Earnings Call Transcript - OCUL Q1 2023

Donald Notman, Chief Financial Officer

Thank you, Julia. Good afternoon, everyone, and thank you for joining us on our first 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 first quarter ended March 31, 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 Anthony for a summary on 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 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 Anthony.

Antony Mattessich, President & Chief Executive Officer

Thanks, Donald, and welcome, everyone, to the Ocular Therapeutics First Quarter 2023 update. We're very pleased with our progress in the quarter, both on the development of our pipeline and the commercial side of the business. Importantly, on the heels of an ARVO meeting last month that highlighted the emergence of TKIs as an exciting new potential option for the treatment of retinal diseases, we thought it would be a good idea to reintroduce OTX-TKI to the many new investors who have recently become interested in the space. We started on our OTX-TKI program because we believe there is a desperate need for novel MOAs that enable new treatment paradigms for VEGF-mediated retinal diseases, like wet AMD, diabetic macular edema, diabetic retinopathy, and retinal vein occlusion. Despite the emergence of antibody treatments that have the ability to quickly reduce fluid in the retina, the problem is far from solved and the constraints of current treatment paradigms result in many patients with wet AMD remaining untreated. For those who are lucky enough to get treatment, real-world studies have demonstrated that the initial vision gains from treatment are not maintained. As a result, VEGF-mediated retinal diseases remain a leading cause of blindness. So why is there such a need despite seemingly effective therapies? We believe it has to do with deficiencies inherent in those therapies—deficiencies that OTX-TKI is designed to overcome. Fundamentally, VEGF-mediated retinal disease is caused by cellular dysfunction that results in chronic disease. Existing antibody treatments like EYLEA and LUCENTIS are only effective in binding the proangiogenic ligands in the extracellular space. Additionally, existing treatments affect only specific ligands, mainly VEGFR-2, while data demonstrates that the presence of all the isoforms of VEGF as well as PDGF play a role in the disease process through other types of receptors. Most importantly, current therapies are delivered as bolus injections into the eye. This leads to a situation where drug levels are briefly thousands of times above the IC50 and then quickly fall below therapeutic levels, which may leave the retina unprotected and exposed to disease reactivation. Because of the rapid elimination of these antibody therapies from the eye, there is a need for frequent injections. Frequent injections lead to poor compliance, and poor compliance leads to loss of vision. To reduce the real-world vision loss caused by the need for frequent injections, retina specialists have created a new paradigm of treatment known as 'treat and extend.' This process aims to establish individualized dosing intervals for each patient, but it remains an imperfect process given the natural variability of the disease in a patient and the need for perfectly timed injections, which is difficult to achieve in the real world. However, it is the best that can be done with current treatments and is a testament to the inventiveness and patient-centric focus of the retina community. We believe the world needs a treatment that works inside the cell and binds at the receptor level, covering all isoforms of VEGF and PDGF, and most importantly, one that can be delivered at a steady state over a long period of time with minimal injections so patients and providers can move beyond the current treatment approach. With OTX-TKI, we are developing a therapy designed to treat VEGF-mediated retinal disease as the chronic condition that it is, with a baseline maintenance therapy that stays above therapeutic levels to avoid disease reactivation. Most importantly, it is possible that vision gains may be maintained in the real world with the easier compliance regimens of a long-acting maintenance therapy. In this new treatment paradigm, which we like to call 'treat to maintain,' the antibody therapies would be reserved to do what they do best—remove extracellular fluid quickly—and would only be used in the occasional circumstances when fluid might break through the maintenance therapy, much like a rescue inhaler in the treatment of asthma. OTX-TKI is designed to have all of the properties I've outlined. Axitinib, the active ingredient in OTX-TKI, is highly selective for the VEGFR-2 receptor, which we believe to be the most important contributor to retinal disease, and it covers all the different types of VEGF and PDGF receptors with negligible affinity to any other receptor. As a TKI, its mechanism of action works inside the cell. Most importantly, its potency and solubility profile lend themselves to formulations that can deliver continuous therapy for nine to twelve months from a single injection. In designing OTX-TKI, the challenge for our formulations team was to develop a product that could deliver nine to twelve months of continuous doses of axitinib with a single implant. We also challenged the team to deliver the implant through a 25-gauge or narrower needle while ensuring that a retreatment window is created for an effective dose of axitinib to still reach the target tissues after full bioabsorption of the initial implant. This approach would ensure that there is never more than one implant in the vitreous at any one time, allowing the patient to schedule their appointment for re-dosing with flexibility. The data we observe in our clinical, preclinical trials and in vitro studies suggests that the formulations for OTX-TKI appear to align with this target product profile. It is worth mentioning something about our ELUTYX technology. The hydrogel technology that underpins ELUTYX has been used in the human body since 1992 and has demonstrated safety and effectiveness in over five million patients across five FDA-approved devices since that time. Our own approved product, DEXTENZA, has been used in nearly 300,000 eyes since launch, with reported adverse events in less than one in ten thousand patients. The only factors that regulate the bioabsorption of our ELUTYX polymers are temperature and pH of the aqueous environment. Since the human vitreous does not vary significantly in temperature or pH, and there’s enough water in every retina to saturate our polymer matrix, we believe we can program the duration so that the implant will remain intact long enough to deliver the desired dose and duration of axitinib before being fully bioresorbed when it's time to re-dose. The added benefits of not creating an acidic microenvironment, easy elimination from the vitreous, and leaving behind no harmful byproducts give us greater confidence regarding our safety profile. This technology could potentially provide solutions for durable therapies not only for wet AMD to decrease the injection burden, but also for other retinal indications that require frequent injections, such as new therapies for treating geographic atrophy. However, no matter how ideal the formulation of the active ingredient is, OTX-TKI needs to perform in the clinic, which it has. We placed OTX-TKI in a very challenging situation in its initial clinical trial in Australia, testing it as monotherapy in patients with uncontrolled disease in wet AMD. In that trial, we saw that OTX-TKI was able to eliminate fluid as monotherapy in some patients in a dose-dependent fashion, something no other TKI development program has accomplished. In a second trial, our current U.S.-based trial, we are evaluating OTX-TKI to assess the durability benefits of continuous dosing in patients with controlled retinas—that is, retinas that are in a dry state. Interim data has shown that 73% of patients were maintained rescue-free for up to 10 months, and the injection burden was reduced by 92%. These data were recently presented in a presentation by Dr. Andrew Moshfeghi at the 2023 ARVO meeting held in New Orleans. We augmented the results from this ongoing clinical trial with pharmacokinetic data from two animal models demonstrating the uptake of axitinib from our hydrogel implant in choroidal and retinal pigment epithelium (RPE) cells, where it acts intracellularly to exert its VEGF receptor inhibiting effect. The data showed that clinically representative formulations of OTX-TKI maintained sustained axitinib concentrations for up to 12 months, which were well above the IC50 for VEGFR-2 in final monkey retina tissue and in choroidal retinal pigment epithelium tissues. This excellent preclinical pharmacokinetics data aligns with the pharmacodynamics data we have observed in our ongoing U.S. clinical trial, notably the high proportion of rescue-free subjects up to at least 10 months, suggesting continuous VEGF receptor inhibition, which in turn would support this new treatment paradigm—treat to maintain—in wet AMD care. As a note, we expect to release our 12-month data from the U.S. BEST trial of OTX-TKI for the treatment of wet AMD at the Clinical Trials at the Summit Conference on June 10. We anticipate some reactivation of disease in certain patients, which we believe would indicate OTX-TKI continues to function as designed, with axitinib concentrations beginning to fall below therapeutic levels as we approach and exceed one year of treatment. We believe the next steps with OTX-TKI will be to prepare to commence our first pivotal trial in wet AMD as early as the third quarter of this year, and our first pivotal trial in diabetic retinopathy as early as the first quarter of 2024. Our confidence in entering pivotal programs is based on the clinical program to date that almost meets all the requirements of a robust Phase II program. First and foremost, we have proof of concept as monotherapy in uncontrolled retinas in the Australia study and in controlled retinas with anti-VEGF antibody induction in the U.S. trial. We demonstrated a dose response in Australia and have settled on an optimal dose per day. We also have comparative data from a mass trial comparing OTX-TKI to EYLEA given every eight weeks. Furthermore, we will have at least 60 patients dosed with OTX-TKI prior to the commencement of our first pivotal trial, some of whom will have follow-up for nearly four years. As we continue to evaluate funding alternatives, including collaborative partnerships, and finalize trial protocols, we hope to provide concrete guidance on precise plans in the near future. I would like to now hand the call over to Rabia, who will explain our ongoing clinical trials, where we are with our planned pivotal clinical trials in wet AMD and diabetic retinopathy, and our next steps for our OTX-TIC and dry eye program. She will then hand over the call to Steve Meyers, our Senior Vice President, Commercial, who will recap our commercial business, which is currently experiencing exciting end-market growth. But I hope you don't mind me giving you a bigger picture overview of our lead technology in the OTX-TKI story. It is increasingly clear, especially since ARVO, that the longer-acting antibodies are not going to resolve the problems of current therapy, and that gene therapy approaches for VEGF-mediated diseases are unlikely to replace current standards of care in any near-term horizon. We believe TKIs are the most promising new therapies that will allow patients and providers to evolve beyond the imperfect and burdensome 'treat and extend' into a new area of treatment— 'treat to maintain'—enabled by pan-VEGF receptor inhibition and intracellular therapies like OTX-TKI. Rabia?

Rabia Ozden, Chief Medical Officer

Thank you, Anthony. Let me begin with an update on our back-of-the-eye program, OTX-TKI. We are currently completing a multicenter prospective masked randomized controlled U.S.-based clinical trial in 21 subjects evaluating a 600-microgram OTX-TKI dose in a single implant containing axitinib compared to aflibercept administered every eight weeks in controlled wet AMD subjects previously treated with anti-VEGF therapy. The trial is designed to assess the safety, durability, and tolerability of OTX-TKI and to measure biological activity in subjects through anatomical and functional changes of the retina. To date, we have reported interim data at two time points, seven months and ten months, and have not observed any drug-related ocular or systemic serious adverse events in OTX-TKI treated subjects. Importantly, 73% of the OTX-TKI activated subjects who were rescue-free at the month seven interim analysis remain rescue-free at month 10, 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 patients showed stable and sustained best-corrected visual acuity and central thickness comparable with the aflibercept arm dosed every eight weeks. We believe this 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 continue to have productive dialogue with the FDA and recently completed a formal meeting with the agency that included a discussion of our data and clinical development strategy. Based on the feedback, we believe we have two potential designs for the pivotal trial. We will share more about the trial design that we plan to use in the future and still intend to be prepared to initiate the first two required pivotal trials in wet AMD as early as the third quarter of this year, subject to obtaining the necessary financing. Moving to OTX-TKI for the treatment of diabetic retinopathy, we continue to enroll subjects in a multicenter, prospective, masked, randomized controlled U.S.-based trial in 21 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 wet AMD will apply here. The ease of use of an office-based injection and long-term durability could establish OTX-TKI as the first standard of care in the treatment of diabetic retinopathy. Based on feedback from the recent agency discussions, we believe we have a potential pivotal design for diabetic retinopathy that aligns with the FDA's guidance. Subject to topline data from our ongoing trial and obtaining the necessary funding, we are poised to initiate a Phase III 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 using our ELUTYX technology being developed for the treatment of primary open-angle glaucoma or ocular hypertension. The ongoing Phase II trial of OTX-TIC is currently enrolling, and we believe we are on track to complete the trial on schedule. OTX-TIC represents a significant opportunity for Ocular Therapeutix. While there are many medications available to lower intraocular pressure, glaucoma remains a leading cause of blindness, partly due to unwanted side effects, improper technique, or simply forgetting to take daily drops. We believe most patients will fail to comply and may ultimately lose their vision. OTX-TIC is being developed to bridge the gap between clinical trial and real-world outcomes by removing patient compliance from the equation. We are enrolling approximately 86 subjects in this prospective, multicenter masked, randomized controlled U.S.-based Phase II clinical trial 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 changes in IOP from baseline at two, six, and twelve weeks, as well as total duration of IOP response over time against travoprost. We look forward to sharing Phase II topline clinical data in Q4 2023 assessing the efficacy and durability of OTX-TIC, and as importantly, the preservation of endothelial cell health that could indicate that the product candidate is suitable for repeat dosing. Regarding our ocular surface disease program, we remain committed to the development of our two dry eye programs, OTX-DED, 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 this quarter to evaluate the performance of OTX-DED versus placebo inserts, namely fast-dissolving collagen plugs and no inserts at all. We plan to utilize the results of this trial to inform the selection of a more appropriate placebo comparator for use in future trials for both OTX-DED and OTX-CSI that could potentially help de-risk their pivotal programs going forward. I would now like to turn the call over to Steve for a commercial update. Steve?

Steve Meyers, Senior Vice President, Commercial

Thank you, Rabia. On the commercial front, we finished the quarter with DEXTENZA net product revenue sales to specialty distributors at $13.2 million, representing growth of approximately 6% over the same period last year. Importantly, in-market billable units were up 25% versus the prior year period, which represents an increase of over 7,200 units. Measured against fourth quarter 2022, in-market billable units for the first quarter of 2023 grew by over 2,500 units or 8%. Throughout the quarter, weekly and monthly DEXTENZA in-market sales continued to accelerate. In fact, in March, DEXTENZA recorded the highest in-market sales ever, surpassing 13,000 units in a single month. We anticipate that with the full sales team in place, a revised pricing discounting strategy that was implemented in the third quarter of last year, and our strong market access, DEXTENZA will continue its growth in 2023. Looking at DEXTENZA's Q1 net revenue, our recorded net revenues were slightly down versus Q4. The difference between DEXTENZA's recorded net sales and the growth of DEXTENZA's in-market billable units is due to distributor stocking patterns, not changes in gross to net. Specialty distributors closed March with eight fewer days of product on hand compared to Q4. However, with the continued strong in-market unit volumes recorded in April, we believe specialty distributors' inventories have been rebuilt to meet the end-market demand of DEXTENZA. Looking ahead, I remain bullish for the remainder of the year. We have secured several national strategic account contracts over the past few quarters that are now in place and helping fuel our growth. We've also achieved exceptional market access coverage for DEXTENZA, including 100% coverage in Medicare Part B, over 90% coverage in Medicare Advantage, and over 70% coverage on the commercial payer side. Additionally, in Q1 2023, we launched a commercial assurance program to assist with patients' out-of-pocket costs, and the early feedback has given us more confidence to expand into the commercial patient population. Based on these dynamics, we remain confident in reiterating our DEXTENZA net product revenue guidance for the full year 2023 to be between $55 million and $60 million, representing potential growth of approximately 10% to 20% over 2022. With that, let me turn the call back to Donald to discuss our financial results.

Donald Notman, Chief Financial Officer

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 $13.4 million for the first quarter of 2023, slightly ahead of the first quarter of 2022 net revenues of $13.2 million and slightly behind fourth quarter net revenue of $14.1 million. DEXTENZA net product revenue grew from $12.5 million to $13.2 million over the comparable period in 2022, while collaboration revenue declined from $0.7 million to $0.2 million. Research and development expenses for the quarter of 2023 were $14.7 million versus $13.1 million for the same period in 2022, driven primarily by an increase in expenses associated with clinical and preclinical programs. Selling and marketing expenses in the first quarter of 2023 were $10.8 million as compared to $9.1 million for the same quarter of 2022, reflecting primarily an increase in field force personnel. General and administrative expenses were $9.1 million for the first quarter of 2023 versus $7.6 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 first quarter of 2023 of $30.3 million or a loss of $0.39 per share on both a basic and diluted basis compared to a net loss of $12.5 million or a net loss of $0.16 per share on a basic basis and a loss of $0.22 per share on a diluted basis for the comparable period in 2022. The net loss in the first quarter of 2023 included a $6.6 million noncash item attributable to a change in the fair value of the derivative liability associated with the company's convertible notes, increasing total other expenses as the price of the company's common stock increased during the quarter. Noncash charges for stock-based compensation and depreciation and amortization were $5.1 million in the first quarter of 2023 versus $4.8 million for the comparable quarter in 2022. As of March 31, 2023, the company had $79 million in cash and cash equivalents versus $102.3 million as of December 31, 2022. Based on current plans and related estimates of anticipated cash inflows and outflows, excluding expenses related to our planned pivotal clinical trials for OTX-TKI, the company believes that its existing cash and cash equivalents are sufficient to enable it to fund planned operating expenses, debt service obligations, and capital expenditure requirements to the middle of 2024. As of May 4, 2023, the company had approximately 77.5 million shares outstanding. This concludes my comments on our first quarter, and I would like to turn the call back to Anthony for some final thoughts.

Antony Mattessich, President & Chief Executive Officer

Thanks, Donald. So before opening the call up for questions, let me do a quick summary. OTX-TKI continues to progress well, and we are pleased with ongoing FDA communication regarding our potential pivotal programs for both wet AMD and diabetic retinopathy. Enrollment continues to go well in the Phase II trial of OTX-TIC in glaucoma, and we plan to provide topline data in Q4 2023. DEXTENZA had a strong start in 2023, with volumes in the first quarter running over 20% above the first quarter of last year, which leaves us confident in our ability to meet our 2023 guidance of $55 million to $60 million in net sales. Additionally, we have a solid balance sheet with $79 million in cash that currently supports our ambitious plans and other planned pivotal programs through the middle of 2024. With that, I'll turn the call over to the operator for questions.

Operator, Operator

Our first question comes from Jon Wolleben of JMP. Your line is now open.

Jon Wolleben, Analyst

Hi, good afternoon, and thanks for taking my question. A couple on the 12-month data and then a follow-up on the pivotal trial, if I can. Just wondering if you could give us a little bit more granularity on what you expect to see in the 12-month update as axitinib is getting bioresorbed in the eye? How is that going to manifest? Is it just going to be seeing fluid pick back up? Or is there some other manifestation? And then at ARVO, you mentioned the average resorption was about nine months of the hydrogel, but wondering what kind of variability you saw in the patients within that nine-month average?

Antony Mattessich, President & Chief Executive Officer

What we expect to see at 12 months is that the disease should start to come back in some patients. What we saw in the trial to date is exactly what we anticipated: that the hydrogel goes away in a very tight window in about eight months, and that there is a release of the drug after that, which stays in the retina for a couple of months. Some patients may clear it a little faster than others. We expect that as the therapy begins to wane, that the disease process could return. While we expect it to vary quite a bit from individual to individual, we would anticipate the reemergence of some disease, which would serve as confirmation that the pharmacodynamics are representative of the pharmacokinetic.

Jon Wolleben, Analyst

Okay. And can you tell us a little bit more about why two different pivotal trial designs? And when you say one could start in the third quarter, how do you decide which to move forward? Will there be two differently designed pivotal trials or a subsequent trial identical to the first when you start? Just trying to understand that dynamic a little bit better. Thanks.

Antony Mattessich, President & Chief Executive Officer

Yes, we have a lot of options, and with the new guidance and the feedback from the FDA, there are many paths we could take. Unfortunately, we do not have the ability to definitively say at this moment which protocol we will choose to follow, but we hope to have that determination in the very near future. It’s an exciting time with lots of possibilities, and our data room is extremely active; I would encourage Dr. Rabia to weigh in.

Rabia Ozden, Chief Medical Officer

Yes, that’s a good description where we are now. Jon, I just wanted to clarify whether our pivotal trials would be the same or not: yes, they will have similar designs moving forward. But as Anthony explained, we’re still deciding which path to pursue.

Joe Catanzaro, Analyst

Hi, guys. Thanks for taking my question. Maybe just one quick one for me on the potential pivotal design for the wet AMD studies. I think I recall previously, there was some speculation that future pivotal design could potentially involve two active arms, two different doses, exploring maybe two different formulations. Is that still a possibility between these two potential designs? Or have you formally committed to moving forward solely with the current formulation? Thanks.

Antony Mattessich, President & Chief Executive Officer

The quick answer is yes. One of the pivotal trial designs would utilize both formulations, while there is another that would only utilize one formulation, so we have the flexibility to proceed in either direction.

Tara Bancroft, Analyst

Hi, thanks for taking my question. So, I understand you're not disclosing specific details, but I was wondering if you could hypothetically discuss what you would consider the most favorable pivotal design. Could you elaborate on the pros and cons of choosing EYLEA versus LUCENTIS as a comparator arm and maybe the possibility of using a superiority endpoint? Thanks.

Antony Mattessich, President & Chief Executive Officer

That’s a great question, and I’m not sure I can get sucked into answering at the moment, but there are certainly lots of options available, including potential comparators if you’re thinking about a superiority trial. Yes, we have potential noninferiority designs that are very interesting and superiority designs that also provide good potential options. However, I don’t think we can say anything more until we actually choose our path forward.

Colleen Kusy, Analyst

Great. Good afternoon. Thanks for taking my question. So just to clarify, on the two wet AMD trials that you’re considering, it sounds like one might include two formulations while one might include only one. Is there anything else that you’re willing to share in terms of how you’re thinking about the two different trial designs?

Antony Mattessich, President & Chief Executive Officer

At this point, I don’t think it's wise to disclose more details. I appreciate the question and would love to be more informative, but I believe it would be premature to discuss anything further until we finalize our plans.

Colleen Kusy, Analyst

Fair enough. And then on diabetic retinopathy, have you discussed with the FDA what your success criteria would be, or do you have any internal hurdles that you would like to show in order to move into pivotal studies in diabetic retinopathy?

Antony Mattessich, President & Chief Executive Officer

Regarding diabetic retinopathy, I can defer to Rabia to provide clarity on where we stand.

Rabia Ozden, Chief Medical Officer

In our Type C meeting, Colleen, we discussed the diabetic retinopathy design as well. We received agreement from the agency on the proposed design. It will involve a TKI versus one injection—any injection of anti-VEGF therapy; per our understanding, a sham injection is not an acceptable comparator. The design is clear: it will be the TKI at baseline versus an injection of the comparator, with follow-up for 12 months. We are ready to move forward as soon as we finalize the partnership process.

Colleen Kusy, Analyst

Okay, great. That’s helpful. Thank you. And just one quick follow-up on the ongoing study in diabetic retinopathy. How much follow-up would we expect to see in the initial readout of that study?

Rabia Ozden, Chief Medical Officer

We haven’t disclosed how long the initial readout will take. We do follow up with patients for at least 12 months for safety reasons.

Yi Chen, Analyst

Hi, thank you for taking my questions. Could you give us a rough estimate of the cost to complete the Phase III trial in wet AMD and the Phase III trial in diabetic retinopathy?

Antony Mattessich, President & Chief Executive Officer

The costs can vary widely. It depends on whether we pursue a noninferiority design or a superiority design for pivotal trials. However, we are looking at ranges of approximately $70 million for two pivotal trials in diabetic retinopathy or a superiority in wet AMD to as much as $300 million for two pivotal trials in a noninferiority design. This is a rough estimate based on previous discussions.

Yi Chen, Analyst

Regarding the Phase II trial in glaucoma, could you discuss your expectations for the top-line readout in the fourth quarter?

Rabia Ozden, Chief Medical Officer

If we continue to enroll well, we expect to share the top-line data in the fourth quarter of this year. This data will primarily provide the IOP readings as required by the FDA along with durability information, and we will also include data on corneal endothelial cell health in that top-line analysis. Yes, we've recently initiated that trial, and while we haven't yet guided on a timeline for the top-line data, we will share this when we are ready.

Caroline Palomeque, Analyst

Hi, thanks for taking my question. So, on the expenses, you mentioned that there’s revised pricing and discounting strategy that you implemented in the third quarter. Could you elaborate more on that and particularly how that is affecting your gross-to-net? And just a follow-up: do you have any guidance on operational spending for 2023?

Antony Mattessich, President & Chief Executive Officer

There has been no change in the gross-to-net ratio from the fourth quarter of last year to the first quarter of this year. The growth in market sales paired with the decrement in net sales is entirely due to distributor stocking patterns. I’ll turn over to Steve regarding the changes in our discounting.

Steve Meyers, Senior Vice President, Commercial

Last year, from January to June, customers were purchasing at an acquisition cost that was higher than the reimbursement. Following the close of a quarter, customers would receive a rebate, causing dissatisfaction with the cost economics. In July, we revised our pricing strategy to ensure that customers would receive a discount at the point of purchase, allowing the acquisition cost to align with reimbursement. It took about three months for customers to adapt to this, but since then, we've observed tremendous growth in both Q4 and Q1. Now customers are receiving a discount at the time of purchase along with rebates based on their aggregate purchases throughout the quarter.

Caroline Palomeque, Analyst

That’s helpful, thanks.

Operator, Operator

Thank you for your participation. This concludes our Q&A and today's conference call. You may now disconnect.