OCULAR THERAPEUTIX, INC quarterly report, Q1 FY2022

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Ocular Therapeutix, Inc. — Form 10-Q Summary

Reporting period: Three months ended March 31, 2022. Amounts below are in U.S. dollars; financial statement amounts have been converted from thousands to millions unless otherwise noted.

Business context

Ocular Therapeutix is a biopharmaceutical company developing and commercializing ophthalmic therapies using a bioresorbable hydrogel drug-delivery platform. Its U.S. commercial products are DEXTENZA, approved for post-surgical ocular inflammation and pain and ocular itching associated with allergic conjunctivitis, and ReSure Sealant. DEXTENZA is the principal commercial product; ReSure production was suspended in late 2021.

Financial performance and liquidity

  • Revenue: $13.2 million, up 79.6% from $7.3 million. Product revenue was $12.5 million versus $7.3 million; collaboration revenue was $0.7 million, primarily recognized for OTX-TIC Phase 2 work under the AffaMed agreement.
  • Profitability and margins: Operating loss was $17.8 million, compared with $20.2 million a year earlier. Net loss was $12.5 million, versus net income of $3.1 million in Q1 2021. Cost of product revenue was $1.3 million; product gross margin was approximately 89.6% based on reported product revenue and cost of product revenue.
  • Operating expenses: $31.0 million, up $3.5 million year over year. R&D rose to $13.1 million and selling and marketing to $9.1 million; G&A was $7.6 million, slightly lower than the prior-year period.
  • Non-operating item: A $7.0 million gain from remeasuring the convertible-note derivative liability reduced the reported net loss. Q1 2021 included a much larger $25.0 million gain, contributing to reported net income despite an operating loss. These gains are non-cash and valuation-sensitive.
  • Cash flow: Operating cash use was $18.6 million, versus $17.4 million in Q1 2021. Investing cash use was $0.3 million; financing provided $0.1 million. Cash, cash equivalents and restricted cash declined $18.7 million during the quarter.
  • Liquidity: Cash and cash equivalents were $145.4 million at March 31, 2022; restricted cash was an additional $1.8 million. Current assets were $174.7 million and current liabilities $24.0 million. Management estimated available cash would fund its current plan, debt service and capital expenditures through 2023, subject to assumptions including DEXTENZA sales and operating costs.
  • Debt: The credit facility was fully drawn at $25.0 million principal, with a 7.75% interest rate at quarter-end; interest-only payments run through May 1, 2024, with maturity generally in November 2025. The company also had $37.5 million principal of 2026 convertible notes, carrying value of $27.0 million, and $7.0 million accrued interest. The notes accrue interest at 6% and have an initial conversion price of $6.50 per share.

Changes versus Q1 2021

  • Product revenue increased by $5.2 million, which management attributed primarily to DEXTENZA market acceptance and commercialization efforts. DEXTENZA net revenue was $12.5 million versus $6.7 million; the prior-year period also included $0.6 million from ReSure.
  • Gross-to-net deductions were 21.9% of gross DEXTENZA sales, down from 27.9%, primarily reflecting the company’s volume-discount rebate program.
  • Operating expenses increased despite lower direct R&D spending on several programs, as unallocated personnel and other costs rose. Stock-based compensation increased to $4.2 million from $3.1 million.
  • Net results reversed from income to loss largely because the derivative-liability fair-value gain fell to $7.0 million from $25.0 million; the 2021 reported income did not reflect positive operating performance.

Outlook, commentary and risks

  • No specific revenue or earnings guidance was provided. Management expects continued operating losses and negative operating cash flow, with R&D and selling and marketing costs expected to increase as programs advance and DEXTENZA commercialization expands.
  • Commercial execution depends heavily on DEXTENZA. The company launched its allergic-conjunctivitis indication in U.S. offices in Q1 2022 and established a dedicated four-person field force. U.S. cataract-procedure volumes remained affected by staffing and other COVID-related pressures at ambulatory surgery centers and hospital outpatient departments.
  • Pipeline updates: the U.S. Phase 1 OTX-TKI trial was fully enrolled, with interim six-month data expected in Q3 2022. OTX-TIC Phase 2 began dosing in Q1. OTX-CSI Phase 2 showed improvements from baseline but no separation from vehicle; formulation and comparator work are planned. OTX-DED Phase 2 met its prespecified primary endpoint, and the company was evaluating next development steps.
  • Under its AffaMed license, the company recorded a $2.0 million clinical support payment receivable and recognized $0.7 million of collaboration revenue in Q1. The agreement covers specified Asian markets and provides for potential milestones and royalties, which are not assured.
  • Funding remains a key risk: the runway estimate depends on forecast sales, spending, clinical progress and other assumptions, and the company may need additional capital. Equity financing could dilute shareholders; existing debt covenants and asset collateral may constrain borrowing. Three specialty distributors represented 90% of Q1 product revenue, creating customer concentration risk.
  • Other risks include clinical and regulatory uncertainty, manufacturing dependence on a small number of third parties, reimbursement and market acceptance, derivative valuation volatility, and the uncertain duration and effects of COVID-19. Management reported no material legal proceedings, effective disclosure controls, and no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

  • Whether DEXTENZA sales growth continues, including adoption in the new office-based indication and the effects of procedure volumes and reimbursement.
  • Whether the stated cash runway through 2023 remains valid as cash burn, clinical spending and commercialization costs evolve; confirm the company’s financing needs and use of its $100 million at-the-market sales agreement, under which no shares had been sold as of May 6, 2022.
  • Upcoming OTX-TKI data and OTX-TIC Phase 2 progress, plus the revised development plans for OTX-CSI and OTX-DED.
  • Debt service and conversion terms, including the $25 million credit facility, $37.5 million convertible-note principal, accrued interest, and potential dilution or cash-settlement consequences.
  • Distributor concentration and the assumptions underlying the derivative-liability fair value, which materially affected reported quarterly earnings.