Ocular Therapeutix, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. The company is a development-stage ophthalmology biopharmaceutical company, with FDA-approved ReSure Sealant as its only product generating sales. Its sustained-release drug candidates remain in clinical or preclinical development. Financial statement amounts below are in millions of dollars unless noted.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Product revenue | $0.238 | $0.027 |
| Collaboration revenue | $0.188 | — |
| Total revenue | $0.426 | $0.027 |
| Cost of product revenue | $0.056 | $0.009 |
| Research and development | $4.719 | $4.958 |
| Selling and marketing | $0.870 | $0.310 |
| General and administrative | $1.894 | $1.575 |
| Operating loss | $(7.113) | $(6.825) |
| Net loss | $(7.578) | $(7.008) |
| Net loss per share, basic and diluted | $(0.35) | $(2.45) |
| Net cash used in operating activities | $(6.879) | $(4.025) |
At March 31, cash and cash equivalents were $12.523 million and marketable securities were $54.900 million, totaling $67.423 million. Total assets were $71.497 million; total liabilities were $19.424 million; and accumulated deficit was $97.006 million. Notes payable, net of discount, totaled $14.954 million, split between $2.860 million current and $12.094 million long-term. The credit facility bears 8.25% interest and includes a 3.75% final payment; principal repayments were scheduled to begin in October 2015.
Product revenue less product cost implies an approximately 76% product gross margin, but on very low sales. The filing does not provide a company-wide operating or net margin measure. Stock-based compensation was $0.921 million. The company had no income tax provision.
Material changes versus the prior comparable period
- Total revenue rose by $0.399 million, primarily from higher ReSure Sealant sales and $0.188 million of collaboration revenue. Management characterized ReSure sales as limited and expected only limited sales for the remainder of 2015.
- Operating expenses increased $0.687 million. Selling and marketing rose $0.560 million and general and administrative expenses rose $0.319 million; R&D declined $0.239 million as the prior-year period included a one-time, non-cash $1.7 million stock-paid license fee. Excluding that fee, management said R&D increased, reflecting clinical development and personnel costs.
- Net loss increased $0.570 million. Interest expense rose to $0.505 million from $0.043 million, primarily reflecting the credit facility.
- Operating cash use increased to $6.879 million from $4.025 million. Cash and cash equivalents fell $24.870 million, including $17.500 million used to purchase marketable securities; therefore, cash alone does not reflect total liquid resources.
Outlook, development updates, and risks
- Management expected existing cash, cash equivalents, and marketable securities to fund operating expenses, debt service, and capital spending at least through the first half of 2016. This is an estimate based on assumptions; the company had no committed external funding source and warned it may need substantial additional capital.
- OTX-DP’s two Phase 3 trials for post-surgical ocular inflammation and pain produced mixed inflammation results: the first met both primary endpoints; the second met the pain endpoint but not the inflammation endpoint. After an April 2015 FDA meeting, the company planned a third Phase 3 trial of approximately 340 patients in the second half of 2015, and anticipated an NDA for pain in the second half of 2015, subject to FDA confirmation and other requirements. A later supplemental NDA for inflammation depended on favorable trial results and approval for pain.
- Management expected to begin two Phase 3 OTX-DP allergic conjunctivitis trials around mid-2015; complete the inflammatory dry-eye Phase 2 trial in Q4 2015; and complete OTX-TP Phase 2b enrollment in Q3 2015, with topline data expected in Q4 2015.
- ReSure Sealant remained the only commercial product. Required post-approval studies were ongoing or planned; CMS had preliminarily indicated it was unlikely to issue a tracking or research code needed for the Device Exposure Registry, potentially affecting completion of that study.
- Material risks include clinical failure or delay, regulatory uncertainty, limited product revenue, future financing needs, debt service and restrictive covenants, manufacturing scale-up and dependence on a sole-source PEG supplier, competition and reimbursement uncertainty, and intellectual-property challenges. The company disclosed a prior FDA Form 483 observation concerning complaint-investigation documentation; it said its response was accepted and procedures updated.
- Management reported disclosure controls were effective as of March 31, 2015, with no material change in internal control over financial reporting during the quarter. The company reported no material legal proceedings.
Important facts for investors to verify
- Whether the FDA confirms the proposed OTX-DP pain NDA path and whether the planned third Phase 3 trial starts on schedule and meets its inflammation endpoint.
- Whether OTX-DP’s anticipated NDA timing and OTX-TP and allergic-conjunctivitis trial timelines remain achievable.
- ReSure Sealant sales, gross economics, and completion and outcomes of required post-approval studies, including the CMS tracking-code issue.
- Cash burn, marketable-security balances, debt repayment requirements, and whether the stated first-half 2016 runway remains supportable as spending and clinical commitments evolve.
- Progress on manufacturing capacity and supply continuity, particularly the sole-source PEG supply, and any further FDA compliance observations.