EYEN - Eyenovia: Say Goodbye To The Eye Dropper And Welcome Optejet To The Market Place

2023-05-27 03:10:32 ET

Summary

• I will update for my readers on the background of Eyenovia.
• I will give the readers an explanation of the need for their business model and the advantages it offers.
• I will share my perspective on the benefit of how the rollout of their approved drug will take place.

On May 8 ^th , 2023, the FDA confirmed with Eyenovia ( EYEN ) that they had approved their MydCombi drug and their unique delivery system - Optejet. This action by the FDA gave Eyenovia their first approved drug for marketing in the United States. But of more importance, this decision confirmed that the Optejet device could effectively and safely deliver medication to the patient's eye and not be wasted by overflowing into the surrounding areas.

Now the goal for Eyenovia’s management team is to get the product out and before decision-makers so they can see the benefits of MydCombi and the Optejet device. I will outline the rollout plan with this article by sharing information I’ve obtained directly from Eyenova. I think their plan has merit when you consider the current level of cash they have on hand.

In October 2021, while researching investment opportunities, I sought to identify small biotech firms working on medical products that would address significant needs for new drugs; I came across Eyenovia. Their stock was in the mid-$5.00 level, and they were developing a product that would replace a medical device that had been around since 1840—the eyedropper for dosing the human eye with a medication. For this long period, the eyedropper was the Standard of Care (SOC) for delivering treatment to one’s eye. And at the same time, it was well known that significant issues and complications were associated with using an eyedropper.

With our aging population and their medical problems with vision issues, the ophthalmic market has grown significantly in recent years. But little was done to develop a better and less problematic way to dose such drugs onto the patient's eyes, not the surrounding area.

The foundational component for what Eyenovia is developing is their Optejet delivery device which will provide a unique delivery method that will surpass the ages-old eyedropper for delivering a precisely needed dose of medicine to a patient's corneal surface. The Optejet® dispenses with microdose array print MAP™ technology (Microdose Array Print) that is also a horizontal topical delivery system for the eye and works like an inkjet printer.

A medication is administered as a directional mist in a microdroplet array, coating the eye’s corneal surface like pixels. Contact happens at low velocity minimizing visual impact. Unlike a traditional eyedropper that uses gravity, the Optejet® dispenses medication horizontally. The Optejet® is designed to administer every dose reliably and accurately to someone who could be seated or standing. The goal for the delivery device is that confirmation data can be supplied to the patient and their attending doctor, confirming that the scheduled dosing regimens are being completed.

Based on identifying Eyenovia as a potential investment opportunity, I applied my due diligence review process and subsequently took a position in their stock. This led me to write and publish my first Eyenovia article on Seeking Alpha - Can You See Me Now? I wanted my article published before the planned FDA decision on October 28 ^th for their pupil dilation drug—MydCombi. Having reviewed in detail the data provided in their NDA, I felt confident that the FDA would summarily give their approval. I had only seven days to wait for the FDA’s decision on the NDA.

The October 28, 2021, Surprise:

The unexpected occurred instead of the FDA approval when the FDA forced Eyenovia into more validation testing for the delivery device. Due to a recent lawsuit decision and its findings unrelated to Eyenovia, the FDA still had to review Eyenovia’s drug under a new protocol for drugs and their delivery devices. The FDA said there were no questions about the drugs being administered.

Therefore, no clinical trials for that part of Eyenovia’s NDA were required. Investors should also remember that vast numbers of patients used the Optejet delivery device during the clinical trials and thus produced stellar and relevant data. Since the drug had been dosed into the eye, the drug effectively dilated the patient's eyes. Eyenovia still had to provide more data for the device.

Now that Eyenovia has resolved this FDA demand, the FDA was merely responding to a legitimate legal verdict that required them to apply the same decree to such products as the Eyenovia Optejet device. Eventually, Eyenovia would be forced to do this type of validation testing for all clinical testing efforts using the Optejetdevice. I will explain later why I think this was a fortunate event, especially for those of us who have a long-term horizon for the future of Eyenovia being able to expand the use of the Optejet well beyond internally developed drugs using the device in the US and worldwide markets.

January 1 ^st , 2023 - May 8 ^th , 2023:

Eyenovia’s stock ended 2022 trading at $1.63, well below the near $6.00 level when I shared my first SA article in 2021. The FDA announced on December 13 ^th , 2022, that they had formally accepted their second Mydcomi NDA containing the Optejet device's requested data. Additionally, the FDA had set a decision date of May 8 ^th , 2023, for Eyenovia’s NDA.

I felt this was an opportune time to begin adding new shares at this level of entry prices. Therefore, in this interim period, by adding to my Eyenovia stock position, I reduced my average share price to the low $3.00 level. I purchased these shares because I have never lost my belief in their business model and product development.

From January 1 ^st , 2023, starting at $1.63 a share, the stock steadily climbed upward, hitting the price of $5.85 on May 3 ^rd , five days before the FDA’s decision would be known. This spectacular gain represented a YTD gain of 3.6X for those owning the stock on January 1 ^st . We now know what happened after May 3 ^rd regarding the stock price.

But can anyone fault that some investors opted to take advantage of such a price increase? An investor should always have a pre-set determination for what event or price level is met and where they will sell all or part of their stock position. Those who had seen their holdings in Eyenovia more than triple in less than six months could sell a third of their shares. They would be left holding two-thirds of their original position, with zero being the cost basis of the stock shares they kept. That, in my opinion, is being an intelligent investor.

From May 8 ^th , 2023, What Lies Ahead for Shareholders:

We now know that as of May 8th, 2023, Eyenovia has an FDA-approved drug to market in the United States. However, since hitting the 52-week high of $5.85, the stock has lost about 50% of its value. There has been some speculation that those who sold a considerable number of shares before the 1 ^st -Q, 2023, quarterly report were doing so because of the potential for bad news being announced in the report.

I don’t think there was any nefarious activity based on leaked information related to Eyenovia’s disclosers in their subsequent first quarter results about the more extended rollout period of the MydCombi product due to them opting to build out their self-controlled manufacturing capabilities in Redwood City, CA, and Reno, Nevada.

Based on strictly my conjecture, but also being aware of what is happening in our drug development and, more importantly, supplying drugs to our citizens, I think that October 28, 2021, and the details shared recently with the 1 ^st -Q 2023 results this has allowed Eyenovia management time to refine and adjust their business model for what is needed and being done that will significantly alter the supply of drugs needed in the United States.

First, let me address the issues and the coming changes needed in the United States that will impact the drug and medical device industry. Then I will share with you information that I have been able to glean directly from Eyenovia. My questions to Eyenovia were without any prompts indicating that I wanted a specific answer that would align only with my beliefs on the issue. I wanted the answers to reflect their goals and business model. I think you will be pleased to see what they shared with me.

The Issue We Now Face in the USA as for How Our Drug Supplies are Being Impacted:

Historically, manufacturing products for human consumption has moved in a strong migration pattern. The Industrial Revolution began in Europe and remained there for many decades. As our European ancestors started migrating to the US, manufacturers sought to open a new market with a significant change in the demographics related to labor costs.

We often forget that over 50% of our original colonists came to America as indentured servants. These ancestors were free laborers indentured to their benefactors who had paid for their voyage to America. This began well before we started importing slaves in massive numbers from Africa.

The number one product our colonial ancestors shipped was cotton to the British textile mills. There the mills turned the cotton into finished clothing material. Then the completed material or clothing had to be returned to the US. With free labor and swift rivers and waterfalls in the New England region, the creation of textile mills migrated to the US.

However, the migration of these jobs and child labor laws soon prevented 12-year-old kids from running the looms and other heavy machinery in the textile mills; the labor cost eventually made the New England area prohibitive for making a profit for the manufacturers. Finally, the New England textile owners began moving their mills to the rural area of the Carolinas.

Finally, the availability of electricity to power their mills had arrived in these southern states. And this is why a significant textile company opened a textile mill in my small south Alabama hometown in 1952—cheap labor and cotton fields near the new cotton spinning mills for making the cloth. A little over ten years ago, Carl Icahn purchased the assets of my hometown textile mill and shipped all the equipment to the tiny Middle Eastern Island country of Bahrain, leaving 1,500 Alabama workers without jobs or income!

This same migration pattern eventually applied to our drug development industry and the manufacturing of drugs developed by pharmaceutical companies like the Indianapolis-based Eli Lilly ( LLY ). New Jersey was also a major center for drug companies and their manufacturing facilities. Then the biotech industry was created, and Silicon Valley, CA. and Boston were the centers for biotech companies and manufacturing efforts.

The subsequent migration efforts eventually led to the decision that the US-domiciled manufacturing facilities were eroding their profit margins. Now the only option was to move to a foreign country. The final stop-gap option the drug companies came up with was to move their manufacturing to Puerto Rico, where at least the workers were American citizens.

Pharmaceutical companies came to Puerto Rico in the late 1960s and 1970s to take advantage of the now-expired federal tax incentive known as Section 936. This incentive allowed U.S.-based manufacturers to send all profits from local plants to stateside parent plants without paying federal taxes.

There is still some drug manufacturing that is taking place in Puerto Rico, however, drive south of San Juan on the route to El Yunque Rainforest National Park, and you will see building after building that sits empty where previously they were manufacturing medical drugs in these facilities.

Safeguarding Pharmaceutical Supply Chains in A Global Economy (10/29-2019):

“Madam Chairwoman, Ranking Member Burgess, and Members of the Subcommittee, I am Dr. Janet Woodcock, Director of the Center for Drug Evaluation and Research (CDER) at the Food and Drug Administration (FDA or the Agency), which is part of the Department of Health and Human Services ((HHS)).

The United States, through its investment in biomedical research, has become a world leader in drug discovery and development but is no longer in the forefront of drug manufacturing. Historically, the production of medicines for the U.S. population has been domestically based. However, drug manufacturing has gradually moved out of the United States in recent decades. This is particularly true for manufacturers of active pharmaceutical ingredients (APIs), the actual drugs that are then formulated into tablets, capsules, injections, etc. As of August 2019, only 28 percent of the manufacturing facilities making APIs to supply the U.S. market were in our country. By contrast, the remaining 72 percent of the API manufacturers supplying the U.S. market were overseas, and 13 percent are in China. (See Figure 1) FDA’s data show that the number of registered facilities making APIs in China more than doubled between 2010 and 2019.”

This is a link to Dr. Woodcock’s report to Congress in 2019. It is a sobering fact when you see that here in the United States, between private drug companies and our federal government funding, we spent more for discovering new medicines and other types of medical products than probably the rest of the world’s combined effort. But we only manufacture 28% of these products.

Now we face a more dire situation as reflected in this New York Times article from 5/17/2023— Drug Shortages Near All-Time High, Leading to Rationing.

For various reasons, these foreign-based manufacturing operations are failing to meet the production demands for the volume of drugs we need for patients in the US. It is reported that about 80% of the ingredients for all medical drugs come from Chinese factories. Even the fentanyl drug destroying so many lives in our country is manufactured in Chinese facilities and shipped to the US.

How Does This Relate to Eyenovia?

Recently the FDA issued a recall for several eye-dropper-delivered products . Looking at the issues from this massive recall, we see that it involved 81 reported cases that resulted in the death of four people from 18 states in these tragic adverse events. Tracing the history of these involved eye products, it was determined that both companies used the same India-based manufacturing facility. Upon the CDC inspecting this facility and seeking answers for what caused the contamination, there were many issues, with dirty equipment being the primary catalyst for this recall.

The previous information in this article concerning Dr. Woodcock’s presentation to Congress, her comments, and data cite India as the producer of 18% of our drugs. However, more recent data suggests that the percentage of drugs from India has grown.

Returning to Dr. Woodcock’s presentation to Congress in 2019, she spoke to the issue drug companies must address about how and where they are manufactured. This is one of the critical parts of this presentation:

Emerging Technology Program ((ETP))

The ETP, launched in late 2014, encourages and supports adopting innovative technology to modernize pharmaceutical development and manufacturing through close collaboration with industry and other relevant stakeholders starting from early technology development.

To reduce barriers to entry for advanced manufacturing, the Emerging Technology Team (ETT) provides a gateway for the early (pre-submission) discussion of innovative technologies and approaches, even before a candidate drug is identified. The ETT supports the entry, assessment, and lifecycle management of advanced manufacturing at CDER. It provides subject matter experts and fosters coordination within CDER and FDA’s Office of Regulatory Affairs ((ORA)) for precedent-setting issues regarding quality and good manufacturing practices. ETT serves as a hub for the identification of application-driven regulatory and research needs and provides strategic input for supporting advanced manufacturing innovation. Based on ETT efforts in continuous manufacturing, CDER’s Office of Pharmaceutical Quality (OPQ) published a draft guidance, “Quality Considerations for Continuous Manufacturing,” of solid oral dosage forms in early 2019.

Under this program, CDER has approved five drug applications utilizing continuous manufacturing for FDF manufacturing and the first application using 3-D printing technologies. Currently, these drugs are being made in the United States, and one is being made both in the United States and the United Kingdom.”

Regarding Eyenovia, the item of note from Dr. Woodcock’s presentation is the comment about applying new technology that can be used in US-based manufacturing efforts and thus lower the cost of manufacturing to drug development companies. As for the use of new technology, Dr. Woodcock mentions using 3-D technology to improve the cost of manufacturing for drug development companies.

There are several advantages to the technology being used by Eyenovia, such as providing the end-user with a safer product with less exposure to the drug used to treat their respective eye problems. Their proprietary microdose array print technology makes this all happen. Eyenovia will be able to manufacture this product at a more reasonable cost. This is a link from 2022 that can give readers a better understanding of the MAP technology being used by Eyenovia.

• Cost of production of the product
• Sterility of the product

Consider these two issues and then consider the eyedropper recall I shared earlier. MydCombi combines two drugs into one delivery to the patient’s eyes. And then the actual dose with MydCombi, the volume of the drug delivery between the two-delivery systems (eyedropper vs. Optejet), the amount and resulting wastage from the eyedropper method is enormous compared to the Optejet delivery.

Eyenovia’s Responses to my Questions:

One of the questions I posed to Eyenovia, was why were Redwood City, California, and Reno, Nevada selected for their manufacturing facilities? Remember, I had given no prompts and issues—it was a simple question for why they chose these two cities.

My prompt response came from Norbert Lowe, VP—Commercial Operations:

Redwood City was selected as our drug fill location because of the local talent pool. We have a very specific way of handling sterile drugs and filling and finishing the cartridges, and we felt that the people with those capabilities were located in that area.

Reno was chosen for similar reasons to be our device manufacturing site. We also needed much more room in that location for the machinery to build the non-drug components of our products.

His answer confirmed for me three areas that I had wondered about:

1. Having lived in the Bay Area of California (north of SF), I knew that Redwood City was a location for many Silicon Valley biotechs, so the pool of experienced people would be the case for Eyenovia’s needs.
2. Knowing the real estate and price issues for land in the Bay Area, the Reno selection indicated that Eyenovia had cost awareness for expenses to be incurred as a significant consideration. Plus, I knew it was a little over a 3-hour drive between the two locations, with most of the trip being on interstate highways.
3. The most critical part of why Eyenovia opted to get the manufacturing of their drugs relocated back here is that Eyenovia knew the importance of manufacturing their products where there were control procedures and sterile and uncontaminated equipment being employed in their production facilities. The eye dropper and India-connected recall cite earlier; these companies have recalled all their product and are shut down where no revenue is being obtained. As Eyenovia expanded its number of internally developed drugs and got partnerships with other drug companies wanting to use the Optejet delivery system, Eyenovia had to make a critical decision. The wait into the end of 2023 for their in-house manufacturing facilities in California and Nevada---at this stage of the product roll-out, I would opt to wait over having this work done in India or China. The last thing that Eyenovia’s shareholders need is a recall of their product.

My second question dealt with the partnership with the Taiwan-based Formosa Pharma and especially about working with them on their current drug they had in Phase III development:

We agree that a combination of Formosa’s unique steroid and the Optejet device could make for a formidable combination.

Please keep in mind that the dosage from the Optejet (8 microliters) is significantly less than from an eye dropper bottle (35 microliters), so in these cases a “bridging study” (small, limited clinical study comparing the two) may need to be conducted.

This response is self-explanatory, where Formosa was ready to file their NDA with the FDA. Any change in using the Optejet delivery system would hold up their NDA for about two years. During this period, Eyenovia was probably more concerned with dealing with their NDA and planning the roll-out with MydCombi. At least we know that they are in discussions with Formosa.

My final question to Eyenovia dealt with my desire to build a model for what revenue investors might see in 2023:

The revenue stream will be modest for 2023. All new drug/device companies are required to obtain a state pharmacy license from the state in which they HQ AFTER obtaining FDA approval. Then this license is used to get additional licenses in the other 49 states. The entire process takes 2 – 3 months, so we cannot sell MydCombi before then. You don’t see this with other companies because they already had an existing FDA approved product and had licenses in place. So whatever sales you may be modeling for 2023 will occur after September. A more “hockey stick” uptake will happen in 2024.

Additionally, the FDA requires that any promotional materials for MydCombi be pre-approved AFTER we received the approval, so we can’t even talk about the product promotionally until that happens (also around September).

I was unaware of the initial state pharmacy license requirement, but the good news is that when you get the first state license, the expansion to the other 49 states will be much easier. The latter comment about the promotional material is critical for Eyenovia’s current concentrations. With the drug package inserts that come with each prescription, Eyenovia is lucky that there are no black box warnings.

As for any promotional items, we don’t have to worry about TV ads, but any written material used to promote the drug must be approved through negotiating with the FDA. But since Eyenovia will not initially have a significant sales force to cover the market, it is critical that any promotional material needs to offer clear and detailed information to the doctors so they will independently purchase or at least contact Eyenovia for more information or a personal visit from a company representative. Plus, today, there is a growing trend where doctors will not allow drug salespersons to call on their offices. This issue is another reason that Eyenovia needs to keep ‘its eye’ on this task related to the promotional material needed to market MydCombi.

Caveats:

During the May 12 ^th Quarterly Report and subsequent conference call, the issue of having the funding for the coming launch of MydCombi was a much-talked-about topic. Eyenovia’s financial filing indicated they had $18.5 million in cash or cash equivalent on hand as of March 31, 2023. They also have a $5.0 million drawdown from their Avenue Capital agreement.

Now approaching the last month of the 2 ^nd -Q, 2023, they should have around $20.0 million, assuming they take advantage of the Avenue Capital funding. Eyenovia has been very prudent in utilizing its cash position, but there is no doubt that, at some point, it will need additional cash on hand to fund the marketing effort for MydCombi. The analyst on the recent call attempted to get the company to commit to how they will resolve this cash need. Management deflected this demand by pointing out that they are still reviewing various options.

It would be great if they could sign a new partnership deal with a significant drug company wanting to adopt the Optejet system for their eye drug, and there would be an upfront payment. That said, investors must be prepared to see some method taken for raising extra cash for operations. The current money should take Eyenovia at least until the end of the first quarter of 2024.

Conclusion:

With the May 8 ^th FDA decision, the FDA has approved the first of what we can hope will be many drugs from Eyenovia’s pipeline and other major drug developers' adoption of the Optejet system. This drug addresses what is billed as a $250 million market in the United States. Assuming Eyenovia can quickly achieve a 20% market share, this would represent a $50 million revenue stream.

There is no doubt that the answer to Eyenovia’s success rests in the fact that the Optejet system needs to become the SOC product for delivering the growing list of new and older drugs for the ophthalmic market. Based on the growing number of adverse events for products delivered by an eyedropper and the constant cases of sterility issues occurring with foreign-based manufacturers, it is my opinion that Eyenovia and their business model using USA-located manufacturing facilities is an EXCELLENT business model for the future.

Good luck with your future investing decision!

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