Ocular Therapeutix Inc (OCUL) 2019 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Ocular Therapeutix first quarter 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, Liz. Good morning, everyone, and thank you for joining us on our first quarter 2019 financial results and business update conference call. This morning, we issued a press release providing an update on the company's product development programs and details of the company's financial results for the quarter ended March 31, 2019. 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 plans for the upcoming commercial launch DEXTENZA and a summary of our corporate developments and upcoming clinical milestones. Also speaking on the call will be Dr. Michael Goldstein, our Chief Medical Officer, who will provide an update on our clinical developments and pipelines. Following Michael's remarks, I will provide an overview of the financial highlights for the first quarter 2019 before turning the call back over to Antony for a summary and questions. For Q&A, we will also be joined by Scott Corning, our Senior Vice President, Commercial; and Dr. Dan Bollag, our Chief Strategy Officer and Head of Regulatory Affairs.

As a reminder, during today's call, we will be making certain forward-looking statements. Various remarks to be made 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 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, which is filed with the SEC on May 10, 2019.

In addition, any forward-looking statements represent our views only as of today 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 at some point in the future, we specifically disclaim any obligation to do so, except as we are required to do so by law, even if our views change.

I will now turn the call over to Anthony.

Thanks, Donald. This is an incredibly exciting time in Ocular. The launch of DEXTENZA, our dexamethasone intracanalicular insert for the treatment of postsurgical pain is in full rollout. Commercial product is now at the distributors, our field force is fully trained and has been calling on accounts since April 29. And most importantly, samples should be reaching the first surgery centers early next week, giving surgeons the ability to work DEXTENZA into their surgical protocols. We also have some great news from the Centers for Medicare & Medicaid Services who has listed DEXTENZA with those products that have been preliminary recommended for a new, dedicated health care common procedure coding system, HCPCS J code, effective January 1, 2020. In the meantime, we expect to be selling under a temporary C code, which we anticipate to be in place in mid-2019. We're off to a great start.

For those who may be new to the Ocular story, DEXTENZA is a bioresorbable intracanalicular insert delivering a 0.4 milligram dose of preservative-free dexamethasone for up to 30 days. The product is the first of a novel dosage form in route of administration that is easily deployable to deliver to the surface of the eye without the challenges associated with eye drops.

DEXTENZA has the potential to become a transformative product for both patients and physicians. For patients, DEXTENZA will offer the convenience of a full course of steroid treatment in single preservative-free intracanalicular insert. This novel means of delivery can replace a complex eye drop regimen that under the current standard of care can require up to 70 topical ocular steroid drops delivered over a full month. For physicians, DEXTENZA puts control of patient compliance back in their hands.

We believe DEXTENZA is simply a better way of delivering a steroid to the surface of the eye. While we eventually expect that DEXTENZA will compete for all of the approximately 8.5 million ocular steroid prescriptions written each year in the U.S., our initial commercial efforts are focused on the 2 million cataract procedures performed annually under Medicare Part B. This is a market segment where we expect to have full reimbursement from the moment we receive our C code, currently anticipated in June and effective in July of this year. Importantly, surgeons are also able to seek reimbursement for placement of DEXTENZA through the use of the CPT procedure code, 0356T.

At our first Investor Day held in New York City this past March, we highlighted data from market research studies we conducted, indicating 79% of ophthalmologists thought DEXTENZA could become their next standard of care, 93% believe the core value proposition of DEXTENZA is its potential to improve patient compliance and outcomes and 75% surveyed thought DEXTENZA could be used in greater than 90% of cataract surgeries. Supporting this market position, DEXTENZA was highlighted in multiple presentations at the American Society of Cataract and Refractive Surgeons, ASCRS, symposium held early this week in San Diego at which surgeons expressed enthusiasm for the product and confirmed its importance in enabling an industry's push toward surgery without the need for topical eye drops.

As if the launch of our first biopharma product were not enough, we believe we are also weeks away from being able to report on the results of our first Phase III pivotal study of OTX-TP, our travoprost intracanalicular insert for the reduction of elevated intraocular pressure in patients with glaucoma or ocular hypertension. Dr. Michael Goldstein, our Chief Medical Officer, will address expectations concerning OTX-TP and the rest of our pipeline later in the call.

As we talk about all the good news associated with the launch of DEXTENZA and the development of our pipeline, we are fully cognizant of the need to align our financials with our strategic goals and objectives. Against this backdrop, we have sought to balance the need to fund the tremendous pharmaceutic DEXTENZA and oculus pipeline for the desire to minimize solution as much as possible. A good example of this is the convertible note offering we closed last quarter that brought in $37.5 million in cash with a conversion price of $6.50 per share, representing an 80% premium to the market at the time and that being, we will continue to pursue other forms of non or less dilutive financing.

At the same time, we have also been engaged in an internal effort to minimize our burn rate to extend our runway with existing cash. It is vital to note that fundamental to this exercise, we ring-fenced the launch of DEXTENZA and are committed to funding what we believe to be an optimal launch of our flagship product. Through this internal prioritization exercise and assuming no additional financings, we now believe we have sufficient cash to fund the company through the second quarter of 2020 or an additional quarter beyond our last guidance.

With that introduction, I'd like to turn the call over to Dr. Michael Goldstein, our Chief Medical Officer, for more on the pipeline.

Thanks, Antony. Before getting to our pipeline, it is important to highlight our continued efforts to expand the potential of DEXTENZA. DEXTENZA truly represents a franchise opportunity for the company with multiple lifecycle expansion opportunities and other indications where a product profile like DEXTENZA has the potential to change the standard of care.

Our January supplemental new drug application to expand DEXTENZA's label to include the treatment of ocular inflammation following ophthalmic surgery was accepted for filing by the FDA with a November PDUFA target action date. Recent data presented at the ASCRS highlighted full data from our 3 Phase III trials and demonstrated the benefit DEXTENZA provides in treating both ocular pain and inflammation after cataract surgery. You've heard from us before, we believe DEXTENZA represents multiple additional pipeline opportunities in other ocular indications. We presented previously reported Phase III data at the ASCRS meeting, illustrating the benefit DEXTENZA provides in treating the symptoms of allergic conjunctivitis in humans -- in human trials using a modified version of the conjunctival allergen challenger, CAC, model. Later this year, we plan to initiate additional trials that will evaluate DEXTENZA in allergic conjunctivitis as well as a clinical trial as part of our regulatory requirement in pediatric cataract surgery.

Additionally, we have received proposals for and plan to support several investigator-initiated trials evaluating DEXTENZA in different clinical situations. As we discussed at our recent Investor Day in New York, beyond DEXTENZA, our development efforts include a pipeline of products that target not only other ocular diseases of both the front and back of the eye but also diseases or conditions outside of the eye. Each of the products within our pipeline targets a well-defined market that we believe is underserved by the current standard of care. And like DEXTENZA, each of the products in the pipeline is a customized formulation that uses our proprietary hydrogel technology platform that we believe can offer significant benefits over those offered by existing drugs on the market today.

We're very excited about our 2 most clinically advanced programs within the pipeline that target patients with glaucoma or elevated intraocular pressure. As many of you know, glaucoma is a large market and a disease that impacts an estimated 2.7 million people in the United States. The primary goal of glaucoma treatment is to slow the progression of this chronic disease by reducing intraocular pressure. And many medications can accomplish this. Importantly, adherence to current topical glaucoma therapies is particularly poor, with reported rates of nonadherence ranging from 30% to 80%. This low compliance rate may be associated with disease progression and loss of vision and maybe part of the reason that glaucoma is a leading cause of blindness in people over 60 years of age.

As a current standard of care, the ability of patients to use and place daily eye drops is challenging. Prostaglandins are the most commonly used class of medications to treat patients with glaucoma. The products that we are developing are designed to address the issue of compliance by delivering a prostaglandin analog formulated with our program to release hydrogel to lower intraocular pressure for several months with a single insert.

OTX-TP is being developed as a potential treatment for patients with primary open-angle glaucoma or ocular hypertension. The product is a long-acting, preservative-free formulation of the drug, travoprost, delivered as an intracanalicular insert designed to release drug over approximately 3 months. In the Phase III clinical trial, we completed target enrollment in the 550 subjects with the primary efficacy end points being a statistically superior mean reduction of intraocular pressure from baseline for OTX-TP treated subjects compared with placebo insert treated subjects at 3 diurnal time points of 2, 6 and 12 weeks following insertion.

In addition, while not a primary endpoint, the IOP reduction will also need to be clinically meaningful for FDA regulatory approval. We believe we're on track to disclose top line data from this pivotal trial in the next few weeks. If successful in this Phase III trial, we believe we will need to conduct an additional Phase III efficacy trial for regulatory approval. To further supplement our clinical development program, we are conducting open label 1-year safety extension study with OTX-TP that will be included as part of the current pivotal program. This study will provide additional long-term safety data with repeat administration of OTX-TP.

OTX-TIC is our second clinical stage glaucoma program. The product is a bioresorbable travoprost-containing hydrogel implant delivered via an intracameral injection designed to deliver a higher level of IOP reduction. We continue to enroll patients in a Phase I prospective, multicenter, open label, dose escalation clinical trial to evaluate the safety, efficacy, durability and tolerability of OTX-TIC. As this is an open-label trial, we are able to assess early biological activity and safety and have now treated our first cohort as well as having treated our first subjects for over 9 months with a single insert.

Interim data from the first cohort of subjects in this trial were presented at the recent Association for Research in Vision and Ophthalmology, or ARVO, and ASCRS meetings. This data shows that with a single insert, subjects were able to achieve IOP lowering for 9 months that was at least as good as topical travoprost placement on steady eye. In addition, the hydrogel as designed, biodegraded in 6 or 7 months. While there were no adverse changes to the cornea as measured by endothelial cell evaluation in corneal pachymetry, we did see several subjects with low-grade inflammation and peripheral anterior synechiae that we believe may be addressable with modifications to the implant. We are currently collecting additional data from this cohort and a higher-dose cohort.

Moving to the back of the eye. We continue to dose subjects in a multicenter, open-label Phase I clinical trial for OTX-TKI. OTX-TKI is a bioresorbable hydrogel fiber implant with anti-angiogenic properties delivered by intravitreal injection being developed to treat patients with wet age-related macular degeneration and other retinal diseases. We believe TKI carries the potential of being a next-generation treatment for wet age-related macular degeneration giving us the ability to act upstream of VEGF and therefore may have broader anti-angiogenic properties.

Preclinical data have demonstrated the ability to deliver an efficacious dose of TKI to the posterior segment of the eye for the treatment of VEGF-induced retinal leakage for an extended duration of up to 12 months. The Phase I trial is testing the safety, durability and tolerability of OTX-TKI in evaluating biological activity by following visual acuity over time and measuring retinal thickness using standard optical coherence tomography. The data and safety monitoring committee met a couple of weeks ago and agreed with our recommendation to dose the next cohort of subjects at a higher dose.

OTX-IVT is a sustained release formulation of the VEGF-TRAP aflibercept, or Eylea, for the treatment of retinal diseases, such as wet AMD, that is being developed in partnership with Regeneron. As we have previously disclosed, we delivered a proposed final formulation to Regeneron in December of 2017. We have recently agreed with Regeneron to cease development of this formulation, and we are currently in discussions regarding the development of an alternative formulation. Contractually, we are unable to provide any additional details about the program at this time.

I would now like to turn the call back over to Donald who will review our first quarter ended March 31, 2019, financial results.

Thanks, Michael. Let me begin by summarizing our capitalization. As of the quarter ended March 31, 2019, we had $76.3 million in cash and cash equivalents versus $54.1 million at year-end December 31, 2018. Both of these cash amounts exclude $6.6 million of restricted cash as required by our existing senior debt facility and letters of credit for our property leases. The cash balance benefited during the first quarter from our $37.5 million convertible note offering and $5 million in net proceeds generated from the sale of common stock under the company's 2016 sales agreement. Offsetting the convertible note and the 2016 sales agreement inflows during the quarter were net losses of $17.1 million, working capital changes of $2.8 million and capital equipment investments of $0.7 million.

As disclosed in this morning's 10-Q filing, we exhausted the 2016 sales agreement with the first quarter sales of stock and cancelled this facility. On April 5, 2019, the company entered into an open sales -- an open market sales agreement for the 2019 sales agreement with Jefferies LLC under which the company may offer and sell its common stock having aggregate proceeds of up to $50 million from time to time. Through May 9, 2019, the company has not sold any shares under the 2019 sales agreement.

Based on our current plans and forecasted expenses that include the impacts of the recent internal spending reprioritization that Antony noted previously, we believe that existing cash and cash equivalents will fund operating expenses, debt service obligations and capital expenditures into the second quarter of 2020. This is, of course, subject to a number of assumptions related to the revenues and expenses associated with commercialization of DEXTENZA as well as the pace of our research and clinical development programs and other aspects of our business.

Research and development expenses for the first quarter were $11.3 million versus $8.2 million for the comparable period in 2018 and reflect an increase in unallocated costs primarily personnel costs associated with additional hiring and cost associated with our pipeline programs as well as our preclinical programs.

Selling and marketing expenses for the first quarter were $3.3 million as compared to $0.7 million for the same quarter in 2018. This increase relates primarily to DEXTENZA precommercial launch activities, including the hiring of additional personnel and increased spending on consulting, conferences and related cost.

Finally, general and administrative expenses were $5.4 million for the first quarter versus $4.8 million in the comparable quarter 2018. This increase in expenses through the first quarter stem primarily from increased personnel cost and facilities cost.

Revenues for the first quarter were driven exclusively by ReSure Sealant and totaled approximately $0.5 million versus $0.3 million in the comparable quarter. As noted in the past, we are not currently providing promotional support to ReSure, and then we do not expect product revenues to be material in 2019.

With respect to financial results for the first quarter, we reported a net loss of $17.1 million or a loss of $0.41 per share on a basic basis. This compares to a net loss of $13.8 million or a loss of $0.40 per share on a basic basis for the same period in 2018. The net loss for the first quarter included $2.5 million in noncash charges for stock-based compensation and depreciation compared to $2.4 million for the same quarter in 2018. The company had approximately 42.8 million shares issued and outstanding as of May 9, 2019.

Before I conclude, I would like to comment briefly on the disclosure in the 10-Q filed this morning regarding positive developments in our securities class action litigation, the SEC investigation, and the patent litigation initiated by the company against Mati Therapeutics.

On April 30, 2019, U.S. District Court Judge, George A. O'Toole Jr., for the Commonwealth of Massachusetts, granted the company's motion to dismiss the consolidated shareholders class action suit brought against the company and certain individuals. Shortly after this dismissal, on May 2, 2019, the company received a letter from the SEC indicating that it's closing the investigation into the company and that it did not intend to bring an enforcement action against the company or its named executives. Finally, included in our press release in April 30, 2019, the company announced that it had settled litigation with Mati Therapeutics regarding the alleged infringement of Mati Therapeutics' patent number 7922702. Under this settlement, the company was not required to seek a patent license from Mati, and there were no financial considerations by either party. This concludes my comments on our fiscal quarter financial results.

And I would like to turn the call back to Antony for some summary thoughts.

Thanks, Donald. Before opening the call up for questions, I'd like to recap the company's upcoming milestones for 2019. We remain on track to begin recording sales for DEXTENZA in mid-2019 upon receipt of the C code. With the formulary recommendation by CMS to establish a permanent HCPCS J code for DEXTENZA, we expect a confirmation of the recommendation in November and a code established to be effective in January of 2020. We have received the PDUFA target action date regarding our sNDA to potentially expand DEXTENZA label to include an indication of ocular inflammation following ophthalmic surgery in November 2019.

We expect to report results from our first pivotal Phase III study for OTX-TP in the next several weeks. We have made progress on both of our Phase I programs. For OTX-TIC, we are pleased with the initial data from the Phase I trial that were presented at the recent ARVO and ASCRS ophthalmic conferences. For OTX-TKI, we have completed our first cohort that DSMC met, and we will be dosing our second cohort at a higher dose. We continue to leverage the huge potential of our hydrogel platform and look forward to filing a new IND and an undisclosed ocular indication by the end of the year.

Finally, we're ring-fencing an optimal launch for DEXTENZA. We have taken actions to extend our cash runway into the second quarter of 2020 and are actively looking at all avenues to adequately fund the company that prioritized non or less dilutive instruments. In summary, we are encouraged with our progress in all aspects of our business and look forward to evolving Ocular into a commercial biopharmaceutical company with the launch of DEXTENZA.

With that, I want to thank you for your time. And we can now open the line for questions.

(Operator Instructions) Our first question comes from the line of Stacy Ku with Cowen.

Congratulations on the progress. First question is do you anticipate clinicians using DEXTENZA broadly even before the expanded indication for a postsurgical ocular inflammation? And then I have a follow-up.

Sure. Well, thanks for your congratulations. We're certainly pleased with our progress to date. In terms of where this could be used, I'll hand it off to our Head of Commercial, Scott Corning.

Okay. Thank you. We actually do. Steroids are commonly approved for both pain and inflammation. And although our initial indication out of the gate will be for treatment of pain following ocular surgery, we anticipate that not to be a big barrier. And people are well aware of not only the presentation of our recent results to date at ASCRS but also the publication in Journal of Cataract & Refractive Surgery regarding positive inflammation data that is -- underpins the sNDA that was filed with a PDUFA date in November. So we aren't overly concerned with the lack of inflammation in the label at the outset.

Okay. Perfect. And now moving on to OTX-TP. Can you remind us what do you think would be most important end point for the Phase III study? What will be the next steps following top line data? And when could we expect the open label 1-year results?

Sure. This is Mike Goldstein. So in terms of the end points for OTX-TP, there are 9 of them, which are very typical for any study looking at a drug design to lower intraocular pressure. So we're looking at the IOP at 2 weeks, 6 weeks and 12 weeks after insertion. And for each of those days, we're looking at the time points of 8 a.m., 10 a.m. and 4 p.m. And for the trial to be successful, we need to show a statistically significant benefit of using the OTX-TP product versus a placebo insert at those 9 time points. In addition, for regulatory approval, we need to demonstrate that at these 9 time points the difference from baseline was clinically meaningful.

In terms of next steps, once we have the data in hand, I would anticipate we would have a discussion with the FDA in preparation for a second Phase III trial. And in terms of the open-label trials -- so in addition to showing efficacy from a regulatory perspective, we need to show safety with chronic use. And so we need a minimum of 100 subjects that are treated for a year and 300 subjects treated for 6 months. And that's what the open-label study is partly designed to address.

Our next question comes from the line of Dane Leone with Raymond James.

Could you just provide some more color in terms of the cadence or elements with the TKI program. It sounds like you went up at dose level. Could you just maybe delve into it deeper, what you're seeing and how your expectations are evolving to get through the study?

Sure. So thanks, Dane, for your question. As you know, tyrosine kinase inhibitors are a potential new way to treat patients with age-related macular degeneration and serious retinal diseases. Current standard of care are anti-VEGF therapy, which work really well, but have -- or don't work well for all patients. And so there is the opportunity for drugs with a new mechanism of action. And we believe because tyrosine kinase inhibitors are upstream of VEGF that this could be a potentially attractive target.

So we currently have a Phase I trial that's ongoing in Australia. We have currently dosed the first cohort of 6 subjects, and we had a DSMC meeting a couple of weeks ago. And DSMC looked at the data, and we are -- there were no safety concerns, and we're now moving to a higher dose. So once we've established additional data in terms of efficacy and safety, the plan would then be to move into a larger Phase II study likely in the United States sometime next year.

So to date, it sounds like there has been no events related to potential disaggregation of hydrogel or anything like that?

Yes. So by definition, just like other products, the drug's embedded in the hydrogel and just as we see with the other products, the hydrogel will -- is designed to bioerode over a specified period of time. So it's not like a solution that you inject and it can disaggregate, it really can't disaggregate. So we see no issues with migration of the implant until -- or any kind of disaggregation issues.

(Operator Instructions) Our next question comes from the line of Yi Chen with H.C. Wainwright.

My first question is, between TIC and TKI, given that both of them are implants, do you expect them to have the same pattern of drug release or they could be different because you're planning 2 different positions within the eye?

It's Mike again. Thanks, Yi, for your question. So they're very different products. So the beauty of the platform -- the hydrogel platform is that we can customize the program's drug release based upon the particular disease that we're looking at and the characteristics of the particular drug. So in the case of TIC, it's an intracameral insert implant designed to treat glaucoma. And there's a certain disease profile that we've designed and a certain dissolution of the hydrogel that we've designed. In the case of TKI, we're actually injecting it intravitreally. So a different compartment in the eye or a completely different indication. And again, we uniquely designed each of the products to work for that particular disease.

And are there any data suggesting that tyrosine kinase inhibitor could provide a synergistic efficacy when combined with anti-VEGF agents?

Yes. That's a great question. So there is a number of anecdotal reports in the literature that people have discussed. More recently, there is a company called Graybug that has designed a trial where they take patients who are already pretreated with anti-VEGF medications and then have added on their tyrosine kinase inhibitor on top of that. And they've been able to demonstrate with that combination, you have less of a need for rescue therapy with anti-VEGF therapy. All that said, we think there's also the opportunity to be able to use TKIs as monotherapy. And that's sort of the first thing we're addressing, is can they be used as stand-alone therapy, and that's what -- that's the answer that we're trying to get out of this trial and then also looking at it in combination.

Okay. Got it. Last question is given that the hiring of the sales team has been completed, are the sales and -- are the SG&A expenses shown in the first quarter representative of the quarterly expenses during the rest of 2019?

Well, what you see in the current quarter is certainly a ramp up to where we're going. But this is -- as we mentioned before, this is not a -- this is a highly centralized core of key opinion leaders. There is a -- we're going after a very specific set of patients in the Medicare Part B area. So the investment and launch will not be to the level of a -- of what you would see in a primary care type environment. So it is -- it does lead up to a ramp, but we're nearly there on what we would expect to be able to be spending on this from an investment standpoint for the launch of DEXTENZA.

The thing that doesn't show up is that we have a hub that will become online, and that is actually -- the payment for that is really on a basis -- a fee-for-service basis. So as customers start to use the product, they will start to call up that hub and will be charged for the services that are required in order to clear up the billing and coding of the product.

I'm showing no further questions in queue at this time. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.