Ocular Therapeutix, Inc.
Q4 2015 Earnings Call Transcript

Published: 10 Mar 2016

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing by. And welcome to Ocular Therapeutix's Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. It is now my pleasure to turn the call over to Brad Smith, Chief Financial Officer of Ocular Therapeutix. Please go ahead, sir.

[Brad Smith:]

Thanks Cyria, good morning everyone, and thank you for joining us for our fourth quarter 2015 earnings and business update conference call. Earlier this morning, we issued a press release providing up update on the company's product development programs and details of the company’s financial results for the fourth quarter and for the year ended December 31, 2015. These can be accessed on the Investor portion of our website at investors.ocutx.com. Leading the call today will be Dr. Amar Sawhney, our President, Chief Executive Officer and Chairman, who will provide a summary of the key recent clinical and corporate developments as well as provide an overview of what we expect to accomplish in 2016. Following Amar's remarks, I will provide an overview of the financial highlights for the fourth quarter of 2015 and full year 2015 before opening the call for questions. Amar and I are also joined in the call today by Dr. Jon Talamo, our recently hired Chief Medical Officer, Eric Ankerud, our Executive Vice President of Regulatory, Quality and Compliance, and Scott Corning, our Vice President of Sales and Marketing. As a reminder, during today's call we will be making certain forward-looking statements. Various remarks that we make during this call about the company's future expectations, plans and prospects, constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated in these forward-looking statements as a result of various important factors including those discussed in the Risk Factors section of our most recent annual report on Form 10-K with the SEC, which was filed earlier this morning. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some future point, we specifically disclaim any obligation to do so, even if our views change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today. I will now turn the call over to our President, CEO, and Chairman, Dr. Amar Sawhney.

[Amar Sawhney:]

Thank you, Brad. Good morning everyone and thank you for joining us on our call today. This past year has been a busy and exciting time for Ocular Therapeutix and we expect 2016 to be another busy year with a number of important clinical and business milestones. With the July 24, 2016 PDUFA date for our lead product candidate DEXTENZA for post-surgical ocular pain and several ongoing and planned late-stage clinical trials across multiple indications, Ocular Therapeutix is emerging as a fully integrated ophthalmology company on the path to commercialization. We continue to leverage our proprietary hydrogel based sustained-release platform as we seek to change how treatment is delivered to the eye for various ophthalmic conditions, with large and addressable market opportunities. We believe that there is an enormous potential for our sustained-release therapists to replace standard of care eye drop regimens. One of the major issues with current standard of eye drop regimens is patient compliance, particularly in conditions such as glaucoma and post-surgical pain and inflammation by avoiding the burden and sub-optimal safety profile of daily eye drops of sustained-release product candidates mainly to improve patient compliance offering greater assurance of efficacy and reduce disease progression. We believe that our sustained-release product candidates can provide an improved safety profile compared with eye drop therapies due to the absence of preservatives and our ability to avoid the peaks and values of those associated with topical eye drop administration. In December 2015, the FDA accepted our new drug application for filing for our lead product candidate DEXTENZA for post-surgical ocular pain indication. The acceptance of the NDA for filing by the FDA indicates that the application permits a substantive review and at that time no issues are identified and would be expected to delay progress of the FDA’s review. As a result, the FDA has set a target PDUFA date of July 24, 2016 for the potential approval of DEXTENZA for post-surgical ocular pain. The data included in the NDA are from Phase 2 clinical trial and two Phase 3 clinical trials conducted with DEXTENZA for the treatment of post-surgical ocular inflammation and pain. Our third Phase 3 clinical trial for DEXTENZA for post-surgical ocular inflammation and pain began in October 2015. This prospective multi-center randomized, parallel-arm, double-masked, vehicle controlled trial will enroll 436 patients undergoing clear corneal cataract surgery at up to 23 sites throughout the United States. Patient enrolment is progressing ahead of schedule with 285 patients enrolled as of March 7, 2016. As a reminder, some modifications to the trial design were made as compared to the first two Phase 3 trials. These included a 1

[Brad Smith:]

Thanks Amar. Before turning to our financial results, I would like to announce that we will be hosting our inaugural Analyst Day event in New York City on April 6. In addition to members of the senior management team at Ocular, we will also be joined by several leading cataract, glaucoma and retinal specialists. If you're interested in attending this event, please contact Steve Klass at Burns McClellan, his contact details are included in our fourth quarter 2015 earnings press release. We hope to see all of you there. With regard to our cash and investment position, as of December 31, 2015, we had $105.1 million in cash, cash equivalents and marketable securities. Cash used in operating activities was $8.6 million for the fourth quarter of 2015 and $33.7 million for the year ended December 31, 2015. We expect cash used in operations to be between $45 million and $48 million in 2016 and we also expect capital expenditures to be in a range of $6 million to $7 million for 2016. Furthermore, we expect existing cash and investments to fund the Company's operating activities, capital expenditures and debt service through the third quarter of 2017. This guidance is of course subject to a number of assumptions about our clinical development programs, commercialization of DEXTENZA and other factors included in our recently filed 10-K. We also had $15.6 million in outstanding debt as of December 31, 2015 having recently refinanced the debt and we are able to defer any principal payments associated with the debt until January 2017. For the fourth quarter ended December 31, 2015, we reported a net loss of $10.6 million or $0.43 per share this compares to a net loss of $8 million or $0.37 per share for the same quarter in 2014. The net loss for the fourth quarter of 2015 includes $1.3 million in non-cash stock compensation charges compared to $1 million for the same compensation charges in the fourth quarter 2014. Revenues for the fourth quarter of 2015 were $0.4 million including collaboration revenue from a feasibility agreement with one of the partners as well as revenue from the sales of ReSure Sealant. As previously stated we don't expect product revenues from ReSure Sealant product to be material in 2016 as we are deferring the deployment of our sales force until we launch our initial sustained product drug delivery product. Our total operating expenses during fourth quarter of 2015 were $10.7 million which compares to $8.1 million for fourth quarter of 2014. We increased our investment in R&D in 2015 as we advanced DEXTENZA for the treatment of allergic conjunctivitis through first Phase 3 clinical trial, initiated the second trial for that program, advanced our third Phase 3 trial for inflammation and pain, advanced our OTX-TP product for the treatment of glaucoma and ocular hypertension through a Phase 2b clinical trial, advanced our exploratory Phase 2 clinical trial of DEXTENZA for the treatment of inflammatory dry eye disease. And in addition made investments in our preclinical development programs including the treatment of wet AMD and other back of the eye diseases. R&D expenses totaled $6.9 million in the fourth quarter of 2015 compared to $5.1 million in the fourth quarter of 2014. As of the end of 2015, we had approximately 24.8 million shares issued in outstanding. This concludes my comments on the fourth-quarter and full-year 2015 financial results and I'll now turn the call back over to the operator for Q&A.

[Operator:]

[Operator Instructions] Our first question comes from Tyler Van Buren of Cowen & Co. Your line is now open.

[Tyler Van Buren:]

Given the upcoming approval date for DEXTENZA post-surgical ocular pain, I was hoping you could talk a little bit about the market opportunity and associated commercialization strategy, you know more specifically in terms of what targets and doctors you will initially attack with the salesforce with the salesforce size will be required for the initial launch and the message that you’ll be approaching doctors with? Thanks so much.

[Scott Corning:]

Yeah, this is Scott Corning. The market size is over $0.75 billion in terms of single agent steroids. A lot of that is generic; much of it is also mixture of branded. So the sizing that we would go after would be - we’re doing the analytics now and so we are looking at the sizing and alignment as being worked on presently doing the analytics, but we would enter the market with a staged approach and that would be whether we go with or without a partner and we would start with somewhere in the order of 10 working up to as I said a staged approach going to up to 50 or 60 but that would be over time as we assess the opportunity to train and gain momentum. The primary target that we would be approaching the market would be cataract surgeons although the approval for this product would be for all ophthalmic surgeries but again primary market opportunity and target would be cataract surgeons.

[Amar Sawhney:]

So Tyler, this is Amar. There are 5.5 million surgeries, so the approval that would be therefore for DEXTENZA would be for all ocular surgeries while the trials are done in cataract surgeries. The approval would be for all ocular surgeries and some of the market research that we are conducting has revealed that there is enthusiasm for using the product and procedures such as glaucoma surgeries, retinal surgery and PRK or vision correction kind of surgeries in additions where pain can be significant. The price points right now of branded and generic steroids on average are somewhere in the $100 kind of range between the generic and branded average kind of price points so that's what leads to that $750 million to $800 billion kind of single agent steroid market. Pricing through the pass-through mechanism is likely to be significantly higher than that given that the pass-through mechanism requires the price points to be set at a certain threshold to be able to qualify for pass-through. So, technically if you were to just do that translation it results in a larger market opportunity but I think that’s something that we just need to watch carefully before we can claim that we would expand the market opportunity by many-fold.

[Operator:]

Thank you. And our next question comes from the line of Adnan Butt of RBC Capital Markets. Your line is now open.

[Adnan Butt:]

So let me ask on launch plans. Amar, why wait 5, 6 months for the launch of DEXTENZA and then if I assume it gets approved and then does guidance for 2016 assume any SG&A build at this time?

[Amar Sawhney:]

So I’ll tackle the first part of that question and then let Brad comment on the second part. With regards to timing, I think it is important that we have the code in place. So we’re not waiting 5, 6 months if you think about end of July, so effectively August is when you get your approval and it takes even a fairly ready, we would apply for pass-through and it takes a few months for the pass-through code to actually come through. And thereafter it becomes effective only in the following quarter. We would need to wait at a minimum until the beginning of next year assuming everything kind of goes like clockwork to have the code in hand. And then the code is effective for three years after that given rate. So we'll do it basically as soon as we can. There is the opportunity to bill under a miscellaneous code before that but our stance is that it results in you know firstly significantly more paperwork for physicians and not that they would not be able to do that I think it's training to one thing and then very quickly training to another thing which may create a certain level of confusion. So based on analyzing all of those aspects and the fact that we would need to be doing KOL engagement, MSL deployment et cetera, we feel that it's probably best to not create much more confusion and just sort of you know it's basically going to be a few months, couple of months if anything. And just to come out strong with the code in place so that there is a mechanism to get paid now. I’ll let Brad comment on the G&A buildup.

[Brad Smith:]

So, yes we plan on and we are in the process of expanding Scott Corning's team as we speak. So in terms of his comment about the sales reps, we will likely make those offers contingent on the PDUFA date approval of the product. And as Scott mentioned likely start with 10 reps probably through a contract sales organization so there will be cost associated with that at the back half of the year. Internal sales management, medical affairs which will report to Jon Talamo. And then we’ve already started to bring some reimbursement expertise to help us there as well. On the G&A front, we look at modest increases but it's primarily going to be in the buildup of sales and marketing.

[Scott Corning:]

And then Adnan, this is Scott, more specifically as it relates to pass-through and the PDUFA, the pass-through operates on a quarterly schedule and with a PDUFA date of late July, September represents the first opportunity that we have to apply for pass-through status. And the waiting period then is 3 to 4 months, so January would be the first date that we could even get pass-through status because it has specific times that you apply and when it's granted.

[Adnan Butt:]

But just one more question on this, the pass-through is drug specific or is it indication specific because Ocular could see the label expanded in 2017?

[Amar Sawhney:]

Yeah. It's drug specific, but it's not site - it applies to the indication that is surgical. And so once we have an indication that is non-surgical, we expect to be able to gain a more favorable means of reimbursement by applying for a J code.

[Adnan Butt:]

Okay. That's helpful. If I can change tacks and ask on OTX-TP, are the two Phase 3 trials going to be identical in design or is that to be determined?

[Amar Sawhney:]

That is still to be determined. The guidance from our statisticians is to have them be of similar size. So design obviously is not necessarily going to be identical, because in one of those studies, we expect to follow patients out to one year for safety, for FDA's guidance that you need 100 patients for safety out to 1 year for glaucoma trials. So it is likely that one of those trials will be structured to deliver that safety population, while the other trial will be one that is only structured for delivering the primary endpoint, which is out to three months of efficacy determination. Of course, as part of that safety population out to three months, which FDA's guidance is that, needs to be in the range of 300 to 500 patients, would be delivered by both studies, but one of the trials will go out for a longer duration. We expect these trials to be staggered and not begun simultaneously, since they will involve a significant number of sites, we estimate about 50 sites, 40 to 50 sites in each of these trials. So it just takes time to kind of go ahead and get all of those up and running.

[Adnan Butt:]

Okay. And lastly on the back-of-the-eye program, are the focus very much now the small molecule compound program or are you placing equal emphasis on the biologics and what's the status there?

[Amar Sawhney:]

Sure. The emphasis remains two-pronged. The difference is that with the small molecule, we can control the entire process. So we can run and get the progress ourselves and that seems to be going quite nicely and in the Analyst Day, we’ll be able to talk a little bit more details about where we are and what the data looks like et cetera. The protein based anti-VEGF is obviously gated by the partner engagement, because we feel that these protein based anti-VEGF agents, the biosimilar drugs are not up to kind of a level of certainty yet that we can proceed down those pathways. So it behooves us to engage with the partner in that. There is a good progress on that front and hopefully stay tuned in a few months for updates on that. So we're still optimistic on the protein based anti-VEGF, it's just that in the small molecule, we control our destiny fully.

[Operator:]

Thank you. And our next question comes from Andrew Berens of Morgan Stanley. Your line is now open.

[Andrew Berens:]

Hi, guys. Good morning. Thanks for taking the question and congrats on moving the products forward. Just wanted to get a little more clarity on the pass-through status. How do CMS determine that a product is sufficiently innovative, is it actually a formal review process that you have to go through?

[Scott Corning:]

Yeah. Andy, this is Scott. New drugs and other medical technologies, they need to meet certain specific clinical value and cost metrics or requirements and so there is an application process that you go through, and these pre-specified parameters boil down to generally representing a cost that is not insignificant to the cost of the procedure that the drug is associated with. And so it kind of boils down to our pricing question and should you meet that threshold and other requirements like being a new and innovative product that doesn't have or just getting approval, you generally qualify for pass-through.

[Andrew Berens:]

Okay. And is there - you mentioned some sort of clock, but is there like a formal period that CMS has to get an answer back to you or is it kind of not specific?

[Scott Corning:]

Yeah. It is fairly specific as we understand it. September, as I said, so it goes quarterly, September is the first opportunity we have to apply after the PDUFA date. I mean September is the first date we have to apply the July PDUFA date and with that, we expect January approval. So there are sort of four month gates. So then, March would be the next approval after that.

[Andrew Berens:]

Okay. And then if you get the pass-through status, you would obviously be pricing it significantly higher, then you would get three years, is that a guaranteed three years?

[Scott Corning:]

Yeah. Pass-through remains in effect for at least two years and no more than three. And so with the current timing, we would be able to maximize the pass-through period at exactly three years and if we were to be delayed by a quarter in our application and subsequent approval, we would then be at two years and three quarters and then another three months would be 2.5 and so on. And so we're currently in position to maximize the pass-through period.

[Andrew Berens:]

Okay. And then after the pass-through period is over, it will become part of the DRG again and what do you foresee with the pricing then like in terms of allergic conjunctivitis, because obviously I think we had thought it would be detrimental to allergic conjunctivitis indication at that level?

[Scott Corning:]

I mean, a lot is going to happen between now and then, we have a lot of work to do on it. We also have our dry eye program, which I think would have serious implications on how we're able to price if we're able to get any sort of induction label or anything associated with dry eye. But we also, as I said, expect to gain more conventional means of reimbursement with the J code in the non-surgical setting and so, we'll see how uptake is outside of surgery, but we also are exploring ways to stay outside the bundle in surgery. And so we need to work on this to see what we can do, but luckily we have three plus years to address it.

[Amar Sawhney:]

So Andy, the allergic conjunctivitis would not be subject to the bundling, because it would have its own separate J code. The question is, are there other office based administrations such as dry eye, which is often times a concomitantly presenting condition with most patients coming for cataract surgery, most elderly patients. And that's why having some level of exploration of getting a dry eye based approval and subsequent reimbursement can be impactful even for this surgical population.

[Andrew Berens:]

Okay. And while the drug is actually in the pass-through status, the 6% ASP, is that paid to the physician or to the surgical center?

[Amar Sawhney:]

The surgical center.

[Andrew Berens:]

Okay. And with the physician, there would be no additional payment to the physician and for the procedure?

[Amar Sawhney:]

So we'll let Dr. Talamo comment on that since he ran his own surgical center.

[Jon Talamo:]

Andy, it's Jon. I think in general, the call point and the place where most of the product inventory is going to land is going to be a surgical facility in the early going, but if a physician in his or her office setting chose to order the product, it would be similar to a buy and bill for other drugs. So it could be a physician practice, it would be the ordering entity, ordering facility.

[Operator:]

Thank you. Our next question comes from Hartaj Singh of BTIG. Your line is now open.

[Hartaj Singh:]

I just had a couple of questions. One is the overall question and second, and I'm really looking forward to the Analyst Day in April. So just as you are thinking about going from being a clinical company to a commercial stage company, what are you thinking in terms of just the operating expenditures, how do you think that will change over the next 12 to 24 months? And then the second question is, in terms of after PDUFA date, can you just outline very clearly what are the clinical and regulatory catalysts we are going to expect before the end of the year? Thank you.

[Amar Sawhney:]

So, let me speak to the regulatory catalyst and then let Brad comment upon the expenses. So the regulatory catalysts that are there before the end of the year include for DEXTENZA, obviously the PDUFA date and the approval for the pain indication. Then comes the allergic conjunctivitis, second Phase 3 read out and then by the end of the year comes the Ocular Inflammation data from the third Phase 3 trial for DEXTENZA. So those are there for DEXTENZA. Other regulatory milestones for OTX-TP would include the beginning of the first of the Phase 3 clinical trials and then another would be some update on the dry eye as to what path may lie forward based on our discussions with the agencies that we plan to have over the next several months, schedule a discussion on dry eye indications and what type of trials may be required to support it and is that really something which we want to pursue moving forward is that a target that we think we can achieve, et cetera. So those are going to be some of the regulatory catalysts lying ahead of us. And then Brad can speak to some of the other stuff?

[Brad Smith:]

Yeah. Good morning, Hartaj. Thanks for joining us. So the guidance we’re giving for 2016 is compared to 2015, where we saw roughly 34 million in operating cash, use of cash in operations. We're looking at a range of 45 million to 48 million. So clearly, a lot of that is driven by building up the sales and marketing infrastructure in connection with our pending approval of DEXTENZA, but also of course all the clinical trial development programs that we will have underway. So, as we have indicated, we expect to start the Phase 3 glaucoma trial, the first of two in the back half of the year. So that's also reflected in those numbers. But it does reflect, as Scott indicated, in 2016, initially starting with 10 sales reps or eight contract sales organization, building medical fares, reimbursement capabilities, so that's all baked into the plan.

[Operator:]

Thank you. And at this time, I'm showing there are no further participants in the queue. I would like to turn the call over to management for any closing remarks.

[Amar Sawhney:]

I want to thank everyone for taking the time to join us on the call today. We feel very confident in our hydrogel-based sustained release platform. We have an NDA filed with the FDA for postsurgical Ocular pain and are waiting potential approval on July 24 of this year. We have recently completed a successful Phase 3 study for allergic conjunctivitis and have observed encouraging results for our candidates for glaucoma, which we expect will soon enable us to initiate our Phase 3 program. We hope to see you all on April 6 at our Analyst Day in New York City as Brad mentioned. We look forward to updating you on our important milestones throughout 2016. On behalf of the entire Ocular team, thank you for all your support. You may now disconnect.

[Operator:]

Ladies and gentlemen, thank you for your participation on today's conference. This concludes your program. You may now disconnect. Everyone, have a great day.