Ocular Therapeutix, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016; balance-sheet comparisons are to December 31, 2015. Amounts below are in USD millions unless stated otherwise. The company develops ophthalmic therapies using a bioresorbable hydrogel platform; ReSure Sealant was its only marketed product, while its drug-delivery candidates remained in development.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Total revenue | $0.441 | $0.459 | $0.899 | $0.885 |
| Product revenue | $0.441 | $0.334 | $0.857 | $0.572 |
| Operating expenses | $11.548 | $10.094 | $22.515 | $17.633 |
| Operating loss | $(11.107) | $(9.635) | $(21.616) | $(16.748) |
| Net loss | $(11.445) | $(10.009) | $(22.285) | $(17.587) |
| Basic and diluted loss per share | $(0.46) | $(0.45) | $(0.90) | $(0.81) |
- Product gross profit was approximately $0.336 million in Q2 and $0.653 million for the first half, or about 76% of product revenue in each period. The company remained substantially loss-making.
- Research and development expense was $6.978 million in Q2 and $14.051 million for the first half; selling and marketing was $1.492 million and $2.881 million, respectively; general and administrative was $2.973 million and $5.379 million.
- Six-month operating cash use was $19.058 million, versus $15.407 million in 2015. Investing activities provided $36.630 million, largely from investment maturities; financing used $0.186 million. Cash and cash equivalents rose to $48.170 million from $30.784 million.
- At June 30, cash, cash equivalents and marketable securities totaled approximately $83.9 million. Current assets were $84.974 million and current liabilities $6.419 million.
- Outstanding credit-facility principal was $15.6 million, at a stated 8.25% rate and 10.6% effective annual rate. Interest-only payments run through December 2016; principal and interest payments are scheduled from January 2017 through December 2019. Debt is secured by substantially all personal property, excluding intellectual property.
Changes versus prior comparable periods
- Q2 revenue fell $0.018 million: ReSure product sales rose $0.107 million, offset by the absence of $0.125 million in collaboration revenue. First-half revenue increased $0.014 million as product revenue grew $0.285 million while collaboration revenue fell $0.271 million.
- Q2 net loss widened by $1.436 million; first-half net loss widened by $4.698 million. First-half operating expenses rose $4.882 million, led by higher R&D ($2.589 million), general and administrative ($1.255 million), and selling and marketing ($0.970 million).
- Cash and marketable securities together declined from approximately $105.1 million at year-end 2015 to $83.9 million at June 30, 2016. Marketable securities fell from $74.280 million to $35.717 million, while cash increased.
Outlook, developments and risks
- Management estimated existing cash, cash equivalents and marketable securities would fund operating expenses, debt service and capital expenditures through Q3 2017. It cautioned that this estimate depends on assumptions and that additional capital may be needed; no external funding source was committed.
- After quarter-end, the FDA issued a Complete Response Letter for DEXTENZA’s NDA for post-surgical ocular pain, citing manufacturing process and control deficiencies. The FDA identified no clinical efficacy or safety concern and did not require additional trials in the CRL. An August 3 FDA District Office letter said corrective actions addressed the inspection observations except for the proposed identity-testing process for an incoming inert gas; it also requested a final report on planned automated analytical testing. Approval and launch timing are therefore uncertain.
- Before the CRL, the company expected a U.S. DEXTENZA launch in the first half of 2017 if the pain indication were approved by year-end 2016. It anticipated topline results in Q4 2016 from its third Phase 3 post-surgical inflammation-and-pain trial, which had enrolled 436 patients.
- DEXTENZA’s allergic-conjunctivitis trials had mixed results: the first Phase 3 trial met the itching endpoint but not the redness endpoint; the second did not meet its primary itching endpoint. OTX-TP had completed FDA End-of-Phase 2 review, with the first of two planned Phase 3 trials expected to start in Q3 2016.
- The company signed a lease for approximately 70,712 square feet of new Bedford, Massachusetts space, with the term starting February 2017 and ending July 2027. Initial annual base rent is approximately $1.2 million beginning August 2017. Management estimated $6.0–$7.5 million of improvements, including a landlord allowance of up to $2.8 million. Total disclosed contractual obligations were $40.015 million, including leases, purchase and manufacturing commitments, and debt obligations.
- Key risks include ongoing operating losses and financing needs; regulatory and manufacturing delays; clinical-trial uncertainty; manufacturing capacity and supplier dependence; reimbursement and commercial adoption; and competition. Management reported effective disclosure controls and no material legal proceedings.
Important facts for investors to verify
- Progress and FDA acceptance of corrective manufacturing actions required to resolve the DEXTENZA CRL, including the inert-gas identity test and automated-testing report.
- Whether DEXTENZA’s third Phase 3 trial delivers the expected Q4 2016 topline results and supports the planned inflammation indication.
- Cash consumption, debt-service demands and whether the stated runway through Q3 2017 remains achievable, particularly alongside the new facility costs.
- Execution and results of the planned OTX-TP Phase 3 program, and the company’s response to the failed primary endpoint in the second allergic-conjunctivitis Phase 3 trial.
- ReSure Sealant sales trajectory and the timing and adequacy of reimbursement for any future approved products.