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spk01: Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Ocular Therapeutics fourth quarter and year-end 2020 earnings conference call. At this time, all participants are on a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will follow at that time. It is now my pleasure to turn the call over to Donald Notman, Chief Financial Officer of Ocular Therapeutics. Please go ahead, sir.
spk11: Thank you, Valerie. Good afternoon, everyone, and thank you for joining us on our fourth quarter and year-end 2020 financial results and business update conference call. This afternoon after the close, we issued a press release providing an update on the company's product development programs and details of the company's financial results for the quarter and year-ended December 31, 2020. The press release can be accessed on the investors portion of our website at investors.ocutx.com. Leading the call today will be Anthony Modisich, our Chief Executive Officer, who will provide a summary of our corporate developments and an update on the commercial progress of Dextenza. Also speaking on the call today will be Dr. Michael Goldstein, our President Ophthalmology and Chief Medical Officer, who will give an update on our clinical developments and pipeline. Following Michael's remarks, I will provide an overview of the financial highlights for the fourth quarter before turning the call back over to Anthony for a summary and questions. For Q&A, we will also be joined by Patricia Kitchen, our Chief Operating Officer, and Scott Corning, our Senior Vice President, Commercial. As a reminder, on today's call, certain statements we will be making may be considered forward-looking for the purposes of the Private Securities Litigation Reform Act of 1995. In particular, any statements regarding our regulatory and product development plans, as well as our research activities, are forward-looking statements. These statements are subject to a variety of risks and uncertainties that may cause actual results to differ from those forecasted, including those risks described in our most recent annual report on Form 10-K filed this afternoon with the SEC. I will now turn the call over to Anthony.
spk03: Thank you, Donald. And welcome, everyone, to Ocular Therapeutics' fourth quarter and year-end earnings report. On all accounts, it was a great quarter, capping a notable year for Ocular. Despite the challenges due to the global pandemic, Ocular made tremendous progress with the commercial uptake of Dextenza, as well as advancing our pipeline of product candidates being developed to target several of the largest market opportunities in ophthalmology. For all of our success this past year, I would like to thank our dedicated employees, our patients and clinical investigators, the hundreds of individuals involved in our clinical trials, and our investors. Thank you all. Beginning with Dextenza, this past quarter we have seen Dextenza net sales rise to $6.9 million for the fourth quarter 2020, which represents more than 25% growth over the previous quarter and a more than 330% increase year-over-year comparison. Going forward, we expect Dextenza to be an increasingly significant net contributor to the company's cash position. While we have no hard data to determine cataract volumes in the U.S., we are aware of a number of closures and slowdowns in key ASCs, in particular HOPDs, in response to the recent spike in COVID cases. The bulk of these actions took place in January and February of this year. Fortunately, it extends to in-market sales. That is, sales from distributors to ASCs and HOPDs were brisk. Billable units neared 9,500 for the first two months of the year, representing a greater than 10% increase over the first two months of the fourth quarter, and nearly a 230% increase over prior year. Clearly, despite the pandemic, Dextenza's increasing share of cataract volume continues to drive impressive growth. In the final three quarters of the year, we expect what was a headwind in cataract volumes to become a tailwind as the backlog of delayed procedures gets scheduled into the market in addition to the normal flow of procedures. Contributing to the growth of Dextenza are two key factors. First and most importantly, Dextenza is a highly differentiated specialty ophthalmology product that relieves the daily steroid drop burden in the treatment of inflammation and pain following ophthalmic surgery. The awareness and appreciation of the product's benefits continues to grow both within the physician and patient communities. The product is simply performing as we had hoped. Secondly, Dextenza is also becoming easier to use for ASCs and HOPDs. We have had tremendous success partnering with administrators and working through issues related to reimbursement of both the product, Dextenza, and the associated procedure code, 0356T. In particular, we've been able to work with the MACs in standardizing payment for 0356T, and I'm now pleased to let you know that we now have coverage in all seven MACs representing 100% of the country. Additionally, in November, we announced the receipt of a permanent Category 1 CPT code for the placement of drug-eluting inserts in the nasolacrimal canaliculus that is scheduled to become effective in January of 2022. This new code is expected to replace the existing code, 0356D, and facilitate the coding and payment across all sites of service. Longer term, the Category 1 status for the procedure of inserting a drug-eluting insert into the nasolacrimal canaliculus delivers immediate potential benefits for Dextenza, but also for our two dry eye programs, if approved, which use the same route of administration and any other programs that we may develop which use an intercatalicular route of delivery. I should also note here that beginning in the second quarter this year, we plan to continue reporting our quarterly net sales to distributors for Dextenza, but expect to no longer report on our monthly in-market sales in billable units to ASCs and HOPDs. We realized during the launch period that that we needed to provide an extraordinary level of detail to our investors, so included this monthly in-market figure in billable units to give a better sense of performance while distributors adjusted inventories to ensure product availability. Now that our sales volume has reached its current level, sales from Ocular to its specialty distributors and sales from specialty distributors to the end customer closely parallel each other. To avoid confusion and protect our competitively sensitive data, we plan to return to the industry standard of reporting only on net sales to our specialty distributors. Beyond Xtensa, we continue to make excellent progress advancing our pipeline. At the start of the year, we presented angiogenesis and glaucoma 360, reporting promising interim Phase I data for both OTX-TKI for the treatment of wet age-related macular degeneration and other retinal diseases, and OTX-TIC, for the reduction of intraocular pressure in patients with primary open angle glaucoma or ocular hypertension. On the dry eye front, we announced phase one results in OTX-CSI for the treatment of dry eye disease in September, and we subsequently dosed the first patient in a phase two trial in September. For OTX-DED, we designed for short-term treatment of signs and symptoms of dry eye disease. We successfully filed a phase two enabling IND at the end of December and have just announced dosing of the first patient at the end of February. Each of our four clinical programs represent highly differentiated ophthalmology specialty product candidates that address key unmet needs in their respective disease states that address the key segments of global markets that in aggregate are estimated at over $20 billion in annual sales. Financially, the company is in a strong financial position. We have completed an oversubscribed public offering in December, that raised approximately $86 million in net proceeds. More recently, we received the initial upfront payment of $12 million related to the collaboration we entered into with AFMED in the fourth quarter 2020. Beyond the $12 million in upfront payments, we also have the potential to receive $91 million in future aggregate milestones and payments, as well as tiered double-digit royalties on future sales. All of this strengthens our balance sheet, Our cash and cash equivalents, along with our forecasted revenues from net sales of Dextenza and Reshore Sealant, are projected to provide sufficient cash to fund our planned operations, debt service, and capital expenditures through 2023. Most importantly, we believe our balance sheet is now sufficient to fund each of our four clinical programs to and through key Phase II clinical trials, which we believe could mark an inflection point for us. Clearly, we are thrilled with our progress on all fronts, and we look forward to another productive year. With an update on where we are on these product candidates, I will hand it over to our President of Ophthalmology and Chief Medical Officer, Dr. Michael Goldstein.
spk13: Thanks, Anthony. Let me begin with an update on our back-of-the-eye program, OTX TKI. We continue to those subjects in a multi-center, open-label dose escalation Phase I clinical trial being conducted in Australia that is designed to assess the safety and tolerability of OTX TKI, as well as to assess preliminary biological activity in subjects by measuring anatomical and functional changes. Last month, we presented interim data from the study at the Angiogenesis, Exudation, and Degeneration 2021 virtual meeting, highlighting data from all three cohorts. The first three cohorts, cohort 1, 200 micrograms, cohort 2, 400 micrograms, and cohort 3A, 600 micrograms, have now been fully enrolled, while cohort 3B, 400 micrograms of OTX TKI used in combination with anti-VEGF induction therapy continue to enroll. We are seeing early signs of biological activity, including decreases in retinal fluid in some subjects as early as two months, following assertions in cohorts 2 and 3A. Additionally, we are seeing encouraging durability of six months or longer in all cohorts and durability out to 13 and a half months in one subject in cohort two. OTX TKI has generally been well tolerated with a favorable safety profile. No ocular serious adverse events, no subjects with elevated intraocular pressure, and no subjects needing steroids to treat ocular inflammation have been observed or reported to date. While the drug product profile is still emerging, we are pleased with the interim data and OTX TKI's potential to reduce intraretinal and or subretinal fluid. In terms of next steps, we now have an exploratory IND in place in the United States, and we plan to initiate a randomized controlled clinical trial starting in the middle of the year using a single 600-microgram OTX TKI implant along with anti-VEGF induction therapy. Moving to our glaucoma program, OTXT-IC, in January, we presented interim top-line data from the Phase I clinical trial at the Glaucoma360 New Horizons Forum. This study is a Phase I prospective multicenter open-label clinical trial enrolling subjects in the United States with primary open-angle glaucoma or ocular hypertension to evaluate the safety, biological activity, durability, and tolerability of OTXT-IC. Interim data from all four fully enrolled cohorts generally showed a mean reduction in intraocular pressure, or IOP, from baseline of 7 to 11 millimeters that is comparable to current standard of care topical Travafrost placed in the non-study eye. Onset of action is as early as two days after insertion. Interim results suggest durability of response consistent with decrease in eye pressure and out six to nine months in many subjects, with one subject's eye pressure controlled for over 21 months with a single implant. OTX TIC has generally been well tolerated and has been observed to have a favorable safety profile to date. We have not seen the implant move, and it has been observed to bioresorb in five to seven months in cohorts one and two, and in three to five months in cohorts three and four. We have seen no clinically meaningful changes in corneal pachymetry or corneal endothelial cell counts over time. With the phase one study now fully enrolled, our attention turns to our planned phase two clinical trial, which we expect to initiate in the middle of 2021. We are also making significant progress in our ocular surface disease programs, which include product candidates for dry eye disease and allergic conjunctivitis. In dry eye, we have two programs. OTX-CSI, which is designed to increase tear production for the chronic treatment of patients with dry eye disease, and OTX-DED, which is designed to target the short-term treatment of the signs and symptoms of dry eye disease. OTX-CSI is an intracanalicular insert, which combines two modalities to treat dry eye patients. Local programmed release of cyclosporine for approximately three to four months to the ocular surface, along with punctal occlusion over the same time period. By releasing low doses of preservative-free cyclosporine over an extended duration of time, OTX-CFI has the potential to minimize what we believe are some of the biggest patient complaints about commercially available products for the chronic treatment of dry eye disease, namely, stinging and burning. We are very excited about the potential for this physician-administered, hands-free, and preservative-free option in helping dry eye patients receive the benefits of cyclosporine, but with potentially greater tolerability and desired for a more rapid onset of action compared to therapies currently available on the market. Following the successful completion of a Phase I clinical study, which we announced last quarter, we initiated a U.S.-based randomized masked Phase II multicenter clinical trial evaluating two different formulations of OTX-CSI compared with hydrogel vehicle insert in approximately 140 subjects will be followed for a period of 16 weeks. Endpoints in this study include tear production, as measured by the Shermer test, signs of dry eye disease, as measured by corneal fluorescein staining, and symptoms of dry eye disease, as measured by the visual analog scale eye dryness severity score and frequency score. Dosing and enrollment has been going well, and we are pleased to report that this study is progressing ahead of the initially planned schedule. We now expect top line data in the fourth quarter of 2021 ahead of the previous guidance of first half of 2022. Our second product candidate in dry eye, OTX-DED, is a low-dose intercanalicular insert of preservative-free dexamethasone. While it incorporates the same active drug as Dextenza, this is a new product candidate with a lower dose of dexamethasone and smaller insert size. Many dry eye patients experience episodic flares of their signs and symptoms, which we believe are likely related to inflammation. Topical steroids have long been used off-label for dry eye flares, and all commercially available topical steroids have preservatives, which can result in ocular surface toxicity. Chronic misuse of steroids may also lead to adverse events, such as elevated eye pressure or cataracts. OTX-DED potentially offers these patients the opportunity to be treated with a physician-administered, preservative-free, and hands-free steroid therapy. We recently announced that we have dosed our first patients in a U.S.-based, randomized, double-masked, vehicle-controlled, Phase II multicenter clinical trial evaluating two different formulations of OTX-DED compared with a hydrogel vehicle insert in approximately 150 subjects with dry disease. This trial is designed to assess the safety and efficacy of OTX-DED for the short-term treatment of signs and symptoms of dry disease by evaluating bulbar conjunctival hyperemia, eye dryness score and frequency using a visual analog scale, and total corneal fluorescein staining. We expect top-line data in the first half of 2022. Lastly, for dextenza for the treatment of ocular itching associated with allergic conjunctivitis, We submitted a supplemental NDA at the end of 2020 and have received a PDUFA target action date of October 18, 2021. Overall, we believe the data package highlights a compelling product profile targeting an unmet need that could potentially change the current standard of care for the physician-administered, preservative-free, hands-free therapy for these patients. This SNDA, if approved, would represent our first in-office indication for Dextenza. I would now like to turn the call back over to Donald to review our fourth quarter and year-end financial results.
spk11: Thanks, Mike. Gross product revenue net of discounts, rebates, and returns, which the company refers to as total net product revenue, was approximately $7.4 million for the three months ended December 31, 2020. reflecting a roughly 25% sequential increase over the third quarter of 2020 and a 226% increase over the fourth quarter of 2019. Net product revenue extends in the fourth quarter of 2020 with $6.9 million versus $5.4 million in the third quarter and reflects an approximate 28% sequential increase. Total net product revenue for the fourth quarter of 2020 also includes net product revenue of $0.5 million from brochure sealant. Overall, net product revenue for the year was $17.4 million versus $4.2 million for 2019 and primarily reflects a strong uptake in extensive sales during the second half of 2020. Research and development expenses for the fourth quarter were $7.6 million versus $10.1 million for the comparable period in 2019, and primarily reflected decrease in unallocated costs, driven largely by the reduction in force executed in the fourth quarter of 2019, and reduced clinical trial costs associated with the Phase III dextenza allergic conjunctivitis trial and the Phase III OTX-TP trial. offset by increases in the cost associated with the Phase 1 clinical trials of OTX TKI, OTX TIC, and OTX CSI, as well as the commencement of the Phase 2 clinical trial of OTX CSI. Overall, R&D expenses for the full year decreased $12.4 million to $28.7 million from $41.1 million in 2019. reflecting the decrease in unallocated costs and the trends in clinical trial expenses mentioned above. Selling and marketing expenses for the fourth quarter were $6.8 million, as compared to $7.1 million for the same quarter in 2019. The modest decrease relates to reduced consulting fees and travel-related costs, offset by increased personnel costs. Overall, selling and marketing expenses for the full year increased to $26.6 million from $24.5 million in 2019, driven primarily by increased personnel costs offset by reduced spending on consulting, conferences, and related expenses. Finally, general and administrative expenses were $6.6 million for the fourth quarter versus $5.6 million in the comparable quarter of 2019. The increase in expenses stemmed primarily from increased personnel costs and consulting fees. Overall, G&A expenses for the full year increased $0.8 million to $22.9 million from $22.1 million in 2019, again reflecting primarily increased personnel and consulting fees. With respect to financial results for the fourth quarter, the company reported a net loss of $85.6 million or a loss of $1.21 per share on a basic and diluted basis. This compares to a net loss of $26 million or a loss of 54 cents per share on a basic and diluted basis for the same period in 2019. As operating expenses were modestly down quarter over quarter, the significant increase in loss was driven almost exclusively by a non-cash charge of $69.5 million related to the change in the fair value of the derivative liability associated with the company's convertible notes. This change in fair value was due primarily to 172% increase in the company's common stock price during the fourth quarter of 2020. The net loss for the fourth quarter also includes $2.8 million in non-cash charges or stock-based compensation and depreciation compared to $2.6 million for the same quarter in 2019. Overall, the company reported a net loss of $155.6 million or a loss of $2.56 per share on a basic and diluted basis for the full year ended December 31, 2020, versus a net loss of $86.4 million or a loss of $1.91 per share on a basic and diluted basis in 2019. As of March 2nd, 2021, the company had 76.1 million shares outstanding. As of the full year ended December 31, 2020, we had $228.1 million in cash and cash equivalents versus $54.4 million at the end of 2019. These cash amounts exclude restricted cash of $1.8 million. The cash balance benefited during the fourth quarter from $161.7 million in net proceeds from two secondary equity offerings, one in October for $75.4 million of net proceeds, and one in December for $86.3 million in net proceeds. Fourth quarter cash also benefited from proceeds of $12 million in upfront payments from the recently announced licensing agreement with AFMED. For the full year ended December 31, 2020, cash balances benefited from total net proceeds from financing activities of $228 million, including a $48.3 million in net proceeds from a secondary offering in May, and $14.4 million in net proceeds from sales of common stock under our 2019 sales agreement or ATM earlier in the year. The May, October, and December equity offerings were executed at share prices of $5.50, $9.75, and $21.50, respectively. Based on our current plans and related estimates of anticipated cash inflows from Dextent and ReSure's product sales and cash outflows from operating expenses, we believe that existing cash and cash equivalents as of December 31, 2020, will enable the company to fund planned operating expenses, debt service obligations, and capital expenditure requirements through 2023. This cash guidance is, of course, subject to a number of assumptions, including those related to the severity and duration of the COVID-19 pandemic, the revenues and expenses associated with commercialization of Bextenda, and the pace of research and clinical development programs and other aspects of our business. This concludes my comments on the fourth quarter and year-end financial results, and I would like to turn the call back to Anthony for summary thoughts.
spk03: Thanks, Donald. So before opening up the call for questions, let me do a quick summary. With successful capital raises, a new licensing agreement, and momentum in Dextenza sales, we believe we have the resources to fully fund our four clinical stage pipeline assets through completion of their planned phase two programs in disease states within large ophthalmology markets estimated to account for over $20 billion in the aggregate in annual global sales. In wet AMD, The performance of OTX TKI in our phase one trial continues to support a product profile that could potentially set a new standard of care for durability. We plan to initiate a prospective randomized U.S.-based trial by the middle of 2021. In glaucoma, OTX TIC continues to support a product profile that could potentially set the standard of care for patient compliance. We plan to advance that program into a phase two clinical trial in the middle of 2021. In dry eye disease, we initiated two phase two clinical trials, one for OTX-CSI and one for OTX-DED. For OTX-CSI, we now expect top line data in the fourth quarter of this year. For OTX-DED, we expect top line data in the first half of 2022. Beyond dry eye disease, we submitted our SNDA for dextenza and allergic conjunctivitis in December 2020 and have a PDUFA target action date of October 18th, 2021. We look forward to a busy, productive 2021. And with that, I turn the call over for questions.
spk07: Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Damione with RJF. Your line is now open.
spk10: Hi. Congratulations on 2020 and the updates today. Thank you for taking the questions. So, I guess the first one for me would be going back to Michael's comments around the study for OTX TKI in the U.S. that's expected to start mid-year. Maybe you guys could just elaborate a little bit on the study design. just in terms of how you're thinking about what you want to get out of that first U.S. study and how does that set the stage for later stage studies. Obviously, another company in the space earlier this week just had data with a product that didn't seem to be a peer of yours or a competitor. That data looked horrendous. And, you know, I think the general consensus is it might not be a viable product for very specific reasons to them. But that said, you know, does that inform anything in terms of how you guys are thinking about later stage development? Or, you know, just kind of any thoughts around that would be appreciated. Thanks.
spk13: Hi, Dan. Thanks for the question. This is Michael Goldstein. So the study that you're referring to, the OTX TKI study, is the U.S. study that we're planning on starting mid-year this year. It's being conducted under the exploratory IND pathway. So we're looking to enroll 20 subjects with a three-to-one randomization and patients will either be randomized to receive the OTX TKI drug at a single implant of 600 micrograms, along with an anti-VEGF drug for induction. And that'll be compared to a Flibercept group that will receive a Flibercept every eight weeks. And we will follow those patients out, and we will be looking for changes in vision, and we will be looking at retinal anatomy using the OCT. Patients to get into that trial will have been patients previously treated, so they'll be wet AMD patients who will be started out in a dry state. And what we'll be looking for is can we maintain them in that dry state with the single implant of the 600 microgram, obviously looking at safety but also looking at durability of effect. You know, you had mentioned the other company. We believe that the data that you saw from that other company was really related to a different delivery system. And we believe that with our delivery system where the drug is delivered with a single implant into the vitreous, there really is not the opportunity to see the migration that was reported in that study. But obviously we'll be looking at safety in our study as well.
spk10: Great. And sorry, what's the duration of the study?
spk13: So we'll be following patients out to a year.
spk10: Okay. And just in terms of thinking about study design in later stages, you do have actually not a direct, you know, comp, but some of the gene therapy companies are starting to do later stage studies. Do you see any, you know, parallel in terms of how you would approach your studies at a later stage, or is it still kind of TBD to see what, you know, the result is from this exploratory study?
spk13: Yeah, I mean, I would say we haven't made final decisions for later stage studies, but there are a number of options on the table.
spk10: Okay, great.
spk13: I'll get back in the queue. Thank you.
spk10: Thanks, Dan. Thanks, Dan.
spk07: Thank you. Our next question comes from David Steinberg with Jefferies. Your line is now open.
spk04: Okay, thanks. I had a couple questions. First, yeah, in terms of your October PDUFA for or is it conjunctivitis? I know your reps aren't really calling on in the doctor office setting, but just curious, is there any off-label use you think right now in that indication? Secondly, do you have a sense of what percent of the business predicts vendors from Medicare patients versus commercial insurance? And then I have a couple other follow-up, thanks.
spk03: Yeah, I think we can answer both the questions from the same answer, which is that we have launched with an extraordinary focus on Medicare Part B patients in ASCs and hospitals. So that being said, we expect very little off-label usage for allergic conjunctivitis. Clearly, when we get the indication, we will start moving into the ophthalmology office environment, both in the surgical sphere and for ocular surface disease. But given our approach and given the idea that we really are advising the people that we go see not to paint outside the lines so they don't have bad experiences with the product from a reimbursement standpoint, the vast majority of our usage is in hospitals and in Medicare Part B. Got it.
spk04: And then just a couple of financial questions. So you received the $12 million upfront. but didn't book it on the P&L. What's the accounting treatment you're going to use for this up front? And then there are about 90 million plus in future aggregate milestones. Are you running the programs? Are they being run by AFMED? And when would the next tranche of payments from them hit the P&L?
spk11: Hey, David, it's Donald. Thanks for the question. So with regard to the accounting around it, you'll see the 12 million recorded as deferred revenue on the balance sheet. And when we begin to deliver either clinical and or commercial product, we will begin to ratchet that down and recognize the revenue in the future. And maybe I'll turn it over back to Anthony on the AFMEG question with regard to the UAS in addition to that.
spk03: Yeah, they will be dry. We handle the regulatory issues. issues within China, and they will be doing the clinical trials. So they're driving whatever clinical work may need to be done. I'm sorry, Patricia, you're on the line. I didn't realize. Do you have anything to add from a regulatory standpoint about how it works in China?
spk06: No, Anthony, so I think you've hit it spot on. So oculotherapeutics will actually be the holder for the MAH in China. So once we perform the submission and actually get positive feedback from the Chinese authorities, additional milestones will take place after then. Okay.
spk04: Thanks a lot.
spk07: Thank you. Our next question comes from Joe Catanzaro with Piper Sandler. Your line is now open.
spk05: Hey, guys. Thanks so much for taking my questions, and congrats on all the progress here. I'm wondering if I could follow up on the exploratory IND for TKI. I think you guys have previously spoken about the opportunity for that trial to potentially expand beyond the initial 20 patients. At what point do you think you could have that conversation with the FDA, and what triggers that? Is it just additional data from the ongoing phase one, or will you need some data from patients actually treated within the US trial.
spk06: So Joe, this is Patricia. Thank you for the question. So we do intend to have a meeting with the FDA to talk about the plans for transition from an exploratory IND to a traditional IND. There is data that we need to compile in order to be able to do this. So we're hoping to have additional information and a plan set later this year.
spk05: Okay, got it. And I'm wondering when we should expect the next update out of the Phase I trial for OTX TKI and what we should expect to see there versus what we saw back in February.
spk13: Hi, Joe. It's Mike again. So I think we've been pretty consistent that we would give data updates you know, when we had something meaningful to say, and the cadence has been about every three or four months. That said, you know, look for something around the ARVO meeting, which is in early May.
spk05: Okay, got it. If I could just squeeze one last one in on OTX CSI. Are there any expectations there that that phase two trial could potentially serve as one of the registrational studies and And is it powered like a Phase 3?
spk13: So, great question. It is not powered like a Phase 3. It's powered like a Phase 2 study. So, we're planning on enrolling approximately 140 subjects. If it was a Phase 3, the general size of that study is more like 500 patients. So... So that said, the primary endpoint here is looking at tier production in order to get regulatory approval. Generally, you need to show improvement in signs and symptoms in two adequate and well-controlled trials. One of the exceptions is that you can show an increased tier production of 10 millimeters in certain percentage of subjects greater than the vehicle control. And in such a case, you don't need to also show symptomatic data. So we would answer your question as it's possible that you could see a statistically significant improvement, but it's not powered to show that in this trial.
spk05: Okay, got it. That's really helpful. Thanks for taking my question.
spk00: Thank you.
spk07: Thank you. Our next question comes from John Wallaben with JMP Securities. Your line is now open.
spk12: Hey, good afternoon. Congrats on all the progress. P, backing up some of the OTX TKI questions, you mentioned that you're going to be moving to a single 600 milligram insert in the next study. And I was hoping you could kind of walk us through your thoughts on how that might change the observations you saw with three 200 milligram inserts in the current study.
spk13: Yeah, that's a great question. Thanks for asking, John. So as we've, in the current trial design, we have a 600-microgram group, which is cohort three. To do that, we actually use three 200-microgram implants that are all essentially administered at a similar time. But moving forward, including the U.S. trial, we're going to a single implant 600-microgram dose, and the primary driver for that was that that we think that's a better commercial product, obviously. Having one implant is better than three. But it turns out there's a secondary benefit, which is that by having a higher concentration of drug in the implant, there's a larger concentration gradient for the drug to diffuse out of. And that means that the release rate of the drug per day is actually higher. So going from the three 200-microgram implants to the single 600-microgram implant from a dose delivery per day perspective is a dose escalation. And I think, you know, that has a lot of potential upside for us.
spk12: That's interesting. And then I was hoping you could discuss the opportunity in allergic conjunctivitis and how you're thinking about it. Obviously, you're going to be changing the paradigm of treatment with Dixenza if available. So I was hoping you could talk about how you think about the opportunity and the incremental investment to realize that, and then as far as big picture, what it means for ocular therapeutics to move into the office setting.
spk03: I'll talk about the business side of it first, and then Mike, I guess, can talk about the medical aspects for it. Clearly, there's a massive population with urgent conductivitis and an even sort of large slice of that slice that seeks secondary medical attention for their allergic conjunctivitis. So there's a large bolus of patients out there, but we have to expect that there's going to be some reticence among payers to have widespread use of a product like Dextenza for the treatment of your garden variety allergic conjunctivitis patients. So the way we're planning on going about it at first is to go with the targets where we are already seeing physicians where there's a greater than 90% overlap for anterior segment surgeons and ophthalmologists who treat allergic conjunctivitis or refractory allergic conjunctivitis. So in that overlap, we will be in both the office and in the ASC and hospital environment with a portion of those physicians. So that won't require immediately an increase in our promotional expenses, but what we'll do in that environment is start building out platforms with payers where the allergic connectivitis will be reimbursed. The good news is that we've had discussions with payers, and it's important to note that the type of or the part of the bureaucracy that pays for a medical benefit is different than the part of the bureaucracy within payers that pay for Part D type products or pharmacy benefit products. And the payers who approve the medical benefits actually see very, very expensive drugs, sometimes upwards of $10,000, $15,000 per dose. So we haven't actually had pushback on the price, which we expect to be the same in the allergic conjunctivitis sector as it is in the hospital sector. but they do expect us to filter out patients so that appropriate patients with appropriate physicians will be getting allergic conductivitis. Once we get a foothold, we'll build out. And as we build out, we probably will need to add to our promotional resources in order to more broadly reach the office environment. But initially, we'll be looking at that Venn diagram confluence where we have both our surgical targets and the AC targets in the same practice. So I don't know, Mike, you want to add something to that?
spk13: That's a lot there. I'll just say, you know, clinically we do use steroids for allergic conjunctivitis in the office. It does work exceedingly well. We don't do it more commonly because of the risk of abuse, meaning patient gets it, it works well, they take it home, they keep using it, and you end up with some of the adverse events related to chronic use of steroids. So, you know, I think clinically, as you know, most of the current ocular allergy therapies, antihistamine, mast cell stabilizers, have now gone over the counter. So we think patients would be, you know, try those over the counter. If those weren't adequate, they'd come into the office. We'd ordinarily give them topical steroids, and that's where dextenzic could fit in. With the physician-administered approach that the patient couldn't reuse, It also has the extra advantage of being preservative-free, and there are no preservative-free commercially available steroids. So we think there's a pretty significant value proposition potentially here.
spk12: That's very helpful. Thanks again for taking the questions. Thanks, John. Thanks for asking.
spk07: Thank you. Our next question comes from Georgie Yordanov with Cowan & Company. Your line is now open.
spk09: Thank you so much for taking the questions, and congratulations on all the progress So I guess starting with a broader question, even with the next-generation anti-VEGFs such as Roches, Verisimab, and Kodiak, CSI301, up to 10%, 15%, even 20% of patients require very frequent injections once every month, once every other month. Do you anticipate that OTX-PKI could be actually used in combination or, I guess, in the background of such therapies? And then I have a couple more specific questions.
spk13: Yeah, it's a great question. We've seen a very strong safety profile to date, and if that holds up as we enroll more and more subjects and learn more about this drug, it gives us a lot of flexibility. One of the really nice things about the OTX TKI is it's administered in the office using the same techniques as we do with anti-VEGF therapy and does not displace much volume in the vitreous. All that means, you know, to your question is that if you get a great response with OTX TKI, that's great. If you needed to use anti-VEGF for some breakthrough, that wouldn't be a problem.
spk09: Got it. That's helpful. And then I guess a question on the cohort two subject, which you mentioned has demonstrated their validity up to 13 months. Do you know what is driving this response? Are you worried that the implant has not been fully degraded, and could this be an issue regarding re-dosing?
spk13: So another great question. So with a single implant, we see durability of about nine to ten and a half months. When we put in more than one implant, one of the effects I mentioned earlier is you know, applies, which is that one implant does have an effect on the other implant in its degradation. And we are seeing the implants last a little bit longer in some patients. And so that possibly could be an explanation. It could also be that, you know, once you've got a patient to a dry state, you've sort of eliminated, you know, the need for additional therapy for a period of time. So we need to see more patients. We need to see how that plays out. But again, as we go to a single implant, we really expect a durability of about nine to ten and a half months.
spk09: Got it. That is helpful. And then lastly, on the glaucoma program, what influenced your decision to perform a head-to-head against Durista rather than eye drops? And I guess the major commercial setback for Durista was that it wasn't indicated for re-dosing Based on your conversations with the FDA, what would you need to show for the label to allow redosing? And is that something you plan to kind of have with the initial NDA submission, obviously if everything is successful, or would that be a supplement sometime down the road?
spk13: Yeah, great question. So there's actually two active comparators in the Phase II trial. So subjects are randomized, as you said, to one of the two doses of OTX TIC or Durista in one eye, but the other eye will receive a topical prostaglandin. So you'll have both an eyedrop comparator as well as the Durista comparator in the trial. As you also note, their label is limited to a single implant. We believe that's related to effects on the corneal endothelium To date, with our single implant, we have not seen any meaningful changes in the corneal endothelium as measured by direct cell counts, functional measurements like the chemistry or direct observation with the slow lamp. So we're not in the phase two, but we will do repeat dosing, obviously, and we will have additional discussions with FDA to see what we need to show in order to be able to get repeat dosing.
spk09: Thank you so much, Dr. Goldstein. This has been super helpful. Thank you.
spk13: Thanks for the question.
spk07: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. Our next question comes from Anita Duchant with Barenberg Capital Market. Your line is now open.
spk08: Hi. Good afternoon. Congrats on the progress, and thank you for taking my questions. I just have a few here regarding the dry eye disease. candidates, both CSI and DED. Just wanted to know in terms of the design, I know CSI was probably designed to last for 12 weeks. Could you just remind us how the DED candidate is designed for the acute condition? And also in terms of the population size, Do we sort of expect the acute conditions patients to be sort of the same size as the chronic conditions? And also one more regarding the acute dry eye condition patients. Do you think there might be a pushback in terms of patients maybe being happy with the eye drops and not having to have an implant?
spk13: Okay, lots of questions there. So as you know, we have two dry eye programs. The one is OTX-CSI, which is really designed for the chronic treatment of dry eye disease with a cyclosporine product that lasts three to four months. And then OTX-DED, which is a low-dose dexamethasone designed to release dexamethasone for two to three weeks for the acute treatment of dry eye. I will say clinically there are We sort of think about dry eye as a chronic disease, but we also know that there are acute flares, and these are pretty common, you know, happening anywhere between one or two or three times a year for many dry eye patients. And for years, we've treated these drugs, these patients, with topical low-dose steroids off-label. As you know, there's now an approved product which has gone through the regulatory path, And it'll be interesting to see how that product plays out in this space. We think the opportunity for OTX-DED is that, you know, as I mentioned with Dextenza, similar things apply here. The risk of steroids is not that they won't work, that they do work. It's probably one of the most effective ways we can treat your AI. The risk is really with abuse with chronic therapy. And so by having a physician-administered product, It's in the physician's hands. The patient can't do repeat dosing. In addition, the steroid here also is delivered in a preservative-free fashion. We have two different formulations of the OTX-DED. One is designed to release for two weeks, and one is designed to release for three weeks. The other huge advantage of both products, both the CSI and the DED, is that the hydrogel component basically performs punctal occlusion. And one of the main treatments that we currently use for dry eye disease is to occlude the punctum with a punctal plug. So you're essentially getting the benefit with both of these products of a drug release and the punctal occlusion. So your question about will there be pushback? Yeah, there may be some pushback from some patients, but many, many of them will have been used to having punctal occlusion as part of their dry eye therapy. And so I think that it'll be, you know, those patients will obviously be very easy to accept.
spk08: Great. Thank you. That was helpful. And then just one more question just regarding the milestone payments that you will receive from AFL-Med. Sorry if I missed that. Is there a breakdown between milestones that would be received as part of the development versus the launch milestone? Is there something you could discuss?
spk03: Yeah, we laid out the details. Want to go ahead, Donald? Go ahead.
spk11: No, I think that was Patricia. Patricia, you can field that one.
spk03: Patricia, you go ahead. Sure.
spk06: Sure. So for the milestone payments, there are several milestone payments that have to do with regulatory approvals in the different markets. And then there are, for other programs, milestones for clinical development and the success and execution of clinical programs. So that's really where the different milestones lie, both regulatory as well as clinical milestones.
spk03: All in all, they're in excess of 90 milestones. in the significant royalties getting into the team.
spk08: That would be great. Thank you. That would be for me.
spk07: Thank you. Our next question comes from Yuchen with HC Wainwright. Your line is now open.
spk02: Thank you for taking my questions. My first question is, with respect to the 40% sequential growths in Dextenza available units, How much of it was driven by recovery of surgical volume and how much of it was driven by your accounts?
spk03: I think none of it was driven by recovery and surgical volume. The surgeries are still down. The latest data we've seen is that in 2020, there's probably about 3.2 million cataract surgeries performed. That's against an average of about 4.1. The data that we've seen now is projecting that in 2021, there will probably be about 5 million cataract surgeries to be performed. So the rebound is yet to happen. Clearly, we've seen certainly in January and February of this year a number of ASCs either slowing down or closing. Clearly, we're still experiencing double-digit growth in market. So the share gain has been accelerating, even though the total number of cataracts is still in a bit of a malaise, although we're starting to see the country wake up and starting to get some of those surgeries back now, but only really in March.
spk02: Okay. At what point would you consider providing some revenue guidance?
spk03: We're still in consideration. I mean, the concept should be that after the second quarter, that we will probably run out of excuses not to give guidance going forward, but we always reserve the right to not do that. Clearly, in this first quarter, I think is where we'll be, unless there's something that happens in COVID that's unforeseen, we would expect a normalization going forward, and then we should be able to give some guidance on what we see our quarterly net sales moving toward.
spk02: Got it. So, a question on OTXDED. Is Is the OTX-DED trial enrolling patients as fast as the OTX-CSI trial, and is there a chance to report the DED data by the end of 2021?
spk13: Hi, Yates. This is Mike again. So the OTX-CSI trial started enrolling patients in September, and the cadence has been faster than we expected, and that's why we were able to change guidance. OTX DED started enrolling patients last week, and, you know, so far things are going well, but I think it's too early for us to be able to change guidance on that. So right now we're saying first half of 2022. Obviously, if things enroll quickly the way OTX CSI did, there is the opportunity to move that earlier. And just to remind you, the CSI trial is four months, We follow patients for four months after they've been randomized. In the DED trial, it's a shorter trial. The primary endpoint's at two weeks, and we follow patients for two months after randomization. So it is a shorter trial. And so we will see. We will know much more over the next four to six weeks.
spk02: Got it. And my last question is with respect to OTX TKI. for that to become a commercially successful product. In your view, what's the lowest percentage of, what's the lowest number in terms of percentage of patients that remain rescue-free for at least six months?
spk13: Yeah, it's a complex, it's a simple question with a lot of nuance to it. You know, and the nuances around what does rescue mean, what does rescue mean with an extended release drug, and a number of other things. What I would say is our target, and we believe what would be a really exciting drug, is if half the patients get evidence of biological activity and can be sustained to six months or longer. So I think that's our target. I think there's a product that's shorter. But I think, and obviously if we see a higher response rate, that's even better. But I think if we can show half the patients after six months or longer, that becomes a really big product. Got it. Thank you.
spk07: Thank you. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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