EyePoint Pharmaceuticals(EYPT) - 2022 Q2 - Quarterly Report

Report Information - This is a Quarterly Report on Form 10-Q for the period ended June 30, 2022, filed by EyePoint Pharmaceuticals, Inc. (Trading Symbol: EYPT) with Commission File Number 000-51122[1][2][3] - The registrant is classified as a Non-accelerated filer and a Smaller reporting company[4][5] - As of August 1, 2022, 34,071,899 shares of common stock were outstanding[5] PART I. FINANCIAL INFORMATION Item 1. Unaudited Financial Statements This section presents the unaudited condensed consolidated financial statements for periods ended June 30, 2022, and December 31, 2021, prepared in accordance with GAAP Condensed Consolidated Balance Sheets | Metric | June 30, 2022 (in thousands of USD) | December 31, 2021 (in thousands of USD) | Change (in thousands of USD) | | :------------------------------------ | :----------------------------- | :------------------------------- | :-------------------- | | Assets | | | | | Cash and cash equivalents | $82,134 | $178,593 | $(96,459) | | Marketable securities | $89,033 | $32,965 | $56,068 | | Total current assets | $205,866 | $237,745 | $(31,879) | | Total assets | $233,433 | $263,372 | $(29,939) | | Liabilities | | | | | Total current liabilities | $33,390 | $23,658 | $9,732 | | Total liabilities | $82,067 | $78,992 | $3,075 | | Stockholders' Equity | | | | | Total stockholders' equity | $151,366 | $184,380 | $(33,014) | Condensed Consolidated Statements of Operations and Comprehensive Loss | Metric | Three Months Ended June 30, 2022 (in thousands of USD) | Three Months Ended June 30, 2021 (in thousands of USD) | Six Months Ended June 30, 2022 (in thousands of USD) | Six Months Ended June 30, 2021 (in thousands of USD) | | :---------------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Product sales, net | $11,318 | $8,738 | $20,328 | $15,540 | | Total revenues | $11,565 | $9,013 | $20,859 | $16,336 | | Total operating expenses | $30,781 | $19,992 | $58,360 | $38,250 | | Loss from operations | $(19,216) | $(10,979) | $(37,501) | $(21,914) | | Net loss | $(19,406) | $(10,010) | $(40,382) | $(22,290) | | Net loss per share - basic and diluted | $(0.52) | $(0.35) | $(1.08) | $(0.83) | | Comprehensive loss | $(19,592) | $(10,010) | $(40,621) | $(22,290) | Condensed Consolidated Statements of Stockholders' Equity | Metric | Balance at April 1, 2022 (in thousands of USD) | Balance at June 30, 2022 (in thousands of USD) | Balance at January 1, 2022 (in thousands of USD) | Balance at June 30, 2022 (in thousands of USD) | | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Common Stock Par Value Amount | $34 | $34 | $34 | $34 | | Additional Paid-In Capital | $756,070 | $760,209 | $752,602 | $760,209 | | Accumulated Deficit | $(590,073) | $(609,479) | $(569,097) | $(609,479) | | Total Stockholders' Equity | $166,819 | $151,366 | $184,380 | $151,366 | Condensed Consolidated Statements of Cash Flows | Metric | Six Months Ended June 30, 2022 (in thousands of USD) | Six Months Ended June 30, 2021 (in thousands of USD) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net cash used in operating activities | $(39,281) | $(25,642) | | Net cash used in investing activities | $(56,454) | $(25) | | Net cash (used in) provided by financing activities | $(724) | $108,388 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(96,459) | $82,721 | | Cash, cash equivalents and restricted cash at end of period | $82,284 | $127,780 | Notes to Condensed Consolidated Financial Statements Note 1. Operations - EyePoint Pharmaceuticals develops and commercializes innovative therapeutics for serious eye disorders using its proprietary Durasert® technology[23] - Commercial products include YUTIQ® for chronic non-infectious uveitis and DEXYCU® for postoperative inflammation, both sold in the U.S.[23] - As of June 30, 2022, the company held $171.2 million in cash, cash equivalents, and marketable securities, expected to fund operations for at least the next twelve months[26] Note 2. Summary of Significant Accounting Policies - Revenue is recognized when customers obtain control of promised goods or services, reflecting expected consideration, following the five-step model under ASC 606[30] - Product sales (YUTIQ and DEXYCU) are recorded at wholesale acquisition costs, net of reserves for variable consideration including discounts, chargebacks, rebates, and returns[31][32] - License and collaboration revenue is recognized based on agreement terms, with upfront payments upon IP delivery and sales-based milestones upon cumulative sales achievement[39][41] Note 3. Revenue | Product | Three Months Ended June 30, 2022 (in thousands of USD) | Three Months Ended June 30, 2021 (in thousands of USD) | Six Months Ended June 30, 2022 (in thousands of USD) | Six Months Ended June 30, 2021 (in thousands of USD) | | :------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | YUTIQ | $7,421 | $4,166 | $12,032 | $7,196 | | DEXYCU | $3,897 | $4,572 | $8,296 | $8,344 | | Total Product Sales, net | $11,318 | $8,738 | $20,328 | $15,540 | | Category | Beginning Balance Jan 1, 2022 (in thousands of USD) | Provision Current Year Sales (in thousands of USD) | Deductions/Payments Made (in thousands of USD) | Ending Balance June 30, 2022 (in thousands of USD) | | :------------------------------------ | :----------------------------------------- | :---------------------------------------- | :-------------------------------------- | :---------------------------------------- | | Chargebacks, Discounts and Fees | $1,153 | $6,580 | $(5,698) | $2,035 | | Government and Other Rebates | $1,821 | $3,554 | $(3,490) | $1,885 | | Returns | $379 | $329 | $(198) | $510 | | Total | $3,353 | $10,463 | $(9,386) | $4,430 | - An Exclusive License Agreement with Betta Pharmaceuticals in May 2022 granted an exclusive, royalty-bearing license for EYP-1901 in Greater China for tiered mid-to-high single-digit royalties on net sales[72][73] Note 4. Inventory | Category | June 30, 2022 (in thousands of USD) | December 31, 2021 (in thousands of USD) | | :------------- | :--------------------------- | :------------------------------- | | Raw materials | $1,946 | $2,727 | | Work in process | $595 | $405 | | Finished goods | $713 | $484 | | Total inventory | $3,254 | $3,616 | Note 5. Intangible Assets | Metric | June 30, 2022 (in thousands of USD) | June 30, 2021 (in thousands of USD) | | :------------------------------------ | :--------------------------- | :--------------------------- | | Patented technologies (Gross carrying amount) | $68,322 | $68,322 | | Accumulated amortization | $(46,803) | $(44,343) | | Net book value | $21,519 | $23,979 | - Amortization expense for intangible assets was $615 thousand for both three-month periods and $1.2 million for both six-month periods ended June 30, 2022 and 2021[78] Note 6. Accrued Expenses | Category | June 30, 2022 (in thousands of USD) | December 31, 2021 (in thousands of USD) | | :------------------------------------ | :--------------------------- | :------------------------------- | | Personnel costs | $4,881 | $7,321 | | Clinical trial costs | $2,243 | $753 | | Sales chargebacks, rebates and other revenue reserves | $3,920 | $2,974 | | Commissions due to DEXYCU commercial partner | $1,837 | $1,518 | | Total accrued expenses | $14,312 | $14,422 | Note 7. Leases - The company amended its headquarters lease in March 2022, extending 13,650 square feet of lab/manufacturing space to May 2028 and adding 11,999 square feet of office space[83] - An out-of-period adjustment of $2.9 million increased lease liabilities and ROU assets due to the lease amendment, with no impact on operations or cash flows[84] | Category | June 30, 2022 (in thousands of USD) | December 31, 2021 (in thousands of USD) | | :---------------------------------------- | :--------------------------- | :------------------------------- | | Operating lease current portion | $301 | $645 | | Operating lease noncurrent portion | $4,826 | $1,860 | | Total operating lease liabilities | $5,127 | $2,505 | Note 8. Loan Agreements - The company repaid the remaining $41.4 million CRG Loan balance on March 9, 2022, resulting in a $1.6 million loss on extinguishment of debt[98] - On March 9, 2022, a new SVB Loan Agreement was executed for a $30.0 million Term Facility and a $15.0 million Revolving Credit Facility, due January 1, 2027[99][101] | Year | Amount (in thousands of USD) | | :--- | :-------------------- | | 2024 | $9,167 | | 2025 | $10,000 | | 2026 | $10,000 | | Thereafter | $833 | | Total | $30,000 | Note 9. Stockholders' Equity - In February 2021, the company sold 10,465,000 shares of common stock in a public offering, generating approximately $115.1 million in gross proceeds[108] - No shares of common stock were sold under the ATM Facility during the three and six months ended June 30, 2022[110] | Metric | Number of Warrants | Weighted Average Exercise Price (USD) | | :------------------------------------ | :----------------- | :------------------------------ | | Balance and exercisable at June 30, 2022 | 48,683 | $12.33 | Note 10. Share-Based Payment Awards - As of June 30, 2022, approximately 82,000 shares were available for new awards under the 2016 Long-Term Incentive Plan[114] | Metric | Number of Options | Weighted Average Exercise Price (USD) | | :------------------------------------ | :---------------- | :------------------------------ | | Outstanding at January 1, 2022 | 2,517,680 | $16.49 | | Granted | 1,643,300 | $10.43 | | Exercised | (4,223) | $9.44 | | Forfeited | (98,470) | $11.98 | | Expired | (6,000) | $21.00 | | Outstanding at June 30, 2022 | 4,052,287 | $14.14 | | Exercisable at June 30, 2022 | 1,306,830 | $19.82 | - Total stock-based compensation expense was $4.14 million for the three months and $7.62 million for the six months ended June 30, 2022, reflecting increased investment in new employees and organizational expansion[125][166][168][179][181] Note 11. License and Asset Purchase Agreements - The company holds an exclusive license with Equinox Sciences, LLC for vorolanib for local eye delivery, with potential milestone payments up to $50 million and tiered royalties[126][127][128] - A May 2022 amendment expanded the license field to cover all ophthalmology indications using the company's proprietary localized delivery technologies[129] Note 12. Fair Value Measurements | Category | Carrying Value (in thousands of USD) | Fair Value (in thousands of USD) | Cash Equivalents (in thousands of USD) | Marketable Securities (in thousands of USD) | | :----------------------- | :---------------------------- | :------------------------ | :------------------------------ | :----------------------------------- | | Level 1: | | | | | | Money market funds | $62,178 | $62,178 | $62,178 | — | | Level 2: | | | | | | Commercial paper | $30,926 | $30,926 | $4,999 | $25,927 | | U.S. treasury securities | $63,345 | $63,106 | — | $63,106 | | Total | $156,449 | $156,210 | $67,177 | $89,033 | - As of June 30, 2022, most interest-bearing cash equivalent balances were concentrated in one U.S. Government institutional money market fund[134] Note 13. Contingencies - The company is subject to routine legal proceedings and claims, which management believes will not materially affect its financial position, results of operations, or cash flows[139] Note 14. Net Loss per Share - Basic net loss per share is calculated by dividing net loss by weighted average common shares outstanding; potentially dilutive shares were excluded as anti-dilutive[140] | Category | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------- | :----------------------------- | :----------------------------- | | Stock options | 4,052,287 | 2,099,810 | | ESPP | 18,394 | 10,793 | | Warrants | 48,683 | 48,683 | | Restricted stock units | 541,880 | 290,917 | | Total | 4,661,244 | 2,450,203 | Note 15. Subsequent Events - CMS published a Proposed Rule in July 2022, which, if finalized, would result in DEXYCU losing pass-through separate payment status on December 31, 2022, and being bundled into the general cataract procedure reimbursement code[142] - The anticipated loss of DEXYCU's pass-through status is expected to significantly reduce product revenues and result in a material impairment of the related $21.5 million intangible asset[142] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operations, including forward-looking statements, R&D, accounting policies, performance, and liquidity Note Regarding Forward-Looking Statements - The report contains forward-looking statements regarding future activities, including EYP-1901 expectations, clinical trial timing, COVID-19 impact, cash flow, manufacturing, IP, and future expenses[145] - Actual results may differ materially due to factors like Pandemic impact, clinical trial effectiveness, capital access, operating fluctuations, manufacturing success, commercial infrastructure, side effects, collaborations, competition, market acceptance, and IP protection[147][149] Our Business - EyePoint Pharmaceuticals develops and commercializes innovative therapeutics for serious eye disorders using its Durasert® technology for sustained intraocular drug delivery[152] - Key products include EYP-1901 (investigational anti-VEGF for wet AMD), YUTIQ® (chronic non-infectious uveitis), and DEXYCU® (postoperative inflammation)[152] - Recent developments include CMS's intention to remove DEXYCU's pass-through reimbursement status, new board appointments, China's YUTIQ approval, and an exclusive license agreement with Betta Pharmaceuticals for EYP-1901 in Greater China[153][154][155] - R&D highlights include dosing the first patient in the Phase 2 DAVIO2 clinical trial for EYP-1901 (wet AMD), positive 12-month safety/efficacy data from Phase 1 DAVIO trial for EYP-1901, and pausing YUTIQ 50 enrollment due to updated FDA requirements[156] Critical Accounting Policies and Estimates - Financial statement preparation requires management estimates, judgments, and assumptions affecting reported amounts, particularly for revenue recognition, variable consideration reserves, and outsourced clinical trial agreements[157][159] Results of Operations Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021 | Metric | 2022 (in thousands of USD) | 2021 (in thousands of USD) | Change (in thousands of USD) | % Change | | :---------------------------------------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Product sales, net | $11,318 | $8,738 | $2,580 | 30% | | License and collaboration agreements | $49 | $94 | $(45) | -48% | | Royalty income | $198 | $181 | $17 | 9% | | Total revenues | $11,565 | $9,013 | $2,552 | 28% | | Cost of sales, excluding amortization of acquired intangible assets | $1,734 | $1,929 | $(195) | -10% | | Research and development | $12,992 | $5,605 | $7,387 | 132% | | Sales and marketing | $6,883 | $6,659 | $224 | 3% | | General and administrative | $8,557 | $5,184 | $3,373 | 65% | | Total operating expenses | $30,781 | $19,992 | $10,789 | 54% | | Loss from operations | $(19,216) | $(10,979) | $(8,237) | 75% | | Interest expense | $(552) | $(1,376) | $824 | -60% | | Gain (loss) on extinguishment of debt | — | $2,065 | $(2,065) | -100% | | Net loss | $(19,406) | $(10,010) | $(9,396) | 94% | - Net product sales increased by $2.6 million (30%) to $11.3 million due to higher customer demand, while license and collaboration revenue decreased by 48%[161][162] - Research and development expenses surged by $7.4 million (132%) to $13.0 million, primarily due to increased personnel costs ($3.6 million, including $1.7 million stock-based compensation) and EYP-1901 clinical costs[166] - General and administrative expenses increased by $3.4 million (65%) to $8.6 million, mainly due to personnel expense ($2.3 million, including $1.0 million stock-based compensation) for organizational expansion and higher consulting fees[168] Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021 | Metric | 2022 (in thousands of USD) | 2021 (in thousands of USD) | Change (in thousands of USD) | % Change | | :---------------------------------------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Product sales, net | $20,328 | $15,540 | $4,788 | 31% | | License and collaboration agreements | $108 | $435 | $(327) | -75% | | Royalty income | $423 | $361 | $62 | 17% | | Total revenues | $20,859 | $16,336 | $4,523 | 28% | | Cost of sales, excluding amortization of acquired intangible assets | $3,511 | $3,319 | $192 | 6% | | Research and development | $22,937 | $11,084 | $11,853 | 107% | | Sales and marketing | $13,576 | $12,318 | $1,258 | 10% | | General and administrative | $17,106 | $10,299 | $6,807 | 66% | | Total operating expenses | $58,360 | $38,250 | $20,110 | 53% | | Loss from operations | $(37,501) | $(21,914) | $(15,587) | 71% | | Interest expense | $(1,745) | $(2,722) | $977 | -36% | | Gain (loss) on extinguishment of debt | $(1,559) | $2,065 | $(3,624) | -175% | | Net loss | $(40,382) | $(22,290) | $(18,092) | 81% | - Net product sales increased by $4.8 million (31%) to $20.3 million, driven by increased cataract surgeries, ASC re-openings, and ongoing sales efforts[174] - Research and development expenses increased by $11.9 million (107%) to $22.9 million, primarily due to personnel costs ($6.9 million, including $2.9 million stock-based compensation) and increased EYP-1901 clinical costs[179] - General and administrative expenses increased by $6.8 million (66%) to $17.1 million, mainly due to personnel expense ($4.8 million, including $2.1 million stock-based compensation) for organizational expansion, and higher consulting, legal, and facilities costs[181] Liquidity and Capital Resources - The company continues to experience operating losses, relying on equity sales and debt for financing, with an accumulated deficit of $609.5 million at June 30, 2022[185] - As of June 30, 2022, the company held $171.2 million in cash, cash equivalents, and marketable securities, projected to fund operations into the second half of 2024[193] - Future capital requirements are influenced by EYP-1901 development, YUTIQ and DEXYCU commercialization costs, potential loss of DEXYCU's pass-through coverage, and the ongoing Pandemic impact[194][197] | Metric | 2022 (in thousands of USD) | 2021 (in thousands of USD) | Change (in thousands of USD) | | :---------------------------------------------------- | :------------------ | :------------------ | :-------------------- | | Net cash used in operating activities | $(39,281) | $(25,642) | $(13,639) | | Net cash used in investing activities | $(56,454) | $(25) | $(56,429) | | Net cash (used in) provided by financing activities | $(724) | $108,388 | $(109,112) | Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, EyePoint Pharmaceuticals is not required to provide detailed market risk disclosures - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[205] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control Evaluation of Disclosure Controls and Procedures - Management concluded the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022[206] Changes in Internal Control over Financial Reporting - No material changes in internal control over financial reporting occurred or are reasonably likely to occur during the quarter ended June 30, 2022[207] PART II: OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine legal proceedings not expected to materially affect its financial position, results, or cash flows - The company is subject to routine legal proceedings and claims, which management believes will not materially affect its financial position, results of operations, or cash flows[210] Item 1A. Risk Factors Updates risk factors, highlighting adverse impacts from pricing, reimbursement, healthcare reform, and DEXYCU's pass-through status loss - The company's products may face unfavorable pricing regulations, third-party reimbursement practices, or healthcare reform, including the potential loss of DEXYCU's pass-through status, which could harm the business[212][214] - If the CMS Proposed Rule is finalized, DEXYCU will lose pass-through separate payment status on December 31, 2022, leading to bundled payment rates, significantly reduced revenues, and a material adverse effect on financial condition[214] - Delays in obtaining coverage and profitable reimbursement for new drugs, along with mandatory discounts or rebates from government programs (Medicaid, Medicare Part B, 340B, VA FSS), could adversely affect operating results and capital raising[215][216][217][218][220][224] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales or use of proceeds occurred during the reporting period - No unregistered sales of equity securities or use of proceeds to report[227] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - No defaults upon senior securities to report[228] Item 4. Mine Safety Disclosures No mine safety disclosures are applicable or required for the company - No mine safety disclosures to report[229] Item 5. Other Information No other information is required to be disclosed under this item - No other information to report[231] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including corporate governance, stock, license, and loan agreements - Exhibits include corporate governance documents (Certificate of Incorporation, By-Laws), stock-related documents (Specimen Stock Certificate, Warrants, Registration Rights Agreements), and key commercial agreements (Amendment 1 to Exclusive License Agreement with Equinox, Exclusive License Agreement with Betta Pharmaceuticals, First Amendment to Loan and Security Agreement with Silicon Valley Bank)[234][235][236] Signatures - The report was signed on August 5, 2022, by Nancy Lurker, President and CEO, and George O. Elston, CFO[242]