Ocular Therapeutix, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Dollar amounts below are in millions unless stated otherwise. The company develops and commercializes ophthalmic therapies using its bioresorbable hydrogel platform. DEXTENZA is its principal commercial product; its other leading programs remain in clinical development.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $12.3 | $11.7 | $25.5 | $19.1 |
| Product revenue | $12.1 | $11.7 | $24.6 | $19.1 |
| Operating expenses | $32.2 | $31.9 | $63.2 | $59.5 |
| Loss from operations | $(19.9) | $(20.2) | $(37.7) | $(40.5) |
| Net loss | $(18.8) | $(8.5) | $(31.3) | $(5.4) |
| Net loss per basic share | $(0.24) | $(0.11) | $(0.41) | $(0.07) |
- Revenue grew approximately 5% in Q2 and 34% in the first half. DEXTENZA generated all Q2 product revenue; first-half revenue also included $0.8 million of AffaMed collaboration revenue. ReSure Sealant production had been suspended.
- Product gross profit was approximately $11.0 million in Q2 and $22.2 million in the first half, equivalent to product gross margins of about 90% in both periods. Operating loss remained substantial.
- Net loss increased versus the prior-year periods despite lower operating losses for the first half. The main comparison factor was a smaller non-cash gain from remeasuring the convertible-note derivative liability: $2.8 million in Q2 2022 versus $13.4 million in Q2 2021, and $9.7 million in the first half versus $38.4 million.
- R&D expense was $13.1 million in Q2 and $26.2 million in the first half. Selling and marketing expense increased to $10.1 million and $19.2 million, respectively, as commercialization spending expanded. G&A expense declined year over year.
- Cash used in operating activities was $29.5 million in the first half, compared with $37.4 million in the prior-year period. Capital expenditures were $0.8 million.
Financial position and liquidity
- At June 30, 2022, cash and cash equivalents were $134.5 million; current assets were $160.3 million and current liabilities were $26.1 million. Stockholders’ equity was $65.8 million, versus $88.0 million at year-end 2021.
- Debt included a $25.0 million credit facility (carrying value $25.1 million) and $37.5 million principal of 2026 convertible notes (carrying value $27.6 million), plus $7.6 million accrued interest. The credit facility was fully drawn; its stated interest rate was 7.81% at quarter-end, with interest-only payments through May 2024 and scheduled principal repayment thereafter.
- Management said existing cash was expected to fund planned operating expenses, debt service and capital expenditures through 2023, based on assumptions including DEXTENZA sales. The filing also states that additional financing will be needed to support operations over time; no assurance is given that financing will be available on acceptable terms.
Outlook, developments and risks
- Management expects continued operating losses and anticipates higher clinical-trial and commercialization costs. It expects R&D expense to rise as OTX-TKI, OTX-TIC and the pediatric DEXTENZA trial progress, and plans further formulation work for OTX-CSI and a placebo-comparator study for OTX-DED/OTX-CSI.
- DEXTENZA sales benefited from market acceptance and commercialization efforts, but were constrained during the first half by slower cataract procedure volumes and recruitment and retention challenges at surgical centers and within the company’s sales force. The company noted that the third month of a quarter typically has higher distributor-to-site unit sales, partly reflecting its rebate program.
- Pipeline status: OTX-TKI Phase 1 trials were fully enrolled, with U.S. interim data expected at an October 2022 meeting; OTX-TIC Phase 2 had begun dosing; DEXTENZA’s pediatric Phase 3 enrollment was ongoing. Prior OTX-CSI Phase 2 results did not meet the primary endpoint and showed shorter-than-expected insert durability; formulation work continues. OTX-DED Phase 2 met its prespecified primary endpoint, but the company plans additional placebo-comparator work.
- AffaMed paid a $2.0 million OTX-TIC clinical-support amount during the first quarter; $0.8 million of collaboration revenue was recognized in the first half. The company reported $14.2 million of deferred revenue at quarter-end, including $1.2 million expected to be recognized through June 2023 as trial obligations are performed.
- CMS proposed continuing separate DEXTENZA reimbursement under the non-opioid pain-management supply provision through 2023; a final rule was expected in November 2022. Physician insertion reimbursement under a Category 1 code was effective January 1, 2022.
- Four specialty distributors represented 94% of Q2 product revenue, indicating substantial customer concentration. COVID-related staffing constraints and elective-procedure disruptions, reimbursement, clinical and regulatory outcomes, manufacturing supply, and access to additional capital remain material risks.
- No material legal proceedings were reported. Management concluded disclosure controls were effective as of June 30, 2022. The company had not sold shares under its $100 million at-the-market sales agreement as of August 5, 2022.
Important facts for investors to verify
- Whether DEXTENZA demand, procedure volumes, and sales-force capacity improve, and whether distributor concentration changes.
- Whether cash burn and commercial and clinical spending remain consistent with management’s stated runway through 2023.
- Debt terms, accrued convertible-note interest, and the timing and amount of credit-facility principal repayments.
- Clinical-trial progress and results, especially OTX-TKI and OTX-TIC, plus the status of OTX-CSI formulation work and DEXTENZA pediatric enrollment.
- The final CMS reimbursement decision and whether commercial revenue and AffaMed milestones or royalties develop as anticipated.