Ocular Therapeutix Inc (OCUL) 2023 Q3 法說會逐字稿

Good day, thank you for standing by. Welcome to the third-quarter 2023 Ocular Therapeutix earnings conference call. (Operator Instructions)

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Donald Notman, CFO.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on our third-quarter 2023 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, 2023. 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; Steve Meyers, our Senior Vice President, Commercial; and Dr. Peter Kaiser, our Chief Medical Adviser - Retina. Unfortunately, Peter will not be available during the Q&A session.

Following their comments, I will provide an overview of the financial highlights for the quarter before turning the call back over to Antony for a summary and questions.

As a reminder, on today's call, 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 anticipated net product revenues and 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 Form 10-Q filed this afternoon with the SEC and our most recent annual report on Form 10-K filed March 6, 2023.

I will now turn the call over to Antony.

Thanks, Donald. Hello, and welcome, everyone, to our third-quarter 2023 earnings call. We are pleased to share with you the tremendous progress we've made over the past three months to build on our previous successes and provide clarity on our plans going forward.

I'm also pleased to announce a number of exciting developments for OTX-TKI, our axitinib-containing intravitreal implant, for the treatment of wet AMD. To begin, I'm pleased to share that we have announced a new trade name for OTX-TKI. We will now refer to it AXPAXLI. As the program has advanced into its first pivotal trial, we thought it's appropriate to introduce this new name to begin to establish the brand identity for potential commercialization.

Clearly, though, the most important development in the AXPAXLI program is the recent agreement on a special protocol assessment with the FDA we received just last week. The special protocol assessment, or SPA, allows the FDA to efficiently evaluate and provide written guidance responses. This feedback helps companies assess the adequacy and acceptability of critical elements in the protocol design to support future marketing applications on the basis of the efficacy and safety endpoints in the trial.

For our SPA, we aim to secure alignment with the FDA on both the protocol design and the statistical analysis plan. Regarding protocol design, we have gained agreement on several crucial aspects. These include the precise competition of the study population to be enrolled in our clinical trial, the identification of a suitable control arm for AXPAXLI, the determination of its dosing regimen, the specification of baseline criteria, the selection of primary endpoints and their corresponding timing, as well as the establishment of an appropriate sample size to ensure statistical robustness of our pivotal trial.

This alignment with the FDA is instrumental in upholding the scientific rigor and regulatory standards of our study. By coming to an agreement with the FDA on the specific elements of our pivotal trial design and statistical analysis plan, we believe we now have a clear regulatory path forward. This is a program we are very excited about based on the compelling data that we have shared in the past year. This program demonstrated the potential for best-in-class durability and we believe truly has the potential to change the standard of care in this multi-billion-dollar market.

Now with the initiation of trial sites already underway and the SPA in place, we look forward to screening and enrolling patients. We remain on track to begin dosing our first subjects before the end of the year. While we believe the path for AXPAXLI is now clear and our internal focus now turns from careful planning to flawless execution, there's still a tremendous amount of education to be done.

We believe the FDA's new draft guidance, coupled with our interpretation of the additional feedback we have received from the FDA, has created significant change for the development of treatments in wet AMD, particularly for treatments like AXPAXLI that are designed to demonstrate extended durability.

We are extremely lucky to have deep connections in the retina community with Dr. Jeff Heier on our Board and the recent addition of Dr. Peter Kaiser as our Chief Medical Advisor - Retina. Both Jeff and Peter have been instrumental in guiding the community through the implications of the changes and the reasons behind them. Our goal in bringing AXPAXLI forward is to improve the lives of patients living with wet AMD, and we realized that only strong endorsement from the retina community will allow AXPAXLI to achieve its full potential.

Let me finish with an update on DEXTENZA. We are pleased to report another impressive quarter for DEXTENZA with net product revenues of $15 million for the third quarter of this year, 26% over the same quarter previous year and in line with Q2 net product revenues. Based on the trends, we continue to anticipate DEXTENZA net product revenue guidance for the full-year 2023 will come in at the upper end of our current $55 million to $60 million range provided at the start of the year. Steve Meyers, our Senior Vice President, Commercial, will walk you through the drivers behind this growth.

With this background, I'd like to turn the call over to Dr. Rabia Ozden, our Chief Medical Officer, who will introduce you to the ongoing AXPAXLI pivotal trial, which we refer to as the SOL trial, and provide some details on the SPA agreement. Rabia?

Thank you, Antony. With the FDA agreement under special protocol assessment, we are excited to prepare for the enrollment of the first subject in our first pivotal trial for AXPAXLI, our investigational bioresorbable hydrogel implant containing axitinib, in the treatment of wet AMD by the end of December. Let me first describe the proposed design of the superiority trial.

The trial will be a prospective multicenter, randomized, parallel-group pivotal Phase 3 trial that will be run primarily at US sites and is designed to enroll approximately 300 evaluable wet AMD subjects who are treatment naive in the study eye. In the trial, we will be comparing a single implant of AXPAXLI containing 450 microgram of axitinib to a single injection of aflibercept to assess the safety and efficacy of AXPAXLI in subjects with wet AMD by measuring BCVA and CSFT.

Our trial is anticipated to enroll subjects with good visual acuity at screening. Then every subject will receive two aflibercept injections, one at week minus 8 and another at week minus 4. Subjects reaching 20/20 vision will then be randomized in the trial at day one baseline to receive either one implant of AXPAXLI in the investigational arm or one injection of aflibercept in the control arm and will be followed monthly and rescued for the pre-specified criteria.

Our primary endpoint is the proportion of subjects who maintain visual acuity defined as less than 15 ETDRS letters of BCVA loss at week 36. We are happy to receive the guidance from the FDA that week 36 is an acceptable time point for the primary endpoint analysis in our study design. We then note that although week 36 is acceptable, the FDA prefers week 40. After additional internal discussions, we may choose to move the endpoint timing to week 40.

Our rescue criteria is 15 or more ETDRS letter loss compared to baseline or a new hemorrhage that is likely to cause irreversible vision loss. When a subject meets the rescue criteria, they will be treated with aflibercept injections, and then the next rescue treatment will be at the investigator's discretion.

We asked the FDA's guidance on two important questions: first, whether the FDA would allow 15 or more letter loss at any time in the trial to count as a treatment failure at week 36; and second, what would be the best analysis of subject dropouts during the trial.

The FDA confirmed that loss of 15 letters at any point in the trial would be considered as having met the endpoint as a treatment failure. Regarding subject dropouts, the FDA informed us that patient characteristics and circumstances at the time of dropout from this study will be subject to review and provide detailed guidance on how we should best capture the information on the dropouts in the trial. Overall, we are excited to have agreement on our special protocol assessment and look forward to running our first pivotal trial for this FDA guidance.

As in the last note on the protocol, I would like to inform everyone that we intend to move forward into the pivotal trials with an optimized drug load of 450 microgram of axitinib per implant. This optimized configuration has the same components that are axitinib and hydrogel as our single 600-microgram axitinib implant; however, provides for a slightly increased daily release of the drug and is designed to improve synchronization of axitinib drug depletion with hydrogel bioresorption.

With that introduction, I would like to turn the call over to Peter to discuss the first clinical community reaction to our special protocol assessment agreement and the prospects of successfully enroll our first pivotal trial. Peter?

Thanks, Rabia. This year, there've been a lot of changes in the world of drug development for wet age-related macular degeneration. For those of us who have spent our lives developing drugs, the FDA requirements for clinical studies in wet AMD have remained remarkably consistent throughout the years, but these have changed.

For understandable reasons, the FDA has released new draft guidelines that changed how we need to design studies. The FDA needs to protect the public against misbranding and ensure that any product reaching the market is truly safe and effective.

The new rules released by the FDA require that durability to be proven by the comparator arm dosed the same frequency as the study arm. For treatments like AXPAXLI that promises greater durability than our current treatments, we believe that non-inferiority, while still acceptable if you're comparing treatments at the same dosing frequency as control, is no longer enough to ensure approval with a label of greater durability. For that, a superiority study is needed.

We should be pleased that the FDA is encouraging direct comparison in a superiority setting. As a clinician, if I switch a patient from Eylea to a product claiming greater durability, I want to know that it will really extend the dosing interval for my patients. With some of the newer recent product launches within wet AMD, we have no direct comparison against the standard of care at the same dosing schedule and with the same rescue criteria. So comparisons about durability are not possible. The new rules we believe will now require our company to provide this vital data going forward.

I've talked a lot about what has changed, but one thing that has definitely not changed is the unmet need for greater durability products in wet AMD. Mainly due to the heavy injection burden of currently approved treatments, visual outcomes in the real world do not come close to matching those we see in clinical trials. Continuous control treatments like AXPAXLI that are designed to treat wet macular degeneration with a single injection for 9 to 12 months are sorely needed and could change the visual outcomes for billions of patients worldwide.

As clinicians, we realize that innovation is the most important need for our patients. Clearly, we need to balance the needs of the broader population with the protection of subjects in clinical trials. My colleagues and I who run retinal clinical studies believe that the protocol in the special protocol assessment recently agreed to by the FDA does exactly this.

We also believe that how we conduct the trial will be hugely important in generating the right outcomes and protecting the safety of the enrolled subjects. I'm very excited to be associated with this trial, and I believe the community will increasingly understand and endorse the approach we are taking.

I would now like to turn the call back over to Rabia to discuss additional program updates.

Thank you, Peter. I'd like to briefly cover the opportunity we see for AXPAXLI to treat non-proliferative diabetic retinopathy. We have completed enrollment of our Phase 1 HELIOS trial, a multi-center, prospective-masked, randomized, controlled US-based trial in 22 subjects evaluating a single implant of AXPAXLI containing 600 microgram of axitinib compared to sham injection procedure.

To appreciate the potential value of AXPAXLI in this indication requires first an understanding of the condition and its population. In the early stages, diabetic retinopathy will not affect sight. But if left untreated, it progresses, and eventually, sight will be affected. In fact, diabetic retinopathy is the number-one cause of legal blindness in the working-age population.

Given this slow onset and the fact that diabetes affects the younger working-age population, the required frequency of current anti-VEGF therapies makes effective treatment especially challenging. And this is why we believe AXPAXLI, with this designed durability of up to nine months or longer, may be especially effective. We believe the same attributes that make AXPAXLI a compelling product in wet macular degeneration, the ease of use of an office space injection, and long-term durability could establish this as the first standard of care in the treatment of diabetic retinopathy.

Recently, in consultation with our scientific advisors, we made the decision to unmask the HELIOS trial at nine months versus the initial six-month time point. We believe nine months is a more meaningful time point and will allow us to better evaluate the effect of AXPAXLI on this population. We look forward to sharing the top-line nine-month data from the HELIOS trial in Q2 of 2024.

We are also making excellent progress with another one of our late-stage pipeline programs, OTX-TIC, our travoprost intracameral implant, being developed for the treatment of patients with primary open-angle glaucoma or ocular hypertension. While there are many medications available to lower intraocular pressure, or IOP, glaucoma remains the leading cause of blindness. In part because of unwanted side effects, improper drug installation technique or simply forgetting to take their daily drugs, we believe most patients fail to comply and may ultimately lose their vision.

OTX-TIC is being developed to close the gap between clinical trials and real-world outcomes by taking patient compliance out of the equation. This prospective multi-center, masked, randomized, controlled US-based Phase 2 clinical trial is evaluating the safety, tolerability, and efficacy of OTX-TIC for the reduction of IOP in subjects with primary open-angle glaucoma or ocular hypertension. The trial is designed to observe the changes in diurnal IOP from baseline at 2, 6, and 12 weeks and prolonged duration of IOP response over time compared to DURYSTA.

As shared previously, the Phase 2 trial enrollment is now complete. We plan to share Phase 2 top-line clinical data from the single-dose portion of the trial at the ASCRS meeting in early April of 2024. I'm also very pleased to report that the sub-study to evaluate the safety of a repeat dose of OTX-TIC 26 microgram in a small subset of subjects within the current Phase 2 clinical trial is progressing well.

After receiving a second implant of OTX-TIC 26 microgram, these subjects will be followed for at least six months to evaluate their endothelial cell health. The data on the preservation of endothelial cell health in this pilot, repeat-dose sub-study could provide preliminary support that the product candidate is suitable for repeat dosing.

Regarding our ocular surface disease program, we remain committed to the development of our two 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. Enrollment is going well in our study 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 use in future clinical trials for both OTX-DED and OTX-CSI, potentially derisking the pivotal programs moving forward.

I would now like to turn the call over to Steve for a commercial update. Steve?

Thank you, Rabia. In Q3 2023, DEXTENZA recorded net product revenue sales of $15 million, approximately 26% higher than the same period last year. Also, end market unit volume, units sold to ambulatory surgery centers and hospital outpatient departments closed at 36,902 units, which represents a 38% increase over Q3 2022.

After a modest start in July, DEXTENZA sales rebounded in August and September by recording the highest consecutive two-month volume in 2023. Over the last four quarters, customer order and sizes have also grown. In Q3 2023, 49% of all DEXTENZA orders were for 30 or more units compared to 29% during the same time period in 2022. We believe the increase in order size and number of orders is attributable to several factors, including DEXTENZA's clinical efficacy, safety profile, and market access coverage.

Earlier this year, we launched a commercial assurance program to help with patient out-of-pocket costs, and that has also helped to increase surgeon utilization of DEXTENZA beyond Medicare Part B. Surgeons typically prefer to use the same treatment algorithm on all patients, and many surgeons have recently expanded with DEXTENZA beyond Medicare Part B. We believe the commercial and Medicare advantage payer landscape provides another growth opportunity for DEXTENZA.

Now, I'll provide an update on CMS's decision for CPT 68841, a code that describes the insertion procedure for DEXTENZA. Recall the HOPs Panel, which is an advisory arm of CMS, recommended a change to the status Indicator to allow for the insertion payment in the ASC. Additionally, surgeons, ASC administrators, and staff across the entire US sent over 1,000 letters to CMS during the open-comment period also requesting the change.

Despite these efforts, CMS made the decision to not change the status indicator. While we're disappointed in the final ruling, we are still confident in DEXTENZA's long-term prospects. Our forecast models were built on the assumption that CMS would not change the status indicator. Surgeons, ASC, and staff confidence in DEXTENZA's efficacy and safety profile has resulted in significant growth over the last four quarters, and we expect that to continue in Q4 and beyond.

While the CMS rule is final for 2024, to be clear, we intend to revisit the status indicator for calendar year 2025.

Finally, as Antony noted previously, and based on performance year to date and trends over the last several months, we remain confident reiterating our DEXTENZA net product revenue guidance 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 back to Donald to discuss our financial results.

Thank you, Steve. Total net revenue, which includes both gross DEXTENZA product revenue, net of discounts, rebates, and returns, which the company refers to as net product revenue, and collaboration revenue was $15.1 million for the third quarter of 2023, an increase of approximately 26% over third-quarter 2022 net revenue of $12 million and in line with second-quarter net revenue of $15.2 million. For the third quarter of 2023, DEXTENZA net product revenue grew to $15 million from $11.9 million over the comparable period in 2022, while collaboration revenue was approximately $0.1 million for each period.

Research and development expenses for the third quarter of 2023 were $15 million versus $13.7 million for the comparable period in 2022, driven primarily by an increase in expenses associated with clinical trial programs and personnel-related costs, including stock-based compensation support of these programs.

Selling and marketing expenses in the third quarter of 2023 were $9.3 million as compared to $10.2 million for the comparable quarter of 2022, reflecting primarily a decrease in professional fees and services.

General and administrative expenses were $8.6 million for the third quarter of 2023 versus $8.5 million in the comparable quarter of 2022, primarily due to an increase in personnel-related costs, including stock-based compensation, offset by lower professional-related fees and services.

The company reported net loss for the third quarter of 2023 of $0.5 million, or a loss of $0.01 per share on a basic basis, and $0.25 per share on a diluted basis, compared to a net loss of $24.2 million, or a net loss of $0.31 per share on both a basic and diluted basis per share for the comparable period in 2022. Net loss in the third quarter of 2023 included a $6.7 million non-cash gain attributable to a change in the fair value of the derivative liabilities associated with the company's convertible notes and the Barings credit facility.

The company also recorded gains and losses from debt extinguishment net of $14.2 million in the third quarter of 2023. Non-cash charges, stock-based compensation, and depreciation and amortization were $5.4 million in the third quarter of 2023 versus $4.7 million for the comparable quarter in 2022.

As of September 30, 2023, the company had $110.6 million in cash and cash equivalents versus $102.3 million as of December 31, 2022. Based on current plans and related estimates of anticipated cash inflows from DEXTENZA and anticipated cash outflows from operating expenses, the company believes that existing cash and cash equivalents and reflecting our compliance with the $20 million minimum cash covenant in the Barings credit agreement are sufficient to enable the company to fund planned operating expenses, debt service obligations, and capital expenditure requirements into 2025.

This cash guidance is subject to a number of assumptions, including the revenue, expenses, and reimbursements associated with DEXTENZA and the pace of research and clinical development programs among other aspects of the business. As of November 7, 2023, the company had approximately 79.4 million shares outstanding.

I would now like to turn the call back to Antony for some final thoughts.

Great. Thanks, Donald. So before turning the call over for questions, let me go over a quick summary. We received FDA agreement on a special protocol assessment for AXPAXLI and are on track to enroll our first study before year end.

We are anticipating a number of updates in our pipeline that we intend to share at upcoming medical meetings. First, we recently completed enrollment of our Phase 2 program evaluating OTX-TIC, our travoprost-containing intracameral implant for the treatment of glaucoma and expect to present top-line results in April 2024. With the recent interest around the iDose program at Glaukos, we are excited about the prospects of bringing a fully bioresorbable prostaglandin delivery implant that is designed to be suitable for chronic dosing into pivotal programs as our next step.

Secondly, we look forward to sharing our interim nine-months data from the HELIOS trial, evaluating AXPAXLI in non-proliferative diabetic retinopathy in Q2 of 2024. We recorded $15 million in net product revenue for DEXTENZA in the third quarter of 2023, 26% over the same quarter prior year, in line with Q2 2023. Based on the results, we are reaffirming our guidance and expect to come in at the high end of the current $55 million to $60 million range.

Finally, I'd like to mention that we will be hosting an R&D Day in December to further detail our plans around AXPAXLI -- the AXPAXLI pivotal program and discuss the rest of the development pipeline, as well as DEXTENZA. Please keep an eye out for further details on the day.

So I hope it's clear that this is a very exciting time for Ocular, and we're thrilled with our progress to date and look forward to sharing additional updates in the coming quarters.

With that, I will turn the call over to the operator for questions.

(Operator Instructions) Jon Wolleben, JMP.

Hey, good afternoon. Thanks for taking the questions. A couple from me, first on DEXTENZA, and then I got a follow up on AXPAXLI. Just wondering, without the CMS facility decision the other week, what can accelerate DEXTENZA growth in the surgical setting in 2024? And then are you planning on -- are you currently promoting DEXTENZA for allergic conjunctivitis or plan on starting that next year? Just wondering about any detail there.

Sure. I'll hand it off to Steve.

Sure. Yeah. So next year, in terms of our growth -- this year, we expect to grow about 26% in market volume, and we expect to see the same next year. As it relates to the CMS decision with the facility payment, I think at the end of the day, the HOPs Panel made the recommendation to change the status indicator.

We also had over 1,000 comments in the open-comment period to change it. Their rationale for not changing it is they consider it to not be a standalone procedure, which we disagree with that decision. So we'll revisit that next year, and we are hopeful that will happen in 2025.

And allergic conjunctivitis, any plans there?

Great question. I think that we have a great opportunity with the AC, but our plans for next year, we're going to continue with the same sales force we have. We'll meet customers where they want to go, whether it's in the office for AC or in the surgery center. But we still believe that the surgery center provide us the greatest opportunity. We've only captured less than 5% of all cataract volume and still believe that's the best opportunity for growth for DEXTENZA in 2024.

Okay, and a couple on AXPAXLI. What percentage of the wet AMD population do you think fit into your current enrollment criteria? And then how do you think about the translatability from the data you'll generate here to the more broad wet AMD population?

And then I guess maybe one more. The discussion between week 36 and week 40, what was the discussion with FDA and the difference in opinion there? Thanks.

That's a lot of questions to squeeze in one. I'll hand it off to Rabia.

Yeah. Maybe I'll start with the last one, Jon, the 36 weeks versus 40 weeks. There's really not a discussion with the FDA. FDA responses that they accept week 36, although they prefer week 40. I think that is coming from what is month nine, whether it's week 36 or week 40, and both of them are acceptable. And we'll just have internal discussions then.

We really have no issues moving to week 40 because our drug actually is -- the durability covers that. That's why -- that's really the response, nine month -- the week 36 is acceptable, although they prefer week 40.

Can you, Jon, repeat your first and second question?

Yeah. What percentage of the population fit your enrollment criteria? And then how do you think the data translates to the broader population?

Yeah. First of all, this is the population -- this population exists, and it is like the way they are going to come at the screening is -- like just a population already at the site and actually do not qualify for any other AMD trials. We are looking for that good vision, wet AMD patients, treatment naive.

Again, with our discussions, actually that population is actually not eligible for any other trial and just waiting to be enrolled in that trial. The applicability, this is a wet AMD population, and our enrollment criteria includes that -- like just they need to show. The patient should have the wet AMD, the CMB lesion, and that's why it would be applicable ultimately for the approval perspective.

But in addition to that, we're going to have -- definitely have other Phase 4 trials and our repeat-dose trial, which is going to cover more AMD population as well, the less vision patients. But for approvability, this population is completely acceptable.

Yeah, we expect a very broad label. We expect for treatment of wet AMD. And that was part of the SPA request of what we expected from the indication. So we're very comfortable and certainly with the history of the FDA that the applicability or the label will be extremely broad.

The question, I think, that Rabia is bringing up is that we realize that doctors will probably want additional data for marketing reasons later on. So we certainly plan to have a very active Phase 4 program prior to launch.

That's very helpful. All right. Thanks for taking the questions and congrats on the quarter. Appreciate it.

Thanks, Jon.

(Operator Instructions) Joseph Catanzaro, Piper Sandler.

Hi, everyone. This is Albert on for Joe. My first question was to really better understand how this new formulation compares with what was used in the Phase 1 study. So I was wondering how this drug was optimized and whether with a different dynamic of drug solution. Is this actually still expected to occur around this eight-month mark? And then maybe a follow up. Thank you.

Yeah, it's really kind of a misnomer to call this a new formulation. In fact, the hydrogel portion of it is exactly the same as what we've been using. What we've changed is we've changed the load, so we've gone from 600 microgram to 450 microgram, and we've discovered ways to allow that to come out faster. So we'll have a faster release and we'll have a higher amount daily drug delivery, which matches the 3 times 200 that we saw in the Phase 1 trial in Australia, which is where we have the bulk of our work with naives.

So obviously, at the end of the life of the depot, which is exactly the same as we've seen in all the other trials between eight and nine months, we'll have a little bit less drug available. We want to have drug available. We'd like to create a sort of a period where there is drug in the vitreous where you can redose without another foreign body being in the vitreous at that time if the doctor finds that to be important. But this just better matches up the drug delivery with the bioresorption. And as formulators, we're very excited that we can bring this forward.

Okay, thanks. I was also wondering about the plans on how to handle subject drop-offs. I know you mentioned the patient characteristics and circumstances that are subject to review. And maybe you can just maybe speak a little more on this, if you can.

Sure. I'll start first and maybe hand it over to Rabia. But there were two hugely important points in the SPA that we brought in that could have made the trial either more difficult or made us rethink the trial.

The first was what a lot of people are talking about LOCF, meaning that if a patient achieves a 15-letter loss at month three and then is rescued several times through the rest of the balance of the nine months, are they considered a treatment failure at nine months? And that was very unequivocal from the FDA saying yes, that that person would be treated as a treatment failure at nine months, even though their failure occurred at month three.

The second thing was realizing that this is a trial that in the Eylea arm is likely to have a relatively high number of dropouts comparatively to other trials that may be in this space. We asked the FDA if we could take the protocol violators and the dropouts and consider them in an ITT analysis that would have them all put into the 15-letter loser category. The FDA understood the question, told us that it would be a review issue clearly for patients that are dropping out or going outside of treatment protocol.

For efficacy reasons, that appeared to be a reasonable approach, and as a part of the review, we would look at all of the data in its totality. That was a hugely reassuring bit of information from us because, as you know, in an ITT analysis, those dropouts and protocol violations generally need to go in one of the two categories. And we wanted to be sure that they would not be placed arbitrarily in the non-15-letter loser cohort, and that was that was confirmed by the FDA.

I don't know, Rabia, is there any more you can add on this?

No. You described it really well, Antony. The only thing that I would add is that we are really happy to receive the guidance from FDA how we should collect the information on those patients. Very clear, like a direction on the information FDA want us to collect on, whether they drop out because of the safety, efficacy, or some other reason that, as Antony mentioned, is very encouraging.

Okay, thanks. That's very helpful. All right. Thanks again for taking my questions.

Thank you.

(Operator Instructions) Colleen Kusy, Baird.

Hi. This is Adi on for Colleen. Congrats on the SPA and all the progress. I have a question regarding the patients at baseline. Previously, you'd said you're planning on enrolling patients that were closer to 20/20 vision or who got the 20/20 vision after induction with Eylea. Is that still the plan? And can you comment on how you think this entry criteria will impact the rate of enrollment?

Yeah. That's within our SPA. Our SPA is for patients that after two doses of Eylea induction improved to 20/20 that they are enrollable in the trial. Now the great thing about having the SPA is that it's really allowed us to have a concrete response from the FDA and allowed us to have a tremendous number of conversations with sites and key opinion leaders.

And there is -- we've had a lot of feedback from those sites now that they're used to the concept of what we're doing with this trial and now that we have the endorsement from the FDA that this is a legitimate trial for registration, a lot of ideas about other -- broadening that definition and allowing more patients into the trial.

Now, clearly, to make any changes to that protocol, we need to go through a process with the FDA to ensure that the SPA reflects that. But even as is, we're able to start enrolling patients immediately. And we do think that that patient population that can get to 20/20 is reasonably sizable, especially given the earlier diagnoses of wet AMD with the nearly ubiquitous use of OCTs in yearly ophthalmic exams.

So we think we're going to have enough patients with the protocol as is, but there are opportunities to broaden that entry criteria as well.

Wonderful. And then I was wondering if you could talk through what your expectations are in the Eylea control group as to what proportion of those patients you'd expect to lose 15 letters?

The working assumption is between 30% to 50% of those patients would progress to a 15-letter loss, if allowed to do so.

Wonderful. Thank you so much.

Thank you.

Kelly Shi, Jefferies.

Hi, this is Clara on for Kelly. Thanks for taking our question and congrats on all the progress. Just wondering what the agreed study design with the FDA to be applicable to the second wet AMD trial as well. And also for diabetic retinopathy, what kind of data do you need to see to move forward to a Phase 3 pivotal trial, and what might be the expected costs associated with that trial?

Sure. Rabia, you want to fill that?

Yeah. The first question, whether the second pivotal would be the same, yes, it would be the same design as -- like the design that we are going to run with the first trial. And can you please repeat your question, the second question, Kelly -- Clara, sorry.

Yeah, sure. So I was asking, in terms of diabetic retinopathy, what kind of data in Q4 do you need to see in order to move forward to Phase 3 pivotal trial, and what might be the expected costs associated with the pivotal trial? And how do you plan to fund this trial?

Okay. I'll just take the first part of that question; I'll leave the funding to Antony. For the DR trial, our expectation -- as you know, this is a small trial. The number of the subjects we enrolled are 22 subjects in the trial, and they are like 2-to-1 in AXPAXLI versus the sham.

Our expectation is to see a trend in the improvement in the DRSS score. We are really not looking for any non-inferiority. Our sample size is not enough for that. That's why we are looking for a trend in the DRSS score improvement. And Antony, would you like to take the rest of the question?

Sure. Obviously, we're not committed to a particular form of funding at the moment. We're very fortunate that we have cash at the moment, and we have a runway into 2025. There are opportunities in a number of different, both dilutive and non-dilutive, opportunities to be able to help fund that second trial.

Clearly, the SPA gives clarity that we did not have before, and that creates an investment opportunity or a partnership opportunity that's a bit more clear than what existed in the past. So I think, the SPA actually opens up more avenues than we had before. But we haven't committed to a particular source of funding.

Clearly, once we get traction on this first pivotal, the desire to set up another pivotal in order to get to market in a reasonably short period of time is overwhelming, given that the destination, the value of two positive pivotals in a wet AMD for the 9- to 12-month product is a multi-billion-dollar opportunity, and we'd like to get there as fast as we possibly can.

Terrific. Thank you.

Thank you.

Yi Chen, H.C. Wainwright.

Thank you for taking my question. I recall you previously reported that 73% of patients were rescue free in month 10 with 600 microgram. Now you are using 450 microgram. So what percentage of patients do you expect to be rescue free at the end of nine months?

Well, we would expect that number to be the same or higher. This new formulation will deliver just like the older formulation or the pre-optimized formulation. It will deliver drug continuously for 9 to 12 months. And as we mentioned, for the first nine months, it will deliver drug at a slightly faster rate than the 600-microgram dose.

So up until nine months, you're actually going to get more drug to the target tissues than you would have with the previous 600-microgram formulation. So up to that nine-month timeframe, we're very confident that we'll do at least or better than that.

Certainly, in terms of the drug delivery, we believe we still have enough drug in the target tissues and in the vitreous post-op to be able to extend the effective concentrations in the RP in the choroid up into month 12.

And will you use the 450-microgram formulation for NPDR as well in the future?

I believe we will, yes. It's an optimized formulation, better marrying the drug, the drug elution with the life of the insert. So I don't see why we would want to go with that formulation, but it's just a better iteration of what we've done before, both for our indication.

Yeah. And do you expect the same safety profile during the first 9 or 10 months with more drugs to be delivered by this new formulation?

Well, we're comfortable that the amount that we're delivering is well within the safety window. It is -- you probably heard me mention earlier, the elution rate that we have on this optimized formulation is about the same as we had on the two -- the 3 times 200 that we had in Australia. So we certainly don't expect any difference in the safety.

Having maybe a little less drug around at the end of the life of the insert actually might -- not that we had safety issues with what we had before, but it certainly would give us greater confidence that there'll be less drug moving around the vitreous at the end of the life of the insert.

Okay. Thank you.

Thank you.

I'm showing no further questions at this time. I would now like to turn the call back to Antony Mattessich for closing remarks.

Well, thanks, everybody, for joining us today. If it's not come through, we are unbelievably excited to have the SPA behind us now, that we have a clear road map. We've done a lot of planning, a lot of discussing with the FDA, a lot of educating of the market that we still need to do. But we really are in a situation now where we've gone from really intense planning to really putting our head down and getting behind the execution of this trial.

We have our sites that are excited to be able to join it. We actually are very lucky that we're launching this trial in a period where there's a lot of infrastructure, particularly in the US, that's capable of doing wet AMD trials that are currently not being utilized at a very high rate.

So we're very eager to get started. We're very eager to get this product to patients, and just can't wait to get going. So thank you so much for attending today.

Yes. Thank you for your participation in today's conference. It does conclude the program and you may now disconnect.