Ocular Therapeutix, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; filed March 7, 2019. The filing also provides unaudited fourth-quarter results. Ocular Therapeutix is a biopharmaceutical company developing sustained-release ocular therapies using its bioresorbable hydrogel platform. DEXTENZA was FDA-approved in November 2018 for post-surgical ocular pain; ReSure Sealant was its only product generating sales during 2018.
Financial performance and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $1.990 million | $1.923 million |
| Operating expenses | $61.108 million | $63.846 million |
| Loss from operations | $(59.118) million | $(61.923) million |
| Net loss | $(59.978) million | $(63.386) million |
| Net loss per share, basic and diluted | $(1.57) | $(2.20) |
| Cash used in operating activities | $(49.227) million | $(50.473) million |
Revenue was almost entirely from ReSure Sealant product sales; no collaboration revenue was recorded in 2018. Product revenue less product cost was approximately $1.525 million. The filing does not report an overall operating margin as a key performance measure.
- Research and development expense rose to $36.915 million from $30.880 million, mainly from higher unallocated personnel, professional-services and facility costs.
- Selling and marketing expense fell to $4.942 million from $17.000 million as DEXTENZA’s expected launch was delayed and commercial spending was reduced. General and administrative expense increased to $18.786 million from $15.509 million, primarily due to legal fees.
- At year-end, cash and cash equivalents were $54.062 million, restricted cash was $6.614 million, working capital was $47.034 million, and debt was $25.0 million. The restricted cash includes $5.0 million subject to a minimum-cash covenant.
- Operating cash burn remained substantial. Financing activities provided $68.640 million in 2018, including equity proceeds and net borrowings.
Material changes and business developments
- DEXTENZA: FDA approval for post-surgical ocular pain followed earlier manufacturing-related complete response letters. The company planned a U.S. launch in 2019, subject to reimbursement arrangements, and filed a supplemental NDA for post-surgical inflammation in January 2019.
- OTX-TP: The first Phase 3 trial reached its 550-patient enrollment target. Topline results were expected in the first half of 2019; the company would decide on a second Phase 3 trial after reviewing results and consulting the FDA. Its earlier Phase 2b trial did not demonstrate non-inferiority to timolol.
- Other pipeline: OTX-TIC was in a U.S. Phase 1 study, with initial results anticipated in April 2019. OTX-TKI entered a Phase 1 study in Australia and two patients were dosed in the first quarter of 2019.
- ReSure Sealant: The FDA issued a warning letter in October 2018 over inadequate progress and reporting for a required post-approval registry study. The FDA rejected the company’s appeal in December. Failure to complete the study to FDA satisfaction could lead to withdrawal of approval or other regulatory action. The product remained available but had no sales support.
- Regeneron collaboration: Regeneron had not exercised its option for the aflibercept hydrogel program. Ocular Therapeutix said it was not actively pursuing further formulation development or preclinical testing pending that decision.
Outlook, financing, and key risks
- Management forecast 2019 R&D expense of approximately $58–$64 million, including $13–$17 million of external clinical and regulatory costs, and $5–$6 million of manufacturing and R&D capital equipment purchases. Selling and marketing expense was expected to increase to support DEXTENZA’s launch.
- The company applied for a temporary CMS C-code for DEXTENZA and expected a code around mid-2019, with pass-through pricing estimated at approximately $540 per surgery. It also applied for a permanent J-code. These were expectations, not confirmed reimbursement outcomes.
- Management estimated that cash available at year-end, subsequent financing proceeds and other specified proceeds would fund operations, debt service and capital spending into early 2020. The auditor and management nevertheless cited substantial doubt about the company’s ability to continue as a going concern, reflecting continuing losses, negative operating cash flows and the need for additional financing.
- After year-end, the company issued $37.5 million of senior subordinated convertible notes, with approximately $37.1 million in estimated net proceeds. The notes bear 6% annual interest, mature in 2026 and are convertible at an initial price of approximately $6.50 per share. They are subordinated to the secured credit facility.
- The $25 million secured credit facility carries a minimum-cash covenant and liens on substantially all assets, including intellectual property. Interest-only payments were scheduled through December 2020, with principal payments beginning in January 2021.
- Material risks include the going-concern funding need; uncertain DEXTENZA launch, adoption and reimbursement; clinical and regulatory failure or delay; manufacturing and supply risks; ReSure’s unresolved FDA post-approval study; competition and patent challenges; and pending securities and derivative litigation and SEC fact-finding subpoenas. The company denied wrongdoing in the litigation and stated it would cooperate with the SEC.
Most important facts for investors to verify
- Whether DEXTENZA launched as planned and obtained the anticipated reimbursement codes, coverage and commercial uptake.
- OTX-TP Phase 3 efficacy and safety results, and whether the FDA requires additional trials or data.
- Progress toward resolving the ReSure registry-study issue and any further FDA action.
- Actual cash burn, debt service and financing needs relative to the stated early-2020 runway; note that the going-concern warning remained despite post-year-end financing.
- Regeneron’s option decision, and developments or financial exposure from the pending lawsuits and SEC inquiry.