Ocular Therapeutix, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial amounts below are in U.S. dollars; figures are rounded to millions unless stated otherwise. The company develops and commercializes ophthalmic therapies using its bioresorbable hydrogel platform. DEXTENZA was its principal commercial growth driver; its other programs remained in development.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $2.61 million | $0.49 million; up $2.12 million. Q1 2020 revenue included approximately $2.1 million from DEXTENZA and $0.5 million from ReSure Sealant. |
| Cost of product revenue / gross margin | $0.82 million / approximately 69% | Cost was $0.13 million; gross margin approximately 74%. |
| Research and development | $6.10 million | $11.32 million; decreased $5.22 million, mainly following the November 2019 restructuring and lower unallocated costs. |
| Selling and marketing | $7.13 million | $3.35 million; increased $3.78 million to support the DEXTENZA launch. |
| Operating loss | $16.61 million | $19.66 million; improved $3.04 million. |
| Net loss | $21.51 million; $0.41 per basic and diluted share | $17.12 million; $0.41 per basic share. The larger 2020 loss reflected a $3.40 million derivative fair-value loss versus a $3.22 million gain in 2019, as well as higher interest expense. |
| Operating cash flow | $(18.85) million | $(19.39) million. |
| Cash and liquidity | $48.15 million cash and equivalents; $55.15 million current assets and $11.11 million current liabilities at March 31, 2020 | Cash and equivalents were $54.44 million at December 31, 2019. Cash, equivalents and restricted cash totaled $49.92 million at quarter-end. |
| Debt | $25.0 million credit-facility principal and $37.5 million convertible-note principal, plus $2.48 million accrued note interest. Balance-sheet carrying values were $25.06 million and $25.30 million, respectively. | Credit-facility interest-only payments were scheduled through December 2020, with principal installments beginning January 2021. Convertible notes mature in March 2026 and bear 6% stated interest. |
Q1 financing provided $12.82 million, principally from at-the-market common-stock sales; the company issued 2.66 million shares for net proceeds of $12.69 million. Total assets were $72.86 million and total liabilities $83.52 million, leaving a stockholders’ deficit of $10.66 million.
Material developments and outlook
- DEXTENZA: Commercially launched in July 2019 for post-surgical ocular pain and inflammation. In April 2020, the company reported positive topline results in a Phase 3 allergic-conjunctivitis itching trial, with statistically significant results at all three primary time points (p<0.0001). It planned to review secondary endpoints and discuss a possible supplemental application with the FDA; approval was not assured.
- Other programs: OTX-TIC Phase 1 enrollment slowed in the fourth cohort amid COVID-19; topline data for the third and fourth cohorts was expected in the second half of 2020. OTX-TKI Phase 1 interim observations included tolerability and signs of activity, but were preliminary. OTX-CSI Phase 1 had recently begun. OTX-TP was not to advance to another Phase 3 trial without a partner after FDA feedback that prior results did not meet clinical meaningfulness.
- Management outlook: The company expected operating expenses to decrease in 2020 following restructuring, while selling and marketing costs were expected to continue rising to support DEXTENZA. The November 2019 restructuring reduced the workforce by 55 employees (about 22%) and eliminated 31 vacant positions; management estimated approximately $11 million in future annualized savings and $14 million in one-time program deferrals.
- Liquidity and going concern: Management estimated existing cash plus second-quarter proceeds under its equity sales agreement would fund planned operations, debt service and capital expenditures into the first quarter of 2021. This estimate depended on assumptions including COVID-19 duration, a rebound in cataract surgeries beginning in Q3, product revenue and spending reductions. Despite that estimate, accumulated losses, operating cash outflows and expected future losses raised substantial doubt about the company’s ability to continue as a going concern within one year of issuance. Additional capital would be needed; no committed external funding source was identified.
- COVID-19: The filing said the pandemic had significantly and adversely affected Q2 revenue, principally as elective cataract surgeries declined. Further effects on sales, clinical trials, supply chains and financing were uncertain. The company had not reported material business disruption or asset impairment through Q1.
- ReSure and legal matters: The FDA approved a revised protocol in May 2020 for a retrospective registry study addressing the ReSure post-approval study requirement; failure to satisfy the FDA could still lead to regulatory action, including withdrawal of approval. The First Circuit affirmed dismissal of the securities class action on April 9, 2020; shareholder derivative cases remained pending or stayed.
- Regeneron collaboration: The initial aflibercept formulation was discontinued after it did not meet program goals; the parties were discussing an alternative. Regeneron had not exercised its option, and no payments had been made through March 31, 2020.
Key investor verification points
- Track DEXTENZA sales, reimbursement and commercial uptake, including the reported Q2 impact of reduced cataract procedures.
- Confirm the timing and terms of additional financing, remaining at-the-market capacity, share dilution and the assumptions supporting the stated runway.
- Monitor cash burn, debt-service requirements and any change in the going-concern assessment.
- Review FDA feedback and any application for DEXTENZA’s allergic-conjunctivitis indication; distinguish topline trial results from regulatory approval.
- Check OTX-TIC and OTX-TKI clinical progress, COVID-related enrollment effects, and the status of the Regeneron formulation and option.
- Follow FDA acceptance and execution of the ReSure registry study, and the status and potential cost of derivative litigation.