Ocular Therapeutix Inc (OCUL) 2020 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Ocular Therapeutix Fourth Quarter and Year-end 2020 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, Valerie. Good afternoon, everyone, and thank you for joining us on our fourth quarter and year-end 2020 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 quarter and year ended December 31, 2020. 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 Chief Executive Officer, who will provide a summary of our corporate development and an update on the commercial progress of DEXTENZA. Also speaking on the call today will be Dr. Michael Goldstein, our President, Ophthalmology and Chief Medical Officer, who will give an update on our clinical developments and pipeline. Following Michael's remarks, I will provide an overview of the financial highlights for the fourth quarter before turning the call back over to Antony for his summary and questions. For Q&A, we will also be joined by Patricia Kitchen, our Chief Operating Officer; and Scott Corning, our Senior Vice President, Commercial.

As a reminder, on today's call, certain statements we will be making may be considered forward-looking for the purposes of the Private Securities Litigation Reform Act of 1995. In particular, any statements regarding our regulatory and product development plans as well as our research activities are forward-looking statements.

These statements are subject to a variety of risks and uncertainties that may cause actual results to differ from those forecasted, including those risks described in our most recent annual report on Form 10-K filed this afternoon with the SEC.

I will now turn the call over to Antony.

Thank you, Donald, and welcome, everyone, to Ocular Therapeutix Fourth Quarter and Year-end Earnings Report. On all accounts, it was a great quarter, capping a notable year for Ocular. Despite the challenges due to the global pandemic, Ocular made tremendous progress with the commercial uptake of DEXTENZA as well as advancing our pipeline of product candidates being developed to target several of the largest market opportunities in ophthalmology.

For all of our success this past year, I would like to thank our dedicated employees, our patients and clinical investigators, the hundreds of individuals involved in our clinical trials and our investors. Thank you all.

Beginning with DEXTENZA. This past quarter, we have seen DEXTENZA net sales rise to $6.9 million for the fourth quarter of 2020, which represents more than 25% growth over the previous quarter and more than 330% increase year-over-year comparison. Going forward, we expect DEXTENZA to be an increasingly significant net contributor to the company's cash position. While we have no hard data to determine cataract volumes in the U.S., we are aware of a number of closures and slowdowns in key ASCs, in particular, HOPDs, in response to the recent spike in COVID cases. The bulk of these actions took place in January and February of this year. Fortunately, DEXTENZA in market sales, that is sales from distributors to ASCs and HOPDs, were brisk.

Billable units neared 9,500 for the first 2 months of the year, representing a greater than 10% increase over the first 2 months of the fourth quarter and nearly a 230% increase over prior year. Clearly, despite the pandemic, DEXTENZA's increasing share of cataract volume continues to drive impressive growth. In the final 3 quarters of the year, we expect what was a headwind in cataract volumes to become a tailwind as the backlog of delayed procedures gets scheduled into the market in addition to the normal flow of procedures.

Contributing to the growth of DEXTENZA are 2 key factors. First and most importantly, DEXTENZA is a highly differentiated specialty ophthalmology product that relieves the daily steroid drop burden in the treatment of inflammation and pain following ophthalmic surgery. The awareness and appreciation of the product's benefits continues to grow, both within the physician and patient communities. The product is simply performing as we had hoped.

Secondly, DEXTENZA is also becoming easier to use for ASCs and HOPDs. We have had tremendous success partnering with administrators and working through issues related to reimbursement of both the product, DEXTENZA, and the associated procedure code, 0356T. In particular, we've been able to work with the MACs in standardizing payment for 0356T. And I'm now pleased to let you know that we now have coverage in all 7 MACs, representing 100% of the country.

Additionally, in November, we announced the receipt of a permanent Category 1 CPT code for the placement of drug-eluting inserts in the nasolacrimal canaliculus, it is scheduled to become effective in January of 2022. This new code is expected to replace the existing code, 0356T, and facilitate the coding and payment across all sites of service.

Longer term, the Category 1 status for the procedure of inserting a drug-eluting insert into the nasolacrimal canaliculus delivers immediate potential benefits for DEXTENZA, but also for our 2 dry eye programs. If approved, which use the same route of administration and any other programs that we may develop which use an intracanalicular route of delivery.

I should also note here that beginning in the second quarter of this year, we plan to continue reporting our quarterly net sales to distributors for DEXTENZA but expect to no longer report on our monthly in-market sales and billable units to ASCs and HOPDs.

We realized during the launch period that we needed to provide an extraordinary level of detail to our investors, so included this monthly end market figure in billable units to give a better sense of performance while distributors adjusted inventories to ensure product availability.

Now that our sales volume has reached its current level, sales from Ocular to its specialty distributors and sales from specialty distributors to the end customer closely parallel each other. To avoid confusion and protect our competitively sensitive data, we plan to return to the industry standard of reporting only on net sales to our specialty distributors.

Beyond DEXTENZA, we continue to make excellent progress advancing our pipeline. At the start of the year, we presented Angiogenesis and Glaucoma 360 reporting promising interim Phase I data for both OTX-TKI for the treatment of Wet Age-Related Macular Degeneration and other retinal diseases and OTX-TIC for the reduction of intraocular pressure in patients with Primary Open Angle Glaucoma or Ocular Hypertension.

On the dry eye front, we announced Phase I results in OTX-CSI for the treatment of dry eye disease in September, and we subsequently dosed the first patient in a Phase II trial in September. For OTX-DED, we designed for short-term treatment of signs and symptoms of dry eye disease. We successfully filed a Phase II enabling IND at the end of December and have just announced dosing of the first patient at the end of February.

Each of our 4 clinical programs represent highly differentiated ophthalmology specialty product candidates that address key unmet needs in their respective disease states that address the key segments of global markets that, in aggregate, are estimated at over $20 billion in annual sales.

Financially, the company is in a strong financial position. We have completed an oversubscribed public offering in December that raised approximately $86 million in net proceeds. More recently, we received the initial upfront payment of $12 million related to the collaboration we entered into with AffaMed in the fourth quarter 2020.

Beyond the $12 million in upfront payments, we also have the potential to receive $91 million in future aggregate milestones and payments as well as tiered double-digit royalties on future sales. All of this strengthens our balance sheet. Our cash and cash equivalents, along with our forecasted revenues from net sales of DEXTENZA and ReSure Sealant are projected to provide sufficient cash to fund our planned operations, debt service and capital expenditures through 2023.

Most importantly, we believe our balance sheet is now sufficient to fund each of our 4 clinical programs to and through key Phase II clinical trials, which we believe could mark an inflection point for us. Clearly, we are thrilled with our progress on all fronts, and we look forward to another productive year.

With an update on where we are on these product candidates, I will hand it over to our President of Ophthalmology and Chief Medical Officer, Dr. Michael Goldstein.

Thanks, Antony. Let me begin with an update on our back of the eye program, OTX-TKI. We continue to dose subjects in a multicenter, open-label dose escalation Phase I clinical trial being conducted in Australia that is designed to assess the safety and tolerability of OTX-TKI as well as to assess preliminary biological activity in subjects by measuring anatomical and functional changes.

Last month, we presented interim data from the study at the Angiogenesis, Exudation, and Degeneration 2021 virtual meeting, highlighting data from all 3 cohorts. The first 3 cohorts, cohort 1, 200 micrograms; cohort 2, 400 micrograms; and cohort 3A, 600 micrograms, have now been fully enrolled while cohort 3B, 400 micrograms of OTX-TKI used in combination with anti-VEGF induction therapy continued to enroll.

We are seeing early signs of biological activity, including decreases in retinal fluid in some subjects as early as 2 months following insertions in cohorts 2 and 3A. Additionally, we are seeing encouraging durability of 6 months or longer in all cohorts and durability out to 13.5 months in 1 subject in cohort 2.

OTX-TKI has generally been well tolerated with a favorable safety profile. No ocular serious adverse events, no subjects with elevated intraocular pressure and no subjects needing steroids to treat ocular inflammation have been observed or reported to date. While the drug product profile is still emerging, we are pleased with the interim data and OTX-TKI's potential to reduce intraretinal and/or subretinal fluid. In terms of next steps, we now have an exploratory IND in place in the United States, and we plan to initiate a randomized, controlled clinical trial starting in the middle of the year, using a single 600-microgram OTX-TKI implant along with anti-VEGF induction therapy.

Moving to our glaucoma program, OTX-TIC, in January, we presented interim top line data from the Phase I clinical trial at the Glaucoma 360 New Horizons Forum. This study is a Phase I prospective, multicenter, open-label clinical trial enrolling subjects in the United States with Primary Open Angle Glaucoma or Ocular Hypertension to evaluate the safety, biological activity, durability and tolerability of OTX-TIC.

Interim data from all 4 fully enrolled cohorts generally showed a mean reduction in intraocular pressure or IOP from baseline of 7 to 11 millimeters that is comparable to current standard of care, topical travoprost placed in the non-study eye. Onset of action is as early as 2 days after insertion. Interim results suggest durability of response consistent with decrease in eye pressure out 6 to 9 months in many subjects with 1 subject's eye pressure controlled for over 21 months with a single implant.

OTX-TIC has generally been well tolerated and has been observed to have a favorable safety profile to date. We have not seen the implant move and it has been observed to bioresorb in 5 to 7 months in cohorts 1 and 2 and in 3 to 5 months in cohorts 3 and 4.

We have seen no clinically meaningful changes in corneal pachymetry or corneal endothelial cell counts time. With the Phase I study now fully enrolled, our attention turns to our planned Phase II clinical trial, which we expect to initiate in the middle of 2021.

We are also making significant progress in our ocular surface disease programs, which include product candidates for dry eye disease and allergic conjunctivitis. In dry eye, we have 2 programs. OTX-CSI, which is designed to increase tear production for the chronic treatment of patients with dry eye disease; and OTX-DED, which is designed to target the short-term treatment of the signs and symptoms of dry eye disease.

OTX-CSI is an intracanalicular insert, which combines 2 modalities to treat dry eye patients. Local programmed release of cyclosporin for approximately 3 to 4 months to the ocular surface along with punctal occlusion over the same time period. By releasing low doses of preservative-free cyclosporin over an extended duration of time, OTX-CSI has the potential to minimize what we believe are some of the biggest patient complaints about commercially available products for the chronic treatment of dry eye disease, namely staying in burning.

We are very excited about the potential for this physician-administered hands-free and preservative-free option in helping dry eye patients receive the benefits of cyclosporin, but with potentially greater tolerability and desired for a more rapid onset of action compared to therapies currently available in the market.

Following the successful completion of a Phase I clinical study which we announced last quarter, we initiated a U.S.-based, randomized, masked, Phase II multicenter clinical trial, evaluating 2 different formulations of OTX-CSI compared with hydrogel vehicle insert in approximately 140 subjects will be followed for a period of 16 weeks.

Endpoints in this study include tear production as measured by the Schirmer test, signs of dry eye disease as measured by corneal fluorescein staining and symptoms of dry eye disease as measured by the visual analog scale, eye dryness severity score and frequency score.

Dosing and enrollment has been going well, and we are pleased to report that this study is progressing ahead of the initially planned schedule. We now expect top line data in the fourth quarter of 2021 ahead of the previous guidance of first half of 2022.

Our second product candidate in dry eye, OTX-DED is a low dose intracanalicular insert of preservative-free dexamethasone. While it incorporates the same active drug as DEXTENZA, this is a new product candidate with a lower dose of dexamethasone and smaller insert size. Many dry eye patients experience episodic flares of their signs and symptoms, which we believe are likely related to inflammation.

Topical steroids have long been used off-label for dry eye flares and all commercially available topical steroids have preservatives, which can result in ocular surface toxicity. Chronic misuse of steroids may also lead to adverse events such as elevated eye pressure or cataracts. OTX-DED potentially offers these patients the opportunity to be treated with a physician administered, preservative-free and hands-free steroid therapy.

We recently announced that we have dosed our first patients in a U.S.-based, randomized, double-masked, vehicle-controlled Phase II multicenter clinical trial, evaluating 2 different formulations of OTX-DED compared with a hydrogel vehicle insert in approximately 150 subjects with dry eye disease. This trial is designed to assess the safety and efficacy of OTX-DED for the short-term treatment of signs and symptoms of dry eye disease by evaluating bulbar conjunctival hyperemia, eye dryness score and frequency using a visual analog scale and total corneal fluorescein staining. We expect top line data in the first half of 2022.

Lastly, for DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis, we submitted a supplementary NDA -- supplemental NDA at the end of 2020 and have received a PDUFA target action date of October 18, 2021.

Overall, we believe the data package highlights a compelling product profile targeting an unmet need that could potentially change the current standard of care with a physician-administered, preservative-free, hands-free therapy for these patients. This sNDA, if approved, would represent our first in office indication for DEXTENZA.

I would now like to turn the call back over to Donald to review our fourth quarter and year-end financial results.

Thanks, Mike. Gross product revenue net of discounts, rebates and returns, which the company refers to as total net product revenue, was approximately $7.4 million for the 3 months ended December 31, 2020, reflecting a roughly 25% sequential increase over the third quarter of 2020 and a 226% increase over the fourth quarter of 2019.

Net product revenue of DEXTENZA in the fourth quarter of 2020 was $6.9 million versus $5.4 million in the third quarter and reflects an approximate 28% sequential increase. Total net product revenue for the fourth quarter of 2020 also includes net product revenue of $0.5 million from ReSure Sealant. Overall, net product revenue for the year was $17.4 million versus $4.2 million for 2019 and primarily reflects a strong uptake in DEXTENZA sales during the second half of 2020.

Research and development expenses for the fourth quarter were $7.6 million versus $10.1 million for the comparable period in 2019 and primarily reflect the decrease in unallocated costs, driven largely by the reduction in force executed in the fourth quarter of 2019 and reduced clinical trial costs associated with the Phase III DEXTENZA allergic conjunctivitis trial and the Phase III OTX-TP trial, offset by increases in the costs associated with the Phase I clinical trials of OTX-TKI, OTX-TIC and OTX-CSI as well as the commencement of the Phase II clinical trial of OTX-CSI.

Overall, R&D expenses for the full year decreased $12.4 million to $28.7 million from 48 -- from $41.1 million in 2019, reflecting the decrease in unallocated costs and the trends in clinical trial expenses mentioned above.

Selling and marketing expenses for the fourth quarter were $6.8 million as compared to $7.1 million for the same quarter in 2019. The modest decrease relates to reduced consulting fees and travel-related costs offset by increased personnel costs. Overall, selling and marketing expenses for the full year increased to $26.6 million from $24.5 million in 2019, driven primarily by increased personnel costs, offset by reduced spending on consulting, conferences and related expenses.

Finally, general and administrative expenses were $6.6 million for the fourth quarter versus $5.6 million in the comparable quarter of 2019. The increase in expenses stem primarily from increased personnel costs and consulting fees. Overall, G&A expenses for the full year increased $0.8 million to $22.9 million from $22.1 million in 2019, again, reflecting primarily increased personnel and consulting fees.

With respect to financial results for the fourth quarter, the company reported a net loss of $85.6 million or a loss of $1.21 per share on a basic and diluted basis. This compares to a net loss of $26 million or a loss of $0.54 per share on a basic and diluted basis for the same period in 2019.

As operating expenses were modestly down quarter-over-quarter, the significant increase in loss was driven almost exclusively by a noncash charge of $69.5 million related to the change in the fair value of the derivative liability associated with the company's convertible notes. This change in fair value was due primarily to 172% increase in the company's common stock price during the fourth quarter of 2020.

The net loss for the fourth quarter also includes $2.8 million in noncash charges or stock-based compensation and depreciation compared to $2.6 million for the same quarter in 2019.

Overall, the company reported a net loss of $155.6 million or a loss of $2.56 per share on a basic and diluted basis for the full year ended December 31, 2020, versus a net loss of $86.4 million or a loss of $1.91 per share on a basic and diluted basis in 2019.

As of March 2, 2021, the company had 76.1 million shares outstanding. As of the full year ended December 31, 2020, we had $228.1 million in cash and cash equivalents versus $54.4 million at the end of 2019. These cash amounts exclude restricted cash of $1.8 million. The cash balance benefited during the fourth quarter from $161.7 million in net proceeds from 2 secondary equity offerings, one in October for $75.4 million of net proceeds and one in December for $86.3 million in net proceeds.

Fourth quarter cash also benefited from proceeds of $12 million in upfront payments from the recently announced license agreement with AffaMed. For the full year ended December 31, 2020, cash balances benefited from total net proceeds from financing activities of $228 million, including a $48.3 million in net proceeds from a secondary offering in May and $14.4 million in net proceeds from sales of common stock under our 2019 sales agreement or ATM earlier in the year. The May, October and December equity offerings were executed at share prices of $5.50, $9.75 and $21.50, respectively.

Based on our current plans and related estimates of anticipated cash inflows from DEXTENZA and ReSure's product sales and cash outflows from operating expenses, we believe that existing cash and cash equivalents as of December 31, 2020, will enable the company to fund planned operating expenses, debt service obligations and capital expenditure requirements through 2023.

This cash guidance is, of course, subject to a number of assumptions, including those related to the severity and duration of the COVID-19 pandemic, the revenues and expenses associated with the commercialization of DEXTENZA and the pace of research and clinical development programs and other aspects of our business.

This concludes my comments on the fourth quarter and year-end financial results, and I would like to turn the call back to Antony for summary thoughts.

Thanks, Donald. So before opening up the call for questions, let me do a quick summary. With successful capital raises, a new licensing agreement and momentum in DEXTENZA sales, we believe we have the resources to fully fund our 4 clinical-stage pipeline assets through completion of their planned Phase II programs in disease states within large ophthalmology markets estimated to account for over $20 billion in the aggregate and annual global sales.

In wet AMD, the performance of OTX-TKI in our Phase I trial continues to support a product profile that could potentially set a new standard of care for durability. We plan to initiate a prospective randomized U.S.-based trial by the middle of 2021. In glaucoma, OTX-TIC continues to support a product profile that could potentially set the standard of care for patient compliance. We plan to advance that program into a Phase II clinical trial in the middle of 2021.

In dry eye disease, we initiated 2 Phase II clinical trials, 1 for OTX-CSI and 1 for OTX-DED. For OTX-CSI, we now expect top line data in the fourth quarter of this year. For OTX-DED, we expect top line data in the first half of 2022. Beyond dry eye disease, we submitted our sNDA for DEXTENZA in allergic conductivities in December 2020 and have a PDUFA target action date of October 18, 2021.

We look forward to a busy, productive 2021. And with that, I turn the call over for questions.

(Operator Instructions) Our first question will come from Dane Leone from RJF.

Congratulations on 2020 and the updates today. So I guess the first one for me would be going back to Michael's comments around the study for OTX-TKI in the U.S., that's expected about to start mid-year. Maybe you guys can just elaborate a little bit on the study design just in terms of how you're thinking about what you want to get out of that first U.S. study? And how does that set the stage for later-stage studies? Obviously, another company in the space earlier this week, just had data with a product that then seem to be a peer of yours or a competitor that data looked horrendous. And I think the general consensus is it might not be a viable product for very specific reasons to them.

But that said, does that inform anything in terms of how you guys are thinking about later-stage development? Or just kind of any thoughts around that would be appreciated.

Dane, thanks for the question. This is Michael Goldstein. So the study that you're referring to, the OTX-TKI study is the U.S. study that we're planning on starting midyear this year. It's being conducted under the exploratory IND pathway. So it's -- we're looking to enroll 20 subjects with a 3:1 randomization. And patients will be randomized to receive the OTX-TKI drug at the -- a single implant of 600 micrograms along with an anti-VEGF drug for induction. And that will be compared to an aflibercept group that will receive aflibercept every 8 weeks. And we will follow those patients out, and we will be looking for changes in vision, and we will be looking at retinal anatomy looking -- using the OCT. Patients to get into that trial will have been patients previously treated. So there'll be wet AMD patients will be started out in a dry state.

And what we'll be looking for is can we maintain them in that dry state with the single implant of the 600 microgram? Obviously, looking at safety, but also looking at durability of effect. You had mentioned the other company. We believe that the data that you saw from that other company was really related to a different delivery system. And we believe that with our delivery system, where the drug is delivered with a single implant into the vitreous. There really is not the opportunity to see the migration that was reported in that study. But obviously, we'll be looking at safety in our study as well.

Great. And sorry, what's the duration of the study?

So we'll be following patients out to a year.

Okay. And just in terms of thinking about study design in later stages, you do have actually not a direct comp, but some of the gene therapy companies are starting to do later-stage pivotal studies. Do you see any parallel in terms of how you would approach your study is at a later stage? Or is it still kind of you to see what the result is from this exploratory study?

Yes. I mean, I would say we haven't made final decisions for later-stage studies, but there are a number of options on the table.

Our next question comes from David Steinberg with Jefferies.

Okay. I had a couple of questions. First, so -- yes, on your -- in terms of your October PDUFA for allergic conjunctivitis, I know your reps aren't really calling on in the doctor office setting. But just curious is there any off-label use you think right now in that indication?

Secondly, do you have a sense of what percent of the business for the extent is for Medicare patients versus commercial insurance? And then I have a couple of other follow-ups.

Yes. I think we can answer both the questions with the same answer, which is that we have launched with an extraordinary focus on Medicare Part B patients in ASCs and HOPDs. So that being said, we have -- we expect very little off-label usage for allergic conjunctivitis. Clearly, when we get the indication, we will start moving into the ophthalmology office environment, both in the surgical sphere and in the -- for ocular surface disease.

But given our approach and given the idea that we really are advising the people that we do see, not to paint outside the lines, so they don't have bad experiences with the product from a reimbursement standpoint. The vast majority of our usage is in hospitals and in Medicare Part B.

Got it. And then just a couple financial questions. So you received the $12 million upfront, but didn't book it on the P&L. What's the accounting treatment you're going to use for this upfront? And then there are about $90 million plus in future aggregate milestones. Are you running the programs? Are they being run by AffaMed? And when would the next tranche of payments from them hit the P&L?

David, it's Donald. Thanks for the question. So with regard to the accounting around it, you'll see the $12 million recorded as deferred revenue on the balance sheet. And when we begin to deliver either clinical and/or commercial product, we will begin to ratchet that down and recognize the revenue in the future.

And maybe I'll turn it over back to Antony on the AffaMed question with regard to that you had ask in addition to that.

Yes. They will be dry. We handle the regulatory issues within China, and they will be doing the clinical trials. So they're driving the whatever clinical work may need to have firm in that. I'm sorry, Patricia, you're on the line. I didn't realize -- do you have to add from a regulatory standpoint about how it works in China?

No, Antony, so I think you've hit the spot. So Ocular Therapeutix will actually be the holder for the NIH in China. So once we perform the submission and actually get positive feedback from the Chinese authorities, additional milestones would take place after then.

Our next question comes from Joe Catanzaro with Piper Sandler.

And congrats on all the progress here. I'm wondering if I could follow-up on the exploratory IND for TKI. I think you guys have previously spoken about the opportunity for that trial to potentially expand beyond the initial 20 patients. At what point do you think you could have that conversation with the FDA? And what triggers that? Is it just additional data from the ongoing Phase I or will you need some data from patients actually treated within the U.S. trial?

So Joe, this is Patricia. Thank you for the question. So we do intend to have a meeting with the FDA to talk about the plans for transition from an exploratory IND to a traditional IND. There is data that we need to compile in order to be able to do this. So we're hoping to have additional information and our plan set later this year.

Okay. Got it. And I'm wondering if you could -- when we should expect the next update out of the Phase I trial for OTX-TKI? and what we should expect to see there versus what we saw back in February?

Joe, it's Mike again. So I think what we've been pretty consistent that we would give data updates when we had something meaningful to say, and the cadence has been about every 3 or 4 months. That said, look for something around the ARVO meeting, which is in early May.

Okay. Got it. If I could just squeeze one last one in on OTX-CSI. Are there any expectations there that, that Phase II trial could potentially serve as one of the registrational studies? And is it powered like a Phase III?

So a great question. It is not powered like a Phase III. It's powered like a Phase II study. So we're planning on enrolling approximately 140 subjects. If it was a Phase III, the general size of that study is more like 500 patients.

So that said, the primary endpoint here is looking at tier production in order to get regulatory approval. Generally, you need to show improvement in signs and symptoms in 2 adequate and well-controlled trials. One of the exceptions is that you can show an increased tier production of 10 millimeters in a certain percentage of subjects greater than the vehicle control.

And in such a case, you don't need to also show symptomatic data. So we would -- so the answer to your question is, it's possible that you could see a statistically significant improvement, but it's not powered to show that in this trial.

Our next question comes from Jon Wolleben with JMP Securities.

Congrats on all the progress. Backing up some of the OTX-TKI questions. You mentioned that you're going to be moving to a single 600-milligram insert in the next study. And I was hoping you could kind of walk us through your thoughts on how that might change the observations you saw with 3 200-milligram inserts in the current study?

Yes, it's a great question. Thanks for asking, Jon. So as we -- in the current trial design, we have a 600-microgram group, which is cohort 3. To do that, we actually use 3 200-microgram implants that are all essentially administered at a similar time. And -- but moving forward, and including in the U.S. trial, we're going to a single implant 600-microgram dose, which -- and the primary driver for that was that, that just -- we think that's a better commercial product, obviously, having 1 implant better than 3. But it turns out there's a secondary benefit, which is that by having a higher concentration of drug in the implant, there's a larger concentration gradient for the drug to defuse out of. And that means that the release rate of the drug per day is actually higher.

So going from the 3 200-microgram implants to the single 600-microgram implant from a dose delivery per day perspective is a dose escalation. And I think now that has a lot of potential upside for us.

That's interesting. And then I was hoping you could discuss the opportunity in allergic conjunctivitis in how you're thinking about it. Obviously, you're going to be changing the paradigm of treatment with DEXTENZA is available. So I was hoping you could talk about how you think about the opportunity, any incremental investment to realize that? And then as far as big picture, what it means for Ocular Therapeutix to move into the office setting?

I'll talk about the business side of it first, and then Mike, I guess, can talk about the medical aspects for it. Clearly, there's a massive population with allergic conjunctivitis and an even sort of large slice of that slice that seek secondary medical attention for their allergic conjunctivitis. So there's a large bolus of patients out there, but we have to expect that there's going to be some reticence among payers to have a widespread use of a product like DEXTENZA for the treatment of your garden-variety allergic conjunctivitis patient.

So the way we're planning on going about it at first is to go with the targets where we are already seeing positions where there's a greater than 90% overlap for anterior segment surgeons and ophthalmologists who treat allergic conjunctivitis or refractory allergic conjunctivitis. So in that overlap, we will be in both the office and in the ASC and hospital environment with a portion of those physicians. So that won't require immediately an increase in our promotional expenses. But what we'll do in that environment is start building out platforms with payers where the allergic conjunctivitis will be reimbursed.

The good news is that we've had discussions with payers, and it's important to note that the type of -- or the part of the bureaucracy that pays for a medical benefit is different than the part of the bureaucracy within payers that pay for Part D-type products or pharmacy benefit products.

And the approvers or the payers who approve the medical benefits actually see very, very expensive drugs, sometimes upwards of $10,000, $15,000 per dose. So we haven't actually had pushback on the price, which we expect to be the same in the allergic conjunctivitis sector as it is in the hospital sector. But they do expect us to filter out patients so that appropriate patients with appropriate physicians will be getting allergic conjunctivitis. Once we get a foothold, we'll build-out, and as we build-out, we probably will need to add to our promotional resources in order to more broadly reach the office environment. But initially, we'll be looking at that Venn diagram confluence where we have both our surgical targets and the AC targets in the same practice. So I don't know, Mike, do you want to add something to that?

A lot there. I'll just say, clinically, we do use steroids for allergic conjunctivitis in the office. It does work exceedingly well. We don't do it more commonly because of the risk of abuse, meaning patient gets it, that works well. They take it home, they keep using it and you end up with some of the adverse events related to chronic use of steroids. So I think clinically, as you know, most of the current ocular allergy therapies, antihistamine mast cell stabilizers have now gone over the counter. So we think patients would be -- try those over the counter. Those weren't adequate. They come into the office. We'd ordinarily give them topical steroids, and that's where DEXTENZA could fit in with the physician-administered approach that the patient couldn't reuse. It also has the extra advantage of being preservative free, and there are no preservative-free commercially available steroids. So we think there's a pretty significant value proposition potentially here.

Our next question comes from Georgi Yordanov with Cowen and Company.

Congratulations on all the progress. So I guess starting with a broader question. Even with the next-generation anti-VEGFs, such as Roche's faricimab and Kodiak's KSI-301, up to 10%, 15%, even 20% of patients require very frequent injections once every month, once every other month. Do you anticipate that OTX-TKI could be actually used in combination, or I guess, in the background of such therapies? And then I have a couple of similar questions.

Yes, it's a great question. We've seen a very strong safety profile to date. And if that holds up, as we enroll more and more subjects and learn more about this drug, it gives us a lot of flexibility.

One of the really nice things about the OTX-TKI is administered in the office using the same techniques as we do with anti-VEGF therapy and does not displace much volume in the vitreous. All that means, to your question, is that if you get a great response with OTX-TKI, that's great. If you needed to use anti-VEGF for some breakthrough, that wouldn't be a problem.

Got it. That's helpful. And then, I guess, a question on the cohort 2 subjects, which you mentioned has demonstrated there will up to 13 months. Do you know what is driving this response? Are you worried that the implant has not been fully degraded? And could this be an issue regarding the redosing?

So another great question. So with a single implant, we see durability of about 9 to 10.5 months. When we put in more than 1 implant, one of the effects I mentioned earlier, applies, which is that 1 implant does have an effect on the other implant in its degradation. And we are seeing the implants last a little bit longer in some patients. And so that possibly could be an explanation.

It could also be that once you've got the patient to a dry state, you've sort of eliminated the need for additional therapy for a period of time. So we need to see more patients. We need to see how that plays out. But again, as we go to a single implant, we really expect the durability of about 9 to 10.5 months.

Got it. That's helpful. And then lastly, on the glaucoma program, what influenced your decision to perform a head-to-head against rather than eye drops? And I guess the major commercial setback for DURYSTA was that it wasn't indicated for redosing. Based on your conversations with the FDA, what would you need to show for the label to allow redosing? And is that something you plan to kind of have with the initial NDA submission obviously, if everything is successful? Or would that be a supplement sometime down the road?

Yes. Great question. So there's actually 2 active comparators in the Phase II trial. So subjects are randomized, as you said, to 1 of the 2 doses of OTX-TIC or DURYSTA in 1 eye, but the other eye will receive a topical prostaglandin. So you'll have both an eyedrop comparator as well as the DURYSTA comparator in the trial. As you also note, their label is limited to a single implant. We believe that's related to effects on the corneal endothelium. To date, with our single implant, we have not seen any meaningful changes. The corneal endothelium is measured by direct cell counts, functional measurements like tachymetry for direct observation with the slit lamp. So we're not in the Phase II, we will do repeat dosing, obviously, and we will have discussion -- additional discussions with FDA to see what we need to show in order to be able to get repeat dosing.

(Operator Instructions) Our next question comes from Anita Dushyanth with Berenberg Capital Market.

Congrats on the progress. I just have a few here regarding the dry eye disease candidates, both CSI and DED. Just wanted to know in terms of the design now I know CSI was -- is probably designed to last for 12 weeks. Could you just remind us how the DED candidate is designed for the acute condition? And also in terms of the population size, do we sort of expect the acute condition patients to be sort of the same size as the chronic conditions? And also one more regarding the acute dry eye condition patients, do you think there might be a pushback in terms of patients maybe being happy with the eyedrops and not having to have an implant?

Okay. Lots of questions there. So as you know, we have 2 dry eye programs. The one is OTX-CSI which is really designed for the chronic treatment of dry eye disease with a cyclosporin product that lasts 3 to 4 months. And then OTX-DED, which is a low-dose dexamethasone, designed to release dexamethasone for 2 to 3 weeks for the acute treatment of dry eye.

I will say clinically, there are -- we sort of think about dry eye as a chronic disease. But we also know that there are acute flares, and these are pretty common happening anywhere between 1 or 2 or 3 times a year for many dry eye patients. And for years, we've treated these drugs -- these patients with topical low-dose steroids off-label. As you know, there's now an approved product, which has gone through the regulatory path. And it will be interesting to see how that product plays out in this space.

We think the opportunity for OTX-DED is that, as I mentioned with DEXTENZA, similar things apply here. The risk of steroids is not that they won't work that they do work. It's probably one of those effective ways we can treat dry eye that the risk is really with abuse with chronic therapy. And so by having a physician-administered product, it's in the physician's hands. The patients can't do repeat dosing.

In addition, the steroid here also is delivered in a preservative-free fashion. We have 2 different formulations of the OTX-DED. One is designed to release for 2 weeks and one is designed to release for 3 weeks.

The other advantage, huge advantage of both products, both the CSI and the DED is that the hydrogel component basically performs punctal occlusion. And one of the main treatments that we currently use for dry eye disease is to include the punctum with a punctal plug. So you're essentially getting the benefit with both of these products of a drug release and the punctal occlusion. So to your question about whether we pushback? Yes, there may be some pushback from some patients. But many, many of them will have been used to having punctal occlusion as part of their dry eye therapy. And so I think that it will be -- those patients will obviously be very easy to accept.

Great. That was helpful. And then just one more question. Just regarding the milestone payments that you will receive from AffaMed. Sorry if I missed that. Is there a breakdown between milestones that would be received as part of the development versus the launch milestone? Is there something you could discuss?

Yes. We laid out in detail. The details of it, you want to go ahead, Donald. Go ahead.

No, I think that was Patricia. Patricia, you can feel that one.

Patricia, you go ahead.

Sure. So for the milestone payments, there are several milestone payments that have to do with regulatory approvals in the different markets. And then there are 4 other programs' milestones for clinical development and the success and execution of clinical programs. So that's really where the different milestones lie, both regulatory as well as clinical milestones.

Yes. All in all, they're in excess of 90% of milestones and royalties in the significant royalties getting into the teens.

Our next question comes from Yi Chen with H.C. Wainwright.

My first question is with respect to the 40% sequential growth in DEXTENZA billable units, how much of it was driven by recovery of surgical volume? And how much of it was driven by new accounts?

I think none of it was driven by recovery in surgical volume. And the surgeries are still down. The latest data we've seen is that in 2020, it's probably about 3.2 million cataract surgeries performed. That's against an average of about 4.1. The data that we've seen now is projecting that in 2021, there will probably be about 5 million cataract surgeries to be performed. So the rebound is yet to happen. Clearly, we've seen in -- certainly in January and February of this year, a number of ASCs either slowing down or closing. Clearly, we're still experiencing double-digit growth in market. So the share gain has been accelerating even though the total number of cataracts is still innovative malaise, although we're starting to see the country wake up and starting to get some of those surgeries back now, but only really in March.

Okay. At what point would you consider providing some revenue guidance?

We're still in consideration. I mean, the concepts should be that after the second quarter that we will probably run out of excuses not to give guidance going forward, but we always reserve the right to not do that. Clearly, in this first quarter, I think, is where we'll be -- unless there's something that happens in COVID that's unforeseen. We would expect a normalization going forward, and then we should be able to give some guidance on what we see our quarterly net sales moving toward.

Got it. And so a question on OTX-DED. Is the OTX-DED trial enrolling patients as fast as the OTX-CSI trial? And is there a chance to report data, the DED data by the end of 2021?

Yi, this is Mike again. So the OTX-CSI trial started enrolling patients in September, and the cadence has been faster than we expected, and that's why we're able to change guidance. OTX-DED started enrolling patients last week. And so far, things are going well. But I think it's too early for us to be able to change guidance on that.

So right now, we're saying first half of 2022. Obviously, if things enroll quickly the way OTX-CSI did, there is the opportunity to move that earlier. And just to remind you, the CSI trial is 4 months. We follow patients for 4 months after they've been randomized. In the DED trial, the shorter trial, the primary endpoint is at 2 weeks and we follow patients for 2 months after randomization. So it is a shorter trial. And so we will see. We will know much more over the next 4 to 6 weeks.

Got it. And my last question is with respect to OTX-TKI for that to be -- become a commercially successful product, in your view, what's the lowest percentage of -- what's the lowest number in terms of percent of your patients that remain rescue free for at least 6 months?

Yes. It's a complex. It's a simple question with a lot of nuance to it. And it's -- the nuances around what is rescue mean? What does rescue mean with an extended-release drug and a number of other things. What I would say is our target and we believe it would be a really exciting drug is if half the patients get evidence of biological activity and to be sustained out to 6 months or longer. I think -- so I think that's our target. I think there's a product that it's shorter. But I think -- and obviously, if we see a higher response rate, that's even better. But I think if we can show half the patients out to 6 months or longer, that becomes a really big product.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.