Earnings Call Transcript - OCUL Q3 2021

Operator, Operator

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Ocular Therapeutix Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. It is now my pleasure to turn the call over to Donald Notman, Chief Financial Officer of Ocular Therapeutix. Please go ahead, sir.

Donald Notman, CFO

Thank you, Valerie. Good afternoon, everyone, and thank you for joining us on our Third Quarter 2021 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 that ended September 30th, 2021. The press release can be accessed on the Investors portion of our website at investors.ocutx.com. On our call today will be Antony Mattessich, our President and Chief Executive Officer, who will provide a summary of our corporate developments and an update on our commercial progress of DEXTENZA. Also speaking on the call today will be Dr. Michael Goldstein, our President-Ophthalmology and Chief Medical Officer, who will give an update on our clinical development and pipeline. Following Michael's remarks, I will provide an overview of the financial highlights for the third quarter before turning the call back over to Antony for summary and questions. For Q&A, we'll be joined by Scott Corning, our Senior Vice President, Commercial, and Chris White, our Chief Business Officer. 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 quarterly report on Form 10-Q filed this afternoon with the SEC. I will now turn the call over to Antony.

Antony Mattessich, CEO

Thank you, Donald, and welcome everyone to Ocular Therapeutix Third Quarter 2021 Earnings Report. I'm going to begin with the end of line. We focus first on value in size and dynamism of a disease state in ophthalmology and then determine the key unmet need in that space. Only then did we consider whether our platform technology enabled us to build a therapeutic that can satisfy the key unmet needs and become a standard of care. The product and our pipeline are held by the market needs and enabled by our proprietary technology. We believe that all of our development programs satisfy these requirements. We see an opportunity in wet AMD, where we believe our OTX-TKI could become the therapeutic with the greatest durability on the market. For glaucoma, our OTX-TIC could solve the problem for patients, and in addressing dry eye disease, our goal is to improve safety and efficacy relative to current therapies. Additionally, we believe our solutions will fulfill patient and physician desires for a more convenient drop-free method for treating post-surgical inflammation and pain, and also for itching associated with allergic conjunctivitis. Not only do the product candidates we developed target key unmet clinical needs in their respective spaces, but we have designed them with product characteristics that we believe will lend themselves to more efficient commercialization. All the therapies at Ocular are designed to be medical benefit, buy-and-build products, with associated procedural benefits. Products with these characteristics are optimized through an account selling approach, wherein the product is attractive to physicians and patients, as well as to the sites of care that participate in utilization. DEXTENZA has improved efficiency, whereby we've managed to cover the entire U.S. with a targeted commercial field force of less than 50 FTEs, achieving a positive product contribution within a very short period. As highly innovative and novel therapeutics, the product candidates we are developing have substantial intellectual property protection and are expected to maintain exclusivity well into the future. Patents underlying DEXTENZA are expected to expire in 2030 or later, and all our product candidates have protections that extend before 2040 and beyond. This results in a portfolio of differentiated product candidates that lend themselves to efficient commercialization and have the potential for long periods of exclusivity. As we highlight the events of the past quarter and preview what's to come, it's clear we're entering a period of significant data and news flow that will shape our leadership position within ophthalmology. Let me begin with a few events from the past quarter, starting with DEXTENZA; which achieved $11.9 million in net sales for distributors for the quarter, representing an approximately 120% increase over the same quarter last year and approximately 7% improvement over the second quarter of 2021. Like many other companies that sell under ASCs and HOPDs, DEXTENZA's early growth in the third quarter was impacted by lower than expected elective procedure volumes. Looking forward, we are encouraged to see the market returning to more typical levels of cataract procedures. In the recent month of October, we enjoyed our second largest month ever with over 9,600 billable inserts sold to ASCs and HOPDs. The October result is particularly surprising for the first month of the quarter when we usually observe a dip in sales. We believe the October numbers reflect a return to more normal market conditions, setting DEXTENZA up for a strong fourth quarter. In October, we were also pleased to receive early FDA approval of our sNDA expanding the use of DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis. This approval represents a significant strategic milestone for our pipeline. Itching associated with allergic conjunctivitis, much like wet AMD, glaucoma, and dry eye disease, is predominantly treated in the office environment, as opposed to the ASC and HOPD where DEXTENZA currently sees most of its use. Ocular's strategic goals are to expand our presence in ophthalmology and optometric offices by providing customers with numerous innovative buy-and-bill products, including those developed internally and potentially licensed from other companies. The approval of this sNDA marks our first step towards achieving that goal. While the potential in the office environment is enormous, it represents an almost entirely new space for us with unique challenges and opportunities. We discovered during the launch of DEXTENZA that the primary barriers involve the logistics associated with ASC and HOPD administration. We believe the product's success stems from the substantial planning involved in its launch and in setting up those accounts, ensuring the physician's desire to use the product can be met with available inventory at the site of care. Setting up accounts in ophthalmology and optometric offices will follow similar logic but will require tailored solutions. DEXTENZA will be the first-ever buy-and-bill treatment for an ocular surface disease for use in a physician's office. We are accustomed to navigating uncharted waters, so we welcome this opportunity. Fortunately, we aren't starting from scratch. First, our current call list includes specialists who treat patients suffering from allergic conjunctivitis, who we believe are eligible for DEXTENZA reimbursement. Secondly, the overall market size is substantial, with over 10 million patients annually seeking treatment from healthcare practitioners to alleviate allergy symptoms. As a premium price drug likely to be administered in its indication, it's important to identify and select patients for whom the benefits of DEXTENZA can be supported by payers. On the reimbursement front, we believe uncertainties surrounding the pass-through payment status may have diminished. On November 2nd, CMS announced its final rule for 2022 and has indicated that DEXTENZA will become eligible for separate payment under the ASC payment system as a non-opioid pain management supply for calendar year 2023. We view this as a significantly positive development, as it marks the first clear indication from CMS that DEXTENZA may receive separate reimbursement once the pass-through period ends, effectively extending the reimbursement horizon for this product in surgical settings. As we embark on this new venture in the office environment, we are also confident in the prospects for reinforcing our established business within surgical settings. Regarding the physician fee for inserting DEXTENZA, CMS announced that the former Category 3 code CPT 0356T will be replaced by a new Category 1 code CPT 68841 effective January 1st, 2022. Payments under this new code will be approximately $31 in the ASC and HOPD and $37 in the office setting. We are excited that the procedure code has achieved Category 1 status, which will enhance recognition and reimbursement across all payer types. We will also continue researching conditional coding strategies and working with relevant entities to improve these payment amounts in the future. It is clear that innovating in ways never seen before is part of our ethos. The advantage of paving new paths is that we can create novel medicines that genuinely improve patients' lives. However, we must also accept that not all initiatives will succeed. The results of our Phase 3 trial for OTX-CSI in October are an example of this. We are not aware of any company attempting to deliver a constant dose of cyclosporine through the ocular surface while integrating analytics. The demand is apparent; data suggest that drop therapies can be painful and irritating for patients as they experience discomfort while waiting months for results. Our goal is to provide a steady dose of cyclosporine at a low enough concentration to avoid irritation while still achieving anti-inflammatory effects. Delivering that steady dosing through an intracanalicular insert presents challenges, but we believe OTX-CSI has the potential to be a game-changer for the millions of people suffering from dry eye disease. While our Phase 2 trial in OTX-CSI did not show a separation from our hydrogel placebo on the primary endpoint of increased tear production at 12 weeks (as measured by Schirmer's test), this is particularly disappointing for the patients who could have benefited from this product. It is important to keep this in context. Since our work is pioneering, we can’t rely on the successes and failures of others to minimize our risks. Why did it fail? We don’t have certain answers yet. What is crucial is that as an innovative company, we learn from setbacks. We will analyze the patient-level data over the next couple of months to help define the probable issues. There are potential solutions that we can address, such as improving insert retention or ensuring higher doses of cyclosporine reach the ocular surface. There are also potential challenges that might underlie the basic concept of delivering cyclosporine steadily via an intracanalicular route. Our decision on whether or not to move forward with OTX-CSI will be based on data from this review process. Regardless, it is essential to note that every therapeutic development is unique, and drawing conclusions from one program to another has limited applicability. Fortunately, we are not only innovative but also prolific. We have extended our brand to indicate the treatment for itching associated with allergic conjunctivitis, and we anticipate the Phase 2 readout for OTX-DED soon. A Phase 2 clinical trial for OTX-TIC should be initiated before the year's end. Lastly, OTX-TKI has commenced its Phase 1 trial in the U.S., which is progressing on schedule, and we have many pilot projects awaiting their chance to make an impact. I can't thank our team enough for their innovation and execution regarding the OTX-CSI program. We aimed to enhance the lives of patients suffering from truly debilitating diseases, and we are committed to not stopping. Before handing the call to Mike to discuss our pipeline in greater detail, I’d like to welcome two new members to the Ocular team. In September, we announced the appointment of Merilee Raines to our board. Merilee is an experienced board member who brings a wealth of operational, financial, and business knowledge. We have also strengthened our technical operations team with the addition of Karen-Leigh Edwards as our new Senior Vice President of Technical Operations and Quality. Karen-Leigh has over 20 years of experience with leading companies, implementing high-performance global enterprise-wide technical operations in lifecycle management strategies. Her presence will greatly enhance our ambitious growth strategy. Additionally, Chris White was promoted to Chief Business Officer. Chris's extensive experience in large pharma consulting and biotech positions him ideally to contribute broadly across our business. With that, I would now like to hand the call over to Dr. Michael Goldstein, our President of Ophthalmology and Chief Medical Officer, to provide an in-depth update on our pipeline.

Dr. Michael Goldstein, President-Ophthalmology and Chief Medical Officer

Thanks, Antony. Let me begin with an update on our back of the eye program OTX-TKI. We continue to enroll subjects in the United States in a multicenter prospective randomized controlled trial evaluating a single OTX-TKI implant containing Axitinib compared to Aflibercept administered weekly in subjects usually treated with anti-VEGF therapy. This U.S.-based Phase 1 clinical trial of OTX-TKI is being conducted under an exploratory IND application across five states, targeting a total of 20 randomized subjects. Subjects will receive a single OTX-TKI implant containing a 600 microgram dose of Axitinib, and five subjects will be treated every week with standard care Aflibercept. The trial aims to assess the safety, durability, and tolerability of OTX-TKI, as well as to evaluate preliminary biological activity in subjects through measurements of anatomical and functional changes at the retina. Data from the Australian Phase I trial has shown that OTX-TKI generally has a favorable safety profile, has been well-tolerated, and has evidenced biological activity, including decreases in retinal fluids in some subjects as early as two months following implant administration. Additionally, we are observing durability of action of six months or longer in several cohorts, with some subjects achieving durability beyond one year. We plan to present incremental data from the Australian-based trial at the upcoming AAO meeting scheduled for next week. Transitioning to our glaucoma program, OTX-TIC, we have completed a U.S.-based baseline clinical trial assessing the safety, biological activity, durability, and tolerability of OTX-TIC in subjects with primary open-angle glaucoma and ocular hypertension. We will present summary data on this study during the upcoming AAO conference next week, building on the interim data presented in May and our growth in July. This earlier data highlighted the ability of OTX-TIC to reduce intraocular pressure from baseline. The clinical trials primarily measure by approximately $7 to $11 million. Those results were comparable to current standards of care. Additionally, we noted that the product demonstrated beneficial effects as early as two days post-treatment, along with durability of response, showcasing decreased intraocular pressure for 6 to 9 months in many subjects from cohorts 1 and 2, and for six months in subjects from cohorts 3 and 4. OTX-TIC has been generally well tolerated with a favorable safety profile to date. We look forward to building upon that data at AAO and remain on track to initiate a Phase 2 clinical trial in the near future. Regarding our ocular surface disease programs, we are thrilled with the recent approval of DEXTENZA for the treatment of allergic conjunctivitis and believe this program positions us uniquely in offering preservative-free, drought-free products for patients with allergic conjunctivitis. Although we are disappointed with the outcomes of our Phase 2 clinical trials of OTX-CSI for chronic treatment of dry eye disease, we did see some improvements compared to baseline signs. Specifically, we noted changes in total corneal fluorescein staining and patient symptoms measured by a visual analog scale – though we did not observe the expected separation between the active and vehicle groups in our primary endpoint. We will continue analyzing the data, especially relating to insert retention, to gain a clearer understanding of these results and will provide updates at a later date. Our second product candidate in the dry eye category, OTX-DED, is a low-dose intracanalicular insert that administers preservative-free dexamethasone. This product presents a new opportunity for patients who experience episodic flare-ups related to inflammation and need treatment for dry eye disease. Topical steroids have typically been used off-label for dry eye, but chronic misuse can lead to significant adverse events. Additionally, every commercially available topical steroid eye drop in the U.S. contains preservatives, which can result in ocular surface toxicity. OTX-DED offers these patients a viable option for physician-administered treatment that is preservative-free and cannot be misused. We have completed enrollment in our randomized, double-masked, vehicle-controlled Phase 2 multicenter clinical trial evaluating two different doses of OTX-DED in a total of 150 subjects with dry eye disease. The trial is designed to assess the safety and efficacy of OTX-DED for short-term treatment of dry eye disease signs and symptoms. We expect to see top-line data from this study in the first quarter of 2022. I would now like to turn the call back to Donald to review our third quarter financial results.

Donald Notman, CFO

Thanks, Mike. Gross product revenue, net of discounts, rebates, and returns, which the Company refers to as total net product revenue, was $12.2 million in the quarter and represented a 107% increase compared to the same period in 2020 and a 4% sequential increase over Q2 2021. Net product revenue for the third quarter was $11.9 million compared to $5.4 million in the same quarter of 2020, reflecting an approximate 120% increase. Total net product revenue for the third quarter of 2021 also includes net product revenue of $0.3 million from ReSure Sealant. Research and Development expenses for the third quarter stood at $12.7 million versus $7 million in the comparable period in 2020, primarily driven by increased headcount and clinical trial costs associated with the initiation of our U.S. Phase 1 trial OTX-TKI, as well as the ongoing Phase 2 clinical trials for OTX-CSI and OTX-DED. The ongoing Phase 1 clinical trial for OTX-TKI in Australia also reflected expenses for post-approval pediatric trials. Selling and marketing expenses for the quarter were $9.6 million, compared to $6.5 million for the same quarter in 2020, reflecting increased personnel costs tied to the expansion of our field force, alongside rising facility-related costs. General and administrative expenses were $8.1 million for the third quarter, up from $6 million in the comparable quarter in 2020. The increase in expenses is attributed primarily to higher personnel costs and professional fees. In terms of net income, the Company reported net income of $2.7 million, or income of $0.03 per share on a basic and loss of $0.23 per share on a diluted basis. This compares to a net loss of $11.9 million, or a loss of $0.19 per share on a basic and a loss of $0.21 per share on a diluted basis for the same period in 2020. Net income was influenced by a $23.8 million non-cash net change in the fair value of the derivative liability associated with our convertible notes due to a decrease in the price of our common stock during the quarter. Non-cash charges for stock-based compensation alongside depreciation and amortization were $4.4 million in the third quarter compared to $2.6 million for the same quarter in 2020. As of November 3rd, 2021, the Company had 76.6 million shares outstanding. As of September 30th, 2021, the Company had $179.3 million in cash and cash equivalents, down from $191.9 million at March 31, 2021. Based on our current plans and related estimates, we believe that existing cash and cash equivalents as of September 30th, 2021, will allow the Company to fund planned operating expenses, debt service obligations, and capital expenditure requirements through 2023. This cash guidance is subject to various assumptions, including those related to the changing duration of the COVID-19 pandemic, revenues, expenses, reimbursement associated with DEXTENZA, and the pace of our research and clinical development programs, among other business aspects. This concludes my comments on the third quarter financial results, and I would now like to turn the call back to Antony for some final thoughts.

Antony Mattessich, CEO

Thanks, Donald. Before I open the call for questions, let me provide a quick summary. DEXTENZA demonstrated solid performance with $11.9 million in third quarter net sales, reflecting a 7% increase compared to the prior quarter and a 120% jump over the same quarter the previous year. We have been able to expand and extend the label, including an indication for ocular itching associated with allergic conjunctivitis with the approval of our sNDA in October and are looking forward to a formal product launch in the first half of 2022. CMS recently laid out a path for continued separate payment for DEXTENZA in the ASC environment after pass-through expires, which allows us to enhance our surgical businesses as we build a new source of growth in the office environment. The U.S.-based trial of OTX-TKI, evaluating a single 600 microgram implant continues to enroll well, and we're on track to initiate a Phase 2 clinical trial of OTX-TIC for the treatment of glaucoma before the year ends. For dry eye disease, we will continue to analyze the data from the recent top-line readout of OTX-CSI, and we look forward to reporting top-line data from the OTX-DED Phase 2 trial in the first quarter of 2022. Finally, the Company ended the quarter with $179.3 million in cash on the balance sheet as of September 30, providing us an expected cash runway through 2023. We anticipate a strong finish to 2021. With that, I will turn the call over for questions.

Operator, Operator

Thank you. One moment for our first question. Our first question comes from Jon Wolleben from JMP Securities. Your line is open.

Jon Wolleben, Analyst

Thank you, and thanks for taking the questions. A few from me, maybe if I could start with allergic conjunctivitis. You talked a bit about the market and when we hear such large numbers of patients, it can be challenging to understand your perspective on this opportunity, especially considering the 10 million patients in this category. How should we evaluate the opportunity for DEXTENZA in allergic conjunctivitis? Also, with respect to your additional investment in SG&A, if not immediately, could you clarify when that might happen and what would trigger that additional investment?

Donald Notman, CFO

You shouldn't expect any increase in investment initially. As we mentioned in the discussion, we see high overlap of targets for ASCs in surgical settings. Thus, we are approaching the right doctors to target the types of patients we believe will be reimbursable. In the near term, we need to work on establishing ourselves in the office environment, understanding the requirements to set up accounts in ophthalmology offices. As we establish that, we'll experiment over the next quarter or so, and at the beginning of next year, following the viability of our Category 1 insertion code, we will establish our plan for launching in the office environment.

Jon Wolleben, Analyst

Based on your market research, how are you viewing the opportunity for DEXTENZA in allergic conjunctivitis? Do you have a bounding range for that?

Donald Notman, CFO

The market research has been exceedingly positive. Doctors are excited about this new treatment modality, and discussions with payers have also been positive. Provided the product isn't used excessively in every patient, I foresee no issues with pricing. Having been in this business for a long time, I'm cautious about being overly optimistic based on market research alone, yet the findings so far are promising.

Jon Wolleben, Analyst

Okay, and then regarding OTX-CSI, you mentioned the retention data showing lower than anticipated retention rates in the active arms. Could you provide more detail, and when might you have information to make a decision on next steps for OTX-CSI?

Dr. Michael Goldstein, President-Ophthalmology and Chief Medical Officer

Thanks, Jon. This is Mike. As you know, cyclosporine needs to remain on the ocular surface for a significant period at an effective concentration to achieve clinical outcomes. While we anticipated that the cyclosporine insert would last 3 to 4 months, in some patients, it didn't last the entire duration, which we believe is one reason why we didn't observe the expected separation between the active group and the vehicle group. We did observe general improvement for some patients in this trial, so while this is disappointing for those who could have benefited, it's insightful nonetheless. We will be diving into our datasets and refining our analysis over the coming months to assess potential causes. There are likely fixable issues, such as improving insert retention or enhancing the delivery of a higher dose of cyclosporine to the ocular surface. We will make a decision on whether to proceed with OTX-CSI based on data from this review. It's notable that every therapeutic development is unique, and the implications of results from one program may not translate to another.

Jon Wolleben, Analyst

Thanks again for your answers.

Dane Leone, Analyst

Thank you for taking the questions, and congrats on the quarterly sales of DEXTENZA. Two from me if I could. Firstly, could you help clarify some common inquiries we've received since the OTX-CSI data readout? As you evaluate other programs, could you compare OTX-CSI's formulation difficulty versus the formulations for OTX-DED? If the OTX-CSI formulation had stability issues, how might that reflect on OTX-DED's study?

Dr. Michael Goldstein, President-Ophthalmology and Chief Medical Officer

Yeah, great. All our products use different hydrogel compositions, and we've yet to observe safety issues across any of the programs. While the active ingredients and duration for each product differ, the formulation for OTX-CSI uses cyclosporine, which targets a duration of 3 to 4 months, whereas OTX-DED employs dexamethasone targeting 2 to 3 weeks. I don’t think the OTX-CSI results directly impact OTX-DED. The DED dataset is more closely related to DEXTENZA, sharing the same active ingredient but differing in potency. We expect retention rates for DED to be similar to DEXTENZA. Ultimately, the readout from OTX-CSI is typical for its Phase 2 nature, which is to learn from formulation challenges and make adjustments.

Dane Leone, Analyst

Thank you. Just a follow-up on when we might see data and the scale and scope of the U.S. study for OTX-TKI next year.

Dr. Michael Goldstein, President-Ophthalmology and Chief Medical Officer

Yes. There will be an update regarding where all patients are in the Australian trial, including cohorts 1 through 3A and 3B. Most subjects in cohort 1 have completed the study, and recent data updates will include follow-ups on patients in cohorts 2 through 3B. Many or most of the patients will reach the 6-month time point.

Joe Catanzaro, Analyst

Hey, guys. Thanks for taking my questions. Mike, could you provide additional detail on what to expect from the upcoming TKI update at AAO? Should we primarily expect updates from cohort 3 or will we have 6-month follow-ups for all patients in cohorts 3A and 3B?

Dr. Michael Goldstein, President-Ophthalmology and Chief Medical Officer

Thanks, Joe. Yes, there will be an update regarding all patients in the Australian trial. Data will be available for cohorts 1 through 3A and 3B, with updates particularly for subjects reaching the 6-month mark.

Joe Catanzaro, Analyst

Thanks for that clarification. Regarding DEXTENZA, can you elaborate on the dynamics that influenced September performance? Your comments indicated sales into ASCs were especially impacted early on in the quarter, and naturally, we typically see a benefit in the last month of the quarter from the rebate program.

Donald Notman, CFO

In July, sales performed unusually high compared to our expectations. Sales recovered as the quarter progressed, yet we did not experience the significant sales boost we typically see at the end of September. In October, however, we recorded over 9,600 units in the market sold, which positions us well for Q4. We believe this growth follows the general recovery of cataract procedures.

Joe Catanzaro, Analyst

What are your thoughts on the Category 1 physician payment coming in below $40? I assume that's lower than your anticipated levels. Do you believe this will still incentivize physicians?

Donald Notman, CFO

In the context of the cataract procedure environment, this still represents a significant incentive. For instance, if physicians are conducting 20 cataracts daily, an additional $31 for procedure administration becomes worthwhile, especially when the total surgery value is approximately $550. For the office environment, with a payment of around $37 per eye, it’s likely to incentivize optometrists too. Moreover, we can explore various coating strategies or work with organizations like AAO to optimize reimbursements. Overall, we remain optimistic about our opportunities in both the surgical and office environments.

David Steinberg, Analyst

Good afternoon and thank you. I have two queries. First, on DEXTENZA and the recent CMS ruling, you seem to qualify for the non-opioid pass-through system. This is significant as only two drugs currently use that classification. Can you speak on reimbursement's impact for DEXTENZA and how long you anticipate this will last? Looking to Omidria for guidance, as it has exceeded initial expectations.

Donald Notman, CFO

Your first question concerns the sustainability of the separate payment. While CMS can change its designations each year, it’s challenging to foresee opioids becoming a non-issue in the near future. Thus, I believe there's a good chance for this to remain a durable status. We've consistently communicated with CMS that we aren't merely a supply item, and we have various strategies and data to substantiate our case for continued separate payments.

David Steinberg, Analyst

Regarding your recent approval for allergic conjunctivitis, are you planning to adjust your sales team structure or will current personnel be repurposed for the new office calls? Even though the formal launch isn't until next year, any initial insights on what sales might look like in the first year?

Donald Notman, CFO

This marks a strategic shift for us, and our focus will be on building presence in the office environment. However, we will gather insights on necessary adjustments after conducting experiments in specific offices. The goal is to understand better what will be needed for the future of DEXTENZA as we explore its positioning in the office environment. Meaningful sales, however, may not materialize until the second half of next year.

Anita Dushyanth, Analyst

Good afternoon. Could you discuss gross-to-net in Q3, and based on DEXTENZA's selling trends, what guidance can you provide concerning Q4 and '22?

Donald Notman, CFO

At this point, we are not providing guidance on product lines. However, we are sharing detailed in-market sales data that allows for easy extrapolation into future trends. Our gross-to-net value has remained near 25%, a figure we expect to maintain moving forward.

Georgi Yordanov, Analyst

Thank you for taking the questions. Starting with the TKI program, it seems enrollment for cohort 3b has lagged compared to the others. Is there a specific reason for this besides the COVID environment? Also, regarding the April data cut, it appeared only two patients were enrolled in that cohort. Can we expect to see 6-month data from both of those patients during the AAO, as well as any additional 6-month data?

Dr. Michael Goldstein, President-Ophthalmology and Chief Medical Officer

Overall, enrollment in Australia has been slow, but we recognize they've faced fewer COVID cases than in the U.S. The recent lockdowns have significantly impacted patient recruitment, especially for cohort 3B. We anticipate presenting data next week, and there are more patients enrolled with additional 6-month data expected.

Georgi Yordanov, Analyst

Given multiple competitors in the TKI market, how do you see this market evolving? What bar do you set for OTX-TKI in terms of efficacy and duration for it to carve a meaningful market share?

Dr. Michael Goldstein, President-Ophthalmology and Chief Medical Officer

The market is vast, and anti-VEGF treatments have significantly improved patients’ lives. Durability remains a challenge since patients prefer less frequent treatment regimens. We might foresee a landscape where various therapies coexist to address different patient needs. We believe that proving our TKI delivers sustained efficacy would be a significant advantage, and finding that at least 50% of patients receive 6 months of efficacy or more would be considered a substantial achievement.

Yi Chen, Analyst

Hi, thank you for taking the questions. Will there be a soft launch for DEXTENZA to gauge physician interest in its use for allergic conjunctivitis?

Donald Notman, CFO

While I’m not fond of the term soft launch, I’d prefer to describe it as market experimentation. We understand how integral it's to navigate the office environment and we need to leverage our existing relationships to facilitate access. Our goal is to gather intelligence from these settings, closely examining what will work effectively to support our efforts.

Yi Chen, Analyst

Next year, do you plan to report billable units distinctly for ocular surgeries and allergic conjunctivitis?

Donald Notman, CFO

That's a good question. We haven’t made a definitive decision, but we are committed to transparency. I see no reason not to be equally forthcoming regarding our activities in the office environment.

Yi Chen, Analyst

Do you believe that by the end of this year or early next year, surgical volumes in ASCs will return to pre-COVID levels?

Donald Notman, CFO

It's a valid inquiry. Staffing seems to be the primary barrier to reaching pre-COVID levels of activity. The improvement and activity level are encouraging, but it ultimately hinges on whether facilities can maintain enough personnel.

Operator, Operator

Thank you. Ladies and gentlemen, that concludes today's conference. Thank you all for participating. You may all disconnect. Have a great day.