Alimera Sciences, Inc.

Thank you. Good afternoon, everyone, and welcome to the Alimera Sciences conference call to update you on our progress with ILUVIEN, our sustained-release intravitreal implant for diabetic macular edema, or DME, and to review our first quarter 2015 financial results.

A press release regarding these results was issued this afternoon and is available on our website. On the call with me today is Dan Myers, our President and Chief Executive Officer.

Before we begin our prepared remarks, I'd like to remind you that various statements we make during this call about the company's future results of operations and financial position, business strategy and plans and objectives for Alimera's future operations are considered forward-looking statements within the meaning of the federal securities laws. Our forward-looking statements are based upon current expectations that involve risks, changes in circumstances, assumptions and uncertainties.

These risks are described in the Risk Factors and Management's Discussion and Analysis of Financial Conditions and Results of Operations sections of Alimera's annual report on Form 10-K for the fiscal year ended December 31, 2014, which is on file with the SEC and available on the SEC's and Alimera's website. We encourage all investors to read these reports and our other SEC filings.

All of the information we provide on this conference call is provided only as of today, and we undertake no obligation to update any forward-looking statements we may make on this call on account of new information, future events or otherwise, please be advised that today's call is being recorded and webcast.

Additionally, the non-GAAP financial measures of adjusted cost of goods sold, adjusted gross margin, adjusted net loss attributable to common stockholders and adjusted net loss attributable to common stockholders per common share will be discussed on this conference call. A reconciliation of these measures to GAAP can be found in our press release, which is available on the SEC's and Alimera's websites.

Now I would like to turn the call over to Dan Myers.

Thanks, Rick, and thanks, everyone, for joining our first quarter 2015 conference call. With the recent launch of ILUVIEN in the U.S.

market as well as our expansion in Europe, this is an exciting time to provide you with a comprehensive business overview. After my comments, I'll pass the call over back over to Rick, who will discuss in more detail our financial and operational results.

We'll then open up the call for questions.

This is our first call with reportable U.S. revenue, and I'm pleased to report that we achieved solid results with our entry into the U.S.

Overall, we had a strong start to 2015 across the company, with first quarter total sales of $3.9 million, an increase of 86% compared to the same period a year ago. Obviously, launching ILUVIEN commercially in the U.S.

was a tremendous milestone for Alimera, and we're excited about the potential going forward.

Our U.S. sales, reimbursement and medical teams began calling on accounts in February.

As a result of the field team's efforts, we recognized $2.4 million in U.S. sales in the quarter.

While those sales numbers include some inventory built for our specialty distributors, the majority of units were sold further downstream to end users.

Now 1 month into the second quarter, that inventory has turned over due to demand from physicians, more than doubling from March to April.

Awareness of ILUVIEN in the marketplace continues to grow, and our presence in the general media and ophthalmology press has been significant. Physicians are writing about ILUVIEN in the ophthalmology journals, and we are seeing more local network news coverage on the uniqueness of ILUVIEN for our patients suffering from the debilitating effects of diabetic macular edema.

Early adaptors in the U.S. are already seeing the clinical benefits that ILUVIEN has demonstrated in Europe.

Just this week at the Association for Research in Vision and Ophthalmology meeting, both U.S. and European physicians presented cases on the clinical efficacy of ILUVIEN in commercial settings to their colleagues that were equal to or better than what we saw in our clinical trials.

These cases highlight the role that a low-dose, continuous-delivery steroid can bring to the market, and we hope to build on this foundation to support our continued growth in the DME market.

We believe an early indicator of physician interest in making ILUVIEN part of a DME treatment paradigm is physician enrollment in our ACCESS Plus Program, would provide the reimbursement support to the retinal practice. We have seen significant growth in the number of physicians who have enrolled themselves in the program with approximately 650 patients enrolled today compared to the 270 enrolled physicians when we last spoke in March.

This represents about 35% of the total registered retinal physicians in the U.S.

Further, we believe a leading indicator of the availability of patients and physician usage is the initiation of benefit investigations by physician practices. An integral component of the buy-and-bill process is to engage with carriers in advance to learn if a patient is eligible for coverage.

Our ACCESS Plus Program provides the physician practice with essential resources to do this.

Although eligibility does not guarantee payment to a practice, before paperwork has to be filled out correctly and timely, it does mean that the physician has identified a specific patient that is a viable candidate for ILUVIEN.

We have seen significant growth in patients enrolled in our ACCESS Plus Program. 102 benefit investigations were completed during the 4 weeks ended April 3, increasing to 165 new investigations during the 4 weeks ended May 1.

And for the year, 395 benefit investigations have been completed, with coverage available in 98% of the cases.

This coverage is a result of the broad acceptance ILUVIEN has received from commercial carriers with posted policies being positive in support of ILUVIEN usage. We have on-label coverage in 85% of the top 40 commercial insurance accounts, representing $154 million insured lives.

Our reimbursement team has been doing an outstanding job, communicating clinical and economic benefit of ILUVIEN to payers.

Despite these early signs of success, however, we do expect to see some hurdles with the early adoption of ILUVIEN over these initial months of launch.

Understanding the launch and uptake of a retinal product is not a simple task, and I'd like to take a few moments to provide some perspective.

As you may recall, physicians were mostly purchasing ILUVIEN on a buy-and-bill basis. Essentially, this means the physician is paying for ILUVIEN and then seeking reimbursement from either the Centers for Medicare & Medicaid Services or the commercial payers.

This process of receiving payment can be slow and represents a risk to the practice.

This is not an issue of coverage, because I explained earlier, this looks very good for us. Instead, it's an issue of inconsistent processing of claims by both physician practices and the carriers.

These processing issues are caused by ILUVIEN not currently having a J-code, which then can lead to a protracted adjudication process.

Currently, practices have limited visibility to payment of their claims or their colleagues'. And further, with an $8,800 price tag, a missed payment is substantial.

The comfort level of practices would be higher if ILUVIEN already had a J-code, but as the process works, we will not have our J-code until January of 2016. The use of an unclassified J-code in this "wait and see" approach by our customers, is not unusual.

Despite this issue, we are seeing the early success noted above, and practices are eager to know who has been paid and by which insurance carriers to alleviate their reimbursement concerns, so they can focus on the benefits of using ILUVIEN for their patients.

Both clinical efficacy and reimbursement are critical hurdles we need to clear for the retinal community to fully embrace ILUVIEN, but I feel confident in our ability to do so. Each day, new physicians who understand the need for ILUVIEN in their patient population are trying ILUVIEN and testing the sometimes turbulent waters of reimbursement.

I'd like to now turn our European -- turn now to our European business and share some key highlights. In the United Kingdom, we've seen significant growth over the year-ago quarter, with our injection rate more than doubling in comparison.

In fact, each month has doubled from its respective month a year ago. Our U.K.

team has been able to generate expanding interest in ILUVIEN through further education on ILUVIEN's role in the treatment paradigm by directly building center-specific treatment pathways with the clinical teams. This activity clearly identifies the place for ILUVIEN in the management of patients who are insufficiently responsive to other available therapies consistent with our European label.

In a number of key centers, we have worked directly to support audits to identify potential patients and ensure assessment for ILUVIEN. The focus is clearly on those patients who are pseudophakic, in-line with the restricted National Institute of Clinical Excellence recommendation.

As a result of this added clarity, we are seeing strong growth in the use of ILUVIEN, together with a publication of an increasing number of case series confirming ILUVIEN's impact on patients' lives.

We ended the first quarter achieving our highest monthly sales volume in March in the U.K., and we now have a good start into the second quarter. We're also very pleased to announce the launch of ILUVIEN in Portugal in the first quarter of this month, with month-over-month growth of sales, albeit limited number of units.

Although we have a national price agreement in Portugal, a gaining factor in adoption is placement on hospital formularies, which typically requires negotiation of a discounted hospital level. This is a tedious and bureaucratic process.

I apologize, I'm trying to fight out a desperate cold here. So I may let Rick -- if you might, Rick, just continue for just a moment.

I'm sure I'm going to grab some water here.

Sure. This is a tedious and bureaucratic process that's been delayed by a local controversy surrounding the hepatitis C drug SOVALDI.

This high-priced drug affected us as well as other pharma companies causing negotiation delays. We were able to secure placement in 2 public hospitals early in the second quarter, leading to April sales that equaled the cumulative total in Portugal for the first quarter.

Over the remainder of 2015, we're targeting the implementation of ILUVIEN in a total of 26 hospitals in Portugal.

In Germany, our sales in the first quarter remained flat, but with a small but consistent base of users. We remain enthusiastic about the market opportunity, but have to consider 2015 a relaunch for ILUVIEN in Germany.

So it would be safe to say that over the last 2 years, we were not successful in engaging with key opinion leaders to advocate ILUVIEN usage in Germany.

In March, at the ophthalmologists academy of Germany meeting in Düsseldorf, our new German team hosted an advisory board dinner with some carefully chosen German key opinion leaders along with Dan and myself in attendance. The goal is to garner feedback on the image of ILUVIEN in the marketplace, identify hurdles to adoption and to have them provide us with their thoughts on what actions we should take in light of the changing market access environment.

The German team continues to regularly engage with these physicians in the field to build a stronger network of educated and supportive key opinion leaders and their insights have formed the basis of our [indiscernible].

As the first quarter came to an end, we refocused our resources on 3 key areas, namely gaining inclusion of ILUVIEN into reimbursement contracts; broadening the base of experience for the short-term period of sampling; and addressing the commercial attractiveness of ILUVIEN through other intravitreal products, both in the hospital and for office-based ophthalmologists. In all 3 areas, we're making progress and look forward to updating you at the end of the second quarter.

Separately, we recently received marketing approval in Poland, making them the 17th European country that we received approval in and completes our secondary filing in Europe. With these approvals, we have a large market opportunity internationally to expand our business and provide patients with an effective and long-acting treatment option for DME.

Turning to our financial results for the first quarter of 2015. We see that our net revenue increased $1.8 million or 86% to $3.9 million compared to $2.1 million in the prior year period.

The increase was primarily attributable to the U.S. sales of $2.4 million in the quarter following the U.S.

launch, offset by a decrease in German sales.

Cost of goods sold decreased by approximately $280,000 or 50% to $280,000 for the first quarter of 2015 compared to $560,000 in the first quarter of 2014. This increase was primarily attributable to inventory reserves taken in the first quarter of 2014 associated with lower-than-expected sales in Germany, offset by an increase in cost of goods sold in the first quarter of 2015, primarily associated with the initial sales in the U.S.

For the first quarter of 2015, research and development expenses increased by approximately 18% to $3.3 million compared to $2.8 million in the prior year period. The increase was primarily attributable to increases in personnel costs relating to a U.S.

medical science liaison team hired following FDA approval of ILUVIEN in the fourth quarter in addition to scientific study costs for both our ongoing open-label registry study in the EU and a chart review study based in the U.S. aimed to help physicians understand the appropriate time to prescribe their patients ILUVIEN.

General and administrative expenses in the first quarter of 2015 increased approximately 24% to $3.6 million compared to $2.9 million in the prior year period. This increase was primarily attributable to an increase in headcount as well as fees related to an audit of our internal controls over financial reporting that occurred during the 3 months ended March 31, 2015.

For the first quarter of 2015, sales and marketing expenses increased approximately 115% to $7.1 million compared to $3.3 million in the prior year period. The increase in sales and marketing expenses was primarily attributable to personnel, promotional and reimbursement activity associated with the U.S.

launch of ILUVIEN.

GAAP net loss applicable to common stockholders for the first quarter of 2015 was $9.8 million or $0.22 per share compared with the GAAP net loss attributable to common stockholders of $20.8 million or $0.58 per share for the first quarter of 2014. GAAP net loss attributable to common stockholders for the quarters ended March 31, 2015, and 2014 was affected by certain non-cash items, including changes in the fair value of a derivative warrant liability, unrealized foreign currency gains and losses and reserves for potential inventory expiration.

Excluding the noncash items and certain items that are expected to be nonrecurring in nature, non-GAAP adjusted net loss attributable to common stockholders was approximately $12.2 million for the quarter ended March 31, 2015, compared to non-GAAP adjusted net loss attributable to common stockholders of approximately $7.1 million for the quarter ended March 31, 2014.

Non-GAAP adjusted net loss per share for the quarters ended March 31, 2015, and 2014 was $0.27 and $0.20 per share, respectively.

GAAP net loss per share and non-GAAP adjusted net loss per share for the quarter ended March 31, 2015, was based on 44.4 million weighted average shares outstanding. GAAP net loss per share and non-GAAP adjusted net loss per share for the quarter ended March 31, 2014, was based on 35.9 million weighted average shares outstanding.

As of March 31, 2015, Alimera had cash and cash equivalents of approximately $61.3 million compared to approximately $76.7 million as of December 31, 2014. Our cash burn of approximately $15.4 million for the quarter was impacted by a significant increase in accounts receivable in the U.S.

due to the extended terms provided to our distributors and further downstream to the end customers as well as the $2 million milestone paid related to the ILUVIEN approval by the U.S. FDA.

With that, I will turn the call back over to Dan for closing comments.

Actually, we will take questions at this point. Again, I apologize, I've fought a cold for 3 days now.

So thank you, Rick, for covering my other comments. So operator, now we'll open up for questions.

Congratulations on the progress especially in light of the payer challenges with your J code. First question, just to potentially ask you to repeat something.

You said there were 102 different conversations in the 4 weeks ending April 3 and 165 for the 4 weeks ending May 1. Those were physicians reaching out to payers?

I'm sorry, I missed that.

No, those are -- so Caroline, what those are, those are benefit investigations. So through our ACCESS Plus hotline, when a physician identifies a potential candidate for ILUVIEN, they will use our ACCESS Plus hotline to help us do an investigation of what benefits or what insurance coverage that patient has available.

And so 102 of those were initiated in the 4 weeks ended April 3 and then 165 in the 4-week period ending May 3. So you can see an increase -- we believe that's an indicator.

It's not absolute, because sometimes, a doctor doesn't necessarily complete that or sometimes an investigation is done outside of our system. But that's an indicator that a physician is identifying a specific candidate for ILUVIEN where they would use it.

And typically, that would lead to a sale.

Got it. And then the J-code is going to be effective January 2016.

That's already applied for? Ducks are in a row, et cetera?

That's correct. That should be in place January 1, 2016.

Okay, great. And then when your sales force is out there communicating with smaller practices, ones that can't as easily eat the $8,800 price tag for a long-time period, are you getting any feedback from doctors saying they're going to wait for that J-code?

Is there a bolus of smaller doctors that we'd expect once a J-code is in place, that would be more likely to try then?

Yes. So I think there are 3 different things to consider in that discussion.

I think, first of all, you certainly will have some physicians that will just wait to get a J-code next year, because there are some alternative products available to them. I think others, as we addressed in the conversation, will work more of a wait-and-see attitude.

And what they're waiting for is to see that some of their colleagues, maybe in a larger practice, that those -- the reimbursement payments are coming through. As Dan alluded to in the comments, we have seen some Medicare claims be paid already and some of the managed care organizations, but we are still early.

I mean, if you think even our earliest sales, some of the those haven't been outstanding more than 90 days. And we sort of plan for about 120-day adjudication process, the way we set up the terms with the doctors.

So I think over the course of the second quarter, we will see more of our end customers getting paid, and then some of that word will spread and influence practices that may be on the fence. And then the other opinion that some of these smaller practices have is the availability to use a specialty pharmacy.

When they go to the ACCESS Plus hotline, if they do they don't want to do the buy-and-bill model and take the risk themselves, they can work through a specialty pharmacy. So in effect, they would write a prescription, and that prescription will be filled, and then the pharmacy would deal with that risk.

But those pharmacies typically work very closely with the managed care organizations, and they can be assured the payment.

Okay. And then in the U.S.

market, are you seeing any evidence with Regeneron or out there? And they have EYLEA for DME as well.

They said on their call today that they're trying to increase DME awareness and just let these patients know that there are options for treatment. Are you seeing any effect there positively for your product, just that patients are actually seeking solutions rather than just suffering through?

I'll -- Caroline, I'll try to take it on myself. And again, I appreciate Rick covering most of this for us.

We actually had some meetings at the ARVO meeting that I referenced in my comments, and we discussed that with some of the members of our scientific advisory board as well as others on the AdCom. And we continue to hear that DME represents about 40% of their practice.

So it's a significant number. I am aware of the comments that you heard, and certainly, I can't opine on those.

But we don't, at this point, have any concern that certainly in the early launch when you're just trying to identify the patient set, the patient population issue will be an impediment to our numbers in the first year or so. I think there is a significant number of patients and doctors are beginning to realize, don't respond to anti-VEGF therapy in the DME area, as they did in wet AMD.

And so while in general, that might be a statement about DME, I think for the patients, we will see early on as patients for ILUVIEN, that's not a concern I have.

Okay, very good. And then Portugal, you said that a gating factor has been hospital formularies.

But you're in 2 hospitals now. Your April sales were equivalent to first quarter sales in Portugal.

Did you also say that 26 hospitals is the goal market?

That's correct, that's correct. There is about 26 of the more significant hospitals in Portugal that we would expect to and are targeting to get on their formulary in between now and the end of the year.

This is actually Frank Breezewell [ph] on for Jim. I was just wondering, are there any -- from the U.S.

launch, any anecdotal stories that you guys have been hearing?

Frank, could you elaborate a little more on the question?

Well, just basically, anything -- basically, how is the 3 years resonating so far versus the 3 months? Any feedback from -- stories or maybe from patients that are actually benefiting?

Well, I think as I said in my comments, we've had -- I think for ophthalmology, especially, an unusually high amount of just general media coverage, because obviously, diabetes resonates with the entire U.S. population.

Most people either have someone or know someone with diabetes. And so I think we've seen a lot of general media coverage around the uniqueness of the 3-year therapy.

So I think from a -- maybe disconnecting the patient perspective, we have seen quite a bit of interest around a 3-year therapy, because clearly, if a patient has a choice between getting a needle stuck in their eye every month or even every 3 months versus once every 3 years, I think that's a pretty obvious answer what the patient would prefer. So in general, we've of course gotten a lot of anecdotal response from patients and chat lines that 3 years is a welcome opportunity for a patient to be treated for DME.

I think the flip side, when you talk about versus 3 months, I think that leads you more to the physician perspective and trying to understand more the management of potentially, and we know in the FAME trial, it was about 38% of patients that might have some elevated intraocular pressure. And so the 3 years is appealing to the doctor with sort of the understanding or the assurance that the IOP, if it were to happen, could be manageable.

But then again, our label sort of addresses that, because obviously our label states that a patient would have had a prior course of corticosteroids and not exhibited a significant rise in intraocular pressure. So I think the debate around the 3 months is not so much about the efficacy, because I think it's a very winnable message to deliver there, if I could deliver 3 years of efficacy versus 3 months, well that's kind of a no-brainier discussion.

The question is, is a drug that's 3 months likely to give the doctor perhaps a diagnostic, if I could, on whether that patient would have an IOP response before I put in ILUVIEN. So I think it depends on which side of the fence you're looking at.

Certainly, from the patient side, there is tremendous excitement about a 3-year implant. And we hear that.

From the physician side, I think there is a cautious excitement about it. As long as I know with a injection of a shorter term steroid, I can mitigate the potential for IOP rise in the management of IOP.

Great, thanks. Makes sense.

And just one more, do you remember on the Analyst Day on March 25, docs had mentioned potentially using ILUVIEN in -- with anti-VEGF. I was just wondering if that had been or is there a potential for that.

Or are we just -- if anti-VEGFs don't work, then you go for ILUVIEN?

Well, I think -- certainly, it's kind of early, so I think the jury is out on that, and there'll be more case studies coming out. I know you're referencing a case study that was presented at that Analyst Day from one of our doctors.

I did not see, specifically in ARVO, any other case studies in that regard, but I do think you're going to see more and more doctors report on that. And I think, just time will tell.

We don't have any data on that at this time. But I think it will be interesting to see if we'll see case studies in the future about the effect of concomitant therapy between anti-VEGF and ILUVIEN.

But it's still early for that.

Thank you. While my comments have focused on the critical aspect of reimbursement, we remain optimistic as this hurdle is simply a function of time.

More importantly, our case studies from Europe and the initial impressions from the U.S. physicians give us confidence that there is a significant patient population that will benefit from long-term therapies such as ILUVIEN.

I look forward to addressing these issue with you and giving you an update at our next quarterly update. And I thank you, again, for joining the call today.