Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Ocular Therapeutix's Third 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, Daniel. Good afternoon, everyone, and thank you for joining us on our third quarter 2019 financial results and business update conference call.

This morning, before the open, 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, September 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 and an update on the DEXTENZA commercial launch. Also speaking on the call today will be 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 third quarter 2019 before turning the call back to Antony for a summary and questions.

For Q&A, we will also be joined by Scott Corning, our Senior Vice President, Commercial.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 the most recent Quarterly Report on Form 10-Q, which was filed with the SEC this morning November 12, 2019.In addition, any forward-looking statements represents our view 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..

Thanks, Donald, and thank you everyone for joining the call today for an update on the events of the quarter, including an update on the company, commercial launch of DEXTENZA, and our pipeline. The launch of DEXTENZA remains the company key focus.

For those of you who may be new to the Ocular story, DEXTENZA is a bioresorbable, intracanalicular insert that delivers a 0.4 milligram tapering dose of preservative-free dexamethasone for up to 30 days.DEXTENZA is approved for the treatment of ocular inflammation and pain following ophthalmic surgery.

The product is the first of a novel dosage form in route of administration, that has the potential to become a transformative product for both patients and physicians.

For patients, DEXTENZA offers the convenience of a full course of steroid treatment and single preservative-free insert and for surgeons it puts control of the post-surgical steroid regimen back in their hands by mitigating against the risk of patient noncompliance.We started the commercial phase of our DEXTENZA launch in July of this year after securing price [ph] of CMS achieving full reimbursement in Medicare patients in a hospital and ASC settings and securing a temporary C-code billable in the surgical setting.

We are very pleased with our progress. We are in the early stages as we continue to build the necessary elements to achieve a successful product launch.In a hugely important setup of DEXTENZA's early uptake as well for its long term potential on October 01, CMS issued a permanent product specific J-Code for DEXTENZA.

The J-Code replaces the temporary C-Code.

Compared to the C-Code a J-Code is easier and more familiar to billers and payers, so it can facilitate the broadening of coverage and accelerate immediate uptake, but and most importantly for DEXTENZA it allows for the billing across all sites of service including the ophthalmic and optometric office settings.DEXTENZA, unlike most products [indiscernible] status can be conveniently used in both surgical and office settings.

While the ASCs and hospitals remain our initial commercial focus, and represent a large market opportunity of approximately 2 million cataract procedures performed annually under Medicare Part B, the issuance of a permanent J-Code for DEXTENZA offers a great potential long-term benefit beyond the ASCs and hospitals and beyond the potential hospital and ASC [ph] payment settings.Overall, with the J-Code in place, we believe DEXTENZA has the ability to broaden the commercial opportunity to an estimated 8 million steroid prescriptions written each year in the U.S.

alone and enjoy an evergreen reimbursement potential to be on this faster payment period. With solid reimbursement program in place, we have also been very pleased with the early feedback we are getting from surgeons.Since the initial launch, over 7000 patients have been treated with DEXTENZA at over 350 separate surgical sites.

Overall surgeon reception has been positive. We believe the product is performing well. The procedure is proving easy to adopt and surgeons are receiving favorable patient feedback.

Perhaps most importantly, the centers who have made initial purchases as of the end of October have accounts that reordered the product with over a third of the accounts having reordered the product three or more times.

This is exactly what we want to see in the launch of a novel treatment like DEXTENZA.So we have a product that surgeons seem excited to use with the discernible patient benefits and a solid reimbursement foundation.The final players that influence product uptake are the ASCs and hospitals for combined dual products like DEXTENZA represent our potential reimbursement risk.

This will take time to penetrate and convert.

Since the ASCs and hospital outpatient departments make the actual purchase and can only claim for reimbursement after it is used in a covered patient, their potentials are at out-of-pocket if the product is not reimbursed.Consequently, there are myriads of administrative procedures in place unique to each center to control purchases until reliable patient selection protocol and reimbursement types are established.

This dynamic is similar for every buy indoor [ph] product, so DEXTENZA is no different in this regard.

These administrative challenges effectively create an additional hurdle beyond FDA's product approval, surgeon acceptance and payer access.However, with physicians who desire to use DEXTENZA, patients who can benefit and payers willing to reimburse, we believe that clearing the path is achievable.

Given the additional requirements for buy-and-bill pull through, our team of key account managers, field reimbursement specialists, and our external reimbursement services however are working to assure hospitals and ASCs that we believe they can comfortably purchase DEXTENZA and be certain the protocols are in place to ensure that all purchased products will be reimbursed in a timely and predictable manner.

While this takes time, once the procedures are established we believe that orders will be driven primarily by surgeon demand for years.In the marketplace we're seeing this dynamic play out and keeping with the [indiscernible] of buy-and-bill products we've seen end market update that is first is made by the hospitals and ASCs from the distributor in our most recent month of October are greater than the combined total of the previous three months.

This acceleration and our confidence in the cycle time it takes to clear an account, has encouraged us to trigger an expansion in our field team.Understanding the complexities of the marketplace and our reimbursement status, our strategy was launched with a small team of 20 key account managers and focused deeply on our limited selection of surgery centers.

The reason for our approach was to ensure that we were able to build and test various strategies to clear pathways that represented ASCs and hospitals and better understand conversion pathway.With this knowledge, with the J-Code now in place, and with the greater awareness and receptivity of DEXTENZA in the marketplace and with continued progress on separate payment of the procedure code for insertion of DEXTENZA, we expect that the conversion time for newly covered ASCs and hospitals will accelerate.

We have expanded our field sales teams a 50% to a total of 30 key account managers who will be active in the field starting in late November.So in summary, we are pleased with where we are on DEXTENZA at this early stage of launch. Moving beyond launch of DEXTENZA, we believe we have a pipeline of differentiated ophthalmic programs.

Our immediate opportunity is DEXTENZA which we believe represents a franchise within our product.With the initial approval of treatment for ocular inflammation and pain following ophthalmic surgery, we now look to expand DEXTENZA's potential in the treatment of allergic conjunctivitis and anticipate announcing Phase 3 data for this indication in the first half of 2020.

Beyond DEXTENZA, our other pipeline programs are conditions of both front and back of the eye and target large underserved markets.To provide greater detail on our pipeline, I will be turning the call over to Dr. Goldstein, our Chief Medical Officer..

Hello everyone..

Before handing over to Mike, I want to say a few words about what we are doing to ensure that we have adequate capital to realize Ocular's potential.

As was disclosed a few days ago, I have completed a reallocation of our personnel that has resulted in an increase in our promotional capability of 50%, but has reduced our overall expense spend [ph] by an estimated $11 million per year and another $14 million in one-time savings in deferred program costs.

We expect the effect of our reallocation of resources to extend our runway to the fourth quarter of 2020.It is important to note that the forecast in forming this runway expectation does not include any contribution from further infusions of capital into the company.

It also preserves our ability to drive our current Phase 1 programs through to completion, add another IND into our pipeline and execute on our lifecycle plan for DEXTENZA.Without further ado, I'll hand over to Mike..

Thanks Antony. DEXTENZA represents a franchise opportunity for the company. Physician and patient enthusiasm for the product has been high. We believe DEXTENZA represents a better way to deliver medication to the eye compared with traditional eye drops.

We are actively dosing patients in our Phase 3 clinical trial of DEXTENZA in the treatment of ocular itching associated with allergic conjunctivitis.

The current study is a multicenter, one-to-one, randomized, double-masked, placebo controlled Phase 3 clinical trial that intends to enroll approximately 50 [ph] subjects.The study's primary objective is to evaluate the safety and efficacy of DEXTENZA versus a placebo vehicle insert using the modified conjunctiva allergen challenge model for the treatment of ocular itching associated with allergic conjunctivitis.

The trial is designed to assess the effect of DEXTENZA compared to placebo and allergic responses using a series of successive allergen challenges over a 30-day period.

The primary efficacy endpoint being evaluated in this study is ocular itching following insertion of DEXTENZA at multiple time points during the 30-day period.The allergic conjunctivitis trial tends to enroll relatively quickly at despite just dosing the first patient in October, we anticipate data from this trial in the first half of 2020.

If successful, this trial will be part of our FDA submission to expand the potential indication of DEXTENZA for the treatment of allergic conjunctivitis which would be its first indication not associated with surgery.

DEXTENZA in allergic conjunctivitis offers a novel way of delivering drug to the surface and anterior segment of the eye in a way that we believe can improve upon the existing standard of care eye drop treatment regimen.Overall, we are thrilled with the interest we are receiving from the ophthalmic and optometric communities and requesting permission to start or actively conduct investigator initiated trials around DEXTENZA.

The interest point is the versatility of the product and the opportunity to potentially use DEXTENZA in multiple areas beyond post cataract inflammation and pain [indiscernible].Moving to the pipeline, or OTX-TKI, our intracanalicular travoprost insert, we met with the FDA to discuss data previously reported in May 2019 from our completed Phase 3 trial.

Our conversation with the agency was productive and involved the discussion around the importance of compliance and how a product like OTX-TKI could address the issue of noncompliance by delivering a prostaglandin analog formulated with our program to release hydrogel to lower intraocular pressure of up to 12 weeks with a single insert.While the FDA did not feel that the data from this trial met the standard of clinical meaningfulness in the population studied, there were constructive discussion about potential pathways forward in specific patient populations where drops are problematic.

Given the feedback and our desire to focus on higher value opportunities within our pipeline, we continue our guidance that we have no immediate plans to bring this program forward without the assistance of a partner.We are especially excited about OTX-TIC, our other clinical stage glaucoma program.

The product is a bioresorbable travoprost contained hydrogel implant delivered via intracameral injection designed to deliver higher level of IOP reduction than the intracanalicular insert.We continue to enroll patients in a Phase 1 prospective, multicenter, open label 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 our first patient now beyond 16 months showing the ability to lower IOP with a single insert equivalence of early demonstration of travoprost drop we are excited about the potential for OTX-TIC.In addition, the hydrogel as designed, has consistently biodegraded in approximately 5 to 7 months.

With a targeted product profile of 6 to 12 months of IOP lowering, and current data showing efficacy beyond that with favorable safety profile, we are focused on optimizing the formulation and are currently evaluating these formulations in the third and fourth cohorts of this clinical trial.

We believe that these minor formulation changes will only serve to enhance OTX-TIC.Moving to the back of the eye, we continue to dose subjects in our multicenter, 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 wet 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 subjects reported no safety concerns. After meeting with the Data Safety and Monitoring Committee, we have moved to the second higher dose cohort and are currently dosing this cohort.I would now like to turn the call back over to Donald, who will review our third quarter ended June 30, 2019 financial results..

Thanks, Michel.

Net revenues for the third quarter totaled $0.8 million in aggregate consisting of $0.3 million and $0.5 million in net revenues from DEXTENZA and ReSure respectively as compared to $0.5 million in net revenues generated in the third quarter of 2018, all of which were related to ReSure.Research and development expenses for the third quarter were $10.2 million versus $9.7 million for the comparable period in 2018, and reflecting increasing costs associated with the Phase 1 OTX-TIC trial, the Phase 1 OTX-TKI trial and the start of the Phase 3 DEXTENZA allergic conjunctivitis trial, as well as the increases on unallocated costs.

These were offset by a significant reduction in Phase 3 clinical trial costs associated with OTX-TP.Selling and marketing expenses for the third quarter were $6.8 million. This compared to $1.1 million for the same quarter in 2018.

This increase relates almost entirely to support the commercial launch of DEXTENZA driven primarily by the hiring of new members of the commercial team in the second quarter of 2019, including KAMs, FRMs, and MSLs, as well as increased spending on consulting, trade shows, conferences and related costs.Finally, general and administrative expenses were $6.2 million for the third quarter versus $4.4 million in the comparable quarter of 2018.

The increase in expenses for the third quarter stemmed primarily from increased personnel and facilities costs, offset by decreased professional fees.With respect to financial results for the third quarter, we reported a net loss of $18.9 million or a loss of $0.40 per share on a basic and $0.45 per share on a diluted basis.

This compares to net loss of $15 million or a loss of $0.38 per share of basic and diluted basis for the same period in 2018.

And net loss for the third quarter included $3.9 million in non-cash charges for stock-based compensation and depreciation, compared to $2.5 million in the same quarter in 2018.In addition, the net loss for the quarter includes a gain in the amount of $5.7 million related to the change in the derivative liability.

As of the quarter ended September 30, 2019, we had $65.4 million in cash and cash equivalents versus $61.8 million at the end of the second quarter of 2019. These cash amounts exclude restricted cash of $1.8 million and $6.8 million, respectively.

Restricted cash was reduced by $5 million in the third quarter of 2019 as a result of an amendment with the lenders of our $25 million term loan facility to eliminate the $5 million liquidity covenant.The cash balance benefit during the third quarter from $18.6 million in net proceeds generated from 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.

The Company has not made any additional sales under the ATM during the fourth quarter of 2019.Based on our current plans and forecasted expenses, the Company believes that our existing cash and cash equivalents of $65.4 million as of September 30, 2019, and anticipated cash inflows from DEXTENZA product sales, along with the expected cost savings from the operational restructuring announced last week, will enable the Company to fund its planned operating expenses, debt service obligations, and capital expenditure requirements through the end of the fourth quarter of 2020.This cash guidance is of course subject to a number of assumptions related to the revenues and expenses associated with the commercialization of DEXTENZA, as well as the pace of the Company's research and clinical development programs and other aspects of our business.

The Company had approximately 48.1 million shares issued as outstanding as of November 7, 2019.This concludes my comments on our third quarter financial results, and I would like to turn the call back to Antony for some summary thoughts..

Thanks, Donald. So before opening the call up for questions, let me do a quick summary.

We're working through the complexities of pull through for buy-and-bill product in the upcoming surgical setting, we are pleased with the DEXTENZA launch in terms of in market sales acceleration and reordering patterns.The performance has given us confidence to expand our field force by 50%.

We are anticipating a long lifecycle for DEXTENZA with the issuance of our unique J-Code and the initiation of potentially our final pivotal trial for a label expansion into allergic conjunctivitis.In our glaucoma program, the intracanalicular OTX-TIC, we now have efficacy beyond 16 months with a single insert and have made the decision to begin dosing our third patient cohort in our Phase 1 trial.

Our back of the eye program has continue to progress with OTX-TKI and the dosing of the second cohort in its Phase 1 trial.Lastly, we have successfully completed restructuring program that's designed to focus our efforts on maximizing the commercial opportunity of DEXTENZA and on advancing our high priority pipeline initiatives.

These efforts will save an estimated $11 million annually and approximately $14 million in one-time program deferments that extend the Company's current cash runway through the fourth quarter of 2020.With that, I will turn the call over for questions..

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

Hi, this is [indiscernible] in for Yi Chen and thanks for taking my question. So I just wanted to talk a little bit about the ambulatory surgical centers that have adopted DEXTENZA.

So can you please tell how many of these centers are we talking about? And how many do you expect to achieve by the end of 2019?.

Yes, thanks for the question. Well, we're not going to disclose at the moment what the number of centers are. We have a - we're confident that the number that if we penetrate the centers that we have that we'll be able to reach the sort of internal figures that we have for DEXTENZA that we hope for the sales line.We're also adding at a very high rate.

As we mentioned, just the sales acceleration in October, we sold more in October than we did in the entire launch period before, for the whole quarter before, that we are adding them quickly and as we start to expand with a new field force, we'll be able to reach centers that we haven't as of today. So it is, we expect a big expansion in that number.

We'll start reporting that number on a regular basis as we go forward, but right now, we're going to sort of keep that to ourselves for a bit..

All right, understood.

So the next one, do you plan to report the end use of demand for DEXTENZA in terms of units per quarter going forward?.

We haven't decided what metrics we're going to report going forward.

Clearly, once we get into a steady-state, where we start to have the end market and the to-market numbers start to sort of move with each other, the to-market sales will be pretty descriptive about what's happening in the marketplace.So we will sort of agree on what a set of metrics are that we'll be presenting on regularly going forward, but clearly, as the product ramps up that to-market number, we'll be your best indicator of the performance of the product..

Okay. And then a little bit on investigator initiated trials.

Maybe you can provide us or elaborate our bird's eye view on this and how many centers are we talking about and what are your expected outcomes from this investigator initiated trials?.

Sure, I'll hand it over to Mike Goldstein, to talk about the IITs, Mike?.

Yes, thanks for the question. As mentioned, there is widespread interest within both the ophthalmic and the optometric community on investigator initiated trials.

We are looking at a whole range of different proposals covering multiple different non-cataract surgeries as well as different timing around using the inserts for cataract surgery.And so at this point, we are executing on some of those proposals and evaluating others and really on a daily basis continue to get new thoughts and ideas.

So I think for us, what's really exciting is, there's this widespread interest in both the ophthalmic and optometric communities to be able to use this product in a myriad of different ways..

Okay, great. And one final question from me with regards to OTX-TKI.

So how many dosages do you plan to test overall?.

Mike, why don't you keep coming?.

Yes, sure. Thanks for the question. So for - the design is to test two different doses. And then to take the maximally tolerated dose forward and do a combination study in a combination arm along with an antidrug..

Okay, that's it from me. Thank you so much..

Thank you..

Thank you. [Operator Instructions] Our next question comes from Joe Catanzaro with Piper Jaffray. Your line is now open..

Hey, guys, thanks for taking the question. So, on the 2Q call you mentioned that about 3,000 patients have been treated with DEXTENZA and that number is now up to 7,000. But it sounds like there's still a high level of sampling ongoing.

So maybe you could just help us understand or tell us the percent or your hit rate in terms of the number of centers that have participated in DEXTENZA? And then subsequently placed initial order and what's that timeframe from sampling to placing an initial order?.

Well, it's hard to sort of put out an actual sort of number on what the difference between the DEXTENZA a day and the ASC order because it's so variable. One thing I can confirm is that we now sell more products than we have samples.

So those lines have crossed, which is about the period where we expected them to cross.So it's going forward clearly our sample numbers are coming down fast and our sales are going up strongly, so we're kind of where we thought we would be at this point.

One of the key points about why we sort of entered the market the way we did with a very tight field for us, so we have only 20 key account managers, was really to determine the kind of lags the product had and the uptake patterns that we would see with a key account manager in place.Now we've seen that and we are confident enough from the cycle time that we're seeing to add our field force by another 50% or another 10 KAMs.

So that cycle time and the type of ASC and type of hospital that we see we can target that has faster turnaround times we understand now and have the ability to as we enter new territories to shorten what that cycle time is, but clearly getting that first order is the hardest bit..

Okay, got it and then, so what are you hearing from centers that maybe have placed an initial commercial order, but having subsequently reordered, what are some reasons why that hasn't happened?.

Well, the main reason and pretty much the only reason we hear that they're waiting to see the reimbursement. So as we mentioned, we have the centers that have ordered 50% have reordered. That doesn't mean that only 50% are going to reorder.

We were adding new centers very, very quickly with initial orders and essentially we are expecting virtually all of the centers that have ordered once to order again.

But as part of their process, many of them will wait to see a positive reimbursement from a number of patients before they order for a second time.So initial orders, may be one or two inserts. They'll put them in a patient and then they'll submit and then they'll wait for reimbursement.

Now provided they've sent out the forms correctly and provided the max are comfortable with the submission, the payment comes relatively quickly usually within three weeks.If there's something wrong on that form or there is some glitch in the in the approval, and clearly all of these will be approved if they're used in the right patient, then that gets delayed.

So that that's really -- it's a really a time issue about the reordering. We simply don't have -- we don't expect any of the centers that have ordered not to reorder because we haven't heard anything from these centers saying that they are not interested in continuing with the product..

Okay, got it. Thanks for taking my questions..

Thanks Joe..

Thank you. I'm not showing any further questions at this time. I'll now turn the call back over to the CEO, Antony Mattessich for closing remarks..

I'd just like to thank everybody for attending the call today and we look forward to a very bright future..

Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect..