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EYEG: Several Major Development Milestones Expected in 2017

03/02/2017
By Brian Marckx, CFA

NASDAQ:EYEG

Q4 Financial Results, Operating Update…

On February 23
rd EyeGate (NASDAQ:EYEG) reported financial results for their fourth quarter ending December 31st.  The company reported an additional $160k of collaboration revenue related to government grants which are funding some of Jade’s pipeline candidates.  In September 2016 EYEG announced that they were awarded an additional $448k from the U.S. Department of Defense, which represents the second year of funding under an SBIR grant related to the development of CMHA-S as an ocular bandage (“OBG”).  Approximately $445k remains under the current grants which run through 2017 and which is reflected in our model as revenue in the current year.

Q4 operating expenses were $3.9M, up slightly from the $3.6M in Q3 but below our $4.1M estimate.  The difference from our estimate relates to lower SG&A expense.  Meanwhile, R&D continues to trend at about $2.5M, which includes clinical trial costs related to progress of EGP-437 in the phase III study for anterior uveitis as well as the phase 1b/2a study in cataract surgery.  Additionally, the OBG pilot study in PRK recently completed.

We continue to expect operating expenses to grow throughout 2017 with additional activity in the aforementioned programs.  EYEG expects the phase 3 anterior uveitis study, which continues to enroll, to complete later this year while a new phase 2 cataract surgery study is expected to commence in 2017.  Management also anticipates initiating a controlled clinical trial of OBG in the first half of this year.

Q4 net loss and EPS were $3.7M and ($0.38), compared to our $3.9M and ($0.42) estimates.

Cash:  Cash balance at 2016 year end was approximately $3.6M which, in addition to cash expected to receive through 1H, EYEG believes is sufficient to fund operations for approximately five months.  In February 2017 EYEG authorized the restart of the at-the-market equity program for sales of up to $3.6M (gross).  We also note that earlier this month the company entered into a licensing agreement with Valeant Pharmaceuticals (VRX), terms of which call for Valeant to pay EYEG $4M upfront.

Cash used in operating activities in the three and twelve months ending 12/31/16 was $2.1M ($3.6M ex-changes in working capital) and $8.4M ($12.8M ex-changes in working capital).

On the operational front, the company continues to make progress with its EGP-437 clinical programs as well as with CMHA-S, the cross-linked hyaluronic acid compound that came with the Jade acquisition.

EYEG’s Anticipated Near-Term Milestones Include
:

OBG

- Initiate ph 2 study in Q2 2017

-de novo 510(k) filing for corneal re-epithelization by year-end 2017

- OBG CE Mark by year-end 2017, European launch in Q1 2018

EGP-437

- Uveitis
- Top-line data from ph 3 anterior uveitis confirmatory study in Q3 2017
- NDA filing for uveitis by year-end 2017

- Cataract surgery
- Initiate ph 2 trial in Q2 2017
- Assuming positive ph 2 results, would follow with a ph 3 study
- Supplementary NDA related to pain and inflammation following ocular surgery in 2H 2018

EGP-437: Cataract Surgery

The most recent significant news was last week’s announcement that Valeant picked up their option to license rights to EGP-437 for cataract surgery.

Valeant Picks Up Cataract Surgery Licensing Option: EYEG Gets $4M + Potential $99M

In July 2015 EYEG licensed manufacturing and commercialization rights of their EGP-437/EyeGate Delivery System combination product for uveitis to Valeant Pharmaceuticals (VRX) in return for $1M upfront cash, another potential (up to) $32.5M in development, regulatory and sales milestones, and high single digit royalties on sales.  Valeant also received an option of last refusal to license EYEG’s combination product for any other indications.

Valeant picked up that option for the cataract surgery indication – terms of which are very similar, although potentially more lucrative to EYEG, to the uveitis licensing agreement.  Last week EYEG announced that in return for $4M upfront cash and up to an additional potential $99M in development and commercialization milestones, they licensed rights to their EGP-437/delivery combination product candidate for the treatment of post-operative pain and inflammation in ocular surgery patients.

Key points of the agreement include;

EYEG

- Receives:
- $4M upfront cash
- up to ~$99M upon achievement of specific (undisclosed) development/commercialization milestones
- royalties (undisclosed rate) on net sales, if and when FDA cleared and commercialized

- Is responsible for
- further development, and related cost, of the product for this indication
- obtaining FDA regulatory marketing clearance
- 50% of the cost of any FDA-mandated post-marketing studies or related development, if required

Valeant

- Receives:
- exclusive right to manufacture and commercialize the product for this indication throughout the world
- exclusive right to develop the product for this indication outside the U.S.
- right of last refusal for any future indications that EYEG seeks to commercialize the product for

- Is responsible for:
- Cost of developing the product, including regulatory costs, for this indication outside the U.S. if VRX chooses to do so
- 50% of the cost of any FDA-mandated post-marketing studies or related development, if required

Our comments:

As we noted following the initial licensing agreement covering the uveitis indication, Valeant, through their Bausch + Lomb subsidiary, provides EYEG with seamless entry into the difficult-to-penetrate ophthalmic therapy market.  These licensing deals also provide non-dilutive upfront operating and product development capital and, along with development-related milestones, greatly mitigate financial and product development risk.  And, we think the fact that Valeant came back and exercised their future-indication option indicates provides additional and substantive validation of the potential utility, versatility and clinical efficacy of the EGP-437 combo product.

EYEG and VRX did not disclose certain details of these agreements including the specific development and commercial milestone triggers or the royalty rate on sales.  This makes it difficult to forecast/model the related potential revenue contribution to EYEG.  Even the $1M upfront cash payment that EYEG received in Q3 2015 (along with additional subsequent progress payments) for the uveitis indication has yet to be booked to revenue but instead remains on the balance sheet as deferred income (EYEG does note in their 2016 10-K, however, that they expect to begin recognizing revenue related to the uveitis licensing agreement in development progress payments during in 2017 and did disclose more info about the AU-related milestones).  As such, our model is highly subject to change based on things like the timing of when the $4M upfront payment for cataract surgery is realized – the particularly timing of which is largely immaterial (i.e. EYEG has the cash).

Positive Phase Ib/IIa Data

In December 2015 EYEG announced additional positive clinical data from their phase Ib/IIa post-cataract surgery dose-ranging clinical trial.  As a reminder, the study was designed to enroll up to 80 patients which have undergone unilateral cataract extraction and implantation of a monofocal intraocular lens.

Patients were separated into cohorts of 10 patients each with each cohort treated at different doses and/or treatment regimens.  Subjects were evaluated on days 1 (i.e. 1 day following cataract surgery), 14 and 28.  Primary endpoint was the proportion of subjects with ACC count of zero on day 14.  Secondary efficacy endpoint was the proportion of subjects with a pain score of zero on Day 7.

In August 2016 EYEG announced top-line data from 40 patients (4 cohorts) which were administered iontophoretic EGP-437 at either 9.0 mA-min or 14.0 mA-min on day 0, day 1 and day 2 or day 0, day 1 and day 4, with potential for an additional treatment at day 7 in all cohorts.  Results showed patients receiving the 14.0 mA-min dose on days 0, 1 and 4 had the most significant improvement in ACC  - with 40% of patients in this group achieving an ACC count of 0 at day 14 (i.e. the primary endpoint) and this increased to 88% on day 28.

In addition, all patients receiving the iontophoretic treatment reported reduced pain at all time points with 90% having no pain as early as day 1 and increasing to 100% on day 14.  In addition, there was no steroid-related increase in intraocular pressure reported.

Concurrent with the top-line data release in August, the company noted that they would enroll three additional cohorts at other doses and dosing regimens with the expectation of further improving on the efficacy data to-date.

In December 2016, EYEG announced additional positive data.  Dosing and treatment regimen were modified slightly from that of the cohorts represented in the August data and included 30 patients (3 cohorts) which were administered iontophoretic EGP-437 at either 4.5mA-min on day 0 (post-operative), day 1 and day 4 or at 14mA-min on day 0 (pre-operative), day 1 and day 4.  The third cohort was dosed with placebo on day 0 (post-operative), day 1 and day 4.  An optional treatment (at physician’s discretion) on day 7 was available for all three cohorts.

Results indicated that subjects in the lowest dose cohort (i.e. 4.5mA-min) exhibited the greatest response, with 30% of those patients reaching an ACC count of zero by day 14 and 80% by day 28.  While there was limited other data released, EYEG’s press release (http://bit.ly/2ma3fIi) did provide other indications of a positive EGP-437 treatment response including that; ACC count reduction was observed in both EGP-437 treatment arms, only 10% of placebo patients reached an ACC count of zero by day 28 and 80% of placebo patients required rescue prior to day 14.

In addition, and related to the pain outcome measure, it was noted that all EGP-437 patients experienced less pain at all time points and 70% had pain score of zero by day 1 whereas only 10% of placebo patients had pain score of zero at day 1.

See our table below summarizing the results disclosed in August (4 cohorts) and December (3 cohorts) and the respective dosing and treatment regimens.  Perhaps interesting, and maybe arguably confounding, is that ACC count reduction was most profound in one of the two highest dose cohorts in the August data but the December data showed the opposite – that is, the lowest dose cohort had the greatest number of subjects reaching an ACC count of zero.

Although not mentioned in EYEG’s data announcement, one potential factor that could relate to this seeming counter-dose effect is that the higher dose cohort (i.e. 14mA-min) in the December data was treated on day 0 pre-operatively while the lower dose cohort (i.e. 4.5mA-min) was treated post-operatively on day 0.  Treating pre-operatively was found to be problematic in EYEG’s earlier cataract surgery (completed in 2013) study as the surgical procedure washed out the drug, thereby eliminating any potential therapeutic benefit.  This “wash-out” effect is what prompted the change in trial design to where EGP-437 is administered immediately following surgery.

We characterize this data as highly promising given that it provides additional evidence of a positive treatment response to EGP-437.  EYEG currently expects to initiate a phase 2b trial of EGP-437 in cataract surgery patients in Q2 2017.  Assuming positive results, a subsequent single phase 3 study is expected to be sufficient to support an FDA filing.  If all goes well, an FDA filing for a post-cataract surgery indication (reduction of pain/inflammation) could be made sometime next year (EYEG currently hopes to be able to make a supplemental NDA filing for a post-cataract surgery indication in 2H 2018).  The recent licensing agreement with Valeant should aid in funding development.

EGP-437: Anterior Uveitis

While EYEG has not provided an update on the anterior uveitis (or macular edema) studies in the last several of months, they do note in their 2016 10-K (filed Feb 23, 2017) that their phase 3 anterior uveitis clinical trial continues to enroll patients and they hope to have top-line data sometime in Q3 2017.  If all goes well EYEG thinks they may be in a position to make an NDA filing for this indication by 2017 year-end.  The fact that EYEG continues to receive development-related milestones from Valeant (deferred revenue balance was $4.2M at 2016 year-end, up from $3.4M at 9/30/16) also suggests this study is progressing.  Below is a refresher of the ongoing phase 3 study.

New, Pivotal Phase III Study..

In May 2015 EYEG announced that FDA communicated that if a planned new phase III study demonstrates non-inferiority, that that data, along with results of the earlier phase III study (see Appendix in our full report for development background), will be sufficient to support an NDA filing.

This non-infectious anterior uveitis “confirmatory study” is randomized, double-blind, placebo-controlled and designed to demonstrate non-inferiority of EGP-437 combination therapy to PA 1%.  Up to 250 patients (~125 each arm) with anterior segment uveitis (ACC count
> 11) are expected to enroll at approximately 60 U.S. sites.  Primary efficacy endpoint is the same as the initial phase III study (i.e. ACC count of zero at Day 14).  Study details are listed on clinicaltrials.gov, trial ID NCT02517619

Patients are randomized to either three treatments of EGP-437 combination therapy (Days 0, 4 and 9) plus placebo eye drops or PA 1% plus sham EGP-437 combination therapy.  The design of this confirmatory study, while similar to the initial phase III anterior uveitis trial, has some important differences which should improve the chances of meeting the primary efficacy endpoint.  This includes its larger size (greater chance of fleshing out statistical significance), three EGP-437 combination treatments (1.5 mA-min @ 2.7mA) instead of two (4.0 mA-min @ 1.5mA) and randomization based on severity of the disease (to eliminate the potential bias of more severe patients which was seen in the AGP-437 arm in the initial study).

Timelines: The first patient was enrolled in the confirmatory study in January 2016.  The latest update on clinicaltrials.gov, on 8/2/16, lists anticipated primary completion date and last follow-up date of June 2017 and October 2017, respectively.  While EYEG has not provided an update on this study in the last several months, they do note in their 10-K (filed Feb 23, 2017) that it continues to enroll patients and they hope to have top-line data sometime in Q3 2017.  If all goes well EYEG thinks they may be in a position to make an NDA filing for this indication by 2017 year-end.

U.S. Regulatory Pathway:  Assuming positive results (i.e. primary efficacy endpoint met and acceptable safety profile), EYEG expects to file for U.S. regulatory approval/clearance of both the EyeGate II Delivery system and EGP-437 simultaneously.  EyeGate has already received confirmation from FDA that their delivery system is considered a Class II device but can pursue clearance through the (relatively simple) 510(k) clearance pathway.  For EGP-437, which must be approved through an NDA, EyeGate intends to file a 505(b)(2) NDA.

Relative to the device.  EYEG’s 510(k) will cite two existing iontophoresis devices which deliver drugs through the skin, one of which is DJO Global’s (Empi’s) Dupel II Buffered iontophoresis electrode for use of delivery of lidocaine and epinephrine.  FDA has agreed that these are acceptable to use as predicates.

The 505(b)(2) NDA relates to, “an application that contains full reports of investigations of safety and effectiveness but where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference.”  It “permits FDA to rely, for approval of an NDA, on data not developed by the applicant.” FDA allows 505(b)(2) applications in circumstances where there are changes to an approved drug such as, formulation, dosage form, strength and route of administration, among others.  EYEG has referenced Decadron, a topical dexamethasone formulation, which they believe they may be able to use the existing safety and efficacy literature of for filing of EGP-437 under the 505(b)(2) pathway.

Based on our communication with EyeGate, management is comfortable, based on their interaction and communication with FDA including the agency accepting a preclinical and clinical data protocol based on the 505(b)(2) NDA route, that this is an acceptable pathway.  And importantly, EGP-437 has demonstrated what appears to be an acceptable safety profile in the five clinical studies in which it has been used.

CMHA-S: Ocular Bandage Gel (OBG)
Positive Initial Clinical Data, Larger Study Could Initiate Q2 2017

In late January 2017 EyeGate announced encouraging top-line results of its human pilot study of its Ocular Bandage Gel (OBG).  While the study was small, results indicate that OBG may be associated with faster corneal healing following eye surgery as compared to standard of care.  We view this as meaningfully positive as it sets the stage to move OBG into a larger study – which is now in the planning stage and, assuming IDE approval, could kick off in Q2.

As a reminder, OBG is the lead CMHA-S candidate which came from the Jade Therapeutics acquisition and is being developed for corneal repair indications.  Given the strong safety profile of the compound and expected (relatively streamlined) de novo 510(k) FDA pathway (in November FDA confirmed de novo 510(k) is an appropriate pathway for OBG to pursue in seeking U.S. regulatory clearance), we think OBG may represent one of EYEG’s most near-term commercialization opportunities.  See our Appendix for more background on the compound and the Jade acquisition.

The pilot study compared OBG to artificial tears with bandage contact lens (BCL) in patients undergoing bilateral photorefractive keratectomy (“PRK”).  PRK is a type of vision-correction laser eye surgery - recovery from which includes regrowth of the epithelium (i.e. thin outer layer of the cornea).

Ocular Bandage Gel photoreactive keratectomy pilot study

Objective: 
evaluate safety and performance of OBG eye drop administered 4x/day for 14 days with or without a BCL as compared to artificial tears and a BCL in healing of corneal epithelial defects

Primary efficacy endpoint: complete wound closure by Day 3

Design: prospective, randomized, controlled study in up to 39 subjects undergoing bilateral PRK surgery.

Subjects randomized to one of three cohorts;
- Arm 1 (n=12): EyeGate Ocular Bandage Gel 4x/day for 2 weeks after surgery without a BCL
- Arm 2 (n=14): EyeGate Ocular Bandage Gel 4x/day for 2 weeks after surgery in combination with a BCL
- Arm 3 (n=13): Artificial tears 4x/day and BCL

Topline results of the pilot study, which was the first in-human study of OBG, showed a greater proportion of OBG-treated patients versus those treated with standard of care met the primary endpoint of complete wound closure by Day 3.  Top-line results were initially announced in January but in EYEG’s 2016 10-K (filed Feb 23, 2017) additional data was provided.  The updated data showed that 10 of the 12 (83%) patients treated with OBG alone (i.e. no BCL) met the primary endpoint, compared to 9 of the 14 (64.3%) OBG+BCL patients and just 7 of the 13 (53.8%) artificial tears+BCL patients.

Remaining wound surface area on Days 1 (24 hours following surgery) and 3 were also assessed and similarly favored the OBG-alone cohort which had an average wound size of just 18.5mm on Day 1 and 0.02mm on Day 3.  This compares to 39.5mm and 0.37mm in the SOC patients at Days 1 and 3, respectively.

While specifics were not provided relative to adverse events, EYEG did note in their PR that the study demonstrated safety and tolerability.

Given the positive results of the pilot study, EYEG plans to move into a double-blinded study comparing OBG-alone (OGB monotherapy) to BCL for re-epithelialization following PRK and hopes to commence the study in Q2 of this year (following IDE approval).  We look forward to hearing details about the planned design and size of this study and note that given the de-risked nature of OBG, if efficacy is confirmed in this follow-up study, we think the likelihood of eventual commercialization could at that point be reasonably high.  The company is currently targeting both a 510(k) de novo filing in the U.S. and CE Marking (Europe) of OBG by current year-end.

We also think that, assuming continued success in the PRK/ re-epithelialization studies, that CMHA-S programs could reasonably be expanded to include other indications given its safety profile and potential broad applications related to corneal wound healing.  And as a reminder, in addition to Ocular Bandage Gel, Jade had already initiated development programs for CMHA-S in other applications including as an ocular surface shield and for treatment of bacterial keratitis – both of which have been funded by federal grants.

READ THE FULL RESEARCH REPORT HERE

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