George Migausky - Interim CFO Antony Mattessich - President and Chief Executive Officer Amar Sawhney - Executive Chairman Dan Bollag - Senior Vice President, Regulatory Affairs, Pharmacovigilance & Quality Eric Ankerud - Senior Advisor Scott Corning - Vice President, Marketing and Commercial Operations..

Dane Leone - BTIG Yi Chen - H.C. Wainwright.

Good afternoon, ladies and gentlemen. Thank you for standing by. And welcome to the Ocular Therapeutix Q2 Earnings 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 Mr.

George Migausky, Interim Chief Financial Officer of Ocular Therapeutix. Please go ahead, sir..

Thank you, Andrew. Good afternoon, everyone, and thank you for joining us on our second quarter 2017 financial results and business update conference call. Earlier this afternoon, we issued a press release providing an update on the company's product development programs and details of our financial results for the quarter ended June 30, 2017.

The press release can be accessed on the investor portion of our website at investors.ocutx.com. Leading the call today will be Antony Mattessich, President and Chief Executive Officer, who will provide a summary of our recent corporate developments.

And following his remarks, I'll provide an overview of the financial highlights for the second quarter of 2017 before we open the call for questions. For Q&A, we are also joined by Dr. Amar Sawhney, Executive Chairman, Dr.

Dan Bollag, Senior Vice President, Regulatory Affairs, Pharmacovigilance and Quality; Eric Ankerud, Senior Advisor and Scott Corning, Vice President of Marketing and Commercial Operations. 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 by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent quarterly report on Form 10-Q, which was filed with the SEC, earlier this afternoon.

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 point in the future, we specifically disclaim any obligation to do so even if our views change.

I'll now turn the call over to Antony..

Thanks, George, and good afternoon, everyone. This is my first afternoon to speak as CEO of Ocular so please forgive me if I take a different tone or provide less granularity than you're used to.

I will go through a brief high-level status update later, but first, I want to take a few minutes to give a perspective on what brought me to Ocular and what my vision is for its future.

For those of you who know Mundipharma, where I come from and its associated companies, you'll know that by any standards, it's a leading formulations company having developed products like OxyContin and Targin that have recorded multiple billions of dollars in sales.

In running Mundipharma international for the last 7 years, and living in it for the last 13, I understand how to assess the value and potential of a formulation platform.

I've spent a good deal of my life scouring the globe for new formulation technologies, diligencing their capabilities, bringing them to market and then commercializing them through their life cycles. I believe I understand the space as well as anyone.

Quite simply, I believe hydrogel is a tremendous formulation platform, and that is why I moved myself and my family to Boston to be part of Ocular Therapeutix. Unlike most other depot formulation technologies, it has been in the human body in significant amounts in millions of patients to date.

It's fully absorbable and has been used in many environments in the human body without significant known side effects to date. It appears to be versatile and programmable in its drug-release potential. It can be formulated both with small molecules as well as large proteins. In short, it is a well-suited platform for drug-eluting depots.

So what needs to be done to validate the platform? Clearly, we need to get a product to market. As a first application, ophthalmology is a logical choice both in terms of commercial potential and patient needs.

DEXTENZA is important to the future of the company, primarily because it can potentially validate the hydrogel drug as an insert in the intracanalicular space, laying the groundwork for OTX-TP as well. The next step is to prove hydrogel's utility in the intracanalicular and intravitreal space with both OTX-TIC and OTX-TKI, respectively.

The platform could be assessed for its growth potential along 2 axis. The first in the new areas of the body, and the second is with new compounds.

We clearly understand that we need to work - work needs to be done in order to evaluate, and then execute upon any applications beyond ophthalmology, such as expansion of the use of the current Incept license to encompass additional areas of inquiry.

The real potential of our hydrogel will come when we can demonstrate that the platform can improve the performance of large proteins like monoclonal antibodies.

This is precisely what we're aiming to do on our collaboration with Regeneron for a once 6-monthly formulation of Eylea that we hope to move into nonhuman primate study before the end of the year. We believe there is an enormous potential for developing biobetters with the marriage of the hydrogel platform and monoclonal antibodies.

Having launched the first 2 monoclonal antibodies biosimilars in Europe in infliximab and rituximab, I'm bullish on the vast potential of this space. So what do we need to do to achieve this vision? Well, first and foremost, we focus on our core differentiators, the premier formulators of hydrogels, to improve drug delivery.

With the team we have in place of Art Driscoll and Pete Jarrett and with the continued involvement of Amar Sawhney, we have both the ability and expectation that Ocular will continue to be a leader in this area. Second, we need to continue to deepen our expertise in biopharmaceuticals.

Here we have a ways to go, but certainly, with my appointment, with the recent appointment of Dan Bollag to lead Regulatory and Quality, we have added over 50 years of biopharma experience in the senior leadership team. There are opportunities to further improve both on the clinical and, clearly, in the technical operations side.

We are actively seeking senior leaders in these areas with deep roots in biopharma. Third, we need to aggressively seek new partnerships. Until now, aside from our Regeneron collaboration, we have done everything by ourselves. Our goal has been to become a fully-integrated biopharmaceutical company.

While we may still wind up taking some of our products through to market, particularly within the ophthalmology in the U.S., we need partnerships in order to access the capital and novel molecules to fully leverage the potential of our platform.

We hope to become the go-to technology for any company with a valuable molecule that can benefit from a depot formulation. Fourth, we need to think globally. While the U.S. has been our focus to date, we will be looking at all of our projects on a global basis going forward.

Another of the key benefits of the hydrogel platform is the low production cost, allowing potential bottom of the pyramid plays in nearly any market or market segment in the world. My experience in both the international and established brand markets will add to Ocular's capabilities in this area. Finally, we need to enhance our credibility.

Clearly, with the recent events around the Complete Response Letter from FDA for DEXTENZA, Ocular needs to enhance its credibility. While I'm sure you're all hoping and expecting for a definitive timeline for the resubmission of the NDA for DEXTENZA, I will not permit anyone on the team to give specific guidance.

This is just the beginning of my second full week and I will not commit the organization to any timeline until I understand, with great clarity, the path forward. I will say though that I believe the issues played out in the 483 can be resolved. Regardless, our intention going forward is to under-promise and over-deliver.

So this is the vision and how we hope to achieve it. I think, in short, we realized that the delivery of the near-term pipeline is the key to success of Ocular, but I hope it was clear that the value of the platform goes far beyond that. It's clearly the task to demonstrate that going forward. Now for the high-level status update.

As mentioned previously, the team is working very hard for the timely resubmission of DEXTENZA.

While the CRL was painful, it does allow us time to complete a root-cause analysis on the particulate issues and run multiple potential solutions in parallel, so we don't just solve specific issues to clear the 483, but settle on an optimized robust process for the manufacture of DEXTENZA going forward.

We continue to make progress on all approaches and should be in a position to settle on the preferred method shortly and begin to manufacture our validation batches. There's a number of validation batches required that will be one of the key drivers of the timeline for resubmitting our NDA.

While much of the focus has been on DEXTENZA over the last month, our pipeline also includes OTX-TP and OTX-TIC to treat glaucoma and ocular hypertension, and OTX-TKI and anti-VEGF protein depots for the treatment of retinal diseases such as age-related macular degeneration, diabetic macular edema and retinal vein occlusion.

We continue to enroll patients on our first Phase III clinical trial with OTX-TP for the treatment of glaucoma and ocular hypertension. As a reminder, one of the biggest unmet needs in the treatment of glaucoma and ocular hypertension is a solution for the lack of patient compliance. OTX-TP is being developed to specifically address this need.

As an update for this trial, all clinical sites are activated, and we are pleased with the pace of enrollment. As we stated when we initiated the trial, the primary efficacy endpoint is the physically superior reduction of intraocular pressure from baseline with OTX-TP compared to placebo at 2, 6 and 12 weeks following insertion.

These include statistically superior IOP reduction at 3 diurnal time points of 8 a.m., 10 a.m. and 4 p.m. at each of these weeks. In addition, while not a specific trial endpoint, the IOP reduction will also need to be clinically meaningful for regulatory approval.

Unlike the Phase IIb trial, the Phase III trial was designed - does not include a timolol comparator and does not have an active or placebo eyedrops administered in either arm. The comparator arm utilizes a non-drug-alluding hydrogel-based intracanalicular insert.

The study design is more appropriate for a real-world comparison and eliminates the potential for bias introduced by a double-dummy design, as was used in the Phase IIb trial. As a reminder, the Phase IIb was designed to assess clinically meaningful response treatment and to guide our Phase III program.

It was not powered to measure any efficacy endpoints with statistical significance. Some important protocol modifications were identified from post hoc analysis, including the need for longer washout duration, screening for a minimum level of IOP lowering response to prostaglandins and not using any eyedrops in either arm.

Additionally, based on learning's from non-significant risk medical device studies, the physical profile of the insert was also optimized for ease of insertion by adding a dissolvable polymer tip that self-lubricates the insert entry into the punctum. This modification does not impact drug release.

The current designs of the OTX-TP insert and the Phase III clinical trials were finalized following discussions with the FDA.

We expect top line efficacy data from the first Phase III trial to be available in the second half of 2018 and we plan to initiate our second Phase III clinical trial with OTX-TP for the treatment of glaucoma and ocular hypertension by the end of 2017.

In parallel, we are making strong progress in the development of OTX-TIC, which is a bioresorbable travoprost-containing hydrogel depot delivered intracanaliculary with a fine gauge needle injection.

We are developing OTX-TIC to address the need for a higher level of intraocular pressure reduction for some patients who have moderate to severe glaucoma where, for example, 7 to 9 millimeters of IOP decrease is desirable.

These patients often placed on multiple drugs or combination drugs and/or undergo invasive surgery to achieve this level of effect. Our initial target duration of release with OTX-TIC is up to 4 months, though the clinical study will explore duration of up to 3 months.

Preclinical studies to date have demonstrated good safety, clinically meaningful interocular pressure lowering and favourable pharmacokinetics in the aqueous humor of animal models of up to 4 months. We expect to initiate a pilot human clinical trial with OTX-TIC later in 2017 to assess safety and obtain initial efficacy data.

The study will be a prospective, single-center, randomized, double mass sham-controlled study to evaluate the safety, initial efficacy and power ability of OTX-TIC compared to travoprost eyedrops in up to 20 patients with open-angle glaucoma or ocular hypertension.

If the results from this trial are promising, we plan to advance OTX-TIC into a Phase II clinical development program. Turning to our back-of-the-eye efforts, we continue to advance our tyrosine kinase inhibitor intravitreal depot program, OTX-TKI, which we expect to enter Phase I clinical testing by the end of the year.

OTX is a preformed bioresorbable tyrosine kinase inhibitor containing hydrogel fiber depot with an angiogenic - with angiogenic properties delivered by intravitreal injection.

At the ARVO Annual Meeting in May, the company presented preclinical data demonstrating for the first time the ability to deliver an efficacious does of a TKI to the posterior segment of the eye for the treatment of VEGF-induced retinal leakage for an extended duration of up to 6 months.

Along with our partner, Regeneron, we also continue to make good progress on the development of the sustained released formulation for the VEGF trap aflibercept or Eylea, as well as other protein-based biologics targeting VEGF for the treatment of serious retinal diseases such as wet AMD.

We value our partnership with Regeneron and I believe it speaks to the innovative nature of our company. I will now turn the call back over to George who will review our second quarter 2017 financial results..

Thanks, Antony. Let me begin by summarizing our capitalization as of June 30, 2017. At that time, we had $66 million in cash, cash equivalents and marketable securities. We also have an available at-the-market program, ATM, under which shares of our common stock may be sold from time to time.

We had approximately 29.1 million shares issued and outstanding at June 30, 2017. With respect to operations, during Q2 2017, our operating cash burn was $11.3 million during the quarter.

As we announced last week, going forward, we expect to realize savings in operating expenses, including personnel costs, as a result of streamlining headcount by approximately 19% as part of an initiative to enhance operations and to reduce expenses.

With these anticipated cost savings and based on our current plans and forecasted expenses, we believe that existing cash equivalents and marketable securities will fund operating expenses, debt service obligations and capital expenditures through the third quarter of 2018.

This is, of course, subject to a number of assumptions about our clinical development programs and other aspects of our business.

With respect to financial results for the second quarter ended June 30, 2017, we reported a net loss of $18.7 million or $0.64 per share, and this compares to a net loss of $11.4 million or $0.46 per share for the second quarter of 2016.

Net loss for the second quarter of 2017 included $2.1 million in non-cash charges for stock-based compensation and depreciation compared to $1.7 million in similar non-cash charges for the comparable quarter in 2016.

Research and development expenses totaled $8.1 million in the second quarter of 2017 compared to $7 million in the second quarter of 2016 as we continue to advance the clinical and preclinical development of our hydrogel platform technology and the portfolio of drug product candidates.

Selling and marketing expenses for Q2 2017 were $6.8 million, and this primarily represented the costs of pre-commercial activities in preparation for the launch of DEXTENZA.

And as I mentioned earlier, looking ahead and in conjunction with the reorganization implemented last week, the selling and marketing costs are expected to decrease significantly over the next several quarters. Revenues for the second quarter of 2017 totaled approximately $400,000 from sales of ReSure Sealant.

And as has been noted in the past, we don't expect product sales - product revenues from the sales of ReSure to be material in 2017. That concludes my comments on our second quarter financial results. And so I'd now like to turn the call back over to the operator, and we can go ahead and take your questions..

Thank you. [Operator Instructions] And our first question comes from Dane Leone with BTIG. Your line is now open..

Hi. Thanks, guys. Thank you for taking the questions and congrats, Antony, on taking the helm.

So maybe to start, just I know you're staying away from creating a definitive timeline for the resub on DEXTENZA, but could you maybe flesh out a little bit what you think needs to be done to actually get the NDA resubmission? I think a number of us are just trying to understand what submitting a number of validation batches means in the context of what was said previously.

And then, I guess it seemed like you were maybe implying more needs to be done than just a validation batch on that new part and the machine that was cutting up the insert, so anything there? And maybe I have one more follow-up question. Thank you..

Yes. I mean, the number of validation batches in particular is really a matter of discussion with the FDA, and it's not entirely clear at the moment how many those will be.

I guess, the question about what needs to be done in terms of a full timeline in time and events, we're not going to go into with any granularity about what precisely needs to be done. As I mentioned in my comments, we're unhappy about the CRL, but we're at least happy to have some time to be able to optimize the process we have going forward.

So I'm sorry if I can't be very specific about what these elements are. I'll turn it over to Dan Bollag after I sort of prevaricate for a little while, but we are trying not to be too granular at this point.

That won't be our moniker going forward, but I really want to understand, and as I said in great detail, what it looks like and metabolize it myself before I start committing too many things in the public forum.

So Dan?.

Thanks, Antony. Yes, this is Dan Bollag. Maybe I'll just add a little bit as well. I understand, of course, the great interest in getting clarity on the details of how it will be moving forward, but I don't think we are in a good position to give those details right now.

We're certainly looking into a number of process modifications that will help reduce the level of the particulates and to control those as well. So that's very important ongoing work.

Overall, my intention is then to engage with the FDA and gain agreement with them about a resubmission plan, and I think once we have a sense of that, we'll have much better feeling for the timing and we'll be able to inform you. But today, it's just a bit too early to get into much more detail..

Okay. Can I just ask one clarifying question on that? And this is - maybe I asked the first question quarterly [ph]. But I think people are trying to - and of course, you guys are in a tough position versus what was said previously versus what you're saying now.

But I think what us on the call are trying to understand is, is the issue with the particulate matter now more global or across a number of different processes versus what was previously communicated as being an issue with one part and one machine? I don't know if that's clear in terms of what I'm trying to ask?.

I think the understanding is that it's - the particulate matter came from the cutting process, if that's what you are asking. I think that's still the presumption. So I mentioned in my comments, we're doing a fairly thorough root-cause analysis to sort of see - to confirm the suspicions that it was from the cutter itself.

Does that answer the question?.

Okay. So it's still - okay, yes, I think we're getting there.

So what you're saying is you're still doing the analysis to fully understand whether the particulate matter was coming from the cutter specifically, or there might be other parts of the production process that was adding particulate matter, is that what you're saying?.

I think it's a proper way to paraphrase it. But I think the obvious thing is to say it's from the cutter. And rather than just sort of accept the obvious, I think it's very important to deconstruct the entire process and see where a particulate could be getting in at any part of it.

I fully expect that we'll reconfirm what the assumptions are, but it's a good opportunity to step back and sort of deconstruct the entire thing..

Okay, understood. Thank you..

And our next question comes from Yi Chen from H.C. Wainwright. Your line is now open..

Hi. Thank you for taking my question. I think - if I recall correctly, I think in your prepared remarks, you mentioned that the OTX-TP first phase pre-trial is not powered to show statistics significance.

Is that correct?.

No. We said that the Phase II trial was not powered to show statistical significance, just to inform the protocol in the Phase III..

Okay.

So what is the power of the Phase III currently ongoing?.

It's powered at a 90% confidence to be able to demonstrate a difference versus placebo..

Okay. Got it.

And how confident are you currently about this Phase III trial to show statistical significance? And you plan to initiate a second Phase III trial while not having any interim readout from the ongoing first Phase III, is that correct?.

Yes. The initiation of the trial for the Phase IIIb will start before the top line readout of the Phase IIIa, which is very normal for Phase III trials, not to wait for the readout of one before you start another..

Got it.

And from your perspective or from FDA's perspective, what is considered a meaningful reduction in the intraocular pressure?.

I'll let Dan handle that..

Clinically meaningful, well, I think that it's - there have been studies conducted in the past. My understanding is that somewhere in the order of 5 millimetres of IOP reduction is often considered something that would be clinically meaningful. I don't - I'm not aware that we have a specific target that we've agreed to with the agency.

And so, I do believe that the trial results will be reviewed at the time based on how the trial was conducted and the relevant comparisons..

Okay. Got it. Thank you..

I'm showing no further questions at this time. I will now turn the call back to CEO, Antony Mattessich, for closing remarks..

Okay, well thank you. And I want to thank everyone for taking the time to join us on the call today. We look forward to keeping you apprised of our progress during the coming months and look forward to meeting many of you in person during several upcoming investor conferences in December. You may now disconnect..