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EYEG: Cataract Surgery Study Completes Enrollment, Topline Data Expected Q1 18

By Brian Marckx, CFA


Q3 Financial Results, Operating Update…

EyeGate (NASDAQ:EYEG) reported Q3 financial results and provided a business update.  There continue to be no significant surprises in the financials.  Operating expenses continue to trend higher on progression of several development programs including EDP-437, which is in clinical trials for indications related to anterior uveitis and post-cataract surgery. EYEG also has their CMHA-S compound, which came from the Jade acquisition last year, under development for an initial Ocular Bandage Gel indication. 

Q3 revenue was $75k, which (per the 10-Q) represents final funding of the Jade-related government grants.  Operating expenses increased to $4.2M from $3.5M in Q2 of this year and from $3.7M in the comparable prior-year period.    

And while EYEG has yet to recognize as revenue any of the upfront and subsequent cash milestones received from Valeant related to licensing agreements for EGP-437 in the uveitis and (more recent) cataract surgery indications, that could soon change.  Through September 30th EYEG received $9.653M from Valeant.  This includes $5.428M (i.e. $4.0M upfront and $1.428M in development-related milestones, including $792k received during Q3) for the cataract surgery contract, and $4.225M related to the uveitis contract (no additional payments were received related to the uveitis indication through the first nine months of 2017).  As a reminder, these payments are initially booked as deferred revenue on the balance sheet and then brought over to the income statement as revenue when the requisite milestones are completed (or in the case of upfront payments, is recognized as revenue ratably based on the proportional share that each milestone represents of the total).  

So while recognizing these milestones as revenue has no cash effect, it is important as it represents development progress of EGP-437 in these indications.  While progression of the uveitis program has been significantly slower than previously anticipated, data read out from the phase III study for that indication could come before the end of 1H 2018.  Meanwhile the receipt of milestones in both Q2 and Q3 for the cataract surgery indication along with recent notice that the phase IIb completed enrollment implies that that program is moving along.  EYEG now anticipates recognizing initial revenue from the cataract surgery and uveitis indications during Q1 2018 and Q2 2018, respectively, corresponding to the respective expected timing of release of topline data from the cataract surgery phase IIb and uveitis phase III trials.     

Q3 net loss and EPS were $4.1M and ($0.24), compared to our $3.8M and ($0.22) estimates.  

Cash:  As a reminder, during Q2 EYEG raised ~$8.8M net ($10M gross) via the sale of 5.3M common shares (@ $1.50/share) and 1,995 Series B preferred (convertible into 1.33M common shares), along immediately exercisable warrants (@ $1.50) to purchase 6.67M shares (i.e. 100% warrant coverage).  Cash balance, which also benefitted from $5.4M in upfront and development milestone payments from Valeant during 2017 (including $792k during Q3), was $9.2M at Q3 quarter-end.  EYEG mentions in the 10-Q that they believe the current cash balance, in addition to cash that they expect to receive through the remainder of 2017, is sufficient to fund operations for approximately eight months.   

Additional funding is expected to come from milestone payments from Valeant related to the uveitis and cataract surgery licensing agreements as well as potentially from the sale of equity and/or debt.  As a reminder, the EGP-437 ocular surgery licensing agreement calls for up to $99M in cash payments from Valeant upon achievement of specific development/commercialization milestones. 

Meanwhile, terms of the June 2017 $10M securities transaction restricts future sale of common shares under the ATM program for 24 months (i.e. until June 2019) unless executed at more than $3/share.     

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