Ocular Therapeutix(OCUL) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for Ocular Therapeutix, Inc. as of June 30, 2023, and for the three and six months ended June 30, 2023 and 2022, highlighting a decrease in cash and stockholders' equity alongside an increase in net loss Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2023, shows a decrease in total assets and a significant reduction in stockholders' equity compared to December 31, 2022, primarily driven by a decline in cash and cash equivalents and an increase in total liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $66,606 | $102,300 | | Total current assets | $100,712 | $129,627 | | Total assets | $122,558 | $149,289 | | Total liabilities | $119,471 | $113,910 | | Total stockholders' equity | $3,087 | $35,379 | Condensed Consolidated Statements of Operations and Comprehensive Loss The company's net product revenue increased year-over-year for both the three and six-month periods, but net loss also widened, particularly for the six-month period, due to higher operating expenses and a significant negative change in the fair value of its derivative liability Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $15,029 | $12,144 | $28,243 | $24,642 | | Total revenue, net | $15,186 | $12,266 | $28,561 | $25,453 | | Loss from operations | $(20,570) | $(19,916) | $(43,119) | $(37,748) | | Net loss | $(20,682) | $(18,766) | $(51,000) | $(31,308) | | Net loss per share, basic | $(0.26) | $(0.24) | $(0.66) | $(0.41) | - The significant increase in net loss for the six months ended June 30, 2023, was heavily impacted by a $5.4 million loss from the change in fair value of derivative liability, compared to a $9.7 million gain in the same period of 2022[20] Condensed Consolidated Statements of Cash Flows For the first six months of 2023, cash used in operating activities increased compared to the prior year, driven by a larger net loss, while investing activities also consumed more cash due to equipment purchases, and financing activities provided a net inflow primarily from a stock offering Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(40,048) | $(29,476) | | Net cash used in investing activities | $(5,369) | $(771) | | Net cash provided by financing activities | $9,723 | $622 | | Net decrease in cash | $(35,694) | $(29,625) | Notes to Condensed Consolidated Financial Statements The notes detail the company's business focus on ophthalmology, its history of losses, and its reliance on future financing, including disclosures on licensing agreements, debt facilities, derivative liability valuation, and a new $82.5 million credit facility secured in August 2023 - The company has a history of losses, with an accumulated deficit of $667.8 million as of June 30, 2023, and expects to continue generating operating losses[31] - Subsequent to the quarter's end, on August 2, 2023, the company entered into a new $82.5 million credit facility with Barings, used the proceeds to repay its existing MidCap facility, and extended the maturity of its Convertible Notes[89][90][93] - For the six months ended June 30, 2023, three specialty distributor customers accounted for 55%, 23%, and 11% of the company's gross product revenue[67] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's business strategy, progress in its clinical pipeline, and commercial performance of DEXTENZA, showing revenue growth but also widening net losses due to increased R&D and S&M spending and non-cash charges, with a new credit facility secured in August 2023 expected to fund operations into 2025 Overview The company is a biopharmaceutical firm focused on eye diseases using its proprietary ELUTYX hydrogel technology, with its sole commercial product, DEXTENZA, showing strong sales growth, and its clinical pipeline advancing with key programs for wet AMD, NPDR, and glaucoma, including plans to initiate a pivotal trial for OTX-TKI in wet AMD in Q3 2023 - DEXTENZA in-market unit sales exceeded 36,000 in Q2 2023, a 40% increase year-over-year and a 6% increase quarter-over-quarter[135] - The company plans to initiate the first of two pivotal trials for OTX-TKI in wet AMD in Q3 2023, following 12-month data showing 60% of subjects were rescue-free[107][108] - Enrollment was completed for the OTX-TKI Phase 1 trial in NPDR (HELIOS) and the OTX-TIC Phase 2 trial in glaucoma, with topline data for both expected in Q1 2024[110][116][117] Results of Operations This section provides a detailed comparison of financial results for the three and six months ended June 30, 2023, and 2022, showing that net product revenue from DEXTENZA grew 24% in Q2 2023 year-over-year, but operating expenses also rose, with R&D increasing due to clinical trial activities and S&M increasing from sales team expansion, leading to a higher net loss Q2 2023 vs Q2 2022 Expense Changes (in thousands) | Expense Category | Q2 2023 | Q2 2022 | Increase (Decrease) | | :--- | :--- | :--- | :--- | | Research and development | $15,094 | $13,100 | $1,994 | | Selling and marketing | $11,153 | $10,140 | $1,013 | | General and administrative | $8,205 | $7,787 | $418 | H1 2023 vs H1 2022 Financial Summary (in thousands) | Metric | H1 2023 | H1 2022 | Increase (Decrease) | | :--- | :--- | :--- | :--- | | Product revenue, net | $28,243 | $24,642 | $3,601 | | Total costs and operating expenses | $71,680 | $63,201 | $8,479 | | Net loss | $(51,000) | $(31,308) | $(19,692) | Liquidity and Capital Resources The company ended Q2 2023 with $66.6 million in cash, and a significant post-quarter event was securing an $82.5 million credit facility from Barings in August 2023, which management believes will fund planned operations into 2025, including the initiation of the first OTX-TKI pivotal trial, but not its completion or other pivotal trials without additional capital - As of June 30, 2023, the company had cash and cash equivalents of $66.6 million and an accumulated deficit of $667.8 million[186][187] - In August 2023, the company secured a new $82.5 million credit facility, receiving $77.8 million in net proceeds, and used $26.2 million to repay its existing MidCap Credit Facility[187] - The company believes its existing cash and new financing will fund planned operations into 2025, sufficient to initiate the first pivotal trial for OTX-TKI for wet AMD, but additional financing is needed for completion and other pivotal trials[197] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, primarily interest rate sensitivity affecting its cash equivalents and variable-rate debt, and notes the valuation risk of the derivative liability tied to its convertible notes, which is influenced by stock price and volatility, concluding that a 100 basis point change in interest rates would not materially impact its financial position - The company's primary market risk is interest rate sensitivity on its cash equivalents and variable-rate debt[208] - The derivative liability associated with the Convertible Notes was valued at $11.8 million as of June 30, 2023, and while its fair value is sensitive to stock price and volatility, management states a 10% change in these inputs would not have a material effect[209][210] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of June 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[212] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[213] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company reports that it is not currently involved in any material legal proceedings, nor is it aware of any material legal proceedings being threatened against it - The company is not presently a party to any material legal proceedings[216] Item 1A. Risk Factors This section updates previously disclosed risk factors, with a new primary focus on the substantial indebtedness incurred from the $82.5 million Barings Credit Facility obtained in August 2023, highlighting risks such as potential limitation on cash flow for business investment, restrictive covenants like a $20.0 million minimum liquidity requirement, and the consequences of a potential default - A new risk factor is the company's substantial indebtedness following the $82.5 million Barings Credit Facility entered into on August 2, 2023[218] - The debt is secured by all company assets and includes restrictive covenants, such as maintaining a minimum liquidity of $20.0 million, which could limit operational flexibility[219] - Failure to comply with the debt conditions could result in an event of default, acceleration of debt repayment, and enforcement of security interests by the lenders[223] Item 5. Other Information This section details significant events occurring after the quarter's end, including entering into a new $82.5 million credit facility with Barings on August 2, 2023, using the proceeds to repay the existing MidCap facility, extending the maturity of the company's Convertible Notes, and the board ratifying certain past stock issuances that may not have been properly authorized - On August 2, 2023, the company entered into an $82.5 million credit facility with Barings, receiving net proceeds of $77.8 million after discounts and fees[224] - The Barings facility includes a unique "Royalty Fee" structure, where the company must pay an amount equal to the total facility, paid in quarterly installments equal to 3.5% of DEXTENZA net sales[229] - On August 6, 2023, the board of directors ratified several past issuances of common stock under the 2014 Employee Stock Purchase Plan due to a "Failure of Authorization"[232] Item 6. Exhibits This section provides an index of the exhibits filed as part of the Quarterly Report on Form 10-Q, including amendments to credit agreements, the amended 2021 Stock Incentive Plan, and the required certifications by the Principal Executive Officer and Principal Financial Officer - The report includes several exhibits, such as Amendment No. 2 to the MidCap Credit Agreement, the 2021 Stock Incentive Plan (as amended), and certifications from the CEO and CFO[238]