Ocugen, Inc. Q4 FY2022 Earnings Call

Good morning and welcome to Ocugen’s Fourth Quarter and Full Year 2022 Financial Results and Business Update Call. Please note that this call is being recorded at this time. Following the speaker's commentary there will be a Question-and-Answer Session. I will now turn the call over to Tiffany Hamilton, Ocugen’s Head of Corporate Communications. You may begin.

Thank you. Joining me today are Ocugen's Chairman, CEO and Co-Founder, Dr. Shankar Musunuri who will provide a business update and our Chief Accounting Officer and Senior Vice President of Finance, Jessica Crespo, who will provide more detail on our financial results. Earlier this morning, we issued a press release detailing business and operational highlights for the fourth quarter and full year of 2022. We encourage listeners to review the press release, which is available on our website at ocugen.com. This call is being recorded, and a replay of the accompanying slide presentation will be available on the Investors section of the Ocugen website for approximately 45 days. This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. We may, in some cases, use terms such as predict, believe, potential, propose, continue, estimate, anticipate, expect, plan, intend, may, could, might, will, should, or other words that convey uncertainties of future events or outcomes to identify these forward-looking statements. Such statements are subject to numerous important factors, risks, and uncertainties that may cause actual events or results to differ materially from our current expectations. Investors should familiarize themselves with the company's filings for complete details. Except as required by law, we assume no obligation to update forward-looking statements contained in this presentation whether as a result of new information, future events, or otherwise after the date of this presentation. Finally, Ocugen's 10-K covering 2022 will be filed soon after today's call. I will now turn the call to Dr. Musunuri.

Thank you, Tiffany. Good morning, and thank you all for joining us today. I'm excited to share with you the significant progress Ocugen made in 2022 and during the first months of 2023 to further advance our diversified pipeline while continuously focusing on patients and pursuing courageous innovation, fueled by our team's passion, dedication, and visionary mindset. We witnessed progress across all our clinical programs. I will also provide more on our objectives for 2023, leading into 2024. Let me commence with an update on our gene therapy program. In December 2022, we announced that Q400, our investigational drug candidate for the treatment of retinitis pigmentosa and Leber congenital amaurosis, was granted expanded orphan drug designations by the U.S. FDA, which supports the therapeutic potential of our Q400 to treat multiple inherited retinal diseases. The single product, AC400, is symbolic of Ocugen’s gene modifier approach that is based on nuclear hormone receptors that regulate diverse physiological functions in the retina, such as development, metabolism, and cellular functions. This establishes homeostasis to potentially restore retinal health and function. In the U.S., RP and LCA affect 110,000 and 15,000 people, respectively. And globally, these conditions affect approximately 1.6 million people. Despite its prevalence, RP and LCA patients have limited treatment options. Current approved or in-development gene therapies focus on individual genes, whereas Q400 addresses the shortcomings of current gene therapy approaches as a broad-spectrum gene agnostic approach to genetically diverse inherited retinal diseases. We have completed enrollment of RP patients in the Phase I/II trial for the protocol and continue to enroll patients with LCA. We also established the high dose to be the maximum tolerable dose. We plan to start the Phase III clinical trial near the end of 2023. ARQ 200, our biologic product candidate, is a recombinant fusion protein consisting of two human proteins, somatostatin and transferrin, and is designed to treat severely sight-threatening diseases like diabetic macular edema, diabetic retinopathy, and wet AMD. Millions of patients worldwide are affected by these conditions. However, current therapies target only one pathway, either angiogenesis or inflammation, and up to 50% of patient populations experience limited or no response to current treatments. AKU200 works with a distinct mechanism of action compared to existing therapies and targets multiple pathways such as angiogenesis, oxidation, and inflammation, and has the potential to offer better treatment to all patients. Yesterday, we submitted an Investigational New Drug application with the U.S. Food and Drug Administration to initiate a Phase I clinical trial of OCC 200 for treating diabetic macular edema. This regulatory milestone fulfills the company's commitment to file the IND for ARQ200 within the first quarter of 2023. We are proud to further advance ART200, one of Ocugen’s founding ophthalmic programs. Another major highlight in 2022 that I'd like to note is the expansion of our pipeline into cell therapy with NeoCart, a Phase III ready, regenerative cell therapy technology that combines evolutionary advancement in bioengineering and cell processing to enhance the autologous cartilage repair process. We are developing NeoCart specifically for the treatment of articular cartilage defects in the knee. Current therapies to treat cartilage damage in the knee are suboptimal with various outcomes due to variable cellular responses. The current standard of care suffers from issues such as pain, reduced knee function, failure to address cartilage damage, donor tissue availability, and open surgery. In addition to receiving a Regenerative Medicine Advanced Therapy designation from the FDA, we received concurrence from the FDA on the confirmatory Phase III clinical trial design. We have already begun renovating our facility to accommodate cGMP manufacturing for clinical trials, and we are planning to initiate a Phase III randomized controlled study in subjects with articular cartilage defects in the first half of 2024. Now, turning to our vaccines portfolio and continued efforts to significantly mitigate the spread of COVID-19. From a public health perspective, we actively monitor the medical need for a more durable vaccine as more than 1 million cases of COVID-19 were diagnosed in the U.S. over the last 30 days. The International Health Regulations Emergency Committee of the World Health Organization recently held a meeting in January this year to discuss the state of the COVID-19 endemic, which revealed the global risk of COVID-19 and its ongoing transmission as high. This assessment was based on factors regarding circulating SARS-CoV-2 variants of concern, the status of global vaccination and hybrid immunity, and the unexpected and relatively early seasonal return of the flu, which further encumbers already constrained healthcare systems. The data backs this up: more than 5 million cases were diagnosed and nearly 40,000 people died worldwide in the last 28 days. Current COVID-19 vaccines are limited by a lack of durability and inability to stop transmission. As part of our commitment to address current gaps in the fight against COVID-19, we are developing a novel mucosal vaccine platform that includes Q5000, a bivalent COVID-19 inhaled vaccine, our Q10, a seasonal co-driven flu inhaled vaccine, and AQ2, a combination co-driven seasonal flu and bivalent COVID-19 inhaled vaccine. The Q5000 series is based on a novel platform designed to reduce transmission and protect against new variants. The Q5000 series is designed for annual boosters. For the 2022 to '23 flu season, over 50% of the U.S. population, about 6 months of age and older, received a seasonal flu shot, representing a market size of more than 170 million doses. The Q400 series of vaccines and the development brand's distinct product candidate profiles have the potential to significantly impact major global health obstacles and maximize our opportunity to serve broader patient markets. Regarding our injectable COVID-19 vaccine already in development, COVAXIN, we successfully completed enrollment for our COVAXIN Phase II/III immune-bridging and broadening clinical trial in December 2022 and reported top-line data in January 2023. This data showed that COVAXIN was well tolerated and demonstrated immunogenicity. We plan to present final data and analysis at midyear. At the beginning of November 2022, we held Ocugen’s first R&D day since the company's inception to showcase our dynamic pipeline and world-class team to investors, analysts, and other key stakeholders. During that meeting, we shared the long-term outlook for the company. On this call, I would like to spend some more time recapping our key priorities over the next 12 to 18 months. First, our gene therapy programs. We're anticipating ARQ400 preliminary efficacy data midyear and plan to start the Phase III clinical trial near the end of the year. For Q410, we are on track to submit INDs to the FDA in the second quarter of 2023 to initiate Phase I/II trials for rare diseases. With ARQ200, we believe we have a potentially one-time curative therapy with a single injection. Dry AMD affects 10 million people in the U.S. and over 266 million people worldwide. We're also targeting severe IDCs and look forward to the initiation of our ARQ200 Phase I clinical trial with preliminary data anticipated in the fourth quarter of this year. We plan to complete the CGMP facility construction for the manufacturing of NeoCart in the fourth quarter in support of initiating a Phase III clinical trial in the first half of 2024. For our new vaccine initiatives, we are planning to file an IND to initiate clinical trials in the fourth quarter of 2024. One overarching and imminent objective for Ocugen is to identify synergies and partnerships with organizations that can help drive the development of our comprehensive pipeline. With that, I’m thrilled about the recent appointment of a new Chief Business Officer, Kuan Wu, who is a seasoned healthcare business executive with more than two decades of experience in business development, strategy, and finance. We look forward to benefiting from the prospects of Kuan's leadership and together further evolve as a fully integrated patient-centric biotech company. Our strategic initiative to identify partnerships for our programs is also critical for our operational objectives to extend runway as appropriate. With that, I will now turn the call over to our Chief Accounting Officer and Senior Vice President of Finance, Jessica, to review our Q4 and 2022 financial metrics.

Thank you, Shankar, and good morning, everyone. I will now provide a brief overview of our key financial results for the fourth quarter and full year 2022. Our research and development expenses for the quarter ended December 31, 2022, were $17.2 million compared to $7.1 million for the fourth quarter of 2021. For the full year ended December 31, 2022, research and development expenses were $49.8 million compared to $35.1 million for the year ended December 31, 2021, with the increase primarily driven by the advancement of our product candidates into clinical trials. General and administrative expenses for the fourth quarter ended December 31, 2022, were $6.9 million compared to $7.5 million for the fourth quarter of 2021. General and administrative expenses for the full year 2022 were $35.1 million compared to $22.9 million for the year ended December 31, 2021. Net loss was approximately $21.9 million or $0.10 net loss per common share for the quarter ended Q4 2022 compared to a net loss of approximately $14.6 million or $0.07 net loss per share for the fourth quarter of 2021. Full year net loss was $81.4 million or $0.38 net loss per share compared to a net loss of $58.4 million for the full year of 2021 or $0.30 net loss per share. Our cash, cash equivalents, and investments totaled $90.9 million as of December 31, 2022, compared to $95.1 million as of the year ended December 31, 2021. We expect that our cash, cash equivalents, and investment balance will enable us to fund operations into the first quarter of 2024. We're continuously exploring opportunities to increase our working capital, and we'll be focused on seeking out partnerships and nondilutive funding, as Shankar mentioned during his prepared remarks. That concludes my update for the quarter. Tiffany, back to you.

Thanks, Jessica. We'll now open the call for questions. Operator?

Our first question will come from Uy Ear with Mizuho Securities.

I was wondering if you could provide more details about the COVID program, especially regarding COVAXIN. How does it currently fit into the evolving landscape with the FDA advancing recommendations for bivalent vaccines, along with other companies developing the 200 Series in conjunction with the flu vaccine? That's my first question. My second question is about the Q400. Can you explain what we should expect from the Phase II readout in midyear and how that would aid your transition into Phase III, particularly in terms of trial designs and the primary endpoint you would propose to the FDA?

Thank you. Starting with COVAXIN, the market landscape is clearly evolving. As we mentioned previously, we expect to have a complete analysis of the data by midyear. COVAXIN is an effective vaccine, with solid data supporting its use, as it has been administered to hundreds of millions worldwide, showing a positive safety profile. However, in the U.S., we need to conduct further work to align with the demographics and population, per FDA requirements. The initial trial included immune-bridging studies, which we are currently finalizing, while the second trial will focus on safety to establish a connection between immune response and efficacy, based on a large efficacy trial conducted by our partners in India. The next phase is the safety bridging. We must collaborate with government agencies to advance this cause. Increasing the number of vaccines available is crucial, particularly those with a proven safety profile, as highlighted in our immune-bridging trial, which has not shown issues like myocarditis, pericarditis, or thromboses that are seen with some other vaccines. We consistently verify the safety data produced by our partners, and we believe COVAXIN can have a place in the market, especially if we receive support and funding from the government. As previously mentioned, there’s more work ahead. It's clear we need a variety of solutions in our toolkit, as our vigilance will continue to be necessary for years to come. With a favorable safety profile and a traditional vaccine platform like Folio, this could be a valuable option for many patients. Now, regarding Q400, the market is evolving, which is why we are engaging in R500 cities with an immunization vaccine aimed at managing transmission and ensuring durability. Current vaccines have two main challenges. We anticipate the market will shift toward annual boosters, as indicated by the substantial size of the flu vaccine sector—half of Americans receive flu shots yearly. By integrating our unique technology designed for both novel flu and COVID, along with a combination of vaccines, we can play a significant role in that space. As for Q400, we are tracking multiple observational endpoints as part of our efficacy analysis. Our aim is to pinpoint one endpoint that ideally would apply to various mutations, but we’ll need to see the data to reach that conclusion. Our focus is on determining an appropriate endpoint based on the findings from this Phase II clinical trial to propose to the FDA and EMA as we finalize our Phase III design.

Your next question comes from the line of Jennifer Kim with Cantor Fitzgerald.

I have a few questions. First, regarding OCU200, I noticed you plan to start Phase I soon, with initial data expected in the fourth quarter. What are you hoping to find in that preliminary data? Also, how should we interpret the trial's design? Second, you mentioned that your financial runway extends into the first quarter of 2024, whereas I believe it was previously expected to last until the end of this year. Could you clarify how you're managing cash while balancing various programs to achieve this extension?

Yes, OCU200, as we announced, it’s a dose escalation study in a small population that looks at a range of doses, which we can pick before we go into Phase II. As part of that, we will look at central subfield thickness as other companies have looked at from the DME space specifically. Once again, the primary objective of any Phase I clinical trial is safety as part of the dose escalation to finalize the dose. We will be observing additional endpoints including ST. Now regarding the second question around extending the runway into Q1, I will let Jess answer that.

Sure, Jennifer. So in terms of extending our runway into the first quarter, we did utilize our ATM fairly, which has helped us extend our runway into Q1 of 2024. But as Shankar mentioned, we will need to raise capital in order to progress on all of our programs, and we're exploring many different options, including a focus on nondilutive funding, as we stated.

Okay, great. And maybe if I could ask one more question. With the two additional IND filings in the second quarter of this year, should we expect the initiation of those clinical programs to occur this year, or are you anticipating it more for early next year?

As we stated, I just wanted to confirm. The IND filings are separated out because 410 specifically targets dry age-related macular degeneration, focusing on late-stage patients in geographic atrophy, which is set for filing in the second quarter. Similarly, our Q4 ST targeting orphan diseases is also scheduled for the second quarter of this year.

Your next question will come from the line of Jonathan Aschoff with ROTH MKM.

Most have been answered, but did you say the NeoCart trial would start in the fourth quarter of next year or just sometime next year?

No. Actually, we stated NeoCart will start in the first half of next year. We are constructing a cGMP manufacturing facility, and that will be complete by the end of this year.

Okay. And can you give us a little more clarity on how much is left on the ATM as of today?

Yes. As part of our, I would say, general corporate housekeeping, we've canceled the ATM in connection with converting our automatic shelf into a regular shelf. You will see those filings come through today. We'll put the ATM back up when and if it's appropriate for the appropriate amount. So at this point, it's in capital.

Okay. But can you tell us how much of that ATM was actually used overall from the core and in it?

Yes. Under that ATM, we've sold approximately $14 million in terms of gross proceeds, and we've netted about $13.6 million.

Your next question comes from the line of Robert LeBoyer with Noble Capital Markets.

Thank you for laying out some of the milestones for the COVAXIN programs. Could you give any time frames for–- well, you had mentioned the midyear top line or conclusions in full data. Could you give some of the time frames for the Phase III and some of the other program starts and milestones?

Robert, are you specifically referring to COVAXIN or other programs?

Yes.

As I stated before, yes. The vaccine, we are finishing up the current study, and we'll have the final data analysis expecting midyear this year. As I stated before, we may need to do a safety clinical trial. We're still waiting for FDA to respond to their comments on our safety protocol. Once we get that, obviously, we are seeking government funds to conduct the clinical trial. As far as other Phase III clinical trials are concerned, there are two more we talked about during this earnings call. One of them is our ARQ400 modified gene therapy platform, where we have completed recruitment in our retinitis pigmentosa portion of the Phase I/II clinical trial. Based on data read, we're anticipating midyear on efficacy signal, and we plan to get into Phase III by the end of this year for ARQ400 gene therapy Phase III clinical trial. The second Phase III clinical trial is related to NeoCart, our cell therapy platform. The rate-limiting for that is the cell therapy itself. We are building our own manufacturing facilities, and we anticipate that construction will be complete by the end of the year, allowing us to initiate a Phase III clinical trial in the first half of 2024.

Your next question will come from the line of Sean Lee with H.C. Wainwright.

Just a quick question from me. So for the proposed new CAR study, have you finalized the endpoint in the study design yet?

Yes. I think the study design, as we agreed with the FDA, includes chondroplasty as a control, and that's different from prior control they used in the prior studies. The second thing is the endpoints will include pain and function.

Compared to the previous Phase III that histogenics ran with NeoCart, what would be the key differences?

The key differences are that they used a microfracture control, which we believe is not adequate. We examined the current standard of care, which is chondroplasty, and incorporated that. The FDA approved this modification. Additionally, we plan to limit the lesion size to three square centimeters and concentrate on that to avoid a broad approach like they previously adopted. We expect this will enhance our chances of patient recruitment. This is significant because chondroplasty represents the standard of care, unlike microfracture, which is crucial.

Great. One last final follow-up on that. For the new manufacturing facility that you’re building, would that be only for supporting materials for the Phase III? Or could you scale that up to potential commercial later as well?

Good questions. When we build this personalized medicine-related cell therapy, this is like a scale-up setup. These units are very small, essentially bioreactors, and can be used for commercial manufacturing too.

Your next question will come from the line of Daniil Gataulin with Chardan.

Congrats on all the progress. Just a couple of follow-ups, one on the cash runway in terms of bundling. Are you expecting to fund the Q500 series vaccine programs internally or look for external funding? That's one. And two, in relation to both ARQ410 and ARQ200, the two INDs that you plan to file this year, are you planning to initiate the actual trials this year as well? Or are you planning to initiate those in 2024?

For the Q500 series vaccine development, as we stated before, we are internally funding the development and taking it to the clinic. We are also, in parallel, working with various government agencies that see the need, and we believe we are trying to secure funding from them. We do need their support to move them into the clinic. The development part and preclinical studies have been budgeted, and we're going to complete that. Regarding ARQ410 and ARQ200, those INDs are scheduled for filing in the second quarter of this year. As soon as we get positive feedback from the FDA, we will start dosing patients this year.

This concludes the Q&A portion. I will now turn the call back over to Chairman and CEO, Dr. Shankar Musunuri.

Thank you, operator. I'd like to conclude the call with some additional remarks. I think it's clear that we are staying true to our mission as an integrated patient-centric biotechnology company that targets unmet medical needs. We believe we are in a position of strength, and we are poised to execute our goals with our pipeline for the course of 2023. We look forward to keeping you updated on our programs throughout the year. Thanks for your time today, and have a great week.

Thanks, everyone. Have a great day.

Thank you all for joining today's meeting. You may now disconnect.