the third-party CRO and our own internal review of the work performed during the period, measurements of progress by us or by the third-party provider, data analysis with respect to work completed and our management's judgment. During the quarter ended September 30, 2013, we recognized approximately $1.2 million of research and development expense attributable to the Medidur for posterior uveitis clinical trial. Changes in our estimates or differences between the actual level of services performed and our estimates may result in changes to our research and development expenses in future periods.

Results of Operations

Three Months Ended September 30, 2013 Compared to Three Months Ended
September 30, 2012:



                                      Three Months Ended
                                         September 30,                 Change
                                      2013           2012        Amounts         %
                                           (In thousands except percentages)

       Revenues                     $     597      $    553      $     44          8 %


       Operating expenses:
       Research and development         2,504         1,523           981         64 %
       General and administrative       1,811         1,620           191         12 %


       Total operating expenses         4,315         3,143         1,172         37 %


       Loss from operations            (3,718 )      (2,590 )      (1,128 )      (44 )%


       Other income (expense):
       Interest income                      1             7            (6 )      (86 )%
       Other expense, net                  -             (1 )           1        100 %


       Total other income                   1             6            (5 )      (83 )%


       Loss before income taxes        (3,717 )      (2,584 )      (1,133 )      (44 )%
       Income tax benefit                  30            33            (3 )       (9 )%


       Net loss                     $  (3,687 )    $ (2,551 )    $ (1,136 )      (45 )%

Revenues

Revenues increased by $44,000, or 8%, to $597,000 for the three months ended September 30, 2013 from $553,000 for the three months ended September 30, 2012, predominantly related to increased Retisert royalty income from Bausch & Lomb.

ILUVIEN for DME is now available in the U.K. and Germany, and Alimera expects to launch ILUVIEN for DME in France in 2014. Under the Alimera Agreement, we will be entitled to 20% of net profits less certain net losses (as defined), on a country-by-country basis from sales by Alimera of ILUVIEN for DME. We do not know when and if Alimera will achieve net profits payable to us in each EU country where Alimera is commercializing or plans to commercialize ILUVIEN.

Research and Development

Research and development increased by $981,000, or 64%, to $2.5 million for the three months ended September 30, 2013 from $1.5 million for the three months ended September 30, 2012. This increase was primarily attributable to approximately $1.2 million of outsourced contract research organization costs incurred for the first of two planned Phase III clinical trials of Medidur for posterior uveitis, which commenced in the quarter ended June 30, 2013, partially offset by lower personnel and stock-based compensation costs. We expect to continue to incur significant research and development expense during the remainder of fiscal year 2014 with respect to the Medidur Phase III clinical trial.


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General and Administrative

General and administrative increased by $191,000, or 12%, to $1.8 million for the three months ended September 30, 2013 from $1.6 million for the three months ended September 30, 2012, primarily attributable to increased professional fees.

Income Tax Benefit

Income tax benefit was $30,000 for the three months ended September 30, 2013 compared to $33,000 for the quarter a year earlier, and consisted of refundable foreign research and development tax credits.

Liquidity and Capital Resources

During the past three fiscal years, we financed our operations primarily from sales of equity securities in January 2011 and August 2012, as well as operating cash flows from license fees, research and development funding and royalty income from our collaboration partners. We enhanced our capital resources in July 2013, raising $9.9 million through an underwritten public offering of common stock. At September 30, 2013, our principal sources of liquidity consisted of cash, cash equivalents and marketable securities totaling $16.5 million.

With the exception of net income in fiscal year 2010 resulting from a non-recurring event, we have incurred operating losses each year since inception and at September 30, 2013, we had a total accumulated deficit of $267.3 million. We do not currently have any assured sources of revenue, and we generally expect negative cash flows from operations on a quarterly basis unless and until such time as we receive sufficient revenues from ILUVIEN for DME or one or more of our other product candidates achieve regulatory approval and provide us sufficient revenues. We believe that our capital resources of $16.5 million at September 30, 2013, together with expected Retisert royalty income and other expected cash inflows under existing collaboration and evaluation agreements, should enable us to fund our operations as currently planned through calendar year 2014. This includes expected costs through that date of Phase III clinical trials of Medidur for posterior uveitis, but does not include any potential receipts of milestone or net profits consideration under the Alimera collaboration agreement. Our capital resources would be enhanced if Alimera successfully commercializes ILUVIEN for DME in the EU, although even so, the amount and timing of any such receipts is uncertain. Accordingly, we expect to need additional resources to fund our planned Phase III trials for Medidur for posterior uveitis, as well as other research and development and operations. Whether we will require, or desire, to raise additional capital will be influenced by many factors, including, but not limited to:

• whether, when and to what extent we receive revenues from Alimera with respect to ILUVIEN for DME, including from commercialization in the EU or upon any approval or commercialization in the U.S.;

• the timing and cost of development of Medidur for posterior uveitis;

• whether and when we initiate Phase II clinical trials for the Latanoprost Product and Pfizer exercises its option;

• whether and to what extent we internally fund, when we initiate, and how we conduct product development and programs, including with respect to BioSilicon and Tethadur applications;

• whether and when we are able to enter into strategic arrangements for our product candidates and the nature of those arrangements;

• timely and successful development, regulatory approval and commercialization of our products and product candidates;

• the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing any patent claims; and

• changes in our operating plan resulting in increases or decreases in our need for capital.

Absent adequate levels of funding from existing and potential future collaboration or other agreements and/or financing transactions, management currently believes that our cash position beyond calendar year 2014 depends significantly on possible revenues from the successful commercialization by Alimera of ILUVIEN for DME. However, there is no assurance that ILUVIEN for DME will achieve market acceptance in any country in the EU, that it will be approved by the FDA or that we will receive significant, if any, revenues from ILUVIEN for DME. Exercise by Pfizer of its option for the Latanoprost Product would also enhance our cash position, although there is no assurance when the option will become exercisable or if Pfizer will exercise it.


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If we determine that it is desirable or necessary to raise additional capital in the future, we do not know if it will be available when needed or on terms favorable to us or our stockholders. The state of the economy and the financial and credit markets at the time we seek additional financing may make it more difficult and more expensive to obtain. If available, additional equity financing may be dilutive to stockholders, debt financing may involve restrictive covenants or other unfavorable terms and potential dilutive equity, and funding through collaboration agreements may be on unfavorable terms, including requiring us to relinquish rights to certain of our technologies or products. If adequate financing is not available if and when needed, we may be required to delay, reduce the scope of or eliminate research or development programs, postpone or cancel the pursuit of product candidates, including pre-clinical and clinical trials and new business opportunities, reduce staff and operating costs or otherwise significantly curtail our operations to reduce our cash requirements and extend our capital.

Our consolidated statements of historical cash flows are summarized as follows (in thousands):

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