OCULAR THERAPEUTIX, INC quarterly report, Q1 FY2021

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Ocular Therapeutix, Inc. — Q1 2021 Form 10-Q

Reporting period: Three months ended March 31, 2021. The company develops and commercializes ophthalmic therapies using a bioresorbable hydrogel platform. Its marketed products are DEXTENZA, for post-surgical ocular inflammation and pain, and ReSure Sealant, which management says generates limited revenue.

Financial results and liquidity

MetricQ1 2021Q1 2020
Revenue$7.342 million$2.609 million
Operating expenses$27.570 million$19.223 million
Loss from operations$(20.228) million$(16.614) million
Net income (loss)$3.121 million$(21.512) million
Net cash used in operating activities$(17.359) million$(18.854) million
  • Q1 2021 revenue comprised $6.7 million from DEXTENZA and $0.6 million from ReSure Sealant. Management attributed DEXTENZA growth primarily to increased market acceptance and commercialization efforts.
  • Net income was driven principally by a $25.016 million noncash gain from remeasuring the derivative liability on the 2026 Convertible Notes, rather than operating profitability. Basic earnings per share were $0.04; diluted loss per share was $(0.24), reflecting the if-converted calculation.
  • Research and development expense increased to $10.927 million from $6.098 million; selling and marketing rose to $8.086 million from $7.130 million; general and administrative expense rose to $7.665 million from $5.176 million.
  • Cash and cash equivalents were $209.378 million at March 31, 2021, down from $228.057 million at year-end 2020. Total current assets were $228.132 million and current liabilities were $27.437 million. Cash, cash equivalents and restricted cash totaled $211.142 million.
  • Debt included approximately $22.8 million of credit-facility borrowings, net of unamortized discount, and $37.5 million principal on the 2026 Convertible Notes, plus $4.8 million accrued interest. The credit facility carries a 9.25% rate at quarter-end and scheduled principal payments through December 2023; the convertible notes mature in March 2026 and carry 6% stated interest.
  • Accumulated deficit was $536.130 million. The company recorded no income tax provision and maintained a full valuation allowance on deferred tax assets.

Material changes versus the prior-year quarter

  • Revenue increased $4.733 million, while operating expenses rose $8.347 million and operating loss widened $3.614 million.
  • Net results improved by $24.633 million, largely because the derivative remeasurement changed from a $3.404 million expense in Q1 2020 to a $25.016 million gain in Q1 2021.
  • Operating cash use improved by $1.495 million. Financing cash flow was a $1.162 million use in Q1 2021, compared with $12.818 million provided in Q1 2020, which included public-offering proceeds.
  • At quarter-end, the derivative liability declined to $73.297 million from $98.313 million at December 31, 2020. The decline was recorded as a gain and was attributed primarily to a lower share price.

Outlook, management commentary and key risks

  • Management estimated that March 31 cash and cash equivalents, together with its current operating plan and anticipated product sales, would fund planned operations, debt service and capital expenditures through 2023. This estimate is assumption-dependent; the company also states it expects operating losses and negative operating cash flows for the foreseeable future and may need additional financing.
  • Management expected commercialization and clinical-development spending to increase. DEXTENZA sales depend on ophthalmic procedures and reimbursement; the product’s transitional pass-through status was scheduled to end in July 2022. Loss of separate reimbursement could materially reduce net revenue.
  • DEXTENZA’s sNDA for ocular itching associated with allergic conjunctivitis had an FDA target action date of October 18, 2021. If approved, management expected a launch in the first half of 2022.
  • Clinical milestones described included anticipated OTX-CSI Phase 2 topline data in Q4 2021; OTX-DED Phase 2 topline data in the first half of 2022; and planned OTX-TKI and OTX-TIC trials. OTX-TIC Phase 2 initiation had been delayed by injector-related issues and was then expected in Q4 2021. These are forward-looking plans, not reported outcomes.
  • COVID-19 had affected elective procedures, DEXTENZA commercialization and some trial enrollment; management said further effects were uncertain. The filing cites potential impacts on revenue, trial timing, supply chains and access to capital.
  • The FDA’s review of company records and information concerning DEXTENZA manufacturing operations and quality systems was ongoing following a Form 4003 request; an onsite inspection could still occur. The company also identifies manufacturing scale-up, cGMP compliance and dependence on third-party suppliers, including a sole-source PEG supplier, as risks.
  • Three specialty distributors accounted for 78% of Q1 2021 revenue, and three accounted for 88% of quarter-end accounts receivable, creating customer concentration exposure.
  • AffaMed’s $12 million upfront payment remained deferred revenue; no product had yet been delivered under the agreement, and the company did not expect material AffaMed revenue in 2021. Regeneron had not exercised its option as of March 31, 2021.
  • The filing reports no material legal proceedings. The FDA confirmed in April 2021 that ReSure Sealant’s remaining post-approval study requirements had been satisfied.

Most important facts for investors to verify

  • Whether DEXTENZA sales growth continues and whether elective surgery volumes and COVID-19 conditions support management’s cash-runway assumptions.
  • The FDA’s decision on the allergic-conjunctivitis sNDA and the product’s reimbursement outlook, especially the scheduled July 2022 end of pass-through status.
  • Clinical-trial timing and results for OTX-TKI, OTX-TIC, OTX-CSI and OTX-DED, including the delayed OTX-TIC program.
  • Progress and outcome of the FDA’s manufacturing-quality review, and the company’s ability to scale production and maintain reliable supply.
  • Cash burn, financing needs and debt-service obligations against management’s projected runway through 2023; note that Q1 net income was substantially driven by a noncash derivative gain.
  • Distributor concentration, customer collections, and the status of AffaMed and Regeneron milestones, reimbursements and collaboration options.