Ocular Therapeutix, Inc. (NASDAQ:OCUL) Q4 2021 Earnings Conference Call February 28, 2022 4:30 PM ET Company Participants Donald Notman - Chief Financial Officer Antony Mattessich - President & Chief Executive Officer Michael Goldstein - Chief Medical Officer Conference Call Participants Joe Catanzaro - Piper Sandler Jon Wolleben - JMP Securities Dane Leone - Raymond James Yi Chen - H.C. Wainwright Anita Dushyanth - Berenberg Capital Operator Good afternoon, ladies and gentlemen. Thank you for standing by a ...

Table of Contents 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, 2021 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 (State or ...

Ocular Therapeutix, Inc. (NASDAQ:OCUL) Q3 2021 Earnings Conference Call November 9, 2021 4:30 PM ET Company Participants Antony Mattessich – CEO Donald Notman – CFO Dr. Michael Goldstein – Chief Medical Officer Scott Corning – Senior Vice President Commercial Chris White – Chief Business Officer Conference Call Participants Jon Wolleben – Participants Dane Leone – Raymond James Joe Catanzaro – Piper Sandler David Steinberg – Jefferies Anita Dushyanth – Berenberg Capital Georgi Yordanov – Cowen and Company Y ...

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 September 30, 2021 OR (Exact name of registrant as specified in its charter) (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Delaware 20-5560161 24 Crosby Drive Bedford, MA 01730 (Address of principal executive offices) (Zip ...

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, 2021 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 (Address of principal executive offices) (Zip Code) (781) 357-4000 (Registrant's telephone number, inclu ...

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, 2021 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 ...

Table of Contents 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, 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 (State or ...

Financial Data and Key Metrics Changes - DEXTENZA net sales to distributors increased to $5.4 million for Q3 2020, representing a 280% growth over the previous quarter [9][41] - Total net product revenue was $5.9 million for Q3 2020 compared to $1.6 million in Q2 2020 [41] - The company reported a net loss of $11.9 million or a loss of $0.19 per share on a basic basis for Q3 2020, an improvement from a net loss of $18.8 million or a loss of $0.40 per share in the same period in 2019 [46] Business Line Data and Key Metrics Changes - Net product revenue of DEXTENZA was $5.4 million in Q3 2020 versus $1.4 million in Q2 2020, while net product revenue of ReSure Sealant was $0.5 million compared to $0.2 million in Q2 2020 [41][42] - Research and development expenses decreased to $7 million in Q3 2020 from $10.2 million in the same period in 2019, reflecting a decrease in personnel and other costs due to organizational restructuring [43] - Sales and marketing expenses were $6.5 million in Q3 2020, slightly down from $6.8 million in the same quarter of 2019 [44] Market Data and Key Metrics Changes - The company noted that the significant increase in DEXTENZA sales was driven by the reopening of Ambulatory Surgery Centers (ASCs) and Hospital Outpatient Departments (HOPDs) as well as the impact of the DEXTENZA rebate program [42] - Over 4,000 billable units of DEXTENZA were purchased by ASCs and HOPDs in October, indicating strong demand [10] Company Strategy and Development Direction - The company aims to fully fund its four clinical stage pipeline assets through planned Phase 2 clinical trials, supported by a recent public offering that raised over $75 million [15] - A licensing agreement with AffaMed Therapeutics for rights to DEXTENZA and OTX-TIC in China and other Asian markets is expected to net $12 million in upfront payments and potential future milestones [16] - The company is focused on advancing its pipeline products, which address significant unmet needs in ophthalmology, with a combined market potential exceeding $20 billion [19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about DEXTENZA's commercial potential and the recent developments that position the company for growth, assuming a stable environment for elective surgeries [14] - The recognition of DEXTENZA's CPT code as a permanent Category I code is expected to enhance reimbursement and adoption rates [12][91] Other Important Information - The company had approximately $70.6 million in cash and cash equivalents as of September 30, 2020, down from $84.3 million at the end of Q2 2020, but this does not include the recent capital raised [48] - The company believes existing cash and cash equivalents, combined with anticipated cash inflows, will fund operations into 2023 [49] Q&A Session Summary Question: What are the key milestones for DEXTENZA's access and reimbursement in 2021? - Management indicated that there are no significant obstacles to access, but efforts will focus on training ASC personnel to effectively use the product [60] Question: What are the main focuses for the upcoming update on OTX-TKI? - The focus will be on safety, biological activity, and durability of the treatment [62] Question: What factors contributed to the growth in billable inserts for DEXTENZA in September? - The growth was attributed to a return to normal levels of cataract surgeries and the impact of the rebate program [67] Question: What additional work is needed regarding the CPT code and reimbursement? - Management noted that further work is needed to change the status indicator for the CPT code to ensure adequate facility payment [68] Question: What are the expectations for the vehicle insert in the dry eye program trials? - The trials will compare against hydrogel inserts designed to biodegrade in the same timeframe as the active treatment [81] Question: How does OTX-CSI differ from Restasis in terms of mechanism and tolerability? - OTX-CSI aims to provide a more rapid onset of action and reduce stinging issues associated with traditional cyclosporine products [86]

[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

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 ...