OCUL - NASDAQ

Good day, and thank you for standing by. Welcome to the Ocular Therapeutics First Quarter 2023 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Donald Notman, Chief Financial Officer. Please go ahead.

Thank you, Julia. Good afternoon, everyone, and thank you for joining us on our first quarter 2023 financial results and business update conference call. This afternoon, after the close, 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 first quarter ended March 31, 2023. The press release can be accessed on the Investors portion of our website at investors.ocutx.com. Leading the call today will be Antony Mattessich, our President, and Chief Executive Officer, who will provide an update on our pipeline developments and the commercial progress of DEXTEN

Thanks, Donald, and welcome, everyone, to the Ocular Therapeutics First Quarter 2023 update. We're very pleased with our progress in the quarter, both on the development of our pipeline and the commercial side of the business. Importantly, on the heels of an ARVO meeting last month that highlighted the emergence of TKIs as an exciting new potential option for the treatment of retinal diseases. We thought it would be a good idea to reintroduce OTX-TKI to the many new investors who have recently become interested in the space. We started on our OTX-TKI program because we believe there is a desperate need for novel MOAs that enable new treatment paradigms for VEGF-mediated retinal diseases, like wet AMD, diabetic macular edema, diabetic retinopathy and retinal vein occlusion. Despite the emergence of antibody treatments that have the ability to quickly reduce fluid in the retina, the problem is far from toll and the constraints of current treatment paradigms result in many patients with wet AMD remaining untreated. For those who are lucky enough to get treatment, real-world studies have demonstrated the initial vision games from treatment are not maintained. As a result, VEGF-mediated retinal diseases remaining a leading cause of blindness. So why is there such a need despite seemingly effective therapies? We believe it has to do with deficiencies inherent in those therapies. Efficiencies that OTX-TKI is designed to overcome. Fundamentally, VEGF-mediated retinal disease is caused by cellular dysfunction that results in chronic disease. Existing antibody treatments like EYLEA, LUCENTIS and are only effective in binding the proangiogenic ligands in the extracellular space. Additionally, existing treatment affects only specific ligands, mainly VEGFR-2, while data demonstrates that the presence of all the isoforms of VEGF as well as PDGF play a role in the disease process through other types of receptors. Most important of all, current therapies are delivered as bolus injections into the eye. This results in a period where drug levels are briefly thousands of holes above the IC50 and then quickly fall below therapeutic levels, which may leave the retina unprotected and exposed to disease reactivation. Because of the rapid elimination of these antibody therapies from the eye, there is a need for frequent injections. Frequent injections lead to poor compliance or compliance leads to loss of vision. To reduce the real-world vision loss caused by the in the frequent injections, retina specialists have created a new paradigm of treatment extend Treatment extend is an involved process with the goal of establishing individualized dosing intervals for each patient. It's analogous to a game of chicken with the disease process where the retina is left unprotected without therapeutic levels of medication and the provider tries to time a reinjection as closely as possible to disease reactivation. is also an imperfect process given the natural variability of the disease in a patient and the need for perfectly timed business to be maintained, which is difficult to achieve in the real world. However, it is the best that can be done with the current treatments and is a testament to the inventiveness and patient centricity of the retina community. We believe the world needs a treatment that works inside the cell in binding at the receptor level. that covers all the isoforms of VEGF and PDGF and most importantly, one that can be delivered at a steady state over a long period of time with minimal injections so patients and providers can move on the current treatment approach. With OTX-TKI, we are developing a therapy designed to treat VEGF-mediated retinal disease, like a chronic disease -- like the chronic disease that it is. With a baseline maintenance therapy that stays above therapeutic levels to avoid disease reactivation. Most importantly, it is possible that vision gains may be maintained in the real world with the easier compliance regimens of a long-acting maintenance therapy. In this new treatment paradigm, which we like to call treats to maintain, the antibody therapies would be reserved to do what they do best, removed extracellular fluid quickly and would be reserved in the occasional circumstances when fluid might break through the maintenance therapy, much like a rescue hailer in the treatment of asthma. OTX-TKI is designed to have all of the properties above. Axitinib, the active ingredient in OTX-TKI is highly selective for the VEGFR-2 receptor, which we believe to be the most important contributor to retinal disease and covers all the different types of VEGF and PDGF receptors with negligible affinity to any other receptor. As a TKI, its mechanism of action is working inside the cell. Most importantly, its potency and solubility profile lends itself to formulation with technology allowing for the development of formulations that can deliver continuous therapy for nine to 12 months from a single injection. In designing OTX-TKI, the challenge to our formulas was to develop a product that could deliver nine to 12 months of a continuous dose of axitinib with a single implant. We additionally challenged the team to deliver the implant through a 25-gauge or narrower needle and required that a retreatment window be created for an effective dose of axitinib is still getting to the target tissues after full bioreabsorption of the initial implant. This would ensure that vitreous would never have more than one implant at any one time that the patient would have leeway in scheduling an appointment to be redosed. The data we observe in our clinical, preclinical trials and in vitro trials, the formulations for OTX-TKI appear to be supportive of this target product profile. It is worth saying something about our ELUTYX technology. The hydrogel technology that underpins ELUTYX has been used in the human body since 1992 and has demonstrated its safety and effectiveness in over 5 million patients across 5 FDA-approved devices since that time. Our own approved product, DEXTEN

Thank you, Anthony. Let me begin with an update on our back-of-the-eye program, OTX-TKI. We are currently completing a multicenter prospective mass randomized controlled U.S.-based clinical trial in 21 subjects evaluating a 600-microgram OTX-TKI dose in a single implant containing axitinib compared to set administered every eight weeks in controlled wet AMD subjects previously treated with anti-VEGF therapy. The trial is designed to assess the safety, durability and tolerability of OTX-TKI and to assess biological activity in subjects by measuring anatomical and functional changes of retina. To date, we have reported interim data at two time points, seven months and 10 months, and have not observed any drug-related ocular or systemic series adverse events in OTX-TKI treated subjects. Importantly, the 73% of the OTX-TKI activated subjects who were rescue-free at month seven interim analysis remain rescue-free at month 10, highlighting what we believe is best-in-class durability. Furthermore, we saw in the trial, a 92% reduction in treatment burden for up to 10 months while patients showed stable and sustained best-corrected visual acuity and central thickness comparable with the aflibercept arm dosed every eight weeks. We believe the data highlights the potential OTX-TKI to become a differentiated product capable of providing a durable anti-VEGF response that improves upon today's standard of care in the management of the wet AMD. We continue to have productive dialogue with the FDA and recently completed a formal meeting with the agency that included a discussion of our data and clinical development strategy. Based on the feedback, we believe we have two potential designs for the pivotal design -- pivotal trial. We will share more about the trial design that we plan to use in future and still intend to be prepared to initiate the first two required pivotal trials in wet AMD as early as the third quarter of this year, subject to obtaining the necessary financing. Moving to OTX-TKI for the treatment of diabetic retinopathy. We continue to enroll subjects in a multicenter, prospective masked, randomized, controlled U.S.-based trial in 21 subjects, evaluating a 600-microgram OTX-TKI dose in a single implant containing axitinib compared to a sham injection procedure. We believe the same attributes that make OTX-TKI a compelling product candidate for the treatment of wet AMD. The ease of use of an office-based injection and long-term durability could establish OTX-TKI is the first standard of care in the treatment of diabetic retinopathy. Based on the feedback from the recent agency discussions, we believe we have a potential pivotal design for diabetic retinopathy that is consistent with the FDA's guidance and subject to top line data from our ongoing trial and obtaining the necessary funding, we believe that we will be well positioned to initiate a Phase III clinical trial for this program as early as Q1 2024. We are also making excellent progress with our -- another one of our late-stage pipeline programs, OTX-TIC, our travoprost intracameral implant using our ELUTYX technology being developed for the treatment of patients with primary open-angle glaucoma or ocular hypertension. The ongoing Phase II trial of OTX-TIC is currently enrolling, and we believe we are on track to complete the trial on schedule. OTX-TIC is a program that we believe represents a significant opportunity for Ocular Therapeutix. While there are many medications available to lower intraocular pressure, or IOP, glaucoma remains a leading cause of blindness, in part because of unwanted side effects, improper technique or simply forgetting to take their daily drops, we believe most patients will fail to comply and may ultimately lose their vision. OTX-TIC is being developed to close the gap between clinical trial and real-world outcomes by taking patient compliance out of the equation. We are enrolling approximately 86 subjects in this prospective, multicenter mass, randomized, controlled U.S.-based Phase II clinical trial evaluating the safety, tolerability, and efficacy of OTX-TIC for the reduction of IOP in subjects with primary open-angle glaucoma or ocular hypertension. The trial is designed to observe the changes in IOP from baseline at two, six and 12 weeks and total duration of IOP response over time against travoprost. We look forward to sharing Phase II top line clinical data in Q4 2023 assessing the efficacy and durability of OTX-TIC and as importantly, the preservation of endothelial cell health that could indicate that the product candidate is suitable for repeat dosing. Regarding our ocular surface disease program, we remain committed to the development of our two dry eye programs, OTX-DED, a low-dose intracanalicular insert containing dexamethasone for the short-term treatment of the signs and symptoms of dry eye disease and OTX-CSI, a cyclosporine intracanalicular insert for the chronic treatment of patients with dry eye disease. We initiated a small study in this quarter to evaluate the performance of OTX-DED versus placebo inserts, namely fast-dissolving collagen labs and no inserts at all. We plan to use the results of this trial to inform the selection of a more appropriate placebo comparator for use in future clinical trials for both the OTX-DED and the OTX-CSI that could potentially help derisk their pivotal programs moving forward. I would now like to turn the call over to Steve for a commercial update. Steve?

Thank you, Rabia. On the commercial front, we finished the quarter with DEXTEN

Thank you, Steve. Total net revenue, which includes both gross DEXTEN

Thanks, Donald. So before opening the call up for questions, let me do a quick summary. OTX-TKI continues to progress well, and we are pleased with ongoing FDA communication regarding our potential pivotal programs for both wet AMD and diabetic retinopathy. Enrollment continues to go well in the Phase II trial of OTX-TIC in glaucoma, and we plan to provide top line data in Q4 2023. DEXTEN

[Operator Instructions] Our first question comes from the line of Jon Wolleben of JMP. Your line is now open.

Hi, good afternoon, and thanks for taking my question. A couple on the 12-month data and then a follow-up on the pivotal trial, if I can. Just wondering if you could give us a little bit more granularity on what you expect to see in the 12-month update as axitinib is getting a bioresorbed in the eye? How is that going to manifest as it just going to be seeing fluid pick back up? Or is there some other manifestation? And then at ARVO, you mentioned the average resorbption was about nine months of the hydrogel, but wondering what kind of variability you saw in the patients within that nine-month average?

Well, I mean, what we expect to see at 12 months is that the disease should start to come back in some patients. What we saw in the trial to date is exactly what we anticipated that the hydrogel goes away in a very tight window in about eight months and that there is a release of drug after that, that stays in the retina for a couple of months. some patients, it clears a little faster than others. So, what we expect to see is, is the disease coming back. We enrolled patients in this trial that had a demonstrated need for anti-VEGF therapy so that as that therapy starts to wane, that you would expect the disease process to come back. And while we expect that to vary quite a bit in terms of individuals to individual, we would expect to see some of that back, and that would be reassuring. So that would show that the pharmacodynamics actually are representative of the pharmacokinetic.

Okay. And can you tell us a little bit more about why two different pivotal trial designs? And when you say one could start in third quarter, how you decide which to move forward? And then is it going to be two differently designed pivotal trials or a subsequent trial identical to the first when you start? Just trying to understand that dynamic a little bit better. Thanks.

Our next question comes from the line of Joe Catanzaro of Piper Sandler. Your line is now open.

Hi, guys. Thanks for taking my question. Maybe just one quick one for me on the potential pivotal design for the wet AMD studies. I think I recall previously, there was maybe some speculation that future pivotal design could maybe include two active arms, two different doses, exploring maybe two different formulations. I'm wondering if that is still a possibility between these two potential designs? Or have you sort of formally committed to moving forward solely with the current formulation? Thanks.

And the quick answer to that is yes. The -- one of the pivotal trial design actually would use both formulations and there's another that would only use one formulation. So, we have the ability to go either direction.

Our next question comes from the line of Tara Bancroft of Cowen. Your line is now open.

Hi, thanks for taking my question. So, I understand you're not disclosing specific details, but I was wondering if you can discuss hypothetically what you would consider the most favorable pivotal design, like perhaps elaborating on the pros and cons of choosing EYLEA versus LUCENTIS as a comparator arm and maybe the possibility of using a superiority endpoint? Thanks.

That’s a great question, and I’m not sure I can be suckered into answering at the moment, but there certainly are that there’s lots of options available and also a potential comparator if you’re thinking about a superiority trial. But yes, it’s all to play for. There’s a noninferiority design that looks very interesting, and there are superiority designs that also are good potentials. But I don’t think we can say anything more other than that until we actually set on the path to take.

Okay. Thanks.

Our next question comes from Colleen Kusy of Baird. Your line is now open.

Great. Good afternoon. Thanks for taking my question. So just to clarify, on the two wet AMD trials that you're considering it sounds like one might include two formulations, one might include one. Is there anything else that you're willing to share in terms of how you're thinking about the two different trial designs?

I don't think at this point, it would be wise to do that. But I do appreciate the question and would love to be more fulsome in the response. But until we get some sort of actually nails down, I think it's not wise to say anything more.

Fair enough. And then on diabetic retinopathy, have you discussed with the FDA what the success would be? Or do you have any internal hurdle on what you'd like to show move into pivotal in diabetic retinopathy?

Diabetic retinopathy as far as clear, I can defer Rabia to fill you on where we are with diabetic retinopathy.

Yes. In our Type C meeting, Colleen, we had a discussion on the diabetic retinopathy design as well. Therefore, we have the design agreed by the agency, the design we proposed to them. It would be a TKI versus one injection anything of the -- per our understanding, sham injection is not a good comparator, but any injection would be accepted. That's why that design is clear. It's the injection of TKI at baseline versus an injection on the other comparator and the follow-up for 12 months. It's a very clear design and we are ready to move forward as soon as we have Anthony was pointing out, our partnering process is done.

Okay. Great. That's helpful. Thank you. And just one quick follow-up on the ongoing study in diabetic retinopathy, how much follow-up would we expect to see in the initial readout from that study?

The – I don’t think we disclosed how long the initial readout is going to be top line. That’s why I’m just going to keep it for now. But we do follow up the patients 12 months and even more for the safety reasons.

Our next question comes from Yi Chen of H.C. Your line is now open.

Hi, thank you, for taking my questions. Could you give us a rough estimate of the cost to complete the Phase III trial in wet AMD and the Phase III trial in DR?

Insurance varies widely. It depends on the design of the pivotal and that is -- that's really dependent upon whether we're going to go after a noninferiority design or superiority design. But we're looking at ranges of potentially $70 million for two pivotals in a DR or a superiority in wet AMD to $300 million for two pivotals in a noninferiority. That's kind of wet finger in the air at the moment, but that's -- those are the numbers that we've quoted in the past.

And regarding the Phase II trial in glaucoma, could you talk about your expectations for the top line readout in the fourth quarter?

Rabia, you want to handle that one?

Sure. The -- if we -- like just mentioned, that trial is currently enrolling well. And our expectation is share the top line data in the fourth quarter of this year, that data, of course, would provide the IOP reading as required by the FDA and also durability information. In addition, we're going to have the data on the corneal endothelial cell in that top line.

Okay, thanks. Last question is, when can we expect to see the results from the small study of OTX-DED?

Yes. We have recently initiated that trial and the -- we have not guided any time line to share the top line data yet. In future, we're going to share when the data should be expected.

[Operator Instructions] Our next question comes from the line of Caroline Palomeque of Berenberg Capital Markets. Your line is now open.

Hi, thanks for taking my question. So, on the expenses, you mentioned that there's revised pricing and the discounting strategy that you've implemented in the third quarter. Just wondering if you could elaborate more on that and particularly how that is affecting your gross to net? And then just a follow-up. On the business side, just wondering if also do you have any guidance on operational spend for 2023?

I’ll defer this to Steve; I just want to there has been no change in the gross to net from the fourth quarter of last year until the first quarter of this year. So, the growth in in-market sales is and the decrement in net sales is due entirely to a stockholder to the distributor stockholding. So, I’ll turn on to Steve for the changes in our discounting.

Yes. Thanks, Anthony. Last year, from January until June, customers were purchased index the acquisition cost was higher than the reimbursement. And following the close of a quarter, the customers were getting a rebate. They didn't like the cost economics of that. In July, we changed our pricing strategy so that the customer would get a discount at the time of purchase. So, we provide a discounted acquisition cost that they got below equaled reimbursement in July, starting in July of last year. It took about three months for our customers to get appointed with this. But since then, we've seen tremendous growth in both Q4 and Q1 and customers now get a discount at the time of purchase and then they also get rebates at the end of the quarter. That's determined by their aggregate purchases throughout the quarter.

That’s helpful, thanks.