Ocular Therapeutix, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited consolidated results; amounts below are in millions unless stated otherwise.
Business context
Ocular Therapeutix develops and commercializes ophthalmic therapies using its ELUTYX bioresorbable hydrogel technology. DEXTENZA, its marketed product for post-surgical eye inflammation and pain and allergic-conjunctivitis itching, was the sole source of product revenue. Pipeline programs include AXPAXLI for retinal disease, OTX-TIC for glaucoma or ocular hypertension, and OTX-DED and OTX-CSI for dry eye disease.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net revenue | $15.1 | $12.0 | $43.6 | $37.4 |
| Operating loss | $(19.2) | $(21.5) | $(62.3) | $(59.3) |
| Net loss | $(0.5) | $(24.2) | $(51.5) | $(55.5) |
| Operating expenses | $34.3 | $33.5 | $106.0 | $96.7 |
- Q3 product revenue was $15.0 million, up 25% year over year; nine-month product revenue was $43.2 million, up 18%. Collaboration revenue was comparatively small. Management attributed product growth to increased market acceptance and commercialization efforts.
- Q3 product gross margin was approximately 91%, based on net product revenue less cost of product revenue. Gross-to-net provisions increased to 29.8% of gross DEXTENZA sales from 24.3% in Q3 2022; for the nine-month periods, they rose to 29.2% from 23.1%.
- Q3 net loss was substantially reduced by $14.2 million of net debt-extinguishment gains and $6.7 million of derivative fair-value gains. Operating loss remained $19.2 million. Interest expense was $3.4 million for the quarter and $7.2 million year to date.
- Cash and cash equivalents were $110.6 million at September 30, 2023; including restricted cash, total cash was $112.3 million. Net cash used in operations was $47.8 million and capital expenditures were $5.6 million in the first nine months. Financing provided $61.7 million, principally from the Barings loan and equity sales.
- Total assets were $162.4 million and stockholders’ equity was $7.9 million. Debt included $82.5 million principal under the Barings facility and $37.5 million principal under convertible notes; balance-sheet carrying amounts were reduced by discounts. Derivative liabilities totaled $24.0 million.
Material changes and financing
- In August 2023, the company borrowed $82.5 million under a new secured Barings term loan, receiving $77.8 million after discount and fees, and repaid the MidCap facility for approximately $26.2 million. Barings debt bears SOFR-based interest plus 6.75%, has a $20 million minimum-liquidity covenant, and is secured by substantially all assets, including intellectual property.
- The Barings agreement also includes a royalty-fee obligation tied to 3.5% of quarterly DEXTENZA net sales until paid in full, subject to agreement terms. The company accounts for this obligation as a derivative.
- The convertible-note maturity was extended to 91 days after Barings debt maturity. The amendment was accounted for as a debt extinguishment and generated a $14.9 million gain; MidCap repayment generated a $0.7 million loss.
- Common shares outstanding increased to 79.4 million from 77.2 million at year-end 2022. The company raised $9.5 million net through its at-the-market equity program during the first nine months.
Outlook, commentary and risks
- Management said cash and cash equivalents at quarter-end were expected to fund planned operating expenses, debt service and capital expenditures into 2025, while maintaining the $20 million liquidity covenant. This plan depends on assumptions about DEXTENZA sales and expenses and excludes costs to complete the SOL trial and start the planned second pivotal wet-AMD trial, as well as other pivotal trials. The company said it does not intend to begin additional pivotal trials without further financing.
- The SOL Phase 3 trial of AXPAXLI for wet AMD was initiated in September 2023; FDA agreement under a Special Protocol Assessment was received October 30, after quarter-end. Management expected first dosing by year-end 2023. Topline nine-month HELIOS Phase 1 NPDR data were anticipated in Q2 2024; OTX-TIC Phase 2 data were planned for presentation in April 2024.
- Management expects research and development and DEXTENZA commercialization spending to increase. The business continues to incur operating losses and negative operating cash flow and may need additional capital; financing may not be available on acceptable terms.
- Risks include clinical and regulatory uncertainty, DEXTENZA market uptake and reimbursement, reliance on a small number of specialty distributors and third-party manufacturers, debt-service and covenant obligations, and potential dilution or restrictions from future financing. Three distributors accounted for 83% of Q3 gross product revenue.
- No material legal proceedings were reported. Management concluded disclosure controls were effective as of September 30, 2023.
Investor verification priorities
- Track DEXTENZA unit sales, net pricing and gross-to-net deductions, including reimbursement and facility-payment developments.
- Confirm SOL trial enrollment, dosing, endpoint timing and total funding needs; assess HELIOS and OTX-TIC updates against stated timelines.
- Reconcile the cash-runway estimate with the exclusion of major planned pivotal-trial costs and the $20 million minimum-liquidity covenant.
- Review the full Barings terms, including interest, collateral, maturity, royalty-fee mechanics and potential effects of defaults or change of control.
- Separate recurring operating performance and cash burn from the quarter’s non-cash derivative remeasurement and one-time debt-extinguishment gains; verify the reported basic and diluted loss-per-share calculations.