Ocular Therapeutix, Inc. — 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015. This is an annual report; the filing also provides unaudited fourth-quarter results. Amounts below are in U.S. dollars.
Business context
Ocular Therapeutix develops eye therapies using a bioresorbable hydrogel platform intended to provide sustained drug delivery. Its only marketed product was ReSure Sealant, approved to seal corneal incisions following cataract surgery. Its principal drug candidates were DEXTENZA (dexamethasone) and OTX-TP (travoprost); both remained in clinical development. An intravitreal depot for back-of-the-eye diseases remained preclinical.
Financial results and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $1.75 million | $0.77 million |
| Product revenue, primarily ReSure | $1.35 million | $0.46 million |
| Operating expenses | $39.95 million | $27.87 million |
| Operating loss | $38.20 million | $27.09 million |
| Net loss | $39.75 million | $28.65 million |
| Net loss per share | $1.71 | $2.69 |
| Cash, cash equivalents and marketable securities at year-end | $105.06 million | $74.83 million |
| Working capital at year-end | $101.61 million | $70.31 million |
| Debt, net of discount, including current portion | $15.27 million | $14.87 million |
- Revenue rose about 127%, but remained small relative to research and operating costs. Product revenue less product cost was approximately $1.04 million, or about 76% of product revenue; this is not the company’s overall operating margin.
- Research and development expense increased 41% to $26.61 million; selling and marketing increased to $3.85 million; general and administrative expense increased to $9.17 million.
- Net cash used in operating activities was $33.74 million, versus $20.50 million in 2014. Investing activities used $38.57 million, principally reflecting purchases of marketable securities and property and equipment. Financing provided $65.70 million, primarily from the follow-on offering.
- The company raised approximately $65.6 million net in a June 2015 follow-on offering; 3.2 million of the 4.6 million shares sold were issued by the company and 1.4 million by existing holders. Shares outstanding increased to 24.75 million at year-end from 21.33 million.
- The amended credit facility had $15.6 million principal, bears interest at 8.25%, and matures December 1, 2019. Interest-only payments run through December 2016, followed by monthly principal and interest payments. Debt is secured by substantially all assets other than intellectual property, which is subject to a negative pledge.
Material developments and outlook
- DEXTENZA, post-surgical pain: The FDA accepted the NDA for filing and set a PDUFA action date of July 24, 2016. Two Phase 3 trials both met the pain endpoint; inflammation results were mixed, with one trial missing its primary inflammation endpoint. A third Phase 3 trial began in October 2015. Management expected topline results in the second half of 2016 and, if results and FDA approval allowed, planned an inflammation supplement and a potential U.S. launch in 2017.
- DEXTENZA, allergic conjunctivitis: In the first Phase 3 trial, the itching endpoint was met, but the conjunctival-redness endpoints were not. A second Phase 3 trial began in November 2015, with results expected in the third quarter of 2016.
- OTX-TP: Phase 2b results showed lower intraocular-pressure reductions than the timolol comparator on reported measures; the trial was not powered to establish statistical significance between groups. The company planned Phase 3 trials, subject to further FDA discussions, and expected to begin the first in the third quarter of 2016.
- 2016 expense outlook: Management estimated research and development expense of $35–$37 million, including approximately $13–$15 million of external clinical-trial and regulatory costs for DEXTENZA and OTX-TP. The filing states that existing cash and securities were expected to fund operations, debt service and capital spending through the third quarter of 2017; this estimate depends on assumptions, and the company had no committed external funding source.
- Management did not expect ReSure sales to be meaningful in 2016 or sufficient to achieve profitability. The company anticipated continued losses and substantial spending on development, manufacturing and potential commercialization.
Risks, contingencies and unusual items
- In February 2016, the FDA’s pre-NDA manufacturing inspection resulted in a Form 483 with observations concerning process controls, analytical testing and physical security procedures. The company submitted a corrective-action plan; unresolved observations could delay the DEXTENZA decision. This occurred after the 2015 year-end.
- FDA inspections of clinical-trial sites identified investigational-product temperature excursions and related reporting issues. The company believed performance was unlikely to have been significantly affected, but FDA could request further analyses or exclude subjects.
- CMS denied the company’s application for a ReSure Sealant tracking or research code in December 2015, complicating a required post-approval registry study concerning endophthalmitis. A separate required ReSure safety registry completed enrollment in December 2015; results were expected in the second half of 2016.
- The company reported an accumulated deficit of $129.2 million and continuing losses. It may need additional capital; financing could dilute shareholders or require restrictive terms or rights concessions.
- Ocular Therapeutix licenses core technology from Incept, in which CEO Amar Sawhney has an ownership interest and is a general partner. The license requires low-single-digit royalties on applicable net sales and reimbursement of certain patent costs.
- The company reported no material legal proceedings. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2015; the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- FDA action and labeling outcome for DEXTENZA, including the effect of manufacturing inspection observations and clinical-trial temperature excursions.
- Results of the third post-surgical DEXTENZA Phase 3 trial and the second allergic-conjunctivitis Phase 3 trial.
- OTX-TP Phase 3 design, initiation timing, depot retention and efficacy versus the required control.
- Cash burn, financing needs and whether the stated runway through Q3 2017 remains achievable as trial and commercialization spending rises.
- ReSure Sealant sales trajectory, reimbursement constraints, and completion and results of required post-approval studies.
- Debt repayment capacity and the consequences of the credit facility’s security, covenants and maturity schedule.