EyePoint Pharmaceuticals – After A Tough 2024 To Date, Is It Time To ‘Buy The Dip’ (EYPT)

Investment Overview: Promise Of Durasert – Long-Acting Therapy Emerges As Potential Eylea Rival

At the end of May 2023 I gave EyePoint Pharmaceuticals (NASDAQ:EYPT) stock a “Buy” rating, suggesting that the company and its long acting Durasert technology “for sustained intraocular drug delivery” had a “puncher’s chance” of success in a “crowded and competitive” eye disease market, such as “wet” advanced macular degeneration.

The company’s lead drug candidate was EYP-1901, now known as Duravyu, which is an:

… investigational sustained delivery treatment for anti-vascular endothelial growth factor (anti-VEGF) -mediated retinal diseases combining vorolanib, a selective and patent-protected tyrosine kinase inhibitor with bioerodible Durasert E (source: EyePoint Q2 2024 quarterly report / 10Q submission).

The advantage of EyePoint’s product is that its proprietary delivery system may allow for once every six-month dosing frequency, whereas current standards of care in Wet AMD, such as Regeneron’s (REGN) Eylea – which earned over $8bn in revenues in 2023 – or Roche’s (OTCQX:OTCQX:RHHBY) Vabysmo – over $2.5bn of revenues in 2023 – require more frequent dosing regimes.

In December 2023, EyePoint unveiled positive data from its Phase 2 Davio study which showed:

Statistical non-inferiority in change in BCVA (at a confidence interval of 95%) compared to aflibercept control, at weeks 28 and weeks 32 combined. The 2mg and 3mg doses were only -0.3 and -0.4 letters different, respectively, versus on-label aflibercept. The lower limit of the non-inferiority margin is defined as a -4.5 letters by the FDA with 5 letters representing one line on the eye chart.

Aflibercept is the chemical name for Regeneron’s Eylea, and by showing statistical non-inferiority, EyePoint significantly enhanced its chances of winning approval for Duravyu, and potentially challenging for standard-of-care status in double-digit billion dollar eye disease markets.

Unsurprisingly, EyePoint’s share price soared on the news, leaping from ~$7 per share, to over $18 per share overnight after the data was shared – a gain of over 150%. In a note posted shortly after results were announced, I downgraded my rating on Eyepoint stock to a “Hold”, however, highlighting some potential issues to be aware of, which I summarised as follows:

There are some risks that investors should carefully consider however – while vorolanib is patent protected, could a rival pharma copy the Durasert delivery approach? Does EyePoint have the finances or commercial acumen to compete in eye disease markets against vastly better resourced rivals?

Will patients and physicians necessarily be won over by the lengthier dosing regimen – perhaps they will prefer to stick with tried and trusted methods? Will a Phase 3 study uncover issues with efficacy, formerly masked by the fact patients had been using other therapies long term?

Noting the substantial uplift in share price and company valuation – Eyepoint’s market cap rose to an all-time high of $650m, I concluded that:

I expect that the dilutive upcoming fundraising will affect the share price negatively in the short term, plus there is the fact that biotech stocks often drift downward in value when the next major data catalyst is some way away, and in EyePoint’s case, that will be Phase 3 data for EYP-1901 in Wet AMD that will not arrive until the end of next year, at the earliest, or possibly the NPDR data due in the middle of next year.

As such, there is no obvious compelling need to buy EyePoint Pharmaceuticals, Inc. stock today, but biotech investors may want to add it to their watchlists, as a ~$650m market cap valuation is very low for a company eyeing a market that is worth ~$10bn, in Wet AMD alone, with a product displaying durability that no other company – not even Roche or Regeneron – appears to be able to match.

Update To Present Day – NPDR Study Fail, Phase 3 wet AMD Study To Begin

After my note, EyePoint stock initially continued to rise, reaching a high of nearly $30 per share in February this year – analysts at JP Morgan (JPM) set a price target of $35 per share – before it started to drift downward, as I had predicted.

In May, the share price fell from ~$20 to $12 – an overnight loss of ~40% – as management shared data from the Phase 2 Pavia study of Duravyu in non-proliferative diabetic retinopathy (“NPDR”), showing that “the trial did not meet the pre-specified primary endpoint”.

Duravyu failed to improve patient scores on the Diabetic Retinopathy Severity Scale (DRSS) by a statistically significant amount – specifically, only 5% of patients in the 3mg arm and 0% of patients in the 2mg arm achieved a ≥2-step improvement in DRSS score at nine months, versus 5% in the control arm.

On a more positive note, in that study, 86% of patients in the 3mg arm and 80% of patients in the 2mg arm demonstrated stable or improved disease at nine months versus 70% in the control arm, but Wall Street was quick to punish EyePoint stock, perhaps reflecting the fact it has been somewhat skeptical of the Phase 2 Wet AMD study success, which some analysts put down to prior use of Eylea as opposed to the subsequent effect of Duravyu.

Announcing Q2 earnings earlier this month, EyePoint revealed that its Lugano Phase 3 pivotal study of Duravyu in Wet AMD was “on track for first patient dosing in 2024”, and also recapped 12-month data from its Davio 2 study, with Jay Duker M.D., President and CEO of the company, revealing:

In addition to a continued favorable safety profile, these robust data demonstrate that the majority of patients treated with a single dose of DURAVYU did not require any supplemental treatment and had a statistically non-inferior change in visual acuity compared to the standard of care on-label aflibercept control.

There is also a Phase 2 study of Duravyu in diabetic macular edema (which can lead to blurred vision) ongoing. The drug is being evaluated as a six-month maintenance treatment, with “27 patients assigned to one of two intravitreal doses of Duravyu or an aflibercept control”, and a primary study endpoint of time to supplemental injection up to week 24. The study is now fully enrolled, with topline data expected in Q1 2025.

For Q2, management also reported revenues of $9.5m, versus $9.1m in the prior year quarter, primarily driven by income from the out-licensing of EyePoint’s Yutiq drug franchise – a “once every three-year treatment for posterior segment uveitis in the United States” – to Alimera Sciences for $75m, plus “low to mid double-digit” royalties on US sales.

Operating expense for the quarter rose to $44m, up from $31.9m in Q2 2023, and net loss came to $(30.8m), or $(0.58) per share. Cash and investments were reported as $280.2m, down from $331.1m at the conclusion of the prior year quarter, which management says will “enable us to fund operations through anticipated Phase 3 wet AMD topline data for DURAVYU in 2026.”

Analysis – After NPDR Setback, Does Eyepoint Remain On Road To Success?

Analysts have speculated that the NPDR market is worth ~$250bn in peak revenues for Duravyuc, while the wet AMD market would be worth substantially more – ~$1.5bn, potentially. A key question for investors to consider is which data set is more reliable – the successful Davio data in Wet AMD, or the unsuccessful data from the NPDR study?

In the Davio study patient baseline characteristics across the Aflibercept and Duravyu 2mg and 3mg were virtually identical, with a slightly higher percentage of female patients in the Duravyu arms (54% Aflibercept, 64% 2mg dose, 67% 3mg dose). There were 54 patients in the Aflibercept arm, 50 in the 2mg arm, and 52 in the 3mg arm.

EyePoint notes that mean change in BCVA versus Aflibercept was -0.3 in the 2mg arm, and -0.4 in the 3mg arm, when Eylea HD – Regeneron’s longer-acting version of Eylea, which is dosed every 8-16 weeks, was -1.4 in its pivotal study – Eylea HD was approved in August last year.

This seems to support a positive outcome for the Phase 3 study, although we should draw attention to the fact the 2mg dose seemed to perform better than the 3mg. The lack of a “dose dependent” response could be a concern.

If I am reading the data right, patients received two Eylea injections on Day 1 and in Week 4, before either a single dose of Duravyu, or an Eylea injection every eight weeks.

As we can see above the reduction in treatment burden is impressive, although if we were to compare it to Eylea HD the reduction would likely be significantly smaller. Equally, as we can see below, it seems as though only six out of 10 patients may be supplement free after six months on therapy:

EyePoint paints this as a positive, but this figure also falls as low as 50% or lower at 12 months, the data seems to show – might a patient or physician conclude that the odds of remaining supplement free are not strong enough to support a switch from Eylea HD to Duravyu?

If Duravyu is commercialised, EyePoint will face a David versus Goliath scenario in terms of marketing spend and market experience against the might of Regeneron, so it’s data has to be very compelling or, even if approved, EyePoint may struggle to earn revenues, let alone a profit, from its lead asset.

It might have been interesting to see an arm where patients on Regeneron had no more injections after Week 4, to see how their results compared against Duravyu.

In the Phase 3 study, a dose of 2.7mg will be used, and the objective is to:

Demonstrate DURAVYU, when administered every six months, achieves similar visual outcomes to on-label aflibercept while reducing treatment burden.

There will be 400 patients in two separate studies – named Lugano and Lucia, with a primary endpoint of difference in mean change in BCVA from Day 1 to Week 52 and 56 (blended) versus aflibercept control.

Patients will apparently be injected three times with Eylea before the study commences – again, will that undermine a positive outcome in analysts, or more importantly, the Food and Drug Agency’s (“FDA”) eyes, when it comes to evaluate whether to approve the therapy for commercial use?

Now let’s briefly consider the failed Pavia study, which was set up as follows:

PAVIA is a 12-month, randomized, controlled Phase 2 clinical trial of DURAVYU in patients with moderately-severe to severe NPDR. The trial enrolled 77 patients randomly assigned to one of two doses of DURAVYU, or to the control group receiving a sham injection. DURAVYU is delivered with a routine intravitreal injection in the physician’s office, similar to current FDA approved anti-VEGF treatments.

In this study, Duravyu did not benefit from an initial Eylea injection, and failed to outperform a sham injection, which must be a concern for the company.

Concluding Thoughts – Is Eyepoint Stock A Buy, Sell ,or Hold Ahead Of Some Intriguing Data Readouts?

The next key catalyst for Eyepoint will likely be when the company announces 12-month Pavia study data, which management has promised for Q3 2024, so potentially any day now.

Were that data to be positive, I’d expect to see a major upswing in EyePoint’s share price, as it would suggest the drug works irrespective of whether Eylea has been administered beforehand or not.

I think a positive outcome is unlikely, therefore we should consider the Verona topline data due in Q1’25, which I would expect to be positive, and I believe the drug has a reasonable chance of acing these pivotal studies as it did the Phase 2, and going on to secure commercial approval, although that is unlikely before late 2026/early 2027, I’d speculate.

The issue then becomes whether physicians and patients will opt to use Duravyu in its optimal form as a maintenance treatment for Eylea, and frankly, I would not like to be the marketing manager that has to make that pitch to physicians – who already have Eylea HD, or Vabysmo, which may be dosed only every 16 weeks, at their disposal – on a relatively shoestring budget compared to the Big Pharma rivals.

My feeling – and I freely acknowledge this is only my opinion based on analysis of the various data to date – is that while being a “nice to have” maintenance therapy, Duravyu may fall just short of becoming a “must have” therapy in an already crowded and competitive market.

It will take a few more years before we may encounter that scenario, however, and there remains a strong chance that positive Pavia or Duravyu data – let’s not forget the DME data also due Q1’25 – could send the share price soaring once again – with the caveat that the stock has only once, and only for a few months, traded above $15.

Finally there is the fact that EyePoint filed for a $400m mixed shelf facility earlier this month, which likely means more dilution for shareholders. In the final reckoning, however, I just wonder if management filed the mixed shelf because they know they have good news to share, and want to raise money at an elevated share price.

With multiple upcoming data catalysts, and a genuinely compelling shot at approval as a maintenance therapy, although I have my reservations about EyePoint’s lead asset, I am revising my rating from a “Hold” to a “Buy”, as I believe there may well be significant price volatility across the short-to-medium term, which a canny investor may be able to exploit for financial gain.

With that said, I would emphasis this is a risky opportunity that won’t be to every investor’s tastes, and investors should perform their own additional due diligence.