In July 2017, we restructured the Prior Alimera Agreement to (a) license our Durasert
three-year uveitis product candidate (called YUTIQ in the U.S and planned to be called ILUVIEN in the EMEA) in the EMEA to Alimera and (b) convert the net profit share arrangement to a sales-based royalty for all ILUVIEN licensed indications.
Starting with the three months ended September 30, 2017, these sales-based royalties earned from Alimera have been recorded as royalty income, whereas amounts previously earned pursuant to the net profit share arrangement were classified as
collaborative research and development revenue.
Royalty income for the three months ended September 30, 2018 increased by $185,000,
or 76%, to $430,000 compared to $245,000 for the three months ended September 30, 2017. The increase was attributable primarily to $215,000 of accrued sales-based royalties due from Alimera under the Amended Alimera Agreement, partially offset
by a $30,000 decrease in Retisert royalty income. We expect Retisert royalty income to remain flat, and it may decline.
Research and Development
Research and development expenses increased $2.4 million, or 63%, to $6.2 million for the three months ended
September 30, 2018 from $3.8 million for the same period in the prior year. This increase was attributable primarily to (i) approximately $970,000 related to the scale up of Dexycu manufacturing, (ii) a $768,000 increase in
personnel and related expenses for the
build-out
of our medical affairs group, and expansion of regulatory and quality staffing, including $182,000 of stock-based compensation, (iii) a $433,000 increase
in amortization of intangible assets, attributable primarily to $615,000 of amortization of the DEXYCU / Icon intangible asset partially offset by the completed amortization of our previous patented technology intangible assets as of December 2017
and (iv) a $409,000 increase for medical affairs related expenses including advisory board meetings and pharmacovigilance, partially offset by decreases of (i) $203,000 of contract research organization costs for our YUTIQ Phase 3 clinical
development program, and (ii) $193,000 of consulting, attributable primarily to prior year preparation of our YUTIQ NDA submission.
Sales and
Marketing
In anticipation of the commercial launch of DEXYCU and YUTIQ, we continued the
build-out
of our commercial infrastructure and marketing activities that had commenced in the fourth quarter of fiscal 2018. Sales and marketing expense, which totaled $3.6 million in the three months
ended September 30, 2018, consisted primarily of (i) approximately $1.0 million of personnel and related costs, (ii) $922,000 of implementation and startup costs related to our contract sales organization agreement, (iii) $488,000 of
professional services primarily related to development of our distribution channel and market access, (iv) $480,000 for the accrual of severance benefits and incremental stock-based compensation for our former General Manager, US, and (v) $474,000
of marketing program and agency costs. We expect increases in sales and marketing costs throughout at least the next few quarters, including additional headcount, costs associated with contract sales organization operations, managed markets and
sales operations activities.
General and Administrative
General and administrative expenses increased by $1.6 million, or 62%, to $4.2 million for the three months ended September 30,
2018 from $2.6 million for the same period in the prior year. This increase was attributable primarily to (i) a $562,000 increase in personnel and related expenses stemming from the hiring of our CFO as well as other personnel and includes
$270,000 of stock-based compensation, (ii) a $471,000 increase in legal, audit and other professional fees, and (iii) a $276,000 increase in consulting services, primarily for corporate compliance and business development.
Interest (Expense) Income and Other
On March 28, 2018, we borrowed $15.0 million under a term loan facility in connection with the Icon Acquisition. Following
consummation of the Second Tranche Financing on June 25, 2018, we borrowed an additional $5.0 million under that term loan facility. For the three months ended September 30, 2018 we incurred $661,000 of interest expense on the term
loan and $154,000 of amortization of debt discount.
Interest income from amounts invested in an institutional money market fund increased
to $129,000 for the three months ended September 30, 2018 compared to $23,000 in the prior year quarter, due primarily to significantly higher interest-bearing assets and higher money market interest rates.
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