Lori Freedman - General Counsel and VP of Corporate Affairs Dr. Paul Ashton - President and CEO Len Ross - VP of Finance

Good day ladies and gentlemen, and welcome to the pSivida Corporation Fourth Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll have a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference over to your host for today's conference, Ms. Lori Freedman, General Counsel and Vice President of Corporate Affairs. Ma'am you may begin.

Thank you, Mary. Good afternoon everyone and thank you for joining us. After the market closed today, we released our third quarter financial results for fiscal 2013. A copy of the release is available in the Investor section of our website at www.psivida.com. On the call today with me is Dr. Paul Ashton, President and Chief Executive Officer; and Len Ross, our Vice President, Finance. Before I hand the call over to Paul, I need to remind everyone that some of our prepared remarks are and answers to your questions may be forward-looking in nature. Forward-looking statements are inherently subject to risks and uncertainties. All statements other than statements of historical facts are forward-looking statements, and we cannot guarantee that the results and other expectations expressed, anticipated, or implied will be realized. Actual results could differ materially from those anticipated, estimated or projected in the forward-looking statements. For a more detailed discussion of the risk factors that could impact our future results and financial condition, I refer you to our filings with the SEC including our annual report on Form 10-K for the fiscal year ended June 30, 2012. We undertake no obligation to update any forward-looking statement in order to reflect events or circumstances that may arise after this conference call. With that, I’d like to turn the call over to Paul.

Thank you, Lori, and welcome everyone as we discuss the results of fiscal 2013 and fiscal 2013 fourth quarter. This was another good quarter for us as we continue our transition to a product based Specialty Pharma company, -- the one that still capitalizes on collaborations and licenses as appropriate. Here are some of the highlights; we have started our pivotal Phase III program for our own lead development product, Medidur for posterior uveitis. Second highlight, preliminary data from the Phase I/II investigator-sponsored study of Medidur was very encouraging. Third, our partner product ILUVIEN went on sale in Germany and the UK for the treatment of chronic Diabetic Macular Edema or DME. Four, following a re-filed NDA, ILUVIEN is under review by the FDA. Five, we're continuing to make progress with our Tethadur delivery system for peptides, proteins and antibodies. And six, after the close of quarter we completed a public offering of our common stock raising gross proceeds totaling $10.8 million; so, on the call today I'll provide you with some more details on these highlights before handling over to Len, who will take us through the financials. Before I go into the details though let's talk about the strategic direction the company is heading in. Our goal is to make the transition from a technology-for-hire company that simply licenses out all of its technology to a specialty pharma company that develops and sells its own products. So far we've done a great job in working with partners to advance our technologies, while retaining the freedom to develop our own products. Cash received from partners has greatly reduced our cash money. Over the last five years, we've received approximately $50 million from partners, in contrast over the same period we've only raised approximately 27 million from equity financings and this includes the 10.8 raised this last July. Of course we still plan to partner technologies and products -- in our best interests. Now the ILUVIEN Medidur program, it's a great example of the combination of these strategies. We partnered our micro insert based on our Durasert technology with Alimera Sciences; they have developed and are marketing it as ILUVIEN for the treatment of chronic Diabetic Macular Edema. To date we have received over $30 million from Alimera for milestones, license fees and other payments, and going forward we'll be entitled to receive a share of any profits on the sales in the EU countries where ILUVIEN is being sold. Approval in the US would trigger a $25 million milestone and provide us with the opportunity for net profit participation from sales in the US. So this product has already provided us with significant cash with the opportunity for yet more to come, but we also have the opportunity to develop the exact same micro-insert ourselves for the treatment of posterior uveitis. This is expected to have low expenses because of the ILUVIEN experience and we have the benefit of all the work that's being done for ILUVIEN. So let's talk about our own product for uveitis, Medidur. Posterior uveitis itself is a very unpleasant disease characterized by inflammation of the uvea one of the inner layers of eye. It affects approximately a 175000 people in the US, blinding some 30000. Medidur provides a great opportunity for us. As I mentioned, it's the same micro-insert that's used in the EU approved ILUVIEN. As a result the FDA has confirmed that we can reference Alimera's NDA filing for ILUVIEN for DME in support of our own application in posterior uveitis. Medidur delivers the same drug fluocinolone acetonide as ILUVIEN; this is the exact same drug that's in our FDA approved Retisert device marketed by Bausch and Lomb. As a result we expect to see a similar efficacy for Medidur as Retisert. However, based on the Phase III DME data and the lowered drug dose than is in Retisert, we expect side effects for Medidur in posterior uveitis to be comparable to those seen in ILUVIEN and that's far fewer than we’re seeing in Retisert. So we believe this is a relatively low risk development program. And in a moment I'll discuss a very promising interim data, consistent with this hypothesis. Turning to the regulatory program for Medidur for posterior uveitis, we met with the FDA earlier this year with respect to our proposed development plans and incorporated their suggestions. As it currently stands we're planning on two Phase III clinical trials, each with the primary endpoints of recurrence of disease at 12 months. To put this in English, posterior uveitis is a chronic recurrent disease that tends to ebb and flow and is generally managed with systemic steroids. In our trial design, patients must have [indiscernible] at the time of enrollment, we will look at the number of recurrences that each eye experiences over a 12 month period compared to untreated or controlled eyes. This is similar to the protocol used for approval of Retisert. In the Retisert Phase III trials approximately 50% were untreated eyes and the recurrence of uveitis within 12 months, versus less than 10% of eyes receiving Retisert, a very big difference. The first of our two planned Phase III Medidur trials is now underway. We expect it will take approximately one year to recruit with a one year follow-up before the primary end point. Now turning to the very encouraging interim data that I promised, in a 12 patient’s investigator-sponsored study of Medidur in posterior uveitis, an analysis was performed 12 months after recruitment began with a follow-up data available ranging from 12 months to one month. Here is good news; none of the eyes receiving Medidur an experience to recurrence of uveitis and in all cases inflammation decreased. In contrast, all control eyes, non-treated eyes, eyes that had a recurrence of disease or a worsening of inflammation. Furthermore, Medidur treated eyes had an average improvement in visual acuity of over nine letters on the eye chart while untreated eyes average to slightly decrease in vision of one letter. Medidur was well tolerated in the study and only one patient developed a significant increase in intraocular pressure. This patient had a history of elevated IOP and was on topical drugs before enrolling in the study. This early observed safety profile from Medidur is consistent with the safety profile seen in the ILUVIEN for DME studies. Now, this is preliminary interim data and from a small study. Nevertheless, these data are very in line with our expectation. In the Phase III trial for Medidur, we will see efficacy in treating posterior uveitis that’s similar to Retisert but with side affects similar ILUVIEN. Now, let’s move on to our partner product ILUVIEN, if you follow pSivida or our partner in this program Alimera Sciences, you will know that ILUVIEN is approved for the treatment of vision loss associated with chronic DME deemed insufficiently responsive to available therapies. It is approved in six EU countries with the seventh expected. We were very pleased therefore when Alimera announced that they have begun selling the product in Germany and the U.K. And they expect to come and sell in France in the first quarter of 2014 now also actively pursuing pricing and reimbursement. In the U.K., the ILUVIEN is currently available only on a private pay and privately insured basis. However an appraisal committee of the U.K.’s NICE has recommended amending published guidance to recommend ILUVIEN for pseudophakic chronic DME patients i.e., those who already had cataract surgery and should this recommendation be expected. U.K.’s National Health Service is expected to fund ILUVIEN for the treatments of this generally large subject of the chronic DME population. In Germany, Alimera has been permitted to launch ILUVIEN without price restriction and if we can secure agreements for reimbursement with the German statutory insurance funds allowing patients to avoid submitting individual reimbursement claims. In France, ILUVIEN for DME received a favorable opinion for the reimbursement and hospital listing by and 100% of the cost will be reimbursed under a program for severe chronic disease, such as diabetes. Although we don’t what this will mean for us in terms of our country by country net profits, as defined. Alimera has reported expect sales in Europe to increase overtime. In the U.S., Alimera submit of the NDA for ILUVIEN and received PDUFA date of October 17, 2013 and approval would entitle us to a $25 million milestone payment from Alimera. We also had been entitled to 20% of net profits, as defined, from the Alimera sales in the U.S. And this the same profit split that we have in Europe. Now, in addition to our Durasert technology as you know we have our Tethadur technology platform for the sustained delivery of peptides, proteins and antibodies. Preclinical testing of this technology is continuing to show promising results. We have a funded technology assessment agreement with the global biopharmaceutical company evaluating seven applications of Tethadur. We believe, there is a huge and growing unmet need for a sustained delivery system with peptides and proteins. For example in ophthalmology, the two biggest drugs of proteins that need to be injected directly into the eye typically every four to eight weeks. If these injections could be administered less frequently for example every six months, it would potentially be a big clinical advance and also a big competitive advantage. Looking at the potential opportunities for Tethadur beyond ophthalmology, the biotechnology revolution is now 30 plus years old and has been very successful. The base of scientific discovery on genetic and molecular biology space has continued to accelerate and a large number of the top selling drugs are not biologics. However, there has been relatively little innovation in the delivery of these new therapeutics, most of which is still injected. There is also an emerging patent cliff which is creating a Biosimilars market place. Biosimilars are in effect genetic versions of biologics. Patent covering biologics with over $50 billion in annual sales on expanding over the next 5 to 10 years. Our Tethadur system, which we believe can control the release of biologics over time, offers a potential to develop new formulations of existing biologics with better efficacy or greater patient compliance from the original drugs. Our Tethadur technology might also be used either to develop life cycle management products top order by similar competition or by similar manufacturers to develop buyback. Now turning to our results, we ended the year with $10.3 million in cash with no debt and after the close of the year we raised an additional 10.8 million in gross proceeds from a public offering in common stock. I’ll turn the call over to Len to take you through the financials. Len?

Thank you, Paul and good afternoon everyone. I will briefly review our fourth quarter and fiscal year 2013 results, reported earlier today starting with our financial position. As Paul mentioned in June 30, 2013 we had cash, cash equivalents in marketable securities of 10.3 million, and net decrease of 4.3 million compared to 14.6 million at June 30, 2012. In July 2013, we added to those capital resources with a $10.8 million public offering of our common stock. We anticipate that the combination of these capital resources, expected Royalty income from Retisert, and other expected cash inflows under existing collaboration and valuation agreements will enable us to fund our current and planned operations through calendar year 2014. This includes expected cost through that year of Phase III clinical trials of the Medidur for posterior uveitis product. The first of which commenced in 2013 that excludes any potential milestone or net profit recites under the Alimera collaboration agreement. Funding of our operations beyond calendar 2014 will depend on the amount and timing of payments we may receive under our collaboration agreement with Alimera as well as other existing and any future collaboration or valuation or other agreements and or any financing transactions in which we may engage. Although Alimera has commenced sales of ILUVIEN for DME in Germany and the UK and announced its plan launch timing for France, we don’t know if or when Alimera will achieve net profits in any of these countries or the resulting amounts we might receive. Turning out to our full year fiscal 2013 results; revenues decreased by 1.4 million to approximately 2.1 million for the year ended June 2013 compared to 3.5 million for the same period last year. Collaborative research and development revenue accounted for all the decrease which consisted primarily of 1.1 million recognized in the prior year period from the termination of a license for nutraceutical and food science applications of BioSilicon. Royalty income from Bausch & Lomb was approximately 1.4 million for each of the years ended June 2013 and 2012. Increased Retisert royalty income in fiscal 2013 was offset by the discontinuation of royalty income following pattern exploration. Research and development was 7 million for each of the years ended June 2013 and 2012. $1.3 million decrease in the amortization of intangibles resulting from last year’s intangible asset right down was substantially offset by initial costs in fiscal 2013 related to the commencement of the Medidur clinical trial and increased incentive compensation across. General and administrative expense increased by 301,000 to 7.2 million for the year ended June 2013 from 6.9 million in the prior year period. This increase was primarily attributable to cash incentive compensation approvals actually offset by lower professional fees. Operating expenses for the year ended June 2012 also included the 14.8 million impairment right down of our finite-lived intangible assets. Net loss for fiscal 2013 was 11.9 million or $0.52 per share compared to net loss of 24.8 million or $1.19 per share for fiscal 2012. Turning to our results for the fourth quarter ended June 30, 2013. We reported revenues of 492,000 compared to 699,000 for the same period last year. Collaborative research and development decreased by 80,000 primarily as a result of lower amortization of differed revenue related to our Pfizer collaboration actually offset by increased revenues from technology evaluation agreements and the upfront license fee from Enigma Therapeutics. Royalty income from Bausch & Lomb decreased by 126,000 as a result of lower Retisert sales and the discontinuation and the discontinuation Vitrasert sales. Research and development expense totaled 2.3 million for the quarter ended June 2013 compared to 1.4 million in the prior year period with the increase primarily attributable to clinical development costs for the commencement of the first Medidur Phase III trial. General and administrative expense totaled 2.2 million for the quarter ended June 2013 compared to 1.6 million last year, primarily attributable to increased incentive compensation accruals. Net loss for the three months ended June 2013 was 2.9 million or $0.17 per share compared to a net loss of 2.3 million or $0.11 per share for the prior year quarter. I will now turn the call back over to Paul.

Thanks Len. So to sum up, it’s been an excellent year and quarter for us. Key points are: one, commencement of our Phase III program for Medidur for the treatments of posterior uveitis; two, we see a interim data from a Phase I/II investigator-sponsored study supportive of our hypothesis that Medidur will show similar efficacy to Retisert but with the improved side effect profile of ILUVIEN; three, the ILUVIEN product is now being marketed by Alimera in the EU. We look forward to the results of the FDA to view Alimera’s resubmission of the NDA due on October 17; and four, we continue to be pleased with our preclinical research on our Tethadur peptide protein delivery system and are working with a global biopharmaceutical company on ophthalmic applications of this platform technology. At this point, we’d be happy to take your questions. Operator, would you please initiate the Q&A portion of the call?

Certainly. [Operator Instructions] And we have a question from Greg [indiscernible]. Your line is open.

Good afternoon, everyone. Thanks for taking my question. Paul, congrats on a great quarter.

Thank you.

If you could remind me in terms of the profit share arrangement you have with Alimera and in terms of how we should model you’re being able to receive your share of the profits with regards to sales in Europe for 2014. Would you expect that at some point you might be able to receive a portion of the sales?

I would certainly hope so. With respect to how the precise details of how the profits works and we’ll do better than to answer your question I will pass you over to Lori Freedman who can provide furthermore granularity.

Hey Greg. So the way the profits work is obviously it’s a profit foot or net profits which is basically gross profits less sales and marketing. And it’s on a country by country basis. So the net profit our share’s net profit in Germany will not be offset by commercialization cost in any of the other countries. As to what those numbers are going to look like for 2014, we obviously don’t have that information yet in a way that we can pass along to other people. So Alimera keeps that nice and tight and we contractually are unable to give away any of that information.

Okay, great. Thank you very much. Maybe a follow up just on your uveitis program, congrats on getting that program started and the details on time lines when you do think it would be in terms of guiding when we might be able to see first data from that trial? Is there any quarter in 2014 or beyond that you think would be reasonable for us to expect to hear from pSivida?

We anticipate it will take one year to recruit, so that would be essentially a year from now to think will it finish recruiting. And then it’s a one year follow up before the primary end point. We are currently not planning to do an interim analysis although I guess we could certainly consider that. We don’t anticipate that we’re going to have too many problems with [p-values] so whenever you do an interim analysis it cost you something in terms of your statistical power in the study. And as we believe that the study is already statically overpowered to show efficacy we probably have a bit of p-value as it were to spare. We are not currently anticipating that although we could certainly perform an interim analysis at some point should we deem it appropriate all the lines to do so.

Okay and maybe a follow up on that assuming you get an approval or Alimera gets an approval for ILUVIEN for diabetic macular edema does that change your thoughts around perhaps doing an interim analysis in Uveitis?

There is a few things that may affect our decision to do an interim analysis that is certainly one of them. There are some other factors I think you probably get a good view of likely data when the one year results that they investigate response and study announced and I would anticipate the results of that study will give into the (inaudible) meeting which is typically held in May 2014. Perhaps, likely to be the first data from 12-month follow-up of a certain number of patients. (inaudible) was doing an interim analysis will be that you have a weighing follow-up time with your patients, so it can be a little difficult to interpret although having said that the [pSivida] sponsored data that we have just seen in terms of reduction in inflammation and improvement in innovation is, I was extremely pleased with that.

Maybe switching to financials; it will be my last question, is there any particular guidance around P&L items for 2014?

No we don’t typically give guidance. As you know -- at this, for companies of our type, there are events that can occur that can have a very significant impact. And if you do a licensing deal with someone then that can be a pretty damn big impact. But you never know that you have a deal until the wires clears in your account. So it’s very difficult to give guidance on those things they can evaporate just when you think you have a deal sometimes.

Maybe last question just on R&D spend you are seeing a pickup in R&D spend in the fourth quarter relative to your prior three quarters as you continue to conduct that first Phase III for a posterior uveitis directionally any comments around R&D spend as 2014 evolves?

Yes it’s going to o up; it’s not going to explode. The total cost of that trial and generally the total cost of these kinds of trials is about $100,000 per patient. And this is 120 patients, so that you can do the math yourself, it is about 12 million bucks plus or minus. And that cost is spread over the total duration of the trial including the follow-up periods although it is lumpy some quarters are obviously higher than others. Now these trials although the primary endpoint is 12 months and we can submit for approval without 12 month primary endpoint data, the actually duration of the trial is 3 years. So that $12 million will be spread over a considerable period of time but not evenly. All of that is giving you information but perhaps not answering your question directly. So I apologize.

(Operator Instructions)

Okay well there being no more questions I would like to thank you all for joining us today. I look forward to speaking with you again next quarter. In the meantime, if you have any additional questions please feel free to contact us. And thank you.

Thank you for participation in today’s conference. This does conclude the program, and you may all disconnect at this time.