Ocular Therapeutix, Inc. — Q1 2017 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2017, compared with Q1 2016; balance-sheet comparisons are with December 31, 2016. Ocular Therapeutix develops sustained-delivery eye therapies using its hydrogel platform. ReSure Sealant was its only marketed product; DEXTENZA and OTX-TP remained in development.
Key financial metrics
Amounts are in millions of dollars unless indicated otherwise.
| Metric | Q1 2017 | Q1 2016 / prior balance date |
|---|---|---|
| Revenue | $0.475 | $0.458 |
| Operating expenses | $16.147 | $10.967 |
| Operating loss | $(15.672) | $(10.509) |
| Net loss | $(16.023) | $(10.840) |
| Net loss per share, basic and diluted | $(0.58) | $(0.44) |
| Cash used in operations | $(14.577) | $(9.256) |
| Cash and cash equivalents | $54.682 | $32.936 at Dec. 31, 2016 |
| Marketable securities | $25.697 | $35.209 at Dec. 31, 2016 |
| Total assets | $90.697 | $74.939 at Dec. 31, 2016 |
| Notes payable, net of discount | $17.718 | $15.643 at Dec. 31, 2016 |
| Accumulated deficit | $(189.902) | $(173.879) at Dec. 31, 2016 |
- Product revenue was $0.475 million; cost of product revenue was $0.115 million, implying product gross profit of approximately $0.360 million, or 76% of product revenue. This does not reflect the company’s substantial operating costs.
- Cash, cash equivalents and marketable securities totaled $80.379 million at quarter-end. Current assets were $83.276 million against current liabilities of $8.656 million.
- Investing activities provided $7.846 million, largely from investment maturities; financing activities provided $28.477 million, including $26.272 million net from stock issuance and $3.7 million net proceeds from the amended credit facility, partly offset by debt repayment.
Material changes versus Q1 2016
- Revenue increased $0.017 million: ReSure sales rose to $0.475 million from $0.416 million, while collaboration revenue fell to zero from $0.042 million.
- Net loss widened by $5.183 million. Selling and marketing expense increased $4.638 million to $6.027 million, primarily from pre-commercialization spending for a potential DEXTENZA launch. General and administrative expense rose $0.870 million to $3.276 million.
- Research and development expense declined $0.344 million to $6.729 million. Lower direct DEXTENZA trial spending was partly offset by higher OTX-TP and unallocated personnel costs.
- Operating cash use increased $5.321 million. The January follow-on offering and ATM sales materially increased cash and equity; shares issued and outstanding rose to 28.934 million from 25.024 million at year-end.
Outlook, risks and unusual items
- Liquidity outlook: Management said existing cash and marketable securities were expected to fund operating expenses, debt service and capital spending through Q2 2018, while the financial-statement note separately states at least 12 months from issuance. The filing cautions that estimates depend on assumptions and capital may be needed sooner. Management expects expenses to increase and says additional capital will be needed to support a DEXTENZA launch if approved.
- DEXTENZA: FDA review had a July 19, 2017 target action date for the resubmitted NDA for post-surgical ocular pain. A manufacturing re-inspection completed in early May 2017 produced a new Form 483 with observations on manufacturing procedures and analytical testing. The company planned to respond with corrective action plans; resolving the observations was a prerequisite to approval. The filing also discusses prior clinical-trial temperature excursions that the FDA could determine affected trial data.
- Pipeline: One Phase 3 OTX-TP trial was underway, with a second planned for the second half of 2017. DEXTENZA had completed trials for post-surgical inflammation/pain and allergic conjunctivitis; prior allergic-conjunctivitis Phase 3 results were mixed. Dry-eye development plans were under assessment. Back-of-eye programs remained preclinical.
- Debt and commitments: The amended facility provided $18 million drawn and two additional $10 million tranches contingent on DEXTENZA regulatory and commercial milestones. Interest was LIBOR (subject to a 1% floor) plus 7.25%; effective annual interest was 10.5%. Interest-only payments ran through February 1, 2018, followed by principal and interest through December 2020. The facility is secured by substantially all assets other than intellectual property and includes restrictive covenants and default provisions. Contractual obligations totaled $44.247 million, including leases, purchase and manufacturing commitments, and debt obligations with interest.
- Regeneron collaboration: The option had not been exercised and no payments had been made through March 31. Exercise would trigger a $10 million payment; potential milestones and royalties are contingent. If exercised, Ocular Therapeutix could owe up to $25 million in development-cost reimbursements, potentially increased by $5 million.
- Other risks and items: The company had sustained losses since inception and may require further financing, with potential dilution or restrictions. Commercial success depends on regulatory approval, manufacturing readiness, reimbursement and market acceptance. A new 70,712-square-foot facility lease began in February 2017, with a 2027 expiry and significant build-out commitments. No material legal proceedings were reported. Management concluded disclosure controls were effective; no material internal-control changes were reported.
Most important facts for investors to verify
- Whether the FDA’s May 2017 Form 483 observations were resolved and whether DEXTENZA received approval by its July 19, 2017 target date.
- Actual cash burn, financing needs and runway relative to management’s Q2 2018 estimate, including the planned launch costs and facility spending.
- Progress, enrollment and efficacy results for both OTX-TP Phase 3 trials, and the regulatory path for DEXTENZA’s additional indications.
- Whether ReSure sales and commercial execution improve, and whether reimbursement and adoption support meaningful growth.
- Debt service capacity, milestone-based availability of the additional credit tranches, and any dilution from further equity financing.
- Whether Regeneron exercises its option and the resulting development-cost obligations, milestones and royalty prospects.