Ocular Therapeutix(US:OCUL)2023-03-06 21:08PART I Item 1. Business Ocular Therapeutix, Inc. is a biopharmaceutical company focused on ophthalmic therapies, leveraging its bioresorbable hydrogel technology for commercial products like DEXTENZA and a pipeline including OTX-TKI and OTX-TIC - The company's core focus is on developing and commercializing innovative eye therapies using its proprietary bioresorbable hydrogel-based formulation technology25 Product & Pipeline Overview | PROGRAM | THERAPEUTIC FOCUS | STAGE | NEXT MILESTONES | | :--- | :--- | :--- | :--- | | DEXTENZA® | Post-surgical inflammation & pain; Allergic conjunctivitis | FDA Approved | Continue commercialization | | OTX-TKI | Wet AMD | Pivotal Trial Prep | Initiate pivotal trial as early as Q3 2023 | | OTX-TKI | Diabetic Retinopathy | Phase 1 | Initiate pivotal trial as early as Q1 2024 | | OTX-TIC | Glaucoma & ocular hypertension | Phase 2 | Topline data in Q4 2023 | | OTX-DED | Episodic dry eye disease | Phase 2 | Initiate trial for placebo comparator in Q2 2023 | | OTX-CSI | Dry eye disease | Phase 2 | Initiate trial for placebo comparator in Q2 2023 | - The company's strategy includes growing DEXTENZA revenues, advancing its clinical pipeline with a focus on OTX-TKI and OTX-TIC, and leveraging its commercial infrastructure for future ophthalmology products32 Clinical Portfolio The clinical portfolio focuses on major ophthalmology markets, with OTX-TKI for retinal diseases, OTX-TIC for glaucoma, and OTX-DED/OTX-CSI for dry eye disease, all in various stages of clinical development - OTX-TKI (axitinib intravitreal implant) is being developed for wet AMD and diabetic retinopathy; for wet AMD, the company aims to initiate a pivotal trial in Q3 2023, subject to FDA discussions and financing, with interim 10-month data from the U.S. Phase 1 trial showing stable vision and a 92% reduction in treatment burden617477 - OTX-TIC (travoprost intracameral implant) is being developed for glaucoma, with a U.S.-based Phase 2 trial ongoing, comparing OTX-TIC 26 µg to DURYSTA, and topline data expected in Q4 2023879193 - The dry eye program includes OTX-DED and OTX-CSI; following Phase 2 trials where the vehicle hydrogel placebo performed more like an active comparator, the company plans to initiate a small trial in H1 2023 to identify a more appropriate placebo (e.g., collagen plugs) for future pivotal studies115 Commercial Portfolio and Collaborations The commercial portfolio is led by DEXTENZA, an FDA-approved intracanalicular insert for ocular inflammation/pain and allergic conjunctivitis, complemented by a strategic collaboration with AffaMed Therapeutics for Asian markets - DEXTENZA is the first FDA-approved intracanalicular insert delivering dexamethasone for up to 30 days to treat post-surgical ocular inflammation and pain, and ocular itching associated with allergic conjunctivitis133143 - Production of ReSure Sealant was suspended in Q4 2021 to prioritize manufacturing resources for DEXTENZA, and the product is not currently commercially available in the U.S.149 - The company has a license and collaboration agreement with AffaMed Therapeutics for the development and commercialization of DEXTENZA and OTX-TIC in key Asian markets, including an upfront payment of $12 million, up to $91 million in potential milestones, and tiered royalties150 Manufacturing, Intellectual Property, and Competition The company manages its manufacturing in-house, protects its innovations through owned and licensed patents, and navigates a competitive landscape with established pharmaceutical companies and generic alternatives - The company manufactures its products and clinical trial materials at its cGMP facility in Bedford, Massachusetts, which it believes provides flexibility and control over the manufacturing process157159 - The intellectual property portfolio consists of owned and licensed patents, with key patents for OTX-TKI expiring in 2041, and DEXTENZA, OTX-TIC, OTX-CSI, and OTX-DED patents expiring between 2030 and 2041164165166167168 - A significant portion of the core hydrogel technology and patent rights for DEXTENZA, ReSure Sealant, and product candidates are exclusively licensed from Incept, LLC176 - The company faces competition from established anti-VEGF drugs for OTX-TKI, approved glaucoma treatments like DURYSTA for OTX-TIC, and numerous therapies for dry eye for OTX-CSI and OTX-DED197199200 Government Regulation The company's products and operations are subject to extensive regulation by the FDA and international authorities, covering all stages from development and manufacturing to marketing, pricing, and data privacy - The company's products are subject to extensive regulation by the FDA in the U.S. and other global authorities, covering all stages from preclinical studies to post-market surveillance204205 - The company plans to submit New Drug Applications (NDAs) for its product candidates under the Section 505(b)(2) pathway, which allows reliance on existing FDA data for previously approved drugs, potentially streamlining the approval process239240 - Sales and marketing activities are subject to strict healthcare laws, including the federal Anti-Kickback Statute and False Claims Act, which regulate relationships with healthcare providers and payors566568 - The business is impacted by healthcare reform and drug pricing legislation, such as the Inflation Reduction Act (IRA), which could affect reimbursement rates and impose new pricing pressures on pharmaceutical products577581 Item 1A. Risk Factors The company faces significant risks including a history of net losses, the need for substantial additional funding, dependence on DEXTENZA and pipeline success, single-site manufacturing vulnerability, and exposure to unfavorable pricing regulations and intense competition - The company has a history of significant losses, with a net loss of $71.0 million for the year ended December 31, 2022, and an accumulated deficit of $616.8 million, expecting to incur operating losses for the next several years394 - Substantial additional funding is required to advance research, development, and commercialization efforts, without which the company may be forced to delay, reduce, or eliminate programs404 - The company's success is heavily dependent on the commercial success of DEXTENZA and the successful development and approval of its pipeline candidates, particularly OTX-TKI and OTX-TIC452 - Operations rely on a single-site manufacturing facility, making the company vulnerable to disruptions that could impact clinical trial supply and commercial inventory492 - The company faces risks related to unfavorable pricing regulations, third-party reimbursement practices, and healthcare reform, which could harm the commercial viability of its products479 Item 2. Properties The company leases approximately 121,000 square feet of office, laboratory, and manufacturing space in Bedford, Massachusetts, with leases expiring between 2024 and 2028 - The company's facilities consist of approximately 121,000 square feet of leased office, lab, and manufacturing space in Bedford, MA, with lease expirations in July 2027, March 2024, and an extended lease through July 2028630 Item 3. Legal Proceedings As of the filing date, the company is not a party to any material legal proceedings, nor is management aware of any material legal proceedings threatened against it - The company is not currently a party to any material legal proceedings631 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'OCUL', has approximately 12 record holders, has never paid cash dividends, and did not sell unregistered securities or repurchase equity in 2022 - The company's common stock is traded on the Nasdaq Global Market under the symbol "OCUL"636 - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future638 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations For FY2022, total net revenue increased to $51.5 million, but the net loss widened to $71.0 million due to a smaller derivative liability gain, with operating expenses rising to $130.1 million, and cash of $102.3 million expected to fund operations into mid-2024 Results of Operations (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Total revenue, net | $51,494 | $43,522 | $7,972 | | Cost of product revenue | $4,540 | $4,406 | $134 | | Research and development | $53,462 | $50,083 | $3,379 | | Selling and marketing | $39,922 | $35,190 | $4,732 | | General and administrative | $32,224 | $31,880 | $344 | | Total costs and operating expenses | $130,148 | $121,559 | $8,589 | | Loss from operations | ($78,654) | ($78,037) | ($617) | | Change in fair value of derivative liability | $13,841 | $78,121 | ($64,280) | | Net loss | ($71,038) | ($6,553) | ($64,485) | - As of December 31, 2022, the company had $102.3 million in cash and cash equivalents, projected to fund planned operations into the middle of 2024, excluding the costs of planned pivotal trials for OTX-TKI659721 - Net cash used in operating activities was $59.6 million for the year ended December 31, 2022, compared to $65.6 million in 2021722 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity on its $102.3 million cash equivalents and $25.0 million variable-rate debt, though a 100 basis point rate change is not expected to be material - The company's primary market risk is interest rate sensitivity on its cash equivalents ($102.3 million) and variable-rate debt ($25.0 million)758761 - Management concluded that an immediate 100 basis point (1%) change in interest rates would not materially affect the fair market value of its investment portfolio or cash outflows from its debt759761 Item 8. Financial Statements and Supplementary Data This section presents the consolidated financial statements and the independent auditor's report, which highlights the valuation of derivative liability as a critical audit matter and emphasizes the need for additional financing - The report from the independent auditor, PricewaterhouseCoopers LLP, highlights the valuation of the derivative liability related to the 2026 convertible notes as a Critical Audit Matter, noting the significant judgment required by management in its fair value estimation812813816 - The auditor's report also includes an "Emphasis of Matter" paragraph, drawing attention to the company's need to secure additional financing to fund future operations808 Item 9A. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes reported in Q4 2022 - Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2022764 - Management assessed the effectiveness of internal control over financial reporting using the COSO framework and concluded that it was effective as of December 31, 2022768 PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, corporate governance, and the audit committee is incorporated by reference from the 2023 Proxy Statement, noting the adoption of a code of conduct and the identification of an audit committee financial expert - Information required for this item is incorporated by reference from the company's 2023 Proxy Statement774 - The company has adopted a code of business conduct and ethics applicable to all directors, officers, and employees776 Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement for the 2023 Annual Meeting of Stockholders - Information required for this item is incorporated by reference from the company's 2023 Proxy Statement780 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners, management, and related stockholder matters is incorporated by reference from the company's definitive Proxy Statement for the 2023 Annual Meeting of Stockholders - Information required for this item is incorporated by reference from the company's 2023 Proxy Statement781 Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive Proxy Statement for the 2023 Annual Meeting of Stockholders - Information required for this item is incorporated by reference from the company's 2023 Proxy Statement782 Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's definitive Proxy Statement for the 2023 Annual Meeting of Stockholders - Information required for this item is incorporated by reference from the company's 2023 Proxy Statement783 PART IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the Annual Report on Form 10-K, with financial statement schedules omitted as not applicable or required - This section lists the financial statements and exhibits filed with the 10-K report786787