Ocular Therapeutix, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; unaudited. Unless stated otherwise, dollar amounts below are in millions. The company develops ophthalmic therapies using a bioresorbable hydrogel platform. Its only marketed product was ReSure Sealant; its sustained-release drug candidates remained in clinical or preclinical development.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $0.459 | $0.097 | $0.885 | $0.124 |
| Operating expenses | $10.094 | $6.043 | $17.633 | $12.895 |
| Operating loss | $(9.635) | $(5.946) | $(16.748) | $(12.771) |
| Net loss | $(10.009) | $(6.392) | $(17.587) | $(13.400) |
| Net loss per share, basic and diluted | $(0.45) | $(2.10) | $(0.81) | $(4.54) |
| Operating cash used | — | — | $(15.407) | $(8.537) |
- Product revenue was $0.334 million for Q2 and $0.572 million for the first half, principally from ReSure Sealant. Collaboration revenue was $0.125 million and $0.313 million, respectively. Revenue remained small relative to development and operating costs.
- Q2 research and development expense was $6.743 million; selling and marketing was $1.041 million; general and administrative was $2.230 million. First-half research and development expense rose to $11.462 million, reflecting clinical program activity and higher personnel costs.
- At June 30, cash and cash equivalents were $78.686 million and marketable securities were $45.036 million, totaling $123.722 million. Current assets were $126.639 million and current liabilities $9.591 million, or working capital of approximately $117.048 million.
- Net carrying value of notes payable was approximately $15.043 million ($4.370 million current and $10.673 million long-term). The credit facility bears 8.25% interest, with principal payments scheduled to begin in October 2015; disclosed debt obligations total $17.501 million including interest and the final payment.
- Stockholders’ equity was $109.112 million; accumulated deficit was $107.015 million. June’s follow-on offering generated approximately $65.646 million in net proceeds to the company. The offering included shares sold by existing stockholders as well as company-issued shares.
Changes versus the prior comparable period
- First-half revenue increased by $0.761 million from 2014, as ReSure sales expanded and collaboration revenue was recognized. Operating expenses increased by $4.738 million and net loss widened by approximately $4.2 million.
- First-half operating cash use increased by $6.870 million year over year. Financing provided $65.596 million in the first half of 2015, primarily from the follow-on offering; cash and cash equivalents rose from $37.393 million at year-end 2014 to $78.686 million.
- Loss per share is not directly comparable across periods: the company completed its IPO in 2014, converted preferred stock to common stock, and reported substantially different weighted-average shares outstanding.
Outlook, developments, and risks
- Management estimated existing cash and marketable securities would fund operating expenses, debt service, and capital expenditures through at least Q3 2017, while cautioning that this estimate depends on assumptions and spending could exceed expectations. The company expected expenses to rise and did not expect significant product revenue for several years, if at all.
- OTX-DP: two Phase 3 trials for post-surgical ocular inflammation and pain had mixed results. The first met both primary endpoints; the second met the pain endpoint but not the inflammation endpoint. Management planned to submit an NDA for pain in Q4 2015 and start a third Phase 3 trial in Q4 2015 to support inflammation labeling. These plans remained subject to regulatory review and trial outcomes.
- OTX-DP for allergic conjunctivitis had completed Phase 3 enrollment; topline results were expected in Q4 2015. An exploratory Phase 2 dry-eye study had completed enrollment, with completion expected in Q4 2015. OTX-TP for glaucoma and ocular hypertension was in Phase 2b; topline results were expected in Q4 2015.
- The company reported no ocular or treatment-related serious adverse events in the two OTX-DP Phase 3 trials. However, the second trial’s failure on the inflammation endpoint and the need for further testing create meaningful clinical and regulatory uncertainty.
- Following a March 2015 FDA inspection, the company received a Form 483 observation concerning complaint-investigation documentation and adverse-event reporting evaluations. It said its response was accepted and procedures were updated. ReSure also had required post-approval studies; CMS had preliminarily indicated it was unlikely to issue a tracking or research code needed for one study, potentially affecting its completion.
- Key risks include clinical-trial failure or delay, dependence on additional financing, limited ReSure revenue and commercial acceptance, manufacturing capacity and supplier dependence (including a sole-source PEG supplier), intellectual-property challenges, reimbursement, and debt restrictions. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the OTX-DP pain NDA was submitted and accepted, and the outcome and timing of the planned third Phase 3 trial.
- Results of the allergic-conjunctivitis, dry-eye, and OTX-TP studies expected in Q4 2015, and subsequent development decisions.
- Actual cash burn, financing needs, and whether the stated runway through Q3 2017 remains achievable as trial and commercialization costs increase.
- ReSure sales trajectory and progress on post-approval studies, including the CMS tracking-code issue; monitor any further FDA manufacturing observations.
- Debt repayment schedule, clinical-trial purchase commitments, and manufacturing commitments; together these contribute to future cash requirements.