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EYPT EyePoint Pharmaceuticals

Participants
George Elston Chief Financial Officer & Head, Corporate Development
Nancy Lurker President & Chief Executive Officer
Jay Duker Chief Strategic Scientific Officer
Scott Jones Chief Commercial Officer
Jennifer Kim Cantor Fitzgerald
Georgi Yordanov Cowen and Company
Yatin Suneja Guggenheim Partners
Yi Chen H.C. Wainwright
Yale Jen Laidlaw
Andrew D'Silva B. Riley Securities
Call transcript
Operator

Good morning. My name is Norma and I'll be your conference operator today. At this time, I would like to welcome everyone to EyePoint Pharmaceuticals' Second Quarter 2021 Financial Results and Recent Corporate Developments Conference Call. There will be a question-and-answer session to follow at the conclusion of the prepared remarks. Please be advised that the call is being recorded at the company's request. I would now like to turn the conference over to George Elston, Chief Financial Officer of EyePoint Pharmaceuticals.

George Elston

Thank you, and thank you all for joining us on today's conference call to discuss EyePoint Pharmaceuticals' Second Quarter 2021 Financial Results and Recent Corporate Developments. With me today is Nancy Lurker President and Chief Executive Officer; Dr. Jay Duker, Chief Strategic Scientific Officer; and Scott Jones, Chief Commercial Officer. Nancy will begin with a review of recent corporate updates; Dr. Duker will then discuss pipeline developments for EYP-1901 and Scott will comment on recent progress made on our commercial activities. I will close with commentary on the second quarter 2021 financial results.

We will then open up the call for your questions. Earlier this morning, we issued a press release, detailing our financial results as well as commercial and operational developments. A copy of the release can be found in the Investor Relations tab on the corporate website www.eyepointpharma.com.

Before we begin our formal comments, I'll remind you that various remarks we will make today constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These include statements about our future expectations, clinical developments and regulatory matters and timelines, the potential success of our products and product candidates, financial projections and our plans and prospects. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section on our most recent annual report on Form 10-K, which is filed and on file with the SEC, and in other filings that we may make with the SEC in the future. Any forward-looking statements represent our views as of today only.

While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. I'll now turn the call over to Nancy Lurker, President and Chief Executive Officer of EyePoint Pharmaceuticals.

Nancy Lurker

Thank you, George. Good morning, everyone and thank you for joining us.

The second quarter was another productive one for EyePoint Pharmaceuticals, as we continue to create ocular products that prevent blindness and disrupt the current often difficult treatment paradigms, helping patients see life longer, as well as grow demand for our commercial products, delivering on our overarching mission of bringing innovation to patients with serious ophthalmic diseases.

Before turning the call over to my colleagues, I'd like to discuss our most recent achievements from the quarter.

First and foremost, our team continues to execute on our Phase 1 DAVIO trial for our lead pipeline asset EYP-1901, a potential twice-yearly treatment for wet age-related macular degeneration or otherwise known as wet-AMD. And we remain on track to report interim data in the fourth quarter of this year. In just the first six months of 2021 alone, we initiated our Phase 1 trial, dosed the first patient and completed trial enrollment. Notably, this quarter, we reported very encouraging 30-day safety data for all cohorts from the DAVIO trial, citing no serious adverse events. We remain very pleased with our progress and we are looking forward to reporting interim six-month safety and efficacy results, when we have the complete top line data set in the fourth quarter of this year.

In addition, based on the DAVIO trial results, we anticipate initiating Phase 2 trials next year for diabetic retinopathy and retinal vein occlusion.

We also expect to start a Phase 3 trial for YUTIQ50 in the fourth quarter of this year. YUTIQ50 is a potential twice-yearly sustained delivery treatment for chronic uveitis, affecting the posterior segment of the eye. YUTIQ50 will be filed as an sNDA upon completion of this single Phase 3 clinical trial.

On the commercial front, we are thrilled to have recently announced the acceptance of a new Category III CPT code for injecting medicines like DEXYCU, approved by the American Medical Association. The code becomes effective January 1st and provides an exciting opportunity to improve treatment options for both patients and ophthalmologists alike.

We are pleased to be able to offer additional pathways for reimbursement for the administration of DEXYCU starting in the first quarter of next year.

We have seen significant increases in customer demand for both of our commercial products this quarter and we're pleased to report another quarter of strong growth in net product revenues.

Additionally, as discussed last quarter, we introduced a new siliconized needle for YUTIQ, which we believe has driven new customer demand and is providing an enhanced experience for patients and physicians in administering YUTIQ.

We also recently announced the initiation of our Executive Scientific Advisory Board to help guide the company as we bring EYP-1901 through to clinic and build our pipeline with new innovative and eyesight-saving products. We're honored to have this prestigious group of retinal surgeons advise us and their involvement in the Scientific Advisory Board is a testament to the quality of our product pipeline and the potential that our Durasert delivery technology represents.

Finally, this quarter EyePoint Pharmaceuticals was included in the Russell 2000 and 3000 indices an important signal of EyePoint's financial strength throughout this year. EyePoint's inclusion on each index is an exciting indicator of the market's confidence in the company we continue to build. I'd like to personally thank the incredible team at EyePoint for our company's clinical and financial success and we are excited to carry our positive momentum forward, as we enter the third quarter of 2021.

As mentioned, we are eager to report data for our EYP-1901 Phase 1 trial in the fourth quarter of this year, drive continuous growth for our commercial products and maintain our strong balance sheet. I'll now turn the call over to Dr. Jay Duker, our Chief Strategic Scientific Officer to provide an update on our lead program EYP-1901 as well as other pipeline initiatives. Jay?

Jay Duker

Thank you Nancy, and good morning everyone.

As Nancy stated earlier in the call, we are quite pleased with the progress thus far on our Phase 1 DAVIO trial for our lead pipeline asset EYP-1901, a potential twice-yearly treatment for wet age-related macular degeneration.

We are especially proud of and grateful to our clinical and regulatory teams for the rapid execution of the Phase 1 trial to-date, including initiation, dosing and completion of enrollment in under four months, and more recently a very encouraging positive 30-day safety data report.

We are pleased that our study remains on track to read out top line data in the fourth quarter of the year. Wet AMD is a chronic progressive and potentially devastating eye disorder. Its hallmark is the development of abnormal blood vessels that leak fluid and blood into the macular. It typically presents as blurred vision and can result in a permanent central blind spot in the central vision. It is the leading cause of vision loss in people over 65 years of age both in the United States and other developed countries. Despite safe and effective FDA-approved medications on the market to treat Wet AMD, there is a significant opportunity for longer-lasting therapies than those currently available. EyePoint seeks to provide a reliable long-term sustained-release treatment option that requires fewer visits to the doctor's office.

Our lead pipeline asset EYP-1901 is a potential twice-yearly sustained delivery intravitreal anti-VEGF treatment for Wet AMD. EYP-1901 combines a bioerodible formulation of EyePoint's proprietary Durasert sustained-release technology, which has been utilized in four FDA-approved products with vorolanib a tyrosine kinase inhibitor. The Phase 1 DAVIO trial is an open-label dose-escalation trial of 17 patients across three cohorts. All enrolled patients were previously treated with standard of care anti-VEGF therapy. To reiterate, the positive safety data we reported last month for the Phase 1 DAVIO trial for EYP-1901 shows key safety observations through a minimum of 30-day post-dosing follow-up for all the patients. To begin with, there were no serious adverse events either ocular or systemic as well as no reported adverse events related to intraocular inflammation, best-corrected visual acuity reduction or any elevation of intraocular pressure in any of the 17 patients enrolled in the trial. The post-dosing follow-up also showed no events of endophthalmitis and no retinal detachment or implant migration into the anterior chamber.

Lastly, the three subjects in cohort one have now been followed for a minimum of five months, with no reported SAEs. This confirmatory safety data in hand, we remain very excited about the potential of EYP-1901 for the treatment of wet-AMD, as well as its application to other severe eye disorders, including diabetic retinopathy and retinal vein inclusion.

As we discussed last quarter, we are on track to initiate a Phase 3 60 person six-month clinical trial for YUTIQ 50, a potential twice-yearly sustained delivery treatment for chronic uveitis affecting the posterior segment of the eye. Later this year, with results expected in late 2022, YUTIQ 50 will use the same non-erodible Durasert formulation in corticosteroid as what is currently in YUTIQ. YUTIQ 50's design offers an intravitreal insert with a shorter duration of action that provides physicians with the flexibility to dose over shorter intervals compared to the three-year interval that YUTIQ currently provides. We plan to file an sNDA with the FDA and we expect to initiate our Phase 3 trial in the fourth quarter of this year. We look forward to providing an update on EYP-1901, as well as our other pipeline initiatives over the upcoming quarters. I will now turn the call over to Scott Jones, Chief Commercial Officer for the commercial update. Scott?

Scott Jones

Thank you, Jay.

This quarter, we are pleased to report a significant rise in customer demand and net product revenues, across both of our commercial products to DEXYCU and YUTIQ. Like many commercial companies, our net product sales and underlying customer demand were negatively impacted by the COVID-19 pandemic in 2020, and into 2021. We're pleased to see patients return to doctor's offices and schedule their previously delayed surgeries.

Our Q2 net product revenues of $8.7 million is 136% increase from Q2 2020. This includes net product revenues of 4.6 and $4.1 million for DEXYCU and YUTIQ respectively. Customer demand was approximately 10,900 units of DEXYCU, 540 units of YUTIQ compared to approximately 7,000 and 400 units respectively for Q1 2021 customer demand. This disruption in customer demand for DEXYCU is a result of strong performance by our sales and marketing team and our collaboration with our commercial alliance partner and from ImprimisRx.

We are also pleased with the recent announcement of a new Category III CPT code for injecting medicines like DEXYCU, which we believe will provide physicians with both an opportunity for a reimbursement pathway for ocular procedures, and an additional way for EyePoint to serve patients suffering from severe eye disorders. We believe this acceptance should have a positive impact on demand once the code becomes effective January 1, 2022.

Turning to YUTIQ. Demand levels were strong throughout the quarter resulting from the expansion of our sales and marketing efforts in the retinal space. Last quarter, we successfully rolled out a siliconized needle for YUTIQ, and we're very pleased with the physician uptick today adding to demand and creating a significantly better procedural experience for patients and physicians.

We are incredibly pleased by the progress that we've made during the second quarter to return DEXYCU and YUTIQ to increasing demand levels. We believe both products provide a unique sustained delivery system that requires fewer visits to the doctor's office, a focal point of each product's value proposition that both patients and doctors rely on, and we are grateful to both patients and doctors for their continued use and support of our products. We look forward to updating you on revenues and demand in the quarters to come. I would now like to turn the call over to George to review the financials. George?

George Elston

Thank you, Scott.

As the financial results for the three months ended June 30, 2021 were included in the press release issued this morning, my comments today will be focused on a high-level review for the quarter.

For the three months ended June 30, 2021 total net revenue was $9 million, compared to $4.1 million for the three months ended June 30, 2020. This includes net product revenue for the second quarter of $8.7 million compared to net product revenues for the second quarter ended June 30, 2020 of $3.7 million. Net revenue from royalties and collaborations for the second quarter ended June 30, 2021 totaled $0.3 million compared to $0.4 million in the corresponding period in 2020. Operating expenses for the quarter ended June 30, 2021 totaled $20 million versus $15.3 million in the prior year period. This increase was primarily due to a $2.3 million increase in R&D expense, a $1.4 million increase in cost of sales, a $0.4 million increase in G&A expense, and a $0.6 million increase in sales and marketing expense. Non-operating income net totaled $1 million and net loss was $10 million or $0.35 per share compared to a net loss of $13 million or $1.04 per share for the prior year period. Cash and cash equivalents at June 30 2021 totaled $127.6 million compared to $44.9 million at December 31 2020.

We expect that cash on hand at June 30 2021 and expected net cash inflows from our product sales will enable us to fund our current and planned operations through the end of 2022. In conclusion, we are thrilled with EyePoint's progress in the second quarter and first six months of 2021 and are well-capitalized to advance our product pipeline to key value inflection points. Thank you all very much for listening this morning and I'll now turn the call over to the operator, for questions.

Operator

Thank you [Operator Instructions] Our first question comes from Jennifer Kim with Cantor Fitzgerald.

Your line is now open.

Jennifer Kim

Hi, everyone. Thanks for taking my question. And congrats on a very positive quarter. I have a few questions here. Maybe first, in the PR you noted that you've continued to see momentum for YUTIQ and DEXYCU. I was just wondering where are we on that road to profitability that you've talked about -- or breakeven that you've talked about? And then on the recovery of cataract procedures, I'm wondering have you seen any impact from the variance that have been going around? And then my next question is, with the Executive SAB on board, what is the latest update on I guess, where you're thinking about in terms of a pipeline beyond EYP-1901 and what are you thinking about -- on how to leverage the Durasert technology? Thanks.

Nancy Lurker

Okay. Thank you, Jennifer.

As to profitability, we actually do expect to potentially hit profitability with YUTIQ this year. Though I want to put a caveat, it also is highly dependent on the impact of the Delta variant. But right now, we seem to be in a very good spot and should expect to turn profitable. DEXYCU will take a little longer, just because it's -- though it's coming back very nicely we expect that it will probably be sometime in pushing to the first half of next year maybe around that time frame or later. But again, it's very dependent right now on the Delta variant.

As to the variance, let me just say, we're not seeing an impact yet, but however as some of the listeners may know Florida as an example has just asked in a number of counties for the hospitals to not do any more elective procedures.

So we're just watching and waiting and seeing if the impact - if there is an impact. And right now again we're not seeing it but there very well could be.

So hopefully we'll get through this Delta surge with minimal impact but we don't know.

For the SAB, and actually just repeat that question on the SAB. I'm sorry I didn't quite fully understand what you're asking on that.

Jennifer Kim

Yes sure. I'm just wondering, what the latest is in terms of your thinking on a pipeline -- on building out a pipeline with the Durasert technology. Could we see like updates on where you're thinking about on the one hand...?

Nancy Lurker

Yes. I'm going to actually have Dr. Jay Duker, answer that question. I believe -- Jay?

Jay Duker

Yes. Thanks, Nancy. I'm here.

So thanks for the question, Jennifer.

I think at a very high level, what we're thinking about now is Durasert has been around for many years. It's FDA-approved for products but that was the non-erodible form of Durasert. In our current DAVIO study at least in the short- term, I think we're very comfortable with the safety of the erodible form of Durasert, which makes us confident that we're going to be able to put other small molecules into the erodible form of Durasert for other unmet posterior segment diseases.

We have a whole litany of indications that we're looking at, we have some molecules that we're very excited about and I think that you will see over the next couple quarters, how our thinking is evolving with respect to market size, need for long-term drug delivery with various mechanism of action. In the longer run with respect to the pipeline we're looking at different technology that's going to enable us to deliver small molecules -- large molecules as well as small molecules. Durasert currently is limited to small molecules, but we're thinking longer-term about large molecule delivery.

So, without going into specific diseases or MOAs because we actually haven't announced those yet, I think that's how we're at a high level thinking about the pipeline.

Jennifer Kim

Okay. That's really interesting. Thank you everyone and congrats again.

Operator

Thank you.

Our next question comes from Georgi Yordanov with Cowen and Company.

Your line is now open.

Georgi Yordanov

Hey thank you so much for taking our questions and congratulations on all the progress.

So, I guess, to start with on the safety update for 1901. Dr. Duker maybe if you could comment on how critical that initial 30-day period is for the incidence of any AEs of interest based on your experience? Is this when the majority of ocular AEs occur with other treatments and just help us understand kind of like that initial safety data? And then just a follow-up on that.

You indicated that you had not observed any BCVA reduction as an AE. Could you clarify the number of letter reduction BCVA needed to classify it as an AE?

Jay Duker

Sure. Thanks for the questions Georgi and I'll go back the -- your second question is the quickest to answer, so I'll do that one first. In the DAVIO trial, it was 15 letters or three lines to be an AE.

So, we have not observed anybody at that level so far. With respect to the timing the injection procedure itself regardless of needle size or method or whatever drug you're delivering, the injection itself can have side effects.

You can get endophthalmitis you can have trauma to the retina you can create a detached retina vitreous hemorrhage; any of those things can happen right around the time of the injection.

And so with 30 days' data with the last injection we're confident that injection-related SAEs were not a problem in this study. Longer term, you'd worry a little bit more about your API causing a problem.

Now, that's to say vorolanib has been studied as an oral drug in wet-AMD and never showed any sign of any ocular problems delivered orally. The doses we're using we don't believe where one would have enough systemic absorption to cause any systemic problems. But there's always -- until you do it there's always a question will there be any type of problem from a long-term drug release of a TKI. And again that has not been reported and has not been reported by any of our competitors. But when you look more towards the long-term, there are visual acuity problems over six months that might be ascribable to not the underlying disease state, but rather to the drug itself. And again, so that's the difference between short-term and long-term. We never anticipated having issues; you don't know till you do it in a human. But because the experience with the Durasert non-erodible was so extensive we really were comfortable that this drug delivery was going to be well-tolerated with the eye. And I would say so far in the 17 patients, it's been very well-tolerated.

Georgi Yordanov

That is great. And then finally you presented some recently presented some animal model data on the kinetics of release for 1901 really demonstrating that zero-order kinetics for Durasert even when you have multiple implants.

So, maybe could you discuss how you selected the doses you decided to bring forward in the DAVIO's trial? And related to that do you have any plans for any further reformulation of the current clinical doses?

Jay Duker

So, the first question is a little bit complicated because there are multiple ways we can formulate the actual implant multiple ways we can change it. There's needle size needle bore the length of the implant and the number of implants.

One of the things that you should all realize is that we have the ability to inject up to three implants with a single injection. And we did that in the high dose of the DAVIO trial. Multiple injections to achieve certain drug levels is not favorable for patients or physicians.

And so the ability to put three implants into the eye not only safely, but effectively as we hope to see in DAVIO, also in the long-term when you talk about pipeline brings up the possibility of using multiple drugs in a single injection with different implants.

Going off the question a little bit there, but I did want to mention that.

So back to the question, we're limited by the FDA and the safety issues to not be able to have a tissue exposure above what we showed, was safe in animals.

So, one of the limitations we had in DAVIO was the ability using a rabbit eye to put enough implants in that scale to the equivalent of a human, it showed it was safe.

So in the rabbit eye, the highest dose we could achieve was using six implants via two injections. And we did show that was safe, but scalable that was the three implants in the human eye.

So that was our high dose. Theoretically, one could go higher and that would require another set of preclinical studies to show that that again that tissue exposure was safe in animals before we went in humans. But at the present time, we are sticking with the three doses that we used in DAVIO. And again theoretically, we could go higher but there is no announcement at this point that we're going to.

Georgi Yordanov

Got it. And then, do you have any plans to reformulate it into a single implant or do you think that just given the great safety you've seen so far you don't really need that?

Jay Duker

Well, the low dose in the DAVIO was a single implant. And until we have some efficacy data, it's certainly conceivable that a single implant will be efficacious. In which case, that may be the dose. There are other indications as well and since longevity of the implant and the ability to treat every six months versus every year, may make a difference for different indications, we're exploring those thoughts about the actual dosage, perhaps being different in different disease states depending on the VEGF levels, et cetera.

So we've had thoughts around those ends. But at this point, what I can state is one, two or three implants in the short-term appears to be very well tolerated by the eye. And until we've got some efficacy data to really look at, it's not clear which dose or which number of implants will be going forward with.

Nancy Lurker

Jay, let me just add to that as well, which is that these implants, as you know, dissolve as they release drug.

So that right now, the implant itself seems to last about six months after it depletes its core but it's already shrunk considerably by the time the drug is all depleted.

So, even though you might have the implants there they become incredibly small over time.

And so by the time, the remaining implant is totally dissolved, it's hardly -- any is left at all.

So even if you have two or three implants, it's just not that much left in the eye.

Jay Duker

Over time.

Nancy Lurker

Over time, yes.

Jay Duker

Yes.

Georgi Yordanov

Thank you so much. This is super helpful. Thank you.

Operator

Thank you.

Our next question comes from Yatin Suneja with Guggenheim Partners.

Your line is open.

Yatin Suneja

Hey, guys. Congrats on a good quarter and thank you for taking my questions.

Just a couple for me.

So with regard to the DAVIO readout, could you maybe comment on how much follow-up you need before you'll disclose the data, and just lay it out for us what the expectations are for that study, what you need to show in order to move forward? And then, I have a follow-up.

Jay Duker

Sure. I'd be happy to answer that, Yatin. We've said all along that we're going to talk publicly about six-month data from an efficacy perspective. We think that's important, but from a perspective of efficacy in the sense of in the marketplace.

While we're not planning on announcing four-month data, we believe that really at a minimum any of all the sustained-release products out there, has to show sufficient efficacy over at least four months, because the injectable drugs that are available now or soon to be available, like faricimab, if it's FDA approved, is showing some signs that it can be efficacious for four months in a significant number of patients.

So, in order to be successful in the marketplace we think that's the minimum. But six months is really been our target, and we're targeting the implants to last that long.

And so our plan is to talk about efficacy data when we have a full six-month top line data for the set.

Now, what we expect is, remember, these are all previously treated patients. Patients with Wet AMD when they first get diagnosed and they first get treated with standard of care, they gain really all the vision in the first two to three months of injection.

And so the patients who entered the study, we don't really believe there's much room to improve their vision.

So we expect visual acuities to be roughly the same at six months. And I say roughly, there's always variability in visual acuity. Visual acuity surprisingly isn't really that quantitative.

And so, there is always a little noise in the system, three letters up three letters down, that's just -- that's noise in the system. But visual acuity should be stable. We'd love to see a little bit of improvement, but it partially depends on what type of patient we actually enrolled. What we don't want to see is a significant reduction in the vision across all the cohorts, which would suggest that either were not efficacious or we may be having some toxicity problem.

So with visual acuity look for rough stability. I'd say the same thing for OCT subdural thickness. OCT is a nice biomarker for VEGF activity and we expect that the patient should essentially remain stable, relatively speaking.

So you may have fluctuations in the OCT thickness of 20, 30, 40 microns up or down. Again that can be a little bit of noise, there can be a little bit of subretinal fluid at forms, which doesn't necessarily affect the vision.

And so we look overall for OCT stability also. And then, one of the other measures is the rescue rate.

For all of these sustained-release in the Phase 1 there is ability for the investigator to rescue a patient who appears to have increasing fluid and/or decreasing vision due to Wet AMD activity.

And so, we hope that the rescue rate is -- over the first six months is kind of again a reasonable amount. There's no real target here, I would say but, if the eyes are showing rescue rates of less than 50%, I think, that we have a very successful potential product. And I'd also add to that the -- if the end of our study is low, which is a problem; it's only 17 with three cohorts.

And so, it's going to be a little bit hard to draw efficacy conclusions based on that. But if we're able to identify the patients who have done well with the implant that will really help guide us for the entry criteria in upcoming studies. And I do believe strongly that we should be able to do that. And there'll be patients whose characteristics on photographs or vision or OCT going into the study may predict how they do, in which case efficacy in the sense of rescue free rates in the Phase 1, we believe that we'll be able to improve on that in upcoming trials, because we'll have to data on who did well and who didn't.

Nancy Lurker

Yes. And let me just add to that as well, which is remember that the FDA criteria in a pivotal trial for your endpoint in these drugs and in these diseases, I should say, is always best-corrected visual acuity.

So that is going to be the primary endpoint.

Secondary endpoints then, you're looking at central subfield thickness, fluid levels and rescue rates. Nevertheless, as Jay said, right now we're looking at all three and it's the combination of all three that will help guide us as we move into our next stage of studies.

Yatin Suneja

Got it. Very helpful. Then maybe two more questions.

First is, so you provided the 30-day safety update do you plan to provide additional, let's say, 60 months before you disclose the interim data? And then the second part is, you mentioned for the lowest dose most of the patients or the patients have been through five months and no reported SAE, do you have any similar update for the second -- the other two doses?

Nancy Lurker

Yes. Jay, actually let me just answer the last part of that question then you take the first part of the question.

So we actually can announce that we're actually through six months on cohort one and we've seen no SAEs.

So we're very pleased. And as for cohort two and three, obviously, of course, you titrate up ensuring that each dosed cohort is safe.

So you expect that there's going to be a lag between each cohort as you go up in dose.

So we're still waiting to see on a full cohort for month four in the other cohort.

So we very well could announce. I'm not sure it adds a whole lot at this point. We're out pretty far already and we're really happy with what we're seeing.

Yatin Suneja

Got it. And then, the final question is on the commercial products. Obviously, you saw a very nice rebound or very good performance in Q2. Can you maybe give a little bit color how the last five weeks of Q3 is looking relative to Q2? Thank you.

Nancy Lurker

George, you want to take that?

George Elston

You were talking beginning of?

Yatin Suneja

Beginning of the Q3.

So yes July and August right?

George Elston

Yes.

So again we don't guide quarter-to-quarter, but I think the momentum that we saw in Q3 as Nancy pointed out -- I'm sorry in Q2, so far we haven't seen any impact from the Delta variant in the space., Obviously we're watching that closely because it's really -- some states for example we're starting to hear some noise about slowdowns. But at least so far into Q3, it's tracking at our expectations.

Yatin Suneja

Great. Thank you so much.

Operator

Thank you.

Our next question comes from Yi Chen with H.C. Wainwright.

Your line is now open.

Yi Chen

Thank you for taking my question.

So with respect to YUTIQ 50 the Phase 3 trial that's going to start in the first quarter, how many patients you would have to enroll for this trial?

Nancy Lurker

We're expecting 60 total that will be a positive control or basically it's a sham that gets injected.

So that is a controlled study with a total of 60 patients.

Yi Chen

And do you expect to have the results – top-line results by the end of 2022?

Nancy Lurker

Potentially it depends on how long it takes us to enroll those patients. YUTIQ remember posterior segment uveitis is an orphan disease.

So sometimes it can take a little longer to enroll but that is our target.

Yi Chen

Okay. And YUTIQ 50 will be based on bioerodible Durasert technology, right?

Nancy Lurker

No. And the reason for that is that we want to be able to file an sNDA. To file an sNDA and get it on the market sooner, we only have to do one study. And as a result we have to piggyback off of the current YUTIQ NDA and that is with the non-erodible.

However, let me just say this, it is one-third the size so it's one-third the length of the -- actually I'm sorry, yes, it's one-third the length of the current YUTIQ 180 that's on the market today.

So it's even smaller. And again recall this is an extremely small implant already, particularly relative to the volume of the vitreous. We've seen no problems whatsoever with multiple injections of YUTIQ. And I might even add as, you know, there are other drugs in the market that are non-erodible that also have not seen any problem, I'll just mention ILUVIEN.

So we don't expect to see any issues with it being non-erodible because it's so small.

Yi Chen

Okay.

So there's no change in the injection device or the procedure itself right?

Nancy Lurker

No. There are not.

Now I will say, we are working on a new what I would call a high-tech delivery device, but that takes time that requires its own separate filing with the FDA. But right now the current delivery device, we've made some enhancements to it.

Over the last 18 months, we have a siliconized needle. We've improved the packaging.

So right now we're pleased with how it's performing in the marketplace.

Yi Chen

Got it. Got it. With respect to the royalty income do you expect any going forward?

George Elston

Yes, I can answer that.

So, yes.

So on that recall that in December of last year we monetized the ILUVIEN royalty and received $16.5 million upfront payment for that most of which we applied to pay down our debt.

And so what you see coming through for royalty income is the accounting treatment of that prepayment.

And so that's going to be a fairly standard number each quarter and it's non-cash.

So I think you should look at royalty income for the US or the ILUVIEN sales in that regard. It's just a non-cash accounting entry that comes through every quarter.

We will ultimately receive royalties from our partner in China Ocumension. They have their version of YUTIQ on file with the regulatory agencies there and we could start seeing royalty income as early as next year from those programs. And we're not guiding on what those numbers would be but that's when it will change as when some of the China sales start kicking in.

Yi Chen

Got it. Thank you.

Operator

Thank you.

Our next question comes from Yale Jen with Laidlaw.

Your line is now open.

Yale Jen

Good morning. My first question is actually about the technology.

You have the erodible Durasert sales.

Just curious that the -- is that your -- when is your -- the timing for that can be adjusted going forward let's assume, you have something longer than six months eventually developed?

Nancy Lurker

Go ahead Jay.

Jay Duker

Yes.

So I'm happy to answer that. Yes there are ways that we can alter the matrix of the erodible form of Durasert to make it last longer or shorter.

Now some of that is really dependent on the solubility of the drug.

And so whatever the drug is, there are brackets around fast versus slow release. And remember also we need to get drug levels in the eye that will treat the underlying disease effectively and safely.

So, we can alter many things about the implants as I mentioned earlier size and number and bore the needle and the way we prepare them the drug matrix to alter the release rate. Does that answer the question?

Yale Jen

Yes absolutely. And maybe two more here.

The first is a housekeeping one that you have a new line financing in the P&L gain on extinguished debt. Is this a onetime event situation?

George Elston

Yes. Yale, it's George. Yes.

So in -- during the second quarter we had -- you may recall we had a payroll protection plan loan granted to us last year that was forgiven second quarter of this year.

And so that's a onetime gain on extinguishment of debt of a little over $2 million. And that's what we're repeating.

Yale Jen

Okay. Yes that's helpful. And maybe the last question here which is that this quarter or the last quarter seems to be the best I've seen quarterly in terms of revenue for both YUTIQ and DEXYCU. I understand there's potentially some Delta variant situations but would you guys continue to feel that business revenue will likely to grow quarter-over-quarter in the -- at least in the near-term over the next few quarters?

Nancy Lurker

I'm going to actually have Scott answer that.

As you know Scott is our Chief Commercial Officer.

So he has tremendous visibility into the business condition. Scott?

Scott Jones

Thank you Nancy and thanks for the question. And obviously we don't advise on revenues for future quarters. But we can say that as George mentioned earlier we've been pleased with the progress that we've made in the first and second quarter of this year and we're continuing to see that momentum early in Q3. And obviously it's being driven by -- on the YUTIQ side we've made a significant expansion into the retinal market in terms of our sales and marketing activities. And then on DEXYCU we're continuing to see an uptick based on some of the recent customer contracts that we've been able to sign as well as the activity being driven by our partner Imprimis.

And so, I think we feel very confident about the progress that has been made in the first half of the year. And certainly we're continuing to see that early in Q3. And we are bullish that we'll continue to see that kind of activity. But again many factors are going into kind of tracking the Delta variant. And as Nancy mentioned earlier we -- while we haven't seen the significant shutdowns that we saw early in 2020, we are starting to see one or two states that are having significant activity and are starting to make some adjustments and we'll certainly keep you updated on that.

Yale Jen

Okay, great. That’s very helpful and congrats on the great quarter and look forward to see the DAVIO data at year-end.

Nancy Lurker

Thank you, Yale.

Operator

Our next question comes from Andrew D'Silva with B. Riley Securities.

Your line is now open.

Andrew D'Silva

Yes, good morning. Thanks for taking my questions. I have a few, so I'll start with just a couple of quick bookkeeping questions.

If you could just let me know, what stock-based comp, cash flow from operations and CapEx was for the quarter that would be much appreciated. And I was also curious, why there was a sequential decline in gross margin. The product mix looked like it favored YUTIQ this quarter. A high figure gross margin would have trended up due to that. Were there any additional costs tied to YUTIQ or DEXYCU or were there any onetime charges that were in cost of sales?

George Elston

Yes. Hi Andy, George.

So actually on margin, this I think is the first time that we actually sold more DEXYCU than YUTIQ; so certainly product mix. And DEXYCU comes in at a -- is much lower margin than YUTIQ.

So, that was a big contributor there.

You may recall in Q1, we had some onetime write-offs for YUTIQ needle change and things like that.

So I think Q2 is largely product mix because of the blend between YUTIQ and DEXYCU. Q2 stock-comp, noncash stock-comp in total was about $1.2 million. And I think we had modest of any TPE investment in Q2. And that will be in the cash flow when we file the Q later this week.

Andrew D'Silva

Okay. Thank you for that.

So, I just also want to get a better understanding, what pricing dynamics could look like for DEXYCU's upcoming administration code. Is $80 to $100 kind of the right range? I think DEXTENZA was around there before the Category III CPT code moved to Category I.

So, that's where I'm kind of tentatively modeling the injection codec, but I want to make sure that aligns with your range.

Nancy Lurker

Yes.

So, Scott will answer that, but let me just reiterate for the audience that we are very pleased that we got this code. And just so everyone understands, what that allows for is for people -- physicians to get an extra fee for using DEXYCU in addition to the money on the drug itself.

So it is an incentive for physicians because, it does take a little bit more time, versus just writing a prescription for eye drops though not much. But nevertheless it's enough that the AMA felt that physicians deserved compensation for their time to inject DEXYCU.

So Scott, why don't you go ahead and answer the question specific to what the reimbursement rate will be.

Scott Jones

Sure. And thanks for your question.

So, as you will recall, one of the differences between the Category I code and the Category III code is that Category III codes unlike Category I codes do not go through the national process for pricing, meaning going through the resource utilization committee to develop work values.

So they're priced locally, which means that each Medicare contractor will price that reimbursement rate locally.

So while we can't give specific guidance yet until we have and completed discussions with all of the Medicare contractors, I think you're generally in a range that we feel would be consistent with the value we believe we would be bringing. But again, I can't really give any guidance on that until we formally have those discussions with the contractors.

Andrew D'Silva

Okay. Useful. Thank you. And then the potential pass-through stats extension, I remember, there were a couple of time frames being discussed earlier. Do you expect nine months to be the final length once the final rules are set or do you see the potential to have there be a two-year or greater increase? I'm just kind of looking back at what happened with OMIDRIA here.

Nancy Lurker

Yes.

Let me comment and then Scott, you can add in.

So first of all, in the draft rules, as you mentioned Andy, there is a nine-month extension for DEXYCU, now to go out till December 31, 2022. And we probably expect more than likely the -- excuse me CMS will issue that in the final rules. Though the final rules as you know come out in November and you can never predict, but we do expect that will probably hold firm.

Now the other thing though that they put in the draft rules was a comment in there, about stating that, they are open to considering permanent reimbursement for these non-opioid drugs that either have a pain indication or have pain-like attributes, that are recognized by medical society and they're asking for comment on that.

Now with the raging opioid epidemic and as again you may know the number of opioid unfortunate deaths skyrocketed during the pandemic. They went up another 30%. In total, it's approximately 100,000 people died of opioid overdoses, just this year in the past 12 months. It's a terrible tragedy.

And so, CMS and I applaud them now for starting to consider they have to get non-opioid alternatives available to physicians and to patients.

We have a crisis on our hands.

So they are now open to considering getting permanent reimbursement to these non-opioid pain-like drugs. DEXYCU certainly fits in that category. Dexamethasone is a well-known pain reliever many drugs who are dexamethasone drugs may be delivered different vehicles have pain indications. We just don't -- we didn't pursue, when we in-licensed this from ICON the pain indication per se, but we do have studies that show we substantially reduced pain.

So we're somewhat optimistic though there's never a guarantee that we could get permanent reimbursement. Scott, do you want to add anything to that?

Scott Jones

I think that was well said Nancy and covered most of the key selling points.

Andrew D'Silva

Great. Yeah.

So that's interesting. It's kind of similar to what Acura has for its product and you have a perpetual pass-through if my memory serves me correct?

Nancy Lurker

That's correct.

Andrew D'Silva

Okay. And last question for me. I'm just curious just kind of reverting back to cost of goods sold. Are you able to get the costs materially down for DEXYCU? So, I'm just trying to dial in 2023 estimates and beyond right now. And once -- assuming the nine-month is what's final once pass-through falls off, it seems like it will be challenging to charge much more than the injection code amount once DEXYCU falls back into the bundle. Are you able to drive cost of goods down for DEXYCU? And given the success you referenced in your co-marketing commercialization initiatives, does it make sense to internally fully invest in commercializing the offering given the potential reimbursement dynamics that could take place at the start of 2023? And then also you just have a very clear focus on retinal specialists with 901 and YUTIQ.

Just curious on how you view to execute over the long-term, particularly missing the assumption that pass-through falls off at the end of 2022?

Nancy Lurker

I'm actually going to add -- on COGS George, do you want to tackle that?

George Elston

Sure. Yeah, and the way to think about COGS is really two components. We do have a royalty component that we pay which is tied to revenue.

So obviously, that's going to toggle with price over time. And then on the actual cost of the unit itself, clearly, with higher volumes and scale we can certainly move to move that cost down over time. Obviously, these products are never going to get down to that single-digit price that eye drops come in, but there certainly is upside opportunity to reduce costs with higher volumes which we're now starting to see.

Nancy Lurker

Yeah. And Andy, strategically with regards to DEXYCU, let me just say this. We're really pleased with where we are right now. And you mentioned we have our co-promotion relationship with ImprimisRx and they've been doing a great job driving utilization.

So we're actually very pleased with their performance. With DEXYCU, we remain committed to the brand. But like with any product we're always evaluating. I don't care if it's a pipeline product, an in-line product we're always evaluating different options.

I think it would be premature right now until the final rules come out and we have more clarity from CMS on how serious they are about permanent reimbursement. We do want to see what happens there because as you can imagine, if we get permanent reimbursement that materially changes the dynamics of this brand long-term.

So we're -- we'll see what happens.

Andrew D'Silva

Okay. Great. Thanks for taking my questions and best of luck going forward.

Nancy Lurker

Thank you.

Operator

Thank you. And I'm currently showing no further questions in the queue at this time. Ladies and gentlemen, thank you for participating in today's conference. This does conclude your program.

You may now disconnect. Everyone, have a wonderful day.