Overview

Alimera Sciences, Inc., (ALIM) and its subsidiaries (we or Alimera), is a pharmaceutical company that specializes in the commercialization and development of prescription ophthalmic pharmaceuticals. The company presently focus on diseases affecting the back of the eye, or retina, because the company believe these diseases are not well treated with current therapies and represent a significant market opportunity.

The company's only commercial product is ILUVIEN®, which has received marketing authorization in the U.S., Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden and the United Kingdom. In the U.S., ILUVIEN is indicated for the treatment of diabetic macular edema (DME) in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure (IOP). In the European Economic Area (EEA) countries in which ILUVIEN has received marketing authorization, it is indicated for the treatment of vision impairment associated with DME considered insufficiently responsive to available therapies.

In December 2017, the company filed an application for a new indication for ILUVIEN for the treatment of non-infectious posterior uveitis (NIPU) in the 17 EEA countries where ILUVIEN is currently approved for the treatment of DME. Uveitis is an inflammatory disease of the uveal tract, which is comprised of the iris, ciliary body and choroid, that can lead to severe vision loss and blindness. The regulatory authorities requested additional follow-up data from the clinical trials to support the application. The company plan to submit the follow-up data by the end of 2018, when it is expected to be available. The company expect that the company will obtain approval of its application for NIPU in the first half of 2019.

The company commercially market ILUVIEN in the U.S., Germany, the United Kingdom, Portugal, Austria and Ireland. The company began selling ILUVIEN in Austria in the first quarter of 2017 and in Ireland in the fourth quarter of 2017.

In addition, Alimera Sciences has entered into various agreements under which distributors are providing or will provide regulatory, reimbursement or sales and marketing support for future commercialization of ILUVIEN in several countries in the Middle East, as well as Italy, Spain, France, Canada, Australia and New Zealand. As of June 30, 2018, Alimera Sciences has recognized sales of ILUVIEN to the Company’s distributors in the Middle East, France, Italy and Spain.

The company amended and restated its license agreement with EyePoint Pharmaceuticals US, Inc. (EyePoint), formerly known as pSivida US, Inc., effective July 1, 2017 (the New Collaboration Agreement). Under the New Collaboration Agreement, the technology underlying ILUVIEN now includes the treatment of uveitis, including non-infectious posterior uveitis (NIPU) in Europe, the Middle East and Africa.

Before the company entered into the New Collaboration Agreement, the company were required to share with EyePoint 20% of its net profits on a country-by-country basis. Alimera Sciences was permitted to offset up to 20% of this amount with accumulated commercialization costs incurred in previous quarters. The New Collaboration Agreement converts this profit share obligation to a royalty payable on global net revenues of ILUVIEN. The company began paying a 2% royalty on net revenues and other related consideration to EyePoint effective July 1, 2017. This royalty amount will increase to 6% upon the earlier of December 12, 2018 or the receipt of the first marketing approval for ILUVIEN for the treatment of NIPU. The company will pay an additional 2% royalty on global net revenues and other related consideration in excess of $75.0 million in any year. During the three and six months ended June 30, 2018, the company recognized approximately $218,000 and $411,000 of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization. As of June 30, 2018, approximately $218,000 of this royalty expense was included in its accounts payable. During the three and six months ended June 30, 2017, the company recognized approximately $50,000 and $247,000 of profit share expense, respectively.

Following the signing of the New Collaboration Agreement, the company retained a right to offset $15.0 million of future royalty payments. This offset will be reduced by up to $5.0 million upon the earlier of the approval of ILUVIEN for posterior uveitis in any EU country or January 1, 2020, unless certain conditions under the New Collaboration Agreement are not met (see Note 9 of its notes to condensed consolidated financial statements).

Alimera Sciences has incurred significant losses since its inception in June 2003. As of June 30, 2018, the company had accumulated a deficit of $410.8 million. The company expect to incur substantial losses through the continued commercialization of ILUVIEN as we:

- continue the commercialization of ILUVIEN in the U.S. and EEA, where the company sell direct, and in other countries in the EEA and the Middle East, where the company sell through its distributors;
- continue to seek regulatory approval of ILUVIEN for other indications and in other jurisdictions;
- evaluate the use of ILUVIEN for the treatment of other diseases; and
- advance the clinical development of any future products or product candidates either currently in its pipeline, or that the company may license or acquire in the future.

As of June 30, 2018, the company had approximately $16.7 million in cash and cash equivalents.

On January 5, 2018, the company entered into a $40.0 million Loan and Security Agreement (2018 Loan Agreement) with Solar Capital Ltd. (Solar Capital). Under the 2018 Loan Agreement, the company borrowed the entire $40.0 million as a term loan that matures on July 1, 2022.

The company used the proceeds of the 2018 Loan Agreement loan to refinance and pay off the previous loan agreement with Hercules Capital, Inc. (Hercules Loan Agreement) and to pay closing expenses associated with the 2018 Loan Agreement. The company used the remaining loan proceeds to provide additional working capital for general corporate purposes. (See Note 10 of its notes to condensed consolidated financial statements).

The company's revenues for the three and six months ended June 30, 2018 and 2017 were generated from product sales primarily in the U.S., Germany, Portugal and the United Kingdom. In the U.S., two large pharmaceutical distributors accounted for 73% and 78% of its consolidated revenues for the three months ended June 30, 2018 and 2017, respectively, and 72% and 74% of its consolidated revenues for the six months ended June 30, 2018 and 2017, respectively. These distributors purchase ILUVIEN from it, maintain inventories of ILUVIEN and sell downstream to physician offices, pharmacies and hospitals. Internationally, in countries where the company sell direct, its customers are hospitals, clinics and pharmacies. The company sometimes refer to physician offices, pharmacies, hospitals and clinics as end users. In international countries where the company sell to distributors, these distributors maintain inventory levels of ILUVIEN and sell to their customers.

Research, Development and Medical Affairs Expenses

Currently, its research, development and medical affairs expenses are primarily focused on activities that support ILUVIEN and includes salaries and related expenses for research and development and medical affairs personnel, including medical sales liaisons, costs related to the provision of medical affairs support, including symposia development for physician education, and costs related to compliance with FDA, EEA or other regulatory requirements. Until the company reach profitability, if at all, the company do not expect to change the focus of these activities. However, once the company reach profitability, the company expect to incur a large percentage of its research, development and medical affairs expenses in support of its current and future technical, preclinical and clinical development programs. These expenditures are subject to numerous uncertainties in terms of both their timing and their total cost to completion. The company expense both internal and external development costs as they are incurred.

Research, development and medical affairs expenses increased by approximately $600,000, or 27%, to approximately $2.8 million for the three months ended June 30, 2018, compared to approximately $2.2 million for the three months ended June 30, 2017. The increase was primarily attributable to increases of (a) $350,000 in its clinical study costs, as the company benefited from one-time cost savings associated with two clinical studies that offset expenses incurred during the three months ended June 30, 2017 and (b) $180,000 in personnel costs.

Research, development and medical affairs expenses increased by approximately $1.3 million, or 30%, to approximately $5.6 million for the six months ended June 30, 2018, compared to approximately $4.3 million for the six months ended June 30, 2017. The increase was primarily attributable to a refund from the FDA of approximately $440,000 in the first quarter of 2017, which was not repeated in the first quarter of 2018. Additionally, the increase was attributable to increases of approximately $280,000 in personnel costs, $180,000 in scientific communication costs, and $120,000 of costs related to maintaining the U.S. and international registrations of ILUVIEN, including costs to file an application for a new indication for ILUVIEN for the treatment of NIPU in the EU.

Liquidity and Capital Resources

Since inception, Alimera Sciences has incurred recurring losses, negative cash flow from operations and have accumulated a deficit of $410.8 million through June 30, 2018. Alimera Sciences has funded its operations through the public and private placement of common stock, convertible preferred stock, warrants, the sale of certain assets of the non-prescription business in which the company were previously engaged and certain debt facilities.

In September 2014, the company entered into a sales agreement with Cowen and Company, LLC (Cowen) to offer shares of its common stock from time to time through Cowen, as its sales agent for the offer and sale of the shares up to an aggregate offering price of $35.0 million. The company paid a commission equal to 3% of the gross proceeds from the sales of shares of its common stock under the sales agreement. The company's sales agreement with Cowen to sell additional shares expired on August 13, 2017.

During the three and six months ended June 30, 2017, the company sold 2,140,713 shares of its common stock at a weighted average purchase price of $1.40 per share resulting in gross proceeds of approximately $3.0 million, prior to the payment of approximately $110,000 of sales agent discounts and commissions and related issuance costs. During the year ended December 31, 2017, the company sold 4,203,015 shares of its common stock at a weighted average price of $1.43 per share through this at-the-market offering, for total gross proceeds of approximately $6.0 million, reduced by approximately $180,000 of related commissions, issuance costs and placement agent fees. The company used the net proceeds from this offering for general corporate purposes and working capital.

In October 2017, the company entered into a common stock sales agreement (Sales Agreement) with H.C. Wainwright & Co., LLC (HCW) to offer shares of its common stock from time to time through HCW, as its sales agent, for the offer and sale of the shares up to an aggregate offering price of $25.0. In June 2018, the company notified HCW that the company were terminating the Sales Agreement in accordance with the termination provisions of the Sales Agreement, effective on June 1, 2018. The company had no obligation to sell shares under this sales agreement with HCW and the company never sold shares under this agreement. The company incurred no early termination penalties in connection with the termination of the Sales Agreement.

On January 5, 2018, the company entered into the $40.0 million 2018 Loan Agreement with Solar Capital. Under this agreement, the company borrowed the entire $40.0 million as a term loan that matures on July 1, 2022. The company used the proceeds of the 2018 Loan Agreement to repay the Hercules Loan Agreement and related expenses. The company expect to use the remaining loan proceeds to provide additional working capital for general corporate purposes. (See Note 10 of its notes to condensed consolidated financial statements).

As of June 30, 2018, the company had approximately $16.7 million in cash and cash equivalents. The company commercially market ILUVIEN directly in the U.S., Germany, the United Kingdom, Portugal, Austria and Ireland. The company began selling ILUVIEN in Austria in the first quarter of 2017 and in Ireland in the fourth quarter of 2017. The company sell ILUVIEN through distributors in the Middle East, France, Italy and Spain. Due to the limited revenue generated by ILUVIEN to date, the company may have to raise additional capital to fund the continued commercialization of ILUVIEN. If Alimera Sciences is unable to raise additional financing, the company will need to adjust its commercial plans so that the company can continue to operate with its existing cash resources. The actual amount of funds that the company will need will depend on many factors, some of which are beyond its control. The company may need funds sooner than currently anticipated.

The company cannot be sure that additional financing will be available when needed or that, if available, the additional financing would be obtained on terms favorable to it or its stockholders. If the company were to raise additional funds by issuing equity securities, substantial dilution to existing stockholders would likely result and the terms of any new equity securities may have a preference over its common stock. If the company were to attempt to raise additional funds through strategic collaboration agreements the company may not be successful in obtaining collaboration agreements, or in receiving milestone or royalty payments under those agreements. If the company were to attempt to raise additional funds through debt financing the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict its ability to commercialize ILUVIEN or any future products or product candidates or operate its business.

For the six months ended June 30, 2018, cash used in its operations was $8.4 million. The cash used in its operations was primarily due to its net loss of $11.7 million, offset by $2.4 million of non-cash stock-based compensation expense, $1.8 million loss on its early extinguishment of debt, $1.3 million for non-cash depreciation and amortization, $420,000 for non-cash interest expense associated with the amortization of its debt discount and a $250,000 increase in accounts payable, accrued expenses and other current liabilities. Cash used in operations for the six months ended June 30, 2018 was further affected by an increase in accounts receivable of $2.1 million and an increase of $650,000 of inventory.

For the six months ended June 30, 2017, cash used by its operations of $7.0 million was primarily due to its net loss of $9.5 million offset by non-cash items, including $2.4 million of stock-based compensation expense, $1.3 million for depreciation and amortization and $690,000 for non-cash interest expense associated with its debt discount. Increasing cash used in operations was a decrease in other long term liabilities of $1.4 million and increases in inventory of $720,000 and prepaid expenses and other current assets of $390,000. These increases were offset by an increase in accounts payable, accrued expenses and other current liabilities of $360,000 and a decrease in accounts receivable of $340,000.

For the six months ended June 30, 2018, net cash used in its investing activities was approximately $120,000, which was due to the purchase of property and equipment, primarily the purchase of additional software.

For the six months ended June 30, 2017, net cash used in its investing activities was approximately $170,000, which was due to the purchase of property and equipment, primarily for the purchase of manufacturing equipment and software.

For the six months ended June 30, 2018, net cash provided by its financing activities was approximately $1.2 million, which is primarily due to entering into the $40.0 million 2018 Loan Agreement with Solar Capital, offset by paying off the $35.0 million Hercules Loan Agreement and payment of related debt costs of $3.7 million.

For the six months ended June 30, 2017, net cash provided by its financing activities was approximately $2.9 million. During the second quarter of 2017, the company sold a total of 2,140,713 shares of its common stock at a weighted average purchase price of $1.40 per share resulting in gross proceeds of approximately $3.0 million, prior to the payment of approximately $110,000 of sales agent discounts and commissions and related issuance costs.