Ocular Therapeutix, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2014. Unaudited financial statements; dollar figures below are in millions unless noted. The company completed its IPO after quarter-end, on July 30, 2014.
Business context and reporting period
Ocular Therapeutix develops ophthalmic products using a bioresorbable hydrogel platform. ReSure Sealant, approved by the FDA in January 2014 to close corneal incisions after cataract surgery, was its only product generating sales. Its principal drug-delivery candidates were OTX-DP, in Phase 3 for post-surgical ocular inflammation and pain and in Phase 2 for allergic conjunctivitis, and OTX-TP, in Phase 2 for glaucoma and ocular hypertension.
Key financial metrics
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $0.097 | — | $0.124 | — |
| Research and development | $4.292 | $2.404 | $9.250 | $4.891 |
| Selling and marketing | $0.535 | $0.143 | $0.845 | $0.280 |
| General and administrative | $1.196 | $0.442 | $2.771 | $0.878 |
| Operating loss | $(5.946) | $(2.989) | $(12.771) | $(6.049) |
| Net loss | $(6.392) | $(3.090) | $(13.400) | $(6.290) |
| Basic and diluted loss per share | $(2.10) | $(1.19) | $(4.54) | $(2.45) |
Revenue was minimal and came from initial ReSure Sealant sales. Gross margin, as a reported financial-statement metric, is not separately presented. The company reported an accumulated deficit of $74.180 million at June 30, 2014.
Cash and cash equivalents were $19.944 million at June 30, 2014, versus $17.505 million at December 31, 2013. Six-month operating cash use was $8.537 million; investing cash use was $0.545 million; financing provided $11.521 million. Cash increased $2.439 million. The company reported total assets of $23.974 million and current liabilities of $4.489 million.
The April 2014 credit facility provided $15.0 million of initial borrowing; the company reported $15.0 million principal outstanding before discounts and up to $5.0 million of additional borrowing subject to conditions. The facility bears 8.25% annual interest, is secured by substantially all personal property except intellectual property (which is subject to a negative pledge), and matures in 2018. Following the IPO, the company elected to extend interest-only payments through October 1, 2015.
Material changes versus the prior comparable period
- Q2 revenue began with ReSure Sealant sales; there was no revenue in Q2 2013. Six-month revenue was $0.124 million.
- Q2 operating expenses rose $3.054 million year over year, primarily reflecting higher clinical and R&D activity, commercial-launch costs, and general and administrative expenses. Six-month operating expenses increased $6.846 million.
- Six-month net loss more than doubled to $13.400 million from $6.290 million. Interest expense and noncash preferred-warrant remeasurement also contributed to higher expense.
- Six-month operating cash use rose to $8.537 million from $6.338 million. Financing included the new credit facility; the prior credit facility was repaid.
- On July 30, the company raised approximately $57.604 million net from its IPO. In August, the underwriters exercised the full over-allotment option, adding approximately $9.068 million net. Total net proceeds were approximately $66.7 million; these proceeds were not included in June 30 cash.
Outlook, commentary, risks and unusual items
- Management expected operating costs to increase as clinical programs, ReSure commercialization, manufacturing capacity and public-company costs expanded. It projected that June-end cash, IPO proceeds, ReSure revenue and the conditional $5.0 million borrowing capacity would fund operations, debt service and capital spending at least through the first half of 2016; this estimate depends on assumptions and could prove inaccurate.
- Management expected Phase 3 results for OTX-DP’s post-surgical indication in Q1 2015 and, if favorable, an NDA submission in Q2 2015. It planned to initiate an OTX-TP Phase 2b trial in the second half of 2014. These are forward-looking plans, not assured outcomes.
- A prior OTX-DP Phase 2 trial did not meet its pre-specified day-8 inflammation endpoint with statistical significance, though the endpoint was significant at days 14 and 30. Management noted Phase 3 success requires favorable results on both inflammation and pain endpoints. Plug retention, trial execution, safety, regulatory review and market acceptance remain material risks.
- ReSure’s FDA approval carried two post-approval study requirements. Discussions with the FDA on study protocols were ongoing; the FDA indicated the studies could be marked “Protocol Overdue.” The Medicare-linked study also depended on obtaining a tracking code.
- Unusual related-party share-based payments included $1.665 million of R&D expense for shares issued to Incept to expand the license, and $0.699 million of G&A expense for shares issued to a former director and Incept stockholder for consulting. The CEO was a general partner of Incept.
- A feasibility agreement could provide up to $0.5 million upon milestones; none had been achieved by June 30, and $0.250 million remained deferred revenue. The filing reported no material legal proceedings and management concluded disclosure controls were effective at a reasonable-assurance level.
- Key risks include ongoing losses and potential need for further capital, substantial debt and restrictive covenants, clinical and regulatory uncertainty, dependence on suppliers including a sole-source PEG supplier, manufacturing scale-up, competition, reimbursement and intellectual-property challenges.
Important facts for investors to verify
- Progress and results of the OTX-DP Phase 3 program, including whether both required efficacy endpoints are met, and the timing of any NDA.
- Enrollment, design and results of the planned OTX-TP Phase 2b trial, including the impact of the modified plug design and retention rates.
- ReSure Sealant sales growth, distributor performance, reimbursement constraints and completion of the FDA-required post-approval studies.
- Actual cash burn and runway relative to management’s first-half-2016 estimate, including the use of IPO proceeds and availability of the remaining credit-facility borrowing.
- Debt repayment terms and covenants, manufacturing and supplier continuity, and the terms and governance implications of related-party arrangements.