Ocular Therapeutix, Inc. (OCUL) Q3 2022 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Ocular Therapeutix Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand it over our conference to your speaker today, Donald Notman, the CFO. Go ahead, Donald.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on our third 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 third quarter ended September 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, 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 Dr. Peter Kaiser, our Chief Medical Adviser, Retina. Following their remarks, I will provide an overview of the financial highlights for the quarter before turning the call back over to Antony for a summary and questions. For Q&A, we will also 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 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 Anthony.

Thanks, Donald. The highlight in the quarter for Ocular was the release of the seven-month interim results from our U.S.-based Phase 1 trial for OTX-TKI, presented in a late breaker at the AAO Annual Meeting in September. With the release of the top line data, and our intent to pursue this in both wet AMD and diabetic retinopathy, I believe we are establishing ourselves as a future leader in the back of the eye. Added to our established expertise in the front of the eye, I’m pleased to say that we continue to make significant strides building Ocular Therapeutix as a comprehensive strategic player in the ophthalmology space. As a reminder, the context for the U.S.-based Phase 1 trial of OTX-TKI, we previously demonstrated in our Australia-based Phase 1 trial that we were able to deliver bespoke depot formulations of our proprietary hydrogel capable of resolving subretinal and/or intraretinal fluid. To do this, we treated uncontrolled patients with OTX-TKI as monotherapy meaning without the benefit of concomitant medication or induction therapy and then observe OCT scans and noted clinically meaningful reductions in fluid and even complete resolution in some patients. We don’t believe this has been shown previously with any other TKIs delivered individually nor has it been attempted since. In addition to demonstrating that axitinib delivered through our hydrogel depot was potent enough to resolve fluid as monotherapy in some patients. We also observed a dose response. We continue to believe the potency of axitinib and its uptake in the retinal pigment epithelium or RPE cells are responsible for these observations. The next step was to take OTX-TKI and test its durability in maintaining retinal thickness and BCVA in controlled wet AMD patients and in a setting with an active control group. Our recently reported interim results from our U.S.-based Phase 1 trial did just that with resounding success. I’ll let Rabia and Peter go over the particulars of the trial. But the takeaway is that we were able to demonstrate that 80% of patients reach the six-month time point without the need for rescue and 73% were able to go through seven months. Most importantly, both best corrected visual acuity as measured by ETDRS charts and retinal thickness as measured by OCT and TKI related patients were comparable to the control arm of the once 8-weekly EYLEA. It should also be noted that none of the rescue patients in the trial met the rescue criteria set forth in the clinical trial protocol. In addition to moving OTX-TKI into a Phase 2/3 trial for wet AMD in quarter three of 2023, we also plan to initiate a Phase 1 trial in diabetic retinopathy in the first quarter of 2023. While I’ll let Peter elaborate on the opportunity in diabetic retinopathy and our new clinical development plans, I want to highlight that with the current data and depending on the outcome of Phase 1 diabetic retinopathy trial as a follow-up meeting with the FDA, we believe that we may be in a position to enter a Phase 3 pivotal in diabetic retinopathy in the first quarter of 2024. Finally, let me provide a few comments on our commercial business. In the third quarter, we reported net sales of DEXTENZA of $11.9 million, essentially flat year-over-year and down approximately 2% sequentially quarter-over-quarter. Relative to the potential of the opportunity and our own expectations, this represents a disappointing result and is clearly unacceptable. We believe that there are three main reasons for DEXTENZA’s performance. The first is that our customers ASCs and HOPDs remain in a difficult situation. Since the pandemic, the majority of our customers have been chronically short of staff or recently re-staffed with generally less experienced people than they had before the pandemic. Buy and build products like DEXTENZA a huge advantage for the ASC and HOPD when administered appropriately, do require experience back office staff and surgical staff to properly implement and administer. Understandably, in the current environment, ASCs and HOPDs are reluctant to add extra work and complexity. The second reason is that we are in a similar position as our customers and our own ability to maintain an experienced field-based team with minimal vacancies, which we have – which have been higher than we would have liked over the past few quarters. The final reason behind DEXTENZA’s performance has to do with changes in the reimbursement landscape for the procedure code, CPT 68841, and it is clear that volume has been impacted due to the reduction in physician payment for the insertion of DEXTENZA when our procedure or CPT code was converted from a Category III T code into a Category I code effective January 1, 2022. Most important going forward, though, is not about what has caused the slowdown but how we plan to reignite growth. I’m happy to report the variable over which we believe we have the most control is the closest to being resolved. We are now nearly at full capacity in our field force with the team trained and in the field. Clearly, it’s not just about having vacancies filled but also by focusing on a strategy of deepening involvement with our customers and helping them get beyond patients with Medicare Part B into advantaged plans and commercial payers. We have had tremendous improvements in coverage and reimbursement of late and we need to get our customers comfortable giving more patients access to the benefits of DEXTENZA. The next two elements over which we believe we can have the most control are the value proposition for DEXTENZA and the procedure code 68841 associated with insertion. Last quarter, we began issuing an off-invoice discount that was well received by our customer base as it removed the most common injection voiced by our accounts. We also have implemented a number of strategies working with CMS in an effort to appropriately rebalance the value proposition for DEXTENZA and CPT 68841 in the future. While early in the implementation, we started the fourth quarter well with October recording the strongest monthly in-market sales ever nearing 11,500 billable units and eclipsing our previous record by more than 900 inserts. While we fully expect this growth to continue for the remainder of the fourth quarter and accelerate going forward, we do not believe that we will have a fourth quarter strong enough to reach our original guidance of $55 million to $60 million in net revenues. Consequently, we are adjusting guidance for full year net revenues to between $48 million and $52 million, which represents a growth over prior year of between 10% and 20%. With that as a summary, let me turn the call over to our Chief Medical Officer, Dr. Rabia Ozden, to take you through the pipeline.

Thanks, Antony. Let me begin with an update on our back-of-the-eye program, OTX-TKI. During the AAO meeting in September, we had multiple presentations providing updates on OTX-TKI being developed for the treatment of wet AMD and other retinal indications. By far and away, the highlights from the meeting was the presentational month six and month seven interim data from our U.S.-based Phase 1 trial. This was a multi-center prospective randomized controlled trials 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 assess preliminary biological activity in subjects by measuring anatomical and functional changes of the retina. Overall, we could not have been more pleased with the results. OTX-TKI was generally well tolerated. There were no drug-related ocular or systemic series adverse events, SAEs. There was one SAE of acute endophthalmitis in the OTX-TKI arm, which of course, following a mandated aflibercept injection at month one. Using a data cutoff date of August 24, 2022, the data showed subjects treated with a single OTX-TKI implant demonstrated stable and sustained best corrected visual acuity, BCVA, mean change for a baseline of negative 1.3 letters and central subfield foveal thickness, CSFT, mean change from baseline of positive 9.2 micrometer in the OTX-TKI arm at seven months, which was comparable with the aflibercept arm dosed every 8 weeks. Mean change from BCVA baseline of minus one letter, mean change from CSFT baseline positive 0.4 micrometers. Importantly, the data also showed that 80% of the subjects in the OTX-TKI arm were rescue free up to six months and 73% of subjects in the OTX-TKI arm were risk rescue-free up to seven months. We believe the data highlights the potential of OTX-TKI to become a differentiated product capable of providing a durable anti-VEGF response that improves upon today’s standard of care in the management of wet AMD. We plan to share this data, along with the encouraging data from our Australia-based Phase 1 trial with the FDA and subject to discussions with the FDA plan to initiate a Phase 2/3 clinical trial in the third quarter of 2023. We plan to provide a second data update of the U.S.-based Phase 1 OTX-TKI trial. It’s the Angiogenesis, Exudation, and Degeneration 2023 Annual Meeting in February that will include Month 10 safety and efficacy data. In addition to wet AMD, we plan to initiate a Phase 1 trial evaluating OTX-TKI for the treatment of diabetic retinopathy in the first quarter of 2023 and Peter will give more information on this trial. Moving to our glaucoma program, OTX-TIC. We continue to actively enroll subjects in the U.S.-based Phase 2 clinical trial. This trial is a prospective, multicenter, randomized controlled trial, evaluating the safety, tolerability and efficacy of OTX-TIC for the reduction of intraocular pressure in patients with primary open-angle glaucoma or ocular hypertension. We plan to enroll approximately 105 subjects in three different arms, randomized 1:1:1, in which the subjects will receive a single OTX-TIC implant containing a 5-microgram or 26-microgram dose of travoprost compared with an implant of breast. The 5-microgram arm is utilizing a fast-degrading implant while the 26-microgram arm is utilizing a standard degrading implant. The trial is designed to observe the changes in diurnal intraocular pressure, IOP from baseline at 8:00 AM, 10:00 AM and 4:00 PM at two, six and 12 weeks and follow duration of IOP response over time. We plan to provide a top line data release for this Phase 2 clinical trial in the fourth quarter of 2023. Regarding our ocular surface disease program, we remain committed to the development of our two dry eye programs in a measured manner. 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. With regards to OTX-DED, we remain on track to begin a collaborative trial in the first half of 2023 to evaluate the performance of OTX-DED versus placebo inserts, namely fast-dissolving collagen plugs and no inserts at all. We have designed this trial to explain the magnitude of the placebo effect seen in both the OTX-DED and the OTX-CSI Phase 2 trials, in which the vehicle hydrogel placebo insert or placebo comparator remain in the canaliculus longer than anticipated performing more like an active comparator than a placebo comparator. We plan to use the results of this trial to inform the selection of a more appropriate placebo comparator for both the OTX-DED and the OTX-CSI programs moving forward. I would now like to turn the call over to Peter to discuss more specifics around our development plans for OTX-TKI in both wet AMD and diabetic retinopathy.

Thanks, Rabia. At AAO, we announced plans to advance OTX-TKI into a Phase 2/3 trial in wet age-related macro degeneration as well as initiate a new trial in a new indication, evaluating OTX-TKI for treatment of diabetic retinopathy. In wet macular degeneration, we have been doing a tremendous amount of work since the U.S.-based Phase 1 interim results were first made available to find ways to expedite trials power to statistically demonstrate the profile that we see emerging. As we pursue this, importantly, we have the benefit of a deep base of experience with the product that may be underappreciated. For example, in the TKI program, we dosed our first patient in early 2019 and have now had over 45 patients who have received OTX-TKI therapy with over 850 patient visits. The drug has been studied as both a monotherapy and in combination with anti-VEGF. It has been tested in a randomized study in a well-controlled and actively leading patient study as well as in patients who are treatment naïve, both as a monotherapy and combination therapy. Across it all, OTX-TKI has demonstrated a remarkable consistency of effect. We believe this gives Ocular to largest data set relative to any other company evaluating a TKI and wet macular degeneration, which we, of course, plan to share with the FDA at our Type C meeting at which we will discuss our Phase 2/3 strategy. In addition to wet AMD, we plan to initiate a Phase 1 trial to evaluate OTX-TKI in diabetic retinopathy in the first quarter of 2023. Diabetic retinopathy is a leading cause of blindness, affecting an estimated 8.4 million patients in the U.S. and 140.9 million globally according to Market Scope. Typically, diabetic patients will develop diabetic retinopathy after they have had diabetes for between three and five years. In the early stages, diabetic retinopathy will not affect sight, but if it is not treated and progresses eventually, the site will be affected. In fact, it is the number one cause of legal blindness in the working-age population. Given the slow onset and the fact that diabetes affects a younger working-age population, the required frequency of current anti-VEGF therapies makes effective treatment, especially challenging. And this is where we believe OTX-TKI with its designed durability of up to nine months or longer may be especially effective. We believe the same attributes that make OTX-TKI a compelling product in wet macular degeneration, the ease of use of our office-based injection and long-term durability could establish this as the first standard of care in the treatment of diabetic retinopathy. We also believe that the regulatory path is more straightforward, given that the comparator in a registration trial would likely be placebo since there is no established standard of care. Finally, we see the diabetic retinopathy space given its requirement for extended durability as inherently less competitive than the wet AMD market. We plan to conduct a U.S.-based Phase 1 trial under an eIND across approximately 10 sites and will include approximately 20 patients randomized either 600-microgram OTX-TKI single implant containing axitinib or sham control. Based on the positive interim results in our U.S.-based Phase 1 trial in wet age-related macular degeneration, we believe that OTX-TKI should perform well in the Phase 1 diabetic retinopathy trial. With the current data and depending on the outcome of the Phase 1 DR study and a follow-up meeting with the FDA, we believe that we may be in a position to move aggressively and to initiate our first Phase 3 pivotal trial, OTX-TKI for the treatment of diabetic retinopathy in the first quarter of 2024. I would now like to turn the call back over to Donald.

Thanks, Peter. Net revenue, which includes both gross product revenue net of discounts, rebates and returns, which the company refers to as total net product revenue, and collaboration revenue was $12 million for the third quarter of 2022 and represented an approximately 2% decrease over the same period in 2021. DEXTENZA net product revenue was $11.9 million, flat to the comparable quarter of 2021 and down approximately 2% on a sequential quarterly basis. Net revenue in the third quarter of 2022 also included $0.1 million in collaboration revenue associated with company’s work with Affimed and net product revenue in the third quarter of 2021 included $0.3 million attributable to the sales of ReSure Sealant. Research and development expenses for the third quarter were $13.7 million versus $12.7 million for the comparable period in 2021, driven primarily by an increase in personnel and a higher level of preclinical development activity. Selling and marketing expenses in the third quarter were $10.2 million as compared to $9.6 million for the comparable period of 2021, reflecting primarily an increase in field force personnel. General and administrative expenses were $8.5 million for the third quarter versus $8.1 million in the comparable quarter of 2021 primarily due to an increase in personnel-related costs, including stock-based compensation. The company recorded a net loss for the third quarter of $24.2 million or a loss of $0.31 per share on a basic and diluted basis compared to net income of $2.6 million or net income of $0.03 per share on a basic basis and a loss of $0.23 per share on a diluted basis for the same period in 2021. Net loss in the third quarter of 2022 included a $1.1 million non-cash item attributable to an increase in the fair value of the derivative liability associated with the company’s convertible notes as the price of its common stock increased during the quarter. Non-cash charges through stock-based compensation and depreciation and amortization, were $4.7 million in the third quarter of 2022 versus $4.4 million for the same quarter in 2021. As of November 4, 2022, the company had 77 million shares outstanding. As of September 30, 2022, the company had $121 million in cash and cash equivalents versus $134.5 million at June 30, 2022. Based on current plans, the company believes that its existing cash and cash equivalents are sufficient to fund operations through 2023. I would now like to turn the call back over to Anthony for some final thoughts.

Thanks, Donald. So before opening the call up for questions, let me do a quick summary. We are excited to be able to share with the world our seven-month interim results from our U.S.-based Phase 1 trial for OTX-TKI in wet AMD building further evidence of a potential product profile that could set the standard of care for durability in the treatment of wet AMD and diabetic retinopathy. We intend to initiate a Phase 1 trial of OTX-TKI for diabetic retinopathy in the first quarter of 2023 and believe we may be positioned to commence our first Phase 3 pivotal trial in the first quarter of 2024. We plan to initiate a Phase 2/3 trial of OTX-TKI for wet AMD in the third quarter of 2023. We plan to continue enrollment of the Phase 2 trial of OTX-TIC in glaucoma and should be in a position to release top line data in the fourth quarter of 2023. We now have a full team in place selling DEXTENZA in the surgical setting with an enhanced value proposition that we believe should reignite our growth trajectory, and we have started with a record month in October. And we have $121 million in cash as of September 30, and continue to guide a cash runway through 2023. We look forward to a strong remaining 2022. And with that, I’ll turn the call over to for questions.

Thank you. At this time, we’ll conduct a question-and-answer session. [Operator Instructions] Our first question comes from the line of Joe Catanzaro from Piper Sandler. Go ahead, Joe.

Hey, guys. Thanks for taking my questions here. I’ll try and stick to two questions. Maybe first on diabetic retinopathy. Just wondering why that study is moving forward under an exploratory IND and not traditional IND that would maybe allow potentially for a more robust study and whether 20 patients’ worth of data is a sufficient data set to answer any questions ahead of a potential Phase 3 start in 2024. And then with regards to the Type C meeting and the FDA and TKI and wet AMD, I guess, what are the sort of main questions and feedback you’re hoping to get there? And how does the reformulation work that you guys are doing factor into those discussions, if at all? Thanks.

To form that question out to Peter since he’s running point on the diabetic retinopathy. Peter, do you want to try and tackle that?

Sure. Thanks for the question. When it comes to diabetic retinopathy, the key feature here is – we’re working – we had to decide, is it better to use our 1x600 or is it better to use our – and start forward now? Or is it better to work later with maybe a reformulated version. And to us moving forward with the eIND, given the number of patients that it allows us to use works perfectly fine. The second question in terms of the macular degeneration, you have to look at the – when we look at the FDA, the FDA will allow us to – the decision is going to be what type of combination therapy, they’re going to call it, if you do, say, three anti-VEGF injections versus one versus none, should we enroll patients or treatment naïve, all comers, patients previously treated and what did they consider previously treated. It’s a discussion that any company looking at in this space is going to have to have with the FDA. We don’t want to have that discussion until we have all the patients basically from both our Phase 1 studies, completing the study, so we have a best chance of deciding what is best to move out. Did that answer your question?

Yes, that’s all very helpful. Thanks for taking my question.

All right. Our next question comes from Christopher Howerton from Jefferies. Hold on one second Christopher. All right, your line is now open.

This is Kambiz on for Chris. Thanks for taking the questions. For DEXTENZA, what is the priority in office or ambulatory surgical centers? And then on OTX-TKI, what is the best indication to first going to label that product, whether AMD or diabetic retinopathy. Thank you very much.

Yes. For the first part on DEXTENZA, I mean, clearly, our business runs on – in the surgical setting now and the focus is getting growth reignited in the surgical setting. So that is priorities one, two and three at the moment. Secondarily, talking about diabetic retinopathy and why we think that’s such a great opportunity given the profile of the diabetic retinopathy patients, as Peter had mentioned. There are patients who are primarily working age population. They have a number of other conditions for which they’re receiving active treatment. The burden of frequent injection is actually too much for them to bear, and they would rather risk losing site than have to go in for either once monthly or once eight weekly injections with anti-VEGF. We think that we have a formulation that we believe that could last for a year or longer. We think that changes the goalpost entirely. And once early formulation in diabetic retinopathy with a favorable safety profile, we think that would be tolerable. We wouldn’t expect every diabetic retinopathy patients to convert to therapy with OTX-TKI. But given the number of patients with diabetic retinopathy, changing that number from 90% of patients being untreated to 80% of patients being untreated creates a significant product opportunity. You marry that with the easier regulatory path that we can go directly against sham rather than against an active comparator. We think this is a natural opportunity for us. It doesn’t mean what AMD is not an opportunity that we are very excited about and seeking to develop a clinical program in order to get registration there. But we do understand that’s a highly competitive environment and that is also expensive – far more expensive clinical trials. So we are not doing in either our approach, but we are particularly excited about diabetic retinopathy because we think our product profile actually creates a new opportunity in that space that doesn’t exist presently.

Okay. Thank you very much.

All right. Our next question comes from the line of Yi Chen from H.C. Wainwright. Hold on a second. All right, your line is now open. So sorry, go ahead.

Hello. Can you hear me?

Yes.

Okay. So my first question is, can you elaborate on the cause of staffing shortage? And why do you believe it is a transient problem.

Staffing shortage is the same staffing shortage you realize when your flight delayed four hours because they can’t find pilots to fly it. It’s a post pandemic issue that’s across the board in a number of different industries. But it’s – there’s nothing fairly different, I think, in the ASC and hospital environment, particularly on the administrative level, where these are fairly low level employees that seem to have disappeared during the COVID pandemic and not come back into the workforce with the same vigor as they left it. So we are very much at the mercy of the macroeconomic situation when that ameliorates, I expect the ASC and hospitals to be back to normal as well.

Okay. And what kind of sales boost for DEXTENZA do you expect in 2023, considering the fact that DEXYCU will no longer have its pass-through status starting January 1.

Well, we certainly expect to pick up some of the volume that DEXYCU has been able to achieve. They have somewhere between a third and half of what our volume is. So we would expect some of that to move over. We would expect some of that would probably go into – some of the formulations that exist on the compounding side. We have certainly internal assumptions of what we think we’ll be able to get, and we have some – certainly some anecdotal data of people who are looking to place orders as they move their business over to a product that will continue to have separate payment. But we have not quantified that, and we will give some guidance as we move past the fourth quarter. We’ve seen a really nice trend break. Starting in October, we believe that’s real. We believe it’s real, both because of our – the staffing we have internally because the market is getting better, but also because I think our strategy is deepening in how we are able to move patients past or move our customers past Med Part B and take advantage of some of the gains we’ve made in the private payer environment. But we’ll wait to see what that trend line looks like before we look at what 2023 guidance will look like.

Wonderful. Thank you for that question. [Operator Instructions] Our next question comes from the line of Yuan Zhi from B. Riley. Your phone line is now open.

Hi. Thank you for taking our question. Dr. Kaiser, can you comment on the diabetic retinopathy patient journey? What’s the percentage of the patients are non-proliferative for TBR and at which point this patient will fill the urgency to get the current treatment the anti-VEGF. Thank you.

So that’s a great question, Yuan. To us, when a patient comes in with diabetic retinopathy, there are sort of two different buckets. One is the patient who doesn’t realize why they’re there. And their endocrinologist or primary care doctor says, you have to get an eye exam. And the second type of patient is one who is actually losing vision from diabetes and diabetic and diabetic retinopathy. Yes, can you hear us? So what I was saying is that there’s two types of patients with diabetic retinopathy, one doesn’t realize they have it, and it doesn’t have any visual changes and the other is one who is noticing visual changes. And it doesn’t really – you can have this with severe non-proliferative disease. By the time it gets to proliferative disease, you’re usually symptomatic. Oftentimes, those patients who have floaters, they’ll have decreased vision. They may even have way worse than that from the neovascularization that we see in proliferative disease. When it comes to non-proliferative disease, most of these patients would qualify for treatment, but we currently don’t treat those patients with any of the FDA-approved products, which would be Lucentis or Eylea because it requires so frequent injections as Anthony said at the outset, that’s where we think we offer the – a good choice because these are patients who would improve their diabetic retinopathy with a treatment theoretically, our treatments would last seven, eight, nine, maybe even longer months. So an injection every so often in these working age patients is very palatable. And the benefit is very real. The reason we don’t use it and patients don’t want it, it’s because as much as the benefit is real, it’s just a frequency of injection is just not possible to keep up. Now I do have patients who do get anti-VEGF injections for diabetic retinopathy, but they’re in the vast minority. So hopefully, that answered your question.

Yes. That’s very helpful. Thank you.

All right. [Operator Instructions] Our next question comes from the line of Georgi Yordanov from Cowen. Georgi, your phone line is open.

Thank you so much for taking our questions and congratulations on all the progress and the data from OTX-TKI. So maybe to follow up was on the previous discussion on the reformulations that you’re planning. You mentioned that you’re looking – on the previous call that you’re looking into a lower drug load insert that has a faster drug release profile. So maybe can you talk about what made you explore this option? And what would you be looking for in terms of product profile before you can initiate the trial? And I guess when do you think you have clarity if you’ve been able to successfully achieve your goal?

Yes. Let me start with that. And I think this is one of the elements where I made a lot of mistakes in my life, probably one of the bigger ones was talking about reformulation with OTX-TKI. Essentially, we have a formulation that works. And we have a formulation that will work in wet AMD. We have a formulation that works in diabetic retinopathy. And we’re very happy with that formulation with what it’s been able to demonstrate from a clinical program. If we need to go forward with that, we will go forward with that formulation. So there’s nothing formulation related that’s causing any delays in what we look at going forward. Now as formulators, there is a magical perfect formulation. A perfect formulation is that from the moment the last particle of drug elutes out of the depot, the depot spontaneously bioresorbs and disappears. Now you will never get a formulation that is that perfect. There’s always going to be a situation where either the depot lasts longer than the drug or the drug lasts longer than the depot. And what we are doing is what we do with all of our formulations. And every time we move forward, we attempt to improve upon the formulation that we have. So we have a number of projects going forward that are looking at improved formulations that fit closer to that ideal. But if those formulations aren’t ready at the time that we’re ready to go into Phase 3, we’ll go with the existing formulation, particularly, we have the advantage of being [Technical Difficulty] to first and second pivotals where the second pivotal is the – is where you need your final marketed formulation. So there is nothing in the formulation of these products that’s delaying us. But we are searching for perfection. And we are starting really much with the end in mind that we think that we need to bring forward products that are not only commercially viable, but actually will be the best product that we can develop before we go into that in pivotal.

This is super helpful. And then maybe just as my follow-up, do you have any, I guess, pointers or idea of like what would be the time line to seeing results from the Phase 2/3 trial? And is it possible that this trial serves as one of two pivotals?

Yes. That’s what’s really – when we talk about people saying, why is it taking a while before we get into these later-stage clinical trials. The reason why is because we believe that the Phase 1 programs that we’re using supply us with ample validation of wet AMD, which we believe we already have and diabetic retinopathy, which, of course, we expect to be able to see before we start those later-stage clinical trials. But we don’t see doing a classic Phase 2 as a necessary strategy for us. So we are looking very much to going directly into a first pivotal and then running nearly on top of that a second pivotal. There will probably be a little bit of a delay between the first and second pivotals in order just to get those started in the best possible way. But we are able to look at those programs and then think about the next act being the completion of those trials and then the NDA filing. So we are very much collapsing these programs and expect we haven’t given guidance on when we actually expect to get those data back yet, but we will, once we get those programs started.

Thank you. Our next question comes from the line of Caroline Palomeque from Berenberg. Go ahead, Caroline.

Hi, thanks for taking the questions. Just thinking about the next 12 months to 18 months, you have several late-stage trials you expect to initiate both wet AMD and DR. Just wondering if you can give some guidance as to the increase in R&D spend or the cost of the trial themselves? Thanks.

We have not released the cost of those trials. I mean clearly, diabetic retinopathy is far less expensive, mainly because of the compare that we would be going after, which would be sham. Wet AMD trials are somewhat longer and more involved. We have put, as you noticed with wet AMD, a Phase 2/3 trial. In our runway calculations, we have put in enough patients for the Phase 2 trial but we are clearly looking at potential partnerships that could help us gross that up into a first pivotal. It’s really about the number of patients. We’ve long stated that the next trials we would go into after our Phase 1 would be trials that if they had enough patients in them would serve as pivotal. Clearly, we’re going to get the advice of the FDA before we set line exactly what those protocols look like. And it’s hard to exactly price them up and understand exactly when they’re going to complete before we go in what those protocols look like.

Great. That’s really helpful. I appreciate that. Just a quick follow-up – I’m not sure we all that is – okay. Yes. Just a quick follow-up on that. Just wondering, you mentioned partnership. Just wondering if there’s anything or any companies that you already have in mind or you’re already in conversations with? Is there an ideal partner that you have in mind?

Yes. Certainly, for TIC and TKI, the ideal partner is somebody who can appropriately globalize the products that we’re developing. We are developing these products for the benefit of patients throughout the world. We have certainly the ability to commercialize in the U.S. where we built a differentiated buy-and-bill commercial sales team certainly in front of the eye. We believe we can do it in the back of the eye as well. But the ideal partner would be somebody that could give justice to these products and make sure that patients throughout the world can benefit from them.

Okay. Thank you for your question. [Operator Instructions] All right. We have another question from Yi Chen. So hold on one second, we put you on the stage. Go ahead, Yi.

Hello.

Hi, go ahead.

Hi, thank you for taking my follow-up. Just very quickly, was there a precedent in the clinical development for DR that a candidate was able to be advancing to a Phase 3 trial directly for a Phase 1 trial.

I’m sorry, you’re asking there was a – is it a precedent in the industry of a...

Yes, precedent in the entire industry for clinical development for DR.

I’m not aware specifically of DR. I can pass that off to Peter. Peter, are you aware?

When you look at how tyrosine kinase inhibitors work, they work to prevent downstream activation of certain tyrosine kinase, depending on basically several factors. And in the case of axitinib, it has a potency – very high potency at the VEGF receptors as well as the potency at the PDGF receptors. When you look at our data from macular degeneration, it’s following the same path that you would expect for an anti-VEGF to perform at. And so because of that, we know very well that diabetic retinopathy basically mirrors macular degeneration when it comes to the anti-VEGF effect. And then when you add the anti-PDGF effect, where we know that in diabetes, one of the sort of late complications is what something called traction attachment which is formed – it help form by PDGF. And so that, in and of itself, would show that you would have a benefit in terms of clinical precedent, there’s no previous clinical study in diabetic retinopathy. They’ve tested tyrosine kinase inhibitors. We haven’t, but it has been tested for diabetic macular edema with success as well as preclinical models. So for us, there’s plenty of data that would support it. That’s why we’re doing a Phase 1 clinical study. And the goal then is with that showing what we need to basically – the thing we need to figure out is sort of how quickly does the effect occur and what is the magnitude of the effect. And from that, we can do some power calculations to determine the Phase 2/3, the size of the Phase 2/3 study and so that’s what we intend to get from the Phase 1 study. The nice thing about the study we’re proposing is the FDA allows us to also have a control group. And so this really is important, especially when you’re talking about diabetic retinopathy severity to have a control group to really be able to compare directly as opposed to a traditional Phase 1 where you only put in your own drug and you have really no idea what the control group would be, and you have to use natural history. So we’re pretty excited to get those results. And then from that design, a very large study based on it.

I think it’s an important background also. I mean these constructs, Phase 2 and Phase 3 are not FDA concepts. They’re actually company concepts. And the reason why Phase 2s are done, I have a long background in areas like diabetic retinopathy, where you’re able to do first-in-human studies in actual patients. So you’re able to get proof of concept while you’re getting safety data, which is obviously the primary reason for doing a Phase 1 program. When you have proof of concept, the FDA just sees pivotal or non-pivotal. And we have the ability because we have proof of concept, we certainly expect to have proof of concept for diabetic retinopathy that we can then jump straight into a pivotal trial. This is done routinely in oncology settings in other settings where you’re able to do first in human studies in rather than in healthy volunteers, we do them in patients with active disease. And we have 45 patients in wet AMD, where we understand how our drug works in a number of different ways and a number of different populations. So that is adequate from our standpoint and adequate from the FDA standpoint, we presume once we have the discussion with them to jump directly into a pivotal trial. It’s not a huge leap when you’re working with known mechanisms and you have clinical trial data in populations with active disease. So we certainly expect to have that box ticked with DR, not only with our own programs, but looking at other potential programs that may be able to read onto what would give us confidence to go directly into a pivotal.

Got it. Thank you.

[Operator Instructions] All right. There appears to be no additional questions at this time. So I’d like to turn it back over to Antony Mattessich for closing remarks.

I just want to thank everyone for their attendance and for the very insightful questions, they usually insightful questions from the analysts. We are very excited about our future, very excited about being able to complete our Phase 2 trials for OTX-TIC, which is often the forgotten product that we still have very strong belief and excitement for. Clearly, our nine-month data, we will be releasing at a conference very soon for our OTX-TKI and that nine-month data in wet AMD becomes extremely interesting because that really is the time point that the FDA looks at as the primary endpoint for way AMD studies. So I think the performance of the drug at nine months is going to be far more interesting than what it was at seven months. And what we’ve been seeing so far in the month of October with DEXTENZA, and where we’ve got 11,500 billable inserts in October, which is almost 1,000 more than we’ve ever done in the past. This is particularly interesting because this is the first month of a quarter, and we usually do best in our last month of quarter. The previous two records were in final month of the quarter. I’m not going to declare victory yet. We want to make sure that, that continues to roll forward, but there are a number of factors that we think will play into what we hope to be able to achieve with DEXTENZA, one of which we’re very excited about with the OPPS final rule where we were moved into an APC category that comes with a $2,100 payment in the HOPD. We still have the status indicator for that, that has not changed to allow payment in the ASC setting. But we believe that we have good data going forward and good arguments to be able to get that status indicator change to the SaaS indicator for all of the other products in that APC and look to a facility payment hopefully sometime in 2024, which would rebalance some of the economics around the product and something that would create a lot of excitement in the surgical setting going forward as well. So with that, I thank everyone for being on the phone and for sticking with us as we continue to advance our pipeline forward. Thank you.