Ocular Therapeutix, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Oxygen Therapeutics Third Quarter 2021 Earnings Conference Call. At this time, all participants are on a listening 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 Oxygen Therapeutics. Please go ahead, sir.

Thank you, Valerie. Good afternoon, everyone, and thank you for joining us on our Third Quarter 2021 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 ended September 30th, 2021. 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 President and Chief Executive Officer, who will provide a summary of our corporate developments and an update on the commercial progress of DexPenza. 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 third quarter before turning the call back over to Anthony for a summary and question. For Q&A, we'll be joined by Scott Corning, our Senior Vice President of Commercial, and Chris White, our Chief Business Officer. 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 format 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 quarterly report on form 10Q filed this afternoon with the SEC. I will now turn the call over to Anthony.

Thank you, Donald, and welcome everyone to Ocular Therapy's third quarter 2021 earnings report. At Ocular, we begin with the end in mind. We focus first on evaluating the size and dynamism of a disease state in ophthalmology and then determine the key unmet need in that space. Only then do we consider whether our platform technology enables us to build a therapeutic that can satisfy the key unmet need and become the standard of care. The products on our pipeline are pulled by the market need and enabled by our proprietary hydrogel technology. We believe that all of our development programs satisfy these requirements. The largest opportunity in wet AMD, where we believe our OTKI could become the therapeutic with the greatest durability on the market, to glaucoma, where OTI to TIC can solve the problem of patient compliance, to dry eye disease, where our goal is to improve safety and efficacy relative to current therapies, and finally, to the extent that we believe fulfills patient and physician desires to have a more convenient drop-free solution for the treatment of post-surgical inflammation and pain, and now also for itching associated with allergic conjunctivitis. Not only do the product candidates we develop target key unmet clinical needs in their respective spaces, We have designed them with product characteristics that we believe will lend themselves to more efficient commercialization. All of the therapeutics at Okta are designed to be medical benefit buy and build products with associated procedure codes. Products with these characteristics are optimized through an account selling approach, whereby the product is not only attractive to physicians and patients, but also to the sites of care that participate in utilization. Account selling structures can be more targeted than the reach and frequency models employed by companies that sell traditional pharmacy benefit medications. Xtensa has been proof of this principle, whereby we've been able to cover the entire US with a targeted commercial field force of less than 50 FTEs and have been able to achieve a positive product contribution within a very short period of time. Finally, as highly innovative and novel therapeutics, the product candidates we are developing have substantial intellectual property protection that are expected to maintain exclusivity well into the future. Patents underlying Xtenda are expected to expire in 2030 or later, and all of our development product candidates have patent applications that are expected to provide protection until 2040 and beyond. It all adds up to a portfolio of product candidates that we believe are highly differentiated clinically, that lend themselves to efficient commercialization, and that have the potential for long periods of exclusivity. As we highlight the events of the past quarter and preview the events to come, it is clear that we are entering a period of significant data and news flow that will shape our leadership position within ophthalmology. Let me begin with a few events from the past quarter, starting with extensive. We achieved $11.9 million in net sales to our distributors for the quarter, representing an approximately 120% increase over the same quarter last year and approximately 7% improvement over the second quarter of 2021. Like many other companies that sell into ASDs and HOPDs, Growth of extensa, particularly early in the third quarter, was impacted by the lower than expected elective procedures volumes. Looking forward, we are happy to see the market returning to a more normal flow of cataract procedures. In the most recent month of October, we enjoyed our second largest month ever with over 9,600 billable inserts sold to ASCs and HOPDs. The October result was particularly surprising for the first month of the quarter when we typically see a dip in in-market sales. We believe the October numbers belie a return to more normal market conditions and set Dextenza up for a strong fourth quarter. In October, we were also pleased to receive an early FDA approval of our SNDA expanding the use of Dextenza for the treatment of ocular itching associated with allergic conjunctivitis. This approval represents an important strategic milestone for the future of our pipeline. Itching associated with allergic conjunctivitis, like wet AMD, glaucoma, and VEDs, It's almost exclusively treated in the office environment, as opposed to the ASC and HOPD, where D'Extensa currently gets the vast majority of its use. Ocular's strategic goal is to expand our presence in ophthalmology and optometric offices by providing customers with numerous innovative buy-and-build products, including those developed internally and potentially those in license from other companies. The approval of this SMDA gives us the opportunity to take the first step in doing that. While the strategic potential of the office environment is enormous, it represents an almost entirely new space for us with a unique set of challenges and opportunities. We discovered at the launch of Xtensa that the primary barriers of entry were logistics associated with ASC and HOPD administration. We believe the product success in large part stems from our activities, which began at the product's launch and setting up those accounts so the physician's desire to use the product could be met with available product at the site of care. Setting up accounts in ophthalmology and ophthalmatic offices will be analogous, but with different drivers that require bespoke solutions. Dixenza will be the first ever buy-and-bill treatment for an ocular surface disease for use in the physician's office. We are used to being in uncharted areas, so we relish this opportunity. Fortunately, we're not starting from zero base. First of all, with our current call list, we are seeing specialists who treat the type of patients suffering from AC who we believe are eligible for Dixenza reimbursement. Secondly, the overall market is large, with over 10 million patients annually seeking treatment from a healthcare practitioner for relief of symptoms associated with HC. As a premium-priced drug that will likely be step-edited in its indication, it is important to start with a large cohort in order to select those patients for whom the benefits of Xtensa can be supported by payers. On the Xtensa reimbursement front, we believe that some of the uncertainty around pass-through payment status of code J1096 slated to expire on December 31, 2022, may have been lifted. On November 2, CMS announced its final rulemaking for 2022 and has indicated that the extenso will become eligible for separate payment in the ASC under the ASC payment system as a non-copiate pain management supply provision for calendar year 2023. We believe this is a significantly positive development as it is the first indication from CMS that the extenza may continue to get reimbursed separately once pass-through has expired, effectively extending the reimbursement horizon for this product in the surgical setting. At a time when we embark on a new dawn in the office environment with the treatment of itching-associated allergic conductivitis, it is encouraging that we can look to simultaneously evergreen our hard-won business in the surgical setting. With regard to the position fee for the procedure of inserting the extensa, CMS also announced that the former Category 3 code, CPT-0356P, will be replaced by a new Category 1 code, CPT-68841, effective January 1, 2022. Payments under the new code will be approximately $31 in the ASC and HOPD and $37 in the office setting. We are excited that the procedure code has been elevated to a Category 1 status will be better recognized and reimbursed across all payer types. We also will continue researching additional coding strategies and working with interested bodies in order to improve these payment amounts in the future. Clearly, an ocular is in our DNA to do things that have never been done before. The benefit of blazing new trails is that we can create new medicines that have the potential to make real differences to patients. The downside is the reality that not everything is going to work the first time we try it. The results of our phase 2 trial for OTX-DSI in October is case in point. We are not aware of any company attempting to deliver a constant dose of cyclosporine to the ocular surface while including cannula. The need is clear. Data suggests drop therapies are painful and irritating to eyes that are already in pain and they take months to work. Delivering a constant dose of cyclosporine from a hydrogel depot at concentrations low enough to avoid irritation but high enough for cyclosporine to exert its anti-inflammatory effect is a challenge. Occluding the punctum with an intercanelicular insert immediately slows the loss of tear film so the patient should begin to see relief promptly. We believe that OTX-DSI has the potential to be the perfect combination for the millions of people suffering from dry eye disease. While the concept is clear, our phase two trial with OTX-DSI, our cyclosporine-contained intercanelicular insert, failed to separate from our hydrogel placebo on the primary endpoint, increased tear production at 12 weeks as measured by Shermer's test. While this is disappointing, particularly for the patients who could have benefited from this product, it is important to keep this outcome in context. Since what we do has never been done before, we can't rely on the failures and successes of others to mitigate all of our risks. Why did we fail? We don't yet know for certain. What is important as a highly innovative company is that we learn from our setbacks. As we receive and then sort through the patient-level data over the next couple of months, we hope to find the likely cause. There are potential causes that we can fix, such as the improvement of insert retention or delivery of a higher dose of cyclosporine to the ocular surface. There are also potential causes that might lie in the basic concept that delivering cyclosporine at a steady state from an occluded punctum can actually be efficacious. Our decision on whether or not to move forward with OTCSI will be based upon data from this effort. Regardless, it's important to note that every therapeutic we create is unique, and that the read-through from results from one program to another is very limited. Thankfully, we're not only innovative, but also prolific. It extends as a brand-new indication, has brand-new indications of treatment of itching-associated allergic conductivitis. The Phase II readout for OTF-DED is coming soon. A Phase II clinical trial for OTF-TIC should initiate before year-end. Last but not least, OTX TKI has begun a phase one trial in the U.S. that is rolling on schedule, and of course, we have many pilot projects waiting for their opportunity to make a difference in the world. I can't thank the team enough for their innovation and execution on the OTX CSI program. We sought to improve the lives of patients suffering from a truly debilitating disease, and we're not going to stop. Before turning to Mike to speak more in depth about our pipeline, I would like to welcome two new members of the ocular team, In September, we announced the appointment of Merrilee Raines to our board. Merrilee is an experienced board member who will bring to Ocular a wealth of operational, financial, and business experience. We also brought in our technical operations team with the addition of our new Senior Vice President of Technical Operations and Quality, Karen Leigh Edwards. Karen Leigh has over 20 years of experience at Blue Chip Companies, building and implementing high-performance, global, enterprise-wide technical operations and lifecycle management strategies. Her added presence will further support our ambitious growth strategy. Also in the quarter, Chris White was promoted into the role of Chief Business Officer. Chris has 30 years of experience in large pharma, consulting, and biotech, and makes him an ideal candidate to contribute more broadly across the business. With that, I would now like to hand the call over to our President of Ophthalmology and Chief Medical Officer, Dr. Michael Goldstein, who will provide an in-depth look at our pipeline.