Ocular Therapeutix's (OCUL) CEO Amar Sawhney on Q2 2016 Results - Earnings Call Transcript

| About: Ocular Therapeutix (OCUL)

Ocular Therapeutix (NASDAQ:OCUL)

Q2 2016 Earnings Conference Call

August 09, 2016 08:30 AM ET

Executives

Brad Smith - CFO

Amar Sawhney - President, CEO and Chairman

Eric Ankerud - EVP of Regulatory

Analysts

Adnan Butt - RBC Capital Markets

Ling Wang - BTIG

Operator

Good morning, ladies and gentlemen. Thank you for standing by. And welcome to the 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 Chelsea. Good morning everyone thank you for joining us on our second quarter 2016 earnings and corporate update conference call. Earlier this morning, we issued a press release providing an update on the Company's product development programs and details of the Company's financial results for the second quarter ended June 30, 2016, which 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, CEO and Chairman, who will provide a summary of our recent clinical and corporate developments, as well as provide an overview of the various key milestones expected through the remainder of the 2016 and beyond. Following Amar's remarks, I will provide an overview of the financial highlights for the second quarter before opening the call for questions. Amar and I are also joined on the call today by Eric Ankerud, our Executive Vice President of Regulatory, Quality and Compliance; Scott Corning, our Vice President of Sales and Marketing, and Dr. Jon Talamo, our Chief Medical Officer.

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 act under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factor section of our most recent quarterly report on Form 10-Q on file 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 Dr. Amar Sawhney.

Amar Sawhney

Thank you, Brad. Good morning everyone and thank you for joining us on our call today. I would like to start off by providing a bit more clarity around the recent news with respect to our new drug application or NDA for DEXTENZA for the treatment of ocular pain following ophthalmic surgery. As a reminder the FDA accepted our NDA for review in December, 2015 and we were subsequently issued a target action date under The Prescription Drug User Fee Act of July 24, 2016. The data included in the NDA are from a phase 2 clinical trial and two phase 3 clinical trials conducted with DEXTENZA for the treatment of postsurgical ocular pain and inflammation. On July 25, we announced that we have received a complete response letter or CRL from the FDA. A CRL is issued by the agency when they have completed review of an NDA but cannot approve the application in its current form. Importantly, the CRL did not identify any deficiencies with regards to efficacy or safety concern in the clinical data provided from the NDA for ocular pain indication or any need for additional clinical trials for the approval of the NDA.

The items raised in the FDA’s CRL pertained to deficiencies in manufacturing, process and controls which were originally identified by the FDA during pre-NDA approval inspection of the ocular therapeutics manufacturing facility earlier this year. After the FDA’s facility inspection we were issued a Form 483 sighting ten observations. We disclosed the issuance of the Form 483 in our last 10-K filing and our subsequent 10-Q filings. Shortly after receiving the Form 483 we submitted a response back to the FDA including corrective actions in an effort to address these observations. We then received the CRL which did not provide any specific details as to which of the ten manufacturing observations identified during the pre-NDA approval facility inspection remained open since the last responses submitted back to the agency. On August 3, 2016, we announced that we had received a letter from the FDA's New England district office noting that the corrective actions detailed in our responses as a whole appear to address the ten inspectional observations raised in Form 483 with one exception.

The exception relates to the proposed process for identity testing of an incoming inert gas compound used the DEXTENZA manufacturing process. In this letter, the FDA also requested that we provide evidence in the form of a final report when migration to automatic integration of analytical testing as complete anticipated during the third quarter of 2016. We continue to work closely with the FDA to resolve this remaining manufacturing item so they are able to finalize our review of the NDA. We are planning for a resubmission to the NDA as soon as possible and are optimistic that DEXTENZA will be approved as soon as this open item is closed. We are committed to bringing DEXTENZA to market and continue to build our commercial organization and infrastructure in preparation for the earliest possible launch of DEXTENZA.

As we have previously stated, should the FDA grant marketing approval for DEXTENZA for the treatment of ocular pain occurring after ophthalmic surgery we expect to apply for a pass-through reimbursement code used in hospital and ambulatory surgery center setting. Pass-through payments provide temporary transitional reimbursement for innovative new products for a period of up to three years. We intend to launch DEXTENZA in the US through direct sales leadership and through a contract sales organization or CSO with sales representatives 100% dedicated to DEXTENZA. If approved by the FDA we believe DEXTENZA would be the first and only steroid not containing preservatives approved to ophthalmologists for this indication and the first and only FDA approved drug to provide a complete course of therapy for this indication with a single placement.

Approximately 5.3 million ophthalmic surgeries are performed each year including almost 3.8 million cataract surgeries. So the postsurgical indication represents a significant potential market opportunity for DEXTENZA. To capitalize on the broader opportunity for the sustained delivery of corticosteroids to the front of the eye, we are pursuing additional indications for DEXTENZA in addition to the postsurgical ocular pain including the treatment of postsurgical ocular inflammation, ocular itching associated with allergic conjunctivitis as well as signs and symptoms associated with inflammatory dry eye disease. This past quarter we completed enrolment in our third phase 3 clinical trial with DEXTENZA for postsurgical ocular inflammation and pain, and expect topline results from this study to be available in the fourth quarter of 2016. Assuming favorable results from the third phase 3 trial later this year and subject to the potential approval of our NDA for postsurgical ocular pain, we plan to submit an NDA supplement for DEXTENZA to include a postsurgical ocular inflammation indication.

In June 2016, we reported topline results for our second phase 3 clinical trial to evaluate the safety and efficacy of DEXTENZA for the treatment of allergic conjunctivitis. As you know we missed the single primary endpoint in this trial defined as a difference in the mean scores in ocular itching between the treatment group and the placebo comparator group at three time points seven days following insertion of the depots. The results from this trial contrasted those achieved in the first phase 3 trial of DEXTENZA for the treatment of allergic conjunctivitis announced in October of 2015 in which the primary endpoint of treatment of ocular itching associated with allergic conjunctivitis was successfully achieved. There appear to be a greater variability in ocular itching exhibited by patients in the second phase 3 trial over the multiple allergen challenges 7, 14 and 28 days following insertion of the depots compared to the first phase 3 trial.

In a post doc analysis when ocular itching scores were average across these multiple visits, a statistically significant reduction of symptoms over the entire one-month intended duration of sustained release single-dose therapy was observed in the DEXTENZA treatment group relative to the placebo vehicle group. We have met with the FDA regarding the results of the second phase 3 trial. Pending receipt of their written feedback which is expected later this month, we will provide further guidance on the clinical development path forward for this indication. Regarding dry eye, we saw encouraging results from an exploratory phase 2 trial with DEXTENZA for the treatment of dry eye disease. While this 43 patient phase 2 study was not designed to show our statistical significance, signs of total corneal staining at day 30 following randomization decreased by statistically significant level from baseline in the DEXTENZA group compared to the placebo group.

Inferior corneal staining also showed clinically significant differences in the change from baseline in the DEXTENZA treatment group compared to placebo. Corneal staining is a primary endpoint related to signs of dry eye disease that has been used in recent phase 3 dry eye trial clinical trials conducted by other ophthalmology companies. We have also noted that symptoms related to eye dryness have been recently used as a primary endpoint related to symptoms of dry eye disease. We are evaluating potential clinical trial designs for late stage clinical development in dry eye related indications which would potentially use similar endpoints. Turning to OTX-TP, our sustained release travoprost drug product candidate for the treatment of glaucoma and ocular hypertension. We are gearing up to initiate our first of our two planned phase 3 clinical trials in the third quarter of 2016. Our phase 3 development program will include two clinical trials which will both include OTX-TP treatment arm and a placebo-controlled comparator arm using a non-drug eluting hydrogel-based intracanalicular depot.

Importantly, the phase 3 study design will not include a timolol comparator of validation arm and will not have eye drops, placebo or active administered in either arm. We believe that this design reflects an appropriate real-world clinical study design for OTX-TP. We believe that the presence of a placebo plug may have enhanced the effect of timolol in our phase 2b trial and that placebo eye drops used in the OTX-TP treatment arm; they have diminished the effect of OTX-TP. In a pilot clinical trial with an OTX-TP arm with no placebo eye drops there was a greater IOP lowering effect compared with the phase 2b trial. The primary efficacy endpoint will be superiority in the reduction of intraocular pressure from baseline with OTX-TP compared to placebo.

As with other first-line therapies, the FDA would like OTX-TP to demonstrate clinically evaluate IOP lowering in addition to the statistical improvement over placebo. OTX-TP has shown clinically meaningful IOP lowering in clinical trials to-date and may offer an important advancement in the treatment of glaucoma addressing the major issue of patient compliance. Lastly, we also continue to move forward on our sustained release protein-based anti-VEGF drug depot for the treatment of back of the eye disease including wet age-related macular degeneration or AMD. We are pursuing this in addition to a small molecule TKI initiate. We continue to pursue potential partnerships with strategic partners and are encouraged by the progress of these discussions. We hope to have an update for you during the coming months.

With that, I will now turn the call back over to Brad, who will review our second quarter 2016 financial results.

Brad Smith

Thanks Amar, first with regard to our cash and investment position, as of June 30, 2016, we had $83.9 million in cash, cash equivalents and marketable securities. Our cash used in operating activities was $9.8 million in the second quarter of 2016 compared to $8.5 million for the same quarter in 2015. We expect cash used in operations to be $45 to $47 million for full-year 2016 and expect capital expenditures to be in a range of $4.5 to $5.5 million. This is of course subject to a number of assumptions about our clinical development programs, the commercialization of DEXTENZA and other aspects of our business. This spending will be driven by our phase 3 OTX-TP program for the treatment of glaucoma and ocular hypertension. As Amar indicated, we’ll be starting - expect to start the first of two phase 3 trials in the third quarter of this year. The Phase 3 DEXTENZA programs for the treatment of post-surgical pain and inflammation and allergic conjunctivitis, as well as our clinical development efforts on our dry eye program and preclinical development efforts on our hydrogel depot delivering anti-VEGF drugs for the treatment of wet AMD. It will also be driven by our investment in the anticipated initial commercialization of DEXTENZA with the level of spending subject to the approval of our NDA for ocular pain following ophthalmic surgery.

The expected capital investment of 4.5 million to 5.5 million in 2016, net of a tenant improvement allowance, is primarily for build-out costs and modifications to a new building we will be occupying in 2017 that was previously occupied by another life sciences company. While there are existing R&D labs and clean rooms and existing infrastructure supporting our manufacturing and R&D requirements, we do need to make modifications to the space, build several additional clean rooms and purchase new equipment to outfit this facility.

Importantly, we plan to operate our existing manufacturing facility in parallel with the new facility for a period of time and we'll use the existing facility for the initial supply of DEXTENZA after our commercial launch subject to FDA approval of our NDA. We expect existing cash, cash equivalents and marketable securities to fund the company's operating activities, capital expenditures and debt service through the third quarter of 2017. We had 15.6 million in outstanding debt as of June 30, 2016 and at this point, no principal payments will be due until January 2017.

For the second quarter ended June 30, 2016, we reported a net loss of 11.4 million or a loss of $0.46 per share. This compares to a net loss of 10 million or a loss of $0.45 per share for the second quarter of 2015. The net loss for the second quarter 2016 included a $1.5 million non-cash charge for stock-based compensation compared to $1.2 million in similar charges in the same quarter in 2015.

Revenues for the second quarter of 2016 totaled 441,000 from sales of ReSure Sealant. As previously stated, we don't expect product revenues from the sales of ReSure to be material in 2016 as we've continued to defer the deployment of a sales force and to a launch our first sustained release drug delivery product, DEXTENZA, again subject to FDA approval.

Total costs and operating expenses during the second quarter 2016 were 11.5 million, which compares to 10.1 million for the same quarter in 2015, primarily reflecting an increase in our investment in the advancement of our programs in to later stage clinical trials, including the third Phase 3 trial of DEXTENZA for the treatment of ocular inflammation and pain following ophthalmic surgery as well as an increase in sales and marketing expenses as we prepare for the potential launch of DEXTENZA for the ocular pain indication, subject to FDA approval.

Research and development expenses totaled 7 million in the second quarter of 2016 compared to 6.7 million in the second quarter of 2015. We had approximately 24.8 million shares of common stock outstanding as of the end of June.

This concludes my comments on the second quarter 2016 financial results and we'll now turn it back over to Chelsea to get our Q&A started.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question comes from the line of Adnan Butt with RBC Capital Markets. Your line is now open.

Adnan Butt

Hi, good morning. Thanks for the question. First on DEXTENZA, could you shed some light on what negotiations are around for the NDA, is it about the timing of the filing, is it the actual label language and then the label that the company is seeking, is that for post-operative pain in the eye or is that for cataract specifically?

Eric Ankerud

This is Eric Ankerud. The label indication is for treatment of post-operative pain occurring after ophthalmic surgery. The negotiation that we are currently having with FDA is in regard to the complete response letter and closing out the one observation. We have been in dialog with FDA and based on feedback, are preparing to submit a meeting request to discuss that topic with the agency and expect during that conversation to come to an agreement on our response to the one outstanding observation pertaining to the incoming inert gas and also in regard to timing for the agency’s review to close out that issue.

Adnan Butt

So, thanks. Just the follow-up here, what are the timing of review scenarios once your response for the inert gas testing is submitted?

Eric Ankerud

We are going to propose based upon feedback with our consultants, we’re going to propose to FDA that this be considered a minor resubmission and in classifying the resubmission as minor, the review time is 2 months or less.

Adnan Butt

Okay. And just a question on the other, question on OTX-TP, as you’re aware different drugs are in development with different delayed release profiles. OTX-TP is, you’re gearing for a three month release. Now, is there expertise in house to have a longer duration OTX-TP should you choose to do it or what’s your thinking around the optimal period still? Thanks.

Amar Sawhney

Adnan, this is Amar. I think short answer of do we have the expertise to design longer release systems, answer is yes, we do. There is basically going to be an extension of what we’re considering. Are we engaged in developing OTX-TP, which is administered, inserted into the canaliculus for a longer period than three months, answer is no, we’re not engaged in that work right now. It has to do not only with whether the duration of release, but also the amount of drug that you want and given the drug loading can only be of a certain amount, given the canaliculus’s size, it is not possible to, right now, think about a six month release profile with enough drug being released. So that’s the primary reason.

There may be other approaches that we would be considering. We haven’t talked publicly about them. We are in the process of evaluating some of them, should we make meaningful advances along those lines, where less drug would be required because you’re putting it in a more closer to the target location, then we might be able to do that for longer duration. So that is still in the research process, but for clinical development, we are focusing on the three month profile.

Adnan Butt

Thank you. Thanks.

Operator

Thank you. [Operator Instructions] And our next question comes from the line of Ling Wang with BTIG. Your line is now open.

Ling Wang

Thank you for taking my question. Can you provide more color on the mechanism of the pass-through reimbursement, is there a timeline within which the CMS is supposed to get response to you after you submit that application?

Amar Sawhney

Yes. Typically, when you complete the application by the first business date in a given quarter, the earliest date for pass-through to be effective is the following quarter. So for example, if we were to put an application in by the first business date in September, the earliest date for pass-through to be effective would be January 1st. And we are encouraged by a proposed ruling by CMS to change the cycle, such that products applying for pass-through status regardless of the time of the year of submission of their application, they would have three years of transitional pass-through payment status. So regardless of the quarter that we apply for pass-through, we hope or expect or anticipate to have a full three years of pass-through payment status.

Ling Wang

I see. And then a follow-up on the [indiscernible], the observation on the manufacturing, you mentioned that you proposed, you wanted to propose to the FDA for the resubmission to be considered as minor resubmission, I was wondering what are the other classifications, like that are out there?

Amar Sawhney

Well, there are -- an alternative classification would be a major resubmission. We believe that our plan for a minor resubmission is due to the fact there is only one outstanding observation to address a relative straightforward observation. A major observation has different timing, according to the significance of the response. But we believe strongly that our submission, our resubmission is classified as minor.

Ling Wang

I see, but can you give us some estimate as to how long it might take you to prepare all the results for this opening issue?

Amar Sawhney

We are requesting a meeting with the agency in the September timeframe and if that meeting is granted in that timeframe, we expect to be able to resubmit to the NDA shortly thereafter.

Ling Wang

Okay. Thank you.

Operator

Thank you. If there no further questions, I will now turn the call over to Amar Sawhney for closing remarks.

Amar Sawhney

I want to thank everyone for taking the time to join us on the call today. We look forward to providing you with updates on our NDA for DEXTENZA for the ocular pain indication. Our Phase 3 plans for OTX-TP for the treatment of glaucoma and developments with our back of the eye anti-VEGF progress as well as progress on our other programs in the pipeline. We remain confident in the potential of our innovative, sustained release platform to address diverse applications in ophthalmology. On behalf of the entire Ocular team, thank you for all your support. You may now disconnect.

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