[FORWARD-LOOKING STATEMENTS](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines the company's forward-looking statements regarding strategy, operations, financial position, and product development, cautioning on inherent risks and uncertainties - This Quarterly Report on Form 10-Q contains forward-looking statements regarding the company's strategy, future operations, financial position, revenues, costs, prospects, plans, and objectives[8](index=8&type=chunk) - Key forward-looking statements include commercialization efforts for DEXTENZA®, development and regulatory approval plans for DEXTENZA and other product candidates (OTX-TIC, OTX-TKI, OTX-CSI), manufacturing capabilities, sales and marketing infrastructure, financial estimates, capital raising plans, potential advantages of products, market acceptance, and collaborations (Regeneron, AffaMed Therapeutics)[9](index=9&type=chunk)[13](index=13&type=chunk) - The company cautions that actual results may differ materially from these statements due to various risks and uncertainties, including those detailed in the 'Risk Factors' section, and disclaims any obligation to update these statements[12](index=12&type=chunk)[13](index=13&type=chunk) [PART I – FINANCIAL INFORMATION](index=7&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This part presents the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements (unaudited)](index=7&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited consolidated financial statements, including Balance Sheets, Statements of Operations, Cash Flows, and Stockholders' Equity [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20September%2030%2C%202020%20and%20December%2031%2C%202019) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Consolidated Balance Sheets (In thousands) | Item | Sep 30, 2020 | Dec 31, 2019 | | :----------------------------------- | :----------- | :----------- | | **Assets** | | | | Cash and cash equivalents | $70,642 | $54,437 | | Accounts receivable, net | $7,779 | $2,548 | | Inventory | $1,154 | $954 | | Total current assets | $81,903 | $60,170 | | Property and equipment, net | $8,490 | $10,151 | | Total assets | $98,219 | $78,740 | | **Liabilities and Stockholders' Equity (Deficit)** | | | | Accounts payable | $3,238 | $3,268 | | Accrued expenses and other current liabilities | $12,165 | $7,635 | | Total current liabilities | $22,906 | $12,029 | | Derivative liability | $28,764 | $12,124 | | Total liabilities | $102,345 | $82,370 | | Total stockholders' deficit | $(4,126) | $(3,630) | | Total liabilities and stockholders' equity (deficit) | $98,219 | $78,740 | [Consolidated Statements of Operations and Comprehensive Loss](index=8&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20for%20the%20three%20and%20nine%20months%20ended%20September%2030%2C%202020%20and%202019) This section details the company's financial performance, including revenues, expenses, and net loss, for the three and nine months ended September 30, 2020 and 2019 Consolidated Statements of Operations and Comprehensive Loss (In thousands, except per share data) | Item | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Product revenue, net | $5,876 | $829 | $10,054 | $1,971 | | Total revenue, net | $5,876 | $829 | $10,054 | $1,971 | | Cost of product revenue | $450 | $806 | $1,403 | $1,486 | | Research and development | $6,951 | $10,235 | $21,070 | $30,966 | | Selling and marketing | $6,520 | $6,777 | $19,803 | $17,349 | | General and administrative | $5,961 | $6,155 | $16,282 | $16,571 | | Total costs and operating expenses | $19,882 | $23,973 | $58,558 | $66,372 | | Loss from operations | $(14,006) | $(23,144) | $(48,504) | $(64,401) | | Interest income | $6 | $308 | $162 | $1,016 | | Interest expense | $(1,715) | $(1,651) | $(5,042) | $(4,296) | | Change in fair value of derivative liability | $3,771 | $5,717 | $(16,640) | $7,334 | | Net loss and comprehensive loss | $(11,944) | $(18,778) | $(70,024) | $(60,355) | | Net loss per share, basic | $(0.19) | $(0.40) | $(1.22) | $(1.37) | | Weighted average common shares outstanding, basic | 62,992,558 | 46,944,536 | 57,440,885 | 44,052,470 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20nine%20months%20ended%20September%2030%2C%202020%20and%202019) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2020 and 2019 Consolidated Statements of Cash Flows (In thousands) | Item | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(70,024) | $(60,355) | | Net cash used in operating activities | $(47,308) | $(58,111) | | Net cash used in investing activities | $(588) | $(1,637) | | Net cash provided by financing activities | $64,101 | $66,250 | | Net increase in cash, cash equivalents and restricted cash | $16,205 | $6,502 | | Cash, cash equivalents and restricted cash at end of period | $72,406 | $67,178 | [Consolidated Statements of Stockholders' Equity (Deficit)](index=10&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)%20for%20the%20three%20and%20nine%20months%20ended%20September%2030%2C%202020%20and%202019) This section presents changes in the company's stockholders' equity (deficit), including common stock and accumulated deficit, for the periods ended September 30, 2020 and December 31, 2019 Changes in Stockholders' Equity (Deficit) (In thousands, except share data) | Item | Balances at Dec 31, 2019 | Balances at Sep 30, 2020 | | :----------------------------------- | :----------------------- | :----------------------- | | Common Stock Shares | 50,333,559 | 63,070,980 | | Common Stock Par Value | $5 | $6 | | Additional Paid-in Capital | $379,980 | $449,507 | | Accumulated Deficit | $(383,615) | $(453,639) | | Total Stockholders' Equity (Deficit) | $(3,630) | $(4,126) | - The increase in common stock shares and additional paid-in capital is primarily due to public offerings and exercise of stock options[21](index=21&type=chunk)[24](index=24&type=chunk) - The accumulated deficit increased significantly due to net losses incurred during the period[21](index=21&type=chunk)[24](index=24&type=chunk) [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanatory notes supporting the consolidated financial statements, covering business operations, accounting policies, and financial instruments [Note 1. Nature of the Business and Basis of Presentation](index=12&type=section&id=Note%201.%20Nature%20of%20the%20Business%20and%20Basis%20of%20Presentation) This note describes Ocular Therapeutix, Inc.'s business as a biopharmaceutical company, its product focus, and the basis for financial statement presentation - Ocular Therapeutix, Inc. is a biopharmaceutical company focused on developing and commercializing innovative eye therapies using its proprietary bioresorbable hydrogel platform technology[26](index=26&type=chunk) - The company's lead products, DEXTENZA® and ReSure Sealant®, are FDA-approved, with other product candidates in clinical development[28](index=28&type=chunk) - The company has incurred recurring losses and negative cash flows, with a net loss of **$70.0 million** for the nine months ended September 30, 2020, and an accumulated deficit of **$453.6 million**[29](index=29&type=chunk) - Management believes existing cash and cash equivalents, along with proceeds from a recent October 2020 stock sale, will fund operations for at least the next twelve months, but acknowledges the need for additional capital and the uncertainty of continuing as a going concern[30](index=30&type=chunk)[32](index=32&type=chunk) - The COVID-19 pandemic's impact on the business is being monitored, but no material disruption or asset impairment has occurred to date[36](index=36&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=14&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing the financial statements, including revenue recognition and fair value measurements - Financial statements are prepared in conformity with GAAP, requiring management estimates and assumptions, particularly for revenue recognition and derivative fair values[37](index=37&type=chunk) - Fair value measurements are categorized into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs), with the derivative liability classified as Level 3[40](index=40&type=chunk)[41](index=41&type=chunk) - Revenue from DEXTENZA and ReSure Sealant sales is recognized when the customer obtains control, net of variable consideration (rebates, discounts, returns)[44](index=44&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) - The company is dependent on a small number of third-party manufacturers and a few individual customers account for a significant portion of total revenue and accounts receivable[63](index=63&type=chunk)[64](index=64&type=chunk) - Recently adopted accounting pronouncements (ASU 2018-13, ASU 2018-18, income tax amendments) did not have a material impact, while ASU 2016-13 (credit losses) and ASU 2020-06 (convertible instruments) are being evaluated for future impact[74](index=74&type=chunk)[75](index=75&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) [Note 3. Fair Value of Financial Assets and Liabilities](index=28&type=section&id=Note%203.%20Fair%20Value%20of%20Financial%20Assets%20and%20Liabilities) This note provides details on the fair value measurements of the company's financial assets and liabilities, categorized by input levels Fair Value Measurements (In thousands) | Item | September 30, 2020 (Level 2) | September 30, 2020 (Level 3) | December 31, 2019 (Level 2) | December 31, 2019 (Level 3) | | :-------------------------- | :--------------------------- | :--------------------------- | :-------------------------- | :-------------------------- | | Cash equivalents: Money market funds | $66,369 | — | $45,156 | — | | Derivative liability | — | $28,764 | — | $12,124 | [Note 4. Accrued Expenses](index=28&type=section&id=Note%204.%20Accrued%20Expenses) This note details the composition of accrued expenses, including payroll, professional fees, research and development, and interest payable Accrued Expenses (In thousands) | Item | September 30, 2020 | December 31, 2019 | | :----------------------------------- | :----------------- | :----------------- | | Accrued payroll and related expenses | $5,395 | $5,042 | | Accrued professional fees | $701 | $1,011 | | Accrued research and development expenses | $845 | $849 | | Accrued interest payable on 2026 convertible notes | $3,619 | — | | Accrued other | $1,605 | $733 | | Total | $12,165 | $7,635 | [Note 5. Derivative Liability](index=28&type=section&id=Note%205.%20Derivative%20Liability) This note explains the accounting for the derivative liability associated with the 2026 Convertible Notes, including its fair value estimation - The embedded conversion option of the 2026 Convertible Notes is bifurcated and accounted for as a freestanding derivative liability, measured at fair value each reporting period[68](index=68&type=chunk) - The fair value is estimated using a binomial lattice approach, with key inputs including stock price (**$7.61** on Sep 30, 2020), expected annual volatility (**100%**), and bond yield (**13.0%**)[86](index=86&type=chunk) Derivative Liability Roll-forward (In thousands) | Item | Amount | | :----------------------- | :----- | | Balance at December 31, 2019 | $12,124 | | Change in fair value | $16,640 | | Balance at September 30, 2020 | $28,764 | [Note 6. Convertible Notes](index=30&type=section&id=Note%206.%20Convertible%20Notes) This note describes the terms and accounting for the 2026 Convertible Notes, including interest rates, conversion options, and repurchase conditions - On March 1, 2019, the company issued **$37.5 million** in 2026 Convertible Notes, accruing interest at **6%** annually, payable at maturity on March 1, 2026[88](index=88&type=chunk) - Holders can convert notes into common stock at an initial rate of **153.8462 shares per $1,000 principal amount** (conversion price of **$6.50 per share**), subject to a **19.99%** beneficial ownership cap[89](index=89&type=chunk) - The company has the option to settle conversions in cash, common stock, or a combination, and notes are subject to repurchase or redemption under specific conditions (e.g., Corporate Transaction, stock price threshold)[90](index=90&type=chunk)[91](index=91&type=chunk)[93](index=93&type=chunk)[95](index=95&type=chunk) 2026 Convertible Notes Summary (In thousands) | Item | September 30, 2020 | | :---------------------- | :----------------- | | 2026 Convertible Notes | $37,500 | | Less: unamortized discount | $(13,698) | | Net | $23,802 | [Note 7. Income Taxes](index=34&type=section&id=Note%207.%20Income%20Taxes) This note explains the company's income tax position, including the absence of income tax provision due to a full valuation allowance - No income taxes were provided for the three and nine months ended September 30, 2020 and 2019, due to a full valuation allowance on net deferred tax assets[100](index=100&type=chunk) - The company has not recorded any unrecognized tax benefits or related interest/penalties[101](index=101&type=chunk) [Note 8. Collaboration Agreement](index=34&type=section&id=Note%208.%20Collaboration%20Agreement) This note details the collaboration agreement with Regeneron Pharmaceuticals, Inc. for developing extended-delivery hydrogel formulations for retinal diseases - The company has a Collaboration, Option and License Agreement with Regeneron Pharmaceuticals, Inc. for developing extended-delivery hydrogel formulations with Regeneron's VEGF-targeting compounds for retinal diseases[102](index=102&type=chunk)[103](index=103&type=chunk) - An amendment in May 2020 shifted focus to suprachoroidal delivery of aflibercept, with Regeneron funding specified preclinical development activities[107](index=107&type=chunk) - Regeneron has an exclusive option to license, with potential payments of **$10.0 million** upon exercise, up to **$145.0 million** per product for development/regulatory milestones, **$100.0 million** per product for first commercial sale, up to **$50.0 million** for sales milestones, and tiered royalties[105](index=105&type=chunk) - As of September 30, 2020, **$480 thousand** related to preclinical development activities under the revised work plan was recorded as a reduction of research and development expense[108](index=108&type=chunk) [Note 9. Notes Payable](index=36&type=section&id=Note%209.%20Notes%20Payable) This note describes the company's credit facility, including borrowing capacity, interest rates, repayment terms, and covenants - The company has a Credit Facility with a total borrowing capacity of **$25.0 million**, fully drawn as of September 30, 2020[109](index=109&type=chunk) - Interest-only payments are required until December 2020, followed by 36 equal monthly principal installments plus interest through December 2023, with the interest rate being LIBOR base rate (**2.00%** floor) plus **7.25%**[110](index=110&type=chunk)[111](index=111&type=chunk) - A final payment (exit fee) of **3.5%** (**$875 thousand**) of amounts drawn is due at maturity[111](index=111&type=chunk) - The Credit Agreement contains negative covenants but no financial covenants, and obligations are collateralized by substantially all company assets[112](index=112&type=chunk) Notes Payable Repayment Requirements (In thousands) | Year Ending December 31, | Principal | Interest and Final Payment | Total | | :----------------------- | :-------- | :------------------------- | :---- | | 2020 (Oct 1 - Dec 31) | $— | $624 | $624 | | 2021 | $8,333 | $2,094 | $10,427 | | 2022 | $8,333 | $1,270 | $9,603 | | 2023 | $8,334 | $1,320 | $9,654 | | Total | $25,000 | $5,308 | $30,308 | - The company obtained and repaid a **$3,201 thousand** Paycheck Protection Program Loan in April-May 2020[116](index=116&type=chunk) [Note 10. Common Stock](index=38&type=section&id=Note%2010.%20Common%20Stock) This note details common stock transactions, including public offerings and sales under the 2019 Sales Agreement, and their financial impact - In May 2020, the company completed a public offering of 9,409,091 shares of common stock (including underwriter option) at **$5.50 per share**, generating net proceeds of **$48.3 million**[117](index=117&type=chunk) - Through September 30, 2020, the company sold 10,321,840 shares of common stock under the 2019 Sales Agreement, generating net proceeds of approximately **$47.0 million**[118](index=118&type=chunk) [Note 11. Net Loss Per Share](index=39&type=section&id=Note%2011.%20Net%20Loss%20Per%20Share) This note presents the calculation of basic and diluted net loss per share, including the impact of common stock equivalents Net Loss Per Share (In thousands, except per share data) | Item | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(11,944) | $(18,778) | $(70,024) | $(60,355) | | Weighted average common shares outstanding, basic | 62,992,558 | 46,944,536 | 57,440,885 | 44,052,470 | | Net loss per share basic | $(0.19) | $(0.40) | $(1.22) | $(1.37) | | Net loss per share diluted | $(0.21) | $(0.45) | $(1.22) | $(1.37) | - For the nine months ended September 30, 2020 and 2019, there was no dilutive impact, so diluted net loss per share was the same as basic net loss per share[120](index=120&type=chunk) - Common stock equivalents (options, warrants, convertible notes) were excluded from diluted EPS calculation for having an anti-dilutive impact[121](index=121&type=chunk) [Note 12. Stock-Based Awards](index=41&type=section&id=Note%2012.%20Stock-Based%20Awards) This note outlines the company's stock incentive plans, employee stock purchase plan, and the associated stock-based compensation expense - The 2014 Stock Incentive Plan and 2014 Employee Stock Purchase Plan (ESPP) allow for annual increases in shares available for issuance[122](index=122&type=chunk)[123](index=123&type=chunk) - A 2019 Inducement Stock Incentive Plan was established for new employees, with **500,000 shares** authorized[124](index=124&type=chunk) Stock-Based Compensation Expense (In thousands) | Expense Category | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $383 | $543 | $1,120 | $1,756 | | Selling and marketing | $441 | $260 | $1,245 | $718 | | General and administrative | $1,112 | $2,366 | $3,062 | $4,332 | | Total | $1,936 | $3,169 | $5,427 | $6,806 | - As of September 30, 2020, **$11.0 million** of unrecognized stock-based compensation cost is expected to be recognized over a weighted average period of **2.4 years**[125](index=125&type=chunk) [Note 13. Commitments and Contingencies](index=43&type=section&id=Note%2013.%20Commitments%20and%20Contingencies) This note discloses the company's contractual commitments, indemnification agreements, and ongoing legal proceedings, including securities class actions - The company holds a worldwide, perpetual, exclusive license from Incept, LLC for ophthalmic products using its bioresorbable hydrogel technology, with low single-digit royalties on net sales[127](index=127&type=chunk)[128](index=128&type=chunk) - Indemnification agreements are in place for vendors, partners, directors, and officers, with no material costs incurred to date[129](index=129&type=chunk) - Purchase commitments exist for clinical trial activities, and manufacturing contracts are generally cancelable but likely to continue[130](index=130&type=chunk)[131](index=131&type=chunk) - Under the Regeneron collaboration, the company may be obligated to reimburse Regeneron for certain development costs up to **$25.0 million** (potentially **$30.0 million**) if the option is exercised[132](index=132&type=chunk)[133](index=133&type=chunk) - The company is a defendant in multiple securities class action and shareholder derivative lawsuits, alleging false/misleading statements and breach of fiduciary duty; the securities class action was dismissed and affirmed on appeal, and state court derivative actions were voluntarily dismissed without prejudice in October 2020[135](index=135&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk)[143](index=143&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) - The company denies wrongdoing and intends to vigorously defend against these lawsuits, acknowledging potential material adverse effects on financial condition and business if outcomes are unfavorable[148](index=148&type=chunk)[149](index=149&type=chunk) [Note 14. Related Party Transactions](index=49&type=section&id=Note%2014.%20Related%20Party%20Transactions) This note details transactions with related parties, specifically legal services provided by McCarter English LLP Legal Services Fees from McCarter English LLP (In thousands) | Period | Fees Incurred | | :------------------------------ | :------------ | | Three Months Ended Sep 30, 2020 | $115 | | Three Months Ended Sep 30, 2019 | $209 | | Nine Months Ended Sep 30, 2020 | $630 | | Nine Months Ended Sep 30, 2019 | $672 | - McCarter English LLP provided legal services, with a partner also serving as in-house counsel until August 31, 2020[150](index=150&type=chunk) [Note 15. Subsequent Events](index=49&type=section&id=Note%2015.%20Subsequent%20Events) This note reports significant events occurring after the reporting period, including stock option grants, a public offering, and a new license agreement - On October 5, 2020, a non-statutory stock option to purchase **350,000 shares** was issued to an employee under the Inducement Plan[151](index=151&type=chunk) - On October 13, 2020, the company completed a public offering of 8,257,000 shares of common stock (including underwriter option) at **$9.75 per share**, generating net proceeds of **$75.7 million**[153](index=153&type=chunk) - On October 29, 2020, the company entered into a license agreement with AffaMed Therapeutics Limited for DEXTENZA and OTX-TIC in mainland China and other Asian territories[154](index=154&type=chunk) - The AffaMed agreement includes upfront payments totaling **$12.0 million**, up to **$91.0 million** in development/commercial milestones, and tiered royalties (low-teen to low-twenties percentage) on net sales[155](index=155&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results, highlighting its biopharmaceutical focus, product pipeline, and commercialization efforts [Overview](index=54&type=section&id=Overview) This overview introduces Ocular Therapeutix as a biopharmaceutical company, its proprietary hydrogel platform, and its key commercial products and pipeline candidates - Ocular Therapeutix is a biopharmaceutical company developing innovative eye therapies using its proprietary bioresorbable hydrogel platform technology[162](index=162&type=chunk) - The primary commercial product is DEXTENZA® for post-surgical ocular inflammation and pain, launched in July 2019[163](index=163&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk) - Key pipeline candidates include OTX-TKI (wet AMD), OTX-TIC (glaucoma/ocular hypertension) in Phase 1, and OTX-CSI (dry eye disease) in Phase 2, with OTX-DED (dry eye disease) planned for a Phase 2 IND filing in Q4 2020[164](index=164&type=chunk) - A collaboration with Regeneron Pharmaceuticals, Inc. focuses on an extended-delivery aflibercept formulation for retinal diseases[165](index=165&type=chunk)[166](index=166&type=chunk) - ReSure® Sealant, an FDA-approved hydrogel ophthalmic wound sealant, is also marketed[170](index=170&type=chunk) [Business Update Regarding COVID-19](index=56&type=section&id=Business%20Update%20Regarding%20COVID-19) This section addresses the impact of the COVID-19 pandemic on the company's employees, patients, communities, and business operations - The COVID-19 pandemic has impacted employees, patients, communities, and business operations, including travel bans, restrictions, and shutdowns[171](index=171&type=chunk) - The full extent of the pandemic's direct or indirect impact on business, results of operations, and financial condition remains highly uncertain[171](index=171&type=chunk) [Retinal Disease Programs](index=56&type=section&id=Retinal%20Disease%20Programs) This section discusses the company's retinal disease programs, including the market opportunity, clinical trial progress for OTX-TKI, and the collaboration with Regeneron - The global retinal disease market was approximately **$13 billion** in 2019, with a projected **11%** annual growth[172](index=172&type=chunk) - OTX-TKI (axitinib intravitreal implant) Phase 1 interim data showed a favorable safety profile, decreased intraretinal/subretinal fluid, durability up to **nine months**, and a dose response[175](index=175&type=chunk) - The company plans to file an IND for OTX-TKI by end of 2020 and initiate a Phase 2 clinical trial in Australia in mid-2021 for wet AMD, DME, and RVO[175](index=175&type=chunk) - The collaboration with Regeneron (OTX-AFS) focuses on an extended-delivery aflibercept formulation for suprachoroidal space delivery, with Regeneron funding preclinical activities[178](index=178&type=chunk)[179](index=179&type=chunk) - Regeneron's option to license is exclusive for **24 months** from May 8, 2020, with potential milestone payments up to **$295 million** per product and tiered royalties[183](index=183&type=chunk)[184](index=184&type=chunk) [Glaucoma Programs](index=61&type=section&id=Glaucoma%20Programs) This section details the company's glaucoma programs, including market size, clinical data for OTX-TIC, and the status of OTX-TP development - The global glaucoma market was estimated at **$4.8 billion** in 2019, with poor adherence to daily eye drops being a significant issue[186](index=186&type=chunk) - OTX-TIC (travoprost intracameral implant) Phase 1 data showed clinically meaningful IOP reduction for up to **thirteen months**, with consistent bioresorption in **five to seven months**[190](index=190&type=chunk)[191](index=191&type=chunk) - Enrollment in the fourth cohort of OTX-TIC Phase 1 has slowed due to COVID-19, with topline data for cohorts 3 and 4 expected in Q1 2021, and a Phase 2 trial expected in mid-2021[195](index=195&type=chunk) - OTX-TP (intracanalicular travoprost insert) Phase 3 trial did not achieve statistical significance for its primary endpoint, and the company does not intend to initiate a second Phase 3 trial without a collaborative partner[197](index=197&type=chunk)[199](index=199&type=chunk) [Ocular Surface Diseases](index=65&type=section&id=Ocular%20Surface%20Diseases) This section covers the company's programs for ocular surface diseases, including market size, clinical progress for OTX-CSI and OTX-DED, and DEXTENZA for allergic conjunctivitis - The global dry eye disease market was estimated at **$5.1 billion** in 2019[202](index=202&type=chunk) - OTX-CSI (cyclosporine intracanalicular insert) Phase 1 topline data showed improved tear production (Schirmer's test from **4.2mm to 8.2mm** at Week 12), corneal staining, and dry eye symptoms, with no serious adverse effects[204](index=204&type=chunk)[205](index=205&type=chunk) - A Phase 2 clinical trial for OTX-CSI began in September 2020, with topline data anticipated in H1 2022[206](index=206&type=chunk) - OTX-DED (dexamethasone intracanalicular insert) is designed for short-term dry eye treatment, with a Phase 2-enabling IND planned by end of 2020 and a Phase 2 trial in Q1 2021[207](index=207&type=chunk)[208](index=208&type=chunk) - DEXTENZA for allergic conjunctivitis Phase 3 trial showed statistically significant (**p<0.0001**) reduction in mean ocular itching scores compared to placebo, with an sNDA filing planned for Q4 2020 and a target PDUFA date of October 2021[212](index=212&type=chunk)[216](index=216&type=chunk) [DEXTENZA® (dexamethasone ophthalmic insert)](index=73&type=section&id=DEXTENZA%20%C2%AE%20(dexamethasone%20ophthalmic%20insert)) This section provides an update on DEXTENZA, including its FDA approvals, reimbursement codes, and ongoing pediatric clinical trial - DEXTENZA is FDA-approved for post-surgical ocular pain (Nov 2018) and inflammation (June 2019), commercially launched in July 2019[217](index=217&type=chunk) - It received a C-code (C9048) effective July 1, 2019, and a permanent J-code (J1096) effective October 1, 2019, for reimbursement[217](index=217&type=chunk)[218](index=218&type=chunk) - Three Medicare Administrative Contractors (MACs) covering approximately **50%** of Medicare beneficiaries have established physician fee schedules for CPT code 0356T for DEXTENZA administration[219](index=219&type=chunk) - A Category I CPT procedure code for drug-eluting intracanalicular inserts was granted, effective January 1, 2022, to replace the current Category III code (0356T)[221](index=221&type=chunk)[222](index=222&type=chunk) - A Phase 3 pediatric clinical trial for post-surgical ocular inflammation and pain following cataract surgery began enrollment in September 2020[220](index=220&type=chunk) [ReSure® Sealant](index=75&type=section&id=ReSure%C2%AE%20Sealant) This section provides an update on ReSure Sealant, an FDA-approved device for corneal incisions, including its commercial status and regulatory compliance - ReSure Sealant is an FDA-approved device for sealing corneal incisions after cataract surgery, commercially launched in 2014[224](index=224&type=chunk) - The company received a close-out letter from the FDA in September 2020 regarding a 2018 warning letter related to a required post-approval Device Exposure Registry Study[227](index=227&type=chunk)[229](index=229&type=chunk) - Limited revenues have been generated from ReSure Sealant to date, with limited sales anticipated for 2020, and no current sales support[230](index=230&type=chunk) [AffaMed License Agreement](index=75&type=section&id=Af%20aMed%20License%20Agreement) This section details the license agreement with AffaMed Therapeutics Limited for DEXTENZA and OTX-TIC in mainland China and other Asian territories - On October 29, 2020, the company entered into a license agreement with AffaMed Therapeutics Limited for DEXTENZA and OTX-TIC in mainland China and other Asian territories[231](index=231&type=chunk)[232](index=232&type=chunk) - The agreement includes upfront payments of **$12.0 million**, up to **$91.0 million** in development and commercial milestones, and tiered royalties (low-teen to low-twenties percentage) on net sales[234](index=234&type=chunk) - The company is generally responsible for development expenses in the territories, with AffaMed reimbursing a low-teen percentage for Global Studies and full reimbursement for regulatory approvals[235](index=235&type=chunk) [Additional Potential Areas for Growth](index=79&type=section&id=Additional%20Potential%20Areas%20for%20Growth) This section explores the company's preclinical programs and potential expansion of its hydrogel platform technology beyond ophthalmology - The company is exploring preclinical programs and potential uses of its hydrogel platform technology in other areas of the body beyond ophthalmology[239](index=239&type=chunk)[240](index=240&type=chunk) - A second amended and restated license agreement with Incept LLC expanded the intellectual property license to include products for acute post-surgical pain or ear, nose, and throat diseases[240](index=240&type=chunk) [Financial Position](index=79&type=section&id=Financial%20Position) This section summarizes the company's financial standing, including historical losses, funding sources, and future liquidity projections - The company has generated limited revenue and incurred significant operating losses since inception, with a net loss of **$70.0 million** for the nine months ended September 30, 2020, and an accumulated deficit of **$453.6 million**[241](index=241&type=chunk) - Operating expenses increased due to DEXTENZA commercial launch, clinical development of pipeline candidates, and public company costs[242](index=242&type=chunk) - The company has financed operations through private placements, public offerings (May 2020: **$48.3 million** net proceeds; October 2020: **$75.7 million** net proceeds), convertible notes (**$37.5 million**), and credit facilities[244](index=244&type=chunk)[245](index=245&type=chunk)[248](index=248&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk) - Existing cash and cash equivalents (**$70.6 million** as of Sep 30, 2020) combined with October 2020 offering proceeds are expected to fund operations into 2023, but this estimate is subject to various assumptions and potential need for additional capital[253](index=253&type=chunk) [Financial Operations Overview](index=83&type=section&id=Financial%20Operations%20Overview) This section provides an overview of the company's financial operations, including revenue sources, customer concentration, operating expenses, and other income/expense items - Product revenue from DEXTENZA began in Q2 2019, while ReSure Sealant has generated limited revenue[255](index=255&type=chunk) - Customer concentration is high, with three individual customers accounting for **39%**, **38%**, and **10%** of total revenue for the three months ended September 30, 2020[256](index=256&type=chunk) - The COVID-19 pandemic adversely affected product revenues due to reduced elective cataract surgeries, though a rebound was observed in Q3 2020[258](index=258&type=chunk) - Operating expenses include cost of product revenue, research and development, selling and marketing, and general and administrative costs[259](index=259&type=chunk)[261](index=261&type=chunk)[267](index=267&type=chunk)[268](index=268&type=chunk) - Research and development expenses are expensed as incurred, with direct costs tracked by program and unallocated costs for personnel, platform technology, and facilities[261](index=261&type=chunk)[262](index=262&type=chunk) - Other income (expense) includes interest income, interest expense on debt, and non-cash changes in the fair value of derivative liability, which fluctuates with common stock price changes[270](index=270&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk) [Results of Operations](index=89&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance by comparing revenues and expenses for the three and nine months ended September 30, 2020 and 2019 Revenue Comparison (In thousands) | Period | 2020 | 2019 | Increase (Decrease) | | :------------------------------ | :--- | :--- | :------------------ | | Three Months Ended Sep 30 | $5,876 | $829 | $5,047 | | Nine Months Ended Sep 30 | $10,054 | $1,971 | $8,083 | - Revenue growth for DEXTENZA was primarily due to increased market acceptance and continued increases in elective surgical volumes[277](index=277&type=chunk)[287](index=287&type=chunk) Research and Development Expenses Comparison (In thousands) | Period | 2020 | 2019 | Increase (Decrease) | | :------------------------------ | :----- | :----- | :------------------ | | Three Months Ended Sep 30 | $6,951 | $10,235 | $(3,284) | | Nine Months Ended Sep 30 | $21,070 | $30,966 | $(9,896) | - R&D expenses decreased primarily due to a **$2.5 million** (Q3) and **$6.9 million** (YTD) decrease in unallocated personnel costs and other costs, resulting from a November 2019 organizational restructuring[278](index=278&type=chunk)[279](index=279&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk) Selling and Marketing Expenses Comparison (In thousands) | Period | 2020 | 2019 | Increase (Decrease) | | :------------------------------ | :----- | :----- | :------------------ | | Three Months Ended Sep 30 | $6,520 | $6,777 | $(257) | | Nine Months Ended Sep 30 | $19,803 | $17,349 | $2,454 | - Selling and marketing expenses for the nine months ended September 30, 2020, increased by **$2.5 million**, primarily due to a **$4.0 million** increase in personnel-related costs for DEXTENZA commercial launch, partially offset by decreased professional fees[295](index=295&type=chunk) General and Administrative Expenses Comparison (In thousands) | Period | 2020 | 2019 | Increase (Decrease) | | :------------------------------ | :----- | :----- | :------------------ | | Three Months Ended Sep 30 | $5,961 | $6,155 | $(194) | | Nine Months Ended Sep 30 | $16,282 | $16,571 | $(289) | - General and administrative expenses decreased slightly due to lower personnel costs and professional fees, partially offset by increased facility-related and other costs[283](index=283&type=chunk)[297](index=297&type=chunk) Other Income (Expense), Net Comparison (In thousands) | Period | 2020 | 2019 | Change | | :------------------------------ | :------- | :----- | :------- | | Three Months Ended Sep 30 | $2,062 | $4,366 | $(2,304) | | Nine Months Ended Sep 30 | $(21,520) | $4,046 | $(25,566) | | Change in fair value of derivative liability (9 months) | $(16,640) | $7,334 | $(23,974) | - The significant change in other income (expense), net, was primarily driven by the change in fair value of the derivative liability associated with the 2026 Convertible Notes, which was a loss of **$16.6 million** for the nine months ended September 30, 2020, due to an increase in common stock price[298](index=298&type=chunk)[299](index=299&type=chunk) [Liquidity and Capital Resources](index=98&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to meet its financial obligations, including historical funding, current cash position, and future capital needs - The company has incurred significant operating losses since inception, with an accumulated deficit of **$453.6 million** as of September 30, 2020[300](index=300&type=chunk) - Operations are financed through private placements, public offerings (May 2020: **$48.3 million**; October 2020: **$75.7 million**), convertible notes (**$37.5 million**), and credit facilities (**$25.0 million** outstanding debt)[302](index=302&type=chunk)[303](index=303&type=chunk)[306](index=306&type=chunk)[307](index=307&type=chunk)[308](index=308&type=chunk) - Cash and cash equivalents were **$70.6 million** as of September 30, 2020, and combined with October 2020 offering proceeds, funds are expected to cover operating expenses, debt service, and capital expenditures into 2023[311](index=311&type=chunk) Cash Flow Summary (In thousands) | Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------- | :----------------------------- | :----------------------------- | | Cash used in operating activities | $(47,308) | $(58,111) | | Cash used in investing activities | $(588) | $(1,637) | | Cash provided by financing activities | $64,101 | $66,250 | | Net increase in cash and cash equivalents | $16,205 | $6,502 | - Net cash used in operating activities decreased due to lower net loss and non-cash adjustments, while financing activities provided significant cash from stock offerings and convertible notes[312](index=312&type=chunk)[313](index=313&type=chunk)[315](index=315&type=chunk) [Funding Requirements](index=101&type=section&id=Funding%20Requirements) This section outlines the company's anticipated future capital needs for commercialization, clinical development, and operations, and potential funding sources - The company expects to incur continued losses and substantial expenses for DEXTENZA commercialization, clinical trials (OTX-TKI, OTX-TIC, OTX-CSI, OTX-DED, DEXTENZA for new indications), R&D, manufacturing scale-up, and public company operations[317](index=317&type=chunk)[318](index=318&type=chunk) - An operational restructuring in November 2019 reduced workforce by **22%** and deferred certain development programs, aiming for **$11 million** in annualized savings and **$14 million** in one-time program deferrals[319](index=319&type=chunk)[320](index=320&type=chunk)[321](index=321&type=chunk) - Future capital requirements depend on factors like DEXTENZA sales, regulatory outcomes, manufacturing costs, clinical trial progress, debt obligations, and collaboration payments (Regeneron, AffaMed)[323](index=323&type=chunk)[324](index=324&type=chunk) - Additional funding may be sought through equity offerings, debt financings, or collaborations, which could lead to dilution or restrictive covenants[326](index=326&type=chunk) - As of December 31, 2019, the company had federal NOL carryforwards of **$274.3 million** and state NOL carryforwards of **$219.4 million**, which may be limited by tax law changes and ownership changes[327](index=327&type=chunk) [Contractual Obligations and Commitments](index=109&type=section&id=Contractual%20Obligations%20and%20Commitments) This section details the company's contractual obligations, including operating leases, purchase commitments, and debt obligations, as of September 30, 2020 Contractual Obligations at September 30, 2020 (In thousands) | Type | Total | Less Than 1 Year | 1 to 3 Years | 3 to 5 Years | More than 5 Years | | :-------------------------- | :------ | :--------------- | :----------- | :----------- | :---------------- | | Operating lease commitments | $13,450 | $2,491 | $5,075 | $3,156 | $2,728 | | Purchase commitments | $6,548 | $3,218 | $3,265 | $65 | $— | | Debt obligations including interest | $30,307 | $8,517 | $18,797 | $2,993 | $— | | 2026 Convertible Notes | $53,475 | $— | $— | $— | $53,475 | | Total | $103,780 | $14,226 | $27,137 | $6,214 | $56,203 | - Operating lease commitments include office, laboratory, and manufacturing space leases expiring between July 2023 and July 2027[331](index=331&type=chunk)[332](index=332&type=chunk)[333](index=333&type=chunk)[334](index=334&type=chunk) - Purchase commitments are non-cancelable contractual obligations for clinical trial activities[335](index=335&type=chunk) - The company's Credit Facility has **$25.0 million** outstanding, with interest-only payments until December 2020, then principal and interest through December 2023[340](index=340&type=chunk) - The 2026 Convertible Notes (**$37.5 million** principal) accrue **6%** annual interest, maturing March 1, 2026, with conversion options and potential repurchase/redemption rights[346](index=346&type=chunk)[347](index=347&type=chunk)[348](index=348&type=chunk) - Payments to Incept LLC under the intellectual property license agreement are not included in the table due to unknown timing and amounts[344](index=344&type=chunk) - Reimbursement obligations to Regeneron under the collaboration agreement are also not included due to unknown timing[345](index=345&type=chunk) - The AffaMed License Agreement involves expense reimbursements and potential milestone/royalty payments, but specific future payment amounts are not included in the table[350](index=350&type=chunk) [Off-Balance Sheet Arrangements](index=115&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms that the company did not have any off-balance sheet arrangements during the reported periods - The company did not have any off-balance sheet arrangements during the periods presented[351](index=351&type=chunk) [Recently Issued Accounting Pronouncements](index=115&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section refers to Note 2 for information regarding recently issued accounting pronouncements and their impact - Information regarding new accounting pronouncements is included in Note 2 – Summary of Significant Accounting Policies[352](index=352&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risk primarily related to changes in interest rates, particularly for its short-term investments in money market funds - The company's primary market risk exposure is interest rate sensitivity, affecting its cash and cash equivalents (**$70.6 million** as of September 30, 2020) invested in short-term money market funds[353](index=353&type=chunk) - Due to the short-term duration and low-risk profile of the investment portfolio, an immediate **100 basis point** change in interest rates would not have a material effect on the fair market value of the portfolio[353](index=353&type=chunk) [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of September 30, 2020, concluding they were effective at a reasonable assurance level - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2020[354](index=354&type=chunk)[355](index=355&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2020[356](index=356&type=chunk) [PART II – OTHER INFORMATION](index=65&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This part provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and recent appointments [Item 1. Legal Proceedings](index=65&type=section&id=Item%201.%20Legal%20Proceedings) This section details ongoing legal proceedings, including securities class actions and shareholder derivative lawsuits, and the company's defense strategy - Multiple securities class action lawsuits were filed against the company and its officers, alleging violations of the Securities Exchange Act related to DEXTENZA and manufacturing operations, which were consolidated, dismissed by the District Court, and affirmed on appeal by the First Circuit in April 2020[358](index=358&type=chunk)[362](index=362&type=chunk)[361](index=361&type=chunk)[360](index=360&type=chunk)[359](index=359&type=chunk) - Several shareholder derivative lawsuits were filed against current and former executive officers and board members, alleging breach of fiduciary duty and other claims, which were consolidated, and the state court derivative actions were voluntarily dismissed without prejudice in October 2020[364](index=364&type=chunk)[365](index=365&type=chunk)[366](index=366&type=chunk)[367](index=367&type=chunk)[368](index=368&type=chunk)[370](index=370&type=chunk)[371](index=371&type=chunk) - The company denies all allegations of wrongdoing and plans to vigorously defend itself, noting that adverse outcomes could materially affect its financial condition, business, and reputation[372](index=372&type=chunk)[373](index=373&type=chunk) [Item 1A. Risk Factors](index=67&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks that could materially and adversely affect the company's business, financial condition, results of operations, and future growth prospects [Risks Related to the Coronavirus Pandemic](index=122&type=section&id=Risks%20Related%20to%20the%20Coronavirus%20Pandemic) This section addresses the adverse impacts of the COVID-19 pandemic on the company's commercialization efforts, clinical development, and financial markets - The COVID-19 pandemic has adversely affected commercialization of DEXTENZA and ReSure Sealant due to decreased elective surgeries, diversion of healthcare resources, and potential supply chain interruptions[378](index=378&type=chunk) - Clinical development activities, including patient recruitment and trial operations, may be delayed or adversely affected by the pandemic, as seen with the slowdown in OTX-TIC Phase 1 enrollment[378](index=378&type=chunk)[379](index=379&type=chunk) - The pandemic has caused significant disruptions in financial markets, potentially impacting the company's ability to raise capital and increasing stock price volatility[384](index=384&type=chunk) [Risks Related to Our Financial Position and Need for Additional Capital](index=126&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Need%20for%20Additional%20Capital) This section highlights risks associated with the company's history of operating losses, substantial debt, and ongoing need for additional funding to support its operations - The company has incurred significant operating losses since inception (**$70.0 million** for nine months ended Sep 30, 2020; **$453.6 million** accumulated deficit) and expects to continue incurring losses[385](index=385&type=chunk) - Substantial additional funding will be required to support ongoing operations, DEXTENZA commercialization, and product candidate development, which may not be available on acceptable terms[394](index=394&type=chunk)[395](index=395&type=chunk) - Raising additional capital through equity or convertible debt could dilute stockholders' ownership, while debt financing may impose restrictive covenants[404](index=404&type=chunk) - The company's substantial indebtedness (**$25.0 million** outstanding under Credit Facility, **$37.5 million** convertible notes) may limit cash flow for investments and operations[406](index=406&type=chunk)[407](index=407&type=chunk)[408](index=408&type=chunk) - The planned phase-out of LIBOR by end of 2021 could adversely affect the company's financial condition due to potential increased costs for LIBOR-indexed loans[409](index=409&type=chunk) - The company's limited operating history and reliance on DEXTENZA's commercial success make future viability uncertain, and management's discretion in using funds may not always be effective[410](index=410&type=chunk)[412](index=412&type=chunk)[415](index=415&type=chunk) [Risks Related to Product Development](index=138&type=section&id=Risks%20Related%20to%20Product%20Development) This section addresses the inherent uncertainties and challenges in developing new pharmaceutical products, including clinical trial failures, delays, and safety concerns - The company's success heavily depends on DEXTENZA and its product candidates; clinical trials may not be successful, leading to delays or inability to commercialize[416](index=416&type=chunk)[417](index=417&type=chunk) - Clinical trials are expensive, time-consuming, and uncertain, and failure to demonstrate safety and efficacy to regulatory authorities could lead to additional costs, delays, or abandonment of development[422](index=422&type=chunk) - Past clinical trial results for DEXTENZA (inflammation, allergic conjunctivitis) and OTX-TP (glaucoma) have shown mixed outcomes or failed to meet primary endpoints, potentially delaying or preventing marketing approval[423](index=423&type=chunk)[427](index=427&type=chunk)[431](index=431&type=chunk)[432](index=432&type=chunk) - Delays or difficulties in patient enrollment for clinical trials could prevent regulatory approvals and increase development costs[448](index=448&type=chunk)[449](index=449&type=chunk) - Serious adverse events or unacceptable side effects identified during development or commercialization could force the company to abandon or limit product development[450](index=450&type=chunk)[451](index=451&type=chunk) - The company may not successfully develop other products based on its hydrogel platform or expand its use, potentially limiting future revenues[453](index=453&type=chunk)[455](index=455&type=chunk) - Limited resources may lead to focusing on less profitable or less successful product candidates, potentially missing greater commercial opportunities[456](index=456&type=chunk) [Risks Related to Manufacturing](index=154&type=section&id=Risks%20Related%20to%20Manufacturing) This section outlines risks associated with manufacturing operations, including facility upgrades, regulatory compliance, and reliance on third-party suppliers - The company needs to upgrade and expand its manufacturing facility or relocate to meet business plans, which is costly, time-consuming, and requires additional regulatory approvals[457](index=457&type=chunk) - Failure to comply with cGMP and other quality assurance standards, or new regulatory standards, could result in fines, production suspension, product seizure/recall, or withdrawal of approval[458](index=458&type=chunk)[459](index=459&type=chunk)[460](index=460&type=chunk) - Damage or destruction of the sole clinical manufacturing facility could severely negatively affect business and prospects, as replacement would be expensive and time-consuming[462](index=462&type=chunk)[463](index=463&type=chunk) - Reliance on third parties for aspects of production, including sole source suppliers for raw materials like PEG, increases risks of insufficient quantities, unacceptable costs, and delays[464](index=464&type=chunk)[465](index=465&type=chunk)[466](index=466&type=chunk) [Risks Related to Commercialization](index=158&type=section&id=Risks%20Related%20to%20Commercialization) This section details risks concerning the market acceptance, sales, marketing, competition, pricing, and reimbursement of the company's products - DEXTENZA and ReSure Sealant, and any future approved products, may fail to achieve sufficient market acceptance by physicians, patients, and payors, limiting commercial success[469](index=469&type=chunk)[470](index=470&type=chunk) - Market acceptance depends on efficacy, advantages over alternatives, ease of administration, pricing, reimbursement, and safety profile[471](index=471&type=chunk)[473](index=473&type=chunk) - Inability to establish and maintain adequate sales, marketing, and distribution capabilities, either directly or through third-party collaborations, could hinder commercialization efforts[477](index=477&type=chunk)[481](index=481&type=chunk)[482](index=482&type=chunk) - The company faces substantial competition from major pharmaceutical and biotechnology companies, with many existing generic and branded products in target markets[483](index=483&type=chunk)[484](index=484&type=chunk)[489](index=489&type=chunk)[490](index=490&type=chunk) - Products may be subject to unfavorable pricing regulations, inadequate third-party coverage or reimbursement practices, or healthcare reform initiatives, harming business[491](index=491&type=chunk)[492](index=492&type=chunk)[494](index=494&type=chunk)[495](index=495&type=chunk)[496](index=496&type=chunk)[497](index=497&type=chunk) - Product liability lawsuits could result in substantial liabilities, damage to reputation, and limits on commercialization, with current insurance coverage potentially inadequate[499](index=499&type=chunk)[500](index=500&type=chunk)[501](index=501&type=chunk) [Risks Related to Our Dependence on Third Parties](index=168&type=section&id=Risks%20Related%20to%20Our%20Dependence%20on%20Third%20Parties) This section addresses risks arising from reliance on collaborations with third parties for product development, commercialization, and clinical trial execution - The success of the Regeneron collaboration depends on both parties' performance; if Regeneron does not exercise its option, terminates the agreement, or fails to meet obligations, it could negatively impact the company's business and development efforts[502](index=502&type=chunk)[503](index=503&type=chunk)[507](index=507&type=chunk)[508](index=508&type=chunk) - Collaborations with third parties (e.g., Regeneron, AffaMed) carry risks, including collaborators' discretion over resources, potential non-performance, development of competing products, and disagreements over intellectual property[509](index=509&type=chunk)[510](index=510&type=chunk)[511](index=511&type=chunk)[512](index=512&type=chunk) - Failure to establish additional collaborations for product candidates could force the company to curtail development, delay commercialization, or increase expenditures without sufficient funds or expertise[516](index=516&type=chunk)[521](index=521&type=chunk) - Reliance on third parties like CROs for clinical development reduces control and carries risks of unsatisfactory performance, delays, or non-compliance with regulatory requirements (e.g., Good Clinical Practices)[522](index=522&type=chunk)[523](index=523&type=chunk)[524](index=524&type=chunk) [Risks Related to Our Intellectual Property](index=176&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) This section outlines risks concerning the company's ability to obtain, maintain, and enforce intellectual property rights, including patents and trade secrets - Inability to obtain and maintain broad patent protection for technology and products could allow competitors to commercialize similar products, impairing the company's commercialization ability[526](index=526&type=chunk)[527](index=527&type=chunk) - The company's license agreement with Incept LLC gives Incept sole control over prosecution and enforcement of certain licensed patents, potentially not aligning with the company's best interests[528](index=528&type=chunk) - The patent position in the pharmaceutical industry is highly uncertain, with pending applications potentially not resulting in issued patents, and foreign laws offering less protection[529](index=529&type=chunk)[530](index=530&type=chunk)[531](index=531&type=chunk) - Recent patent reform legislation (Leahy-Smith Act) and the Patent Trial and Appeals Board (PTAB) could increase uncertainties and costs for patent prosecution and challenges[532](index=532&type=chunk) - Failure to obtain patent term extensions under the Hatch-Waxman Act or similar foreign legislation could shorten marketing exclusivity and allow earlier market entry by competitors[538](index=538&type=chunk)[539](index=539&type=chunk)[540](index=540&type=chunk) - Involvement in lawsuits to protect or enforce licensed patents, or defending against infringement claims by third parties, could be expensive, time-consuming, and unsuccessful, potentially leading to substantial liabilities or loss of intellectual property rights[541](index=541&type=chunk)[543](index=543&type=chunk)[544](index=544&type=chunk)[545](index=545&type=chunk)[546](index=546&type=chunk) - Failure to protect the confidentiality of trade secrets could harm the company's business and competitive position[554](index=554&type=chunk) - Non-compliance with intellectual property license obligations could lead to loss of important rights[547](index=547&type=chunk)[548](index=548&type=chunk) [Risks Related to Regulatory Approval and Marketing of Our Product Candidates and Other Legal Compliance Matters](index=186&type=section&id=Risks%20Related%20to%20Regulatory%20Approval%20and%20Marketing%20of%20Our%20Product%20Candidates%20and%20Other%20Legal%20Compliance%20Matters) This section addresses the complex and uncertain regulatory landscape for product approval, marketing, and ongoing compliance, including healthcare laws and tax regulations - The regulatory approval process is expensive, time-consuming, and uncertain, and failure to obtain or delays in obtaining required marketing approvals (US or foreign) for product candidates will materially impair revenue generation[555](index=555&type=chunk)[556](index=556&type=chunk)[558](index=558&type=chunk) - Post-marketing restrictions and ongoing regulations for approved products (e.g., DEXTENZA, ReSure Sealant) may limit manufacturing and marketing, affecting revenue[568](index=568&type=chunk)[569](index=569&type=chunk)[572](index=572&type=chunk)[573](index=573&type=chunk)[574](index=574&type=chunk) - Failure to comply with regulatory requirements or unanticipated product problems could lead to substantial penalties, including fines, product withdrawal, or criminal sanctions[575](index=575&type=chunk)[576](index=576&type=chunk)[577](index=577&type=chunk)[578](index=578&type=chunk) - Relationships with healthcare providers and payors are subject to anti-kickback, fraud and abuse, and other healthcare laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA, Sunshine Act, GDPR), with potential for criminal/civil penalties for violations[579](index=579&type=chunk)[580](index=580&type=chunk)[581](index=581&type=chunk)[583](index=583&type=chunk)[584](index=584&type=chunk)[585](index=585&type=chunk)[586](index=586&type=chunk)[587](index=587&type=chunk)[588](index=588&type=chunk)[589](index=589&type=chunk) - Changes in FDA policies, regulations, or guidance (e.g., Cures Act, Trump Administration initiatives) could prevent, limit, or delay regulatory approval of product candidates[591](index=591&type=chunk)[592](index=592&type=chunk) - Current and future legislation (e.g., ACA, Budget Control Act, American Taxpayer Relief Act, drug pricing initiatives) may increase the difficulty and cost of obtaining marketing approval and affect product pricing and reimbursement[593](index=593&type=chunk)[594](index=594&type=chunk)[595](index=595&type=chunk)[596](index=596&type=chunk)[597](index=597&type=chunk)[600](index=600&type=chunk)[601](index=601&type=chunk)[602](index=602&type=chunk)[603](index=603&type=chunk)[604](index=604&type=chunk)[607](index=607&type=chunk)[608](index=608&type=chunk)[609](index=609&type=chunk)[610](index=610&type=chunk) - International operations are subject to strict price controls and laws like the Foreign Corrupt Practices Act (FCPA), requiring costly compliance programs and potentially limiting growth[611](index=611&type=chunk)[613](index=613&type=chunk)[614](index=614&type=chunk)[615](index=615&type=chunk)[616](index=616&type=chunk) - Employee misconduct or failure to comply with environmental, health, and safety laws could lead to fines, penalties, or significant costs[617](index=617&type=chunk)[619](index=619&type=chunk)[620](index=620&type=chunk)[621](index=621&type=chunk)[622](index=622&type=chunk) - Changes in tax laws (e.g., 2017 Tax Act, FFCR Act, CARES Act) or their interpretation may adversely affect business and financial condition, and the ability to utilize NOL carryforwards may be limited[623](index=623&type=chunk)[624](index=624&type=chunk)[626](index=626&type=chunk)[627](index=627&type=chunk) [Risks Related to Employee Matters and Managing Growth](index=210&type=section&id=Risks%20Related%20to%20Employee%20Matters%20and%20Managing%20Growth) This section addresses challenges related to attracting and retaining talent, managing organizational growth, and potential disruptions from restructuring or system failures - Future success depends on retaining key executives and attracting/retaining qualified scientific, clinical, manufacturing, and sales/marketing personnel, which is challenging due to intense competition[628](index=628&type=chunk)[629](index=629&type=chunk) - A November 2019 operational restructuring, which reduced the workforce by **22%**, could lead to loss of institutional knowledge, reduced mor

(NASDAQ: OCUL) TRANSFORMING DRUG DELIVERY LEVERAGING A NOVEL TECHNOLOGY PLATFORM ANTONY MATTESSICH, CHIEF EXECUTIVE OFFICER September 2020 FORWARD LOOKING STATEMENTS Any statements in this presentation about future expectations, plans, and prospects for the Company, including the commercialization of DEXTENZA®, ReSure® Sealant, or any of the Company's product candidates; the commercial launch of, and effectiveness of reimbursement codes for, DEXTENZA; the development and regulatory status of the Company's p ...

Ocular Therapeutix, Inc. (NASDAQ:OCUL) Q2 2020 Earnings Conference Call August 7, 2020 8:30 AM ET Company Participants Donald Notman - CFO Antony Mattessich - President, CEO & Director Michael Goldstein - Chief Medical Officer Conference Call Participants Joseph Catanzaro - Piper Sandler & Co. Yi Chen - H.C. Wainwright & Co. Dane Leone - Raymond James & Associates Jonathan Wolleben - JMP Securities Operator Good Morning, ladies and gentlemen. Thank you for standing by, and welcome to the Ocular Therapeutix ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-36554 Ocular Therapeutix, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdic ...

Ocular Therapeutix (NASDAQ:OCUL) Q1 2020 Results Conference Call May 8, 2020 8:30 AM ET Company Participants Donald Notman - CFO Antony Mattessich - President and CEO Dr. Michael Goldstein - Chief Medical Officer Conference Call Participants Joe Catanzaro - Piper Sandler Stacy Ku - Cowen & Co. Jonathan Wolleben - JMP Securities Boobalan Pachaiyappan - H.C. Wainwright Operator Ladies and gentlemen, thank you for standing by and welcome to the First Quarter 2020 Ocular Therapeutix Earnings Conference Call. At ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-36554 Ocular Therapeutix, Inc. (Exact name of registrant as specified in its charter) Delaware 20-5560161 (St ...

Ocular Therapeutix, Inc. (NASDAQ:OCUL) Q4 2019 Earnings Conference Call March 12, 2020 4:30 PM ET Company Participants Donald Notman - Chief Financial Officer Antony Mattessich - President and Chief Executive Officer Michael Goldstein - Chief Medical Officer Scott Corning - Senior Vice President, Commercial Conference Call Participants Joe Catanzaro - Piper Jaffray Dane Leone - Raymond James & Associates, Inc. Yi Chen - H.C. Wainwright Operator Good afternoon, ladies and gentlemen. Thank you for standing by ...

Table of Contents For the transition period from to Commission file number 001-36554 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 or ◻ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Ocular Therapeutix, Inc. (Exact name of registrant as specified in its charter) Delaware 20- 5560161 (State o ...

[FORWARD-LOOKING STATEMENTS](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines forward-looking statements on strategy, operations, and product development, noting potential material differences due to risks - This report contains forward-looking statements regarding the company's strategy, future operations, financial position, revenues, costs, and product development plans, including DEXTENZA commercialization, clinical trials (DEXTENZA, OTX-TIC, OTX-TKI), manufacturing, regulatory approvals, and financing needs[8](index=8&type=chunk)[9](index=9&type=chunk)[13](index=13&type=chunk) - Actual results could differ materially from forward-looking statements due to substantial risks and uncertainties, as detailed in the "Risk Factors" section, and the company does not assume any obligation to update these statements[8](index=8&type=chunk)[11](index=11&type=chunk)[12](index=12&type=chunk) [PART I – FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This part presents unaudited financial statements, management's discussion, market risk, and internal controls [Item 1. Financial Statements (unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) This section presents Ocular Therapeutix's unaudited consolidated financial statements and detailed explanatory notes - The financial statements are unaudited and prepared in conformity with GAAP, with certain disclosures condensed or omitted as per SEC rules for interim financial statements[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - Management believes all necessary normal recurring adjustments have been made for a fair statement of financial position, results of operations, and cash flows[36](index=36&type=chunk) - The results for the three and nine months ended September 30, 2019, are not necessarily indicative of the full year ending December 31, 2019[36](index=36&type=chunk) [Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018](index=6&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20September%2030%2C%202019%20and%20December%2031%2C%202018) This section presents the company's consolidated balance sheets as of September 30, 2019, and December 31, 2018 Consolidated Balance Sheets (In thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | Change (2019 vs 2018) | | :--------------------------------- | :----------- | :----------- | :-------------------- | | **Assets** | | | | | Cash and cash equivalents | $65,414 | $54,062 | +$11,352 | | Total current assets | $69,636 | $56,193 | +$13,443 | | Total assets | $88,710 | $73,043 | +$15,667 | | **Liabilities & Equity** | | | | | Total current liabilities | $11,005 | $9,159 | +$1,846 | | Derivative liability | $9,100 | $0 | +$9,100 | | 2026 convertible notes, net | $23,146 | $0 | +$23,146 | | Total liabilities | $77,409 | $37,168 | +$40,241 | | Total stockholders' equity | $11,301 | $35,875 | -$24,574 | [Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018](index=7&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20for%20the%20three%20and%20nine%20months%20ended%20September%2030%2C%202019%20and%202018) This section details consolidated statements of operations and comprehensive loss for Q3 and 9M 2019 and 2018 Consolidated Statements of Operations and Comprehensive Loss (In thousands) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (YoY) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :--------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Product revenue, net | $829 | $498 | +$331 | $1,971 | $1,486 | +$485 | | Total revenue, net | $829 | $498 | +$331 | $1,971 | $1,486 | +$485 | | Cost of product revenue | $806 | $115 | +$691 | $1,486 | $348 | +$1,138 | | Research and development | $10,235 | $9,685 | +$550 | $30,966 | $26,657 | +$4,309 | | Selling and marketing | $6,777 | $1,067 | +$5,710 | $17,349 | $2,651 | +$14,698 | | General and administrative | $6,155 | $4,447 | +$1,708 | $16,571 | $13,665 | +$2,906 | | Total costs and operating expenses | $23,973 | $15,314 | +$8,659 | $66,372 | $43,321 | +$23,051 | | Loss from operations | $(23,144) | $(14,816) | $(8,328) | $(64,401) | $(41,835) | $(22,566) | | Change in fair value of derivative liability | $5,717 | $0 | +$5,717 | $7,334 | $0 | +$7,334 | | Net loss and comprehensive loss | $(18,778) | $(15,010) | $(3,768) | $(60,355) | $(42,579) | $(17,776) | | Net loss per share, basic | $(0.40) | $(0.38) | $(0.02) | $(1.37) | $(1.15) | $(0.22) | | Weighted average common shares outstanding, basic | 46,944,536 | 39,017,922 | +7,926,614 | 44,052,470 | 37,111,200 | +6,941,270 | [Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20nine%20months%20ended%20September%2030%2C%202019%20and%202018) This section outlines consolidated statements of cash flows for the nine months ended September 30, 2019 and 2018 Consolidated Statements of Cash Flows (In thousands) | Metric | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :--------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Net loss | $(60,355) | $(42,579) | $(17,776) | | Net cash used in operating activities | $(58,111) | $(35,579) | $(22,532) | | Net cash used in investing activities | $(1,637) | $(1,410) | $(227) | | Net cash provided by financing activities | $66,250 | $52,312 | +$13,938 | | Net increase in cash, cash equivalents and restricted cash | $6,502 | $15,323 | $(8,821) | | Cash, cash equivalents and restricted cash at end of period | $67,178 | $58,475 | +$8,703 | [Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2019 and 2018](index=9&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20for%20the%20three%20and%20nine%20months%20ended%20September%2030%2C%202019%20and%202018) This section presents consolidated statements of stockholders' equity for Q3 and 9M 2019 and 2018 Consolidated Statements of Stockholders' Equity (In thousands) | Metric | Dec 31, 2018 | Mar 31, 2019 | Jun 30, 2019 | Sep 30, 2019 | | :--------------------------------- | :----------- | :----------- | :----------- | :----------- | | Common Stock Shares | 41,518,091 | 42,836,978 | 44,101,583 | 48,079,615 | | Par Value | $4 | $4 | $4 | $5 | | Additional Paid-in Capital | $333,114 | $340,011 | $347,074 | $368,894 | | Accumulated Deficit | $(297,243) | $(314,367) | $(338,820) | $(357,598) | | Total Stockholders' Equity | $35,875 | $25,648 | $8,258 | $11,301 | - The company issued **3,961,643 shares of common stock** in a public offering, net of issuance costs, resulting in **$18,619 thousand** in the three months ended September 30, 2019[23](index=23&type=chunk) - Stock-based compensation expense for the three months ended September 30, 2019, was **$3,169 thousand**[23](index=23&type=chunk) [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes on accounting policies, financial instruments, debt, equity, and recent events [Note 1. Nature of the Business and Basis of Presentation](index=11&type=section&id=Note%201.%20Nature%20of%20the%20Business%20and%20Basis%20of%20Presentation) This note describes Ocular Therapeutix's biopharmaceutical business, product development, and going concern considerations - Ocular Therapeutix, Inc. is a biopharmaceutical company focused on developing and commercializing innovative eye therapies using its proprietary bioresorbable hydrogel platform technology[28](index=28&type=chunk) - The company's lead product, DEXTENZA (dexamethasone insert) 0.4mg, is FDA-approved, and other product candidates are in clinical stage development[30](index=30&type=chunk) - The company had an accumulated deficit of **$357,598 thousand** as of September 30, 2019, and expects to continue generating operating losses and negative cash flows, raising substantial doubt about its ability to continue as a going concern through Q4 2020 without additional financing[30](index=30&type=chunk)[31](index=31&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=13&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's key accounting policies, including revenue recognition, fair value measurements, and new leasing standards - Key accounting policies include revenue recognition (Topic 606), fair value measurements (Level 1, 2, 3 hierarchy), inventory valuation (lower of cost or net realizable value), derivative liability accounting, restricted cash, and net loss per share calculation (two-class method)[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk)[43](index=43&type=chunk)[45](index=45&type=chunk)[59](index=59&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk) - The company adopted new leasing standards (ASU 2016-02) effective January 1, 2019, recognizing operating lease assets of approximately **$5,300 thousand** and corresponding liabilities of **$8,800 thousand**, with no material impact on the statements of operations[71](index=71&type=chunk) - Product revenue from DEXTENZA and ReSure Sealant is recognized net of variable consideration (discounts, returns, rebates, etc.) when the customer obtains control of the product upon delivery[46](index=46&type=chunk)[47](index=47&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) [Note 3. Fair Value of Financial Assets and Liabilities](index=25&type=section&id=Note%203.%20Fair%20Value%20of%20Financial%20Assets%20and%20Liabilities) This note details the fair value measurements of the company's financial assets and liabilities, including cash equivalents and derivative liability Fair Value Measurements (In thousands) | Asset/Liability | Sep 30, 2019 (Total) | Level 1 | Level 2 | Level 3 | Dec 31, 2018 (Total) | Level 1 | Level 2 | Level 3 | | :-------------------------- | :------------------- | :------ | :------ | :------ | :------------------- | :------ | :------ | :------ | | Cash equivalents: Money market funds | $59,906 | $0 | $59,906 | $0 | $50,906 | $0 | $50,906 | $0 | | Derivative liability | $9,100 | $9,100 | $0 | $0 | $0 | $0 | $0 | $0 | | **Total** | **$69,006** | **$9,100** | **$59,906** | **$0** | **$50,906** | **$0** | **$50,906** | **$0** | - The derivative liability at September 30, 2019, was classified as a Level 3 measurement, with its fair value estimated using a binomial lattice model and Level 3 unobservable inputs like bond yield[40](index=40&type=chunk)[42](index=42&type=chunk) [Note 4. Derivative Liability](index=25&type=section&id=Note%204.%20Derivative%20Liability) This note explains the accounting for the derivative liability embedded in the 2026 Convertible Notes and its fair value estimation - The 2026 Convertible Notes contained an embedded conversion option, bifurcated and accounted for as a freestanding derivative liability, measured at fair value at each reporting period[78](index=78&type=chunk)[93](index=93&type=chunk) - The derivative liability was initially valued at **$16,434 thousand** and decreased by **$7,334 thousand** due to changes in fair value, resulting in a balance of **$9,100 thousand** at September 30, 2019[80](index=80&type=chunk) - Fair value is estimated using a binomial lattice approach, highly sensitive to inputs like stock price (**$3.04** on Sep 30, 2019), expected annual volatility (**88%**), and bond yield (**13.1%**)[79](index=79&type=chunk) [Note 5. Convertible Notes](index=25&type=section&id=Note%205.%20Convertible%20Notes) This note describes the terms, conversion options, and repurchase conditions of the company's 2026 Convertible Notes - On March 1, 2019, the company issued **$37,500 thousand** in 2026 Convertible Notes, accruing interest at an annual rate of **6%**, with an effective annual interest rate of **13.5%** through September 30, 2019[81](index=81&type=chunk)[83](index=83&type=chunk) - Holders can convert notes into common stock at an initial conversion rate of **153.8462 shares per $1,000 principal amount** (equivalent to **$6.50 per share**), subject to a **19.99% beneficial ownership cap**[84](index=84&type=chunk) - The company has the option to settle conversions in cash, common stock, or a combination, and the notes are subject to repurchase or redemption under specific conditions, including a Corporate Transaction or if the stock price meets certain thresholds[85](index=85&type=chunk)[87](index=87&type=chunk)[89](index=89&type=chunk)[91](index=91&type=chunk) [Note 6. Income Taxes](index=29&type=section&id=Note%206.%20Income%20Taxes) This note addresses the company's income tax provisions, valuation allowances, and unrecognized tax benefits - The company did not provide for income taxes in Q3 2019 or 2018, maintaining a full valuation allowance against net deferred tax assets due to the unlikelihood of future benefit realization[95](index=95&type=chunk) - No unrecognized tax benefits, accrued interest, or tax penalties were recorded as of September 30, 2019, or December 31, 2018[96](index=96&type=chunk) [Note 7. Collaboration Agreement](index=29&type=section&id=Note%207.%20Collaboration%20Agreement) This note details the collaboration agreement with Regeneron Pharmaceuticals for developing extended-delivery hydrogel formulations - In October 2016, the company entered a collaboration agreement with Regeneron Pharmaceuticals, Inc. to develop extended-delivery hydrogel formulations with Regeneron's VEGF-targeting compounds for retinal diseases[97](index=97&type=chunk)[99](index=99&type=chunk) - Regeneron has an option for an exclusive worldwide license, with a **$10,000 thousand** payment upon exercise, and the company is eligible for up to **$145,000 thousand** in development/regulatory milestones, **$100,000 thousand** upon first commercial sale, and tiered royalties[100](index=100&type=chunk)[102](index=102&type=chunk) - As of September 30, 2019, the option has not been exercised, and discussions are ongoing regarding an alternative formulation after the initial proposed formulation was deemed not final[101](index=101&type=chunk)[103](index=103&type=chunk) [Note 8. Notes Payable](index=31&type=section&id=Note%208.%20Notes%20Payable) This note outlines the terms of the company's Credit Facility, including borrowing capacity, interest rates, and collateral - The company has a Credit Facility with a total borrowing capacity of **$25,000 thousand**, fully drawn as of September 30, 2019, with interest-only payments until December 2020 and principal payments starting January 2021[104](index=104&type=chunk)[105](index=105&type=chunk) - The interest rate is LIBOR base rate (**2.00% floor**) plus **7.25%** (**9.76%** on amendment date), plus a **3.5% exit fee** (**$875 thousand** for **$25,000 thousand** borrowings)[106](index=106&type=chunk) - An August 2019 amendment removed the financial covenant requiring a minimum of **$5,000 thousand** cash on hand, and the debt is collateralized by substantially all company assets, including intellectual property[108](index=108&type=chunk)[109](index=109&type=chunk) Notes Payable Summary (In thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | | :------------------ | :----------- | :----------- | | Borrowings outstanding | $25,000 | $25,000 | | Accrued exit fee | $136 | $5 | | Unamortized discount | $(184) | $(217) | | **Total** | **$24,952** | **$24,788** | [Note 9. Common Stock](index=33&type=section&id=Note%209.%20Common%20Stock) This note details common stock issuances, including public offerings and sales agreements, and their net proceeds - In Q3 2019, the company sold **3,961,643 shares of common stock** under the 2019 Sales Agreement, generating net proceeds of approximately **$18,618 thousand**[112](index=112&type=chunk) - From inception to September 30, 2019, the company sold **5,142,010 shares** under the 2019 Sales Agreement, yielding net proceeds of approximately **$23,692 thousand**[112](index=112&type=chunk) - The 2016 Sales Agreement was terminated on February 28, 2019, after selling **6,330,222 shares** for net proceeds of approximately **$38,381 thousand** through March 31, 2019[114](index=114&type=chunk) [Note 10. Net Loss Per Share](index=35&type=section&id=Note%2010.%20Net%20Loss%20Per%20Share) This note presents the calculation of basic and diluted net loss per share, including adjustments for convertible notes and anti-dilutive items Net Loss Per Share (In thousands, except share and per share data) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss attributable to common stockholders | $(18,778) | $(15,010) | $(60,355) | $(42,579) | | Weighted average common shares outstanding, basic | 46,944,536 | 39,017,922 | 44,052,470 | 37,111,200 | | Net loss per share, basic | $(0.40) | $(0.38) | $(1.37) | $(1.15) | | Net loss attributable to common stockholders, diluted | $(23,497) | $(15,010) | $(60,355) | $(42,579) | | Weighted average common shares outstanding, diluted | 52,713,768 | 39,017,922 | 44,052,470 | 37,111,200 | | Net loss per share, diluted | $(0.45) | $(0.38) | $(1.37) | $(1.15) | - For the three months ended September 30, 2019, diluted EPS was **$(0.45)**, reflecting adjustments for interest expense on 2026 Convertible Notes and change in fair value of derivative liability, and including **5,769,232 shares** issuable upon conversion of 2026 Convertible Notes[117](index=117&type=chunk) - Options to purchase common stock (**7,621,722**) and warrants (**18,939**) were excluded from diluted EPS calculation for Q3 2019 and 9M 2019/2018 due to their anti-dilutive impact[118](index=118&type=chunk) [Note 11. Stock-Based Awards](index=36&type=section&id=Note%2011.%20Stock-Based%20Awards) This note describes the company's stock incentive plans, available shares, and stock-based compensation expense - The 2014 Stock Incentive Plan increased by **1,659,218 shares** on January 1, 2019, with **893,066 shares** remaining available for issuance as of September 30, 2019[119](index=119&type=chunk) - The 2014 Employee Stock Purchase Plan (ESPP) increased by **207,402 shares** on January 1, 2019, with **524,674 shares** remaining available as of September 30, 2019[120](index=120&type=chunk) - Stock-based compensation expense for the nine months ended September 30, 2019, totaled **$6,806 thousand**, with **$12,109 thousand** of unrecognized cost remaining, expected to be recognized over **2.5 years**[123](index=123&type=chunk) [Note 12. Commitments and Contingencies](index=38&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) This note details the company's license agreements, legal proceedings, and other contractual commitments - The company has a license agreement with Incept LLC for intellectual property rights related to its bioresorbable hydrogel technology, expanded in September 2018 to include acute post-surgical pain and ENT conditions[125](index=125&type=chunk)[129](index=129&type=chunk) - Royalties are payable to Incept: low single-digit on Ophthalmic Field of Use (Original IP), mid-single-digit on Additional Field of Use (Original IP), and low single-digit on Incept IP or Joint IP in drug delivery[131](index=131&type=chunk) - The company is involved in multiple securities class action and shareholder derivative lawsuits, which were consolidated and dismissed in April 2019 (class action, appealed) and stayed (derivative actions). The SEC concluded its investigation without recommending enforcement action[142](index=142&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[151](index=151&type=chunk) [Note 13. Related Party Transactions](index=48&type=section&id=Note%2013.%20Related%20Party%20Transactions) This note discloses transactions with related parties, specifically legal services provided by McCarter English LLP - The company engaged McCarter English LLP for legal services, incurring fees of **$209 thousand** and **$672 thousand** for the three and nine months ended September 30, 2019, respectively[155](index=155&type=chunk) [Note 14. Leases](index=48&type=section&id=Note%2014.%20Leases) This note outlines the company's operating lease arrangements for real estate and equipment, including new lease agreements and associated costs - The company leases real estate and equipment, with remaining lease terms from less than **1 year to 9 years**, all qualifying as operating leases[156](index=156&type=chunk) - On April 4, 2019, a new five-year non-cancelable lease for **30,036 sq ft** of office space commenced, resulting in an operating lease asset and liability of **$2,044 thousand**[157](index=157&type=chunk) Operating Lease Costs (In thousands) | Expense Category | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | | :----------------------- | :-------------------------- | :-------------------------- | | Research and development | $423 | $1,215 | | Selling and marketing | $79 | $183 | | General and administrative | $89 | $226 | | **Total Operating Lease Costs** | **$591** | **$1,624** | - The weighted average remaining lease term is **6.7 years**, and the weighted average discount rate is **13.55%** as of September 30, 2019[161](index=161&type=chunk) [Note 15. Subsequent Events](index=50&type=section&id=Note%2015.%20Subsequent%20Events) This note reports on significant events occurring after the reporting period, including a new stock incentive plan and operational restructuring - On October 29, 2019, the 2019 Inducement Stock Incentive Plan was approved, authorizing **500,000 shares** for inducement awards to new employees[162](index=162&type=chunk) - On November 6, 2019, the Board approved an operational restructuring, reducing headcount by approximately **22%** (**55 employees**) and eliminating **31 vacant positions**, with estimated costs of **$0.7 million** and expected annualized savings of **$11 million**, plus **$14 million** in one-time program deferrals[163](index=163&type=chunk)[256](index=256&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=51&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition, operations, business developments, critical accounting policies, and liquidity - The company is a biopharmaceutical company focused on innovative eye therapies using its proprietary bioresorbable hydrogel platform technology[166](index=166&type=chunk) - DEXTENZA was commercially launched in July 2019 for post-surgical ocular inflammation and pain, and the company has several product candidates in clinical and preclinical development for various eye conditions[168](index=168&type=chunk)[169](index=169&type=chunk) - The company incurred significant operating losses (**$18.8 million** for Q3 2019, **$60.4 million** for 9M 2019) and had an accumulated deficit of **$357.6 million** as of Sep 30, 2019, raising substantial doubt about its ability to continue as a going concern[204](index=204&type=chunk)[257](index=257&type=chunk) [Overview](index=51&type=section&id=Overview) This section provides an overview of Ocular Therapeutix's business, proprietary technology, key products, and collaboration agreements - Ocular Therapeutix utilizes a proprietary bioresorbable hydrogel platform for local programmed-release drug delivery to treat front and back-of-the-eye conditions[166](index=166&type=chunk)[167](index=167&type=chunk) - Key products/candidates include DEXTENZA (FDA-approved for post-surgical ocular pain/inflammation, Phase 3 for allergic conjunctivitis), OTX-TP (glaucoma/ocular hypertension), OTX-TIC (glaucoma/ocular hypertension), OTX-TKI (wet AMD), and ReSure Sealant[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk) - The company has a collaboration with Regeneron for an extended-delivery aflibercept formulation (Eylea) for retinal diseases[169](index=169&type=chunk) [Inflammation and Pain after Ocular Surgery (DEXTENZA)](index=51&type=section&id=Inflammation%20and%20Pain%20after%20Ocular%20Surgery%20%28DEXTENZA%29) This section details DEXTENZA's FDA approvals, commercial launch, reimbursement codes, and ongoing clinical trials for allergic conjunctivitis - DEXTENZA (dexamethasone ophthalmic insert) 0.4mg was FDA-approved in November 2018 for post-surgical ocular pain and in June 2019 for post-surgical ocular inflammation, commercially launched July 1, 2019[168](index=168&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) - The company expanded its sales force to **30 Key Account Managers (KAMs)** and secured C-code (effective July 1, 2019) and permanent J-code (effective October 1, 2019) for DEXTENZA reimbursement[172](index=172&type=chunk)[173](index=173&type=chunk) - A pivotal Phase 3 clinical trial for DEXTENZA in allergic conjunctivitis began dosing in Q3 2019, with topline data anticipated in H1 2020[175](index=175&type=chunk) [Glaucoma Programs](index=53&type=section&id=Glaucoma%20Programs) This section discusses the development status of OTX-TP and OTX-TIC for glaucoma and ocular hypertension, including clinical trial results and future plans - OTX-TP (intracanalicular travoprost insert) aims to reduce intraocular pressure (IOP) for up to **90 days** in glaucoma/ocular hypertension patients, addressing poor adherence to daily eye drops[179](index=179&type=chunk)[180](index=180&type=chunk) - A Phase 3 trial for OTX-TP did not achieve statistical significance at all nine primary efficacy endpoints, though IOP reduction was greater than placebo at eight of nine time points. The company does not intend to initiate a second Phase 3 trial without a collaborative partner[181](index=181&type=chunk)[186](index=186&type=chunk) OTX-TP Phase 3 Trial: IOP Reduction (Change from Baseline, mm Hg) | Diurnal Time points | 2 Week (OTX-TP) | 2 Week (Placebo) | 2 Week (p value) | 6 Week (OTX-TP) | 6 Week (Placebo) | 6 Week (p value) | 12 Week (OTX-TP) | 12 Week (Placebo) | 12 Week (p value) | | :------------------ | :-------------- | :--------------- | :--------------- | :-------------- | :--------------- | :--------------- | :--------------- | :--------------- | :--------------- | | 8:00 AM | -5.72 | -3.88 | <.0001 | -4.81 | -4.01 | 0.0181 | -3.91 | -3.52 | 0.2521 | | 10:00 AM | -4.92 | -3.16 | <.0001 | -4.03 | -3.23 | 0.0077 | -3.34 | -2.63 | 0.0234 | | 4:00 PM | -5.22 | -3.18 | <.0001 | -4.16 | -3.14 | 0.0004 | -3.27 | -2.60 | 0.0310 | - OTX-TIC (intracameral travoprost implant) Phase 1 trial showed IOP lowering for up to **thirteen months** with a single implant, with biodegradation in **five to seven months**. Modifications are being explored to address low-grade inflammation and peripheral anterior synechiae[187](index=187&type=chunk) [Back-of-the-Eye Programs](index=57&type=section&id=Back-of-the-Eye%20Programs) This section outlines the company's intravitreal hydrogel formulations for extended delivery of anti-angiogenic drugs for retinal diseases like wet AMD - The company is developing intravitreal hydrogel formulations for extended delivery of anti-angiogenic drugs (protein-based anti-VEGF, small molecule TKIs) for retinal diseases like wet AMD, aiming for **4-9 month delivery**[188](index=188&type=chunk) - OTX-TKI (intravitreal tyrosine kinase inhibitor ophthalmic implant) Phase 1 trial in Australia is dosing a second, higher dose cohort after the first cohort showed no safety concerns[189](index=189&type=chunk)[191](index=191&type=chunk) - Collaboration with Regeneron (OTX-IVT) for extended-delivery aflibercept (Eylea) is ongoing, with discussions for an alternative formulation after the initial one was deemed not final[192](index=192&type=chunk)[195](index=195&type=chunk) [ReSure® Sealant](index=59&type=section&id=ReSure%C2%AE%20Sealant) This section provides an update on ReSure Sealant's commercial status, FDA warning letter, and plans to address post-approval study requirements - ReSure Sealant, an FDA-approved hydrogel ophthalmic wound sealant for cataract surgery, was commercially launched in 2014 but has generated limited revenues[196](index=196&type=chunk)[215](index=215&type=chunk) - The company received an FDA warning letter in October 2018 regarding lack of progress on a required post-approval Device Exposure Registry Study. A proposed retrospective registry study using IRIS Registry data is being finalized to address this[200](index=200&type=chunk)[201](index=201&type=chunk) - ReSure Sealant remains commercially available but with no sales support, and only limited sales are anticipated for 2019[201](index=201&type=chunk) [Additional Potential Areas for Growth](index=61&type=section&id=Additional%20Potential%20Areas%20for%20Growth) This section explores the company's hydrogel platform technology for applications beyond ophthalmology, including acute post-surgical pain and ENT conditions - The company is exploring the use of its hydrogel platform technology in other areas of the body, including wound inlays, sinus and ear inserts, and subcutaneous/intra-articular injections[203](index=203&type=chunk) - A September 2018 amended license agreement with Incept LLC expanded intellectual property rights to include products for acute post-surgical pain and ear, nose, and throat (ENT) diseases[203](index=203&type=chunk) [Financial Position](index=61&type=section&id=Financial%20Position) This section reviews the company's financial position, including accumulated deficit, operating losses, and liquidity outlook, noting going concern risks - The company has incurred significant operating losses since inception, with a net loss of **$18.8 million** for Q3 2019 and **$60.4 million** for 9M 2019, leading to an accumulated deficit of **$357.6 million** as of September 30, 2019[204](index=204&type=chunk)[257](index=257&type=chunk) - Total costs and operating expenses were **$24.0 million** for Q3 2019 and **$66.4 million** for 9M 2019, including non-cash stock-based compensation and depreciation[205](index=205&type=chunk) - Existing cash and cash equivalents (**$65.4 million** as of Sep 30, 2019), anticipated DEXTENZA sales, and expected cost savings from the November 2019 restructuring are projected to fund operations through Q4 2020, but this estimate is subject to uncertainty and raises substantial doubt about going concern[213](index=213&type=chunk)[266](index=266&type=chunk) [Financial Operations Overview](index=65&type=section&id=Financial%20Operations%20Overview) This section provides an overview of the company's revenue, cost of product revenue, and operating expenses for the reporting periods [Revenue](index=65&type=section&id=Revenue) This section discusses the company's limited revenue generation from DEXTENZA and ReSure Sealant sales and future revenue dependencies - The company generated limited revenue from DEXTENZA and ReSure Sealant sales, with DEXTENZA commercial shipments beginning in June 2019[215](index=215&type=chunk) - Future revenue generation depends on successful commercialization of DEXTENZA for additional indications and other product candidates, or new collaboration agreements[215](index=215&type=chunk) [Cost of Product Revenue](index=65&type=section&id=Cost%20of%20Product%20Revenue) This section details the components of the cost of product revenue, primarily for DEXTENZA, including materials, labor, and manufacturing overhead - Cost of product revenue primarily includes direct materials, direct labor (salaries, benefits, stock-based compensation), manufacturing overhead, transportation, and cost of scrap material for DEXTENZA[216](index=216&type=chunk) [Research and Development Expenses](index=67&type=section&id=Research%20and%20Development%20Expenses) This section outlines R&D expenses by program, including employee costs, clinical trials, and expected reductions from restructuring - R&D expenses consist of employee-related costs, clinical trial expenses, regulatory activities, manufacturing capabilities, and ongoing research for hydrogel technology[216](index=216&type=chunk)[221](index=221&type=chunk) Research and Development Expenses by Program (In thousands) | Program | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | ReSure Sealant | $57 | $58 | $130 | $96 | | DEXTENZA for post-surgical ocular inflammation and pain | $274 | $458 | $789 | $825 | | DEXTENZA for allergic conjunctivitis | $576 | $0 | $691 | $20 | | OTX-TP for glaucoma and ocular hypertension | $252 | $1,445 | $1,410 | $4,181 | | OTX-TIC for glaucoma and ocular hypertension | $181 | $0 | $480 | $0 | | OTX-TKI for Wet AMD | $246 | $0 | $424 | $0 | | Preclinical programs | $421 | $0 | $1,552 | $0 | | Unallocated expenses | $8,227 | $7,724 | $25,489 | $21,535 | | **Total R&D Expenses** | **$10,234** | **$9,685** | **$30,965** | **$26,657** | - R&D expenses are expected to decrease in 2020 due to the November 2019 operational restructuring, which will delay certain clinical programs to prioritize DEXTENZA, OTX-TIC, and OTX-TKI[220](index=220&type=chunk) [Selling and Marketing Expenses](index=69&type=section&id=Selling%20and%20Marketing%20Expenses) This section analyzes the significant increase in selling and marketing expenses driven by the DEXTENZA commercial launch - Selling and marketing expenses increased significantly by **$5.7 million** (QoQ) and **$14.7 million** (YoY) due to the commercial launch of DEXTENZA, including increased personnel costs, professional fees, and facility-related costs[239](index=239&type=chunk)[251](index=251&type=chunk) Selling and Marketing Expenses (In thousands) | Expense Category | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (YoY) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :----------------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Personnel related (incl. stock-based comp) | $3,607 | $394 | +$3,213 | $8,542 | $1,185 | +$7,357 | | Professional fees | $2,345 | $562 | +$1,783 | $6,729 | $1,104 | +$5,625 | | Facility related and other | $825 | $111 | +$714 | $2,078 | $362 | +$1,716 | | **Total Selling and Marketing Expenses** | **$6,777** | **$1,067** | **+$5,710** | **$17,349** | **$2,651** | **+$14,698** | [General and Administrative Expenses](index=69&type=section&id=General%20and%20Administrative%20Expenses) This section details the increase in general and administrative expenses, primarily due to personnel and facility-related costs - General and administrative expenses increased by **$1.7 million** (QoQ) and **$2.9 million** (YoY), primarily due to higher personnel costs (including stock-based compensation) and facility-related costs[242](index=242&type=chunk)[252](index=252&type=chunk) General and Administrative Expenses (In thousands) | Expense Category | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (YoY) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :----------------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Personnel related (incl. stock-based comp) | $3,790 | $2,068 | +$1,722 | $8,474 | $6,140 | +$2,334 | | Professional fees | $1,587 | $2,044 | $(457) | $6,174 | $6,389 | $(215) | | Facility related and other | $778 | $335 | +$443 | $1,923 | $1,136 | +$787 | | **Total General and Administrative Expenses** | **$6,155** | **$4,447** | **+$1,708** | **$16,571** | **$13,665** | **+$2,906** | [Other Income (Expense)](index=69&type=section&id=Other%20Income%20%28Expense%29) This section explains the change in other income (expense), primarily due to the fair value adjustment of derivative liability and interest expense - Other income, net, was **$4.4 million** for Q3 2019 (vs. **$0.2 million** expense in Q3 2018) and **$4.0 million** for 9M 2019 (vs. **$0.7 million** expense in 9M 2018), primarily driven by a **$5.7 million** (QoQ) and **$7.3 million** (YoY) gain from the change in fair value of derivative liability[243](index=243&type=chunk)[253](index=253&type=chunk) - This gain was partially offset by higher interest expense of **$1.2 million** (QoQ) and **$2.9 million** (YoY) associated with the Credit Facility and 2026 Convertible Notes[243](index=243&type=chunk)[253](index=253&type=chunk) - The change in fair value of derivative liability is expected to fluctuate based on changes in underlying assumptions, primarily common stock price[243](index=243&type=chunk)[255](index=255&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=71&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) This section highlights critical accounting policies, including revenue recognition and derivative liability, which involve significant judgment and estimates - The company's critical accounting policies include revenue recognition and derivative liability, which involve significant judgment and complexity in making estimates and assumptions[230](index=230&type=chunk)[233](index=233&type=chunk) - The fair value of the embedded derivative liability from the 2026 Convertible Notes is a critical accounting policy, estimated using a binomial lattice approach with highly sensitive inputs like stock price, volatility, and bond yield[230](index=230&type=chunk)[231](index=231&type=chunk) [Results of Operations](index=72&type=section&id=Results%20of%20Operations) This section provides a comparative analysis of the company's financial results for the three and nine months ended September 30, 2019 and 2018 [Comparison of the Three Months Ended September 30, 2019 and 2018](index=72&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20September%2030%2C%202019%20and%202018) This section compares the company's financial performance for the three months ended September 30, 2019 and 2018, highlighting key revenue and expense changes Results of Operations - Three Months Ended September 30 (In thousands) | Metric | Sep 30, 2019 | Sep 30, 2018 | Increase (Decrease) | | :--------------------------------- | :----------- | :----------- | :------------------ | | Product revenue, net | $829 | $498 | $331 | | Total revenue | $829 | $498 | $331 | | Cost of product revenue | $806 | $115 | $691 | | Research and development | $10,235 | $9,685 | $550 | | Selling and marketing | $6,777 | $1,067 | $5,710 | | General and administrative | $6,155 | $4,447 | $1,708 | | Total costs and operating expenses | $23,973 | $15,314 | $8,659 | | Loss from operations | $(23,144) | $(14,816) | $(8,328) | | Change in fair value of derivative liability | $5,717 | $0 | $5,717 | | Net loss | $(18,778) | $(15,010) | $(3,768) | - Product revenue increased by **$0.3 million**, primarily due to DEXTENZA commercial shipments starting in June 2019[235](index=235&type=chunk) - Selling and marketing expenses saw the largest increase, up **$5.7 million**, driven by DEXTENZA launch support[239](index=239&type=chunk) [Comparison of the Nine months Ended September 30, 2019 and 2018](index=76&type=section&id=Comparison%20of%20the%20Nine%20months%20Ended%20September%2030%2C%202019%20and%202018) This section compares the company's financial performance for the nine months ended September 30, 2019 and 2018, focusing on revenue and operating expense trends Results of Operations - Nine Months Ended September 30 (In thousands) | Metric | Sep 30, 2019 | Sep 30, 2018 | Increase (Decrease) | | :--------------------------------- | :----------- | :----------- | :------------------ | | Product revenue, net | $1,971 | $1,486 | $485 | | Total revenue, net | $1,971 | $1,486 | $485 | | Cost of product revenue | $1,486 | $348 | $1,138 | | Research and development | $30,966 | $26,657 | $4,309 | | Selling and marketing | $17,349 | $2,651 | $14,698 | | General and administrative | $16,571 | $13,665 | $2,906 | | Total costs and operating expenses | $66,372 | $43,321 | $23,051 | | Loss from operations | $(64,401) | $(41,835) | $(22,566) | | Change in fair value of derivative liability | $7,334 | $0 | $7,334 | | Net loss | $(60,355) | $(42,579) | $(17,776) | - Product revenue increased by **$0.5 million**, driven by DEXTENZA commercial shipments starting in June 2019[246](index=246&type=chunk) - Selling and marketing expenses surged by **$14.7 million**, primarily due to the addition of Key Account Managers (KAMs) to support the DEXTENZA launch[251](index=251&type=chunk) [Operational Restructuring – November 2019](index=80&type=section&id=Operational%20Restructuring%20%E2%80%93%20November%202019) This section details the November 2019 operational restructuring, including workforce reductions, cost savings, and program prioritization - On November 6, 2019, the company approved an operational restructuring to reduce expenses and prioritize resources, focusing on DEXTENZA commercialization and ongoing clinical trials (DEXTENZA, OTX-TIC, OTX-TKI)[256](index=256&type=chunk) - The restructuring includes a **22% workforce reduction** (**55 employees**) and elimination of **31 vacant positions**, with estimated costs of **$0.7 million** and expected annualized savings of **$11 million**, plus **$14 million** in one-time program deferrals[256](index=256&type=chunk) [Liquidity and Capital Resources](index=80&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the company's liquidity, capital resources, cash flow activities, and future funding requirements, addressing going concern issues - The company has incurred significant operating losses and had an accumulated deficit of **$357.6 million** as of September 30, 2019[257](index=257&type=chunk) - Operations are financed primarily through private placements of preferred stock, public offerings of common stock, convertible notes, and credit facilities[259](index=259&type=chunk) - As of September 30, 2019, the company had **$65.4 million** in cash and cash equivalents, **$25.0 million** in outstanding debt, and **$37.5 million** in 2026 convertible notes[266](index=266&type=chunk) - The company believes existing cash, anticipated DEXTENZA sales, and restructuring savings will fund operations through Q4 2020, but this estimate is subject to uncertainty and raises substantial doubt about its ability to continue as a going concern[266](index=266&type=chunk)[277](index=277&type=chunk)[285](index=285&type=chunk) [Cash Flows](index=82&type=section&id=Cash%20Flows) This section summarizes the company's cash flow activities from operations, investing, and financing for the nine months ended September 30, 2019 and 2018 Cash Flow Summary (In thousands) | Activity | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Cash used in operating activities | $(58,111) | $(35,579) | | Cash used in investing activities | $(1,637) | $(1,410) | | Cash provided by financing activities | $66,250 | $52,312 | | Net increase in cash and cash equivalents | $6,502 | $15,323 | - Net cash used in operating activities increased to **$58.1 million** (9M 2019) from **$35.6 million** (9M 2018), primarily due to net losses and changes in operating assets/liabilities, partially offset by non-cash items[267](index=267&type=chunk)[270](index=270&type=chunk) - Net cash provided by financing activities was **$66.3 million** (9M 2019), mainly from 2026 Convertible Notes (**$37.3 million**) and common stock offerings (**$28.6 million**)[272](index=272&type=chunk) [Funding Requirements](index=84&type=section&id=Funding%20Requirements) This section outlines the company's expected substantial expenses, future capital needs, and factors influencing funding requirements, including going concern risks - The company expects to incur substantial expenses for DEXTENZA commercialization, clinical trials (DEXTENZA, OTX-TIC, OTX-TKI), R&D, and expanding sales/marketing capabilities[274](index=274&type=chunk) - Existing cash (**$65.4 million** as of Sep 30, 2019), anticipated DEXTENZA sales, and restructuring savings are expected to fund operations through Q4 2020, but additional funding will be required[277](index=277&type=chunk)[285](index=285&type=chunk) - Future capital requirements depend on factors like DEXTENZA sales, regulatory review outcomes, manufacturing costs, R&D progress, collaboration milestones, and legal proceedings[278](index=278&type=chunk)[282](index=282&type=chunk) - The company's accumulated deficit and history of losses raise substantial doubt about its ability to continue as a going concern, necessitating additional capital through equity, debt, or collaborations[285](index=285&type=chunk)[281](index=281&type=chunk) [Contractual Obligations and Commitments](index=90&type=section&id=Contractual%20Obligations%20and%20Commitments) This section details the company's contractual obligations, including operating leases, purchase commitments, and debt obligations as of September 30, 2019 Contractual Obligations at September 30, 2019 (In thousands) | Obligation Type | Total | Less Than 1 Year | 1 to 3 Years | 3 to 5 Years | More than 5 Years | | :-------------------------- | :----------- | :--------------- | :----------- | :----------- | :---------------- | | Operating lease commitments | $15,799 | $2,421 | $4,999 | $4,213 | $4,166 | | Purchase commitments | $3,395 | $2,125 | $1,189 | $81 | $0 | | Debt obligations including interest | $32,788 | $2,484 | $18,250 | $12,054 | $0 | | 2026 Convertible Notes | $53,469 | $0 | $0 | $0 | $53,469 | | **Total** | **$105,451** | **$7,030** | **$24,438** | **$16,348** | **$57,635** | - Operating lease commitments include office, laboratory, and manufacturing space, with a new sublease for 24 Crosby Drive commencing April 2019[288](index=288&type=chunk)[292](index=292&type=chunk) - Debt obligations include the Credit Facility (**$25.0 million** principal) and 2026 Convertible Notes (**$37.5 million** principal), with specific repayment schedules and interest[298](index=298&type=chunk)[302](index=302&type=chunk) [Off-Balance Sheet Arrangements](index=96&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any off-balance sheet arrangements during the reported periods - The company did not have any off-balance sheet arrangements during the periods presented[308](index=308&type=chunk) [Recently Issued Accounting Pronouncements](index=96&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section refers to Note 2 for information on recently issued accounting pronouncements relevant to the company - Information on new accounting pronouncements is included in Note 2 – Summary of Significant Accounting Policies[309](index=309&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=96&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily interest rate sensitivity, and its investment policies aimed at liquidity and capital preservation - The company is exposed to market risk from changes in interest rates, with **$65.4 million** in cash and cash equivalents (money market funds) as of September 30, 2019[310](index=310&type=chunk) - Investment policies prioritize high-quality issuers, limited individual exposure, and adequate liquidity. An immediate **100 basis point** change in interest rates would not materially affect the fair market value of the short-term investment portfolio[310](index=310&type=chunk) [Item 4. Controls and Procedures](index=96&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details management's evaluation of the effectiveness of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2019[311](index=311&type=chunk)[313](index=313&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2019[314](index=314&type=chunk) [PART II – OTHER INFORMATION](index=99&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This part includes information on legal proceedings, risk factors, equity sales, and other required disclosures [Item 1. Legal Proceedings](index=99&type=section&id=Item%201.%20Legal%20Proceedings) This section provides an update on the company's ongoing legal proceedings, including securities class actions and shareholder derivative lawsuits, and the conclusion of an SEC investigation - The company is a defendant in multiple securities class action lawsuits alleging false/misleading statements regarding DEXTENZA and manufacturing operations, which were consolidated and dismissed in April 2019, but the dismissal has been appealed[317](index=317&type=chunk)[321](index=321&type=chunk) - Several shareholder derivative lawsuits have been filed against current/former officers and directors, alleging breach of fiduciary duties, unjust enrichment, and waste of corporate assets. These actions are consolidated and stayed pending the securities class action appeal[323](index=323&type=chunk)[325](index=325&type=chunk)[326](index=326&type=chunk)[327](index=327&type=chunk)[328](index=328&type=chunk)[331](index=331&type=chunk) - The SEC concluded its investigation into DEXTENZA-related communications and investor conferences in May 2019, notifying the company that no enforcement action would be recommended[333](index=333&type=chunk) [Item 1A. Risk Factors](index=103&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks affecting the company's business, financial condition, and growth, covering financial, product, manufacturing, and regulatory aspects - The company has incurred significant losses and expects to continue doing so, with an accumulated deficit of **$357.6 million** as of September 30, 2019, raising substantial doubt about its ability to achieve or maintain profitability and continue as a going concern[336](index=336&type=chunk)[342](index=342&type=chunk)[349](index=349&type=chunk) - Dependence on DEXTENZA and product candidates means clinical trial failures, regulatory delays, or lack of market acceptance could severely harm the business[361](index=361&type=chunk)[362](index=362&type=chunk)[367](index=367&type=chunk) - Manufacturing risks include the need to upgrade/expand facilities, compliance with cGMP, potential defects, and reliance on sole-source suppliers, which could impact product availability and costs[402](index=402&type=chunk)[405](index=405&type=chunk)[407](index=407&type=chunk)[413](index=413&type=chunk) - Commercialization risks include DEXTENZA and ReSure Sealant failing to achieve market acceptance, intense competition (especially from generics), unfavorable pricing/reimbursement policies, and product liability lawsuits[416](index=416&type=chunk)[417](index=417&type=chunk)[429](index=429&type=chunk)[430](index=430&type=chunk)[437](index=437&type=chunk)[445](index=445&type=chunk) - Intellectual property risks involve challenges in obtaining/maintaining patent protection, potential infringement claims, and reliance on licensors (Incept) for patent prosecution and enforcement[469](index=469&type=chunk)[471](index=471&type=chunk)[487](index=487&type=chunk)[488](index=488&type=chunk)[493](index=493&type=chunk) - Regulatory risks include the expensive and uncertain approval process, post-marketing restrictions, compliance with healthcare fraud/abuse laws, and the impact of healthcare reform (ACA, Cures Act, drug pricing initiatives)[500](index=500&type=chunk)[507](index=507&type=chunk)[514](index=514&type=chunk)[522](index=522&type=chunk)[532](index=532&type=chunk)[535](index=535&type=chunk)[547](index=547&type=chunk) - Employee-related risks include dependence on key personnel, difficulties managing growth, and potential employee misconduct[569](index=569&type=chunk)[571](index=571&type=chunk)[574](index=574&type=chunk)[575](index=575&type=chunk) - Common stock risks include control by executive officers/directors, anti-takeover provisions, stock price volatility, and potential dilution from future equity sales[578](index=578&type=chunk)[579](index=579&type=chunk)[587](index=587&type=chunk)[591](index=591&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=195&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) This section reports on recent unregistered sales of equity securities, specifically inducement stock option awards granted to new employees outside of the main stock incentive plan - On July 9, 2019, a non-statutory stock option to purchase **60,000 shares** was granted to the Senior VP, Head of Business Development, at an exercise price of **$5.13 per share**, vesting over **four years**[608](index=608&type=chunk) - On October 30, 2019, **54,000 shares** were granted to nine newly-hired employees under the 2019 Inducement Stock Incentive Plan, with an exercise price of **$3.24 per share**, vesting over **four years**[611](index=611&type=chunk) - These grants were made as inducements for employment in accordance with Nasdaq Listing Rule 5635(c)(4) and are anticipated to be registered on a Form S-8[610](index=610&type=chunk)[611](index=611&type=chunk) [Item 5. Other Information](index=197&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report under this item - No other information is reported under this item[612](index=612&type=chunk) [Item 6. Exhibits](index=198&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including inducement stock plans, certifications, and XBRL taxonomy documents - Exhibits include the 2019 Inducement Stock Incentive Plan, Form of Inducement Nonstatutory Stock Option Agreement, certifications from principal executive and financial officers (pursuant to Rules 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350), and XBRL taxonomy documents[615](index=615&type=chunk)[618](index=618&type=chunk) [SIGNATURES](index=200&type=section&id=SIGNATURES) This section contains the official signatures for the Quarterly Report on Form 10-Q - The report was signed on November 12, 2019, by Donald Notman, Chief Financial Officer (Principal Financial and Accounting Officer) of Ocular Therapeutix, Inc[622](index=622&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-36554 Ocular Therapeutix, Inc. (Exact name of registrant as specified in its charter) Delaware 20-5560161 (Sta ...