Ocular Therapeutix Inc (OCUL) 2016 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Ocular Therapeutix conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer section and instructions will follow at that time. It is now my pleasure to turn the call over to Brad Smith, Chief Financial Officer of Ocular Therapeutix. Please go ahead, sir.

Thanks, Bridget. Good morning everyone and thank you for joining us on our first quarter 2016 earnings and corporate update conference call. Earlier this morning, we issued a press release providing an update on the Company's product development program and details of our financial results for the first quarter ended March 31st, 2016. These can be accessed on the Investor portion of our website at investors.ocutx.com.

Leading the call are Dr. Amar Sawhney, our President, CEO, and Chairman; who will provide a summary of our recent clinical and corporate developments, as well as provide an overview of the various key milestones expected through the remainder of the year. Following Amar's remarks I will provide an overview of the finance highlights for the first quarter of 2016 and then we will open the call for questions.

Amar and I are joined on the call today by Dr. John Talamo, our Chief Medical Officer; Eric Ankerud, our Executive Vice President of Regulatory, Quality and Compliance; and Scott Corning, our Vice President of Sales and Marketing.

As a reminder, during today's call we will be making certain forward-looking statements. Various remarks that we make during this call about the Company's future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor Provisions under the Private Securities and Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements. As a result of various important factors including those discussed in the Risk Factors section of our most recent Quarterly Report on Form 10-Q on file with the SEC, which was filed earlier this morning.

In addition, any forward-looking statements represent our views as of today only, and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements with some future point we specifically disclaim any obligation to do so even if our views change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today. I will now turn the call over to Amar Sawhney.

Thank you, Brad. Good morning, everyone. And thank you for joining us on our call today. Before I review the recent progress we have made across our programs and provide an overview of our upcoming milestones, I just want to thank everyone who joined us for our first Investor Day last month. It was a great venue to share our progress, future goals and vision for our Company, and we hope to continue the open conversation on this today. Importantly we heard from several leading cataract specialists at our Investor Day about the potential for our sustained-release drug product candidates to change how treatment is to the delivered to the eye for various opthalmic conditions.

Currently eye drops are often administered several times a day and even most injections are given monthly. With that approach we hope the potential for one and done therapy for acute opthalmic conditions and once every several months therapy for the treatment of chronic diseases. This the potential for a major change in the standard of care in the field of ophthalmic.

As we heard from leading physicians at our Investor Day event and as confirmed over 200 opthalmologists for Eye World magazine, the biggest problem with the current standard of carry drop regimen minute is not the level of efficacy. It is that many patient either cannot or will not take them.

In fact, this problem with patient compliance is motivating ophthalmologists to change the way they prescribe medications, shifting away from complicated daily eye drop regiments and exploring other methods of drug there that puts control back in the and of the physician. We also heard many examples of suboptimal patient outcomes due to noncompliance. This is not only disappointing and discouraging to patients but to their physicians as well.

So if you can transfer the control to the physician for the entire course of therapy, deliver in a secure fashion and significantly more convenient manner, and with an improved safety profile due to the lack of preserves and avoidance of the peak-and-valley of dosage with eye drop therapy, that would be really game changing. A sustained-release therapy in advanced clinical stage type as enormous potential to replace the standard of eye drop regimens and lead to improved patient compliance and improved safety profile, offer greater insurance of efficacy, and potentially reduce disease progression.

Our goal is to make these innovative sustained-release therapies available to patients and physicians as quickly as possible as they are purely an unmet need right now. We are working diligently to advance our sustained-release product candidates across multiple indications and we expect a number of important milestones throughout the remainder of the year. For our most advanced candidate DEXTENZA, we are looked toward to the PDUFA action date of the July 24th for the potential approval of DEXTENZA of post-surgical Ocular pain. The target action date is based on a new drug application, or NDA, that was accepted by the FDA for filing in December.

The data included in the NDA are from a Phase II clinical trial and two Phase III clinical trials conducted with the DEXTENZA for the treatment of post-surgical ocular inflammation and pain. The market opportunity for DEXTENZA in the United States is estimated to be in excess of $3 billion, about one quarter of which is post-surgical. Approximately 5.3 million eye surgeries are performed each year including 3.8 million cataract surgeries.

Should the FDA grant marketing approval for DEXTENZA for the treatment of post-surgical ocular pain on the PDUFA action target date, we expect to apply this transitional pass-through payment standard to gain reimbursement and launch the product in early 2017. (Inaudible) payment status provides reimbursement for innovative new products used in the hospital or ambulatory centers for a period of up to three years. We intent to launch DEXTENZA for post-surgical ocular pain in the United States for direct sales force with sales representatives dedicated to DEXTENZA.

If approved by the FDA, we anticipate DEXTENZA would be the first and only sustained-release therapy available to opthalmologists that is also preservative-free, and the first and only FDA-approved drug to provide the complete course of therapy with a single placement in ophthalmology. Our third Phase III clinical trial for DEXTENZA also had primary end support for surgical, ocular, and (inaudible) pain is currently ongoing with 395 patients out of a planned total of 436 patients enrolled as of May 3rd.

Patient enrollment has been progressing ahead of schedule, and we inspect our planned results from this study to be available in the fourth quarter of 2016. As a reminder, we made some modifications to the design as compared to the first two Phase III clinical trials. These include one-to-one randomization versus two-to-one randomization, exclusion of patients on high-dose systemic NSAIDs or non steroidal anti-inflammatory drugs, and providing more detailed physician training regarding the use of medications.

As you may favorable results from the trial later this year and subject to potential approval for from FDA for we plan to admit an NDA supplement for DEXTENZA for post-surgical ocular inflammation. Also this past year we complete enrollment in a second Phase III clinical trial for DEXTENZA for the treatment of allergy conjunctivitis.

The primary endpoint was for ocular itching was met in the first Phase III study of (inaudible) conjunctivitis which was reported late last year. We demonstrated clinically meaningful reduction of ocular itching in the DEXTENZA treatment group versus the placebo group. There was a significant difference in the P-value of Les than 0.0001 in the means between DEXTENZA treatment group and the placebo group for the ocular itching family endpoint and all three time points for (inaudible) post-insertion of (inaudible).

In accordance with prior FDA guidance of needing two Phase III clinical trials for NDA approval our second Phase III trial will evaluate the safety and efficacy DEXTENZA versus placebo intercanal (inaudible) depot using the ophthalmic research associated with modified conjuntival allergen challenge, or the Ora-CAC model, as in the first study. The primary endpoint to be evaluated is ocular itching at day seven, following the insertion of the intercanal (inaudible) depot.

We expect our planned results from the second Phase III trial to be available in June. Patients who have strong seasonal allergies will benefit from a sustained-release therapy which could provide long-lasting relief throughout allergy season with a one-time administration. Steroid used in about one-third moderate to severe allergies and do not responds adequately to antihistamines.

DEXTENZA offers the opportunity to move therapy from patients' self-administered daily treatment to physician controlled prophylaxis lasting a month or longer. (inaudible) more effective than antihistamine, but the peaks and troughs associated with eye drops play a very significant role here; once the information cycle starts it is very hard to stop it. So if a patient misses a drop or the drug wears out overnight while they are sleeping they get the inflammation cycle starting again.

If approved, DEXTENZA would potentially set a new standard by offering long-acting prophylactic ocular allergy medication with a one-time administered therapy.

With respect to reimbursement we expect to apply for a to CMS for DEXTENZA for allergy conjunctivitis subject to favorable clinical trial results and the approval of initial NDA for pain and an NDA supplement for allergy conjunctivitis. Subject to favorable results and approval of the NDA for the pain indication for surgery, we expect to supplement for ocular itching associated with allergy conjunctivitis indication in the fourth quarter of 2016.

This means that DEXTENZA may be approved for two additional indications in 2017; Ocular itching associated with allergy conjunctivitis, as well as post-surgical ocular inflammation. If we are able to achieve broadening of DEXTENZA's label we would likely start to expand our sales team as the business scales. We may also elect to enter into a co-promotional arrangement with a corporate partner to accelerate market penetration.

We are also evaluating the DEXTENZA for the treatment dry eye disease. We recently conducted an exploratory phase for trial DEXTENZA for this indication. The results are encouraging. While the study was not designed to show significant corneal (inaudible) day 30 following randomization decreased by a significant degree, from baseline in the DEXTENZA group compared to the placebo group. (Inaudible) staining also showed clinical significant differences in the change from baseline in the DEXTENZA treatment group compared to placebo.

Corneal staining and the primary end point has been used recent Phase III dry eye clinical trials conducted by other ophthalmology companies for dry eye disease. We plan to meet with the FDA in mid-2016 to discuss these results as they have potential Phase III clinical trial design for dry eye related indications. I would like to turn to OT-XTP, our sustained-release drug product candidate for the treatment of glaucoma and ocular hypertension.

Compliance is an even bigger issue in this patient population. It has been reported that greater than 50% of patients are no longer compliant with their topical therapy after six months, potentially resulting in disease progression. Unlike DEXTENZA, OT-XTP XP is designed to last longer and deliver steady level, or tapering level of drug over time. Therefore, potentially replacing the burden of chronic daily glaucoma therapy with a once in three months drug depot that is also preservative-free. We recently announced that we completed and end of Phase II review with the FDA.

Following the FDA, we plan to initiate our Phase III program in the third quarter of 2016 with two clinical trials that will include an OT-XTP treatment arm and placebo-controlled comparator arm using a non-eluting hydro-gel (inaudible) depot. The Phase III study design will not include a Timolol comparator of validation arm and will not have eye drops, placebo or active, administered in either arm. We are quite pleased with this as we believe that this trial design affect an appropriate real world clinical study designed for OT-XTP.

The primary efficacy in end point will be superiority in the reduction of ocular pressure from base line with OT-XTP compared to placebo. As the first line therapy FDA with like OT-XTP to demonstrate clinically relevant IOP lowering in addition to the statistical improvement over placebo. OT-XTP as shown a clinically meaningful IOP on clinical loading trials to-date, and may offer an important advancement in the treatment of glaucoma.

Again, we expect to initiate the first of the two planned Phase III clinical trials in the third quarter of 2016. Lastly, we also continue to move forward on our sustained-release protein based depot for the treatment of back of the eye diseases including age-related macular degeneration, or AMD. We are pursuing in addition to a small molecule TKI, or kinase inhibitor. We continue to pursue potential partnerships with strategic partners.

To summarize, the status of the back of the eye program, we have demonstrated the following; sustained-release in vivo models four to six months in multiple protein based anti-VEGF drugs provided by our collaborates, a sustained (inaudible) in vivo models with strong pharmacodynamic effect through 12 weeks, sustained release in vivo models of TKI with strong pharmacodynamic and pharmacokinetic effect through six months. In vivo tolerability of our hydro-gel depots demonstrated to eight weeks as presented at our -- the recent ophthalmology conference earlier this month. With that I would now turn the call back over to Brad who will review our first quarter 2016 financial results.

Thanks, Amar. With regard to our cash and investment position as of March 31st, 2016, we had $95.5 million in cash, cash equivalents, and marketable securities. Cash use in operating activities was $9.3 million for the first quarter of 2016 compared to $6.9 million for the first quarter of 2015.

We expect cash used in operations to be between $45 million to $48 million for 2016, and expect capital expenditures will be in a range of $6 million to $7 million. This is, of course, subject to a number of assumption about our clinical development programs, the commercialization of DEXTENZA, and other aspects of our business.

The spending is expected to be driven by our Phase III DEXTENZA programs for the appropriate of post surgical pain and inflammation and allergic conjunctivitis as well as our Phase III OT-XTP program for the treatment of glaucoma. The first of two trials expected to that is right in the third quarter of 2016. In addition as well our clinical development efforts on our dry eye program and our pre-clinical development of back of the eye programs.

We will also be driven by our investment in the initial potential commercialization of DEXTENZA, with a level expanding subject to the outcome of our PDUFA for post-surgical ocular pain. Expected investment of $6 million to $7 million in capital expenditures is primarily for the consolidation of our two facilities into one location in close proximity to our existing facility and the associated build-out of manufacturing space, clean rooms, and general office space, and the purchase of new equipment to outfit this new facility.

We expect existing cash, cash equivalents, and marketable securities to fund the Company's operating activities, capital expenditures, and debt service requirements through the third quarter of 2017. We have $15.6 million in outstanding debt as of March 31st, 2016, with no principal payments due in the early part of 2017. For the first quarter ended March 31st, 2016 we reported a net loss of $10.8 million or a loss of $0.44 per share.

This compares to a net loss of $7.6 million or $0.35 per share lost for the first quarter of 2015. The net loss for the first quarter of 2016 includes $1.3 million in noncash charges for stock-based compensation compared to $900,000 in noncash charges for stock-based comp for the comparable l quarter in 2015.

Revenues for the first quarter of 2016 totaled approximately $500,000 including collaboration revenue from our feasibility agreements with partners, and revenue from the sales of Lannett. As previously contaminated we do not expect he product revenues in the sales of Lannett to be material in 2016, as we continue to defer the deployment of the sales force until we launch our initial sustained-release drug delivery product.

Total operating expenses during the first quarter of 2016 were $11 million compared to $7.3 million for the first quarter of 2015 primarily reflecting an increase in our investment in product development and the advancement of our programs into later-stage clinical trials. Research and development expenses total $1.7 million dollars for the first quarter of 2016 compared to $4.7 million in the first quarter of 2015.

We increased our investment in R&D in the first quarter of 2016 as we advanced the third Phase III clinical trial for DEXTENZA for the treatment of post-surgical inflammation and pain, advanced DEXTENZA treatment of allergic conjunctivitis, and through the completion of enrollment in our second Phase III trial, advanced OT-XTP for the treatment of glaucoma through the final stages of our Phase IIB clinical trial and advanced our other clinical and pre-clinical development programs.

As of March 31st, 2016 we had approximately 24.8 million shares of common stock outstanding. This concludes my comments on the first quarter of 2016 financial results. We will now turn the call back over to -- for Q&A to the Operator.

Thank you. (Operator Instructions). Our first question comes from the line of Ken Cacciatore with Cowen and Company. Your line is now open.

Hey. Good morning guys. Just a quick question on the DEXTENZA and the interactions with the agency. Would you just consider all of that at this point normal back and forth? So maybe a little bit of context as approach the PDUFA date. And then on the sales force and how we should be modeling or thinking about approaching the market just in terms of the size and what should the expectations for this launch? Do you find the what nation bases going to be need up and indicated or would you expect that this is something that we should think is more rapidly adopted? Thank you.

Our interactions with the FDA during the review of the NDA have been ongoing and collaborative. The information requests from the agency have been routine and typical for NDA review and we continue to remain on schedule for the PDUFA date at the end of July.

Scott Corning will give us some input on the sales-related question.

Yes. In terms of the sales force, we are in the process of hiring sales management personnel and then we will move to sizing up with representatives; starting with probably 10 in the span of time after the PDUFA date, leading up to when we anticipate pass-through payment status approval, which is January of 2017. And shortly thereafter scale-up to 20 and then 40 and assess our needs beyond that in the out months of 2017 depending on uptake. And then you said -- you asked about expectations for launch?

We expect to be training and really learning more about our training process. Detailing the surgeons and seeing what is entailed in a call, but what we know is that surgeons and optometrists alike are accustomed to the insertion of punctum plugs, so in terms of the actual procedure there should not be any burden there, but we do want to be present for initial insertions to make absolutely sure that we are successful from the start.

Great. Thank you.

And maybe Dr. Talamo will comment briefly also.

I can. We are making a concerted effort to educate the ophthalmic community about DEXTENZA and its potential future role.

We just emerged from the -- as you may know from the annual American Society of Cataract and Refractive Surgery meeting in New Orleans where there were probably about 5,000 ophthalmologists, and we had close to a half dozen podium presentations related to DEXTENZA as well as a presence and similar number for (inaudible); a total of almost 20 presences at the meeting overall. And as well as a presence at continuing medical education events and industry M.D.-collaborative summit such us the Opthalmology Innovation Summit, which also occurred last week. There seems to be a good awareness in the community about what DEXTENZA is, how it would be used, and a lot of excitement.

Great. Thank you.

Our next question is from Adnan Butt with RBC Capital Market. Your line is open.

Thanks. Just a couple here. Good morning, everybody. In terms of the pass-through reimbursement, could you clarify one more final if there is a floor pricing tied to it?

A what? Could you repeat that?

Yes. Sure. I just wanted to know if there is a minimum -- if there is any pricing criteria in regard to pass-through; in regards to the pass-through code for the hospital outpatient surgery indication.

Hey. It is Scott. In effect there is. There is a limit where you have to be at a percentage "not insignificant to the reimbursement of the overall procedure", and it is pegged off of the hospital rate of reimbursement for cataract surgery in this case or ophthalmic surgery in general. But if you use the cataract surge case and you are talking approximately $1,650 you need to be somewhere in the neighborhood of 20% of that, 20% to 25% of that to qualify.

And so that puts us in a it particular range of pricing, but what we understand is once you have pass-through payment status, you are not necessarily at risk of losing it should there be a reason or a desire to be any less than what we come out with.

Okay. If I recall correctly, you will -- first you will hear back on the status, is it September or September the first time post-approval that you would be able to file?

Yes. The latter is correct. So if all goes as anticipated, the PDUFA date as you know is in late July, and then that is timed nicely with the quarterly gates that you have to apply for pass-through payment status; so that would mean we would apply in September to hope to get it in January thereby maximizing the three-year period that pass-through that payment status would be in effect.

Okay. Thanks. And then in regards to the PDUFA Data coming up, if I recall correctly in the last quarter the FDA had a question or two about manufacturing. Are those issues resolved or he they in the process of getting resolved?

This is Eric Ankerud. Those issues are in the process ever being resolved. We have completed a commercial quantity build in satisfaction of FDA's request and are continuing to -- a dialogue with FDA in that regard, and we expect those issues to be closed out very soon.

Okay. And then just the last question. I think I heard on the call Amar say that the Company could consider a potential co-promote with a partner. Was that in regards to DEXTENZA? Under what scenarios would you -- would that be early in the launch, later in the launch, or are all the different scenarios under consideration at this time? What drives you building your own sales force versus partnering here?

So just to be clear we will be building our own sales force. The question is, do we in addition add on a co-promote partner. The reason to kind of add on the co-promote partner is purely that of reach and frequency of coverage; just to be able to have much more muscle going into the launch. So as to maximize during this past (inaudible) duration our access of DEXTENZA to -- as any physicians as possible. So it is purely driven by that.

I think part of it is we do want to see how -- you know, some of the parameters of how much time it takes to kind of get people -- an account active and trained and educated about the reimbursement process, et cetera. So those are some of the variables that we need to learn. You know, certainly we are in discussions.

There is fair amount of interest from most of the relevant parties to do that. We are examining what the economic terms will be. Obviously we want to make sure that we are able to book in revenue and those types of things are important for us. And so if the economics appear reasonable, and then we would like to do that, you know, sooner rather than later, but probably wait until post-approval to do that. So that is kind of the current thinking subject to revolution an changes as we further our discussion.

And just to be clear there would be -- this is Brad. There would be no licensing rights. We are not talking about a licensing arrangement. We are talk about a short-term co-promotion arrangement that expires after a number of several years.

Okay. Very helpful. Thanks.

(Operator Instructions). Our next question comes from the line of Hartaj Singh with BTIG. Your line is open.

Hi, all. Thank you for letting me take the question. I apologize I am a little under the weather so, for the voice. Just actually a very quick question. One is on, just the operating kind of expenditures progression going forward. As you are kind of closing out the trials for -- in post-cataract surgery, allergic conjunctivitis, you are getting ready to launch the DEXTENZA scaling up there. Just what are your thoughts and just, maybe just kind of walk us through over the next four quarters. How you see kind of various line items progressing? And then another question is, on pass-through status is there a possibility that if you cannot meet the September deadline, that what would be the next sort of deadline that you would be able to hit for -- for filing that? Thank you.

Scott, why do not you start with the pass-through.

Yes. Regarding pass-through. Pass-through, unlike the J-code is on a quarterly cycle, and so should we not have the opportunity to apply in September for January approval, we would be looking at January for March/April approval. And so we would effectively lose the quarter and then have two- and three-quarters years left.

Thanks, Scott. Hartaj, it is Brad. Just in response to your question about operating expenses, you know, over the course of the next three to four quarters, yes, we will be -- we are winding down on the -- and have completed enrollment in the second Phase III allergy trial. We have additional work to do there and of course data management and closing out everything on that trial.

We will be anticipating starting the first Phase III trial for our OT-XTP products for glaucoma in the third quarter, and that is going to be likely about a 555-patient trial. So that is going to be an expensive one. In the order of $10 million. And then we would likely be starting three to six months later the second Phase III trial for that program as well.

So while we are winding down certain trials, we will also be winding down the third Phase III trial for post-surgical inflammation and pain later this year as we are getting close to full enrollment there. We are a little over 90% enrolled. Again, that will be even more than offset. So we will see an increase in R&D spend as a result of starting up our Phase III glaucoma program. We are also going to continue to make investments in the back of the eye program on top of that. And then on dry eye we will see, you know, anticipating advancing that program subject to the meeting with the FDA that we have.

On the sales and marketing line, we certainly will be increasing, as Scott gave some indication here; starting with 10 sales representatives and growing in the course of 2017. We are also already ramping up in terms of bringing on market access, reimbursement folks as well as a couple of MSLs and then some sales leadership so we will be -- without getting into specific numbers, I think that is gives you probably a sense in terms of the order of magnitude on sales marketing. We also will be adding a couple of additional people on the marketing team to support the product launch as well.

And then G&A we continue -- we expect to continue to see some modest increases there, primarily as we just grow the organization and have the support for all of the operations that are ongoing.

Got it. That is very helpful. Thanks a lot, Brad.

I am not showing any further questions. I will now turn the call back over to Mr. Sawhney for closing remarks.

I want to thank everyone for taking the time to join us on our call today. We continue to position our Company to be a leader at the forefront of ophthalmic care, providing solutions to overcome many of the major issues facing patients and physicians for the way drugs are currently delivered to the eye. We hope to have a meaningful impact on patients' lives and how physicians administer care, and we are proud to be leading the transformation.

We look forward to updating you during the months ahead. On behalf of the entire Ocular Team, thank you for all of your support. You may now disconnect.