Ocular Therapeutix, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; unaudited. The company develops extended-delivery ophthalmic therapies using a bioresorbable hydrogel platform. ReSure Sealant, approved for sealing corneal incisions after cataract surgery, was its only marketed product and source of product revenue. DEXTENZA and OTX-TP were key clinical-stage candidates.
Financial results and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $0.648m | $0.438m | $0.988m | $0.913m |
| Operating expenses | $14.212m | $18.777m | $28.007m | $34.924m |
| Operating loss | $13.564m | $18.339m | $27.019m | $34.011m |
| Net loss | $13.804m | $18.694m | $27.569m | $34.717m |
| Basic and diluted loss per share | $0.37 | $0.64 | $0.76 | $1.22 |
| Operating cash used | Not separately reported | Not separately reported | $24.706m | $25.708m |
- Q2 product revenue increased 48% year over year; six-month revenue increased 8%. Revenue came from ReSure Sealant. Product gross margin was approximately 76% in both Q2 and the first half, based on product revenue less cost of product revenue.
- At June 30, cash and cash equivalents were $56.834m, plus $1.614m restricted cash; total assets were $70.459m, liabilities $24.730m, and stockholders’ equity $45.729m.
- Net debt carrying value was $15.630m. The credit facility bears interest at LIBOR (subject to a 1% floor) plus 7.25%; its effective annual rate was 10.5%. Principal and interest payments run through December 2020; $3.087m of principal was scheduled for the remainder of 2018.
- Financing activities provided $40.939m in the first half, primarily from a January follow-on offering and at-the-market share sales, partly offset by $2.571m of debt repayments. Cash and cash equivalents rose from $41.538m at year-end 2017 to $56.834m.
Material changes versus comparable periods
- Q2 net loss narrowed by $4.890m; first-half net loss narrowed by $7.148m year over year.
- Lower selling and marketing costs were the main driver of reduced total operating expenses: first-half selling and marketing fell $11.275m, following the 2017 restructuring and reduction of DEXTENZA pre-commercialization spending.
- Research and development increased $2.126m in the first half, reflecting higher unallocated personnel, facility and other costs, partly offset by lower direct DEXTENZA trial costs. General and administrative expense rose $2.218m, mainly from legal fees associated with litigation.
- Common shares outstanding increased from 29.658m at December 31, 2017 to 38.477m at June 30, 2018, primarily reflecting equity offerings and at-the-market sales.
Outlook, risks and unusual items
- Management estimated that June 30 cash and cash equivalents would fund planned operating costs, debt service and capital expenditures into Q2 2019. The estimate excludes the full cost of building a DEXTENZA sales force and depends on assumptions that may prove wrong. Management stated that substantial doubt about the company’s ability to continue as a going concern exists within one year of issuance of the financial statements; additional financing is needed and is not assured.
- DEXTENZA’s post-surgical ocular pain NDA was resubmitted in June 2018. The FDA assigned a December 28, 2018 target action date for its major (Class 2) review. Approval remains dependent on FDA acceptance of manufacturing remediation and resolution of prior Form 483 observations. If approved for pain, the company planned to pursue an inflammation supplement.
- OTX-TP Phase 3 enrollment was slower than projected; the company added sites and expected first-trial topline data in the first half of 2019. A one-year safety extension began enrolling in July 2018. The second Phase 3 trial was not planned to begin until results from the first were available.
- The company dosed the first U.S. OTX-TIC Phase 1 patient in May 2018 and expected data from two dose groups in the first half of 2019. An earlier non-U.S. Phase 1 trial was closed after enrolling no patients. The company expected to dose the first OTX-TKI Phase 1 patient outside the U.S. in Q3 2018.
- Regeneron had not exercised its option under the aflibercept collaboration as of June 30, and no payments had been made. Exercise would trigger a $10m payment, with further potential milestones and royalties; Ocular Therapeutix could owe up to $25m in development-cost reimbursements, potentially increased by $5m under specified circumstances.
- Material contingencies include securities class actions and shareholder derivative litigation related to disclosures about DEXTENZA manufacturing, plus a non-public SEC fact-finding inquiry. The company denied wrongdoing, intends to defend the suits and cooperate with the SEC; outcomes and potential costs were not estimable.
- After quarter-end, the company sold 115,245 shares under its at-the-market agreement for approximately $0.724m net proceeds through August 3, 2018. The company reported no material change in contractual obligations and no off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether FDA review resolves the outstanding DEXTENZA manufacturing observations and meets the December 28, 2018 target date.
- Cash burn, the Q2 2019 stated runway, and the timing and terms of additional financing, including potential dilution.
- OTX-TP Phase 3 enrollment, efficacy and retention results, and the stated 2019 data timing.
- Debt service requirements and any developments affecting the secured credit facility or its covenants.
- Progress and potential financial exposure from the securities and derivative cases and SEC inquiry.