Ocular Therapeutix, Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015; financial statements are unaudited. Amounts below are in millions of dollars unless noted. The company develops ophthalmic therapies using a bioresorbable hydrogel platform and sells ReSure Sealant; its drug-delivery candidates remained in development.
Financial results and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $0.429 | $0.143 | $1.314 | $0.267 |
| Operating expenses | $11.603 | $6.919 | $29.236 | $19.814 |
| Operating loss | $(11.174) | $(6.776) | $(27.922) | $(19.547) |
| Net loss | $(11.524) | $(7.294) | $(29.111) | $(20.694) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(25.107) | $(14.870) |
- Q3 product revenue was $0.388 million and collaboration revenue was $0.041 million. Nine-month product revenue was $0.960 million, primarily from ReSure Sealant; collaboration revenue was $0.354 million.
- Product gross profit was $0.297 million in Q3 and $0.733 million for the nine months, based on reported product revenue less cost of product revenue. The filing does not provide an overall company gross margin; revenue remains small relative to operating costs.
- At September 30, cash and cash equivalents were $41.198 million and marketable securities were $72.445 million, totaling $113.643 million. Management expected these funds to cover operating expenses, debt service and capital expenditures through at least Q3 2017; this estimate depends on assumptions and could prove wrong.
- Total liabilities were $20.511 million. Notes payable, net of discount, totaled $15.132 million ($5.883 million current and $9.249 million long-term). The 2014 facility bears 8.25% interest, with principal installments beginning October 2015 and a final payment due at maturity in 2018.
- June 2015 follow-on offering generated $65.612 million net proceeds for the company. Shares outstanding were 24.730 million at September 30, versus 21.334 million at December 31, 2014.
Changes versus prior year
- Nine-month revenue increased by $1.047 million, but operating expenses rose by $9.422 million and net loss widened by $8.417 million.
- Research and development expense increased $5.993 million for the nine months, reflecting higher clinical-trial activity and personnel costs. Selling and marketing expense rose $1.385 million and general and administrative expense rose $1.878 million.
- Cash used in operations increased to $25.107 million from $14.870 million. Financing provided $65.395 million, chiefly from the follow-on offering; investing used $36.483 million, largely reflecting purchases of marketable securities.
- Cash and cash equivalents increased from $37.393 million at year-end 2014 to $41.198 million, while marketable securities rose from $37.435 million to $72.445 million.
Outlook, developments and risks
- Management expected expenses to increase substantially as it advanced DEXTENZA and OTX-TP trials, developed other candidates, and expanded manufacturing and commercialization capabilities. The company did not expect significant product revenue for several years, if ever, and had no committed external funding source.
- DEXTENZA: The second Phase 3 trial for post-surgical inflammation and pain missed the inflammation endpoint, though it met the pain endpoint. The company filed an NDA in September 2015 for ocular pain alone and initiated a third Phase 3 trial in October to support inflammation labeling. The filing cautions that FDA acceptance and approval are uncertain.
- Subsequent to quarter-end, the first Phase 3 allergic-conjunctivitis trial met its ocular-itching endpoint but missed its conjunctival-redness endpoint. Complete secondary endpoint and safety results were expected in Q1 2016; a second Phase 3 trial was planned.
- Subsequent to quarter-end, OTX-TP Phase 2b results showed IOP reduction, but the timolol comparator performed better; the study was not powered for statistical significance. Depot retention was 91% at day 60 and 48% at day 90. Management anticipated about a six-month delay in starting Phase 3, potentially longer depending on design work.
- ReSure Sealant was the company’s only source of product-sales revenue, and the company described sales as limited. FDA approval required two post-approval studies; CMS had preliminarily indicated it was unlikely to issue a tracking code needed for one registry study.
- Material risks include continued losses and possible need for additional capital; clinical, regulatory, manufacturing and commercialization uncertainty; debt service and restrictive covenants; dependence on a sole-source PEG supplier; patent and intellectual-property risks; and market acceptance, pricing and reimbursement. The company reported no material legal proceedings. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
- Contractual obligations totaled $25.628 million, including $17.184 million of debt obligations, $4.803 million of purchase commitments, $1.680 million of manufacturing commitments and $1.961 million of operating leases.
Investor verification points
- Check FDA status and timelines for the DEXTENZA pain NDA and third post-surgical Phase 3 trial, including how the missed inflammation endpoint affects approval prospects.
- Review complete allergic-conjunctivitis trial results and the design, enrollment and outcomes of the second Phase 3 trial.
- Assess OTX-TP retention, comparator effects, planned depot changes and the revised Phase 3 timeline.
- Track ReSure Sealant sales, reimbursement limitations and progress on required post-approval studies, particularly the registry issue.
- Reassess cash runway against operating burn, debt installments and commitments, and monitor whether additional financing may be needed.