Ocular Therapeutix, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. The company develops and commercializes ophthalmic therapies using a bioresorbable hydrogel platform. Its marketed products are DEXTENZA, primarily for post-surgical ocular inflammation and pain, and ReSure Sealant, which generates limited revenue. Financial amounts below are in millions of dollars unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $11.7 | $1.6 | $19.1 | $4.2 |
| Operating loss | $(20.2) | $(17.9) | $(40.5) | $(34.5) |
| Net loss | $(8.5) | $(36.6) | $(5.4) | $(58.1) |
| Basic net loss per share | $(0.11) | $(0.64) | $(0.07) | $(1.06) |
- Q2 product revenue included $11.1 million from DEXTENZA and $0.6 million from ReSure Sealant. First-half revenue included $17.9 million and $1.2 million, respectively. Management attributed DEXTENZA growth mainly to market acceptance and commercialization efforts.
- Product gross margin was approximately 90.6% in Q2 and 89.6% for the first half, calculated from reported product revenue and product revenue costs.
- Operating expenses rose to $31.9 million in Q2 and $59.5 million for the first half, reflecting higher R&D, selling and marketing, and general and administrative spending. First-half R&D was $24.8 million, selling and marketing $16.5 million, and G&A $16.3 million.
- Net losses improved substantially year over year, largely because of a non-cash gain from the derivative liability: $38.4 million for the first half of 2021, versus a $20.4 million loss in 2020. Operating losses increased; the reported net-loss improvement should not be read as a comparable improvement in operating performance.
- Cash and cash equivalents were $191.9 million at June 30, down from $228.1 million at December 31, 2020. Operating cash use was $37.4 million for the first half; investing cash use was $0.3 million and financing provided $1.5 million.
- Debt included $25.0 million principal under the secured credit facility and $37.5 million principal of 2026 convertible notes, plus $5.3 million accrued note interest. The credit facility was amended in June: interest-only payments extend through April 2024, with principal amortization beginning in May 2024; maturity is November 2025, with a potential extension subject to milestones and conditions. The notes carry 6% stated interest and mature in March 2026.
- The company reported a $59.9 million Level 3 derivative liability at June 30. Accumulated deficit was $544.6 million.
Changes, outlook, and material developments
- Management said cash resources, under its current operating plan and including expected product sales, were expected to fund planned expenses, debt service, and capital expenditures through 2023. The financial-statement notes separately state that cash is expected to fund the plan for at least the next 12 months; investors should reconcile these runway statements and their assumptions.
- Management expected operating losses and negative operating cash flows to continue, with substantial spending on commercialization and clinical development. No revenue or earnings guidance was provided.
- DEXTENZA’s supplemental application for ocular itching associated with allergic conjunctivitis had an FDA target action date of October 18, 2021. If approved, the company expected a launch in the first half of 2022.
- Pipeline milestones included anticipated OTX-CSI Phase 2 topline data in Q4 2021; OTX-DED Phase 2 topline data in Q1 2022; and a planned OTX-TIC Phase 2 trial in Q4 2021, delayed from the prior mid-year plan because of injector-related issues. The company planned to determine an OTX-TKI Phase 2 trial after reviewing topline data from its Phase 1 trials.
- On August 5, 2021, after the quarter, Regeneron terminated its collaboration, effective immediately. Ocular Therapeutix lost eligibility for future research reimbursements, option fees, milestones, and royalties under that agreement, but was also relieved of potential development-cost reimbursement obligations of up to $30 million in specified circumstances. Certain jointly developed intellectual property rights survive.
- DEXTENZA revenue depends on reimbursement, including transitional pass-through status. The filing said status was scheduled to end in July 2022; CMS had proposed extending it through December 2022, subject to final rulemaking. CMS also proposed lower physician insertion fees for 2022, which could affect use if finalized.
- COVID-19 remained a risk to elective ophthalmic procedures, product demand, clinical-trial enrollment, and operations. Three specialty distributors represented 88% of Q2 revenue, and three represented 92% of period-end accounts receivable.
- Other significant risks include continued funding needs, clinical and regulatory uncertainty, manufacturing and supplier dependence, competition, and the secured lender’s collateral interest in substantially all company assets, including intellectual property. Management reported disclosure controls were effective and no material change in internal control during the quarter; no material legal proceedings were reported.
Most important facts for investors to verify
- Whether DEXTENZA’s revenue growth can persist and how much it depends on pass-through reimbursement, final CMS payment rules, and elective surgery volumes.
- Cash runway assumptions and the difference between the filing’s “through 2023” outlook and its separate “at least the next 12 months” statement.
- Upcoming FDA action on the allergic-conjunctivitis application and clinical-trial timing and results for OTX-TKI, OTX-TIC, OTX-CSI, and OTX-DED.
- The operating cash burn and the effect of rising R&D and commercialization expenses, debt service, and potential future financing or dilution.
- Consequences of Regeneron’s termination for the OTX-AFS program, related intellectual property, and future development funding.
- Customer and supplier concentration, manufacturing capacity and compliance, and the valuation sensitivity of the Level 3 convertible-note derivative liability.