Pixium Vision — Key advancements for Iris II and Prima in 2017

Pixium Vision was founded in France in 2011 and initially raised €24.3m in venture funding. It then raised €39.5m in its IPO in 2014. The company purchased the Iris epi-retinal implant assets from Intelligent Medical Implants in 2012 for €11m and is developing this device primarily for severely blind patients with retinitis pigmentosa (RP). Iris II received CE Mark approval in 2016 and commercialisation efforts in Europe and the Middle East are underway. The Prima sub-retinal implant was developed in conjunction with Stanford University and is awaiting first-in-human trials. Prima is theoretically capable of approaching facial recognition levels of visual acuity (VA).

We value Pixium using a risk-adjusted net present value (rNPV) approach, which applies a 70% probability of success for Iris II (given market acceptance and reimbursement risks) and a 12.5% probability for Prima. We have pushed back our start date for Prima pivotal studies into H118, which lowers our near-term R&D forecasts and delays our Prima launch estimate by about nine to 12 months in the EU and US. After also reducing our G&A expenses, applying a €/US$1.07 exchange rate forecast (vs €/US$1.11 previously) and rolling forward our estimates, we obtain a pipeline rNPV (enterprise value) of €131.4m, up from €125.5m, previously. After including €12.9m Q416 net cash, we obtain an equity valuation of €144.3m, or €11.31 per share (up from €10.78, previously).

Pixium’s year-end 2016 net cash position was €12.9m (€14.2m gross cash minus €1.3m in short-term advances). We assume a 2017 and 2018 operating cash burn rate (excluding net interest) of €11.7m and €14.8m, respectively. The firm entered an €11m debt financing facility in H216 which, if fully drawn, we estimate will fund operations into Q218. Beyond this facility, we assume Pixium will raise an additional €10m in 2017 (to build a buffer and extend its runway beyond Q218), €15m in 2018 and €30m in 2019, with much of it going towards Prima studies and Iris II commercialisation. For illustrative purposes only, we have added our forecast funding requirements to long-term debt.

Much development risk lies with the Prima implant as it has yet to be tested on humans. Further, the visual improvements offered by Prima and Iris II must be sufficient to persuade patients and insurers to cover the implant, and be competitive vs existing (Argus II) and emerging alternatives. Pixium will also depend on maintaining access to additional capital to fund Prima development and early Iris II sales. While our model accounts for these financings as long-term debt, the firm may have difficulties raising funds or need to issue equity instead, and there is a potential risk that pricing is not favourable for current shareholders, which would lead to significant dilution.

Pixium Vision is a French medical device company, which is advancing retinal implants, or bionic vision systems (BVS), that aim to provide vision to those with profound vision loss attributable to retinal diseases. These diseases permanently damage photoreceptor cells and impair their ability to translate visual stimuli into electrical signals transmittable into the optic nerve. Pixium’s BVS products intend to replace the signal processing functions of damaged photoreceptors by electrically stimulating other retinal cells. These cells would then transmit the information towards the brain via the optic nerve.

Iris II is the first commercial-stage epi-retinal implant competitor to the Argus II, from Second Sight (EYES: Nasdaq).1 Like the Argus II, the Iris II is an epi-retinal2 implant that transforms light into electrical pulses to stimulate the retinal ganglion cell (RGC) layers, providing the patient with crude vision. Pixium is also developing a wireless sub-retinal implant, Prima, which delivers the electrical impulses at a more upstream level in retinal signal processing, and could provide superior VA while requiring less electrical energy than Iris II, with a possibly less invasive surgical technique.

Pixium acquired the technologies and intellectual property surrounding the Iris implant via its 2012 acquisition of Germany-based Intelligent Medical Implants (IMI) for €11m. The first iteration of this device (Iris I) was implanted and studied in eight patients across five European sites between 2012 and 2016, with favourable safety data.

Pixium developed a second-generation version of this implant (Iris II), containing 150 electrodes rather than the 50 in the first model, and started a 10-patient human trial in early 2016 (interim data expected mid-2017, full data in H218).The higher electrode count and density of Iris II could improve the level of visual resolution perceived by the user. This could also help better differentiate this device compared to the Argus II, which has 60 electrodes. Another potential advantage of the Iris II vs Argus II is that it can be explanted more easily (ie to allow for the implantation of potentially improved later-generation BVS devices in the future). The Iris II is targeted at severely blind patients with RP or other retinal dystrophies. CE Mark approval was obtained in July 2016, clearing the device for sales in Europe.

Both Iris and Prima use asynchronous time-based image sensor (ATIS) technology for the imaging camera and sensor (on patient-worn goggles), enabling real-time delivery of visual information with relatively lower bandwidth than a traditional frame-by-frame capture and delivery system. The ATIS method sends signals that respond to movement and changes in contrast and luminance, which is more similar to the way the human eye functions, as opposed to sending frame-by-frame images, which carries redundant information and encompasses higher power and processing requirements.

The final patient in the 10-patient European Iris II study was implanted in early 2017. The 10 treated patients will receive post-operative visual rehabilitation training and will be assessed at predefined intervals (at up to 18 months post-implantation), and compared to pre-treatment levels on functional areas including VA, standardised picture recognition and image localisation.

Pixium’s next-generation BVS platform, Prima, is gearing for human feasibility studies. Prima is a miniaturized photovoltaic wireless sub-retinal implant that could potentially better visual resolution than Iris II, while also requiring a less complex surgical procedure for instillation. Prima is a sub-retinal device and is implanted underneath the retina. Instead of stimulating RGCs (more downstream in the visual signal processing) as Iris II does, Prima aims to stimulate bipolar cells (more mid-stream in physiological visual signal processing). In normal visual function, photoreceptor cells (located on the outer portion of the retina, or closer to the choroid) send information to bipolar cells (located within the retina), which then relay information into RGCs (which are on the inner portion of the retina). Because Prima functions more upstream, it allows for more physiological or natural image signal processing and requires less electrical energy than Iris II (since functioning inner retinal cells amplify the raw electrical signals before sending them to the optic nerve).

The reduced energy requirement allows Prima to operate through a wireless approach, through micro photodiodes. This eliminates the need for permanent trans-scleral wires (as needed by Iris II).

Thus, the surgical procedure to install Prima can be easier, quicker and less invasive than for Iris II. Prima requires clear optical media to function effectively, so patients with significant corneal scarring may be contraindicated (and cataracts would need to be removed prior to implantation).

Pixium believes that Prima could allow for higher VA than Iris II. Animal studies suggest Prima could reach up to 20/250 in humans (reflecting 8% of the resolution seen by healthy individuals). This could be sufficient to provide meaningful improvements and justify implantations in patients in late stages of the dry form of ARMD, such as those with retinal scarring or geographic retinal atrophy reducing best-corrected VA in both eyes to below 20/200. This adds the possibility for wider clinical use than the RP markets targeted for Iris II, and supports the implantation of Prima in areas where there is less grave vision loss than advanced RP cases.

Data studied on ex-vivo3 blind primate retina confirmed that there are localised, pixel (location-specific) responses in the RGCs, following sub-retinal stimulation using a Prima prototype. Animal model thermal4 and electrical safety studies were completed in 2016 and, according to management, successfully showed that the system meets the safety thresholds for thermal and electrical safety requirements for the eye. Pixium has also finished surgical procedure studies, and believes it has successfully completed all the required steps needed before first-in-human testing for ARMD patients in Europe.

Pixium submitted a proposed study protocol in H216 for a five-patient feasibility study in ARMD patients with French regulatory authorities (ANSM). While it originally planned clearance by year-end 2016, it now expects to receive this and perform the first implantation in H117, with potential completion of the feasibility trial by year-end 2017. If it is successful, Pixium plans to start a registration-enabling, pivotal EU Prima study for ARMD in H118. Since ARMD is a larger market than RP (late-stage ARMD’s prevalence is over 6x higher than all-stage RP), we anticipate that before allowing commercial clearance, European regulators will require the pivotal study to cover about 30 implantations, with follow-up periods of six to 12 months. We now forecast this pivotal study to start in H118 (vs our prior expectation of H217) will cost about €10-14m and have pushed back our EU potential launch timelines to 2020, vs 2019 previously.

Pixium is in discussions with the FDA to potentially start Early Feasibility Studies (EFS) on Prima. EFS are small-size (n<15), proof-of-concept trials on devices in novel indications and/or for which there are significant unknowns on performance. EFS data may be required by the FDA before allowing the start of a traditional US feasibility (pilot) study, which is carried on a larger number of subjects and often precedes a pivotal study. However, data from the EU feasibility study could potentially fulfil the EFS requirements for Prima, which is what we assume in our forecasts. Beyond this, Pixium believes the FDA would require a pilot study of about 30 patients and a pivotal study thereafter.

To obtain US approval in RP, Argus II required 30 implantations and follow-up. Given the larger market size for late-stage ARMD, we estimate that, for approval, the FDA would likely require the pivotal study to involve approximately 60-80 implantations, with monitoring for up to 18-24 months. We estimate that the US Prima pivotal study would cost $30-45m.

Under an ideal scenario, Pixium could combine data from sites participating in the EU pivotal trial into a US premarket approval (PMA) registration file. Our model assumes this will be the case, and that Pixium will start recruiting US sites as part of a US pivotal study staring in H218. We expect that CE Mark clearance (and EU launch) would still occur 18-24 months earlier than US PMA approval and launch. We now model US approval and launch in 2022 (vs 2021 previously).

Iris II can be indicated in patients with both severe central and peripheral vision loss; RP and other severe retinal dystrophies represent the target market. Prima has the potential to provide a higher level of central VA and target a wider range of patients, namely those with severe central vision loss (but intact peripheral vision). Late-stage ARMD is therefore a reasonable target for Prima. Both devices require the patient to have a functional RGC layer and optic nerve pathway.

RP is a progressive inherited retinal degeneration causing loss of peripheral vision that culminates in a loss of central vision. Prevalence is 0.025%,5 making RP the most common inherited retinal degeneration or dystrophy. Only the most severe cases develop end-stage RP with near-total central and peripheral visual blindness. We estimate that roughly 10% of the RP population reach such a stage, and would represent the target Iris II market. We model that of this 10% of RP patients, 45% would meet the remaining inclusion criteria for a retinal implant (such as good overall health status, suitable age, etc.). We estimate that 5,700 RP patients in Europe and about 4,400 in the US would meet RP inclusion criteria for Iris II and reflect the potential target market.

ARMD is the leading cause of blindness in adults over age 55 in Western countries, and is characterised by damage to the macular6 region of the retina, leading to central vision loss. Unlike RP, ARMD patients maintain their peripheral vision. While the exact pathophysiology is not fully understood, ARMD is believed to be caused by oxidative stress, mitochondrial dysfunction and/or inflammatory processes. There are two forms of ARMD: dry (non-exudative) and wet (exudative).

The prevalence of ARMD is adults above age 45 is estimated at 8.0%, and late-stage ARMD (with best-corrected vision acuity of 20/200, or 10% or worse) affects about 0.4% of this age group.8 This represents about 815,000 people in Europe and 517,000 in the US. We believe that 30% of this late-stage subgroup would have sufficiently poor central vision to warrant potential consideration for Prima, and that 30% of these would meet all remaining inclusion criteria (including having the dry form of the disease) and/or be suitable as potential responders (ie this considers that many of the ARMD patients are in poor general health and/or have concomitant eye diseases such as glaucoma or poor optical media transparency, which would render them ineligible for Prima). Thus we view the target ARMD treatment population for Prima as about 73,200 in Europe and 46,500 in the US.

Pixium’s BVS will need to compete with other implants on the market or in development.

Argus II uptake to date has been fairly limited, as in 2016 there have only been 12 Argus II implants in North America and 30 in Europe and the Middle East (EMEA), down from the 75 implantations worldwide in 2015. The limited level of vision provided by the 60-electrode device (patients may still require mobility assistance) could help explain the limited uptake to date.

Second Sight is also studying Argus II in ARMD and is developing a follow-on product (Orion I) that stimulates the visual cortex of the brain rather than the retina. By bypassing the optic nerve, Orion I could help patients with diseased optic nerves (eg glaucoma, optic neuropathy, etc). The firm intends to begin an Orion I human feasibility study in 2017, and potentially a pivotal study in 2018. Neurosurgery is more invasive than retinal surgery, so we estimate that unless Orion I can provide better VA than Iris II or Prima for retinal diseases, its potential use would likely be concentrated towards optic nerve diseases and thus may not directly compete with Iris II or Prima.

Retina Implant is a private German company developing a sub-retinal implant. Alpha IMS earned CE Mark in 2013 and a follow-on product, Alpha AMS, received CE Mark clearance in 2016, but neither product appears to be generally available for commercial use. The Alpha IMS implant appears to safely restore VA to the light perceptions and hand movements level.9

Nano Retina is an Israel-based firm that is developing a miniature chip retinal implant, NR600, which is currently in preclinical development. The company claims that the product can be implanted using a minimally invasive surgical procedure in under one hour. Like Prima, the product would have its own internal power supply, powered by photovoltaic elements generating operating voltage from infrared laser light delivered by the Nano Retina eyeglasses worn by the patient.

Based in Ottawa and founded in 2015, iBionics is designing an epi-retinal implant that stimulates the retina via diamond electrodes. The current iteration has 256 electrodes, with the possibility of increasing up to 1,024. The firm believes that a 1,024-pixel version could enable patients to recognize faces, read and navigate freely. Human trials are planned to start within 30 months.

Alternate therapies (beyond electronic implants) are being developed to restore sight to patients with retinal diseases which, if successful, could compete with Iris II or Prima. These include:

Pixium is building up a sales channel across Europe, and has started to recruit market developers in Spain and Germany. It is also working on securing insurance reimbursement. Given the expected high cost of the implant (we model net revenue of €78,000 per implant), we believe that payer/insurer coverage will be the primary channel for Iris II purchases, so obtaining coverage across different countries is key to optimising penetration. The reimbursement processes vary between each EU member country. The ongoing Iris II clinical study should provide efficacy data that can support long-term reimbursement applications in various European countries. Interim data (eg six months post-implantation), expected in mid-2017, could support these processes in some countries, although complete data (12-18 months post-implantation) will likely be needed for permanent reimbursement in most territories.

Before obtaining the data needed to support permanent coverage, Pixium is seeking temporary (or conditional) reimbursement applications in parts of Europe where innovative/breakthrough technologies can be funded as supportive clinical efficacy data are being gathered. Examples of such programmes include the Forfait Innovation in France, the NUB in Germany and the Commissioning through Evaluation (CtE) programme in the UK. Argus II has received coverage through the NUB, Forfait Innovation and CtE programmes (CtE in place since late 2016).

In February 2017, Pixium received a positive decision from the German Institute for the Hospital Remuneration System (InEK), whereby it was granted NUB (Neue Untersuchungs- und Behandlungsmethoden) Status-1 (full approval) for Iris II as an epi-retinal device. The NUB Status-1 decision, renewable annually, allows for selected hospitals in Germany (five hospitals were covered under Pixium’s application) to negotiate with insurance providers to obtain maximum coverage for Iris II implantations (including both the implant cost and for the medical procedures and rehabilitation) in patients with RP or other severe retinal dystrophies (other NUB status tiers provide limits to possible coverage). The five participating hospitals are in the process of negotiating with insurers; Pixium expects this process to be completed in H117.

In France, Pixium has applied for a Forfait Innovation programme to cover potentially up to 40 implantations over a five-year period at up to 10 hospitals. It expects such coverage would be contingent on the monitoring of approximately half of these patients over a two-year period, to build data supporting the efficacy of the implant. This request is similar to a funding structure in place for Argus II, where up to 36 patients are being covered by this programme for Argus II. Because vision rehabilitation and training is required to ensure proper adaptation to the Iris II so that maximal benefit could be realized, Pixium is also requesting coverage across a wide network of vision rehabilitation centres as well. The company expects to receive a decision in Q217.

Pixium will apply for the coverage of a small number of UK Iris II implantations through the CtE programme, but does not expect to receive a CtE decision before H217. In late 2016, the NHS announced it would cover 10 Argus implantations as part of a CtE programme. Most of the remaining European and Middle Eastern countries targeted for Iris II sales do not have a national insurance framework and private payment is expected to drive the majority of potential sales in such regions.

Development and regulatory risk. Much development risk lies with Prima as it has yet to be tested on humans. While there are favourable preclinical data, it is unknown whether Prima can provide superior central vision to epi-retinal implants and/or do so without additional safety risk. Compared to Iris II (implanted in patients with poor central and peripheral vision), Prima is being advanced in patients with intact peripheral vision and it is uncertain how well the visual system in Prima-implanted patients will interpret natural intact peripheral vision with artificial central vision. Further, degradation of the inner retina over time can reduce the VA offered by a retinal implant.

Commercial and competition risk. The visual improvements offered by Prima and Iris II must be sufficient to persuade patients and insurers to cover the implant and be competitive vs alternatives (for now the Argus II is the primary competitor in RP). Particular risk lies in the need for patients to properly undergo vision rehabilitation training to make full use of the Prima or Iris device; if patients do not fully engage in this process, the level of vision improvement possible could be restrained, affecting the commercial value proposition for the device.

Financing risk. Pixium’s year-end 2016 net cash of €12.9m, plus up to €11m available through a debt facility, should support its runway into Q218. We assume Pixium will raise an additional €55m by year-end 2019 to sustain its operations, as we do not expect Iris II sales to cover the firm’s operating and R&D costs (for Prima) over this period. While our model accounts for these financings as long-term debt, the firm may need to issue equity instead, and there is the risk that pricing is not favourable for current shareholders and leads to significant dilution. We do not expect Pixium to start generating sustainable, positive, recurring operating cash flows until 2020, once Prima reaches EU commercialisation in our model.

The company reported FY16 results in February 2017, with €2.5m in revenue (essentially from subsidies and research tax credits), €12.5m in operating loss and €12.4m net loss (€0.98 per share). This compares favourably to operating and net losses of €15.6-15.7m in 2015; the variance is largely due to lower R&D costs in 2016 (€10.9m) vs 2015 (€15.2m), which is explained by a reduction in Iris-related development costs (the final development of the Iris II prototype was completed in 2015).

We have lowered our G&A expense forecasts and short-term R&D spending forecasts. We now expect G&A costs of €3.7m and €6.4m in 2017 and 2018, respectively, versus our prior estimates of €4.5m and €7.1m, respectively. We have also reduced our 2017 R&D cost forecast to €9.0m, versus our prior forecast of €12.0m, due to a later than previously anticipated start to the EU Prima pivotal study. We have also pushed back our launch timelines for Prima in Europe and the US to 2020 and 2022, respectively, from 2019 and 2021, respectively. We assume the company will allocate its US clinical trial resources to bringing Prima to market, and we do not include potential US Iris II sales in our forecasts. We have also reduced our near-term Iris II sales forecasts to reflect a more conservative initial uptake in European regions; we now expect Iris II sales of €1.9m and €11.9m in 2017 and 2018, respectively, down from €2.5m and €19.6m, respectively. Our peak market share forecasts are unchanged and our complete Iris II and Prima forecasts are below.

Our 70% probability of success estimate for Iris II includes risk adjustment factors for commercialisation (market acceptance, reimbursement). We continue to attribute a 12.5% success probability for this product. Given the above changes and after rolling forward our forecasts and applying a $1.07/€ exchange rate forecast (vs $1.11/€ previously), we now obtain a pipeline rNPV (enterprise value) of €131.4m, up from €125.5m, previously. After including €12.9m estimated Q416 net cash, we obtain an equity valuation of €144.3m, or €11.31 per share (up from €10.78, previously).

Pixium’s year-end 2016 net cash position was €12.9m (€14.2m gross cash minus €1.3m in short-term advances). Given the pushback in our expected timing for the start of the EU Prima pivotal study into 2018, our 2017 cash burn rate forecast has decreased. We now assume a 2017 and 2018 operating cash burn rate (excluding net interest) of €11.7m and €14.8m, respectively compared to our prior estimates of €15.2m and €13.3m, respectively. Beyond the announced €11m Kreos financing (which we estimate will be fully drawn in H217 and fund operations into Q218), we assume Pixium will raise an additional €10m in 2017, €15m in 2018 and €30m in 2019. Much of the funding should go towards Prima clinical studies and Iris II commercialisation. For illustrative purposes only, we have added our forecast funding requirements to long-term debt. Our financial and valuation models do not include the potential dilutive impacts of future equity offerings.