Ocular Therapeutix, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Unaudited results; financial amounts below are in millions of dollars unless stated otherwise. The company develops ophthalmic therapies using a bioresorbable hydrogel platform and marketed ReSure Sealant; its principal drug candidates remained in development.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0.523 | $0.477 | $1.436 | $1.376 |
| Operating expenses | $15.719 | $9.715 | $50.643 | $32.230 |
| Operating loss | $(15.196) | $(9.238) | $(49.207) | $(30.854) |
| Net loss | $(15.567) | $(9.596) | $(50.284) | $(31.881) |
| Basic and diluted loss per share | $(0.54) | $(0.39) | $(1.76) | $(1.29) |
- Revenue was almost entirely ReSure Sealant product sales; Q3 revenue increased about 10% year over year and nine-month revenue about 4%. No collaboration revenue was recorded in 2017.
- Product gross margin was approximately 76% in both the quarter and nine-month period, based on product revenue less cost of product revenue.
- At September 30, cash and cash equivalents were $51.165 million; there were no marketable securities and restricted cash was $1.728 million. Current assets were $52.453 million and current liabilities $10.945 million.
- Debt was $18.0 million principal outstanding. The facility’s indicative rate was 8.25% at amendment, with a 10.5% effective annual rate; interest-only payments ran through February 1, 2018, followed by principal and interest payments through December 2020.
- For the nine months, operating cash use was $40.090 million, investing cash provided was $27.517 million and financing cash provided was $30.802 million. Cash increased $18.229 million. Capital expenditures were $7.688 million.
Changes versus comparable periods
- Quarterly net loss widened by approximately $6.0 million; nine-month net loss widened by approximately $18.4 million.
- Nine-month research and development expense rose $3.2 million to $23.0 million, with higher personnel and other unallocated costs and increased OTX-TP spending; direct DEXTENZA program spending declined from 2016.
- Nine-month selling and marketing expense rose $11.9 million to $16.1 million, primarily from pre-commercial launch preparation, professional fees and severance. Management said the workforce reduction and revised DEXTENZA commercial plans were expected to lower selling and marketing expense until product approval.
- Nine-month general and administrative expense rose $3.2 million to $11.2 million, mainly from personnel and professional costs.
- The company completed a January 2017 follow-on offering, receiving net proceeds of $23.3 million, and raised additional funds through its at-the-market program. Shares outstanding increased to 29.388 million at quarter-end from 25.024 million at December 31, 2016.
Outlook, developments and risks
- Liquidity and going concern: Management estimated existing cash would fund operations, debt service and capital expenditures into Q4 2018, based on current plans. The filing nevertheless concludes that substantial doubt exists about the company’s ability to continue as a going concern within one year of issuance, because of accumulated losses, expected future losses and the need for additional financing. Future financing was not considered probable in the formal assessment. The company may need to raise capital, reduce spending or delay programs; none is assured.
- DEXTENZA: The FDA issued a July 2017 Complete Response Letter after manufacturing inspections identified process and analytical-testing deficiencies, including concerns involving particulate matter in certain lots. The company reported submitting remaining responses in November 2017, after quarter-end, and planned an FDA meeting in early 2018 and NDA resubmission in the first half of 2018, contingent on satisfactory remediation and consistent commercial manufacturing. FDA acceptance and approval remain uncertain.
- Pipeline: The first OTX-TP Phase 3 trial was underway; topline efficacy data were expected in the second half of 2018, and a second Phase 3 trial was planned for 2018 subject to funding. A Phase 1 OTX-TIC trial began outside the United States in Q3 2017. The company planned a U.S. OTX-TIC Phase 1 trial and an OTX-TKI Phase 1 trial in the first half of 2018.
- Regeneron collaboration: Regeneron had not exercised its option as of September 30, 2017. Exercise would trigger a $10 million payment to Ocular; the agreement also provides potential milestones and royalties. If exercised, Ocular may have to reimburse certain development costs up to $25 million, potentially increased by $5 million in specified circumstances.
- Restructuring and leadership: The company eliminated 30 positions in July 2017. Its restructuring table reports $2.089 million of costs, with $1.182 million remaining accrued at quarter-end. CEO Antony Mattessich took office in July. COO James Fortune’s transition agreement was entered into in October, after quarter-end.
- Litigation: Shareholder class-action and derivative suits alleged misleading statements concerning the FDA Form 483 and DEXTENZA manufacturing. The company denied wrongdoing and said outcomes were unpredictable. Several transfers or dismissals described in the filing occurred after September 30.
- Other significant risks include clinical-trial failure or delay, manufacturing and regulatory setbacks, product acceptance and reimbursement, competition, reliance on suppliers and collaborators, debt and financing constraints, and intellectual-property exposure.
Important facts for investors to verify
- Progress with FDA remediation, manufacturing consistency, the planned DEXTENZA FDA meeting and the timing and acceptance of any NDA resubmission.
- Cash burn, financing availability and whether the stated runway remains achievable; also upcoming debt amortization after the interest-only period.
- OTX-TP Phase 3 execution and readout timing, and progress and funding for OTX-TIC and OTX-TKI trials.
- Whether Regeneron exercises its option and the resulting development-cost obligations, milestone prospects and potential funding.
- Current status and potential financial or operational impact of the shareholder litigation and restructuring-related obligations.