Ocular Therapeutix, Inc. (NASDAQ:OCUL) Q2 2023 Earnings Call Transcript

Ocular Therapeutix, Inc. (NASDAQ:OCUL) Q2 2023 Earnings Call Transcript August 7, 2023

Ocular Therapeutix, Inc. misses on earnings expectations. Reported EPS is $-0.26 EPS, expectations were $0.29.

Operator: Good day, and thank you for standing by. Welcome to the Quarter 2023 Ocular Therapeutics Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Donald Notman, CFO. Please go ahead.

Donald Notman: Thank you, Jacinda. Good afternoon, everyone, and thank you for joining us on our second quarter 2023 financial results and business update conference call. This afternoon, after the close, we issued a press release providing an update on the company’s product development programs and details of the company’s financial results for the second quarter ended June 30, 2023. The press release can be accessed on the Investors portion of our website at investors.ocutx.com. Leading the call today will be Antony Mattessich, our President and Chief Executive Officer, who will provide an update on our pipeline developments and the commercial progress of DEXTENZA. Also speaking on the call today will be Dr. Rabia Ozden, our Chief Medical Officer, and Steve Meyers, our Senior Vice President, Commercial.

Following their remarks, I will provide an overview of the financial highlights for the quarter, before turning the call back over to Antony for his summary and questions. As a reminder, on today’s call, certain statements we will be making may be considered forward-looking for the purposes of the Private Securities Litigation Reform Act of 1995. In particular, any statements regarding our anticipated net product revenues and our regulatory and product development plans as well as our research activities are forward-looking statements. These statements are subject to a variety of risks and uncertainties that may cause actual results to differ from those forecasted, including those risks described in our Form 10-Q filed this afternoon with the SEC and our most recent annual report on Form 10-K filed March 6, 2023.

I will now turn the call over to Antony.

Antony Mattessich: Thanks, Donald. Hello, and welcome everyone to our second quarter 2023 earnings call. We’re pleased to share with you the tremendous progress we’ve made over the past three months to build on our previous successes and to provide clarity on our plans going forward. First of all, we’re pleased to report that we achieved a new record of $15 million in DEXTENZA net product revenues in the second quarter of this year, 24% over same quarter previous year and 14% sequential growth over the previous quarter. Most importantly, in-market unit volume growth quarter-over-quarter for the last three quarters has been 21%, 8% and 7%, signaling a consistent growth trend that gives us confidence in DEXTENZA’s future potential to augment funding of our fast-developing pipeline.

Based on the trends we are seeing, we anticipate DEXTENZA net product revenue guidance for the full year 2023 will now come in at the upper end of the current $55 million to $60 million range provided at the start of the year. Steve Meyers, our Senior Vice President, Commercial, will walk you through the drivers behind this growth and our determination to further accelerate revenue growth through the unlocking of a facility payment for CPT 68841, the procedure code for insertion of DEXTENZA. Second, we are confirming our previous guidance that we plan to initiate our first pivotal trial for OTX-TKI before the end of this quarter using a superiority design. The trial we have developed will be a prospective multi-centered randomized parallel group pivotal trial that will be run primarily at US sites.

The trial is designed to enroll approximately 300 evaluable wet AMD subjects who are treatment naive in the study eye. It will compare a single implant of OTX-TKI to a single injection of aflibercept and assess the safety and efficacy of OTX-TKI in subjects with wet AMD by measuring best corrected visual acuity and central subfield thickness. Feedback from the FDA made the security pathway the preferred choice for OTX-TKI and wet AMD. Under the new draft guidance, advice from the FDA has evolved, particularly for products with expected durability advantages given their reduced dosing frequency over current therapy. Most notably, from our interpretation of the feedback we received from the agency, a traditional two arm sham controlled comparison trial against treatments with established non-inferiority margins, either aflibercept or ranibizumab, dosed according to their labels is no longer acceptable for investigational drugs with reduced dosing frequency as the FDA requires at least one additional comparative arm in which the dosing frequency, criterion for dosing adjustments, and criterion for interventions are the same as in the investigational drug arm.

This means that an additional arm with actual non-sham injections given with the same frequency as OTX as the OTX-TKI arm, which would be nine to 12 months in our case, would need to be included and that OTX-TKI would be required to show superiority over this arm, as well as non-inferiority to the on-label aflibercept or ranibizumab arm. Under the new draft guidance, however, the FDA also accepts a pivotal design that would simply show superiority alone to any treatment dosed identically to the investigational drug, in this case, OTX-TKI. Since we believe we can demonstrate superiority over a single injection of any approved pulse dose antibody treatment with approximately 300 evaluable subjects at a cost of approximately $50 million, moving forward with a superiority trial has become the clear and compelling choice compared to a non-inferiority trial that would, according to our interpretation of direct feedback from the FDA, require us to demonstrate both non-inferiority and superiority in a single trial.

In discussions with key opinion leaders in clinical trialists, we believe that we have a pivotal design that will satisfy the FDA requirements, can be enrolled in an acceptable timeframe and has achievable endpoints. Additionally, we expect the trial to be primarily enrolled in the United States for our discussions with many key investigators. Finally, we are pleased to announce that we have secured the funding that allows us to initiate this pivotal trial. Given the recent share price, we have consistently stated our desire to pursue non-dilutive or minimally dilutive financing pathways to bring OTX-TKI to NDA filing. By securing a debt facility of $82.5 million, we have obtained the funding that allows us to initiate our first pivotal trial for OTX-TKI and extends our cash runway into 2025 through non-dilutive means.

Donald Notman, our CFO, will go over the details of the debt facility later in the call. Another lever of non-dilutive funding that we continue to pursue is the securing of a strategic partner. I want to be clear that our new debt facility and the initiation of our first pivotal in wet AMD does not alter our strategy of aligning with a strategic partner. To date, we have been very pleased with the quality and level of engagement as we focus discussions with potential partners that have the ability to globally optimize a product with the potential of OTX-TKI. We believe that getting started with our first pivotal trial and demonstrating solid execution could add tremendous value to OTX-TKI and enhance our ability to generate a partnership that reflects OTX-TKI’s value.

So before handing off to Rabia, I wanted to mention a major milestone we achieved recently with OTX-TIC, our travoprost containing intracameral implant for the treatment of glaucoma. We recently completed enrollment in our Phase 2 program, keeping us on track to present interim results in the first quarter of 2024. With the recent interest around the iDose program at Glaukos, we are excited about the prospects of bringing a fully bio resorbable prostaglandin delivery implant that is designed to be suitable for chronic dosing into pivotal programs as our next step. Lastly, I wanted to highlight the recent addition of Dr. Adrienne Graves to our Board. Dr. Graves is well known in the ophthalmology community as both the front and back of the eye expert.

As the former CEO of Santen Inc., she successfully brought multiple ophthalmic products through development to approval and commercialization. More recently, as Chairwoman of the Board for IVERIC bio, she helped lead the company through late stage development of Zimura and the eventual $5.9 billion acquisition of the company by Astellas. With that, let me turn the call over to Rabia for a deeper discussion of our ongoing clinical trials. Rabia?

Rabia Ozden: Thank you, Antony. Beginning with OTX-TKI, we recently shared results from our multicenter prospective masked, randomized, controlled US based clinical trial in 21 subjects, evaluating a 600-microgram OTX-TKI dose in a single implant containing axitinib with a 2-milligram aflibercept injection four weeks after the implant compared to aflibercept administered every eight weeks in controlled wet AMD subjects previously treated with anti-VEGF therapy. The trial was designed to assess the safety, durability, and tolerability of OTX-TKI and to assess biological activity in subjects by measuring anatomical and functional changes of the retina. We shared our most recent 12-month update in June at the Clinical Trials at the Summit 2023 meeting.

Looking at safety, at each of the trial, analysis time points, seven, 10 and 12 months, we observed no direct related ocular or systemic serious adverse events in OTX-TKI treated subjects. Turning to biological activity, OTX-TKI continued to perform well with 73% of subjects remaining rescue free up to month 10 and 60% up to month 12. Overall, an 89% reduction in treatment burden was observed in the OTX TKI treated subjects at 12 months. In addition, data showed subjects treated with a single OTX-TKI implant continued to demonstrate sustained best corrected visual acuity and central subfield thickness which was comparable with the aflibercept arm at month-12. Four subjects received rescue therapy for the first time at month-12 and indicated as we would anticipate, the waning of the OTX-TKI therapeutic effect and potential disease reactivation, which helps re — which helps establish a redosing timeline for patients.

Overall, we believe the data highlights the potential of OTX-TKI to become a differentiated product capable of providing a durable anti-VEGF response that improves upon today’s standard of care in the management of wet AMD. We look forward to initiating shortly the first of two planned pivotal trials. Moving to OTX-TKI for the treatment of non-proliferative diabetic retinopathy. We announced in June the completion of our enrollment of our Phase 1 HELIOS trial. HELIOS is a multi-center prospective masked, randomized, controlled US-based trial in 22 subjects evaluating a 600-microgram OTX-TKI dose in a single implant containing axitinib compared to a sham injection procedure. We believe the same attributes that make OTX-TKI a compelling product candidate for the treatment of wet AMD, the ease of use of an office based injection and potential long term durability could establish OTX-TKI as the first standard of care in the treatment of diabetic retinopathy.

We plan to share interim six-month data from the HELIOS trials in Q1 of 2024, and subject to this data and additional financing, we believe that we will be well positioned to initiate a pivotal clinical trial for this program as early as Q1 2024. We are also making excellent progress with another one of our late-stage pipeline programs, OTX-TIC, our travoprost intracameral implant being developed for the treatment of patients with primary open-angle glaucoma or ocular hypertension. While there are many medications available to lower intraocular pressure or IOP, glaucoma remains a leading cause of blindness, in part because of unwanted side effects, improper technique or simply forgetting to take their daily drops. We believe most patients fail to comply and may ultimately lose their vision.

OTX-TIC is being developed to close the gap between clinical trial and real world outcomes by taking patient compliance out of the equation. This prospective multi-center masked randomized controlled US based Phase 2 clinical trial is evaluating the safety, tolerability and efficacy of OTX-TIC for the reduction of IOP in subjects with primary open-angle glaucoma or ocular hypertension. The trial is designed to observe the changes in diurnal IOP from baseline at two, six and 12 weeks and follow duration of IOP response over time compared to the restart. We are happy to report that the Phase 2 trial enrollment is now complete. We look forward to sharing Phase 2 top-line clinical data in the first quarter of 2024, assessing the safety, efficacy, durability of OTX-TIC.

I’m also very pleased to report that we have initiated a soft study to evaluate the safety of a repeat dose of OTX-TIC 286-microgram in a small subset of the subjects in the ongoing Phase 2 clinical trial. After receiving the repeat dose, a second implant of OTX-TIC 26-microgram, these subjects will be followed for at least six months after the enrollment in the sub-study to evaluate their endothelial cell health. The data on the preservation of endothelial cell health on this pilot repeat dose sub-study could provide preliminary support that the product candidate is suitable for repeat dosing. Regarding our ocular surface disease programs, we remain committed to the development of our two dry eye programs. OTX- DED at a low dose intracanalicular insert containing dexamethasone for the short-term treatment of the signs and symptoms of dry eye disease and OTX-CSI, a cyclosporine intracanalicular insert for the chronic treatment of patients with dry eye disease.

We initiated a small study in the second quarter to evaluate the performance of OTX-DED versus placebo inserts, namely fast dissolving collagen plaques and no inserts at all. We plan to use the results of this trial to inform the selection of a more appropriate placebo comparator for use in future clinical trials for both the OTX-DED and the OTX-CSI that could potentially have de-risked the pivotal programs moving forward. I would now like to turn the call over to Steve for a commercial update.

Steve Meyers: Thank you, Rabia. In Q2 2023, DEXTENZA recorded net product revenue sales of $15 million, which is over 14% ahead of Q1 2023 and approximately 24% higher than the same period last year. Also, in market unit volume, units sold to ambulatory surgery centers and hospital outpatient departments was up over 2,400 units from Q1 2023 and finished at 36,902 units, which represent a 36% increase over Q2 2022 and a 7% increase over Q1 2023. Importantly, this is now the third consecutive quarter DEXTENZA has recorded organic growth of in-market unit sales. We believe that DEXTENZA’s growth has been anchored by its strong efficacy and safety profile. The strong clinical profile has allowed our teams to create contracted strategic account partnerships and it’s also helped increase utilization among single-site surgery centers.

Additionally, our market access team has achieved exceptional market access coverage that is providing our customers with strong reimbursement confidence. These data, among others, are helping DEXTENZA continue its growth in 2023. Now I’ll provide a brief update to CMS consideration of CPT 68841, a code that describes the insertion procedure for DEXTENZA. We’re hopeful that CMS will change the inequity that currently exists with the assignment of Q1 status indicator to CPT 68841. In the ASC setting, separate payment continues to be rendered for the DEXTENZA unit itself by billing J1096 and we do not expect that to change. However, the Q1 status indicator assigned to 68841 means that there is no separate facility payment for the actual procedure to insert DEXTENZA.

Large ophthalmic societies, surgeons, ASC administrators and many others have a shared interest in providing the gold standard of care and many have chosen to make their voice heard by requesting CMS to change the status indicator. It is our belief that facilities should be compensated for the additional time and resources required to administer DEXTENZA and as such, we’re also strongly encouraging CMS to assign a status indicator to 68841 that would provide a separate facility payment in the ASC. We expect CMS will provide a final ruling late this year. Finally, as Antony noted earlier, based on DEXTENZA trends over the last several months and our first half net product revenue of $28.2 million, we now believe that DEXTENZA net product revenue for the full year 2023 should come in at the upper end of the current $55 million to $60 million guidance range, representing potential growth at the high end of approximately 10% to 20% over 2022.

With that, let me turn the call back to Donald to discuss our financial results.

Donald Notman: Thank you, Steve. Total net revenue, which includes both gross DEXTENZA product revenue, net of discounts, rebates, and returns, which the company refers to as net product revenue and collaboration revenue was $15.2 million for the second quarter of 2023, an increase of approximately 24% over the second quarter of 2022 net revenues of $12.3 million and an increase of approximately 13% over first quarter net revenue of $13.4 million. For the second quarter of 2023, DEXTENZA net product revenue grew to $15 million from $12.1 million over the comparable period in 2022 while collaboration revenue increased to $0.2 million from $0.1 million. Research and development expenses for the second quarter of 2023 were $15.1 million versus $13.1 million for the comparable period in 2022, driven primarily by an increase in expenses associated with clinical trial programs.

Selling and marketing expenses in the second quarter of 2023 were $11.2 million as compared to $10.1 for the comparable quarter in 2022, reflecting primarily an increase in field force personnel. General and administrative expenses were $8.2 million for the second quarter of 2023, versus $7.8 million in the comparable quarter of 2022, primarily due to an increase in personnel related costs including stock-based compensation and professional fees. The company reported a net loss for the second quarter of 2023 of $20.7 million or a loss of $0.26 per share on both a basic and diluted basis compared to a net loss of $18.8 million or a net loss of $0.24 per share on a basic basis and a loss of $0.25 per share on diluted basis for the comparable period in 2022.

Net loss in the second quarter of 2023 included a $1.1 million non-cash item attributable to a change in the fair value of the derivative liability associated with the company’s convertible notes, decreasing total other expenses as the price of the company’s common stock decreased during the quarter. Non-cash charges for stock-based compensation and depreciation and amortization were $5.1 million in the second quarter of 2023 versus $4.8 million for the comparable quarter in 2022. As Antony referenced, the company has just closed on an $82.5 million non-dilutive debt facility from Barings, LLC. The debt facility was fully funded at close, $80 million after original issue discount and has a six year term. The debt is interest-only until a bullet repayment at the end of six years and bears interest at one month, one month SOFR, plus 6.75%, with a SOFR floor of not less than 1.5%.

Additionally, the facility includes a royalty fee, equal to $82.5 million payable installments equal to 3.5% of US DEXTENZA net revenues until such time as Barings has received total payments inclusive of interest payments, principal prepayment fees, and royalty fee payments equal to the funded loan amount. This threshold is reduced to either 20% or 30% of the funded loan amount depending upon the circumstances if a change of control were to occur within 12 months of the closing. Any remaining balance of the royalty fee is payable in connection with a change of control thereafter. The debt facility also includes customary affirmative and negative covenants as well as a $20 million minimum liquidity requirement. Concurrently with the closing, we repaid our existing $25 million debt facility with MidCap and extended the maturity date of the company’s existing $37.5 million convertible notes to a date three months following the maturity of the new debt facility.

We believe that our existing cash and cash equivalents of $66.6 million as of June 30, 2023, plus the net cash received from the borrowing under the Barings credit facility after the repayment of the MidCap credit facility and reflecting the $20 million minimum cash covenant in the Barings credit agreement will enable us to fund our planned operating expenses, debt service obligations and capital expenditure requirements into 2025. This estimate is based on our current operating plans, which includes estimates of anticipated cash inflows from DEXTENZA product sales and cash outflows from operating expenses, including clinical trials. With the new resources available under the Barings credit facility, we have the funding to initiate the first of two planned pivotal clinical trials for OTX-TKI for the treatment of wet AMD.

Our planned operating expenses exclude expenses necessary to complete the first of the two planned pivotal trials for OTX-TKI for the treatment of wet AMD and expenses to initiate the second of our two planned pivotal trials for OTX-TKI for the treatment of wet AMD or any other planned trials for our other product candidates, including OTX-TKI for the treatment of proliferative diabetic retinopathy, which we do not intend to commence until we obtain additional financing. As of August 3, 2023, the company had approximately 79.4 million shares outstanding. I would now like to turn the call back to Antony for some final thoughts.

Antony Mattessich: Thanks, Donald. So before opening the call up for questions, let me do a quick summary. We recorded $15 million in net sales for DEXTENZA in the second quarter, 24% over same quarter prior year and 14% sequential growth quarter-over-quarter. We believe we have the opportunity to further accelerate our growth trend for DEXTENZA if the OPPS final rules in November allow for facility payment for CPT code related to DEXTENZA insertion. We are expecting to initiate our first pivotal trial for OTX-TKI and wet AMD in the United States in the third quarter of this year. We have secured a debt facility of $82.5 million that puts the funding in place to allow us to initiate our first pivotal for OTX-TKI and wet AMD and will extend our runway into 2025.

We have completed enrollment of the HELIOS trial and plan to share that data in the first quarter of 2024. We have completed enrollment of the Phase 2 trial for OTX-TIC in glaucoma, and we plan to provide data in the first quarter of 2024. Additionally, we have started a pilot repeat dose sub-study within the current Phase 2 trial. With that, I will turn the call over to the operator for questions.

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Q&A Session

Operator: Thank you. We will now conduct a question-and-answer session. [Operator Instructions] Our first question is from Dane Leone of RJF.

Dane Leone: Hi. Congrats on all the progress and momentum with the DEXTENZA launch. I think a popular focus for investors from your update today will be to go-forward clinical development pathway of OTX-TKI for the treatment of patients with wet AMD specifically. Do you think your team could please expand on the Phase 3 trial protocol that you’re considering and highlighted in your remarks and maybe specifically discuss how the trial design could avoid running at odds with the per USDA label treatment protocol of Eylea, that does recommend three monthly doses for wet AMD patients that are treatment naive? Thank you.

Antony Mattessich: I’ll hand that over to Rabia to go over the — what we can in the clinical trial design. Clearly, we’ve done a lot of work, had a lot of discussions, some of which we feel we’d like to keep proprietary for a brief period of time until the trial initiates. But I’ll pass it over to Rabia to further talk about what she can on the clinical trial protocol.

Rabia Ozden: Sure. Thank you, Dane. The — first of all, I will start with a — the change in the FDA guidance. And I heard, Dane, you said on label use of Eylea with the three induction doses. What I — like, can share is that, the — in the most recent pivotal non-inferiority designs, for example, of Vabysmo or high dose Eylea, sham injection provided in the treatment arm to mask the patients at time points where the control arm receives standard of care injections every four weeks or eight weeks depending on the comparator. And also, those — the loading doses, et cetera. FDA no longer recommends sham injections as they believe that using a sham does not provide complete masking, therefore, there is a patient risk. Instead of sham, they need a real injection.

And if OTX-TKI got every month or bi-monthly dosing regimens, then we would be able to do a standard non-inferiority design that we all used to see so far. Now the FDA clearly states in their draft guidance is superiority design to — an injection, it could be any injection. It doesn’t have to be an anti-VEGF. As long as a superiority endpoint is reached, that design is acceptable. You may think an early, like, the LUCENTIS approval, that actually use superiority design with no building injections, et cetera, that’s what we are planning to do instead of doing a three arm non-inferiority design, we’re going to do which we need to show non-inferiority to own label drop and superiority to that comparator arm, we are planning to do — our plan is to do this, two arm superiority design.

For now, the details we’re going to — we can share is this much, then this initiate the trial, we’re going to share the details of the design with you. Does this answer your question, Dane?

Dane Leone: Yeah. No. That provides a lot of detail. I think, maybe just one follow-up, just from what we’re kind of getting in, from investors on this, once we get the details of the full trial design from team as you go into starting the study, I guess some of the details that you might not be disposing today we could think of helping to allow involvement into the study. I think that’s where maybe some investors are struggling a little bit right now, it’s just understanding, from a clinical site in the US who would who would kind of enroll someone to maybe not get the three loading doses if they’re treatment naive patient?