Ocular Therapeutix(OCUL) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents Ocular Therapeutix, Inc.'s unaudited condensed consolidated financial statements for Q1 2023 and prior periods Condensed Consolidated Balance Sheets Total assets decreased to $128.6 million, liabilities increased, and equity significantly declined to $9.7 million by Q1 2023 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $79,026 | $102,300 | | Total current assets | $107,162 | $129,627 | | Total assets | $128,573 | $149,289 | | Liabilities & Equity | | | | Total current liabilities | $29,715 | $31,395 | | Derivative liability | $12,914 | $6,351 | | Total liabilities | $118,862 | $113,910 | | Total stockholders' equity | $9,711 | $35,379 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net loss surged to $30.3 million in Q1 2023, primarily due to derivative liability changes and increased operating expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Product revenue, net | $13,214 | $12,498 | | Total revenue, net | $13,374 | $13,187 | | Total costs and operating expenses | $35,923 | $31,020 | | Loss from operations | $(22,549) | $(17,833) | | Change in fair value of derivative liability | $(6,563) | $6,958 | | Net loss | $(30,318) | $(12,542) | | Net loss per share, basic & diluted | $(0.39) | $(0.16) / $(0.22) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $20.0 million in Q1 2023, leading to a total cash decrease of $23.3 million Cash Flow Summary (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(19,973) | $(18,600) | | Net cash used in investing activities | $(3,379) | $(276) | | Net cash provided by financing activities | $78 | $129 | | Net decrease in cash, cash equivalents and restricted cash | $(23,274) | $(18,747) | Notes to Condensed Consolidated Financial Statements Notes detail the company's business, accounting policies, and financial condition, highlighting an accumulated deficit and future capital needs - The company is a biopharmaceutical firm focused on eye therapies using its proprietary ELUTYX hydrogel technology, commercializing DEXTENZA and developing product candidates like OTX-TKI and OTX-TIC[28][30] - As of March 31, 2023, the company had an accumulated deficit of $647.2 million and expects continued operating losses, with existing cash of $79.0 million funding operations into mid-2024, excluding planned pivotal trials for OTX-TKI which require additional funding[31] - For Q1 2023, three specialty distributor customers accounted for 52%, 25%, and 13% of gross product revenue, indicating significant customer concentration[60] - The fair value of the derivative liability associated with the 2026 Convertible Notes increased from $6.4 million at year-end 2022 to $12.9 million at March 31, 2023, primarily due to an increase in the company's stock price[65] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, business overview, and strategic direction, covering DEXTENZA, pipeline progress, and liquidity Overview and Portfolio The company develops ophthalmic therapies using ELUTYX hydrogel technology, commercializing DEXTENZA and advancing its OTX-TKI and OTX-TIC pipeline - The company's core is its ELUTYX hydrogel technology, which allows for local, programmed drug release in the eye[81][82] - Key clinical programs include OTX-TKI (wet AMD/DR), OTX-TIC (glaucoma), OTX-DED (short-term dry eye), and OTX-CSI (chronic dry eye)[83][84] - Interim 10-month data for the OTX-TKI Phase 1 trial in wet AMD showed the implant was well-tolerated, with 73% of subjects remaining rescue-free and a 92% reduction in treatment burden[88][89] - The company plans to initiate the first of two pivotal trials for OTX-TKI in wet AMD as early as Q3 2023, contingent on securing necessary financing[94] - The Phase 2 trial for OTX-TIC (glaucoma) is ongoing with the 26 µg dose arm after the 5 µg arm was terminated, with topline data expected in Q4 2023[101] Results of Operations Total net revenue was flat at $13.4 million in Q1 2023, but net loss surged to $30.3 million due to higher expenses and derivative liability impact Results of Operations Comparison (in thousands) | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Total revenue, net | $13,374 | $13,187 | $187 | | Research and development | $14,747 | $13,100 | $1,647 | | Selling and marketing | $10,835 | $9,063 | $1,772 | | General and administrative | $9,127 | $7,557 | $1,570 | | Loss from operations | $(22,549) | $(17,833) | $(4,716) | | Net loss | $(30,318) | $(12,542) | $(17,776) | - Net product revenue from DEXTENZA increased to $13.2 million in Q1 2023 from $12.5 million in Q1 2022[147] - Gross-to-net deductions for DEXTENZA increased to 28.1% of gross sales in Q1 2023, up from 21.9% in Q1 2022[146] - The increase in R&D expenses was primarily due to a $2.0 million increase in clinical and preclinical program costs, particularly for OTX-TKI[149] - The $13.1 million negative change in 'Other Income (Expense), Net' was primarily due to a $13.5 million unfavorable change in the fair value of the derivative liability, reflecting an increase in the company's stock price[154] Liquidity and Capital Resources The company ended Q1 2023 with $79.0 million in cash, projecting funds into mid-2024, but additional capital is needed for pivotal trials - As of March 31, 2023, the company had $79.0 million in cash and cash equivalents[158] - Existing cash is projected to fund planned operations, debt service, and capital expenditures into the middle of 2024, explicitly excluding expenses for planned pivotal clinical trials for OTX-TKI[159][168] - Net cash used in operating activities was $20.0 million in Q1 2023, driven by a net loss of $30.3 million, partially offset by non-cash charges like a $6.6 million change in derivative liability value and $4.6 million in stock-based compensation[160] - The company has an Open Market Sale Agreement with Jefferies to sell up to $100.0 million in common stock, with no shares sold as of May 4, 2023[119] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate sensitivity on cash and variable-rate debt, with management concluding no material effect from rate changes - The company's primary market risk is interest rate sensitivity on its $79.0 million in cash and cash equivalents and its $25.0 million variable interest rate note payable[177][181] - Management concludes that an immediate 100 basis point change in interest rates would not materially affect the fair market value of its portfolio or cash outflows from its debt[177][181] - The fair value of the derivative liability ($12.9 million as of March 31, 2023) is subject to market inputs, but a 10% change in these inputs is not expected to have a material effect[179] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2023, with no material changes to internal control over financial reporting - Based on an evaluation as of March 31, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[182] - No changes occurred during Q1 2023 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[183] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings, nor is management aware of any threatened proceedings - The company is not presently a party to any material legal proceedings[186] Item 1A. Risk Factors Risk factors highlight the risk of holding cash exceeding FDIC insurance limits, citing the SVB failure as a key example - A key risk is the concentration of cash in deposit accounts at a small number of financial institutions, with balances that exceed FDIC insurance limits[188][191] - The failure of Silicon Valley Bank (SVB) in March 2023 is cited as a direct example of this risk, as the company maintained a significant portion of its cash at SVB at the time[189] - While the company amended its credit agreement to allow holding up to 50% of its cash elsewhere, the risk of concentration remains, with no assurance of government protection for uninsured deposits in future bank failures[191][192] Item 5. Other Information On May 4, 2023, the company amended its Credit and Security Agreement to permit holding up to 50% of cash outside Silicon Valley Bank - On May 4, 2023, the company amended its credit agreement to allow diversification of its cash holdings, permitting up to 50% to be held at institutions other than Silicon Valley Bank[195] Item 6. Exhibits This section provides an index of exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications and XBRL documents - Lists exhibits filed with the report, including Amendment No. 1 to the Credit and Security Agreement, CEO/CFO certifications (Rules 302 and 906), and XBRL data files[200]