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Edited Transcript of OCUL earnings conference call or presentation 7-Aug-19 8:30pm GMT

Q2 2019 Ocular Therapeutix Inc Earnings Call

Bedford Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Ocular Therapeutix Inc earnings conference call or presentation Wednesday, August 7, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Antony Mattessich

Ocular Therapeutix, Inc. - President, CEO & Director

* Donald Notman

Ocular Therapeutix, Inc. - CFO

* Michael H. Goldstein

Ocular Therapeutix, Inc. - Chief Medical Officer

* Scott Corning

Ocular Therapeutix, Inc. - SVP of Commercial

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Conference Call Participants

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* Charles A. Frantzreb

Piper Jaffray Companies, Research Division - Research Analyst

* Yi Chen

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Ocular Therapeutix second quarter earnings conference call. (Operator Instructions)

It is now my pleasure to turn the call over to Donald Notman, Chief Financial Officer of Ocular Therapeutix. Please go ahead, sir.

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Donald Notman, Ocular Therapeutix, Inc. - CFO [2]

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Thank you, operator. Good afternoon, everyone, and thank you for joining us on our second quarter 2019 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 June 30, 2019. The press release can be accessed on the investors portion of our website at investors.ocutx.com.

Leading the call today will be Antony Mattessich, our President and Chief Executive Officer, who will provide a summary of our corporate developments. Also speaking on the call today will be Scott Corning, our Senior Vice President, Commercial, to update everyone on the DEXTENZA commercial launch; and Dr. Michael Goldstein, our 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 second quarter 2019 before turning the call back over to Antony for a summary and questions.

As a reminder, during today's call, we will be making certain forward-looking statements. Various remarks that we make during this call about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent quarterly report on Form 10-Q, which was filed with the SEC this afternoon, August 7, 2019.

In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in future, we specifically disclaim any obligation to do so, except as we are required to do so by law, even if our views change.

I will now turn the call over to Antony.

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Antony Mattessich, Ocular Therapeutix, Inc. - President, CEO & Director [3]

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Thanks, Don. This has been a very productive quarter for Ocular. Clearly, the highlight has been the start of our commercial launch of DEXTENZA, which marks the transition of Ocular into a fully integrated commercial stage biopharma company. We are pleased to tell you that DEXTENZA is in full rollout. Commercial product is now at the distributors. Our field force is trained and has been calling on accounts since May. Our DEXTENZA [day] sampling program has been well received by patients, surgeons and their staff, and the migration to commercial supply has begun. We believe that we have put ourselves in the best position for a successful launch.

Two key events took place in the quarter that support DEXTENZA launch. One, the early FDA approval of our sNDA that broadens DEXTENZA's label to include the treatment of post-surgical inflammation and pain; and two, CMS' issuance of a C code or transitional pass-through payment status, which enables DEXTENZA reimbursement for patients covered under Medicare Part B.

After the quarter ended, CMS issued our unique and permanent HCPCS J-code to become active on October 1 of this year. It is important to note that for DEXTENZA, the J-code is of particular importance given our value proposition. DEXTENZA, unlike most products with pass-through payment status, is not only deployed inter-operatively, but can also be utilized in the office setting. We've had a significant number of physicians who have expressed interest in using DEXTENZA in the office setting, so that patients can enjoy the benefits of dropless steroid treatment, while the time in surgery is fully optimized. With the J-code in place, DEXTENZA can more easily deliver on this inherent flexibility.

For those who may be new to the Ocular story DEXTENZA is a bioresorbable intracanalicular insert that delivers 0.4 milligram dose of preservative-free dexamethasone for up to 30 days. DEXTENZA is approved for the treatment of post-surgical inflammation and pain. The product is the first of a novel dosage form and route of administration and has the potential to become a transformative product for both patients and physicians. For patients, DEXTENZA will offer the convenience of a full course of steroid treatment in single preservative-free insert. This means our delivery can replace a complex eye-drop regimen and under the current standard of care can require up to 70 topical ocular steroid drops in aggregate, delivered over a full month. For physicians, DEXTENZA puts control of the postsurgical steroid regimen back in their hands by mitigating the risk of patient noncompliance.

The market opportunity for DEXTENZA is substantial. In the U.S. alone, there are approximately 8 million ocular steroid prescriptions written each year. Our eventual goal is to compete for all of them. DEXTENZA is a better way of delivering the steroid to surface of the eye and through our life cycle management programs, we intend to demonstrate that over time. Given our current labeling and reimbursement focused on surgery, our initial commercial efforts are focused on the 2 million cataract procedures performed annually under Medicare Part B. It is also important to note that insertion of DEXTENZA or any other future drug-eluting intracanalicular insert is associated with the CPT procedure code 0356T. The expectation is to establish usage of this code and to gain more reliable payment over time.

Our launch strategy, which Scott Corning, our Senior Vice President, Commercial, will go into more depth on shortly, is designed to maximize the positive early experiences with DEXTENZA, both clinically and administratively. In the early stages, our key determinant of success will not be the number of surgeons or ambulatory surgery centers that use DEXTENZA, but how many make DEXTENZA part of their continuing cataract protocol. I've personally observed surgery at a number of ASCs since launch and encouraged by the patient, surgeon and staff enthusiasm for the product, making DEXTENZA part of a standard surgical protocol requires that we surround the customer with the proper support and services and that we build deep and trusting relationships.

While the launch of DEXTENZA will clearly be the near-term value driver for Ocular, it is important to remind everyone about our robust pipeline. Dr. Michael Goldstein, our CMO, will provide an update later in this call.

Finally, as we talk about all the good news associated with the launch of DEXTENZA and the development of our pipeline, we continue to build a top-notch organization. In this quarter, we announced 2 important senior management hires, Patricia Kitchen as Chief Operations Officer to oversee our manufacturing and quality programs; and Chris White, to head up our business and corporate development efforts. We are excited and encouraged that Ocular is able to attract people with the caliber of Patricia and Chris, it speaks volumes for the team, the culture and the potential of the platform.

With that introduction, I'd like to turn the call over to Scott Corning, our Senior Vice President, Commercial, for more of our commercial launch of DEXTENZA.

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Scott Corning, Ocular Therapeutix, Inc. - SVP of Commercial [4]

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Thanks, Antony. As we've announced on prior quarterly calls, we made the decision to launch DEXTENZA ourselves in the U.S. market with a direct sales force. Going direct is an important aspect of our commercialization strategy based on our strong belief that this specialized sale, essentially, the surgical sale of a pharmaceutical product is a unique proposition best executed by a key account team with deep experience in ophthalmology, selling buy-and-bill products and who are able to navigate the complexities of account-based selling.

Today, we have in place, a team of 21 key account managers that we refer to as KAMs, who are supported by 5 field reimbursement managers and 5 medical science liaisons, all of whom are trained and in the field today, actively calling on and assisting accounts with DEXTENZA.

We have a simple philosophy within the commercial team that I think captures our approach. Early on in the launch, we want to identify and then invest the time at the right accounts across the multiple stakeholders at these accounts, both office and ASC in order to get customers, both clinically and reimbursement ready. This will enable them to adopt DEXTENZA into their practices successfully. We believe this holistic approach will ensure long-term success.

Within these high volume centers, our KAMs have begun to execute a focused sampling program that we refer to as DEXTENZA Days. These sessions involve discussing best practices with a surgeon and his or her team and then trialing the product through a number of cataract surgeries. With this hands-on and personalized approach, surgeons become comfortable with the insertion procedure as they glean best practices from both a clinical and reimbursement standpoint. The goal is to ensure that both patients and surgeons have a positive experience. Patients are comfortable and pleased with the overall surgery, while surgeons are able to optimize process and insertion technique. To date, almost 3,000 patients have been treated by well over 200 surgeons in targeted geographies around the country.

What we are observing is that surgeons seem to get comfortable with the product quickly, whether it be comments back from a physician about the ease of preparation and insertion, quiet eyes or clean ocular surface at the post-op visits or comments from co-managing optometrist excited about the outcomes. Overall feedback has been positive.

We understand that for a new product with a new reimbursement pathway, we need to provide comprehensive reimbursement support for patients, surgeons and surgery centers. As a result, we have established our reimbursement services hub called DEXTENZA 360. With this, we have taken a similar high-touch approach to billing and reimbursement that we have applied to introducing DEXTENZA to surgeons and their staffs. Our objective is to work closely with surgery center administrators and billing staff to ensure they are informed on the proper coding coverage and reimbursement of DEXTENZA. This should facilitate successful billing of not only the product with our C code, but also best position the surgeon for reimbursement of the procedure with our unique CPT code.

In addition, as Antony mentioned in his opening remarks, we have also received our J-code, which becomes effective October 1. The J-code will enable reimbursement in the office setting as well as in the surgical centers, providing increased flexibility to physicians on how they use the product. The J-code also allows for more convenient and simplified reimbursement, because J-codes are more widely recognized by commercial insurance, Medicare Advantage as well as Medicare Part B. Simply put, the permanent J-code will further enhance patient access to DEXTENZA.

So while early in the launch, we are pleased with the initial reception DEXTENZA is receiving, and our strategy of establishing clinical and reimbursement readiness across multiple stakeholders, account by account, it is generating positive momentum in the market. We look forward to providing additional updates on the launch of DEXTENZA in the future.

And I would now like to turn the call over to Michael Goldstein, our Chief Medical Officer, to discuss progress on our pipeline.

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Michael H. Goldstein, Ocular Therapeutix, Inc. - Chief Medical Officer [5]

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Thanks, Scott. As you've heard from Antony and Scott, we are thrilled with the recent commercial launch of DEXTENZA. DEXTENZA truly represents a franchise opportunity for the company, with multiple lifecycle expansion opportunities and other indications for a product profile like DEXTENZA has the potential to change the standard of care. We have initiated an 80-subject pivotal Phase III trial in allergic conjunctivitis. If successful, we believe this trial will be part of an FDA submission to expand the potential indication of DEXTENZA to include nonsurgical indications.

We are also planning to start a clinical trial evaluating the use of DEXTENZA in pediatric subjects 0 to 3 years of age, early in the fourth quarter of this year. In addition, we have received great interest from the ophthalmic and optometric communities in conducting investigator-initiated trials and are starting several of these trials this year.

Moving to our pipeline. We remain very much focused on glaucoma. Glaucoma is a large market and a disease that impacts an estimated 2.7 million people in the United States. The primary goal of glaucoma treatment is to slow the progression of this chronic disease by reducing intraocular pressure. Many different types of eye drops are approved to accomplish this. However, given the current eye drop administration, adherence to current topical glaucoma therapies is particularly poor, with reported rates of nonadherence ranging from 30% to 80%. This low compliance rates may be associated with disease progression and loss of vision, and may be part of the reason that glaucoma is a significant cause of blindness in people over 60 years of age.

Prostaglandins are the most commonly used class of medications to treat patients with glaucoma. The products that we are developing are designed to address the issue of compliance by delivering a prostaglandin analog formulated with our programs release hydrogel to lower intraocular pressure for several months within a single insert. In May of this year, we announced top line results from our first Phase III trial of OTX-TP for the treatment of glaucoma. While top line results did not achieve the primary endpoint, we are encouraged by the results, which showed statistically significant superiority introduction of intraocular pressure for subjects receiving OTX-TP inserts compared to placebo at 8 of 9 diurnal time points. The trial demonstrated OTX-TP's ability to lower intraocular pressure out to 12 weeks with a single insert using this novel dosage form.

When weighing the efficacy seen in the trial with the durability and significantly higher rates of compliance with OTX-TP relative to current standard of care, we continue to believe this product candidate represents a new opportunity for treating glaucoma patients that can overcome the burden of taking eye drops. We plan to meet with the FDA later this year to discuss these results and then determine appropriate steps forward.

OTX-TIC is our second clinical stage glaucoma program. The product is a bioresorbable travoprost containing hydrogel implant, delivered via an intracameral injection designed to deliver a higher level of IOP reduction. We continue to enroll patients in a Phase I, prospective, multicenter, open-label, dose escalation clinical trial to evaluate the safety, efficacy, durability and tolerability of OTX-TIC. As this is an open-label trial, we are able to assess early biological activity and safety, and we continue to be encouraged by the recent data. With data on 1 patient now out to 13 months, showing the ability to lower IOP with a single insert equivalent of daily administration of a travoprost drop, we're excited about the potential for OTX-TIC. In addition, the hydrogel as designed, has consistently biodegraded in approximately 6 to 7 months. The safety profile of OTX-TIC is being established. And while there were no adverse changes to the cornea, as measured by endothelial cell evaluation and corneal pachymetry, we did see several subjects with low-grade inflammation and peripheral anterior synechiae. We have developed 2 new formulations of OTX-TIC and expect to start evaluating these formulations in the clinical trial in the near future.

Moving to the back of the eye, we continue to dose subjects in a multicenter, open-label Phase I clinical trial for OTX-TKI. OTX-TKI is a bioresorbable hydrogel fiber implant with antiangiogenic properties delivered by intravitreal injection being developed to treat patients with wet age-related macular degeneration and other retinal diseases. We believe OTX-TKI carries the potential of being a next-generation treatment for wet age-related macular degeneration giving us ability to act upstream of VEGF and therefore, may have broader antiangiogenic properties. Preclinical data have demonstrated the ability to deliver an efficacious dose of TKI to the posterior segment of the eye for the treatment of VEGF-induced retinal leakage for an extended duration of up to 12 months with a single injection.

The Phase I trial is testing the safety, durability and tolerability of OTX-TKI and evaluating biological activity by following visual acuity over time and measuring retinal thickness using standard optical coherence tomography. The first cohort of subjects showed no safety concerns. After meeting with the data safety and monitoring committee, we have moved to the second higher dose cohort and expect to dose our first subject in this cohort in the upcoming weeks.

I would now like to turn the call back over to Donald, who will review our second quarter ended June 30, 2019 financial results.

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Donald Notman, Ocular Therapeutix, Inc. - CFO [6]

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Thanks, Michael. Let me begin by summarizing our capitalization. As of the quarter ended June 30, 2019, we had $61.8 million in cash and cash equivalents versus $76.3 million at the end of the first quarter. These cash amounts exclude $6.8 million and $6.6 million, respectively, of restricted cash, as previously required by our existing senior debt facility and letters of credit for our property leases. The cash balance benefited during the second quarter from $5 million in net proceeds, generated from the sale of common stock, under the company's 2019 sales agreement or ATM, under which the company may offer and sell as common stock having an aggregate proceeds of up to $50 million from time to time. Offsetting the ATM inflows during the quarter, we had net losses of $24.5 million, of which $4.9 million were noncash expenses and capital equipment investments of $1.2 million.

As disclosed in this afternoon's 10-Q filing and subsequent to the close of the second quarter, we have raised an additional $14.8 million in net proceeds under the ATM. In addition, the company has also entered into an amendment with the lenders of its $25 million term loan facility to eliminate the liquidity covenant requiring that the company maintain $5 million in a restricted cash account. The net impact is in cash and cash equivalents has increased nearly $20 million since the end of the second quarter. Based on our current plans and forecasted expenses, we believe that existing cash and cash equivalents will now fund operating expenses, debt service obligations and capital expenditures into the third quarter of 2020, providing an additional quarter of cash runway since we last reported. This is, of course, subject to a number of assumptions related to the revenue and expenses associated with the commercialization of DEXTENZA as well as the pace of our research and clinical development programs and other aspects of our business.

Research and development expenses for the second quarter were $9.4 million versus $8.7 million for the comparable period in 2018 and reflect an increase in unallocated costs, primarily costs associated with our pipeline programs as well as preclinical programs.

Selling and marketing expenses for the second quarter were $7.2 million as compared to $0.9 million for the same quarter in 2018. This increase relates almost entirely to preparations for the commercial launch of DEXTENZA, driven primarily by the hiring of new members of the commercialization team, including KAMs, field reimbursement managers and medical science liaisons as well as increased spending on consulting, trade shows, conferences and related costs.

Finally, general and administrative expenses were $5.1 million for the second quarter versus $4.4 million in the comparable quarter of 2018. The increase in expenses for the second quarter stemmed primarily from increased personnel, professional and facility fees.

Net revenues for the second quarter totaled $0.6 million in the aggregate and included both ReSure and DEXTENZA revenues. The aggregate revenues of $0.6 million in the second quarter compared to $0.6 million in the same quarter in 2018. As noted in the past, we are not currently providing promotional support to ReSure and we do not expect product revenues to be material in 2019.

With respect to the financial results for the second quarter, we reported a net loss of $24.5 million or a loss of $0.57 per share on a basic and diluted basis. This compares to a net loss of $13.8 million or a loss of $0.37 per share on a basic and diluted basis for the same period in 2018. The net loss for the second quarter included $2.3 million in noncash charges for stock-based compensation and depreciation compared to $2.4 million for the same quarter in 2018. The company had approximately 47.2 million shares issued and outstanding as of August 5, 2019. This concludes my comments on our second quarter financial results.

And I would like to turn the call back to Antony, for some summary thoughts.

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Antony Mattessich, Ocular Therapeutix, Inc. - President, CEO & Director [7]

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Thanks, Donald. So before opening up the call for questions, let me do a quick summary.

DEXTENZA is in full launch mode with positive initial feedback. We received our DEXTENZA label extension to include treatment of post-surgical inflammation, a quarter earlier than we expected. We are currently the only dropless product indicated for treatment of both postsurgical inflammation and pain.

We received confirmation that our J-code becomes effective on October 1 this year, also a full quarter earlier than we had expected. This is particularly important for DEXTENZA, since we anticipate use in the ophthalmology office will become a major driver of our success in commercialization.

Our pipeline continues to advance in dropless glaucoma treatment with the scheduling of a meeting with the FDA on the path forward for OTX-TP. With OTX-TIC, we now have one patient treated after 13 months with continued biological effect on a single dose. Our back of the eye pipeline is also advancing, and we are now moving to our second cohort in our Phase I trial with OTX-TKI and wet AMD. Through stringent financial control and opportunistic use of the ATM, we have extended our runway and now believe that we have cash and cash equivalents, sufficient to get us into the third quarter of 2020 based on current plans.

With that, I'll turn the call over for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Joe Catanzaro with Jefferies.

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Charles A. Frantzreb, Piper Jaffray Companies, Research Division - Research Analyst [2]

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This is Charles Frantzreb on for Joe Catanzaro from Piper. Just looking for some additional commentary whether quantitative or qualitative on the DEXTENZA launch. I think you've said in the past, there's approximately 900 high-volume centers that you're prioritizing? So maybe if you could just provide some detail on how many of the centers you've had contact with and what's the pattern of ordering has been like at those centers.

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Antony Mattessich, Ocular Therapeutix, Inc. - President, CEO & Director [3]

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Yes, thanks for the question. I am going to turn it out to Scott for some further detail. But we're not going to go into sort of, very, sort of detailed numbers on the number of centers that we contacted. As we mentioned, we're actually not really looking at number of centers, we're looking at the depth. And we're actually incentivizing our field force not on initial orders, but actually on repeat orders. And we're in a situation now, we're actually very, very pleased that the number of repeat orders is getting close to about 50% of the number of ASCs that have made initial orders.

So I'd say, we're looking for depth, we're not looking for breadth yet. It is a very concentrated market, as you mentioned, so we're -- we don't need too many centers to really have us part of their protocol before we start getting into a cash flow positive position. We expect to be able, of course, to be able to hit all of those over a period of time. Certainly we have expanded our commercialization efforts. But I don't know, Scott, if you have anything else to add? You want to sort of chime in here?

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Scott Corning, Ocular Therapeutix, Inc. - SVP of Commercial [4]

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Yes, sure. This is Scott Corning. As reported, we have distributed, or in use has been over, well over 3,000 sample units, and that's among a concentrated base of over 200 surgeons. But that's at, as Antony pointed out, a small number of ASCs. So in going deep our intention is not to go to 1 surgeon per facility, but go to the high-volume facilities that have a number of surgeons there, due to the time invested at each one of these centers. So as we get further into the launch commercially, we'll be providing more numbers. But at this point, what I can say qualitatively is that people are very happy with the reception -- are receiving the product extremely well.

They're very excited to use it initially, and they find it easy to use and afterwards are excited to get on board. We've actually -- one thing we've been saying is go slow to go fast. And by that, we mean amidst all the excitement, we need to make sure that everyone is clinically and reimbursement-ready, before we want to go forward due to the time invested and the desire to get a repeat order. So we've been working hard in that way to set ourselves up for long-term success as we view this as very much a marathon, not a sprint.

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Charles A. Frantzreb, Piper Jaffray Companies, Research Division - Research Analyst [5]

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That's very helpful. And I do appreciate that you probably don't want to provide any specific quantitative metrics at this point. I want to ask about that 3,000 patient number you cited, and whether or not you could provide any qualitative commentary on what the split there is like between commercial product versus samples. And along the same line, if you would be able to provide any sort of commentary on free drug supply, maybe what the current level of free drug supply from the sampling program is? And whether or not do you expect that to be a meaningful percentage of total drug supply going forward?

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Antony Mattessich, Ocular Therapeutix, Inc. - President, CEO & Director [6]

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I'll jump in and take that upfront. I mean, it is -- the 3,000 samples that we talked about are indeed samples, not commercial products. We're not going to talk about how much commercial product we have in the market at this moment. But in terms of continuing supply. I mean, we have a sampling program, not a continued free supply program. So we have a limited number of samples that we provide per health care professional or per surgeon. And we -- once they reach that limit, then they have to use commercial product going forward. We are very, very concerned about remaining compliant within the OIG guidelines...

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Donald Notman, Ocular Therapeutix, Inc. - CFO [7]

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Charles, it's Donald Notman. I think we may have lost, Antony. He is actually remote today, as he is on vacation with his family, but I think, what he was going to finish off and say is that, we've been very disciplined about maintaining the sample count with each surgeon. So we are really truly compliant. And it is a reasonable number that we are providing the surgeons. It gives them enough to truly get comfortable. And I'd say, from a technique perspective, fairly expert with the product, but not so many that it would be kind of unreasonable from a commercial perspective.

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Scott Corning, Ocular Therapeutix, Inc. - SVP of Commercial [8]

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Yes. And this is Scott. I would add that we only were met with product availability in mid-May. And so through the rest of May and June, constituting the second quarter, we didn't yet have an active reimbursement code. So those were 100% samples in the quarter, and it's only been the last few weeks that we've had the opportunity to be in the commercial environment. So the majority of that number is samples.

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Operator [9]

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(Operator Instructions) Our next question comes from the line of Yi Chen with H.C. Wainwright.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [10]

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My first question is, after training, how much time does the doctor need to insert DEXTENZA?

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Donald Notman, Ocular Therapeutix, Inc. - CFO [11]

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Well, Scott, you want to field that?

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Scott Corning, Ocular Therapeutix, Inc. - SVP of Commercial [12]

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Yes. I mean, I think what you can do, you can -- I'll answer the question, but then I would invite you to go to YouTube, and you can see DEXTENZA videos. Starting with the preparation, which is nothing more than opening the package and having the surgeon pick the DEXTENZA insert from the styrofoam holder. The insertion itself literally takes a few seconds. Prior to that, we do ask them or suggest to them that they dilate the punctum. So that's several seconds as well. So very clearly, even in the very early going, it's been well under a minute. And I've seen it go from well under a minute to about half of that. And so what I'm referring to is 45 seconds down to 20. And that could include the dilation and then being past the forceps with the unit in it and then insertion of the DEXTENZA. But again, I would invite you to go to YouTube, as surgeons are posting their own videos.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [13]

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I will check it out. My second question is with C code or the J-code that's going to become effective. So the 2 million cataract procedures performed annually under Medicare Part B, have 100% or 100% covered in terms of the usage of DEXTENZA. Is that correct?

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Scott Corning, Ocular Therapeutix, Inc. - SVP of Commercial [14]

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That is correct. And that's why we're laser focused with the C code on Medicare Part B for cataract surgery. But I should note that our label is not limited to cataract surgery, but that's what we're targeting initially. But cataract surgeons also do glaucoma, refractive and corneal surgery. So that will trickle down from there.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [15]

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Okay. And so far, has any ASC being paid under the CPT code 0356T?

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Scott Corning, Ocular Therapeutix, Inc. - SVP of Commercial [16]

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Yes.

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Antony Mattessich, Ocular Therapeutix, Inc. - President, CEO & Director [17]

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Yes, I can jump in and say, we've had confirmation that of being paid. Obviously, it's a Category III code. So the payment is not universal and the amount is extremely variable. Our goal is over time to move this to a Category 1, where it will be ubiquitously paid, but also then at a lower level than what we've seen. But the good news is, we do see payments, and it is a very positive movement.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [18]

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Got it. And my next question is, starting from the third quarter when you report revenue from DEXTENZA. Is it going to be the revenue that you ship based on DEXTENZA, or you ship to the distributor? Or does the revenue truly reflect physician demand?

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Antony Mattessich, Ocular Therapeutix, Inc. - President, CEO & Director [19]

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We will report revenue to the distributor, to the specialty distributor just as a matter of, sort of, corporate reporting. What we choose to present in quarterly earnings may be different. So clearly, I'm unconcerned with how much product we ship to the distributor, I'm much more concerned with how much product actually makes its way to patients. So we'll work on metrics that makes sense for real demand rather than talk about what we're shipping into the distributor. Because I've certainly been in environments before where I've been burned by that and lulled into a false sense of security that product is doing well, when in fact, the most important thing, as we all know is that it actually is being used and paid for by patients and ASCs. So that's -- going forward, our official reporting will be one thing, but we'll work on a set of metrics that we'll report on a regular basis, once we have some rhythm in the uptick.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [20]

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Got it. And my last question is, how should we look at the gross margin and operating expenses starting from the third quarter?

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Antony Mattessich, Ocular Therapeutix, Inc. - President, CEO & Director [21]

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Our gross margin, as you know, we have not -- this is our own development. We have no significant royalty. And we have the products that go into making the raw materials that go into making DEXTENZA are not overly expensive. So we have a very healthy gross margin with this product? So you can assume that most of what we earn or a very significant portion of what you see in the revenue line is actually falling through in the gross margin line. In terms of expenses, you can see that from this quarter, we are at the first stage -- we feel like we can attack a fairly sizable portion of the market. The moving up -- the faster than we expected approval of the J-code may, in fact, have us accelerate some of our decisions about how we move, how we expand on our field force and our commercialization efforts, which could affect the amount of expenses that you see going down the line, but not in a dramatic fashion. So I pretty much take the quarter that you have and assume that's about what we're going to be doing going forward.

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Operator [22]

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And I'm not showing any further questions. So this does conclude the program. You may now all disconnect. Everyone, have a great day.