Ocular Therapeutix, Inc.

Good day, and thank you for standing by. Welcome to the Ocular Therapeutics third quarter 2022 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising you that your hand is raised. Due to time, you will only get one question and a follow-up. Please be advised that today's conference is being recorded. I would now like to hand it over our conference to your speaker today, Donald Notman, the CFO. Go ahead, Donald.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on our third quarter 2022 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 third quarter ended September 30, 2022. 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 an update on our pipeline developments and the commercial progress of Dextenza. Also speaking on the call today will be Dr. Rabia Austin, our Chief Medical Officer, and Dr. Peter Kaiser, our Chief Medical Advisor, Retina. Following their remarks, I will provide an overview of the financial highlights for the quarter before turning the call back over to Anthony for a summary and questions. For Q&A, we will also be joined by Chris White, our Chief Business 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 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 and our financial projections, 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 the most recent quarterly report filed this afternoon with the SEC and our annual report on Form 10-K filed on February 28th with the SEC. I will now turn the call over to Anthony.

Thanks, Donald. The highlight in the quarter for Ocular was the release of the seven-month interim results from our U.S.-based phase one trial for OTX TKI presented in the late breaker at the AAO annual meeting in September. With the release of the top line data and our intent to pursue this in both wet AMD and diabetic retinopathy, I believe we are establishing ourselves as a future leader in the back of the eye. Added to our established expertise in the front of the eye, I'm pleased to say that we continue to make significant strides building ocular therapeutics as a comprehensive strategic player in the ophthalmology space. As a reminder of the context for the US-based phase one trial of OTX-DKI, We had previously demonstrated in our Australia-based Phase I trial that we were able to deliver bespoke depot formulations of our proprietary hydrogel capable of resolving subretinal and or interretinal fluid. To do this, we treated uncontrolled patients with OTX TKI as monotherapy, meaning without the benefit of concomitant medication or induction therapy, and then observed OCT scans and noted clinically meaningful reductions in fluid and even complete resolution in some patients. We don't believe this has been shown previously with any other TKIs delivered individually, nor has it been attempted since. In addition to demonstrating that excitinib delivered through our hydrogel depots was potent enough to resolve fluid as monotherapy in some patients, we also observed a dose response. We continue to believe the potency of excitinib and its uptake in the retinal pigment epithelium, or RPE cells, are responsible for these observations. The next step was to take OTX TKI and test its durability in maintaining retinal thickness and BCVA in controlled wet AMD patients and in a setting with an active control group. Our recently reported interim results from our US-based phase one trial did just that with resounding success. I will let Robbie and Peter go over the particulars of the trial, but the takeaway is that we were able to demonstrate that 80% of patients reached the six-month time point without the need for rescue and 73% were able to go through seven months. Most importantly, both best corrected visual acuity as measured by EPDRS charts and retinal thickness as measured by OCT and TKI-related patients were comparable to the control arm of the once eight-weekly ILEA. It should also be noted that none of the rescue patients in the trial met the rescue criteria set forth in the clinical trial protocol. In addition to moving OTX TKI into a phase 2-3 trial for wet AMD in quarter three of 2023, We also plan to initiate a phase one trial in diabetic retinopathy in the first quarter of 2023. While I will let Peter elaborate on the opportunity in diabetic retinopathy and our new clinical development plans, I want to highlight that with the current data and depending on the outcome of phase one diabetic retinopathy trial and the follow-up meeting with the FDA, we believe that we may be in a position to enter a phase three pivotal in diabetic retinopathy in the first quarter of 2024. Finally, let me provide a few comments on our commercial business. In the third quarter, we reported next sales of DeXtensa of $11.9 million, essentially flat year over year and down approximately 2% sequentially quarter over quarter. Relative to the potential of the opportunity and our own expectations, this represents a disappointing result and is clearly unacceptable. We believe that there are three main reasons for DeXtensa's performance. The first is that our customers, ASCs and HOPDs, remain in a difficult situation. Since the pandemic, the majority of our customers have been chronically short of staff or recently restaffed with generally less experienced people than they had before the pandemic. Buy and build products like Dexvenza, while a huge advantage for the ASC and HOPD when administered appropriately, do require experienced back office staff and surgical staff to properly implement and administer. Understandably, in the current environment, ASCs and HOPDs are reluctant to add extra work and complexities. The second reason is that we are in a similar position as our customers in our own ability to maintain an experienced field-based team with minimal vacancies, which have been higher than we would have liked over the past few quarters. The final reason behind Xtensa's performance has to do with changes in the reimbursement landscape for the procedure code CPT68841. And it is clear that volume has been impacted due to the reduction in physician payment for the insertion of Xtensa when our procedure or CPT code was converted from a category three T code into a category one code effective January 1st, 2022. Most important going forward though is not about what has caused the slowdown, but how we plan to reignite growth. I'm happy to report the variable over which we believe we have the most control is the closest to being resolved. We are now nearly at full capacity in our field force with the team trained and in the field. Clearly it's not just about having vacancies filled, but also about focusing on a strategy of deepening involvement with our customers and helping them get beyond patients with Medicare Part B into Advantage plans and commercial payers. We've had tremendous improvements in coverage and reimbursement of late, and we need to get our customers comfortable giving more patients access to the benefits of Dextenza. The next two elements over which we believe we can have the most control are the value proposition for Dextenza and the procedure code 68841 associated with insertion. Last quarter, we began issuing an off-invoice discount that was well received by our customer base as it removed the most common objection voiced by our accounts. We also have implemented a number of strategies working with CMS in an effort to appropriately rebalance the value proposition for Dextenza and CPT 68841 in the future. While early in the implementation, we started the fourth quarter well, with October recording the strongest monthly in-market sales ever, nearing 11,500 billable units and eclipsing our previous record by more than 900 inserts. While we fully expect this growth to continue for the remainder of the fourth quarter and accelerate going forward, we do not believe that we will have a fourth quarter strong enough to reach our original guidance of $55 million to $60 million in net revenues. Consequently, we are adjusting guidance for full-year net revenues to between $48 million and $52 million, which represents a growth over prior year of between 10% and 20%. But that is a summary. Let me turn the call over to our Chief Medical Officer, Dr. Rabia Osman, to take you through the pipeline.