Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Ocular Therapeutix's Fourth Quarter and Year-end 2019 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, Latif. Good afternoon, everyone, and thank you for joining us on our fourth quarter and year-end 2019 financial results and business 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 and year ended, December 31, 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 will 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 fourth quarter and year ended 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 Annual Report on Form 10-K, which was filed with the SEC this afternoon March 12, 2020.

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..

OTX-TIC, a long-acting travoprost containing intracameral implant for the treatment of patients with primary open angle glaucoma or ocular and OTX-TKI, a long-acting tyrosine kinase inhibitor intravitreal implant being evaluated for the treatment of wet age-related macular degeneration and other retinal diseases.

Although the Phase 1 clinical trial is not powered to meant to measure efficacy with statistical significance.

We believe the interim results from the first two -- top cohorts of OTX-TIC show the possibility for a duration and magnitude of effect, but this demonstrated in latest clinical trials could resolve in a product that becomes the standard of care in the treatment of primary open angle glaucoma, a large market where lack of compliance is perhaps the greatest area of unmet need.

With this increasing momentum of the DEXTENZA launch, the pending readout of the Phase 3 trial could lead to an sNDA application in A/C and the Phase 1 readout for OTX-TCI were not enough. We believe the most exciting recent development for Ocular Therapeutix is the potential emergence of an efficacy signal in our ophthalmic program.

The quest for next generation treatments for wet AMD is being frustrating and elusive for the industry as a whole, but the potential in this space remains enormous, with greater durability than existing VEGF 30 versus still very early days for OTX-TKI, the interim results we have seen to date in our second Phase 1 cohort are encouraging for a product candidate it could represent a transformational opportunity for Ocular Therapeutix.

To go over those results as well as selective developments across the pipeline, I will hand over the call to Dr. Michael Goldstein, our Chief Medical Officer..

Thanks, Anthony. DEXTENZA represents a franchise opportunity for Ocular and for the potential treatment of a number of Ocular surface diseases. As Anthony mentioned, we have just completed dosing patients in a 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 enrolled 96 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 with the 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 when we following insertion of DEXTENZA.

We anticipate data from this trial in the second quarter of this year. If successful, this trial will be part of a supplemental NDA submission to the FDA to expand the potential indication of DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis in the outpatient setting.

As important as the indication would be to expand the growth of DEXTENZA franchise, the potential approval would be the first indication not directly associated with surgery and enable us to use to DEXTENZA more widely within the physician office.

The ocular conjunctivitis, we are being pleased with the interest from the ophthalmic and optometric communities. The interest points to the versatility of the products and the opportunity to potentially study DEXTENZA in other areas that treat off their surface diseases beyond those cataract inflammation and pain.

One metric of the strong indication is the number of requests for an investigator initiated trials or IITs that we have received.

We have now have almost 70 IIT submitted covering areas ranging from use of DEXTENZA in cataract surgery placed in different settings of care and different timing of placement, use of DEXTENZA in other surgical areas such as glaucoma surgery, refractive surgery, retinal surgery, corneal surgery, plastic surgery and pediatric surgery and use of DEXTENZA into ocular surface diseases such as dry eye disease and [indiscernible].

We currently have 10 different IIT studies that are either actively enrolling or screening patients. Moving to the pipeline, we are especially excited about OTX-TIC, our Phase 1 clinical program for the treatment of patients with primary opening of glaucoma or ocular hypertension.

The product candidate is a bioresorbable travoprost contained hydrogel implant delivered via intracameral injection designed to deliver a higher level of IOP reduction.

We continue to enroll patients in a Phase 1 prospective, multicenter, open-label, dose escalation clinical trial to evaluate the efficacy, safety, durability and tolerability of OTX-TIC.

As this is an open label trial, we are able to assess early biological activity and safety and just a few weeks ago we presented encouraging interim data at the Glaucoma 360 conference that took place in February in San Francisco.

Data from the first two fully enrolled cohorts, five subjects and cohort one and four subjects in cohort two shows decreased IOP in patients receiving OTX-TIC those comparable to current standard of care, topical Triva Press placed in the nine study eye.

The data also showed that the IOC remained decreased at the ATM [ph] time point from the baseline values throughout the six month study period and one patient or over 18 months at the time, hydrogel has consistently biodegraded in five to seven months, and there've been no significant changes in [indiscernible] endothelial health as measured by SLAPP examination to chemistry and endothelial cell counts.

Interest in long-acting drug delivery for glaucoma is high due to significant compliance challenges with daily drop therapy in this population. We believe that we can be a fast follower with the possibility for a superior product profile to Allergan's recently FDA approved bimatoprost SR implant.

With a targeted product profile of six to nine months of IOP lowering with a single insert and current data showing efficacy will beyond that, some subjects all with a favorable safety profile.

We are very excited about what we've seen in the early results from this trial and look forward to continuing enrollment in two additional cohorts and further evaluation of these patients over time. Moving to the back of the eye, we continue to dose subjects in a multicenter, open-label Phase 1 clinical trial for OTX-TKI in Australia.

OTX-TKI is a bioresorbable, hydrogel implant continuing [indiscernible] as anti-angiogenic properties and its delivered by intravitreal injection. This being developed to treat patients with wet age-related macular degeneration and other retinal diseases.

This, like OTX-TIC, is a novel approach to address a very large commercial market opportunity and as a program we're very excited about.

We believe OTX TKI carries the potential being a next generation treatment for West Asia related macular degeneration, given its ability to act upstream of that job and therefore may [indiscernible] anti angiogenic properties.

Last week we announced encouraging interim results from the ongoing Phase 1 trial evaluating the safety, durability and tolerability of OTX-TKI. Interim data report on the first two fully enrolled cohorts demonstrated OTX-TKI was generally observed to be well tolerated and have a favorable safety profile to date with no ocular serious adverse events.

Regarding biological activity in the higher dose cohort two, OTX-TKI treated subjects. OTX-TKI treat subjects showed a decrease in retinal fluid as mentioned -- as measured by decreases in intraretinal and our subretinal fluid in some subjects with wet age related macro generation at 2 and 3 months.

Additionally, some subjects in cohort 1 who required frequent anti-VEGF dosing prior to enrollment in this study were shown to not need rescue therapy for as long as 10 months after being treated with OTX-TKI while the drug's product profile still a virgin.

We are pleased with the interim data that shows interventional injection of a TKI can reduce intraretinal and/or subretinal fluid. Finally, amongst our early stage programs, I want to note that we filed a 9-D for OTX-CSI in the fourth quarter of 2019 and plan to start dosing patients in a Phase 1 trial in the second quarter of this year.

OTX-CSI is an intracanalicular insert which releases cyclosporine for approximately 3 months per patients with dry eye disease, We're excited about this product that would -- that could deliver a convenient potentially dropless, and effective solution for these dry eye patients.

I would now like to turn the call back over to Donald, who review our fourth quarter and year-end financial results..

Thanks, Michael. Gross product revenue net of discounts, rebates and returns, which the company refers to as total net product revenue was $2.3 million for the three months ended December 31, 2019 reflecting 172% sequential increase over the third quarter.

Net product revenue of DEXTENZA in the first quarter of 2019 -- in the fourth quarter of 2019 was $1.6 million versus $0.3 million in the third quarter and reflects a 433% sequential increase. Total net product revenue for the fourth quarter of 2019 also includes net product revenue of $0.7 million from ReSure Sealant.

Overall, net product revenue for the year ended December 31, 2019 was $4.2 million versus $2.1 million for 2018 and primarily reflects the addition of DEXTENZA sales beginning in the second quarter of 2019.

Research and development expenses for the fourth quarter were $10.1 million versus $10.3 million for the comparable period in 2018 and primarily reflects an increase in on that allocated costs and clinical trial costs associated with the Phase 3 DEXTENZA, the allergic conjunctivitis trial and the Phase 1 trials for OTX-TIC and OTX-TKI offset by a significant reduction of the Phase 3 clinical trial costs associated with OTX-TP.

Overall, R&D expenses for the full year increased $4.2 million to $41.1 million from $36.9 million in 2018, reflecting increased unallocated costs and the trend in clinical trial expenses mentioned above. Selling and marketing expenses for the fourth quarter were $7.1 million as compared to $2.3 million for the same quarter in 2018.

This increase relates almost entirely to support of the commercial launch of DEXTENZA, driven primarily by the full impact of the hiring of new members of the commercial team, including key account managers. field ramp managers and medical sales liaisons beginning in the second quarter of 2019.

Overall selling and marketing expenses for the full year increased $19.6 million to $24.5 million, $4.9 million in 2018, driven primarily by the hiring of new members of the commercial team. As highlighted above, as well as increased spending, consulting conferences and related costs.

Finally, general and administrative expenses were $5.6 million for the fourth quarter of 2019 versus $5.1 million in a comparable quarter of 2018. The increase in expenses for the fourth quarter stemmed primarily from increased personnel costs.

Overall, G&A expenses for the full year increased $3.3 million to $22.1 million from $18.8 million in 2018, again, reflecting primarily increased personnel costs. With respect to financial results for the fourth quarter, the company reported a net loss of $26 million or a loss of $0.53 per share on a basic and diluted basis.

This compares to a net loss of $17.4 million, or a loss of $0.42 per share on a basic and diluted basis for the same period in 2018. The net loss for the fourth quarter included $2.6 million in non-cash charges for stock based compensation and depreciation, compared to $2.5 million for the same quarter in 2018.

In addition, the net loss for the quarter includes a non-cash charge of $3 million related to the change in the fair value of the derivative liability associated with the company's convertible notes.

Overall, the company reported loss of $86.4 million, or a loss of a $1.91 per share on a basic and diluted basis for the full year ended December 31, 2019 versus the net loss of $60 million or a loss of a $1.57 per share on a basic and diluted basis in 2018. As of March 2, 2020, the company has $52.6 million shares outstanding.

As of the full-year ended December 31, 2019 we had $54.4 million in cash and cash equivalents versus $54.1 million at year-end 2018. These cash amounts exclude restricted cash of $1.8 million and $6.6 million respectively. Restricted cash was reduced in the third quarter of twenty nineteen.

As a result of an amendment with the lenders of our $25 million term loan facility to eliminate a $5 million liquidity covenant, the cash balance benefited during the fourth quarter from $8.9 million in net proceeds generated from sale of common stock under the company's 2019 sales agreement, under which the company may offer and sell its common stock.

Having an aggregate proceeds above the $50 million from time to time.

For the full year ended December 31, 2019, cash balances benefited from total net proceeds from financing activities of $75.3 million, primarily consisting of net proceeds from the 2026 convertible notes of $37.3 million common stock sales under the 2016 sales Agreement of $4.9 million and common stock sales under the 2019 sales agreement of $32.7 million.

For the current calendar year through March 10, 2020 the company has sold an addition -- has sold an additional stock under the 2019 sales agreement, generating net proceeds of $10.7 million, approximately $5.2 million of common stock remains available to be sold under the agreement.

Based on our current plans and related estimates of anticipated cash flows from DEXTENZA and ReSure product sales and cash outflows from operating expenses, we believe that existing cash and cash equivalents as of December 31, 2019 together with the first quarter 2020 net proceeds through March 10 from the sales of common stock pursuant to our 2019 sales agreement highlighted previously, will enable the company to fund planned operating expenses, debt service obligations and capital expenditure requirements into the first quarter of 2021.

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

This concludes my comments on the fourth quarter and year-end financial results, and I would now like to turn the call back to Anthony for some summary thoughts..

Thanks, Donald. So before opening the call for questions, let me do a quick summary. We're pleased with the building momentum and momentum under the DEXTENZA launch.

And my helpful CFO has told me that I misspoke earlier about the only important metric in the launch of DEXTENZA, which is the sales of billable units from the specialty distributor into the ACS and hospitals. To repeat what I guess I should have said, at time was the growth -- month over month growth in December was 9% over previous months.

In January of this year was 26% over previous months. And then February it was 34% over the month Before that. We start off in March with a very strong growth rate and we expect to be able to reach in year 2000 billable inserts into the 80s and hospitals for the month of March.

So the momentum is increasing, and we're very excited about how that is working out in the marketplace.

We are also anticipating a Phase 3 read out for DEXTENZA, an allergic conjunctivitis in the second quarter that could potentially extend DEXTENZA franchise into Ocular surface disease in our Phase 1 glaucoma program with intracameral OTX-TIC, we are seeing both the magnitude and durability of effect that support a product that could become standard of care in the treatment that elevated to drop the pressure.

Finally, and most importantly, we have seen the evidence of biologic activity in our OTX-TKI program, keeping alive our dream and developing a true next generation treatment for wet AMD. With that, I'll turn the call over for questions..

Thank you, sir. [Operator Instructions] Our first question comes from the line of Joe Catanzaro of Piper Sandler (sic) [Jaffray]. Your line is open..

Hey, guys, thanks for taking the questions and congrats on the progress. I guess first just a couple on DEXTENZA.

And the first one there and maybe it's too early to say, but you seeing or hearing patients deferring their cataract procedures because of the coronavirus situation?.

To date, we haven't heard anything. What we are hearing -- sorry, to hear now, is that hospitals are starting to not have elective surgeries to delay the delay elective surgeries.

So we haven't seen anything yet so far in terms of what the number of procedures that are being done, but we will monitor it very, very closely and clearly if it becomes a very important driver for our business in the future..

Okay, great. And then another one quick on, on DEXTENZA. I guess, maybe, can you give a little bit of a sense of how ordering patterns have changed over time for those AFSC that have been ordering accounts for six plus months, both in terms of maybe size of orders, timing of orders..

Yes. This is Scott. Good morning. I'll take that. I mean, over time what we've seen, Joe, is more accounts ordering and those orders after gaining reimbursement confidence, especially starting in the fourth quarter with the [indiscernible] on board, really put the trust in reimbursement.

And so order sizes got larger and we've maintained a nice high reorder rate through this period. So as more accounts have come on board, we expect reorders from those accounts because as we've said all along, the product is so well received that people are having a quite a positive experience with it..

Okay, great. And then maybe one quick one on OTX-TKI. So the press release notes that you guys are going to look one more additional dose, just wondering if you could say what those that would be and whether there are any formulation changes that would need to happen beyond just putting more drug in the insert.

And then maybe a bit longer term, once you establish the recommended does what you envision as the next steps for this program?.

Hi, Joe. This is Mike. Thanks for the question. So the next we have a protocol amendment that we're working on to go to the next higher dose would be -- which would be 600 micrograms. So to do that, we would actually not need another, we would not need a population change. We could do that with the current formulation we have.

And so once we have the data from the full trials and have been able to assess activity both as monotherapy and in combination in some way with anti-VEFF drugs and understand durability, well then develop a Phase 2 program based on that information..

Okay. Perfect. Thanks for taking the questions..

Thank you..

Thank you. Our next question comes from Dane Leone of Raymond James. Please go ahead..

Hi. Thank you. Hey, guys. It sounds like you may have been hanging out at the Biogen crew too much. I just want to ask on allergic conjunctivitis.

You have -- what -- can you just remind us of the regulatory pathway for this one? So you'll have the readout of now a second Phase 3 in the second quarter, correct? Just trying to remember what you guys think the pathway is for Ocular itching..

Yes. Hi, Dave. So just like with any indication you needs two adequate and well-controlled trials. The -- so in the -- with the indication in allergic conjunctivitis, you can get medication for Ocular itching. And there are basically two pathways you can use.

One is to use the conjunctivitis allergen challenge model, where allergen is placed directly on to the eye, and the other is to do a true environmental study. Of all the drugs that are approved in the U.S. almost all of them are going to approved using the [indiscernible] Allergen challenge model and that’s the model we’re using.

So in that model, you put the allergen on the eye and you then assess itching symptoms at various time points after the allergen goes on the eye. And you need to show statistically significant improvement compared to the placebo. And the difference needs to be clinically meaningful.

And the FDA defines clinically meaningful as a half unit at all time points measured in a unit difference at a majority of time points..

Okay. And so you'd based on the results that you'll have and because the other Phase 3 study, correct me if I'm wrong with clear the statistical endpoint on itching, but not [indiscernible] readiness..

That’s correct..

So this one, if this one hits on Ocular itching, then that will complete the package?.

That's correct..

Okay, great.

So basically after you get the data, you could get the package together and then submit the supplementary NDA for us?.

Yes, that's correct. So the question is, how do you go-to-market in the context of DEXTENZA currently. I mean, where are the new touch points that your team has to work on? Can you price it the same? Is there how is the reimbursement coding going to work? Anything you guys can highlight from that, I think, would kind of help our models. Thank you..

Sure. I mean, the basic touch points that we were focusing on at launch really was around the [indiscernible] segment surgeon and getting them to understand the benefit of this product and the patients.

We did work with ASCs in terms of getting them to understand the proper reimbursement pathways and being able to select our patients for whom they could get reliable and timely reimbursement. What the -- the area that we’re focusing on more going forward, we continue to focus on the [indiscernible] surgeon.

But what we can do is we can do a lot more for the ASC's themselves and particularly for the consolidators of the ASCs. And that's an area where we think we can really leverage our business going forward, now that we've built up demand with the entire segment surgeons.

So what you don't want to do is you don’t want to open that door with the ASC and get them excited about using and then have no demand within that ASC we have a lot of pent-up demand and physicians would like to use it, being able to open that door with the ASCs is going to be a major opportunity for us moving forward..

How would someone get referred to DEXTENZA in this indication? Would it be the PCP or ...?.

It's generally the choice of the [indiscernible] segment surgeon to use the product or not to use the product [indiscernible]..

Yes, I mean -- so it's a great question, Dane. So we typically do use steroids in cases of allergic conjunctivitis that have failed antihistamine/mast cell stabilizers, which are sort of standard of care.

And as you are probably aware, the largest antihistamine/mast cell stabilizer, although haven’t been just went over the counter, I believe this month. So people coming to our offices, my office, they could walk in and they could try antihistamine/mast cell of their own.

They could have come through their PCP, they could come through optometrist, they could come through general ophthalmologist, or a big source as they come through allergists.

So a lot of different ways, but they end up in the -- generally in the office of an [indiscernible] segment surgeon or accordion specialist, which is, by the way, the exact same population that we're calling on for DEXTENZA in the surgical field. So there's a high overlap in these groups of people -- groups of the physicians..

I think one of the important things to understand about the AC indication is that it is our entree into the eye color surface disease in the ophthalmologist office, which is a much larger opportunity over a longer period of time than the surgical product alone would be.

So as we look at where we would move this product over time, allergic conjunctivitis is a great initial indication. We're very excited by the results of the STRIDE program for Ocular.

If that would lead to a -- an approval for Ocular product in dry eye, having a steroid approved and drive therapy would be very exciting for I think the marketplace would also open up a potential pathway for us to be able to move into an area where DEXTENZA would be ideally suited because there are no preservatives in DEXTENZA.

There's punctual occlusion, which is already a very common treatment for dry disease. There's non-volatile dosings. You have a consistent dose of dexamethasone, it's also non abusable, which is a huge, huge factor in the favor of a product like DEXTENZA.

So AC is part of stepping stone, in out itself it's a valuable indication, but the larger area of ocular surface disease, particularly dry eye disease, is something where we see real value in the product..

Okay. Thank you very much..

Thank you..

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

Thank you for taking my question.

Would you be able to provide us with the number of inserts used by ASC's since launch?.

We certainly could, because the present [indiscernible] presentation that we showed actually showed the billable units by months. So in that -- in there the numbers were there.

So you could add those up and you would then have the number of -- I don't remember whether it included all the months that we've been on the market, but that was -- those were definitely the lion share of the billable units that have been sold into the ASCs and hospitals. .

But right now, we're in billable units over 6,000 in samples were almost at 10,000. But it is important to note that we were sampling almost exclusively at the beginning and over time, the number of samples use has dropped precipitously as sales have increased.

So in the -- by the fourth quarter, and especially in this quarter, sales by far outstripped samples and samples are used simply as a training element at the very beginning of customer taking the product..

Thank you.

Second question, could you remind us the gross price of DEXTENZA currently and how much rebate or discount you've been giving to either end user or distributors?.

We haven't been using rebating as a driver for the business to date. The whack price is $538 per insert. We've had some issues with the timing of our average selling price. We’ve made ASCs whole on what that is, but it has not been a driver of our business in any way, shape or form up until now..

Thanks.

Final question for commercialization, for the DEXTENZA for the allergic conjunctivitis indication, would you need a different sales team or do you plan to start with the existing team?.

We would start with the existing team. As Mike mentioned, the people who are treating in the office and our sort of refractory setting for allergic conjunctivitis with something like DEXTENZA, would be the same patient, with same physician population that we're currently seeing for the surgical products.

Clearly, over time, as we move into ocular surface disease and more deeply into the offices of not only the ophthalmologists, but the optometrist, that would require a larger field structure..

Thank you..

Thank you. As I show no further questions in queue, this does conclude today's conference call. Thank you for participating. You may now disconnect..