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InSite Vision Reports Third Quarter 2012 Financial Results



  InSite Vision Reports Third Quarter 2012 Financial Results

Business Wire

ALAMEDA, Calif. -- November 08, 2012

InSite Vision Incorporated (OTCBB: INSV) today reported financial results for
the quarter ended September 30, 2012. Total revenues for the third quarter of
2012 were $12.1 million, an increase of $5.5 million from the same quarter of
2011 primarily due to additional minimum royalties for AzaSite^® (azithromycin
ophthalmic solution) 1% from Merck. InSite Vision had cash, cash equivalents
and short-term investments of $13.2 million as of September 30, 2012,
reflecting cash usage of $4.3 million for the quarter. The company incurred
approximately $1.2 million of external costs for the AzaSite Plus^™ and
DexaSite^™ Phase 3 DOUBle and BromSite^™ Phase 3 clinical trials in the
quarter.

“InSite achieved important progress across our multiple late-stage product
candidates during the third quarter. We completed enrollment of the Phase 3
DOUBle clinical study of AzaSite Plus and DexaSite for the treatment of
blepharitis and initiated our Phase 3 clinical trial of BromSite for
post-surgical pain and inflammation,” said Tim Ruane, InSite’s Chief Executive
Officer. “In addition, we debuted our new DuraSite 2 ophthalmic drug delivery
platform, which is designed to significantly enhance the duration of drug
retention on the eye. Based on preclinical comparative data we reported in the
quarter, we believe DuraSite 2 has the potential to become an industry
standard for optimizing ocular therapeutics.”

Corporate and Commercial Highlights

  * In September 2012, InSite Vision completed enrollment of 907 patients in
    the Phase 3 Dual Ophthalmic agents Used in Blepharitis (DOUBle) pivotal
    trial to evaluate AzaSite Plus and DexaSite simultaneously for the
    treatment of blepharitis. The company expects to complete the trial and
    announce top-line results by early 2013.

    InSite’s blepharitis therapeutic candidates, AzaSite Plus and DexaSite,
    are formulated with InSite Vision’s DuraSite^® drug delivery platform:
    AzaSite Plus combines the corticosteroid dexamethasone 0.1% with the
    antibiotic azithromycin 1% in DuraSite and DexaSite combines dexamethasone
    0.1% with DuraSite. The DOUBle study enrolled patients with
    moderate-to-severe blepharitis in a four-arm trial designed to evaluate
    the efficacy and safety of both product candidates simultaneously.

  * In July 2012, InSite commenced enrollment of patients in its Phase 3
    clinical study of BromSite for the treatment of post-surgical ocular pain
    and inflammation. The study seeks to enroll approximately 240 patients
    undergoing cataract surgery in a two-arm study designed to evaluate the
    efficacy and safety of BromSite against the DuraSite vehicle alone.
    BromSite combines a low dose (0.075%) of the non-steroidal
    anti-inflammatory drug (NSAID) bromfenac with InSite Vision’s DuraSite
    drug delivery technology. Currently, 206 patients are enrolled in the
    Phase 3 clinical trial and results from the Phase 3 clinical study are
    expected in late 2012 or early 2013.
  * In August 2012, InSite announced results from a preclinical comparative
    study of its new DuraSite 2 ophthalmic drug delivery technology
    demonstrating that DuraSite 2 achieved approximately 4 times the drug
    penetration into the eye tissues when compared to a standard
    anti-inflammatory eye drop. InSite expects to present data from its
    three-arm comparative study of DuraSite 2 at the Association for Research
    in Vision and Ophthalmology (ARVO) 2013 Annual Meeting.

    DuraSite 2 is based on InSite’s proven original DuraSite technology, but
    incorporates a cationic polymer to achieve sustained and enhanced ocular
    delivery of drugs. InSite plans to launch a broad licensing program with
    the intent of making DuraSite 2 a standard drug delivery system in
    ophthalmologic drug development.

  * In August 2012, InSite Vision and Merck amended the payment terms of the
    AzaSite license agreement such that Merck will pay to InSite, on a
    quarterly basis, the higher of the pro-rata annual minimum royalty or the
    earned royalty for 2012 and 2013. In addition, Merck paid InSite a $7.3
    million catch-up payment for the difference between the earned royalties
    already paid for the fourth quarter of 2011 and the first and second
    quarters of 2012, and the pro-rata annual minimum royalties for those
    quarters.  With this quarterly restructuring of the minimum royalty
    obligation in place, InSite believes that it will be able to meet its
    quarterly obligations to its Note Holders for its AzaSite secured notes
    through September 30, 2013.
  * AzaSite royalties for the third quarter of 2012 were $11.5 million
    compared to $6.3 million for the same period of 2011. AzaSite is marketed
    in the U.S. by Merck for the treatment of bacterial conjunctivitis.

    Included in the AzaSite royalties for the third quarter of 2012 and 2011
    was a $9.3 million and $3.9 million, respectively, minimum royalty true-up
    by Merck required under the companies’ commercial licensing agreement.
    Under the agreement, Merck agreed to pay AzaSite royalties of at least $15
    million and $17 million for the fiscal years ended September 30, 2011 and
    2012, respectively. Merck has additional escalating minimum required
    royalty commitments for the fiscal year ending September 30, 2013.

  * In the third quarter of 2012, InSite recorded $0.6 million in royalty
    revenues associated with Besivance^® (besifloxacin ophthalmic suspension)
    0.6%, compared to $0.3 million in same period of 2011. Besivance is
    marketed globally by Bausch + Lomb for the treatment of bacterial
    conjunctivitis.

Third Quarter 2012 Results Summary

Total revenues increased to $12.1 million for the third quarter of 2012
compared to $6.6 million for the same period in 2011. Earned royalties from
Merck for net sales of AzaSite were $2.2 million and $2.4 million for the
third quarter of 2012 and 2011, respectively. Total royalty revenues also
included an additional $9.3 million and $3.9 million minimum royalty true-up
from Merck in the third quarter of 2012 and 2011, respectively. The increase
in royalties was driven by an increase of the required minimum royalty to $17
million for the fiscal year ended September 30, 2012 compared to $15 million
for the same period in 2011. In addition, a decline in net sales of AzaSite by
Merck further increased the minimum royalty true-up. For the fiscal year ended
September 30, 2012, earned royalties for net sales of AzaSite decreased by 31%
compared to the same period in 2011. For the third quarter of 2012, royalties
from net product sales of Besivance increased by $0.3 million to $0.6 million.

Research and development expenses for the third quarter of 2012 were $2.6
million compared to $1.9 million in the same period in 2011. The increase was
primarily related to the DOUBle Phase 3 clinical trial and the BromSite Phase
3 clinical trial. General and administrative expenses for the third quarter of
2012 were $1.6 million compared to $1.7 million in the same period in 2011.
The change in fair value of the warrant liability resulted in non-cash expense
of $0.1 million in the third quarter of 2012. The change in fair value of the
warrant liability resulted in non-cash income of $1.4 million in the third
quarter of 2011. The expense and income resulted from an increase or decrease,
respectively, in the fair value warrant liability, which was due to
fluctuations in the company’s stock price.

Net income for the third quarter 2012 was $5.1 million, or $0.04 per share,
compared to $1.5 million, or $0.01 per share, in the third quarter 2011. The
increase in net income was driven by an increase in royalty revenues,
partially offset by a $1.4 million gain in the change in fair value of
warrants recorded in 2011.

Conference Call Today

InSite Vision will host a conference call today beginning at 1:30 p.m. Pacific
Time/4:30 p.m. Eastern Time to discuss its third quarter results.

Analysts and investors can participate in the conference call by dialing
888-679-8037 for domestic callers and 617-213-4849 for international callers
using the pass code 68680828. A telephone replay will be available following
the conclusion of the call by dialing 888-286-8010 for domestic callers and
617-801-6888 for international callers using the pass code 27814489.

The live conference call will also be webcast and available on the Investor
Relations page of the company's website at http://www.insitevision.com. A copy
of this press release will be furnished to the Securities and Exchange
Commission on a Form 8-K and posted on the company’s website prior to the
call.

About InSite Vision

InSite Vision is advancing new ophthalmic products for unmet eye care needs
based on its innovative DuraSite^® platform technologies. The DuraSite drug
delivery system extends the duration of drug retention on the surface of the
eye, thereby reducing frequency of treatment and improving the efficacy of
topical drugs. DuraSite is currently leveraged in two commercial products for
the treatment of bacterial eye infections, AzaSite^® (azithromycin ophthalmic
solution) 1%, marketed in the U.S. by Merck, and Besivance^® (besifloxacin
ophthalmic suspension) 0.6%, marketed by Bausch + Lomb. InSite Vision is also
advancing three novel ophthalmic therapeutics through Phase 3 clinical
studies: AzaSite Plus^™ and DexaSite^™ for the treatment of eye infections,
and BromSite^™ for pain and swelling associated with ocular surgery. DuraSite
2^® incorporates InSite’s proprietary bioadhesive core technology with a
cationic polymer to achieve sustained and enhanced ocular delivery of drugs.
The DuraSite 2 platform, once approved, will be applied to InSite’s future
pipeline product candidates and available through a broad licensing program
for advanced ophthalmic drug development. For further information on InSite
Vision, please visit www.insitevision.com.

Forward-Looking Statements

This news release contains certain statements of a forward-looking nature
relating to future events, such as: the status of InSite’s clinical trials,
including the timing of enrollment completion and announcement of top-line
results from its DOUBle Phase 3 clinical trial and the expected timing and
announcement of its Phase 3 BromSite clinical trial; the benefits of and
prospects for InSite’s product candidates; InSite’s ability to meet its
obligations under its secured notes; InSite’s plans with respect to its
DuraSite 2 platform technology and the statements in the quote from our Chief
Executive Officer. Such statements entail a number of risks and uncertainties,
including but not limited to: InSite’s ability to effectively design and
conduct clinical trials for its product candidates, ability to meet the
clinical endpoints for such trials and the timing thereof; InSite’s ability or
willingness to use its cash to make payments under the AzaSite Notes; InSite's
reliance on third parties for the commercialization of its products including
Merck and Bausch + Lomb and the effectiveness of the efforts of these third
parties; the ability of InSite to maintain its corporate collaborations,
particularly with Merck; the ability of InSite to enter into and maintain
future corporate collaborations for its product candidates; InSite’s ability
to obtain approval for its DuraSite 2 technology, to develop products
incorporating such technology and its ability to license DuraSite 2 to third
parties on favorable terms, or at all; InSite’s ability to adequately protect
its intellectual property and to be free to operate with regard to the
intellectual property of others and determinations of the U.S. Patent and
Trademark Office regarding same; InSite’s ability to successfully defend
against UCSF’s appeal of the USPTOs decision in favor of InSite; InSite's
ability to expand its product candidates and advance them through the clinic;
InSite’s ability to effectively and on a timely basis enroll patients into its
clinical trials, efficiently acquire materials necessary for its clinical
trials and complete such clinical trials in a timely manner; InSite's ability
to compete effectively, either alone or through its partners; InSite's ability
to maintain and develop additional collaborations and commercial agreements
with corporate partners, including those with respect to AzaSite; and
determinations by the U.S. Food and Drug Administration. Reference is made to
the discussion of these and other risk factors detailed in InSite's filings
with the Securities and Exchange Commission, including its annual report on
Form 10-K and its quarterly reports on Form 10-Q, under the caption "Risk
Factors" and elsewhere in such reports and other filings with the Securities
and Exchange Commission. Any forward-looking statements or projections are
based on the limited information currently available to InSite, which is
subject to change. Although any such forward-looking statements or projections
and the factors influencing them will likely change, InSite undertakes no
obligation to update the information. Such information speaks only as of the
date of its release. Actual events or results could differ materially and one
should not assume that the information provided in this release is still valid
at any later date.

AzaSite^® and DuraSite^® are registered trademarks of InSite Vision
Incorporated.

BESIVANCE^® is a registered trademark of Bausch + Lomb Incorporated.

 
InSite Vision Incorporated
                                                                
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2012 and 2011
(in thousands, except per share amounts; unaudited)
                                                                    
                      Three months ended         Nine months ended
                      September 30,              September 30,
                      2012          2011         2012              2011
                                                                    
Revenues            $ 12,139      $ 6,613      $ 16,228          $ 12,792    
Expenses:
Research and          2,600         1,898        11,397            4,468
development
General and           1,623         1,677        4,389             4,429
administrative
Cost of revenues,
principally           313           343          764               1,288     
royalties to third
parties
Total expenses        4,536         3,918        16,550            10,185    
Income (loss) from    7,603         2,695        (322      )       2,607
operations
Interest expense      (2,358  )     (2,547  )    (7,282    )       (7,672   )
and other, net
Change in fair
value of warrant      (103    )     1,363        1,145             1,363     
liability
Net income (loss)   $ 5,142       $ 1,511      $ (6,459    )     $ (3,702   )
Net income (loss)
per share:
Basic               $ 0.04        $ 0.01       $ (0.05     )     $ (0.04    )
Diluted             $ 0.04        $ 0.01       $ (0.05     )     $ (0.04    )
Weighted average
shares used in
per-share
calculation:
Basic                 131,951       124,968      131,951           104,982   
Diluted               132,584       126,726      131,951           104,982   
                                                                    
Condensed Consolidated Balance Sheets
At September 30, 2012 and December 31, 2011
(in thousands; unaudited)
                                                 September 30,     December
                                                                   31,
                                                 2012              2011
Assets:
Cash, cash
equivalents and                                $ 13,220          $ 26,395
short-term
investments
Receivables,
prepaid expenses                                 4,735             2,576
and other current
assets
Property and                                     379               345
equipment, net
Debt issuance                                    2,771             3,085     
costs, net
Total assets                                   $ 21,105          $ 32,401    
                                                                    
Liabilities and
stockholders'
deficit:
Accounts payable
and accrued                                    $ 3,679           $ 3,056
expenses
Accrued interest                                 1,073             1,171
Warrant liability                                3,010             4,155
Non-recourse
secured notes                                    53,668            58,558
payable
Stockholders'                                    (40,325   )       (34,539  )
deficit
Total liabilities
and stockholders'                              $ 21,105          $ 32,401    
deficit

Contact:

InSite Vision
Louis Drapeau, Chief Financial Officer, 510-747-1220
mail@insite.com
or
Media and Investor inquiries
BCC Partners
Michelle Corral, 415-794-8662
Karen L. Bergman, 650-575-1509
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