Good afternoon, ladies and gentlemen. Thank you for standing by. And welcome to the Ocular Therapeutix Second Quarter 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 Donald Notman, Chief Financial Officer of Ocular Therapeutix. Please go ahead, sir..

Thank you, operator. Good afternoon, everyone, and thank you for joining us on our second quarter 2019 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 quarter ended, June 30, 2019. 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 provide a summary of our corporate developments. Also speaking on the call will be Scott Corning, our Senior Vice President, Commercial, to update everyone on the DEXTENZA commercial launch. And Dr.

Michael Goldstein, our Chief Medical Officer, who will give an update on our clinical developments and pipeline. Following Michael’s remarks, I will provide an overview of the financial highlights for the second quarter 2019 before turning the call back over to Antony for a summary and questions.

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 this afternoon, August 7, 2019.

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, except as we are required to do so by law even if our views change. I will now turn the call over to Antony..

one, the early FDA approval of our sNDA that broadens DEXTENZA’s label to include the treatment of post-surgical inflammation and pain; and two, CMS’ issuance of a C-code for transitional pass-through payment status which enables DEXTENZA reimbursement for patients covered under Medicare Part B.

After the quarter ended, the CMS issued our unique and permanent HCPCS J-code to become active on October 1 of this year. It is important note that for DEXTENZA, the J-code is a particular importance to given our value proposition.

DEXTENZA and like most products for pass-through payment status, it’s not only deployed into [ophthalmic] [ph] it can also be utilized in the office setting.

You’ve had a significant number of physicians, who have expressed interest in using DEXTENZA in the office setting, so the patients can enjoy the benefits of dropless steroid treatment, while ophthalmic surgery is fully optimized. But the J-code in place, DEXTENZA can more easily deliver on this inherent flexibility.

For those who may be new to the Ocular story, DEXTENZA is a bioresorbable, intracanalicular insert to deliver a 0.4 milligram dose of preservative-free dexamethasone for up to 30 days. DEXTENZA has approved for the treatment of post-surgical inflammation and pain.

The product is the first of a novel dosage form in route of administration has the potential to become a transformative product for both patients and physicians. For patients, DEXTENZA will offer the convenience of a full course of a steroid treatment and single preservative-free insert.

This means of delivery can replace the complex eye drop regimen with under the current standard of care can require up to 70 topical ocular steroid drops in aggregate delivered over a full month. For physicians, DEXTENZA puts control of the post-surgical steroid regimen back in their hands by mitigating the risk of patient’s noncompliance.

The market opportunity for DEXTENZA is substantial. In the U.S. alone there are approximately 8 million ocular steroid prescriptions written each year. Our eventual goal is to compete for all of them.

DEXTENZA is a better way of delivering the steroid to the surface of the eye and through our lifecycle management programs we intend to demonstrate that over time. Given our current labeling and reimbursement focused on surgery, our initial commercial efforts are focused on the 2 million cataract procedures performed annually under Medicare Part B.

It is also important to note that insertion of DEXTENZA or any other future drug-eluting intracanalicular insert is associated with CPT procedure code 0356T. The expectation is to establish usage of this code and to gain more reliable payment over time.

Our launch strategy, which Scott Corning, our Senior Vice President, Commercial will go into more depth on shortly is designed to maximize the positive early experiences with DEXTENZA both clinically and administratively.

In the early stages, our key determine to success will not be the number of surgeons or ambulatory surgery centers that used DEXTENZA, but how many make DEXTENZA a part of their continuing cataract protocol. I have personally observed surgery the number of ASCs, since launch and encouraged by the patient, surgeon and staff enthusiasm for the product.

Making DEXTENZA part of the standard surgical protocol required that we surround the customer with the proper support and services and that we build deep interesting relationships. While the launch of DEXTENZA will clearly be the near-term value driver for Ocular, it is important to remind everyone about our robust pipeline. Dr.

Michael Goldstein, our CMO will provide an update later in this call. Finally, as we talk about all of the good news associated with the launch of DEXTENZA and the development of our pipeline, we continue to build a top notch organization.

In this quarter, we announced two important senior management hires, Patricia Kitchen, as Chief Operations Officer to oversee our manufacturing and quality programs; and Chris White, Head of our Business and Corporate Development efforts.

We are excited and encouraged that Ocular is able to attract people, the caliber of Patricia and Chris, it speaks a volumes for the team, the culture and the potential of the platform. With that introduction, I’d like to turn the call over to Scott Corning, our Senior Vice President, Commercial for more of our commercial launch of DEXTENZA..

Thanks, Antony. As we have announced on prior quarterly calls, we made the decision to launch DEXTENZA, our sales in the U.S. market with a direct sales force.

Going direct is an important aspect of our commercialization strategy based on our strong belief that this specialized sale, essentially the surgical sale of a pharmaceutical product is a unique proposition best executed by a key account team with deep experience in ophthalmology, selling [buy and build] [ph] products, and who are able to navigate the complexities of account based selling.

Today, we have in place a team of 21 Key Account Managers that we refer to as KAMs, who are supported by five Field Reimbursement Managers, and five Medical Science Liaisons, all of whom are trained and, in the field, today, actively calling on and assisting accounts with DEXTENZA.

We have a simple philosophy within the commercial team that I think captures our approach. Early on in the launch, we want to identify and then invest the time at the right accounts across the multiple stakeholders at these accounts both office and ASC in order to get customers both clinically and reimbursement ready.

This will enable them to adopt DEXTENZA into their practices successfully. We believe this holistic approach will ensure long-term success. Within these high volume centers, our KAMs have begun to execute a focused sampling program that we refer to as DEXTENZA days.

These sessions involve discussing best practices with a surgeon and his or her team, and then trialing the product through a number of cataract surgeries. With this hands-on and personalized approach, surgeons become comfortable with the insertion procedure, as they are doing best practices from both a clinical and reimbursement standpoint.

The goal is to ensure that both patients and surgeons have a positive experience. Patients are comfortable and pleased with the overall surgery, while surgeons are able to optimize process and insertion technique. To date almost 3,000 patients have been treated by well over 200 surgeons in targeted geographies around the country.

What we are observing is that surgeons seem to get comfortable with the product quickly whether it be comments back from a physician about the ease of preparation and insertion, [quiet] [ph] eyes or a clean ocular surface at the post-op visits or comments from co-managing optometrists excited about the outcomes, overall feedback has been positive.

We understand that for a new product with a new reimbursement pathway, we need to provide comprehensive reimbursement support for patients, surgeons and surgery centers. As a result, we have established our reimbursement services hub called DEXTENZA 360.

With this, we have taken a similar high touch approach to billing and reimbursement that we have applied to introducing DEXTENZA to surgeons and their staffs. Our objective is to work closely with surgery center administrators and billing staff to ensure they are formed on the proper coding coverage and reimbursement of DEXTENZA.

This should facilitate successful billing of not only the product with our C-code, but also best position the surgeon for reimbursement of the procedure with our unique CPT code. In addition, as Antony mentioned in this opening remarks, we have also received our J-code, which becomes effective on October 1.

The J-code will enable reimbursement in the office setting as well as in the surgical centers providing increased flexibility to physicians on how they use the product.

The J-code also allows for more convenient and simplified reimbursement, because J-odes are more widely recognized by commercial insurance, Medicare Advantage as well as Medicare Part B. Simply put the permanent J-code will further enhance patient access to DEXTENZA.

So while early in the launch, we are pleased with the initial reception DEXTENZA is receiving and our strategy of establishing clinical and reimbursement readiness across multiple stakeholders account by account, it’s generating positive momentum in the market. We look forward to providing additional updates on the launch of DEXTENZA in the future.

And I would now like to turn the call over to Michael Goldstein, our Chief Medical Officer, to discuss progress on our pipeline..

Thanks, Scott. As you have heard from Antony and Scott, we are thrilled with the recent commercial launch of DEXTENZA. DEXTENZA truly represents a franchise opportunity for the company with multiple lifecycle expansion opportunities and other indications for a product profile like DEXTENZA has the potential to change the standard of care.

We’ve initiated an 80 subject pivotal Phase 3 trial in allergic conjunctivitis. The successful, we believe this trial will be part of an FDA submission to expand the potential indication of DEXTENZA to include non-surgical indications.

We are also planning to start a clinical trial evaluating the use of DEXTENZA and pediatric subjects 0 to 3 years of age early in the fourth quarter of this year. In addition, we have received great interest from the ophthalmic and optometric communities and conducting investigator initiated trials and are starting several of these trials this year.

Moving to our pipeline, we remain very much focused on glaucoma. Glaucoma is a large market and a disease that impacts an estimated 2.7 million people in the United States. The primary goal of glaucoma treatment is to slow the progression of this chronic disease by reducing intraocular pressure.

Many different types of eye drops are approved to accomplish this, however, given the current eye drop administration adherence to current topical glaucoma therapy is particularly poor with reported rates of non-adherence ranging from 30% to 80%.

This low compliance rate maybe associated with disease progression and loss of vision, and maybe part of the reason that glaucoma is a significant cause of blindness in people over 60 years of age. Prostaglandins are the most commonly used class of medications to treat patients with glaucoma.

The products that we are developing are designed to address the issue of compliance by delivering a prostaglandin analog formulated with our program to release hydrogel to lower intraocular pressure for several months with a single insert.

In May of this year, we announced top-line results from our first Phase 3 trial, OTX-TP for the treatment of glaucoma.

While top-line results did not achieve the primary endpoint we are encouraged by the results, which showed statistically significant superiority and reduction of intraocular pressure for subjects receiving OTX-TP inserts compared with placebo at eight of nine diurnal time points.

The trial demonstrated OTX-TPs ability to intraocular pressure out to 12 weeks with a single insert using this novel dosage form, when waving the efficacy seen the trial with the durability and significantly higher rates of compliance with OTX-TP relative to current standard of care, we continue to believe this product candidate represents a new opportunity for treating glaucoma patients like that overcome the burden of taking eye drops.

We plan to meet with the FDA later this year to discuss these results and to determine appropriate steps forward. OTX-TIC is our second clinical stage glaucoma program. The product is a bioresorbable, travoprost-containing hydrogel implant delivered to be an intracameral injection designed to deliver a higher level of IOP reduction.

We continue to enroll patients in a Phase 1 prospective, multi-center, open-label, dose escalation clinical trial to evaluate the safety, efficacy, durability, and tolerability of OTX-TIC. As this is an open-label trial, we are able to assess early biological activity and safety, and we continue to be encouraged by the recent data.

With data on one patient now out to 13 months, showing the ability to lower IOP with a single insert equivalent to daily administration of a travoprost drop. We’re excited about the potential for OTX-TIC. In addition, the hydrogel, as designed, has consistently biodegraded in approximately six to seven months.

The safety profile of OTX-TIC is being established and while there were no adverse changes to the cornea, as measured by endothelial cell evaluation and corneal pachymetry, we did see several subjects with low-grade inflammation and peripheral anterior synechiae.

We have developed two new formulation so OTX-TIC and expect to start evaluating these formulations in the clinical trial in the near future. Moving to the back of the eye, we continue to dose subjects in a multi-center, open-label Phase 1 clinical trial for OTX-TKI.

OTX-TKI is a bioresorbable, hydrogel fiber implant with anti-angiogenic properties delivered by intravitreal injection being developed to treat patients with what age related macular degeneration and other retinal diseases.

We believe OTX-TKI carries the potential of being a next generation treatment for wet age-related macular degeneration, given its ability to act upstream a VEGF and therefore may have broader anti-angiogenic properties.

Preclinical data have demonstrated the ability to deliver an efficacious dose of TKI to the posterior segment of the eye for the treatment of VEGF induced retinal leakage for an extended duration of up to 12 months with a single injection.

The Phase 1 trial is testing the safety, durability and tolerability of OTX-TKI and evaluating biological activity by following visual acuity over time and measuring retinal thickness using standard optical coherence tomography.

The first cohort of subject showed no safety concerns, after meeting with the data safety and monitoring committee, we have moved to the second higher dose cohort and expected us our first object in this cohort in the upcoming weeks.

I would now like to turn the call back over to Donald, who will review our second quarter ended June 30, 2019 financial results..

Thanks, Michel. Let me begin by summarizing our capitalization. As of the quarter ended June 30, 2019, we had $61.8 million in cash and cash equivalents versus $76.3 million at the end of the first quarter.

These cash amounts exclude $6.8 million and $6.6 million respectively of restricted cash as previously required by our existing senior debt facility and letters of credit for our property leases.

The cash balance benefited during the second quarter from $5 million in net proceeds generated from the sale of common stock under the company’s 2019 sales agreement or ATM under which the company may offer and sell its common stock having aggregate proceeds of up to $50 million from time to time.

Offsetting the ATM inflows during the quarter were net losses of $24.5 million, of which $4.9 million were non-cash expenses and capital equipment investments of $1.2 million. As disclosed in this afternoon’s 10-Q filing and subsequent to the close of the second quarter. We have raised an additional $14.8 million in net proceeds under the ATM.

In addition, the company has also entered into an amendment with the lenders of its $25 million term loan facility to eliminate the liquidity covenant requiring that the company maintain $5 million in a restricted cash account. The net impact is that cash and cash equivalents has increased nearly $20 million since the end of the second quarter.

Based on our current plans and forecast of expenses, we believe that existing cash and cash equivalents will now fund operating expenses, debt service obligations, and capital expenditures into the third quarter of 2020, providing an additional quarter of cash runway since we last reported.

This is of course subject to a number of assumptions related to the revenue expenses associated with the commercialization of DEXTENZA as well as the pace of our research and clinical development program, and other aspects of our business.

Research and development expenses for the second quarter were $9.4 million versus $8.7 million for the comparable period in 2018, and reflect an increase in unallocated costs, primarily costs associated with our pipeline programs as well as pre-clinical programs.

Selling and marketing expenses for the second quarter were $7.2 million as compared to $0.9 million for the same quarter in 2018.

This increase relates almost entirely to preparations for the commercial launch of DEXTENZA, driven primarily by the hiring of new members of the commercialization team, including KAMs, Field Reimbursement Managers, and Medical Science Liaisons, as well as increased spending on consulting, trade shows, conferences and related costs.

Finally, general and administrative expenses were $5.1 million for the second quarter versus $4.4 million in the comparable quarter of 2018. The increase in expenses for the second quarter stemmed primarily from increased personnel, professional and facilities fees.

Net revenues for the second quarter totaled $0.6 million in the aggregate and included both ReSure and DEXTENZA revenues. The revenues of $0.6 million in the second quarter compared to $0.6 million in the same quarter in 2018.

As noted in the past, we are not currently providing for promotional support to ReSure, and we do not expect product revenues to be material in 2019. With respect to the financial results for the second quarter, we reported a net loss of $24.5 million or a loss of $0.57 per share on a basic and diluted basis.

This compares to a net loss of $13.8 million or a loss of $0.37 per share on a basic and diluted basis for the same period in 2018. The net loss for the second quarter included $2.3 million in non-cash charges for stock based compensation and depreciation compared to $2.4 million for the same quarter in 2018.

The company had approximately 47.2 million shares issued and outstanding as of August 5, 2019. This concludes my comments on our second quarter financial results. And I would like to turn the call back to Antony for some summary thoughts..

Thanks, Donald. So before opening up the call for questions, let me do a quick summary. DEXTENZA’s in full launch mode with positive initial feedback. We received our DEXTENZA label extension to include treatment of post-surgical information recorded earlier than we expected.

We are currently the only dropless product indicated for the treatment of both post-surgical inflammation and pain. We received confirmation that J-code becomes effective on October 1 of this year also a full quarter earlier than we had expected.

This is particularly important for DEXTENZA, since we anticipate to use in the ophthalmology office will become a major driver of our success in commercialization. Our pipeline continues to advance in dropless glaucoma treatment with the scheduling of a meeting with the FDA on the path forward for OTX-TP.

With OTX-TIC, we now have one patient treated after 13 months with continued biological effect on a single dose. Our back of the eye pipeline is also advancing. And we are now moving to our second cohort and our Phase 1 trial of OTX-TKI and wet AMD.

The stringent financial control and opportunistic used to the ATM, we have extended our runway, and now believe that we have cash and cash equivalents sufficient to get us into the third quarter of 2020 based on current plans. With that, I will turn the call over for questions..

Thank you. [Operator Instructions] Our first question is from the line of Joe Catanzaro with [Jefferies] [ph]. Your line is open..

Hi. This is Charles Frantzreb on for Joe Catanzaro from Piper. Just looking for some additional commentary whether quantitative or qualitative on the DEXTENZA launch, I think, you said in the past, there’s approximately 900 high volume centers that you’re prioritizing.

And maybe if you could just provide some detail on how many of the centers you’ve had contact with or what the pattern of ordering is to make at these centers?.

Yeah, thanks for the question. I’m going to reaffirm it out to Scott for some further details. But we’re not going to go into sort of very sort of detail numbers, on the number of centers that we contacted. As we mentioned, we’re actually not really looking at the number of centers we’re looking at the depth.

And we’re actually incentivizing our field force not on initial orders, but actually on repeat orders. And we’re at a situation, now we’re actually very pleased with the number of repeat orders is getting close to about 50% of the number of ASCs that have had made initial orders.

So I said, we’re looking for depth, when we’re not looking for breath, yet. It is a very concentrated market as you mentioned. So we are – we don’t need too many centers to really have us part of their protocol, before we start doing into a cash flow positive position.

We expect to be able – of course, to be able to hit all of those over a period of time, certainly, has expanded our commercialization efforts. But I don’t know, Scott, if you have anything else to add, you want to sort of chime in here..

Yeah. Sure. This is Scott Corning. As reported, we have distributed or in-use it’s been over – well over 3,000 sample units and that’s among a concentrated base of over 200 surgeons.

But that’s add as Antony pointed out a small number of ASC, so in going deep our intention is not to go to one surgeon per facility, but go to the high volume facilities that have a number of surgeons there due to the time invested at each one of these centers. So as we get further into the launch commercially will be providing more numbers.

But at this point, what I can say, qualitatively is that people are very happy with the reception are receiving the product extremely well. They’re very excited to use it initially and they find it easy to use and afterwards are excited to get on board.

We’ve actually one thing we’ve been saying is go-slow to go-fast, and by that we mean amidst all the excitement. We need to make sure that everyone is clinically and reimbursement ready before we want to go forward due to the time invested and the desire to get a repeat order.

So we’ve been working hard in that way to set ourselves up for long-term success as we view this is very much a marathon, not a sprint..

Thank you. That’s very helpful. And I do appreciate that you probably don’t want to provide any specific quantitative metrics at this point.

I want to ask about that 3,000 patients’ number you cited and whether or not you can provide any qualitative commentary on what the split there is like between commercial products versus samples? And along the same line, if you would be able to provide any sort of commentary on free drug supply maybe what sort of current level of free drug supply from the sampling program is, and whether or not you expect that to be a meaningful percentage of total drug supply going forward?.

I’ll jump in and take that up front, I mean, it is – the 3,000 samples that he talks R&D samples, not commercial products. We’re not going to talk about how much commercial product we have in the market at this moment. But in terms of continuing supply, I mean, we have a sampling program not a continued free supply program.

So we have a limited number of samples that we provide health care professional for surgeons, and we – once they reach that limit then they have to use commercial products going forward. We are very, very concerned about remaining compliance with the [neurology] [ph] guidelines….

Hey, Charles, it’s Donald Notman. I think, we may have lost Antony, he’s actually remote today, as he’s on vacation with his family. But I think, what he was going to finish off and say is that we’ve been very disciplined about maintaining the sample count with each surgeon.

So we are really truly compliant and it is a reasonable number that we are providing the surgeons to give them enough to truly get comfortable, and I’d say from a technique perspective fairly expert with the product, but not so many things that it would be kind of unreasonable from a commercial perspective..

Yeah.

And this is Scott, I would add that we only were met with product availability in mid-May, and so through the rest of May and June constituting the second quarter, we didn’t yet have an active reimbursement code, so those were 100% samples in the quarter, and it’s only been the last few weeks that we’ve had the opportunity to be in the commercial environment.

So the majority of that number is samples..

Okay. Got it. Thanks for the detail and congrats again on the progress..

Thanks, Charles..

[Operator Instructions] Our next question comes from the line of Yi Chen with H.C. Wainwright. Your line is open..

Hi. Thank you for taking my question.

My first question is after training, how much time does the doctor need to insert DEXTENZA?.

Scott, you want to feel that..

Yeah. I mean, I think, what you can do you can all answer the question, but then I would invite you to go to YouTube and you can see DEXTENZA videos. Starting with the preparation, which is nothing more than opening the package and having the surgeon pick the DEXTENZA inserts from the [stir from holder] [ph].

The insertion itself literally takes a few seconds, prior to that we do ask them or suggest to them that they dilate the punctum, so that several seconds as well. So very clearly even in the very early going, it’s been well under a minute, and I’ve seen it go from well under a minute to about half of that.

And so what I’m referring to is 45 seconds down to 20 and that could include the dilation and then being passed the forceps with the unit in it, and then insertion of the DEXTENZA. But again I would advise you to go to YouTube as surgeons are posting their own videos..

Thank you. I will check it out. My second question is with C-code or the J-code, that’s going to become effective? So the 2 million cataract procedures performed annually under Medicare Part B have 100% covered in terms of the usage of DEXTENZA.

Is that correct?.

That is correct. And that’s why we’re laser focused with the C-ode on Medicare Part B for cataract surgery. But I should note that our label is not limited to cataract surgery, but that’s what we’re targeting initially, but cataract surgeons also do glaucoma refractive and corneal surgery, so that will trickle down from there..

Okay. And so far, has any ASC being paid under the CPT code 0356T..

Yes..

Yeah. I can jump in and say we had confirmation that of – being paid, obviously, it’s a Category III code, so the payment is not universal and the amount is extremely variable. Our goal is over time to move this to a Category I, where it will be ubiquitously paid, but also then at a lower level than what we’ve seen.

But the good news is we do see payments and it is a very positive movement..

Got it. And my next question is starting from the third quarter, when you reported revenue from DEXTENZA.

Is it going to be the revenue that you shipped – based on DEXTENZA you shipped to the distributor? Or does the revenue truly reflect a physician demand?.

We’ll report revenue to the distributor to the specialty distributor. Just as a matter of sort of corporate reporting, what we choose to present in quarterly earnings may be different. So clearly, I’m unconcerned with how much product we shipped to distributor and much more concerned with how much product actually makes its way to patients.

So we’ll work on metrics that make sense for real demand rather than talk about what we’re shipping into the distributor, because of certainly been in environments before we’ve been burned by that and sold into a lot of false sense of securities and product is doing well, when in fact, the most important thing as we all know is that – it actually is being used and paid for by patients in ASCs.

So that’s – going forward, our official reporting will be one thing, but we’ll work on a set of metrics that we’ll report on a regular basis, once we have some rhythm in the uptick..

Got it.

My last question is, how should we look at the gross margin and operating expenses starting from the third quarter?.

Our gross margin is, we have not – this is our own development, we have no significant royalty and we have the products that go into making the raw materials that go into making DEXTENZA are not overly expensive. So we have a very healthy gross margin with this product..

So you can assume that most of what we earned [indiscernible] portion of what you see in the revenue line is actually following through in the gross margin line. In terms of expenses, so you can see that from this quarter. We are at the first stage of – what we feel like we can attract a fairly sizable portion of the market.

The moving up there faster than we expected approval of the J-code may impact have it accelerate some of our decisions about how we move, how we expand on our field force and commercialization efforts, which could affect the amount of expenses that you see going down the line, but not in a dramatic fashion.

So I had pretty much taken the quarter you have and assume that that’s about what we’re going to be doing going forward..

Okay. Thank you..

Thank you. And I’m not showing any further questions. So this does conclude the program. You may now all disconnect. Everyone have a great day..