Ladies and gentlemen, thank you for standing by and welcome to the First Quarter 2020 Ocular Therapeutix Earnings Conference Call. At this time, all participant lines are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I'd now like to hand the conference over to your speaker today, Mr. Donald Notman, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining us on our first quarter 2020 financial results and business update conference call. This morning, before the opening, 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 March 31, 2020. 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 a summary of our corporate development and an update on the DEXTENZA commercial launch. Also speaking on the call today will be Dr. Michael Goldstein, our Chief Medical Officer, who will give an update on our clinical developments and pipeline. Following Michael’s remarks, I will provide an overview of the financial highlights for the quarter, before turning the call back over to Antony for a summary and questions. As a reminder, on today’s call, we will be making forward-looking statements regarding our regulatory and product development plans as well as our research activities. These statements are subject to risks and uncertainties that may cause actual results to differ from those forecasted. A description of these risks can be found in our most recent Form 10-K on file with the SEC. I will now turn the call over to Antony.

Thank you, Donald. And welcome to Ocular Therapeutix first socially distanced quarterly earnings report. Before I get started, I wanted to note how proud I am with our organizational response to the COVID-19 pandemic. The Company has contributed to the fight against COVID-19 through donations of PPE to local health care providers, and many of our employees have given time to supply food to those most in need in the Bedford, Massachusetts area. Thank you for all of your efforts. Despite the upheaval caused by the coronavirus, the outlook for Ocular continues to brighten. It is good to take stock of the major value drivers and how their prospects have improved in the recent past, due to favorable changes in external business and regulatory environments as well as important developments in the portfolio. One of the great benefits of Ocular Therapeutix is that being a small company with the limited spend, our technology allows us to advance many programs across several of the most valuable segments in ophthalmology. These segments are wet age-related macular degeneration or wet AMD, glaucoma, dry eye disease or DED, and post-surgical inflammation and pain. Let's start with the largest of these value drivers, wet AMD. The global market for wet AMD is nearing $11 billion and growing annually at approximately 8%. A key driver in the treatment selection for wet AMD is durability. The longer treatment works to keep a patient without fluid on a single injection, the greater the attractiveness of the treatment. Current standard of care typically has patients needing reinjection every 4 to 8 weeks. In the space of the last few quarters, OTX-TKI, our intravitreal tyrosine kinase eluting implant designed to deliver up to 6 months of therapy with a single injection has received favorable results in the clinic and benefited…

Thanks, Anthony. Let me begin with an update of our back-of-the-eye program, OTX-TKI. OTX-TKI is a bioresorbable, hydrogel implant containing axitinib, which has anti-angiogenic properties and is delivered by intravitreal injection. It is being developed to treat patients with wet age-related macular degeneration and other retinal diseases, such as diabetic macular edema and retinal vein occlusion. We continue to dose subjects in a multicenter open label Phase 1 clinical trial in Australia that is designed to assess the safety and tolerability of OTX-TKI, as well as to assess preliminary biological activities by measuring anatomical and functional changes. As Anthony mentioned, we recently reported encouraging interim data from the ongoing Phase 1 trial in March. In April, Robert Avery, a member of the Data Safety Monitoring Committee, overseeing the Phase 1 trial presented interim data on OTX-TKI at the Annual Vit Buckle Society Meeting. These data included an update on the first two fully enrolled cohorts and demonstrated that OTX-TKI in both cohorts was generally observed to be well-tolerated with a favorable safety profile with no ocular serious adverse events. Regarding biological activity, in the interim look in this small data set, there seems to be a dose response with greater clinical response in the higher dose cohort compared to the lower dose cohort. In the higher dose cohort two, OTX-TKI treated subjects showed a decrease in retinal fluid as measured by decreases in intraretinal and/or subretinal fluid with the longest treated subjects with age-related wet macular degeneration now out to be on 4.5 months. Additionally, some patients in cohort 1 who had required frequent anti-VEGF dosing prior to enrollment in the study were shown to potentially not need rescue therapy for as long as 10 months after being treated with OTX-TKI. While the drug product profile is still emerging, we…

Thanks Michael. Gross product revenue net of discounts, rebates and returns, which Company refers to as total net product revenue was $2.6 million for the three months ended March 31, 2020. Net product revenue of DEXTENZA and ReSure Sealant in the first quarter were $2.1 million and $0.5 million, respectively. Research and development expenses for the first quarter were $6.1 million versus $11.3 million for the comparable period in 2019, and primarily reflect a decrease in personnel and unallocated costs due to organizational restructuring announced in November 2019. Selling and marketing expenses for the first quarter were $7.1 million as compared to $3.3 million for the same quarter in 2019. This increase relates almost entirely to support of the commercial launch of DEXTENZA driven primarily by the addition of the field force including key account managers, field reimbursed by managers and medical sales liaisons. Finally, general and administrative expenses were $5.2 million for the first quarter of 2020 versus $5.4 million in the comparable quarter of 2019. The decrease in expenses for the first quarter stemmed primarily from decreased professional costs. With respect to financial results for the first quarter. We reported a net loss of $21.5 million or a loss of $0.41 per share on a basic and diluted basis. This compares to a net loss of $17.1 million or a loss of $0.41 per share on a basic and $0.45 per share on a diluted basis for the same period in 2019. The net loss for the first quarter included $2.4 million in non-cash charges for stock-based compensation and depreciation, compared to $2.5 million for the same quarter in 2019. In addition to net loss for the quarter, included a non-cash charge of $3.4 million related to the change in the fair value of the derivative liability associated…

Thanks, Donald. So, before opening the call up for questions, let me do a quick summary. The performance of OTX-TKI in the clinic continues to support our product profile that could set a new standard of care for durability, the greatest area of unmet need in treatment of wet AMD. The performance of OTX-TIC in the clinic continues to support a product profile that could set the standard of care for patient compliance, the greatest area of unmet need in the treatment of glaucoma. Our positive Phase 3c trial in allergic conjunctivitis paved the way for Ocular Therapeutix’s first indication in the treatment of an ocular surface disease, where we believe treatment through the intracanalicular route of administration could set a new standard of care. Finally, as cataract surgeries begin to return to normal, we anticipate that DEXTENZA's features and benefits in the prevention of post-surgical inflammation and pain will be enhanced by the fact that DEXTENZA is truly a hands-free alternative that replaces the need for 70 steroid drops, and decreases the risk of infection from issues related to patient compliance with this complicated dosing regimen. Due to developments in our pipeline as well as changes in the regulatory, competitive and post-COVID environment, we believe the future has never been brighter for Ocular Therapeutix. With that I'll turn the call over to questions.

[Operator Instructions] Our first question comes from the line Joe Catanzaro with Piper Sandler. Your line is now open.

Hey, guys. Thanks for taking my questions. Maybe first, two on DEXTENZA. So, we know procedures have been impacted. But just wondering how the process of getting DEXTENZA onto formularies at ASCs has been impacted. Are P&C committee meetings still happening virtually? Is that a process that's still going on? And then, I know it's early, but for ASCs that may have reopened, do you see their initial volumes being higher than their historical volumes to maybe make up for some of the lost procedures they've lost over the last two months or so?

It's really too hard to say at the moment -- to answer your actually both questions. Well, the first question is easy to answer. And that the ASCs are still -- the administrative staffs are still working. So, we've been able to have a number of very good conversations with people. While these surgeries are closed, in some ways we get more attention from them now than we get when they're in full flow. That's not the case across the board. Some places have furloughed employees, so that they are truly shut down. In terms of looking at our market share in the ASCs that have reopened, that number now is so small in terms of actually getting the throughput through that we don't have any useful data to demonstrate what our share of cataract is on the other side of the COVID pandemic.

And then, maybe one on OTX-TKI. I guess, how should we think about data flow? We've seen others in the extended bed rest space provide updates every maybe three months, three to six months as they get additional follow-ups. How are you guys thinking about this moving forward? And I guess, could we expect another update this year?

Mike, do you want to have that one?

Sure. So, yes, we will provide an update when we have something meaningful to say. So, we're continuing to follow the patients in the first two cohorts, and we are gearing up to enroll a third higher dose cohort. We currently do plan to provide an update later in the year, probably targeting around the AAO timeframe.

The next question comes from Stacy Ku with Cowen & Company. Your line is now open.

So, a follow-up kind of on your expectations moving forward. Maybe more details or any metrics such as the number of clinics using DEXTENZA and have been closed, or maybe the number of scheduled cataract surgeries that you're aware of potentially using DEXTENZA that's been postponed? And I have a follow-up.

Yes. I mean, we're not giving any guidance going forward, of course, until we start to see how the flow moves through the ASCs. What we are seeing is that there's a significant reopening of the ASCs in terms of scheduling of the surgeries. I think, the next question we have is whether they get the patients actually show up to be able to get the throughput numbers that they have. We're seeing roughly, say, 20% to 30% of volume returning in May. We would expect that to bump up to 50%, 60% in June and then by July being back to somewhat normal levels. But, this is all supposition at this point. Because it's still so early in the cycle, very difficult to gain exactly how those will open up. In terms of metrics, I mean, there's one metric that we're reporting and that we will continue to report and it is the only metric that really is substantially indicative of how the sales progression is going, and that sales of billable units into the ASCs and hospitals. This is a relatively expensive drug to the ASCs and hospitals. They do not hold inventory. So, when they buy drug from -- when they buy an insert from the 3PL distributors, they use that in a very short order of time. So, that gives a true indication of what's happening in the marketplace. And as we said, we were averaging about 500 inserts per week in the early part of March, when the ASCs started to shut down, that of course made that number come down. But that's an area that we hope to get back to very soon, the 500 per week. And then, we hope to be able to accelerate that well beyond that number as we get what we believe will be a greater share of the total cataract volumes because of the benefits that the product has, both in terms of the time that we've used where the product -- or the ASCs have not been doing surgeries, or in other words, being able to get on formularies and have discussions with the ASCs that help put us into protocols, and also because of the benefits of a hands-free solution that keeps patients hands out of their eyes on 70 different opportunities over a month.

Okay. Thank you. And then, just a follow-up question on OTX-TKI. Given what you've observed with the other competitive entrants considering inflammation, maybe you could comment on what you guys are focused on in terms of safety for intravitreal implants?

Hey, Mike. Do you want to handle that?

Sure. So, yes, I think, you’re sort of -- we're on target, lots of intravitreal implants have had -- or injections have had issues with inflammation, either of the vitreous of the retina. So, that's obviously a key thing we're looking for. And, to-date, we haven't had any patients who have needed steroid treatment in any of the patients we've treated so far. So, so far from the 12 patients that we have been following, it seems to be extremely safe and well-tolerated.

Thank you.

Thank you.

Our next question comes from Jonathan Wolleben with JMP Securities. Your line is now open.

Hey, good morning. Congrats on the progress. And thanks for taking the questions.

Good morning.

Just a couple for me. First, for allergic conjunctivitis, can you discuss how you envision DEXTENZA being used in the real world setting? Is this something that you think patients will use proactively, early in an allergy season or something when drops may not be working? And then, any comments on kind of your commercialization strategy?

Yes. With allergic conjunctivitis, given the price differences that we would see in the marketplace between a generic steroid drops and an insert of DEXTENZA for allergic conjunctivitis, you would expect, would be used in a refractory population, and that we would be step edited by payers. So, what we see the usage of is that this is -- first of all, it gets us into the ophthalmologist’s office, which is hugely important to us. And secondly, it's the first ocular surface indication we have where there's a tremendous opportunity in multiple areas within the ocular surface area. But, looking at the type of patient who's likely to get reimbursed are typically patients who would have failed on drops. And you can fail in drops in a number of ways. You can either fail on drops because they simply don't work from an efficacy standpoint. You can also fail on drops because you're unable to take them or unable to tolerate the preservatives that are in steroid drops or have some issue with dexterity or the ability to adequately dose yourself with an eye drop. That's actually a really significant population. And within ASCs, we certainly would expect to capture that population. But, we would also expect being in the office environment and being in the ocular surface disease area that other ocular surface diseases in this patient type would also be motivating for both the physician and the payer to support a product like DEXTENZA in that environment. So, ASC is a great opportunity in and of itself, but actually, the real opportunity is that it opens the door to much, much wider opportunities in the ocular surface disease space and in the refractory population of people who cannot take drops.

And just one on OTX-CSI, can you discuss beyond safety, what kind of measurements you'd be looking for to determine how this is working and kind of what time points will you be measuring? Thanks.

Sure. Mike, do you want to handle that?

Yes, sure. So, OTX-CSI is a new program. It's a cyclosporine intracanalicular insert that's designed to release cyclosporine for approximately three months. So, you get the advantage of release of the medication, which we know works based on two FDA approvals in the space and you also get the advantage of punctal occlusion, which we also know works as its standard of care in our management of dry eye patients. So, super excited about this program. As we mentioned, the study has been initiated. It is as a Phase 1 study in patients with dry eye disease. As we mentioned, Phase 1 studies are primarily focused on safety, and we will focus there. We know that cyclosporine works well and we know the hydrogel intracanalicular insert has been well tolerated in many, many patients. So, no concerns there but something we need to follow up. From an efficacy perspective, we will follow signs and symptoms of dry eye disease. So, those would include patient reported outcomes, using some of the standard metrics, like the OSDI and looking at a dry eye symptoms with the visual analog scale. We’ll also look for signs of dry eye as measured by the physicians, which will include things that you'd expect to see in dry eye studies, like corneal fluorescein staining. We're following the patients for four months, and we'll be following both the signs and symptoms over that interval. And then, the plan would then be, once the Phase 1 is completed, to transition to a larger Phase 2 study, later this year.

I think it's important also that just thinking both DEXTENZA in episodic dry eye disease and CSI in chronic disease, as that punctal occlusion is a standard treatment for the treatment of dry eye. And from a marketing standpoint, it's so much easier to actually get physicians to understand to do something they're already doing, which is including the punctum, but then getting the benefits of a drug release, of a steady state drug release without a preservative by also including the punctum. So, it is a tremendous opportunity for us to be able to go with the flow of the market rather than to be able to -- rather than have to teach practitioners to do something different than what they've done in the past. It also has the benefit of having a procedure code attached to it that is not part of another procedure. So, 356T would apply to both of those products. And over time, we would expect to make 356T a category, one procedure code that clearly would not be dependent upon another procedure happening at the same time, because it would be independent in the ocular surface space and in the ophthalmologist surgery.

That's very helpful. Thanks again for taking the questions.

Thank you.

[Operator Instructions] Our next question comes from the line of Yi Chen with H.C. Wainwright. Your line is open.

Hi. This is Boobalan dialing in for Yi Chen. And thanks for taking my questions. So, I'm curious, whether COVID-19 does have any impact on your sNDA submission for allergic conjunctivitis?

No, it wouldn't. The data is complete. The FDA is still working through the COVID pandemic. So, we're very much on track to be able to get that sNDA filed, and then are very hopeful that the FDA will have a relatively short turnaround time.

Okay. That's very helpful. And with respect to your TKI trial, will COVID-19 have any impact on that?

To date, it's had no impact on that.

Okay.

And we don't expect it to.

Okay, great. And final question, again about COVID-19. So, do you expect any delay in the initiation of new clinical trials, such as the dry eye study, due to COVID-19?

We have not experienced a delay. As Mike referenced earlier, our TIC Phase 4 cohort is somewhat slow enrolling than the other cohorts have been. But, we have not experienced any delays anywhere else, and we don't expect any delays in the start of the CSI trial.

Okay. That's it. Thank you so much.

Thank you.

I'm showing no further questions in queue at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.