Ocular Therapeutix, Inc. — Q3 2021 Form 10-Q
Business context and period: Biopharmaceutical company developing ocular therapies using a bioresorbable hydrogel platform. This unaudited filing covers the three and nine months ended September 30, 2021. DEXTENZA and ReSure Sealant were its U.S.-commercialized products; most other programs remained in clinical development. Unless stated otherwise, amounts below are in millions of dollars.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $12.2 | $5.9 | $31.2 | $10.1 |
| Cost of product revenue | $1.3 | $0.5 | $3.3 | $1.4 |
| Research and development | $12.7 | $7.0 | $37.5 | $21.1 |
| Selling and marketing | $9.6 | $6.5 | $26.1 | $19.8 |
| General and administrative | $8.1 | $6.0 | $24.3 | $16.3 |
| Operating loss | $(19.5) | $(14.0) | $(60.0) | $(48.5) |
| Net income (loss) | $2.7 | $(11.9) | $(2.7) | $(70.0) |
| Net cash used in operations | — | — | $(50.4) | $(47.3) |
- Revenue more than doubled year over year in Q3 and was about three times higher for the nine-month period. DEXTENZA generated $11.9 million of Q3 revenue and $29.7 million for 9M 2021; ReSure contributed $0.3 million and $1.5 million, respectively.
- Gross profit on product revenue was approximately $10.8 million in Q3 and $27.9 million for 9M 2021, equivalent to gross margins of about 89% in both periods. Operating losses widened as research, commercial, and administrative spending increased.
- Q3 net income was not operating profitability: a $23.8 million non-cash gain from remeasurement of the convertible-note derivative liability more than offset the operating loss. For 9M, the $62.2 million non-cash gain substantially reduced the reported net loss.
- At September 30, cash and cash equivalents were $179.3 million ($181.0 million including restricted cash); current assets were $203.9 million and current liabilities $25.2 million. Stockholders’ equity was $87.3 million, versus $76.1 million at year-end 2020.
- Debt included a $25.0 million credit facility, carried at $24.9 million net of discount, and $37.5 million principal of 2026 convertible notes, carried at $25.9 million net of discount. Accrued interest on the convertible notes was $5.9 million. The credit facility is secured by substantially all assets, including intellectual property.
Material changes and developments
- Q3 revenue increased $6.3 million year over year; management attributed DEXTENZA growth to market acceptance, commercialization efforts, and higher elective-surgery volumes. For 9M, management also cited recovery in elective procedures compared with the early pandemic period.
- Operating expenses rose $11.8 million in Q3 and $32.6 million for 9M year over year, reflecting higher R&D activity and expanded commercial and corporate staffing. Gross-to-net provisions on DEXTENZA sales increased to 22.2% in Q3 from 20.7%, and to 24.2% for 9M from 19.4%.
- In June 2021, the company amended its credit facility: the $25.0 million was fully drawn, interest-only payments were extended through April 2024, and maturity was extended to November 2025, subject to a potential further extension upon specified conditions. No financial covenants were reported; negative covenants apply.
- Regeneron terminated its collaboration effective August 5, 2021. Ocular Therapeutix lost eligibility for future research reimbursements, option fees, milestones, and royalties under that agreement, while also being relieved of certain potential cost-reimbursement obligations.
- In October 2021, FDA approved DEXTENZA for ocular itching associated with allergic conjunctivitis. The company planned launch in the first half of 2022.
- October 2021 topline Phase 2 results for OTX-CSI did not meet the primary endpoint of increased tear production versus vehicle. Signs and symptoms improved from baseline but not significantly versus vehicle at week 12; insert retention was lower than anticipated. Further development was under review.
Outlook, risks, and unusual items
- Management stated that September 30 cash was expected to fund planned operations, debt service, and capital expenditures through 2023, based on assumptions including DEXTENZA sales and operating costs. A note to the financial statements separately says cash and the operating plan would fund requirements through at least the next 12 months; investors should reconcile these statements.
- The company expected continued operating losses and negative operating cash flows, with increased clinical-trial and selling and marketing expenses. It anticipated OTX-TIC Phase 2 initiation in Q4 2021 and OTX-DED Phase 2 topline results in Q1 2022. OTX-TKI Phase 2 plans depended on review of topline data from ongoing Phase 1 trials. No numerical revenue or earnings guidance was provided.
- DEXTENZA reimbursement is a key commercial risk. CMS indicated separate payment in ASC and hospital outpatient settings through 2022 and ASC eligibility beyond 2022 under then-current criteria, but future policy could change. CMS also set lower insertion-procedure reimbursement effective January 2022: $31.58 in ASC/HOPD settings and $37.29 in physicians’ offices for unilateral insertion.
- COVID-19 continued to affect elective procedures and clinical-trial enrollment; the company cited slower-than-expected DEXTENZA in-market sales during parts of Q3 and enrollment delays, including in Australia. It also faces a single-site manufacturing concentration, third-party supply dependencies, and reimbursement and product-acceptance risks.
- Three specialty distributors represented 88% of Q3 revenue and 92% of accounts receivable at September 30, 2021, creating customer concentration risk. Management reported no material legal proceedings and effective disclosure controls.
- The company had a $100 million at-the-market equity sales agreement; it reported no shares sold under it as of November 7, 2021. Additional financing may dilute shareholders or require less favorable arrangements.
Important facts for investors to verify
- Whether DEXTENZA sales growth persists and whether the planned allergic-conjunctivitis launch in the first half of 2022 proceeds as expected.
- How CMS reimbursement and procedure-payment changes affect DEXTENZA utilization, net pricing, and revenue after 2022.
- The cash runway assumptions and the apparent difference between the filing’s “through 2023” estimate and its separate “at least the next 12 months” statement.
- Clinical and regulatory updates for OTX-TKI, OTX-TIC, and OTX-DED, and the company’s development decision for OTX-CSI after its missed Phase 2 primary endpoint and lower-than-expected retention.
- Cash burn, financing needs, credit-facility repayment terms, and potential dilution under the $100 million equity sales agreement.
- The magnitude and volatility of non-cash derivative-liability remeasurement, which materially affects reported net income or loss but not operating cash flow.