Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Ocular Therapeutix Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll 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, Valerie. Good afternoon, everyone, and thank you for joining us on our Third Quarter 2021 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 that ended September 30th, 2021. Press release can be accessed on the Investors portion of our website at investors.ocutx.com.

[Indiscernible] our 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 our commercial progress of DEXTENZA. Also speaking on the call today will be Dr.

Michael Goldstein, our President-Ophthalmology and Chief Medical Officer, who will give an update on our clinical development and pipeline. Following Michael's remarks, I will provide an overview of the financial highlights for the third quarter before turning the call back over to Anthony for summary and question.

For Q&A, we'll be joined by Scott Corning, our Senior Vice President, Commercial, and Chris White, our Chief Business Officer. As a reminder on today's call, certain statements we will be making may be considered forward-looking for the purposes of the Private Securities Litigation Reform Act of 1995.

In particular, any statements regarding our regulatory and product development plans as well as our research activities are forward-looking statements.

These statements are subject to a variety of risks and uncertainties that may cause actual results to differ from those forecasted, including those risks described in our most recent quarterly report on Form 10-Q filed this afternoon with the SEC. I will now turn the call over to Anthony..

Thank you, Donald, and welcome everyone to Ocular Therapeutix Third Quarter 2021 Earnings Report. I'm going to begin with the end of line. We focus first on value in size and dynamism of a disease state in ophthalmology and then determine the key unmet need in that space.

Only then did we consider whether our platform technology enabled us to build a therapeutic that can satisfy the key unmet needs and become a standard of care. The product and our pipeline are hold by the market needs and enabled by our proprietary [Indiscernible] technology. We believe that all of our development programs satisfy these requirements.

[Indiscernible] opportunity in wet AMD, where we believe our OTX-TKI could become the therapeutic with the greatest durability on the market.

To glaucoma, our OTX-TIC could solve the problem of patients and clients to dry eye disease, where our goal is to improve safety and efficacy relative to current therapies, and finally, to the extent that we believe that fills patient and physician desires to have a more convenient drop free solution for the treatment of post-surgical inflammation and pain, and now also for itching associated with allergic conjunctivitis.

Not only do the product candidates we developed target key unmet clinical needs in their respective spaces, but we have designed them with product characteristics that we believe will end themselves to more efficient commercialization.

All of the therapies at Ocular are designed to be medical benefit, buy-and-build products, with associated procedure [Indiscernible].

Products with these characteristics are optimized through an account selling approach, whereby the product is not only attractive to physicians and patients, but also to the size of care that participate in utilization.

Account selling structures can be more targeted in region frequency models employed by the Company's traditional pharmacy benefit medication. DEXTENZA has improved [Indiscernible] , whereby we've been able to cover the entire U.S.

with the targeted commercial field force of less than 50 FTEs and have been able to achieve a positive product contribution within a very short period of time.

Finally, as highly innovative in novel therapeutics, the product candidates we are developing have substantial intellectual property protection and are expected to maintain exclusivity well into the future.

Patents underlying DEXTENZA are expected to expire in 2030 or later, and all of our development product candidates have an applications that are expected to provide protection before 2040 and beyond.

It all adds up to a portfolio of product candidates that we believe are highly differentiated clinically that lend themselves to efficient commercialization and have the potential for long periods of exclusivity.

As we highlight the events of the past quarter and preview the events to come, it's clear we're entering a period of significant data and news flow that will shape our leadership position within ophthalmology.

Let me begin with a few events from the past quarter, starting with DEXTENZA; achieved $11.9 million in net sales for distributors for the quarter, representing an approximately 120% increase over the same quarter last year and approximately 7% improvement over the second quarter of 2021.

Like many other companies that sell under ASCs and HOPDs, growth of DEXTENZA, particularly early in the third quarter, was impacted by lower than expected elective procedures volumes. Looking forward, we are happy to see the market returning to a more normal flow of cataract procedures.

In the most recent month of October, we enjoyed our second largest month ever with over 9,600 billable insert sold to ASCs and HOPDs. The October result is particularly surprising for the first month of the quarter when we typically see a dip in in-market sales.

We believe the October numbers fell out of return to more normal market conditions and set DEXTENZA up for a strong fourth quarter. In October, we were also pleased to receive an early FDA approval of our sNDA expanding the use of DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis.

This approval represents an important strategic milestone to future of our pipeline. Itching associated with allergic conjunctivitis like wet AMD, glaucoma, and DED almost exclusively treated in the office environment, as opposed to the ASC and HOPD where DEXTENZA currently gets the vast majority of its use.

Ocular's strategic goals to expand our presence in Ophthalmology and optometric offices by providing customers with numerous innovative buy-and-bill products, including those developed internally and potentially build and licensed to mother Company. The approval of this sNDA gives us the opportunity to take the first step in doing that.

While the strategic potential of the office environment is enormous, that represents an almost entirely new space for us with the unique set of challenges and opportunities. We discovered in the launch of DEXTENZA, that the primary variance of equitable logistics associated with ASC and HOPD administration.

We believe the product success and large part stems [Indiscernible], which began in the product's launch in setting up those accounts. So the physician's desire to use the product could be met with available products at the site of care.

Setting up accounts on ophthalmology and optometric offices will be analogous but with different drivers that require bespoke solutions. DEXTENZA will be the first ever buy-and-bill treatment for an ocular surface disease for use in the physician's office. We are used to being in unchartered areas, so we relish this opportunity.

Fortunately, we're not starting from zero base. First of all, with our current call list, your [Indiscernible] specialists who treat the type of patients suffering from AC, who we believe are eligible for DEXTENZA reimbursement.

Secondly, the overall market is large with over 10 million patients annually seeking treatment in the healthcare practitioner to relieve the symptoms associated with AC.

As a premium price drug that will likely do [Indiscernible] in its indication, it's important to start a large cohort, import and select those patients for whom the benefits of DEXTENZA can be supported by payers.

On DEXTENZA reimbursement front, we believe that some of the uncertainty around pass-through payment status of [Indiscernible] , slated to expire on December 31, 2022, may have been lifted.

On November 2nd, CMS announced its final rule making for 2022 and has indicated that DEXTENZA will become eligible for separate payment in the ASV under the ASC payment system as a non-opiate pain management supply provision for calendar year 2023.

We believe this is a significantly positive development as it is the first indication from CMS that DEXTENZA may continue to get reimbursed separately once pass-through has expired, effectively extending the reimbursement horizon for this product in surgical settings.

At the time when we embark on a new dawn in the office environment, the treatment of itching associated with allergic conjunctivitis is encouraging that we can look to simultaneously evergreen our hard won business in surgical settings.

With regards to the physician fee for the procedure of inserting DEXTENZA, CMS also announced that the former Category 3 code CPT 0356T will be replaced by a new Category 1 code CPT 68841 effective January 1st, 2022. Payments under the new code will be approximately $31 in the ASC and HOPD and $37 in the office setting.

We are excited that the procedure code has been elevated to a Category 1 status, that will be better recognized and reimbursed across all payer types. We also will continue researching conditional coating strategies and working with interested bodies in order to improve these payment amounts in future.

Clearly, and our pillar is in our DNA to do things that never been done before. The benefit of blazing new trails is that we can create new medicines that have the potential to make real differences to patients. The downside is the reality that not everything is going to work for [Indiscernible].

The results of our Phase 3 trial for OTX-CSI on October is case in point. We're not aware of any Company attempting to deliver a constant dose cycles forms the ocular surface while including analytics. The need is clear. Data suggests drop therapies are painful and irritating to eyes. They are already in pain and they take months to work.

Delivering a constant dose of cyclosporine [Indiscernible] concentration is low enough to avoid an irritation, but high enough for cyclosporine to observe its anti-inflammatory effects challenge. Including the pump in the intracanalicular insert immediately to slow the [Indiscernible] some patients should begin to see for these profit.

We believe that OTX-CSI has potential to be the perfect combination for the millions of people suffering from dry eye disease.

While the concept is clear, our Phase 2 trial in OTX-CSI or cyclosporine intracanalicular insert [Indiscernible] to separate from our hydrogel placebos on the primary endpoint, increased tier production at 12 weeks as measured by Schirmer's test.

While this is disappointing, particularly for the patients who could have benefited from this product, it is important to keep the document content. Because what we do has never been done before, we can't rely on the failures and successes of others to mitigate all of our risks. Why does it fail? We don't get to know for certain.

What is important as a highly innovative Company is that we learned from our setback, because we received and then sort through the patient level data over the next couple of months, we helped define the likely cause.

There are potential causes that we can fix, such as the improvement of insert retention or delivery of a higher dose of cyclosporine in the Ocular Surface. There are also potential causes that might line the basic concept that delivering cyclosporine and steady-state from an included [Indiscernible].

Our decision on whether or not to move forward with OTX-CSI will be based upon data from this effort. Regardless, it's important to note that every therapeutic B3 is unique and that the read through from results from one program to another is very limited. Thankfully, we're not only innovative, but also prolific.

Extends as a brand name indication treatment of itching-associated with allergic conjunctivitis. The Phase 2 readout for OTX-DED is coming soon. A Phase 2 clinical trial for OTX-TIC should initiate before year-end.

Last but not least, OTX-TKI has began Phase 1 trial in the U.S., that is rolling on schedule, and of course, we have many pilot projects waiting for their opportunity to make a difference in the world. I can't thank the team enough for their innovation and execution from the OTX-CSI program.

We sought to improve the lives of patients suffering from truly debilitating disease and we're not going stop. Before turning to Mike to speak more in depth about our pipeline, I would like to welcome two new members of the Ocular team. In September, we announced the appointment of Merilee Raines for our board.

Merilee is an experienced board member who will bring to offer a wealth of operational, financial, and business experience. We also broadened our technical operations team with the addition of our new Senior Vice President, Technical Operations and Quality, Karen-Leigh Edwards.

Karen-Leigh has over 20 years of experience with blue chip companies building and implementing high-performance global enterprise-wide technical operations in life cycle management strategies. Her added presence will further support our ambitious growth strategy. Also [Indiscernible] Chris White was promoted into the role of Chief Business Officer.

Chris has 30 years of experience, large Pharma consulting in biotech could make him an ideal candidate to contribute more broadly across the business. With that, I would now like to hand the call over to our President of Ophthalmology, Chief Medical Officer, Dr. Michael Goldstein, who will provide an in-depth look at our pipeline..

Thanks, Antony. Let me begin with an update on our back of the eye program OTX-TKI.

We continue to enroll subjects in the United States space multicenter prospective randomized controlled trial that is evaluating a single OTX-TKI implants in getting Axitinib compared to aflibercept administered every week in subjects usually treated with anti-VEGF therapy.

This US-based Phase 1 clinical trial of OTX-TKI is being conducted under an exploratory IMD application at 5 states, targeting a total of 20 randomized subjects.

[Indiscernible] subjects being treated with a single OTX-TKI implant, containing a 600 microgram dose of Axitinib, and 5 subjects being treated at each week intervals with standard of care, aflibercept.

The trial is designed to assess the safety, durability, and tolerability of OTX-TKI, as well as to assess preliminary biological activity and subjects by measuring anatomical and functional changes at the retina.

Data from the Australian Phase I trial has demonstrated OTX-TKI as it generally favorable safety profile to-date has been well-tolerated and has shown evidence of biological activity, including decreases in retinal fluids in some subjects as really as two months following implant administration.

Additionally, we are seeing [Indiscernible] durability of six months or longer across cohorts and durability beyond one year in some subjects. We plan on presenting incremental data from the Australian-based trial at the upcoming AAO meeting being held next week.

Moving to our glaucoma program, OTX-TIC, we have completed a US-based baseline clinical trial evaluating the safety, biologic activity, durability, and tolerability of OTX-TIC in subjects with primary opening of our follow-up for ocular hypertension.

We will be presenting summary data on this study at the upcoming AAO conference next week that built on the interim data presented in May at our growth in July [Indiscernible]. This earlier data highlighted the OTX-TICs ability to reduce needs in trucker pressure from baseline.

The clinical trials primarily [Indiscernible] measure by approximately $7 to $11 million [Indiscernible] Mercury, a result which is comparable to current standard of care [Indiscernible].

The data also highlighted the productivity of set of actions as early as two days after [Indiscernible] , and a durability of response with decreases in high pressure for 6 to 9 months in many subjects in cohorts 1 and 2 and for the 6 months per subjects in cohorts 3 and 4.

OTX-TIC has been generally well tolerated with a favorable safety profile to-date. We look to build upon that data at AAO and we remain on track to initiate a Phase 2 clinical trial in the near future.

Regarding our ocular surface disease programs, we are thrilled with the recent approval of DEXTENZA for the treatment of allergic conjunctivitis and believe this program offers a unique position administered preservative-free, drought-free product for patients with allergic conjunctivitis. Regarding OTX-CSI.

We are fairly disappointed with the outcome of our Phase 2 clinical trials of OTX-CSI for the chronic treatment of patients to dry eye disease.

While the study did show an improvement compared to baseline of both signs, especially by total corneal fluorescein staining and symptoms as measured by the visual analog scale, which is not observed as separation between driving vehicle as measured by the Schirmer's test [Indiscernible] that we expected.

As Antony noted, we'll continue to analyze the data including insert retention to better understand the result and that for and we'll provide an update at a later date. Our second product candidate in dry eye, OTX-DED, is a low-dose intracanalicular insert, a preservative-free dexamethasone.

[Indiscernible] sustained active drug DEXTENZA, this is a new product candidate with a lower dose effects about [Indiscernible]. Any dry eye patients experience episodic players with their signs and symptoms which we believe are likely related to inflammation. Topical steroids have long been used as off-label for dry eye [Indiscernible].

However, chronic misuse of steroids may also lead to adverse event such as elevated eye pressure or cataracts. In addition, all commercially available topical steroid eye drops in the United States have preservatives which can result in Ocular Surface toxicity.

The OTX-DED has been offering these patients the opportunity to be treated with a physician administered, preservative-free, and [Indiscernible] therapies that can't be overused by patients.

We've completed enrollment of our US-based randomized, double-masked, vehicle controlled Phase 2 multicenter clinical trial, evaluating two different doses of OTX-DED [Indiscernible] 150 subjects with dry eye disease.

The trial is designed to assess the safety and efficacy of OTX-DED for the short-term treatment of signs and symptoms of dry eye disease by evaluating bulbar conjunctival hyperemia, the VAS eye dryness frequency and severity scores, and total corneal fluorescein staining, among other endpoints.

We expect top line data from this study in the first quarter of 2022. I would now like to turn the call back over to Donald to review our third quarter financial results..

Thanks, Mike. Gross product revenue net of discounts, rebates, and returns, which Company refers to as total net product revenue, was $12.2 million in the quarter and represented a 107% increase over the same period in 2020 and a 4% sequential increase over Q2 2021.

Net product revenue have extended in the third quarter was $11.9 million versus $5.4 million in the comparable quarter of 2020, reflecting an approximately a 120% increase. Total net product revenue for the third quarter of 2021 also includes net product revenue of $0.3 million from ReSure Sealant.

Research & Development expenses for the third quarter were $12.7 million versus $7 million in the comparable period in 2020, driven primarily by increased headcount, as well as increased clinical trial costs associated with initiation of our U.S. Phase 1 trial OTX-TKI, as well as the ongoing Phase 2 clinical trials for OTX-CSI and OTX-DED.

The ongoing Phase 1 clinical trial for OTX-TKI in Australia ended expensive post-approval pediatric trial.

Selling and marketing expenses in the quarter were $9.6 million as compared to $6.5 million for the same quarter in 2020, reflecting the increased personnel costs associated with expansion of our field force and an increase in the facility related and other costs.

Finally, general and administrative expenses were $8.1 million for the third quarter versus $6 million in the comparable quarter of 2020. The increase in expenses stem primarily from increased personnel expenses and professional fees.

With respect to the financial results for the third quarter, the Company reported net income of $2.7 million or income of $0.03 per share on a basic ending lots of 23% per share on a diluted basis.

This compares to a net loss of $11.9 million or a loss of 19 cents per share on a basic and a loss of $0.21 per share on a diluted basis for the same period in 2020.

Net income was primarily due to $23.8 million non-cash net change in the fair value of the derivative liability associated with our convertible notes, driven by a decrease in price of our common stock during the quarter.

Non-cash charges with stock-based compensation and depreciation and amortization were $4.4 million in the third quarter versus $2.6 million for the same quarter in 2020. As of November 3rd, 2021, the Company had 76.6 million shares outstanding.

As of September 30th, 2021, the Company had a $179.3 million in cash and cash equivalents versus a $191.9 million at March 31, 2021.

Based on our current plans and related estimate [Indiscernible] dissipating cash inflows from DEXTENZA, and were sure product sales and cash outflows from operating expenses, the Company believes that existing cash and cash equivalents as of September 30th, 2021 will enable the Company to fund plan operating expenses, debt service obligations, and capital expenditure requirements through 2023.

This cash guidance is subject to a number of assumptions, including those related to this varying duration of the COVID-19 pandemic, the revenues, expenses, and reimbursement associated with DEXTENZA, and the pace of research and clinical development programs among other aspects of the business.

This concludes my comments from the third quarter financial results, and I would like to turn the call back to Anthony for some final thoughts..

Thanks, Donald. So before I open the call up for questions, real quick summary. DEXTENZA demonstrated solid performance with $11.9 million in the third quarter net sales from 7% over prior quarter and a 120% of the same quarter prior year.

We have expand and extend the label with inclusion of an indication for Ocular pitching associated with allergic conjunctivitis for the approval of our sNDA in October and look forward to a formal product launch in first half of 2022.

In the recent OPPS file rules, CMS had laid out a path for the continued separate payment for DEXTENZA in the ASC environment after [Indiscernible]. This could allow for us to evergreen our surgical businesses as we build a new source of growth in in-office environment.

The US-based trial of OTX-TKI evaluated single 600 microgram implant post [Indiscernible] injection versus standard of care every 8 week [Indiscernible] continues to enroll well. We're on track to initiate a Phase 2 clinical trial of OTX-TIC for the treatment of glaucoma before the end of the year.

In dry eye disease, we will continue to analyze the data from the recent top line readout of OTX-CSI, and look forward to reporting top line data of the OTX-DED Phase 2 trial in the first quarter of 2022.

Finally, the Company ended the quarter with $179.3 million in cash on the balance sheet as of September 30, and an expected cash runway through 2023. We look forward to a strong finish in 2021. With that, I will turn the call over for questions..

Thank you. [Operator Instructions] One moment for our first question. Our first question comes from Jon Wolleben from JMP Securities. Your line is open..

Thank you, and thanks for taking the questions. A few from me, maybe if I could start with allergic conjunctivitis. You talked a little bit about the market and when we hear such large numbers of patients, it can be hard to figure out how you're thinking about this opportunity in general with step editing if there were 10 million patients.

How should we think about the opportunity for DEXTENZA in AC? Then also, your additional investment in SG&A, if not right away, when that might happen and what triggered that additional investment?.

You shouldn't expect any increase in investment initially, we're going to, as we mentioned in the discussion, we are seeing a high overlap of targets for ASC in the surgical settings. So we're seeing the right doctors to be able to go after the types of patients that we believe are going to be reimbursable.

But what we need to do over the short period of time is to be able to work in the office environment and understand the requirements in order to set up accounts in the ophthalmology office environment.

So as we establish that, we'll be doing some experimentation over the next quarter or so at the beginning of next year when our Category 1 insertion code becomes viable, we will then establish our plan on how we're going to launch in the office environment..

Based on your market research, how are you thinking about the opportunity for DEXTENZA and [Indiscernible] ? Do you have your hands around it arrange there?.

The market research is exceedingly positive. Doctors are exceptionally excited about having this new treatment modality, payers in the discussion groups that we've had. I see no issues with the price of the product provided, it's not used in every patient. I've been around this business for a long time.

I know not to get overly excited by what-if market research, but the market research has been extremely positive..

Okay, and then maybe one on OTX-CSI. You mentioned the retention data showing lower than anticipated, insertion retention rates in the active arms. I was wondering if you could provide a little more color, and then when you might think you have enough information to make a decision on next steps for OTX-CSI..

Thanks, Jon. This is Mike.

So, I think as you know, cyclosporine needs to be on the ocular surface for a fair amount of time at fair concentration in order to see clinical effects, and we have anticipated that the cyclosporine CSI inserts would last 3 to 4 months, and they do, but in some percentage of the patients, it didn't last the full length of time and we believe that could be one reason amongst many that we're looking at [Indiscernible] , why we didn't see a separation between the direct group and the vehicle group.

As you know or as we've seen from the data, some patients did generally improve in this trial, so from baseline we did the improvement and sort of all metrics when we were testing different signs of symptoms.

But what we didn't see is the fixed separation and we think that's one possibility amongst others, is that the retention was lower than expected. So the good news is that's the issue, that's a fixable problem.

We are looking through our datasets now and looking at the full dataset, and hope in the next couple of months we'll be able to invest more and decide whether reformulation is a viable option..

[Indiscernible] Thanks again for taking the questions..

Thanks for asking..

Thank you. Our next question comes from Dane Leone of Raymond James. Your line is open..

Thank you for taking the questions, and congrats on the quarterly sales of DEXTENZA. Two from me if I could. Firstly, could you maybe help with one of the most common inbounds we've gotten since they're readout of the OTX-CSI data.

As you think about some of the other programs, could you compare and contrast that to difficulty in that formulation perhaps, versus how the formulations performed for OTX-DED, with the concern being that if the formulation wasn't stable necessarily for OTX-CSI and was more of a drug delivery problem, how are we not going to maybe end up in that same issue with the OTX-DED study.

so any color in terms of how those products might be similar or different in formulation would be helpful? Then secondly, for me, could you update just when we might see that data and what the scale and scope of the data will be from the U.S. study of OTX-TKI next year? Thank you..

Yeah. Thanks, Dane. So your first question was about OTX-CSI and how that's the same or different as OTX-DED. So first of all, what I'd say is all of our products use different compositions of hydrogel and we haven't seen any safety issues across any of the programs, including with [Indiscernible].

They're all different in terms of the active ingredient, and they're all different in terms of duration. So with CSI, we're using cyclosporine and we are targeting 3 to 4 months. With DED, we're using dexamethasone and we're targeting a primary endpoint at 2 to 3 weeks. So the CSI readout, I don't think reads through to DED.

In fact, the DED dataset is much more analogous to DEXTENZA. So same active ingredient as DEXTENZA. The only difference being that, with DED, we have less steroids and it's a slightly smaller end surface.

The width is very similar to DEXTENZA, so we expect retention to be very similar to DEXTENZA, which is in the high nineties, and we expect our ability to be a non-issue. I think the read through with CSI is more akin to OTX-TP, which was a [Indiscernible] intracanalicular insert, and we target longer duration therapies in the canaliculus.

That's more of a challenge, and there's a lot of new ones there, but we've learned a lot and as you think about the big picture, the CSI readout was a Phase 2 readout, not a Phase 3 readout.

The Phase 2 readout is designed and basically studies are designed to actually learn things about your formulation and make adjustments, and I think that's where we're at. I think we should have a strong safety signal, I think we've shown we can deliver the drug, but we think we need more drugs.

So they're all fixable things and all appropriate that someone would do in a Phase 2 development program. We just have to decide once we've seen all the data, given all the other opportunity we have, where that falls within our priority list, but it's certainly doable, and again, certainly appropriate for a Phase 2 study.

For the Phase 3 study readout, I would understand people's concerned because it's the Phase 2 readout we're supposed to learn how the different formulations work for the different diseases.

For your second question about OTX-TKI, we have a update for the Australian study that will be presented at the AAO meeting which is I guess kicked-off either end of this week or early next week [Indiscernible] with COVID law unclear when it's actually start but soon. OTX-TKI in the U.S. net trials are rolling well.

We have not announced when we will have the top line data, but we are hoping that by middle of next year, we would have 6-month data on all patients, and that might be an appropriate time to give an update, although, again, we haven't commit to that yet..

Thank you very much..

Thank you, Dane..

Thank you. Our next question comes from Joe Catanzaro of Piper Sandler. Your line is open..

Hey, guys. Thanks so much for taking my questions here.

Mike, I think you used the term incremental, but can you provide a little bit more detail on what we should expect to see from the TKI update at AAO? Should we primarily expect updates from cohort 3? If so, is it possible that we get the full 6 months of follow-up for all patients across cohorts 3A and 3B? Thanks, and I have a follow-up..

Thanks, Joe. So yes, there will be an update on where all the patients are in the Australian trial. All the patients in cohorts 1 to 3A and 3B. Cohorts 1, I think that they're all off studies.

I think you've seen that data, but there'll be updated data on follow-up on subjects in cohorts 2, as well as 3A and 3B, and yes, many or most will hit the 6-month time point..

Okay. Got it. Thanks, that's helpful, and then maybe just a couple on DEXTENZA. I'm wondering if you could elaborate a little bit on the dynamics that influenced September performance.

I think, if I heard correctly, you said sales into ASC's were particularly affected early in the quarter and that together with usually you see a benefit in the last month of the quarter from the rebate program.

Just wondering if you could provide a little bit more commentary on that in September? Then, what's your view on the Category 1 physician payment coming in below 40 bucks? I think that's below where you had hoped it to be. Is this a level you think will still incentivize physicians? Thanks..

For first question, July sales were very high, relative to what we would've expected for that month. They did recover as the quarter went on. We did not get the big jump in sales at the end of the quarter that we normally expect in September. As we mentioned in the discussion, we started out in October hot, with more than 9600 units in-market sold.

Which gives us a nice start into the fourth quarter. We believe this is because of the underlying level of cataract procedures that are out there. That are really returning back to sort of a normal level.

I'm sorry, what was the second question you had [Indiscernible] ?.

It was just on the physician payment fee coming below $40 and whether you would think that would still incentivize physicians?.

Well, certainly cataract environment, that is still a significant incentive. When you're doing 20 cataracts a day, if you're getting an extra $31 for doing that, that becomes a still significant factor given you're only getting $550 for the entire surgery.

Once again, this is for unilateral assertions, in the office environment, you're getting paid $37 per eye. Typical in the office there will be bilateral insertion, so you're really closer to $75 for the bilateral insertion.

We believe that is enough to incentivize particularly the optometric environment, but there are a lot of opportunities for us going forward to look at coating strategies that may be synergistic or looking at working with, for example, the AAO and other interested bodies to find ways to perhaps adjust the worrying or adjust the calculation of the procedure in order to be able to increase that moving forward.

But even if it stays that way, we remain every bit as bullish about the opportunity, both in the surgical and in the office environment with this code, seeing it as very much of a board approved code going forward, and that it's gone through the rock and that it will be durable heading off in the future..

Okay. Got it. That's helpful. Thanks for taking my questions..

Our next question comes from David Steinberg of Jefferies. Your line is open..

Good afternoon and thank you. I have two questions. First one on DEXTENZA and the recent CMS ruling. You guys qualified for the non-opioid pass-through system. I think only two drugs currently have that, Exparel and Omidria, and so it looks like it's lifted a lot of uncertainty around the loss of pass-through.

Can you comment on the impact on reimbursement in DEXTENZA and how durable this might be, I mean, how far into the future do you think this separation of payments will be? Maybe, Omidria as a guide because I know it's gone far beyond the initial thoughts that they would have.

Then just secondly, on your recent approval on allergic conjunctivitis, I know you commented on it, I was curious.

You're calling on offices for the first time, are you gonna need additional sales folks, or are you gonna just move around some of the people you have? Then, I know you're not launching it till the first half of next year, but any initial thoughts on what the first year might look like? Should we expect sort of modest sales since you're answering a new environment within a more sharp takeoff in year 2 or year 3? Just any comments on the trajectory.

Thanks..

Yeah. So your first question was on the durability of the separate payment. The only exception is the yearly designations so certainly within the gift of CMS has to be able to stop doing that going forward. Hard to imagine that opium cease to become a problem in the U.S.

environment in the near term, so I think that we have a good opportunity for that to remain durable.

We also believe that we can speak with CMS and our position with CMS has always been that we are not a supply item and we have a number of strategies and incoming data that will allow us to support the case that you do not have to supply item in the surgery, and therefore, should be paid separately regardless of the designation of a non-opiate for the treatment of pain.

So we see that more as a fallback position that we have now, with the very comfortable position being clearly because it does provide us a window of the future, but we certainly have a number of arguments that we can have going forward that will be more permanent in terms of our continuing separate payment.

Your other question was about the allergic conjunctivitis question. The big picture is our future lies in the office environment. All of our future products will be in the ophthalmology office environment and we see that establishing [Indiscernible] there is extremely important to us from a strategic standpoint.

In terms of being how soon that impact will be, is really in an open question. Once we get out into the market, getting into ophthalmology offices and optometric offices, by the way, where we can start to get an understanding of what it will take to get, and the example that we use, is to have a refrigerator in the office.

So that there is a number of DEXTENZA insert sitting in a refrigerator. So that when a physician desires to use them, for allergic conjunctivitis, that they are there at the site of care and that they are there to be inserted.

In order to do that, there's a number of things that we need to do from an account standpoint to make sure that people are comfortable with the buy-and-bill, that they have procedures in place that allow for them to make sure it's put into the right patient, and that there are no bad experiences early on.

So we will let it go as fast as we can, but I would think that to get really meaningful sales in the office environment, you really look for the second half of next year before you see something over and above what we're doing in the surgical setting..

Thank you. Our next question comes from Anita Dushyanth of Berenberg Capital. Your line is open..

Hi, good afternoon. Just one for me here.

Maybe you could talk about the gross to net in Q3, and then based on DEXTENZA selling trends, what will you be able to give guidance on expectations for Q4 in '22?.

Yeah, we're not yet giving guidance for the product, we are giving obviously the granular in-market sales level data that certainly allows for easy extrapolation into the future of what our trend lines are moving toward. Our gross to net has hovered around 25%. We believe that as a pretty good number to look at going onto the future..

Okay. Thank you..

Thank you..

Thank you. Our next question comes from Georgi Yordanov of Cowen and Company. Your line is open..

Thank you so much for taking our questions. So I guess, first starting with the TKI program on just trailing TKI study, enrollment in cohort 3b seems to be somewhat lagging compared to the other cohorts.

Is there any reason behind that, that you could explain through, so in addition to kind of like the COVID environment? Then just a follow-up from that, as of the April data cut, it looked like there were 2 patients enrolled in the cohort.

When just in terms of the expectations at AAO, will we see 6-month data from both of those patients, and will there be any additional patients with six-month data at that point? Then I have a follow-up..

So overall, enrollment in Australia has been slow, as you probably know, although, Australia has had far fewer COVID patients than the U.S.

The last [Indiscernible] has been far more severe, so movement has been [Indiscernible] in getting patients into the opposite is challenging, and 3B which is the last cohort that we enrolled when more restrictions are in place.

So I don't think it was anymore challenging other than from a timing perspective, and [Indiscernible] but we'll see that next week, but there are more patients that are enrolled and there'll be additional data [Indiscernible] after 6 months..

Great, and then just more broadly on the TKI program. There are obviously multiple competitors in this case that includes both long-acting [Indiscernible] , as well as other TKI implant.

How do you see this market eventually evolve for shakeout? Where do you set the bar for OTX-TKI in terms of efficacy and duration for it to be successful and take a meaningful share?.

Yeah. I mean, [Indiscernible] market is very large and at the effect of drugs have made a huge difference in the lives of many patients. The issue has been durability and that patients do not want to come in every month or every 2 months, and so a number of different approaches have been developed to try to get along with durability.

Not an easy problem to solve, and there may not be one size fits all. So you could see a world where the market is big enough then lots of different approaches play a different role. I would say, broadly, we would say with anti-VEGF drugs, we could see durability extending to maybe every 3 or 4 months.

The advantage of the TKI is that they have potentially a broader spectrum of activities compared to anti-VEGF drugs, so it is possible that some of the patients that have not been well-treated with anti-VEGF drugs may work well with the TKI.

In addition, because [Indiscernible] molecules, you can potentially get greater durability with the TKIs than you can with the anti-VEGF.

Put in another way, you can load more drug into the eyes to get the benefit with the TKIs, so we think there's a lot of potential opportunity for the TKIs, and I would say the fact that there are number of other companies now interested in TKIs, which I believe that there is a big opportunity here.

Our target is really, and what we believe the target is, if we can show that 50% of patients or more get 6 months of durability or more with our TKI, we think that'll be a home run and be a meaningful benefit for patients, and if others can do that as well, I think there's plenty of opportunity for lots of companies to be successful in this space..

Thank you so much, just super helpful..

Thank you..

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

Hi. Thank you for taking my questions.

My first question is, is there going to be any soft launch for DEXTENZA for AC just to gather physicians' interest who will be using it for AC?.

Yeah.

Even though I hate the term soft launch, I prefer a desk experimentation, but yes, we realized when we launched DEXTENZA in the surgical environment, that there was a lot of nuance in how the [Indiscernible] surgery centers and hospital outpatient departments administered their buy-and-bill medications, and their initial reluctance in many cases to take on buy-and-bill product.

We expect every bit the same with [Indiscernible] products in the office environment.

What we're going to do is we're going to go into the office environments where we know the doctors well, we know the types of patients that they're seeing, and we're going to be able to look and see where the opportunities are and segment out those offices where we think we'll have a greater opportunity..

Okay.

So next year, do you plan to report billable units separately for ocular surgeries versus AC?.

That's a very good question, I think. We haven't decided whether we would or wouldn't, but we certainly have committed to transparency and I don't see why we would be any less transparent with the launch in the office environment either..

Okay, and do you believe by the end of this year or early next year, the surgical volume and ASC would be back at pre-COVID levels?.

That's a very good question and nobody has a crystal ball, we certainly are seeing a higher level of activity up late, but the key determining factor really seems to be the staffing of the facilities themselves.

Anybody running the business, ourselves included, being able to maintain an organization that's fully staffed is an increasing challenge, and given the level of a lot of people within these ASV environments and the generally low level of salaries with a lot of this port personnel, it's very hard to for these places to remain fully staffed, and that really is the key determiner.

So it's more of a macroeconomic question than it is for what we see in the market..

Okay. Thank you..

Thank you..

Thank you. Ladies and gentlemen, that concludes today's conference. Thank you all for participating. You may all disconnect. Have a great day..