Alimera Sciences(ALIM) - 2019 Q4 - Annual Report

Part I Business Alimera Sciences is a pharmaceutical company focused on ophthalmic diseases with its sole product, ILUVIEN® - Alimera's only commercial product is ILUVIEN®, an intravitreal implant delivering a continuous microdose of fluocinolone acetonide (FAc) for up to 36 months to treat Diabetic Macular Edema (DME) and prevent relapse in recurrent non-infectious uveitis affecting the posterior segment of the eye (NIU-PS)[12] ILUVIEN Marketing & Sales Channels | Channel | Regions | | :--- | :--- | | Direct Sales | U.S., Germany, the U.K., Portugal, and Ireland. | | Distributors | France, Italy, Spain, Belgium, the Netherlands, Luxembourg, Australia, New Zealand, Canada, and several countries in the Middle East. | - The company's business strategy is to maximize ILUVIEN's commercial success for DME and NIU-PS, pursue regulatory approvals in additional countries, and expand its ophthalmic product offerings through in-licensing or acquisitions[18] - Alimera is entirely dependent on single-source third-party manufacturers for the ILUVIEN implant (Alliance Medical Products), applicator (Flextronics), and active pharmaceutical ingredient (FARMABIOS)[33][35] - The company faces competition from major pharmaceutical companies with established treatments for retinal diseases, including anti-VEGF therapies like Lucentis®, Eylea®, and Avastin®, and other corticosteroids like Ozurdex®[38][40] - Under a key licensing agreement with EyePoint Pharmaceuticals, Alimera pays a 6% royalty on global net revenues, which increases to 8% for annual revenues exceeding $75.0 million[42] - In the U.S., two large pharmaceutical distributors accounted for 60% of the company's consolidated revenues for the year ended December 31, 2019[37] Risk Factors The company faces substantial risks from its single-product dependency, reliance on single-source manufacturing, and precarious financial condition - The company is heavily reliant on a single manufacturer for the ILUVIEN applicator, Flextronics, whose contract will terminate on September 30, 2020[63][64][65] - The company's recurring losses from operations raise substantial doubt about its ability to continue as a going concern, as noted in the independent auditor's report[90] - The company is not in compliance with Nasdaq's minimum Market Value of Listed Securities (MVLS) requirement, which could result in delisting[120] - The COVID-19 outbreak is identified as a significant risk that could disrupt sales, marketing, and the supply chain[74][75] - Key licensed patents protecting ILUVIEN are set to expire between April 2020 and August 2027 in the U.S and between April 2021 and October 2024 in Europe[110] - The company's Loan and Security Agreement with Solar Capital contains restrictive operating and financial covenants, including minimum revenue requirements[73] Unresolved Staff Comments The company reports no unresolved staff comments - The company has no unresolved comments from the SEC staff[131] Properties The company leases all its properties, including its U.S headquarters and smaller international offices - The company's U.S headquarters are located in a leased 18,000 square foot office space in Alpharetta, Georgia, with the lease expiring in September 2021[132] - Internationally, the company leases office space in Dublin, Ireland; Berlin, Germany; Lisbon, Portugal; and a 6,000 square foot facility in Aldershot, U.K[132] Legal Proceedings The company reports no legal proceedings - There are no legal proceedings to report[132] Mine Safety Disclosures This section is not applicable to the company's operations - This section is not applicable to the company's operations[132] Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq, and it has never paid cash dividends, retaining earnings for growth - The company's common stock trades on The Nasdaq Global Market under the symbol "ALIM"[134] - As of February 27, 2020, there were 4,965,949 shares of common stock issued and outstanding, held by 25 holders of record[135] - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[136] Selected Consolidated Financial Data This section is not applicable as the company qualifies as a "smaller reporting company" - The company is not required to provide selected consolidated financial data as it qualifies as a "smaller reporting company"[139] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 16% in 2019, but a large accumulated deficit and low cash reserves raise going concern doubts - The company had an accumulated deficit of $387.6 million as of December 31, 2019[144] - On November 14, 2019, the company effected a one-for-15 reverse stock split of its common stock to regain compliance with Nasdaq's minimum bid price requirement[148][149] - On December 31, 2019, the company refinanced its debt by entering into a new $45.0 million Loan and Security Agreement with Solar Capital, maturing on July 1, 2024[146] Results of Operations Net revenue increased 16% to $53.9 million in 2019, reducing the net loss from operations to $5.3 million Consolidated Statement of Operations (2019 vs. 2018) | Financial Metric | 2019 (in thousands) | 2018 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $53,943 | $46,599 | +15.8% | | Gross Profit | $47,317 | $42,291 | +11.9% | | Operating Expenses | $52,591 | $51,961 | +1.2% | | Net Loss from Operations | ($5,274) | ($9,670) | -45.5% | | Net Loss | ($10,443) | ($16,382) | -36.3% | | Net (Loss) Income per Share - Basic | ($2.19) | $3.74 | N/A | - Net revenue increased by 16% to $53.9 million in 2019, primarily due to growth in international distributor markets and increased sales volume in direct markets[154] - Gross margin decreased from 91% in 2018 to 88% in 2019, mainly caused by an increase in royalty expense payable to EyePoint on global net revenue[156] - Total operating expenses increased by only 1% to $52.6 million, as a $1.5 million increase in sales and marketing expenses was largely offset by decreases in G&A and R&D expenses[161] Segment Review International segment revenue grew 49%, driving overall growth, while the U.S segment remained flat U.S. Segment Performance (2019 vs. 2018) | Metric (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Net Revenue | $32,283 | $31,966 | | Gross Profit | $28,796 | $29,091 | | Operating Expenses | $31,983 | $31,173 | | Segment Loss from Operations | ($3,187) | ($2,082) | International Segment Performance (2019 vs. 2018) | Metric (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Net Revenue | $21,660 | $14,633 | | Gross Profit | $18,521 | $13,200 | | Operating Expenses | $15,511 | $13,115 | | Segment Income from Operations | $3,010 | $85 | - International segment revenue grew 49% to $21.7 million, driven by increased sales volume to international distributors, leading to a significant increase in operating income to $3.0 million[173] - U.S segment revenue grew only 1% to $32.3 million, despite a 5% increase in end-user demand, and its operating loss increased by 53% to $3.2 million[170] Liquidity and Capital Resources Recurring losses and negative cash flow raise substantial going concern doubts despite a recent debt refinancing - The company's recurring losses and negative cash flows create substantial doubt about its ability to continue as a going concern for the next 12 months[177][298] - As of December 31, 2019, the company had approximately $9.4 million in cash and cash equivalents[177] - Net cash used in operating activities was $4.2 million in 2019, a significant improvement from the $11.6 million used in 2018[177][257] - The company refinanced its debt on December 31, 2019, entering into a new $45.0 million loan agreement with Solar Capital to provide additional working capital[177] Qualitative and Quantitative Disclosures about Market Risk This section is not applicable as the company qualifies as a "smaller reporting company" - The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a "smaller reporting company"[201] Financial Statements and Supplementary Data This section incorporates by reference the company's consolidated financial statements indexed on page 67 - The consolidated financial statements and related schedules required for this item are indexed on page 67 and incorporated by reference[201] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - There were no changes in or disagreements with accountants on accounting and financial disclosure[201] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[203] - Management's assessment concluded that the company maintained effective internal control over financial reporting as of December 31, 2019, based on the COSO framework[204] - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2019[209] Other Information The company reports no other information - There is no other information to report in this section[216] Part III Directors, Executive Officers and Corporate Governance Required information is incorporated by reference from the company's 2020 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement[216][217][219] Executive Compensation Required information is incorporated by reference from the company's 2020 Proxy Statement - Information regarding executive and director compensation is incorporated by reference from the 2020 Proxy Statement[220] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference, with details provided on equity compensation plans - Information regarding security ownership is incorporated by reference from the 2020 Proxy Statement[222] Equity Compensation Plan Information (as of Dec 31, 2019) | Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Total | 908,235 | $35.46 | 491,867 | Certain Relationships and Related Transactions, and Director Independence Required information is incorporated by reference from the company's 2020 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2020 Proxy Statement[229] Principal Accountant Fees and Services Required information is incorporated by reference from the company's 2020 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the 2020 Proxy Statement[230] Part IV Exhibits and Financial Statements Schedules This section indexes financial statements and exhibits, including an auditor's report with a going concern paragraph Financial Statements Audited financial statements show a $387.6 million accumulated deficit and include a going concern warning - The independent auditor's report expresses an unqualified opinion on the financial statements but includes a paragraph highlighting that the company's recurring losses and negative cash flows raise substantial doubt about its ability to continue as a going concern[239][241] Consolidated Balance Sheet Highlights (as of Dec 31) | Account (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $9,426 | $13,043 | | Total Assets | $50,309 | $54,108 | | Note payable (non-current) | $38,658 | $37,873 | | Total Liabilities | $54,754 | $51,386 | | Accumulated Deficit | ($387,570) | ($377,127) | | Total Stockholders' (Deficit) Equity | ($4,445) | $2,722 | - The company adopted the new lease accounting standard (ASC 842) on January 1, 2019, resulting in the recognition of right-of-use assets and lease liabilities on the balance sheet for the first time[242][278] Form 10-K Summary This section is not applicable - This section is not applicable[234]