Q3 Financial Results, Operating Update…
EyeGate (NASDAQ:EYEG) announced Q3 financial results and provided a business update. In terms of the financials, milestone from the EGP-437 development agreement with Bausch Health Companies (BHC, formerly Valeant Pharmaceuticals) in the amount $315k was recognized as revenue in the quarter. To-date, EYEG has received $13.8M in upfront and milestones under the two agreements, including ~$300k in the most recent quarter.
Operating expenses were $3.5M, down 17% yoy (from $4.2M) and up about 15% from Q2. The yoy and qoq differences mostly relate to R&D expense. While the yoy decrease reflects a change in activity from the relatively large EGP-437 trials to the smaller OBG studies, the qoq increase is a result of continued progression of both OBG programs. Both programs have moved very rapidly and read out compelling trial results earlier this month from an initial (in PE) and follow-on (in PRK) human pilot studies. Given the positive results from OBG and disappointing results from EGP-437, we are even more inclined to believe that the former will occupy all of EYEG’s focus while the latter will be mothballed (or potentially optioned).
Cash: The reduced yoy spend is also showing up on the cash flow statement. Cash used in operating activities, excluding changes in working capital, was $2.8M and $7.6M in the three and nine months ending 9/30/18 which compares to $3.9M and $9.6M in the respective prior-year periods. Cash balance was $9.9M at the close of Q3 which, at the current burn rate, represents 10 to 11 months’ worth of operating capital. And while EYEG will likely have to tap the capital markets in the not-too-distant future, the positive OBG pilot study results bolstered market valuation (as we had hoped) and put them in a more favorable position if a raise is deemed necessary. And, as we explain below, we think there are other potential near-term catalysts that could materialize and which could further benefit the share price.
Operational Update: Is Eyegate Eyeing FDA Filings Following Positive OBG Data in Both PRK and PE?…
The OBG PRK and PE programs have moved swiftly and culminated in the recent announcement of positive data from clinical studies of both. In fact, EYEG indicated that the data may be robust enough to support near-term FDA filings seeking U.S. regulatory clearance. While we had previously expected that any regulatory filing would require larger ‘pivotal’ studies (i.e. demonstrating superior efficacy to standard of care), more recent additional due diligence on the FDA pathways of like-kind therapies suggest to us that that may not necessarily be the case.
And while we do not have insight into near-term next steps, the fact that EYEG recently in-licensed rights to proprietary processes and knowledge related to the manufacture of OBG (from SentrX, which sells the OBG pet formulation) may be suggestive that a formal regulatory strategy is in the works (as any eventual filing will need to document attainment of GMP).
On November 13th EYEG announced data from the second human pilot study of OBG in PRK and from the initial pilot study of OBG in PE. While the studies’ designs were not necessarily powered for efficacy, both studies did indicate OBG was more effective than standard of care on certain measures. Given the totality of the data in PRK (which now includes two human pilot studies), coupled with precedent of FDA clearance supported by non-pivotal study data, we think U.S. regulatory clearance may be viable in such an indication with just the data to-date through a De Novo classification request.
OBG PRK data
As a reminder, EYEG announced data from the initial human pilot study in photorefractive keratectomy (PRK) in January 2017. For a refresher on that data, see our discussion below. The data announced earlier this month (Nov 13th) is, in our opinion, just as compelling as that from the first study in terms of OBG’s efficacy as compared to standard of care.
2nd PRK Pilot study design: Officially titled, A Randomized, Masked (Reading Center), Prospective Pilot Study of the Safety and Effectiveness of the EyeGate Ocular Bandage Gel, a 0.75% Crosslinked Hyaluronic Acid Applied Topically, Versus a Bandage Contact Lens for Acceleration of Re-epithelialization of Large Corneal Epithelial Defects in Patients Having Undergone Photorefractive Keratectomy (PRK), it was designed largely similar to that of the initial PRK study, with some exceptions. The most significant difference is that this second PRK study did not include an OBG+BCL cohort (as the initial study did) but instead incorporated two OBG-alone treatment arms, differentiated by treatment regimen and overall number of administrations. Clearly, the reason for this new PRK pilot study incorporating two OBG-alone cohorts (and not using an OBG+BCL) arm was because of the superior efficacy of the OBG-alone group in the initial study.
One of the OBG-alone cohorts was dosed at the same regimen as was used in the first study (i.e. QID for 2 weeks), while the other OBG-alone arm used a slightly more front-end weighted (i.e. 8x/day for 3 days, then QID for 11 days) dosing schedule and included 21% more aggregate administrations (i.e. 68 vs 56). While we had presumed that the aim of this second pilot study was to determine optimal dosing for later-stage studies (assuming success), we now believe that it might be possible that follow-on studies may not be required for support of an FDA filing.
The study enrolled 45 patients (initial study n=39) which had undergone bilateral PRK (with epithelial removal using alcohol in a 9.0 mm well or trephine at the time of surgery to ensure consistency of the size of the ablation area). Control, which consisted of artificial tears (AT) 4x/day for two weeks, is similar to the initial study. Primary endpoint (per clinicaltrials.org) which was assessed via (a masked) designated reading center (Tufts), was time to complete corneal re-epithelization (i.e. wound healing) as assessed on Day 3 (same as initial study) post-surgery. (The following is from EYEG’s April 2018 investor presentation (while listed on clinicaltrials.org, not all details are included) so it is possible the actual design may be somewhat different);
‣ Randomized, masked, controlled 2-week study in up to 45 subjects undergoing bilateral PRK
‣ Subjects randomized to one of three cohorts (n=15 per arm);
◦ Arm 1: OBG every 2 hrs (8x/day) for 3 days then QID (i.e. 4x/day) for additional 11 days
◦ Arm 2: OBG QID for 2 weeks
◦ Arm 3: BCL (Acuvue Oasys plano lens) + AT QID for 2 weeks
‣ Primary efficacy endpoints based on fluorescein staining:
◦ Time to corneal re-epithelization and
◦ Proportion of subjects with complete corneal re-epithelization of epithelial defect on day 3
◦ Evaluated by a masked reading center (Tufts) using digital photography of fluorescein stained slit lamp photos and image analysis
Results: Topline results were announced in a press release on November 13th and reported on epithelial healing as of Day2, Day 3 and 4 (post-surgery). We note that while the clinicaltrials.org study design description does not reference Day 2 or Day 4 endpoints, we think they may have been included as a secondaries. In addition, as the PR describes this as ‘topline’ results, we do not know if there is substantive additional data that has yet to be reported.
‣ Day 3: on the primary endpoint of complete corneal re-epithelization (i.e. wound healing), 73% and 87% of OBG eyes (the PR did not disclose which OBG regimen was associated with 73% vs that of 87%) were completely healed (i.e. met the primary endpoint), compared to just 67% of eyes receiving standard of care (SOC)
‣ Day 4: 100% of eyes treated with both OBG regimens were completely healed at Day 4, compared to 87% of eyes treated with SOC
‣ Day 2: maximum wound size was 67% and 49% smaller at Day 2 as compared to SOC (again, it was not disclosed which OBG regimen is associated with 67% vs 49%)
‣ Safety: “no concerns”
The following is our best understand of the punctate epitheliopathies (PE) study design based on information in EYEG recent investor presentations and press releases so it is possible that the actual design differs somewhat from what we have here. Study included 30 patients; 15 x 2 arms (OBG or saline) with PEs such as dry eye. Specific inclusion/exclusion criteria were not disclosed (although will be of interest if and when disclosed). Primary outcome was decrease in fluorescein staining of the cornea from baseline (Day 0) to each of the four visits. Additional details include;
‣ 42-Day trial: 2-week wash-out/run-in followed by 4 weeks treatment (OBG or saline)
◦ Day-14 screening: all subjects stop all topicals and take saline QID OU for 14 days
◦ Day-0 randomization: OBG QID for 28 days vs saline QID OU for 28 days
◦ Staining completed on Days 7, 14, 21, 28
‣ Primary outcome is decrease in NEI fluorescein staining of the cornea from baseline (Day 0) to each visit (Days 7,14,21,28) between the treatment and control arms
Results: we note that the study results, announced in a press release on November 13th, included performance on a ‘symptomology’ assessment (as well as on the staining endpoint), which was not disclosed as part of the study design in EYEG’s most recent investor presentations. We only mention this as an fyi and presume the reason may be that ‘symptomology’ may have been included as a secondary endpoint. Per the PR ‘symptomology’ was assessed (at all four visits) using a patient reported outcome questionnaire based on comfort in both eyes. While we do not know the specific one used, it is our understanding that it is a well-validated PRO, such as ‘standard patient evaluation of eye dryness’ (SPEED) or ‘ocular surface disease index’ (OSDI). It is critical that whatever PRO was utilized has been well-established and previously validated as a sufficient determinant of PE symptoms.
‣ Staining: while the PR does not disclose specifics of results on staining at each of the four visits, it does note that
◦ measurements of the total cornea (which we assume refers to total NEI fluorescein staining score, i.e. primary outcome) did not show a significant difference in reduction between OBG and control treated eyes with OBG achieving 26% reduction and control achieving 23% reduction at Day 7
◦ measurements of the central cornea (which we think may be referring to the ‘center zone’ of the five NEI fluorescein staining zones) showed a reduction of up to 40% for OBG versus up to 23% for control when combining the results of both eyes (the visit Day/time-period was not disclosed)
◦ Day 7: statistically significant improvement (p<0.05)
◦ Day 28:
∙ statistically significant improvement (p<0.05)
∙ OBG experienced 30% decrease from baseline versus 4% with control
‣ Safety: “no safety concerns”
Given that this is topline data, not all of the results (such as whether a dose response was observed in the PRK study or staining results at each of the four visits in the PE study) were disclosed and these studies were not powered for statistical efficacy, we cannot make any concrete conclusions about effectiveness of OBG versus standard of care. But the data, we think, do suggest an efficacy signal is present. Perhaps just as important, precedent suggests EYEG may not need to demonstrate superiority (or non-inferiority) to standard of care or even show improvement on clinically meaningful outcomes for FDA clearance.
As it relates specifically to PRK, this second pilot study data supports the findings in the initial study, specifically that OBG may be associated with more rapid healing than standard of care. As such, we think compilation of data to-date may be sufficient to support an FDA filing seeking De Novo request for classification (i.e. essentially, request that OBG be classified as low or moderate risk and, therefore, be exempted from the otherwise requisite PMA pathway).
And as it relates to PE, the PRO results at Days 7 and 28 was statistically superior favoring OBG, although it is not clear what the data looks like at the other two time points. And, while the (disclosed) NEI staining results were not statistically different between OBG and control, there was a numerical difference supporting the former at Day 7. And, again, these were relatively small studies and not expected to be powered for efficacy.
In addition, the efficacy signal may have been even more pronounced in the central cornea – the area of the eye most susceptible to inflammatory response and permeated with nerve endings. So, efficacy in this part of the eye is arguably more important than the other regions or of the total NEI score. In fact, NEI total score has been criticized as it rates all (five) regions of the cornea as equivalent (in determining presence or severity of dry eye), despite certain regions (namely the central cornea) conveying more information about the underlying disease.
Precedent indicates FDA does not require superiority to SOC or clinically meaningful outcomes-based endpoints for regulatory clearance…
A potential wild card is that FDA clearance has been achieved for devices for the treatment dry eye which did not require demonstrating superiority (or non-inferiority) against standard of care or even show improvement on clinically meaningful outcomes. An example is Allergan’s (Oculeve, Inc’s at the time) Intranasal Tear Neurostimulator, for which they received FDA marketing approval via De Novo classification request (Class II) in April 2017. Allergan (NYSE:AGN) subsequently received FDA marketing approval (May 2018) following successful De Novo classification as a Class II device for an upgraded device called TrueTear, which added Bluetooth and other mobile connectivity.
The Intranasal Tear Neurostimulator is indicated to provide “a temporary increase in tear production during neurostimulation in adult patients.” Allergan’s updated model, TrueTear, is indicated for “a temporary increase in tear production during neurostimulation to improve dry eye symptoms in adult patients with severe dry eye symptoms”. These two devices, which are identical other than the mobile connectivity of TrueTear, are fairly simple. When inserted into the nose, they produce a low-level electrical signal which makes the eyes water.
They were both cleared by FDA with support from two ‘pivotal studies’ (OCUN-009 and OCUN-010). While these studies were used to evaluate the safety and effectiveness of the devices, neither included a dedicated comparator or control arm and primary outcomes were not actually clinically outcome-based. Instead each patient acted as both treatment and control and the primary outcome measure was simply whether the device produced tears. This, we believe, is essentially analogous to demonstrating that (a hypothetical) device which delivers re-wetting saline drops to the eye, increases the amount of liquid saline on the eye (with sufficient safety).
FDA clearance was not predicated on demonstrating superiority to standard of care (or any other comparator) and was also not predicated on demonstrating that it actually improves patients’ symptoms. Additionally, the primary endpoint in both of these studies (detailed below) only assesses wetness of the eye immediately following administration but provides no insight into duration of effect. This, we think, is an important point particularly in the context of what is believed to be the unique benefits of EYEG’s Ocular Bandage Gel (OBG) – that is, it’s gelatin-like properties allow it to remain on the eye longer than liquid drops which is believed to result in a longer duration of effect (see sustained delivery curves for use with antibiotics, below, as an example of OBG’s relatively long duration of effect).
View Exhibit I
FDA’s approval summary of Oculeve notes that “The two pivotal studies were found to be appropriate to support the action of the device effect (increased tear production during neurostimulation); however, therapeutic benefit, e.g., symptomatic relief from dry eye, was not assessed in the clinical studies.” FDA’s approval summary of TrueTear notes that “The two pivotal trials were found to be appropriate to support the action of the device effect of increased tear production during neurostimulation in DEN160030.“ (DEN160030 is reference to Oculeve’s device).
OCUN-009: 48 patients over two days; Day 1: eligibility assessed, Day 2: the only treatment day. Three arms including two control arms; control 1: device used “off-target” (i.e. outside of the nose), control 2: sham device. On Day 2 each patient received three applications; active treatment, control 1, and control 2. Primary effectiveness outcome was the difference between stimulated (i.e. active treatment) and unstimulated tear production using Schirmer scores). Schirmer test is a very simple validated objective endpoint in which a physician places a small sliver of paper inside the lower eyelid for approximately five minutes. The amount of liquid indicates relative volume of tear production.
View Exhibit II
Results showed significantly greater average tear production following stimulated applications; stimulated vs sham (p<0.0001) and stimulated vs extra-nasal (p<0.0001). In terms of safety, no device-related serious adverse events were reported.
OCUN-010: single-arm, open-label, three-site trial with 97 patients with tear-deficient dry eye evaluated after 180 days of use with Oculeve’s device. Patients used the device daily at-home for 180 days and were evaluated with Schirmer test on Days 7, 30, 90 and 180. At each visit, the Schirmer test was first done without stimulation and then done after stimulation – as such, each patient acted as their own treatment and control arm (similar to OCUN-009). Primary efficacy endpoint was the increase in tear production at Day 180 when stimulated versus unstimulated. Secondary endpoints were Schirmer values at Days 0, 7, 30 and 90.
Results showed a significant difference between mean Schirmer scores of the treatment versus control arms at all timepoints. However, there was also a trend towards decreasing tear production with stimulation throughout the 180-assessment period. And, as we noted above and similar to OCUN-009, the study did not include any assessment of dry eye symptoms. In terms of safety, similar to OCUN-009, no device-related serious adverse events were reported.
Could OBG follow a similar pathway?…
As a reminder, in November 2016 EYEG announced that, following a pre-submission meeting with FDA, the agency confirmed De Novo was an appropriate pathway for OBG to pursue in seeking U.S. regulatory clearance. This confirmed our expectations, which were based on the fact that a similar cross-linked formulation (BioTime Inc) had already followed a 510(k) route towards FDA clearance (for dermal wound management). We think it also speaks to the validated safety profile of CMHA-S.
De Novo was created by FDA in an effort to help streamline approval of novel, low-to-moderate risk medical devices. Prior to de novo the only route for new devices and for which there was not an acceptable predicate regardless of their risk profile, was the relatively long, arduous and costly PMA process. The other benefit of De Novo is an expected shorter FDA review time.
We also note that AmbioDisk and Prokera, both amniotic membranes (i.e. disks placed on the eye by clinicians) indicated for use of non-healing epithelial defects also did not follow NDA pathways. Prokera followed 510(k) as a Class II device while AmbioDisk is regulated under Section 361 of the Public Health Service Act by FDA with no clearance required. These are more invasive and require much greater skill to administer than eye drops or gel.
And the fact that FDA clearance of Intranasal Tear Neurostimulator/TrueTear was not predicated on demonstrating superiority (or non-inferiority) to SOC or on showing improvement on clinical outcome-based measures or even on symptomology suggests that EYEG’s path forward could be fairly straightforward. While we do not have any insight as to whether the data to-date could reasonably be considered sufficient to support FDA clearance, we do think it is indicative of an efficacy signal and therefore moves OBG one step closer to potential U.S. marketing approval. We hope to hear more about EYEG’s plans as it relates to an FDA pathway in the near term. In the event an expedited pathway appears feasible, it could have implications on our financial model and valuation. As such, this is a stay-tuned for updates situation.
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