Ocular Therapeutix, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context
Ocular Therapeutix develops and commercializes ophthalmic therapies using a bioresorbable hydrogel drug-delivery platform. Its principal commercial product is DEXTENZA, approved for post-surgical ocular pain and inflammation. ReSure Sealant is also marketed, while other programs remain in clinical or preclinical development.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $1.57 | $0.65 | $4.18 | $1.14 |
| Gross profit, approximate | $1.44 | $0.10 | $3.23 | $0.46 |
| Operating expenses | $19.45 | $22.25 | $38.68 | $42.40 |
| Operating loss | $(17.88) | $(21.60) | $(34.50) | $(41.26) |
| Net loss | $(36.57) | $(24.45) | $(58.08) | $(41.58) |
| Basic and diluted loss per share | $(0.64) | $(0.57) | $(1.06) | $(0.98) |
- Q2 revenue increased 141% year over year; first-half revenue increased 266%. Q2 revenue included approximately $1.4 million from DEXTENZA and $0.2 million from ReSure; first-half amounts were approximately $3.5 million and $0.7 million, respectively.
- Approximate gross profit is revenue less reported cost of product revenue. The resulting margin was about 91% in Q2 and 77% for the first half; these figures reflect the reported product-cost amounts and are not a company-presented adjusted margin.
- Operating losses narrowed year over year, while net losses widened. A noncash fair-value loss on the convertible-note derivative liability was $17.0 million in Q2 and $20.4 million for the first half, substantially driving the net-loss deterioration.
- Cash and cash equivalents were $84.3 million at June 30, versus $54.4 million at December 31, 2019; restricted cash was an additional $1.8 million. Current assets were $90.3 million and current liabilities $13.8 million.
- Six-month operating cash use was $33.7 million, compared with $38.6 million a year earlier. Investing cash use was $0.4 million; financing provided $63.9 million, primarily from equity offerings.
- Debt included a fully drawn $25.0 million credit facility and $37.5 million principal amount of 2026 convertible notes, plus $3.0 million accrued interest. The credit facility begins scheduled principal payments in January 2021; the notes mature in 2026. The balance sheet also reported a $32.5 million derivative liability tied to the convertible notes.
Material changes and developments
- The May 2020 public offering raised approximately $48.3 million net. The company also raised approximately $14.4 million net through its at-the-market sales agreement during the first half. Shares outstanding increased to 62.95 million at June 30 from 50.33 million at year-end 2019.
- Research and development expense fell 32% in the first half, mainly reflecting the November 2019 restructuring and lower unallocated personnel and other costs. Selling and marketing expense increased 26% as the DEXTENZA launch continued.
- COVID-19-related reductions in elective cataract procedures adversely affected Q2 product revenue. Management expected a continued rebound in cataract surgeries in Q3 and beyond, but warned that pandemic effects could materially affect future revenue and operations.
Outlook, clinical programs, and risks
- Management said June 30 cash was expected to fund planned operations, debt service, and capital expenditures for at least 12 months. Nevertheless, the filing concludes that substantial doubt about the company’s ability to continue as a going concern remains, given its losses, operating cash outflows, limited commercialization history, and dependence on additional financing. The runway estimate depends on sales, cost, clinical-program, and COVID-19 assumptions.
- No numerical revenue or earnings guidance was provided. Management expected continued losses and substantial spending on commercialization, clinical development, and operations, and may seek additional capital through equity, debt, collaborations, or other arrangements.
- DEXTENZA’s Phase 3 allergic-conjunctivitis trial met its prespecified ocular-itching endpoint with statistical significance. The company planned to discuss a potential supplemental application with the FDA after reviewing secondary endpoints; filing and approval were not assured.
- COVID-19 affected clinical operations as well as commercial activity. OTX-TIC enrollment slowed, and a clinical site’s delayed data entry for OTX-TKI led to disclosure of previously unavailable information about anti-VEGF rescue treatment for a trial participant.
- The Regeneron collaboration was amended to focus on extended-delivery aflibercept administered to the suprachoroidal space. Regeneron’s option was exclusive for 24 months from May 8, 2020 and had not been exercised by June 30. Potential payments and royalties remain contingent; exercise could also create reimbursement obligations for Ocular Therapeutix.
- ReSure Sealant remains subject to an FDA warning letter over a required post-approval registry study. The FDA approved the revised retrospective-study protocol in May 2020, but failure to satisfy the post-approval requirement could lead to further regulatory action, including potential withdrawal of approval.
- The First Circuit affirmed dismissal of the securities class action in April 2020; a deadline to seek U.S. Supreme Court review remained. Related shareholder derivative matters were stayed. The company said outcomes and potential costs could not be predicted.
Most important facts for investors to verify
- Whether DEXTENZA sales recover with cataract procedure volumes, and the extent of customer concentration: three customers represented 78% of Q2 revenue.
- Actual cash burn, available financing, and whether the stated 12-month liquidity estimate remains credible given the going-concern warning.
- Convertible-note terms and derivative valuation sensitivity, as the fair-value charge depends on assumptions including share price and volatility.
- FDA feedback and next steps for a DEXTENZA allergic-conjunctivitis application, alongside the timing and data quality of ongoing clinical programs.
- Progress toward satisfying the ReSure post-approval study requirement, and developments in the stayed derivative litigation and any Supreme Court petition.