Ocular Therapeutix, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; financial statements are unaudited. The company develops and commercializes ophthalmic therapies using its bioresorbable hydrogel platform. ReSure Sealant was its only marketed product; its principal drug-delivery candidates, DEXTENZA and OTX-TP, remained in clinical development.
Financial results and position
Amounts are in millions of dollars except per-share data.
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Total revenue | $0.458 | $0.426 |
| Product revenue | $0.416 | $0.238 |
| Collaboration revenue | $0.042 | $0.188 |
| Research and development | $7.073 | $4.719 |
| Selling and marketing | $1.389 | $0.870 |
| General and administrative | $2.406 | $1.894 |
| Operating loss | $(10.509) | $(7.113) |
| Net loss | $(10.840) | $(7.578) |
| Net loss per share | $(0.44) | $(0.35) |
| Operating cash used | $(9.256) | $(6.879) |
- ReSure product revenue increased $0.178 million, while collaboration revenue fell $0.146 million; total revenue rose only $0.032 million. Product revenue remained limited and did not cover operating costs.
- Product gross profit was $0.317 million, or approximately 76% of product revenue, based on reported product revenue and cost of product revenue. The company’s operating loss was approximately 23 times total revenue.
- Research and development expense increased $2.354 million, primarily reflecting clinical-trial spending, including a substantial increase for DEXTENZA in allergic conjunctivitis. Total operating expenses rose $3.428 million, and net loss widened $3.262 million.
- Cash and cash equivalents were $46.212 million and marketable securities $49.244 million at March 31, for combined liquidity of $95.456 million, compared with $105.064 million at year-end 2015. The quarter’s $15.428 million increase in cash included $25.0 million from investment maturities; operating activities consumed $9.256 million.
- Current assets were $97.097 million and current liabilities $6.003 million. Notes payable had $15.6 million principal outstanding; carrying value was $15.365 million, split between $1.161 million current and $14.204 million long-term. The facility bears 8.25% stated interest, with interest-only payments through December 2016 and principal payments scheduled from 2017 through 2019.
- Accumulated deficit was $140.016 million. Management estimated existing cash and marketable securities would fund operations, debt service and capital expenditures through the third quarter of 2017; the estimate depends on assumptions and no committed external funding was disclosed.
Business developments, outlook and material risks
- DEXTENZA: The FDA had accepted the NDA for post-surgical ocular pain, with a July 24, 2016 target action date. Management planned a U.S. launch in Q1 2017 if approved. As of May 3, 2016, the third Phase 3 post-surgical inflammation-and-pain trial had enrolled 395 of 436 expected patients; topline efficacy data were anticipated in Q4 2016. The second Phase 3 allergic-conjunctivitis trial was fully enrolled, with topline data expected by mid-2016.
- OTX-TP: After completing FDA End-of-Phase 2 discussions in April 2016, management planned to start its first of two Phase 3 glaucoma/ocular-hypertension trials in Q3 2016. The proposed primary endpoint was a statistically superior, clinically meaningful IOP reduction versus a placebo depot at specified visits.
- Management expected expenses to increase as it advanced clinical programs, prepared for potential commercialization and expanded manufacturing and sales capabilities. The company did not expect significant product revenue for several years, if ever, and warned it may need additional capital. Financing could dilute shareholders or require restrictive terms or relinquishment of rights.
- Regulatory and manufacturing: A February 2016 FDA pre-approval manufacturing inspection resulted in Form 483 observations concerning process controls, analytical testing and physical security. The company reported responding with a corrective action plan; unresolved observations could delay the NDA decision. FDA inspections of clinical-trial sites also identified investigational-product temperature excursions and related protocol deviations. The company believed performance was unlikely to have been significantly affected, but the FDA could require additional analyses or exclude data.
- Clinical risk: Earlier DEXTENZA trials had mixed primary-endpoint results: one of two post-surgical Phase 3 trials met only one of two primary endpoints, and the first allergic-conjunctivitis Phase 3 trial met one of two. OTX-TP Phase 2b depot visibility declined to approximately 42% of eyes by day 90, raising a retention and efficacy risk for later trials.
- Liquidity and obligations: The debt is secured by substantially all assets other than intellectual property, which is subject to a negative pledge; default provisions include acceleration. Contractual obligations totaled $25.858 million, including $3.445 million of clinical-trial purchase commitments, $1.680 million of manufacturing commitments and $19.178 million of debt obligations. The company disclosed no off-balance-sheet arrangements.
- Other risks include reliance on a sole-source PEG supplier, uncertain reimbursement and market acceptance, dependence on licensed intellectual property, and the possibility of additional clinical, regulatory or financing needs. No material legal proceedings were reported. Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- FDA review status and decision timing for the DEXTENZA NDA, including resolution of Form 483 observations and clinical-trial temperature-deviation issues.
- Actual enrollment, topline results and follow-on regulatory plans for the DEXTENZA trials; whether the planned OTX-TP Phase 3 program began on schedule and met its endpoints.
- Quarterly operating cash burn, cash and marketable-securities balance, and whether the stated runway through Q3 2017 remains achievable without new financing.
- ReSure Sealant sales growth, launch preparedness and reimbursement prospects for any approved DEXTENZA indication.
- Manufacturing capacity, depot retention performance, supply continuity and the company’s ability to meet debt and contractual commitments.