Earnings Call Transcript - OCUL Q2 2022

Operator, Operator

Good afternoon, everyone. Thank you for being here, and welcome to the Ocular Therapeutix Second Quarter 2022 Earnings Conference Call. I would now like to hand the call over to Donald Notman, Chief Financial Officer of Ocular Therapeutix. Please proceed.

Donald Notman, CFO

Thank you, operator. Good afternoon, everyone, and thank you for joining us on our second quarter 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 quarter ended June 30, 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. We will provide an update on the commercial progress of DEXTENZA and a summary of our corporate developments. Also speaking on the line today will be Dr. Rabia Ozden, our Chief Medical Officer, who will give an update on our clinical developments and pipeline. Following Rabia's remarks, I will provide an overview of the financial highlights for the quarter before turning the call back over to Anthony for a summary and questions. For Q&A, we will be joined by Chris White, our Chief Business Officer; and Scott Corning, our Senior Vice President, Commercial. 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 and our financial projections 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 quarterly report filed this afternoon with the SEC and our annual report on Form 10-K filed on February 28 with the SEC. I will now turn the call over to Antony.

Antony Mattessich, President & CEO

Thanks, Tom. The second quarter of 2022 was another quarter of great progress in Ocular Therapeutix, most notably in the development of our pipeline. For those of you following the Ocular story, you'll know that by far the most anticipated development for the company and for the hope of a more durable treatment for patients with wet AMD is our U.S.-based Phase I clinical trial for OTX-TKI, our existing hydrogel implant for treatment of wet AMD and other retinal diseases. We are developing OTX-TKI to reset the standard of care for durability of a single injection in the treatment of wet AMD from 2 to 3 months to 6 months and beyond. To assess this, we have embarked upon a very important study in the U.S., comparing a single injection of OTX-TKI against Aflibercept dosed every 8 weeks. I'm delighted to announce that all 21 patients in the study have now been on study for 24 weeks or more, and we plan to perform an analysis after 28 weeks. The trial plan dovetails nicely with the American Academy of Ophthalmology meeting in Chicago where we have already been granted a late breaker slot on Friday, September 30. While OTX-TKI is our lead program in retinal disease, we also have R&D efforts seeking to develop more durable treatments for geographic atrophy and gene therapy delivery platforms that minimize inflammatory risk and maximize transaction potential. To help pool all of our retina assets together, we are delighted to announce the addition of Dr. Peter Kaiser to the Ocular team as our Chief Medical Adviser, Retina, with Peter added to the considerable retinal expertise already at Ocular. We believe we are in a position to plan an optimal path forward for OTX-TKI as well as other in-house programs or any potential collaborations in the retina space. On the glaucoma front, OTX-TIC, our travoprost-containing intracanalicular implants being developed for the treatment of open-angle glaucoma or ocular hypertension to improve patient compliance continues to enroll its first Phase II trial. We have designed this trial to assess the safety, tolerability and efficacy of OTX-TIC. In our completed Phase I clinical trial, we observed that OTX-TIC did not harm endothelial cells. So we are developing OTX-TIC for chronic or repeat dosing. While this program seldom gets the attention of its sibling OTX-TKI, we are equally enthusiastic about its prospects. In the treatment of dry eye disease, we have 2 programs, OTX-CSI, our cyclosporin-containing intracanalicular insert for the chronic treatment of dry eye disease and OTX-DED, our dexamethasone-containing intracanalicular insert for the short-term treatment of the signs and symptoms of dry eye disease. While we'd like to advance both programs, we are acutely aware of the need to preserve cash in the current challenging financial environment and a need to find ways to improve our chances for success in the very difficult regulatory environment of dry eye disease. As a way to continue momentum on these programs while satisfying both objectives, we plan to embark upon a small trial with OTX-DED that will pioneer a trial design to test OTX-DED against a more appropriate placebo comparator. Simultaneously, we are developing new formulations for OTX-CSI designed to be retained longer than the counter length of dose. Finally, helping to favor the development of our exciting pipeline is our commercial business with DEXTENZA. For the second quarter, DEXTENZA recorded net product revenue of $12.1 million, a 9% improvement over the same quarter of the prior year and down slightly compared to the prior quarter. What we are seeing both in the market and also with our own field force is that staffing levels continue to be a drag on potential growth. Despite the sluggishness of the current market, we are optimistic about the final quarters of the year and continue our guidance of between $55 million and $60 million of net product revenue for the full year. Beyond this, we are also very happy that the recent outpatient prospective payment system or OPPS proposed rule stated that DEXTENZA should remain separately payable in the ASC through 2023. As a result, we are optimistic that we can continue to grow our surgical business as we add to the future potential of the office environment. In summary, we're making great progress at Ocular and are gearing up for a significant moment in our history with the presentation of the results of our U.S.-based OTX-TKI Phase I trial in late September. To go into more detail on the pipeline, I'll hand it over to our newly promoted Chief Medical Officer, Dr. Rabia Ozden, our very own Dr. Ozden.

Rabia Ozden, Chief Medical Officer

Thanks, Antony. I want to provide an update on our back-of-the-eye program, OTX-TKI. In February, we shared findings from an ongoing Phase I trial in Australia focusing on OTX-TKI for wet AMD during the Angiogenesis, Exudation, and Generation 2022 meeting. This trial aimed to evaluate the safety and tolerability of OTX-TKI as well as its preliminary biological activity. Our objective was to determine if a tyrosine kinase inhibitor, when administered directly into the eye as a standalone treatment, could demonstrate biological activity in wet AMD. We targeted patients experiencing active subretinal and/or intraretinal fluid to assess whether OTX-TKI could resolve that fluid. This demographic was included in the Australian study. The results we presented at Angiogenesis were very promising, showing a clinically significant reduction in intraretinal and/or subretinal fluid in many participants, with some eliminating fluid completely. Furthermore, we observed extended activity duration of 6 months or more in over 60% of participants overall and in over 80% of participants in cohort 3A with a 600-microgram dose, which we see as a strong drug product profile. We are also conducting a fully enrolled Phase I clinical trial in the U.S., which is a multicenter, randomized controlled trial evaluating a 600-microgram OTX-TKI dose versus Aflibercept, given every 8 weeks to previously treated subjects without intraretinal or subretinal fluid. This trial is under an exploratory IND application, encompassing 6 sites with a total of 20 randomized participants, weighted towards those treated with OTX-TKI. The trial's aim is to evaluate the safety, durability, and tolerability of OTX-TKI, along with assessing preliminary biological activity by measuring changes in the retina. Our goal here is to find out how long a single 600-microgram OTX-TKI implant can maintain dryness without needing retreatment. We look forward to sharing our findings at the upcoming AAO meeting at the end of September. We believe that matching or exceeding the response rate and durability seen in the Australian study would indicate a robust drug product profile. Moving on to our glaucoma program, OTX-TIC, we recently presented results from a completed U.S.-based Phase I trial evaluating the safety, biological activity, durability, and tolerability of OTX-TIC in patients with primary open-angle glaucoma or ocular hypertension at the Glaucoma 360 meeting on February 11. The Phase I data suggested that OTX-TIC led to a meaningful reduction in intraocular pressure comparable to Travoprost as early as 2 days post-administration, lasting for 6 months or more with a single implant while maintaining corneal health, indicating its potential as a novel drug product. With these findings, we have commenced a U.S.-based Phase II clinical trial, which is a multicenter, randomized controlled study assessing the safety, tolerability, and efficacy of OTX-TIC for treating patients with primary open-angle glaucoma or ocular hypertension. This trial is set to enroll around 105 subjects divided into 3 groups of approximately 35 participants each, randomized in a 1:1:1 ratio, where participants will receive a single OTX-TIC implant with either a 5-microgram or 26-microgram dose of Travoprost, compared to another implant. The 5-microgram group will use a fast-degrading implant, while the 26-microgram group will use a standard degrading implant. The trial will monitor changes in intraocular pressure at specific times over a 12-week period and track the duration of pressure response over time. Regarding our ocular surface disease efforts, we are dedicated to developing our two dry eye programs, OTX-DED, a low-dose intracanalicular insert with dexamethasone for short-term dry eye symptom treatment, and OTX-CSI, a cyclosporin intracanalicular insert for long-term dry eye treatment. For OTX-DED, we plan to conduct a small trial to evaluate its performance compared to short-duration biodegradable collagen implants. This trial aims to quantify the placebo effect noticed in both OTX-DED and OTX-CSI Phase II trials, where the placebo insert lasted longer in the canaliculus than expected, resembling an active comparator. We think the data from this trial will help us choose a better placebo for both OTX-DED and OTX-CSI as we progress. This trial is expected to begin in the first half of 2023. We are also working on formulating to extend the durability of the OTX-CSI insert. Our goal is to determine the best formulation for the OTX-CSI program moving forward. I will now turn the call back to Donald to discuss our financial results for the second quarter.

Donald Notman, CFO

Thanks, Rabia. Net revenue, which includes both gross product revenue net of discounts, rebates, and returns, which the company refers to as total net product revenues and collaboration revenue was $12.3 million for the second quarter and represented an approximately 5% increase over the same period in 2021. Net product revenues of DEXTENZA in the second quarter of 2022 were $12.1 million versus $11.1 million in the comparable quarter of 2021, reflecting a 9% increase. Total net revenue for the second quarter of 2022 also included collaboration revenue of $0.1 million from our licensing agreement with Affimed. Research and development expenses for the second quarter were $13.1 million versus $13.9 million for the comparable period in 2021, driven primarily by a reduction in clinical and preclinical spending, offset by an increase in unallocated personnel costs and other expenses. Selling and marketing expenses in the quarter were $10.1 million as compared to $8.4 million for the comparable quarter of 2021, due primarily to an increase in professional fees related to trade shows, conferences, and advertising. General and administrative expenses were $7.8 million for the second quarter versus $8.6 million in the comparable quarter of 2021, primarily reflecting a decrease in professional fees. The company reported a net loss of $18.8 million or a loss of $0.24 per share on a basic basis and a loss of $0.25 per share on a diluted basis for the second quarter ended June 30, 2022. This compares to a net loss of $8.5 million or a loss of $0.11 per share on a basic basis and a loss of $0.25 per share on a diluted basis for the same period in 2021. Net loss in the second quarter of 2022 was reduced by a $2.8 million noncash item attributable to a decrease in the fair value of the derivative liability associated with the company's convertible notes as the price of its common stock declined during the quarter. Noncash charges for stock-based compensation and depreciation and amortization were $4.8 million in the second quarter versus $4.9 million for the same quarter in 2021. As of August 5, 2022, the company had 77 million shares outstanding. As of June 30, 2022, the company had $134.5 million in cash and cash equivalents versus $145.4 million at March 31, 2022. Based on current plans and related estimates of anticipated cash inflows from DEXTENZA and anticipated cash outflows from operating expenses, the company believes that its existing cash and cash equivalents are sufficient to enable the company to fund planned operating expenses, debt service obligations, and capital expenditure requirements through 2023. This guidance is subject to a number of assumptions, including the impacts from the ongoing COVID-19 pandemic, the revenues, expenses, and reimbursement associated with DEXTENZA, and the pace of research and clinical development programs, among other aspects of the business. I would now like to turn the call back over to Antony for some final thoughts.

Antony Mattessich, President & CEO

Thanks, Donald. So before opening the call up for questions, let me do a quick summary. All patients in the U.S.-based Phase I trial evaluated OTX-TKI in patients versus Eylea in wet AMD have now been on the study for at least 24 weeks. We've been granted a late-breaker slot at the AAO, where we plan to present 28-week data. OTX-TIC continues to enroll patients in its Phase II trial for the treatment of open-angle glaucoma or ocular hypertension. On our commercial business, DEXTENZA remains a source of tremendous opportunity. The proposed OPPS rule providing for separate reimbursement in the ASC through at least 2023. Despite the market still being hampered by staffing issues, we have great confidence in our ability to grow our surgical business and expand the extensive franchise even further as we add to the future potential of the office environment. We are reiterating our net product revenue guidance for 2022 of between $55 million and $60 million, representing approximately 26% to 38% year-over-year growth, driven predominantly by sales of DEXTENZA and surgical SAG. Finally, the company ended the quarter with a strong balance sheet and $134.5 million in cash as of June 30, which we believe is sufficient to fund multiple development milestones and provide cash runway through 2023. We look forward to a strong remaining 2022. And with that, I will turn the call over to questions.

Operator, Operator

Your first question comes from the line of Jon Wolleben from JMP Securities.

Jonathan Wolleben, Analyst

Maybe starting with DEXTENZA Xtend and then I got a follow-up on TKI. Getting what gives you confidence that you'll see the staffing issues that ASC bounce back in the second half of the year to reiterate your guidance? And then you mentioned you're a little understaffed, wondering if you could provide a little more color on what's going on with your reps as well?

Antony Mattessich, President & CEO

Yes, the confidence is just essentially the confidence that you have in the overall economy that things are going to normalize. And we do think there will be a number of factors that will improve as the year goes on. I think it's really important the OPPS ruling that gives us continued visibility in 2023. I think that will give people comfort to be able to continue to stock up in the final quarter and maybe to move some volume over to DEXTENZA as well. But yes, it would look like $55 million to $60 million was something we were highly, highly confident of at one point, it's going to be a little bit of a stretch. We still think we can get there. We think that the market is going to break in positive ways for us moving forward.

Jonathan Wolleben, Analyst

And to TKI, just thinking about the translatability of the 3B cohort in Australia, wondering if you could discuss the sequence of the anti-VEGF administration and TKI from that study and what you're doing in the U.S. study. And then any differences in the logistics of the insert between the 600 micrograms and the 200-microgram inserts as far as besides just a dose of the drug, but any differences in the hydrogel there either we should think about?

Rabia Ozden, Chief Medical Officer

Sure. And thank you for the question, Jon. Maybe I'll just give a background about the Australia trial first; that Australia trial is designed to provide the safety and tolerability of OTX-TKI and to show preliminary biological activity in patients with active subretinal and/or intraretinal fluid. That was a dose escalation trial, and we started with a single implant of 200 micrograms, then the 2 implants, and then 3 implants; we reached the 600-microgram loading dose for those 3 implants. The 3B cohorts in that trial are 2 implants, 200-microgram implants with an anti-VEGF injection. But again, we should remember that study was done in patients with active retinal fluid. What we have seen was that in some subjects, we observed the fluid decreased and kept that way for a duration of time, at least 6 months, and in some subjects, the fluid was completely eliminated. And we have seen durability of that in keeping the retina dry for at least 6 months. Most of the subjects, I should say, all subjects at least 50% in the group 3, it was about 82% of the subjects that remained dry. That being said, coming to the Phase 1 in the U.S., we have a singular implant, which is 600-microgram loading dose. But that study is being done in subjects with already dry retina. The subjects were enrolled in the trial with dry retinas, and we are actually trying to answer the question of how long a single implant would keep the retina dry, and that's what we are looking for. To your question, the implant, of course, has different dosage, and also 200 versus 600 that we use in a single implant. In cases where we increase the number of implants, some patients reported distortion visually, they were seeing the implant sometimes in their visual axis. That's the other difference compared to the Australia trial.

Operator, Operator

Your next question comes from the line of Dane Leone from Raymond James.

Unidentified Analyst, Analyst

This is Sean on for Dane. Can I just have a question on OTX-DED for us? For the new trial, can you kind of put some bounds around what you mean by short-lived comparator for the collagen implants and kind of what you're expecting for the amount of time until degradation? And then maybe give us a little bit of characterization of what you're thinking for in terms of material, whether or not that would be sufficiently similar to what you're looking at for the hydrogel or if you wanted to be markedly different in how you're thinking about designing that trial?

Antony Mattessich, President & CEO

Rabia, you want to go ahead and answer that?

Rabia Ozden, Chief Medical Officer

Sure. Maybe again, like quick information on our Phase II trial with DED. That trial was a doublet trial of 0.2 and 0.3 dexamethasone compared to our hydrogel vehicle. We were able to hit the primary endpoint in that trial, the primary endpoint of novel contractible redness we were able to just show a differentiation compared to hydrogel vehicle. What we have seen, though, the effect of the placebo comparator values, which is hydrogel vehicle, actually behaves like an active comparator; the placebo effect, the magnitude that the effect was larger than you would expect it from a real true placebo. That was the exact same thing we have seen in our CSI Phase II trial. What we are now trying to derisk our upcoming development program is actually trying to find a more appropriate placebo, a real placebo comparator. What we are planning to study is this: the commercially available soft collagen plug, which lasts like 2 to 5 days, staying in the canaliculus and then it would just disappear. That would provide a true placebo in a way that the patients wouldn't feel the difference. Ultimately, this collagen plug would quickly dissolve, which would provide that true placebo comparator in our trial. That's what we would like to study and see if the commercially available collagen plug is going to provide that appropriate placebo for our trial so that we can derisk our upcoming Phase II/III trials.

Operator, Operator

Your next question comes from the line of Stacy Ku from Cowen.

Stacy Ku, Analyst

Congratulations on the quarter. We have a few questions, all on OTX-TKI. So as we await the Phase I results, just first, can you remind us of the rescue criteria? And maybe you've kind of set the expectations in the past, but can we discuss the safety considerations and what profile we're looking for? That's the first question. And then the second question, just also discuss your early thoughts on the potential retreatment trial design, or at the very least, could you discuss what a potential Phase 2 or 3 might look like in more details and what steps are you taking considering the next study? And then our last question is, what are the other potential retinal indications where you think OTX-TKI could be competitive? Maybe just discuss some potential opportunities you thought about where there might be additional unmet need.

Antony Mattessich, President & CEO

That's a few questions. Rabia, you want a stab at trying to answer that?

Rabia Ozden, Chief Medical Officer

Thank you, Stacy. Those are great questions. I'll start with the rescue criteria. In both our trials in Australia, the patient population was more challenging because they entered the trial with active retinal fluids. This was our first in-human study, so we established a rescue criterion. While we shared the dose criteria, I want to emphasize that patient safety is paramount in those criteria. Our goal is to ensure that the disease state is addressed when investigators treat our study participants, and we take the disease state into account throughout the trial. The rescue criteria are designed accordingly. I can mention that our treatment and retreatment criteria are somewhat less strict compared to the TKI trial. In the U.S. Phase I trial, the patients had more controlled conditions because they entered with dry retina. We maintained strict criteria similar to those in the Australian trial. The investigators' discretion is also an important factor in determining rescue treatment. In summary, our criteria, which include disease state considerations made by the investigators, are stricter. This approach applies to both our Australian trial and our planned Phase I trial, as we aim to understand the rescue process to inform future studies. Regarding your second question about retreatment criteria for Phase II and III trials, they will closely resemble what we currently use in our Phase I trials. We will discuss this further in our upcoming studies, incorporating disease state considerations more effectively into the design and retreatment criteria. Your third question was about other retinal indications. There are various retinal indications currently under investigation with other drugs for treating patients, such as diabetic retinopathy and DME, which present opportunities for us. We believe our studies in TKI, including two Phase I trials, position us well, especially with our data across different AMD populations and the potential to study various implants with different doses. Additionally, our collaboration with Dr. Peter Kaiser will enhance our strategy for addressing other retinal diseases more effectively moving forward.

Operator, Operator

Your next question comes from Yi Chen from H.C. Wainwright.

Yi Chen, Analyst

This is Yi. First question is, within your net product revenue guidance of $55 million to $60 million, how much of those would come from DEXTENZA for allergic conjunctivitis this year?

Antony Mattessich, President & CEO

We've guided that it's predominantly from the surgical setting. We have not guided for a large number in the other conjunctivitis because we are doing a beta test at the moment.

Yi Chen, Analyst

Okay. Can you comment on the potential sales in AC for 2023 at this point?

Antony Mattessich, President & CEO

No, we haven't guided to what those sales will be in 2023 at this point.

Yi Chen, Analyst

How many people are currently in the chain dedicated to AC?

Antony Mattessich, President & CEO

We have a team of 4 key account managers. We've staffed up now for about a little over a month. We have a field reimbursement specialist and manager for the team.

Yi Chen, Analyst

Okay. And how large is the entire sales team right now?

Antony Mattessich, President & CEO

40 key account managers, and we have about 7 or 8 field reimbursement specialists and then 3 regional people.

Yi Chen, Analyst

Got it. And so in the current U.S. TKI trial, what is the average number of anti-VEGF injections these patients had before enrollment into the trial?

Antony Mattessich, President & CEO

Rabia, you want to take that?

Rabia Ozden, Chief Medical Officer

Sure. We are collecting that data, and that data is going to be shared with everyone in the upcoming AAO meeting.

Yi Chen, Analyst

Okay. All right. For the TIC Phase II trial, when do you expect to complete enrollment?

Rabia Ozden, Chief Medical Officer

We have not guided the completion date for TIC Phase II trials. Again, just to maybe give quick background, that's a Phase II double mat randomized trial with 2 formulations of OTX-TIC compared to Vista in patients with open-angle glaucoma and ocular hypertension. We're going to enroll 105 subjects in these 3 arms. The enrollment is currently going well. We would like to just continue moving and then just some time later, guide when we expect the enrollment would be finished.

Operator, Operator

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

Joseph Catanzaro, Analyst

This is Albert on for Joe. Just a quick one for me. I was wondering if we can still expect to see an update from the Australia trial later this year?

Rabia Ozden, Chief Medical Officer

Joe, yes, we would like to do an update on the Australia trial in the upcoming AAO meeting as well.

Operator, Operator

There are no further questions at this time. This concludes today's conference call. You may now disconnect.