Ocular Therapeutix, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The company develops and commercializes ophthalmic therapies. DEXTENZA is its only commercial product; AXPAXLI is in Phase 3 development for wet AMD. Financial amounts below are in U.S. dollars; unless otherwise indicated, figures are in millions.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $14.8 | $13.4 |
| Operating expenses | $46.4 | $35.9 |
| Operating loss | $(31.6) | $(22.5) |
| Net loss | $(64.8) | $(30.3) |
| Net loss per share | $(0.49) | $(0.39) |
| Cash used in operating activities | $(33.9) | $(20.0) |
- Product revenue, all from DEXTENZA, was $14.7 million, up 11.4% year over year. Collaboration revenue was $0.1 million.
- Cost of product revenue was $1.3 million; implied product gross margin was approximately 91% of product revenue.
- Research and development expense increased to $20.7 million from $14.7 million; general and administrative expense rose to $14.1 million from $9.1 million. Selling and marketing expense declined to $10.2 million from $10.8 million.
- Cash and cash equivalents were $482.9 million at quarter-end, compared with $195.8 million at December 31, 2023. Total current liabilities were $24.3 million; total liabilities were $131.0 million.
- Barings secured term-loan principal was $82.5 million, due in 2029, with $66.5 million recorded net of unamortized discount. The facility has a $20 million minimum liquidity covenant and requires quarterly payments tied to DEXTENZA net sales under its royalty-fee provision.
Material changes and unusual items
- February private placement generated approximately $316.4 million net proceeds through common stock and pre-funded warrants. The transaction and stock-option exercises drove financing cash inflows of $321.2 million. Common shares outstanding increased to 154.7 million at March 31 from 115.0 million at year-end; pre-funded warrants cover up to an additional 10.8 million shares.
- In March, the $37.5 million convertible-note principal converted into 5.8 million common shares; the company also paid $11.4 million of accrued interest. Conversion accounting produced a $28.0 million non-cash loss on debt extinguishment, a major contributor to the higher net loss.
- Derivative liabilities generated a $5.2 million net loss in Q1, including a $7.2 million loss on the Barings royalty-fee derivative, partly offset by a $2.6 million gain on the convertible-note conversion derivative. Interest expense was $4.1 million, partly offset by $3.9 million of interest income.
- Operating cash use increased from $20.0 million to $33.9 million. The quarter included a $14.0 million decrease in accrued expenses, including payment of $11.4 million of convertible-note interest.
- Gross-to-net provisions were 36.1% of gross DEXTENZA sales versus 28.1% a year earlier. The company expects the rate to rise following April 1 increases to DEXTENZA’s wholesale acquisition cost and rebate-program off-invoice discount.
Outlook, operations and risks
- Management estimates that March 31 cash and cash equivalents, under its current operating plan and while meeting the credit-facility liquidity covenant, can fund planned expenses, debt service and capital expenditures into 2028. This is an estimate based on assumptions; the filing also notes ongoing losses and negative operating cash flows and says capital may be needed if circumstances change.
- Management expects R&D expense to increase as SOL-1 progresses, HELIOS is completed, PAXTRAVA work continues and additional AXPAXLI wet AMD trials are pursued. It expects modestly higher selling and marketing expense and higher G&A expense.
- SOL-1 began screening and aflibercept injections in February 2024; randomization began in April. The company expects enrollment of approximately 300 evaluable subjects to finish by the end of Q1 2025. The Phase 3 trial compares AXPAXLI with aflibercept; results and regulatory approval remain uncertain.
- April 2024 HELIOS topline results, reported after quarter-end, showed no rescue treatment in either arm and DRSS improvement in 6 of 13 AXPAXLI-treated patients versus none of 8 controls at week 40. The company plans to seek FDA guidance on next steps.
- April 2024 PAXTRAVA Phase 2 topline results, also subsequent to quarter-end, indicated approximately 24%–30% mean IOP reduction through six months; one serious adverse event involved implant removal, assessed as likely related to peri-implantation bacterial infection. The company plans an end-of-Phase 2 FDA meeting.
- Management identifies clinical, regulatory, reimbursement, manufacturing, market-acceptance and financing uncertainties. Three specialty distributors represented 84% of Q1 revenue, creating customer concentration; the company also depends on a small number of third-party manufacturers. Cash balances exceeded federally insured limits at two financial institutions.
- After quarter-end, CEO Antony Mattessich’s departure was announced, and a separation agreement provided for 24 months of salary and specified equity-award acceleration and option-exercise terms. The company said it could not yet estimate the financial impact. Disclosure controls were assessed as effective; no material legal proceedings were reported.
Important facts for investors to verify
- Whether SOL-1 enrollment and subsequent clinical milestones meet management’s timeline, and the eventual efficacy and safety data.
- Whether the stated cash runway into 2028 remains achievable given clinical spending, DEXTENZA sales, rebate changes, debt service and the $20 million liquidity covenant.
- The impact of higher DEXTENZA gross-to-net deductions on net revenue and whether sales growth continues.
- The dilution effect of the private placement, pre-funded warrants, stock awards and any future financing.
- Future Barings interest and royalty-fee obligations, and the sensitivity of the Level 3 royalty derivative valuation to revenue assumptions.