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EYEG: Pipeline Progress Continues, Includes First Valeant Ocular Surgery Development Milestone

By Brian Marckx, CFA


Q1 Financial Results, Operating Update…

Earlier this month EyeGate (NASDAQ:EYEG) reported Q1 financial results and provided a business update.  In terms of the financials, revenue as expected, remains relatively insignificant and consist of government grants funding some of Jade’s pipeline candidates.  Q1 revenue was $185k, largely inline with our $220k estimate.  Approximately $333k remains to be funded under the current grants which run through 2017 and which is reflected in our model as revenue in the current year.  

And while EYEG has yet to recognize as revenue any of the upfront and subsequent cash milestones received from Valeant Pharma (NASDAQ:VRX) related to licensing agreements for EGP-437 in the uveitis and (more recent) cataract surgery indications, that could soon change given continued progress in both programs.  As a reminder, EYEG received $8.225M through March 31st (plus an additional undisclosed sum subsequent to Q1 quarter-end related to the ocular surgery indication) in cash payments from Valeant - these payments are initially booked as deferred revenue on the balance sheet and then as revenue on the income statement when the requisite milestones are completed (or in the case of upfront payments, is recognized as revenue ratably based on the proportional share 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.  

Q1 operating expenses were $3.1M, meaningfully lower than Q4 2016 ($3.9M) as well as compared to our estimate ($3.8M), although up from $2.4M on a yoy basis.  The difference from our estimate relates to lower R&D expense – some of which we think may relate to slightly slower than anticipated progress of the phase III (EGP-437) uveitis clinical trial.  But, with additional activity expected in most of the ‘focused’ development programs, including EGP-437 in both uveitis and cataract surgery, and CMHA-S in the OBG indication, we think R&D expense will trend higher.

Q1 net loss and EPS were $2.9M and ($0.28), compared to our $3.6M and ($0.35) estimates.  

Cash:  Cash balance at Q1 quarter-end, which was bolstered by the sale of 642k shares via an existing (and recently restarted) At-The-Market program (through HC Wainwright) which raised $1.8M net, was approximately $5.4M.  Cash used in operating activities was approximately $19k in Q1 but excluding changes in working capital which included $3.9M increase in license fees receivable (related to the ~$4M upfront payment from Valeant), cash used in operating activities was $2.6M.    

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 noted, EYEG subsequently (in early May) received an additional cash payment from Valeant related to the first development milestone for the EGP-437 ocular surgery licensing agreement which, along with $4M upfront (paid during Q1 2017), calls for up to an additional $99M in cash payments from Valeant upon achievement of specific development/commercialization milestones.    

EYEG may also look to sell additional equity.  In addition to the ATM program, in April the company filed an S-1/A (not yet effective) related to the offering of 5.3M common shares.     


On the operational front, while EYEG continues to make progress in all of their major development programs, there have been some slight delays since our last update in early March.  This includes guidance for;

- EGP-437 in uveitis:
o topline phase III data now anticipated in Q1 2018, delayed ~6 months from prior expectation of Q3 2017
o NDA filing in 1H 2018, delayed from prior expectation of late-2017
o prior expectations were to initiate the next study in Q2 2017 and, assuming positive results, to make De Novo 510(k) (to FDA) and CE Mark (in Europe) filings by 2017 year-end. This guidance has been updated to; commence a second pilot study in PRK surgery patients in Q2 2017 and for topline data to be available in 2H 2017.  Assuming positive results from the second pilot study, EYEG would then hope to commence a pivotal study in 2H 2017, report topline data in Q1 2018 and make 510(k) and CE Mark filings in 1H 2018.  While we think this timeline may be somewhat aggressive, positive news came in early May when EYEG announced they submitted an IDE seeking FDA approval to commence the study – which we view as a clear indication of progress.    

Refresher on CHMA-S Technology (from Jade Acquisition)…
We think OBG is already de-risked to an extent given the long history of HA being used in human eyes and its broad use and extensive successful testing for corneal repair in animals.  A similar cross-linked formulation is already 510(k)-cleared for dermal wound management (BioTime’s product), CMHA-S has been vigorously and successfully tested in animals and an identical composition is marketed by BayerDVM (animal health) in the U.S. and Europe under the Remend brand for corneal wound repair which has sold over 600k units.  As such, this provides an almost unprecedented level of confidence in the potential for positive results of EYEG’s upcoming clinical studies.  

The average person has about 15 to 20 grams of hyaluronic acid in their body.  It is a main component in synovial fluid, which reduces friction between joints, is found in connective tissue and is also a major component of skin where it is involved in tissue repair.  It has been used since the 1970s during intraocular surgery to protect the corneal endothelium where it is still considered standard of care.  Hyaluronic acid’s efficacy in protecting the corneal endothelium during cataract surgery has been well established.   It is also used in Europe as a first-line treatment for dry eye disease.  HA is also an active ingredient in many of the “artificial tears” products sold in the U.S. and internationally.  HA is also used in other applications, including as an injectable to treat osteoarthritis.  Safety of HA, therefore, has already been well-established (particularly in ophthalmic applications).        

One issue that HA suffers from, however, is that it has short half-life with approximately one-third of it degraded (and replenished) in the body each day.  But by cross-linking it, it stabilizes the molecule and forms into a hydrogel with a very high molecular weight and viscosity which resists degradation and allows it to adhere to the surface of the eye much longer.  Unlike typical eye drops, which quickly run down the side of user’s face, a hydrogel will stay in place and provide the benefit of sustained release, thereby improving efficacy.  It also means a much less rigorous dosing regimen.  And it remains biocompatible, will thin with blinking and a user’s vision will not be compromised immediately following administration (despite its gel-like properties).         

The compound starts with HA from Novosymes (bacterial fermentation).  Carboxymethyl groups at then added to produce CMHA which are then thiolated using a proprietary method to produce CMHA-S.  Depending on the intended application, it can be formulated into a relatively low viscosity liquid or higher viscosity gel or film. 

Initial Indication…

The initial indication EYEG expects to seek is for corneal repair with EyeGate Ocular Bandage Gel’, or OBG (initially JDE-003) for populations such as;
- Persistent corneal epithelial defects (PCED)
- Following photoreactive keratectomy (or PRK, which is similar to LASIK)
- Moderate-to-severe dry eye
- Following diabetic vitrectomy (eye surgery to remove vitreous gel) 

JDE-003 uses cross-linked 0.75% HA solution.  A non-healing corneal defect is considered persistent, or non-healing, if it persists for more than two weeks.  PCED’s can result in corneal ulcers, scarring, infection and, eventually, blindness if not effectively treated.   A masked, randomized study in 29 cats with superficial, mid-stromal and deep stromal (i.e. non-healing) corneal defects showed superior efficacy of CMHA-S (0.75% concentration) as compared to non-cross-linked 0.25% eye drops.  Both arms received their respective eye drops 3x/day and were evaluated weekly.  Primary endpoint was lack of staining with fluorescein (i.e. healed ulcer).  Results showed eyes treated with CMHA-S 0.75% took an average of 21 days (+ 11 days) to heal while those treated with non-cross-linked 0.25% HA concentration took an average of 32 days (+ 10 days) to heal.   

See below for free access to our updated report on EYEG which includes detailed background and discussion of all of EYEG’s focused product development programs. 


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