Ocular Therapeutix, Inc Q4 FY2022 Earnings Call

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Ocular Therapeutix Fourth Quarter and Year-End 2022 Earnings Conference Call. It is now my pleasure to turn the call over to Donald Notman, Chief Financial Officer of Ocular Therapeutix. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on our fourth quarter and year-end 2022 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 fourth quarter and year ended December 31, 2022. 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 development and the commercial progress of DEXTENZA. Also speaking on the call today will be Steve Meyers, our Senior Vice President, Commercial; and Dr. Rabia Ozden, our Chief Medical Officer. Following their remarks, I will provide an overview of the financial highlights for the quarter before turning the call back over to Antony for a summary and questions. For Q&A, we will be joined by Chris White, our Chief Business Officer; and Dr. Peter Kaiser, our Chief Medical Adviser, Retina. 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 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 most recent annual report on Form 10-K filed this afternoon with the SEC.

Thanks, Donald. The fourth quarter of 2022 was a tremendous success for Ocular Therapeutix and has set the stage for a very strong start to the year in 2023. First, on the sales side, we finished the quarter with DEXTENZA net product revenue sales of $13.9 million compared with the same quarter of the previous year sales of $12.2 million and sales over the prior quarter of $11.9 million. That represents growth of approximately 14% and 17%, respectively. Total DEXTENZA net product revenue was $50.5 million, representing growth over the prior year of approximately 20%. Most importantly, in the fourth quarter, we regained in-market sales momentum and I'm pleased to report that this momentum has continued in the first couple of months this quarter. I will introduce you to our new Senior Vice President of Commercial in a few moments who will go through the reasons for the return to growth and our go-to-market strategy. While we were very pleased to regain momentum with DEXTENZA, we are really seeing the potential value of our pipeline continue to emerge, following the recent data we shared on OTX-TKI, our axitinib-containing hydrogel implant for the treatment of wet AMD and other VEGF-mediated retinal diseases. On February 11, Dr. Andrew Moshfeghi presented the interim 10-month results from our Phase I study in the U.S. where we compared a single dose of OTX-TKI to EYLEA given every 8 weeks in patients with wet AMD. The results were spectacular as we saw no additional rescues up to month 10 of the 73% of patients who were rescue-free up to month 7, demonstrating potential best-in-class durability. We believe the $15 billion global market for wet AMD and diabetic retinopathy is driven by durability. While these results mean a lot to Ocular Therapeutix and its shareholders, more importantly, they suggest a better future for patients suffering from VEGF-mediated retinal diseases, such as wet AMD, diabetic retinopathy, and diabetic macular edema. In short, we believe the promise of a drug like OTX-TKI is not only about convenience but also about saving vision. If we can move durability from the current frequency of injections to at least 9 months and beyond, we believe we can keep people on treatment and maintain vision. Lastly, it is important to understand that OTX-TKI is a different paradigm than typical antibody treatments...

Thank you, Antony. I joined Ocular Therapeutix 1 year ago, in March 2022. Prior to that, I served as Vice President, Sales, at Flexion Therapeutics. During my tenure at Flexion, I led a team of approximately 100 sales representatives. I am excited about the opportunities in front of us. Over this past year, we established a rigorous hiring process to assemble an experienced sales team that has deep buy-and-bill ophthalmology and surgical experience. We also adjusted our discounting strategy to meet the demands of the market. Finally, we've secured exceptional market access coverage for DEXTENZA, including 100% coverage on Medicare Part B, over 90% coverage in Medicare Advantage, and we'll be launching a new innovative program to accelerate the commercial book of business. Overall, we expect our market access coverage should allow more surgeons to treat more patients with the goal of supporting DEXTENZA to become standard practice in ASCs and fuel growth of DEXTENZA product sales in 2023. As we begin 2023, we're seeing continued momentum in January and February, with in-market billable units running more than 20% ahead of 2022 levels for the same period. Based on these dynamics, the company is guiding initial DEXTENZA net product revenue for the full year 2023 to be between $55 million and $60 million, representing potential growth of approximately 10% to 20% over 2022.

Thanks, Steve. Let me begin with an update on our back-of-the-eye program, OTX-TKI. We presented positive interim 10-month data from our U.S.-based Phase I trial of OTX-TKI being developed for the treatment of wet AMD and other retinal indications. This trial is a multicenter, prospective, masked, randomized, controlled trial in 21 subjects evaluating a 600-microgram OTX-TKI dose in a single implant compared to aflibercept administered every 8 weeks in controlled wet AMD subjects previously treated with anti-VEGF therapy. OTX-TKI was generally well tolerated with no drug-related ocular or systemic serious adverse events. Importantly, all OTX-TKI-treated subjects who were rescue-free at the month 7 interim analysis remained rescue-free, extending the 73% rescue-free rate up to month 10 and highlighting what we believe is best-in-class durability. Furthermore, we saw in the trial a 92% reduction in treatment burden for up to 10 months while demonstrating stable and sustained best-corrected visual acuity and central subfield foveal thickness, comparable to the aflibercept arm dosed every 8 weeks. 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.

Thank you, Rabia. Total net revenue, which includes both gross DEXTENZA product revenue, net of discounts, rebates, and returns, as well as collaboration revenue, was $14.1 million for the fourth quarter of 2022 and represents 18% growth over the prior quarter and 15% growth over the same period in 2021. DEXTENZA net product revenue was $13.9 million for the fourth quarter of 2022, an increase of approximately 17% sequentially over the prior quarter, and up 14% over the comparable quarter of 2021. Total net revenue for the full year 2022 was $51.5 million versus $43.5 million, an 18% increase. Research and development expenses for the fourth quarter of 2022 were $13.5 million versus $12.6 million for the comparable period in 2021. Overall, R&D expenses for the full year increased $3.4 million to $53.5 million from $50.1 million in 2021. Selling and marketing expenses in the fourth quarter of 2022 were $10.5 million as compared to $9.1 million for the comparable quarter of 2021. Overall, selling and marketing expenses for the full year increased to $39.9 million from $35.2 million in 2021. The company reported a net loss for the fourth quarter of 2022 of $15.5 million or a loss of $0.20 per share on a basic basis and a loss of $0.24 per share on a diluted basis compared to a net loss of $3.9 million for the same period in 2021.

Thanks, Donald. So before opening the call up for questions, let me give a quick summary. We are excited to share with you our 10-month interim results from the U.S.-based Phase I trial for OTX-TKI in wet AMD, building further evidence of a potential product profile that could set the standard of care for durability in the treatment of wet AMD and diabetic retinopathy. We should be positioned to initiate a pivotal trial of OTX-TKI for wet AMD in Q3 of 2023, subject to obtaining additional funding for the trial, including potentially a strategic alliance. Enrollment continues in the Phase II trial of OTX-TIC in glaucoma, and we believe that we will be positioned to release top line data in Q4 of 2023. DEXTENZA has had a strong start to 2023 with in-market volumes running greater than 20% above prior year through the first two months of the year.

The first question comes from Dane Leone with Raymond James.

Congratulations on the progress. I'll keep it to one on my end. Just obligatory since you brought it up, where do you feel like you're in the process of evaluating potential partnership situations for OTX-TKI? And when do you feel, on a time basis, you're trying to move forward with the pivotal program?

Yes. Thanks, Dane. Well, we are in the middle of a process. We're talking to all the people you would expect us to be speaking to. It's premature to opine on our likelihood of getting to an agreement with any partner. Clearly, we're going to have to make a call at some point moving forward. The other option, if we are not able to get the financing in place under the terms that we find agreeable, would be to go with diabetic retinopathy in the first quarter of 2024. We mentioned before that the resource requirements for that are much less onerous than those for wet AMD.

Our next question comes from the line of Jon Wolleben with JMP Securities.

I was wondering if you could give us a little more color around the discussions you're having with FDA and what is constituting the back and forth. Just wondering how you demonstrate durability in your pivotal trial in the context of a noninferiority study?

Thank you, Jon. This is Rabia. As you mentioned, there is this new draft guidance recently issued by the FDA on wet AMD drug development. We have been in active discussions with the FDA and recently had our Type C meeting. Therefore, this draft guidance was not new information to us and we have been considering all the efficacy points made in the guidance.

And maybe one on DEXTENZA. Wondering what swing factors are playing to either being at the low or high end of the guidance for the year?

Could you repeat the question?

Our hope is to exceed that guidance. Right now, we believe we can do just that. Our customers are still managing staff issues to return to full capacity. So we think right now, $55 million to $60 million is prudent guidance. Our hope is that we'll come back to the next earnings call with a run rate that makes us reconsider that.

And our next question comes from the line of Caroline Palomeque with Berenberg.

Just a couple for me. So the first one would be on DEXTENZA revenue. Just wondering if you plan to break those out between the 2 revenue streams from ocular pain and inflammation and then allergic conjunctivitis. And then, how much financing do you think you would need to progress the program for TKI in both wet AMD and DR?

It would be premature to talk about the actual amount that we would need until we actually have an approved protocol. I think it's clear for diabetic retinopathy, that is likely to cost significantly less. Regarding the first part of your question related to DEXTENZA, we won't plan to break out revenues because it wouldn't be instructive.

Our next question comes from the line of Joe Catanzaro with Piper Sandler.

I was just wondering how much is the potential strategic partnership for TKI contingent on defining and coming to an agreement with the FDA on what that clinical trial requirements would be for the pivotal wet AMD study? And when do you think you would be in a position to communicate what that study would look like?

We are very close, we believe, to coming to an understanding of what that pivotal program might look like. We think that they'll dovetail nicely with our discussions. But you're right that it would be hard to enter an alliance without clarity on what that program would entail.

And this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.