Ocular Therapeutix, Inc. (OCUL) Q4 2022 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Ocular Therapeutix Fourth Quarter and Year-End 2022 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Donald Notman, Chief Financial Officer of Ocular Therapeutix. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on our fourth quarter and year-end 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 fourth quarter and year ended December 31, 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 development and the commercial progress of DEXTENZA. Also speaking on the call today will be Steve Meyers, our Senior Vice President, Commercial; and Dr. Rabia Ozden, our Chief Medical Officer. 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 be joined by Chris White, our Chief Business Officer; and Dr. Peter Kaiser, our Chief Medical Adviser, Retina. As a reminder, on today's call, certain statements we will be making may be considered forward-looking for the purposes of the Private Securities Litigation Reform Act of 1995. In particular, any statements regarding our regulatory and product development plans as well as our research activities are forward-looking statements. These statements are subject to a variety of risks and uncertainties that may cause actual results to differ from those forecasted, including those risks described in our most recent annual report on Form 10-K filed this afternoon with the SEC. I will now turn the call over to Antony.

Thanks, Donald. The fourth quarter of 2022 was a tremendous success for Ocular Therapeutix and has set the stage for a very strong start to the year in 2023. First, on the sales side, we finished the quarter with DEXTENZA net product revenue sales of $13.9 million compared with the same quarter of previous year sales of $12.2 million and sales over prior quarter of $11.9 million. That represents growth of approximately 14% and 17%, respectively. Total DEXTENZA net product revenue was $50.5 million, representing growth over prior year of approximately 20%. Most importantly, in the fourth quarter, we regained in-market sales momentum and I'm pleased to report that this momentum has continued in the first couple of months this quarter. I will introduce you to our new Senior Vice President of Commercial in a few moments who will go through -- who will go over the reasons for the return to growth and our go-to-market strategy. While we were very pleased to regain momentum with DEXTENZA, we are really seeing the potential value of our pipeline continue to emerge, following the recent data we shared on OTX-TKI, our axitinib-containing hydrogel implant for the treatment of wet AMD and other VEGF-mediated retinal diseases. On February 11, Dr. Andrew Moshfeghi presented the interim 10-month results from our Phase I study in the U.S. where we compared a single dose of OTX-TKI to EYLEA given every 8 weeks in patients with wet AMD. The results were spectacular as we saw no additional rescues up to month 10 of the 73% of patients who were rescue-free up to month 7, demonstrating potential best-in-class durability. We believe the $15 billion global market for wet AMD and diabetic retinopathy is driven by durability. While these results mean a great deal to Ocular Therapeutix and its shareholders, more importantly, they suggest a better future for patients suffering from VEGF-mediated retinal diseases, such as wet AMD, diabetic retinopathy and diabetic macular edema. In the case of wet AMD, it is well known that the vision gained seen when starting anti-VEGF treatments are not maintained over time in the real world. The primary reason for this is the lack of compliance caused by the injection burden of current antibody therapies like LUCENTIS and EYLEA. In the real world, patients tend to miss necessary injections for a variety of reasons. Wet AMD patients are elderly and can find it difficult to get to retina offices on a 4 to 8 weekly basis, so appointments are missed or delayed and permanent vision loss occurs because of the damage caused when the medication wears off and the disease process return. In the case of diabetic retinopathy where patients are generally of working age, the lack of urgency, given that disease may not have yet manifested and finding the time to get treated on a frequent basis, create real compliance challenges. In this population, the current standard of care is watchful waiting and many patients frequently progress to more severe vision-destroying disease before seeking treatment, making the results -- the resulting diabetic macular edema, a leading cause of blindness among the working age population. In short, we believe the promise of a drug like OTX-TKI is not only about convenience but also about saving vision. If we can move durability from the current frequency of injections to at least 9 months and beyond, we believe we can keep people on treatment and maintain vision. Lastly, it is important to understand that OTX-TKI is a different paradigm than typical antibody treatments. Existing treatments, like LUCENTIS and EYLEA, are bolus injections where a large amount of antibodies, well above the amount needed for immediate efficacy, are injected into the vitreous that, over time, are eliminated from the vitreous until they drop below therapeutic levels, allowing the disease process to restart. They extend injection intervals by making the antibody larger and slower to eliminate or just by jamming more antibodies into the eye with each injection. Either way, you're still treating a chronic disease with pulsatile dosing. OTX-TKI is different. OTX-TKI is designed to deliver a continuous dose of axitinib, a potent inhibitor of VEGF, keeping drug concentrations above therapeutic levels for extended periods without the drug peaks and troughs of pulsatile dosing. We believe the results we recently shared bear this out and demonstrate that our hydrogel technology could allow us to maintain therapeutic levels of axitinib at continuous levels in the vitreous for durations of at least 10 months. This new paradigm would allow physicians and patients the comfort of knowing the drug is always onboard and can hopefully demonstrate that there's less variability in the retina over time and, more importantly, that vision gains from anti-VEGF therapy are maintained in the real world. So what's next? We believe we have our proof of concept for OTX-TKI in wet AMD and, by extension, had gone a long way toward proof-of-concept and other VEGF-mediated retinal disease. Importantly, we also have a working formulation. We believe we'll be ready to enter the first pivotal trial in wet AMD as soon as the third quarter of this year. We are in ongoing discussions with the FDA regarding pivotal study designs and are very encouraged by the potential path forward both in wet AMD and diabetic retinopathy. We have also mentioned that commencing this trial is subject to financing and we are considering a range of nondilutive or minimally dilutive funding options but we have strong preference and are seeking to go forward with a potential strategic alliance. We have also stated our intention to begin a Phase III program for diabetic retinopathy in the first quarter of 2024, assuming positive top line data results from our ongoing Phase I clinical trial in diabetic retinopathy. The diabetic retinopathy program is a separate program with much more modest resource requirements than wet AMD. And consequently, we believe we could secure funding on our own without necessarily having a strategic alliance in place for our wet AMD program. We do, however, recognize that a potential strategic interested in our wet AMD program would also likely be interested in our diabetic retinopathy program. Our current plan is to commence the first pivotal trial in diabetic retinopathy in Q1 2024. Net-net, we believe we have a very valuable asset in OTX-TKI with a strong plan moving forward. With that. Let me turn the call over to Steve Meyers, our new Senior Vice President, Commercial, to discuss more on DEXTENZA and our 2023 guidance.

Thank you, Antony. I joined Ocular Therapeutix 1 year ago, in March 2022. Prior to that, I served as Vice President, Sales, at Flexion Therapeutics. During my tenure at Flexion, I led a team of approximately 100 sales representatives. During that time, we launched a product with a very similar business model. Like DEXTENZA, it is cold chain, buy-and-bill, a similar price point and with many of the same clinical characteristics. As many of you know, Ocular Therapeutix is poised to become a leader in the ophthalmology space and I'm excited about the opportunities in front of us. Over this past year, we established a rigorous hiring process to assemble an experienced sales team that has deep buy-and-bill ophthalmology and surgical experience. We also adjusted our discounting strategy to meet the demands of the market. Finally, we've secured exceptional market access coverage for DEXTENZA, including 100% coverage on Medicare Part B, over 90% coverage in Medicare Advantage and we'll be launching a new innovative program to accelerate the commercial book of business. Overall, we expect our market access coverage should allow more surgeons to treat more patients with the goal of supporting DEXTENZA to become a standard practice in ASCs and fuel growth of DEXTENZA product sales in 2023. As we begin 2023, we're seeing continued momentum in January and February, with in-market billable units running more than 20% ahead of 2022 levels for the same period. We anticipate that with a full sales team and our strong market access, DEXTENZA sales will continue to grow in 2023. Based on these dynamics, the company is guiding initial DEXTENZA net product revenue for the full year 2023 to be between $55 million and $60 million, representing potential growth of approximately 10% to 20% over 2022. With that, let me turn the call over to Rabia to discuss our pipeline in more depth.

Thanks, Steve. Let me begin with an update on our back-of-the-eye program, OTX-TKI. As many of you saw a few weeks ago at the Angiogenesis, Exudation and Degeneration 2023 Virtual Meeting, we presented positive interim 10-month data from our U.S.-based Phase I trial of OTX-TKI being developed for the treatment of wet AMD and other retinal indications. This trial is a multicenter, prospective, masked, randomized, controlled trial in 21 subjects evaluating a 600-microgram OTX-TKI dose in a single implant containing axitinib compared to aflibercept administered every 8 weeks in controlled with 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 with no drug-related ocular or systemic serious adverse events. Importantly, all OTX-TKI-treated subjects who were rescue-free at the month 7 interim analysis remained rescue-free, extending the 73% rescue-free rate up to month 10 and highlighting what we believe is best-in-class durability. Furthermore, we saw in the trial a 92% reduction in treatment burden for up to 10 months while demonstrating stable and sustained best-corrected visual acuity and central subfield foveal thickness, comparable with the aflibercept arm dosed every 8 weeks. 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. As Antony noted, we are in active discussions with the FDA and believe that we will be in a position to initiate the pivotal trials in Q3 of 2023 for wet AMD and Q1 of 2024 for diabetic retinopathy. We were pleased to have initiated a Phase I trial of OTX-TKI in diabetic retinopathy in Q4 of 2022. This U.S.-based trial will have approximately 10 sites and will include 21 subjects randomized 2:1 in a masked session to either a 600-microgram OTX-TKI single implant containing axitinib or sham control. We believe the same attributes that make OTX-TKI a compelling product candidate for the treatment of wet AMD, the ease of use of an office-based injection and long-term durability could establish this as the first standard of care in the treatment of diabetic retinopathy. Moving to our glaucoma program, OTX-TIC. We continue to actively enroll subjects in a U.S.-based Phase II clinical trial. This trial is a prospective, multicenter, masked, randomized, controlled trial evaluating the safety, tolerability and efficacy of OTX-TIC for the reduction of intraocular pressure in subjects with primary open-angle glaucoma or ocular hypertension. In late 2022, due to observed elevations in intraocular pressure in the OTX-TIC 5-microgram treatment arm, we decided to terminate the enrollment in the 5-microgram treatment arm and continue forward with the OTX-TIC 26-microgram and restart treatment arms. The company expects that the Phase II clinical trial will now consist of approximately 86 subjects, approximately 35 subjects in the OTX-TIC 26-microgram treatment arm, 35 subjects in the DURYSTA arm 16 subjects that were previously enrolled in the OTX-TIC 5-microgram treatment arm. The trial is designed to observe the changes in diurnal intraocular pressure from baseline at 2, 6 and 12 weeks and follow-up duration of intraocular pressure response over time. We plan to release top line data for this Phase II clinical trial in Q4 of 2023. Regarding our ocular surface disease programs, we remain committed to the development of our 2 dry eye programs, OTX-DED, a low-dose intracanalicular insert containing dexamethasone, for the short-term treatment of the signs and symptoms of dry eye disease. And OTX-CSI, a cyclosporine intracanalicular insert, for the chronic treatment of patients with dry eye disease. We intend to commence a small 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 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 back over to Donald to review our fourth quarter and year-end financial results.

Thank you, Rabia. Total net revenue which includes both gross DEXTENZA product revenue, net of discounts, rebates and returns which the company refers to as total net product revenue and collaboration revenue, was $14.1 million for the fourth quarter of 2022 and represents 18% growth over the prior quarter and 15% growth over the same period in 2021. DEXTENZA net product revenue was $13.9 million for the fourth quarter of 2022, an increase of approximately 17% sequentially over the prior quarter and up 14% over the comparable quarter of 2021. Net product revenue in the fourth quarter of 2021 included $0.1 million attributable to the sales of ReSure Sealant. Total net revenue for the full year 2022 was $51.5 million versus $43.5 million, an 18% increase. Research and development expenses for the fourth quarter of 2022 were $13.5 million versus $12.6 million for the comparable period in 2021 driven primarily by an increase in personnel, offset by both a reduction in overall clinical trial expenses and a delay in the timing of clinical trials. Overall, R&D expenses for the full year increased $3.4 million to $53.5 million from $50.1 million in 2021, reflecting the trends identified previously. Selling and marketing expenses in the fourth quarter of 2022 were $10.5 million as compared to $9.1 million for the comparable quarter of 2021, reflecting primarily an increase in field force personnel. Overall, selling and marketing expenses for the full year increased to $39.9 million from $35.2 million in 2021 driven primarily by increased personnel costs and increased spending on consulting, trade shows and conferences. General and administrative expenses were $8.3 million for the fourth quarter of 2022 versus $7.5 million in the comparable quarter of 2021, primarily due to an increase in personnel-related costs, including stock-based compensation. Overall, G&A expenses for the full year increased $0.3 million to $32.2 million from $31.9 million in 2021, again, reflecting the trends identified previously. The company reported a net loss for the fourth quarter of 2022 of $15.5 million or a loss of $0.20 per share on a basic basis and a loss of $0.24 per share on a diluted basis compared to a net loss of $3.9 million or a net loss of $0.05 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 fourth quarter of 2022 included a $5.2 million noncash item attributable to a decrease in the fair value of the derivative liability associated with the company's convertible notes as the price of its common stock decreased during the quarter. Noncash charges for stock-based compensation and depreciation and amortization were $4.7 million in the fourth quarter of 2022 versus $4.4 million for the same quarter in 2021. Overall, the company reported a net loss of $71 million or a loss of $0.92 per share on a basic basis and a loss of $0.97 per share on a diluted basis for the full year ended December 31, 2022, versus a net loss of $6.6 million or a loss of $0.09 per share on a basic basis and a loss of $0.98 per share on a diluted basis in 2021. As of March 1, 2023, the company had 77.5 million shares outstanding. This concludes my comments on our fourth quarter 2022 and year-end financial results and I would like to turn the call back to Antony for some final thoughts.

Thanks, Donald. So before opening the call up for questions, let me give a quick summary. We were excited to be able to share with the world our 10-month interim results from the U.S.-based Phase I 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 have initiated a Phase I trial of OTX-TKI for diabetic retinopathy and believe we may be positioned to commence our first pivotal trial in Q1 of 2024, subject to obtaining financing and the completion of ongoing discussions with the FDA. We should be positioned to initiate a pivotal trial of OTX-TKI for wet AMD in Q3 of 2023, subject to obtaining additional funding for the trial, including potentially a strategic alliance. Enrollment continues in the Phase II trial of OTX-TIC in glaucoma and we believe that we will be in a position to release top line data in Q4 of 2023. DEXTENZA has had a strong start to 2023 with in-market volumes running greater than 20% above prior year through the first 2 months of the year and we have $102.3 million in cash as of December 31 and have guided cash runway to the middle of 2024. With that, I will turn the call over to the operator for questions.

[Operator Instructions] First question comes from the line of Dane Leone with Raymond James.

Congratulations on the progress. I'll keep it to one on my end. Just obligatory since you brought it up, where do you feel like you're in the process of evaluating potential partnership situations for OTX-TKI? And when do you feel, on a time basis, you're trying to move forward with the pivotal program? And what could be some options if you were not to find a potential partner for that asset to go into pivotal study?

Yes. Thanks, Dane. Well, we are in the middle of a process. We're talking to sort of all the people you would expect us to be speaking to. Obviously, it's premature to opine on our likelihood of getting to an agreement with any second partner. So we're happy with where we are in the process. Clearly, we're going to have to make a call at some point moving forward before we lock and load on the first pivotal in wet AMD. The other option that we talked about, if we are not able to get the financing in place under the terms that we find agreeable or a strategic partnership under terms that we find agreeable, would be to go with diabetic retinopathy in the first quarter of 2024. We mentioned before, we think the resource requirements of that are much less onerous than they are for wet AMD. Although wet AMD is still an open question. The guidance and some of the discussions we've had with the FDA really do open up possibilities for wet AMD programs that may not be as expensive as the classic noninferiority versus standard of care given according to its label. So that is the kind of the alternative idea that we have is to move forward with DR under essentially our own steam if we're not able to arrange a nondilutive or a minimally dilutive solution to wet AMD in the third quarter of 2023.

Our next question comes from the line of Jon Wolleben with JMP Securities.

I was wondering if you could give us a little more color around the discussions you're having with FDA and what is constituting the back and forth and if the recent guidance has impacted your discussions or your design plans. Just wondering, I think it's pretty clear and Dr. Chambers has mentioned this publicly, that durability isn't sufficient to prove efficacy. But how do you demonstrate durability in your pivotal trial in the context of a noninferiority study? Any color there would be helpful.

Thank you, Jon. This is Rabia. As you mentioned, Jon, there is this new draft guidance recently issued by the FDA on wet AMD drug development. And we have been in active and constructive discussions with the FDA and recently had our Type C meeting. Therefore, this draft guidance was not new information to us and we have been considering all the efficacy and the safety points made in the guidance. It was already in our plans with our discussions with the FDA. That's where we have a few pivotal designs in line with the guidance and we'll continue our discussions with the FDA to have the best design ready for the initiation of the pivotal, as Antony mentioned, Q3 for the wet AMD and Q1 2024 for diabetic retinopathy.

Okay. And maybe one on DEXTENZA. Wondering what swing factors are playing to either being at the low or high end of the guidance for the year?

Could you repeat the question?

The guidance of $55 million to $60 million for the year for DEXTENZA, just wondering what factors into your estimates to either be at the low or high end of the guidance? What needs to be done to be at the top end of that range?

Sure. Well, clearly, our hope's to exceed that guidance. And we believe that we have programs and people in place that give us great expectation that we can do just that. Right now, at this point, our customers are still managing staff issues to return to full capacity. So we think right now, $55 million to $60 million is prudent guidance. Our hope is that we'll come back to the next earnings call with a run rate that makes us reconsider that.

And our next question comes from the line of Caroline Palomeque with Berenberg.

Just a couple for me. So the first one would be on DEXTENZA revenue. Just wondering if you plan to break those out between the 2 revenue streams from ocular pain and inflammation and then the allergic conjunctivitis. And then the second question I have is just that if you do decide to go with the alternative financing path, how much financing do you think you would need to progress the program for TKI in both wet AMD and DR?

Well, as we mentioned, it would be premature to talk about -- so to the second part of the question first. It would be premature to speak about the actual amount that we would need until we actually have an approved protocol. You don't really know how to price up particularly the wet AMD. I think it's pretty clear, diabetic retinopathy, with that, that is likely to cost because I don't think there's too many variations on what the pivotal program might look like, not the case with wet AMD. I'm sorry, the first part of your question related to DEXTENZA, what was that again?

Yes. Just wondering if you plan on breaking out revenues between the different therapeutic areas within DEXTENZA.

No, we won't plan to do that. What we've done essentially to consolidate around our higher or more reliable ROI was really to double-down into the surgical setting, to ensure that we have all hands on deck and really maximize the investment that we have with our field force. We will plan on launching into the office space with the really conjunctivitis indication but not in the very near future. So we won't be breaking that out because it really wouldn't be instructive.

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

Maybe just following up on some of the earlier questions. I was just wondering how much is the potential strategic partnership for TKI contingent on defining and coming to an agreement with the FDA on what that clinical trial requirements would be for the pivotal wet AMD study? And then relatedly, I appreciate that you're guiding to a potential study initiation in the third quarter of this year. But when do you think you would be in a position to be able to communicate what that study would look like?

We are very close, we believe, to coming to an understanding of what that pivotal program might look like. So we think that they'll dovetail nicely, the discussions that we're having with the potential strategics and what the pivotal look like. But you're absolutely right that it would really be hard to go into a true alliance unless people understood it what that program would look like but luckily, we're pretty close.

[Operator Instructions] And this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.