EyePoint Is Betting The Bank On EYP-1901 (NASDAQ:EYPT)

EyePoint (NASDAQ:EYPT) has a potential blockbuster with EYP-1901 after a successful P2 trial that met all its endpoints in a very promising development. It sold off its remaining drug YUTIQ and reverted to a pure development company, betting the bank on EYP-1901.

EYP-1901 has three possible uses (Wet AMD, NPDR and DME) each of which are multi-billion dollar markets, but after rising 400%+ in less than a year, the stock isn’t a home run anymore and risks remain.

A quick recap, the company developed Durasert, a slow-delivery intravitreal drug platform that has been approved for four drugs.

The company has multiple things going for it:

• An innovative drug delivery platform with Durasert.
• Selling its profitable YUTIQ business.
• Ongoing and upcoming clinical trials for EYP-1901 for several eye conditions (Wet AMD, NPDR, DME).
• A search for other drug candidates that can benefit from the Durasert delivery platform.

The breakthrough news that caused the stock to rally is about the P2 trial results for EYP-1901, DAVIO-2. Here are the main results from EyePoint’s IR presentation:

These confirmed the results of a much smaller P1 trial a couple of years ago. What these trials showed was:

• EYP-1901 delivers similar results to the standard of care
• There were no adverse safety effects
• The standard of care requires bi-monthly injections, while EYP-1901 delivers the same results with just a single injection for 6 months.

The company provided more details in an online presentation early February 2024:

The data demonstrated that in the subgroup analysis of patients that were supplement free up to 6 months, patients that received EYP-1901 demonstrated numerical superiority in change in best corrected visual acuity (BCVA) as well as anatomic stability compared to aflibercept. This result confirms that the positive visual and anatomical outcomes from our Phase 2 DAVIO 2 trial were driven by EYP-1901 and not by supplemental injections

The standard of care is Aflibercept, marketed as Eylea for Wet AMD and sold by Regeneron and Bayer.

Eylea is an injectable anti-VEGF that is injected bi-monthly, and displays serious side effects like infection, inflammation, and increased eye pressure, retinal detachment. The US patent will expire this year, followed by the EU patent.

So at first sight, this doesn’t look like rocket science, Eylea requires bi-monthly eye injections while EYP-1901 delivers the same results with an injection once every six months, which one would you prefer if you suffered from Wet AMD?

Apart from that, we know that even one missed or skipped appointment could mean vision loss for the patient. And EYP-1901 had a favorable safety profile as well:

To date, there are 170+ patients treated with EYP-1901 for at least six months with no EYP-1901-related ocular or systemic SAE’s.

In other words, EYP-1901 is likely to become the standard of care if the P1 and P2 results are repeated in an upcoming pivotal P3 trial, which will start in H2/24, likely in a reduced (and hence cheaper) version due to the excellent P2 results. The next step is DAVIO 3:

Market Opportunity

EYP-1901 has three very large market opportunities:

• Wet AMD: a $9.7B market (2022) and growing at a CAGR of 6.4% (2022-2030), so it’s a $11B market in 2024.
• NPDR: a $6.6B market (2022) growing to $12.27B by 2032.
• DME: a $3.7B market (2021) and expected to grow at a CAGR of 3.15% to $4.74B in 2028, so it’s a $4.06B market in 2024.

With regards to Wet AMD, besides a Phase 3 trial, which could disappoint (although that seems really quite unlikely based on what we know from the first two trials), there are some possible complications:

• Eylea has been shown not to lose effectiveness with lower doses and lower frequency of injections (monthly for the first 3 months and every 2-4 months subsequently), eroding part of EYP-1901’s treatment burden advantage.
• An alternative to Eylea called Vabysmo from Roche was approved by the FDA in January 2022, and it is taking market share. It has a similar injection regimen as the new Eylea scheme, four months of one dose each, followed by once every 2-4 months dose.
• There is another new drug on the horizon in the form of OTX-TKI from Ocular Therapeutics, having passed a Phase 1 trial demonstrating safety, tolerability, and efficacy with just one injection lasting 10 months.
• Eylea’s patents are expiring, which opens the door to generics and lower prices, making the market more competitive.

EYP-1901 still looks like the best drug out there for Wet AMD (and also for NPDR, and DME, as at present, anti-VEGF injectables are the standard of care in all three markets, see below) but the competition is increasing, so EYP-1901 isn’t likely to have the field all by itself.

NPDR

NPDR is the most common cause of blindness as it’s caused by diabetes and affects a third of diabetes patients over the age of 40 (8M people, projected to be 14M+ people in the US alone by 2050). However, because of the burden of treatment, it’s rarely treated, and this is what EYP-1901 could change, from the (Q4/22CC, our emphasis):

The approved large molecule anti-VEGF follow-up biologics to treat NPDR require frequent injections just like wet AMD for this disease where patients may not feel symptoms and as a result may forego regular treatment. In fact, nearly 97% of NPDR patients receive no course of treatment apart from observation by their retinal specialist until their disease progresses to vision loss. Consequently, there’s a great unmet need in NPDR patients for a safe, efficacious, and convenient treatment options that would maintain patient vision proactively through zero order constant dosing. With EYP-1901, we have the opportunity to potentially fulfill this need within every nine months.

The ongoing PAVIA P2 trial produced encouraging interim safety data (which isn’t surprising given the DAVIO trial results) and its topline results are expected in Q2/24, so this could be another near-term catalyst for the stock.

DME

The DME market was $3.7B in 2021 and is expected to rise at a CAGR of 3.15% to $4.74B in 2028, so this is another multi-billion market, and it’s also dominated by anti-VEGF treatments which have 95.5% of the market.

The company will enroll the first patient in a Phase 2 trial in late 2023 or early 2024. This will be the first trial where the new injector will be used.

Upcoming/ongoing trials

• PAVIA 2 (NPDR), topline results expected in Q2/24
• DAVIO 3, initiating in H2/24
• VERONA 2 (DME) initiating in Q1/24 with the first patient dosed in January 2024.

Financials

The company is already deriving revenues from the sale of YUTIQ:

The decline in H1/23 is caused by discontinuing marketing efforts in January 2023 for DEXYCU due to the loss of pass-through reimbursement as of January 1, 2023 (producing a $20.7M non-cash impairment charge in Q4).

The company sold YUTIQ (a treatment for chronic non-infectious uveitis affecting the posterior segment of the eye) in May to Alimera Sciences for $82.5M and low to mid-double-digit royalty on future sales, from the 10-Q:

Alimera paid the Company a $75.0 million Upfront Payment. Alimera will also make four quarterly payments of $1.875 million to the Company totaling $7.5 million during 2024. Alimera will also pay royalties to the Company from 2025 to 2028 at a percentage of low-to-mid double digits of Alimera’s related U.S. annual net sales of certain products (including YUTIQ) in excess of certain thresholds, beginning at $70.0 million in 2025, and increasing annually thereafter. Upon Alimera’s payment of the Upfront Payment and the 2024 quarterly payments, the licenses and rights granted to Alimera will automatically become perpetual and irrevocable.

The companies also entered into a two-year renewable supply agreement and sold its royalty rights to SWK Funding (10-Q):

the Company sold its right to receive royalty payments on future sales of products subject to a licensing and development agreement, as amended, with Alimera (the Amended Alimera Agreement) for an upfront cash payment of $16.5 million. The Company classified the proceeds received from SWK as deferred revenue at inception of the RPA and is recognizing revenue as royalty payments are made from Alimera to SWK.

This certainly shows the confidence management has in the commercial potential of EYP-1901 as the company has now changed into a pure development company.

The sale of YUTIQ also allows lower OpEx and the cash will extend well into 2025. Cash flow is still negative (besides the Q2 bump from the YUTIQ sales):

At the end of Q3, the company still had $136M in cash, and it announced an additional $230M financing consisting of 15.3M shares at $17. That should take care of their cash needs for years, long enough to see at least two pivotal trials of EYP-1901 for Wet AMD and NPDR through.

Valuation

This financing takes the share count to 48.8M, adding 6.3M outstanding options (2.3M exercisable) and 1.3M RSUs for a total share count of 56.5M shares. This gives a market cap of $1.58B (at $28 per share) and an EV of about $1.25B. JPMorgan put an overweight on the stock and a $35 price target, and the average analyst target is $43.29.

Conclusion

The company is banking everything on EYP-1901 and has good reasons to do that. EYP-1901 has good opportunities in three multi-billion dollar markets, and it could even become the standard of care in any of these.

However, the strategy isn’t without risk:

• In all three markets, EYP-1901 has to pass pivotal trials yet, and while the signs are consistently very positive so far, outcomes can never be taken for granted entirely.
• Competition is increasing with new drugs coming to markets, patents expiring of the market leader Eylea, and anti-VEGF injectables moving to less frequent treatment regimes.

There is probably more upside in the shares given the consistently robust trial results and the size of the markets, but investors have to realize it’s not a slam dunk and sales of EYP-1901 are probably years off.

So while we are still positive on the stock, the risk/reward proposition is not compelling enough for us. While we do think the pivotal trials have a very high possibility of success, we’re considerably less certain about the size of future sales.

So while we do think the shares are a buy here, it’s not our first choice and no slam dunk.