Ocular Therapeutix, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The company develops ophthalmic therapies using a bioresorbable hydrogel platform. ReSure Sealant was its only marketed product; its drug-delivery candidates remained in development. Unless stated otherwise, amounts below are in millions of dollars.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $0.340 | $0.475 |
| Cost of product revenue | $0.080 | $0.115 |
| Research and development | $8.227 | $6.729 |
| Selling and marketing | $0.717 | $6.027 |
| General and administrative | $4.771 | $3.276 |
| Operating loss | $(13.455) | $(15.672) |
| Net loss | $(13.765) | $(16.023) |
| Net loss per share, basic and diluted | $(0.40) | $(0.58) |
| Cash used in operating activities | $(12.473) | $(14.577) |
- Revenue was from ReSure Sealant; management attributed the year-over-year decline to fewer units shipped. The company said it expected only limited ReSure sales in 2018.
- At March 31, cash and cash equivalents were $62.911; restricted cash was $1.614. Total assets were $76.685, current liabilities $13.151, total liabilities $27.501, and stockholders’ equity $49.184. Accumulated deficit was $251.030.
- Debt was approximately $17.0 million, with monthly principal and interest payments due through December 2020. The facility is secured by substantially all personal property other than intellectual property; it carries restrictive covenants and an effective annual interest rate of 10.5%.
- Cash, cash equivalents and restricted cash increased $21.373 during the quarter. Financing provided $34.227, primarily from the January stock offering; investing used $0.381, primarily for equipment.
- The January 2018 offering of 7.475 million shares generated approximately $34.7 million net. Shares outstanding increased from 29.658 million at December 31, 2017 to 37.280 million at March 31, 2018.
Material changes versus Q1 2017
- Net loss narrowed by $2.258 million, while operating loss narrowed by $2.217 million.
- Operating expenses fell by $2.352 million overall. Selling and marketing declined by $5.310 million following the 2017 reduction and reorganization of pre-commercialization activities. R&D rose by $1.498 million and G&A by $1.495 million; the latter increase was primarily associated with professional and legal fees, including litigation defense.
- Operating cash use improved by $2.104 million. The increase in ending cash was principally supported by equity financing, not operating cash generation.
Outlook, risks and contingencies
- Liquidity and going concern: Management expected March 31 cash and cash equivalents to fund planned operating expenses, debt service and capital expenditures through Q1 2019, excluding potential Regeneron payments. The filing nevertheless states that accumulated losses, negative operating cash flows and expected future losses raise substantial doubt about the company’s ability to continue as a going concern within one year of issuance. The estimate depends on assumptions, and the current plan excludes the full cost of a sales force if DEXTENZA is approved; additional capital may be needed.
- DEXTENZA: The FDA’s July 2017 Complete Response Letter cited manufacturing-process and analytical-testing deficiencies. The company described remediation efforts and planned to resubmit the NDA for post-surgical ocular pain in Q2 2018, subject to resolving FDA observations and demonstrating consistent commercial-scale manufacturing. Approval and timing remained uncertain.
- Pipeline: OTX-TP’s first Phase 3 trial was enrolling more slowly than projected; topline data were expected in the first half of 2019. The company planned to begin a one-year safety extension in Q2 2018. OTX-TIC had not enrolled patients in its non-U.S. Phase 1 trial as of April 30; the first patient in a U.S. Phase 1 trial was dosed in May 2018, with a full data set expected in the first half of 2019. A Phase 1 trial of OTX-TKI outside the U.S. was planned for Q2 2018.
- Regeneron collaboration: Regeneron began an initial preclinical tolerability study of an extended-delivery aflibercept formulation in early 2018. Its option had not been exercised by March 31, and no payments had been made. Potential payments include $10 million upon option exercise, milestones and royalties; these are contingent, not committed funding.
- Legal matters: Securities class actions and shareholder derivative actions related to alleged statements concerning DEXTENZA and manufacturing were pending. The company denied wrongdoing and said it would defend the claims. The SEC had issued a non-public fact-finding subpoena seeking DEXTENZA-related records; the company said it would cooperate and noted the inquiry was not an indication that violations had occurred. Outcomes and potential costs were uncertain.
- Other significant risks include clinical-trial outcomes and enrollment, regulatory review, manufacturing compliance and capacity, reliance on a sole-source PEG supplier, need for additional financing, debt obligations, commercialization and reimbursement, and intellectual-property protection.
Important facts for investors to verify
- Whether DEXTENZA manufacturing deficiencies were resolved, whether the NDA was resubmitted as planned, and the FDA’s subsequent review outcome.
- Actual cash burn, financing needs and runway, including the cost of a potential DEXTENZA launch and scheduled debt service.
- OTX-TP Phase 3 enrollment and results, and progress and data from OTX-TIC and OTX-TKI trials.
- Whether Regeneron exercises its option and any resulting development obligations, payments or costs.
- Developments in the shareholder litigation and SEC inquiry, including any financial, operational or reputational effects.