Alimera Sciences: Company Achieves Breakeven Pretax Cash Flow In 2Q, 2017 Despite Slow Unit Demand For Iluvien

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Investment Perspective

Alimera’s (ALIM) second quarter results threw investors (and me) a sweeping curve ball. I initiated coverage on May 31, 2013 but never recommended purchase, until I upgraded my opinion to a Buy on June 21, 2017. Throughout this four year period, I consistently felt that Alimera’s sole product Iluvien, was a very good drug that had a meaningful role to play in the treatment of diabetic macular edema. Holding me back was the concern that the launches of the product (Germany and UK in 2013 and US in 2014) would be slow, a circumstance now seen with almost all newly launched products. Adding to my caution was that a long delay in gaining FDA approval due to agency wavering and indecisiveness put the Company in a strained financial position. It was forced to do a series of financings at distressed prices and has never enjoyed a comfortable cash position.

Following the reporting of 1Q, 2017 results, I felt that the time had come to step up. Worldwide sales of Iluvien had showed steady if not spectacular progression: 2013 ($1.9 million), 2014 ($8.4 million), 2015 (22.4 million) and 2016 ($34.3 million). The gross margin on these sales was about 93% which is pretty impressive. In 1Q, 2017, the Company reported that demand increased 34% in the US and 32% internationally. Moreover management stated that it expected these unit growth trends to continue and for the Company to reach positive cash flow for the first time in perhaps 4Q, 2017.I felt it was time to pull the trigger on a buy recommendation.

But Results for 2Q, 2017 Were Not What I Expected

I was taken aback when Alimera reported that US unit demand in 2Q, 2017 was 9% and foreign was flat. This was far below the 30%+ increases in 1Q and management’s guidance that it expected this 30%+ rate to continue throughout 2017.  What is going on?

Iluvien has proven to be a hard product for which to project sales. One important reason is that it is not like an ordinary prescription drug in which a new prescription is written usually for a month and is followed by a string of monthly refills. One Iluvien prescription treats a patient for up to three years before there is the need for another prescription. This can and does make for an erratic sales pattern. I think management is having as much trouble as outside investors in projecting sales so that their projections must be taken with a grain of salt.

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