SurModics Inc (SRDX)

[Democritus_of_Abdera]

PSDV’s investment appeal ....

Dew if you are considering an investment in PSDV (either long or short), I suggest that you read Alimera’s S1/A filed Aug 8, 2008 (1 yr ago). PSDV is depending upon the $25M milestone payment that they will get when Alimera gains FDA approval for Iluvien (see #msg-36911264, noting that the due date should read Jan 2011 instead of Jan 2010).

The critical questions relate to Alimera’s financial strength, knowhow, and motivation regarding sponsorship of Iluvien through the FDA approval process.

When I read Alimera’s S1/A, the following statements seem particularly relevant to these questions:

1. Regarding Alimera’s financial strength:

We have incurred operating losses in each year since our inception and expect to continue to incur substantial and increasing losses for the foreseeable future. .... We are not currently generating revenues ... We do not currently have any products that have been approved for commercial sale .... We expect to continue to incur substantial and increasing losses for the foreseeable future... We will need additional financing, which may be difficult to obtain. Our failure to obtain necessary financing or doing so on unattractive terms could adversely affect our ability to commercialize Iluvien, our other development programs and our operations generally. .... As of June 30, 2008, we had approximately $30.9 million in cash which ... we anticipate will fund our operations through the third quarter of 2009 based on an estimated monthly cash burn of approximately $1.9 million. ...

Note that the S1/A was intended to alleviate this funding crisis. However, Alimera withdrew the S-1 on April 8, 2009 “due to market conditions” and decided not to pursue the initial public offering. At the time of the registration, one year ago, Alimera projected that it needed approximately $23 million to complete the clinical development and registration of Iluvien for DME; $15 million to repay indebtedness to pSivida pursuant to a promissory note (this promissory note is currently accruing interest at the rate of 8% per annum, adjusting to 20% per annum effective April 1, 2010, and payable in full upon the earlier of certain liquidity events or September 30, 2012); and $4.3 million to fund Phase 3b clinical trials to evaluate Iluvien for additional retinal diseases.

2. Regarding Alimera’s knowhow:

... We do not have in-house manufacturing capability and will depend completely on a single third-party manufacturer and a single third-party active pharmaceutical ingredient formulator for the manufacture of Iluvien.... Furthermore, Avail Medical Products, Inc. (Avail), the commercial manufacturer of Iluvien has previously manufactured only medical devices and has not previously manufactured pharmaceuticals, which they are undertaking to do for us. Such manufacture will require Avail to obtain a license for the manufacture of pharmaceuticals that they have not previously held.

So, even if you assume that Alimera has the science right and that the FDA will consider the clinical trials complete, there may remain substantial delays before Alimera demonstrates that the manufacturing facilities used to produce Iluvien are in compliance with current Good Manufacturing Practice regulations. PSivida cannot afford a delay of more than a year or two.

My attention was also aroused when Alimera specifically identified the following risk factor:

For example, the FDA may object to the use of a sham injection in our control arm or may not approve of certain of our methods for analyzing our trial data, including how we evaluate the risk/benefit relationship.

3. Regarding Alimera’s motivation... this is a subjective judgement you will need to make personally.

My feelings are influenced by the marked escalation in costs to Alimera that are associated with submission of a filing (including the $1.2M user fee due when an application is made under the Prescription Drug User Fee Act), the known risk for increased intraocular pressure and cataracts associated with intra-ocular steroid treatment (a risk factor that remains for Iluvian per Alimera’s 2009 ARVO poster), the fact that Retisert and Ozurdex (#msg-38873404) are already on the market; albeit not for DME per se, and the decision by SRDX to not pursue FDA approval for I-vation TA (at least without a partner).

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Alimera’s S1/A filing: http://www.sec.gov/Archives/edgar/data/1267602/000095012308009893/g13926a1sv1za.htm


Alimera”s withdrawal of the S1/A: http://www.sec.gov/Archives/edgar/data/1267602/000095014409003028/g13926rw.htm