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Edited Transcript of OCUL earnings conference call or presentation 10-Mar-17 1:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Ocular Therapeutix Inc Earnings Call

Bedford Mar 10, 2017 (Thomson StreetEvents) -- Edited Transcript of Ocular Therapeutix Inc earnings conference call or presentation Friday, March 10, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brad Smith

Ocular Therapeutix, Inc. - CFO

* Amar Sawhney

Ocular Therapeutix, Inc. - President, CEO & Chairman

* Andy Hurley

Ocular Therapeutix, Inc. - CCO

* Jon Talamo

Ocular THerapeutix, Inc. - CMO

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Conference Call Participants

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* Ken Cacciatore

Cowen and Company - Analyst

* Donald Ellis

JMP Securities - Analyst

* Elemer Piros

Cantor Fitzgerald - Analyst

* Dane Leone

BTIG - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Ocular Therapeutix conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time.

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

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Brad Smith, Ocular Therapeutix, Inc. - CFO [2]

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Thanks, Sandra. Good morning everyone and thanks for joining us for our fourth quarter and year-end 2016 earnings and business update conference call. Earlier this morning 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 fourth quarter and the full year ended December 31, 2016.

The press release can be accessed on the investor portion of our website as investors.ocutx.com. Joining me on the call today will be Dr. Amar Sawhney, our President, Chief Executive Officer and Chairman, Dr. Jon Talamo our Chief Medical Officer, Andy Hurley, our Chief Commercial Officer and Eric Ankerud, our Senior Vice President of Regulatory Quality and Compliance. Amar, Jon and Andy will provide a summary of our most recent clinical and corporate developments with a particular focus on the status of our commercial preparation activities for DEXTENZA. I will then provide an overview of the financial highlights for the fourth quarter and full year 2016 and will summarize the debt financing that we closed earlier this week and our recent equity financing that we completed in January before we open up the call for 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 Act 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 factor section of our most recent quarterly report on form 10-Q which is on file with the SEC.

In addition, any forward-looking statements represent our views as of today only 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 the future, we specifically disclaim any obligation to do so even if our views change. I will now turn the call over to Dr. Amar Sawhney.

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Amar Sawhney, Ocular Therapeutix, Inc. - President, CEO & Chairman [3]

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Thank you, Brad and good morning everyone. Thank you for joining us. During today's call, we will discuss the significant progress we have made recently across our development programs as we seek to alter the landscape of ophthalmology with innovative drugs developed at our proprietary hydrogel-based drug delivery platform.

2017 is an important year for Ocular as we are nearing a potential FDA approval for our lead drug candidate DEXTENZA and approaching it's potential commercial launch enabling our transition into a fully integrated commercial stage revenue generating company. Before I review the status of our programs, I just want to take a step back and highlight why Ocular's approach is distinguished from others and ultimately, why it positions us for success.

Importantly, programs in our pipeline are not focused on new molecules or mechanisms of action. We are focused on utilizing approved drugs that already work well and need to improve the way they are delivered to the eye thereby enhancing the outcomes for both patients and physicians. Our platform enables us to diversify our program across different drug classes such as (inaudible). Diversify in terms of drug delivery location, such as the back of the eye, or the front of the eye. Diversify in terms of drug type from small molecules to large molecules. And diversify across delivery modalities from insertions to injections as well as duration of therapy from chronic to one time administrations.

Combined with laser, these aspects of our technology platform decrease risk and make our technology highly applicable across a broad spectrum of ophthalmology.

Simply put, there are fundamental limitations associated with the current standard of care for many opthalmic conditions ranging from lack of compliance to a increased chance of certain side effects. Using our proprietary hydrogel technology platform we aim to eliminate these potential limitations and improve both the patient experience and clinical outcomes.

Together, our programs started combined market opportunities of more than $11 billion in the United States alone. As I alluded to we have a July 19th PDUFA date fast approaching for our lead product candidate, DEXTENZA, for the treatment of post surgical ocular pain.

While surgical ocular pain is an important [understood] market opportunity according to market scope, approximately 3.9 million cataract cases and over 5.6 million total ocular surgeries were expected to be performed in the United States in 2016. Physicians currently prescribe topical corticosteroids as part of the standard post operative care regimen.

These eye drops are given in tapering regimens with several different doses per week and patients take these drops in addition to other eye drops as part of their post-operative standard of care, such as NSAID drops. The quality and complexity of post-operative eye drop regime creates compliance issues. DEXTENZA has the potential to remove approximately 70 eye drop administrations from the post-operative standard of care thereby potentially improving patient compliance and clinical outcomes.

If approved we believe DEXTENZA will serve as attractive alternative for steroid eye drops in this large market. Feedback from survey's from both physicians and patients has been extremely positive. Nearly 80% of physicians surveyed indicated that they would expect a product like DEXTENZA to become their standard of care. And 92% of patients who participated in clinical trials of DEXTENZA reported the highest level of overall product satisfaction.

As such, commercial preparation activities at Ocular are well under way. I will let Andy Hurley, our Chief Commercial Officer and Jon Talamo, our Chief Medical Officer, provide more granularity around the status and timeline of commercial launch plans and reimbursement groundwork for DEXTENZA in a few minutes.

With the recent successful read out from our third Phase III clinical trial with DEXTENZA for the treatment of post surgical ocular inflammation and pain, DEXTENZA has now been extensively studied in over 550 clinical trial participants. In our most recent Phase III clinical trial, DEXTENZA successfully met its two primary efficacy end points for information and pain. Achieving statistically significant differences between the treatment group and the placebo group for the absence of inflammatory cells on day 14 and absence of pain on day eight, respectively.

The degree of pain control we saw in the study was quite significant with nearly 80% of patients pain free at day eight. Secondary efficacy end points included differences in the absence of anterior chamber flare, absence of anterior chamber cells, and ocular pain. All of these secondary end points were met with statistical significance at all time points with the exception of the end point for absence of AC cells at day two. In fact, approximately 46% of patients in the DEXTENZA treatment group were shown to have an absence of AC flare as early as four days after insertion which we believe further provides support for the early onset anti-inflammatory effect of DEXTENZA.

In addition, we have now completed the full safety assessment for the Phase III trial and DEXTENZA continues to exhibit a favorable safety profile and has been very well tolerated in all clinical trials, regardless of indication.

We have about 21 presentations coming up at the upcoming ARVO and ASCRS meetings in May, and about ten of which will be focused on DEXTENZA. So there will be a lot of good data getting out there and the excitement in the clinical community is building.

We are pleased to now have clear visibility from the FDA in regards to our PDUFA date for the potential approval of DEXTENZA for the treatment of ocular pain occurring after opthalmic surgery and we look forward to working collaboratively with the FDA as we complete the review of our NDA submission.

Given the most recent Phase III trial results, and if DEXTENZA is approved for post surgical ocular pain on or before July 19th, PDUFA date, we intend to submit an NDA supplement for DEXTENZA to broaden it's label to include an indication for post surgical inflammation.

We believe DEXTENZA has a potential to become the first approved noninvasive extended release drug product that can provide a full post-operative course of therapy following cataract surgery with a single placement.

When we look at the full DEXTENZA Phase III data set for pain and inflammation and as we think about the positive feedback we have received from both patients and ophthalmologist's we are optimistic there will be a positive market reception for DEXTENZA.

As many of you know, as part our label expansion strategy DEXTENZA is also in Phase III clinical development for the treatment of allergy conjunctivitis. We are currently planning to initiate a non-significant risk study in the middle of 2017 to confirm the effect on efficacy of the placebo insert used in prior studies compared with the rapidly absorbing placebo insert.

Subject to favorable results from the study we plan to conduct an additional Phase III clinical trial to further evaluate DEXTENZA for the treatment of allergy conjunctivitis.

Our top priority right now is getting the approval of DEXTENZA for post surgical pain. We then plan to (inaudible) to our label expansion strategy which would include the potential submission of an [FNDA] for the allergy conjunctivitis indications pending favorable results from future trials in this indication.

Now, turning to OTX-TP, our extended release, travoprost, drug candidate. Enrollment continues at a strong pace for our first Phase III clinical trial with OTX-TP for the treatment of glaucoma and ocular hypertension. This US based prospective multi center randomized parallel arm placebo control study is expected to enroll approximately 550 patients with glaucoma or ocular hypertension across 50 clinical sites. The primary efficacy end point is statistically superior reduction of intraocular pressure from baseline with OTX-TP compared to placebo at three different diurnal time points. So, 8.00 AM, 10.00 AM and 4.00 PM. At intervals of two, six, and 12 weeks following insertion.

Just to reiterate, the Phase III study design does not include a timolol comparator or validation arm and does not have active or placebo eye drops administered in either arm. The comparator arm utilizes a non drug eluting hydrogel-based intracanalicular insert.

In accordance with FDA guidance requiring two Phase III clinical trials for potential NDA approval we expect to commence our second Phase III clinical trial with OTX-TP for the treatment of glaucoma and ocular hypertension in the second half of 2017. Glaucoma is a significant market opportunity and a key area of focus for us. According to IMS Health data there were 36 million prescriptions and sales of approximately $2.9 billion of drugs that (inaudible) the eye drops for the treatment of glaucoma in the United States in 2016.

Compliance is seen as the biggest issue with existing therapy for glaucoma and more than 50% of patients on topical prostaglandin analogs are not compliant with their therapy within the first six months of treatment. OTX-TP aims to address this issue directly by allowing patients who are either unable to administer their eye drops, forget to use their eye drops or incorrectly administer eye drop regimens to have a convenient way to manage their disease. A three months sustained therapy like OTX-TP could really be a game changer in this indication.

As many of you know there's also a need for higher level of intraocular pressure reduction for some patients who have moderate to severe glaucoma where, for example, seven to nine millimeters of [IOP] decrease is desirable. These patients are often placed on multiple drugs or combination drugs and/or undergo invasive surgery to achieve this level of effect. To this end we are developing in parallel to OTX-TP, an intracanalicular drug depot for the treatment of glaucoma.

OTX-TIC, our intracanalicular drug product candidate, is a bio -reservable travoprost containing hydrogel insert delivered by a fine needle injection into the anterior chamber of the eye with an initial target duration of drug release of three to four months. The clinical studies to date have demonstrated a good safety profile, clinically meaningful intraocular pressure lowering and favorable pharma (inaudible) in the (inaudible).

We expect to initiate a pilot human clinical trial outside the United States in the second half of 2017 to assess safety and obtain initial efficacy data. The study is expected to be a prospective single center, randomized, double masked, sham controlled clinical study to evaluate the safety efficacy and probability of OTX-TIC compared to travoprost eye drops in up to 20 patients with open angle glaucoma or ocular hypertension. If the results from the study are promising we plan to advance to a Phase II clinical development program in the United States.

We also continue to advance our sustained release delivery depots for intravitreal injections aiming to address many serious back of the eye conditions such as wetAMD, RVO, and DME. As many of you are aware we are collaborating with Regeneron on the development of a sustained release formulation of the VEGF trap, aflibercept, as well as other protein based biologics tolerating VEGF for the treatment of serious retinal diseases as wetAMD and DME. Regeneron's aflibercept is currently approved by the FDA for certain indications, including wetAMD under the brand name EYLEA and is one of the largest selling, if not the largest selling, drug in ophthalmology.

This program continues to advance into late stage pre-clinical testing. We believe that a four to six month sustained release formulation has the potential to advance the current standard of care in wetAMD and other retinal diseases by significantly decreasing the current frequently of injections for these diseases.

Over the past several months we have also made substantial progress on the development of our tyrosine-kinase inhibitor, or TKI intracanalicular depots. We continue to produce promising data on pharmacokinetics, pharmacokinetics and tolerability and our plan is to continue into our development of a sustained release TKI depot which we believe will also enter human clinical trials in the second half of this year.

With that, I will now turn the call over to Andy who will walk through our commercialization preparation activities and associated timelines for DEXTENZA.

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Andy Hurley, Ocular Therapeutix, Inc. - CCO [4]

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Thanks, Amar. For those of you who don't know me I recently joined Ocular as Chief Commercial Officer in October of last year.

According to US Census data, by the year 2020 it is estimated that the number of Americans diagnosed with cataracts is expected to rise to approximately 30 million representing a substantial increase over current prevalence estimates.

Given these numbers it is not surprising that cataract removal is the most commonly performed surgical procedure in the US and Medicare eligible population. We are currently working to address the unmet needs in the ophthalmology marketplace by building a unique commercial model that is comprised of a specialty sales force as well as a dedicated field team that is solely focused on supporting the office staff to help them properly navigate the reimbursement process for DEXTENZA.

As we have previously stated, if the FDA grants marketing approval for DEXTENZA for the treatment of ocular pain occurring after opthalmic surgery we expect to apply for a pass through reimbursement code, or C-code, to be used in the hospital and ambulatory surgery centers setting. Pass through payments provide temporary transitional reimbursement for innovative new products for a period of three years.

If DEXTENZA is approved on or before its PDUFA date we would plan to apply for the C-code by September 1st as the application process is quarterly. The C-code, if approved would then become effective on January 1, 2018.

In terms of additional commercial capabilities, we continue to build out our internal commercial team making sure that from a sales, reimbursement payer, and hub perspective that we have all the necessary personnel strategies and tactics in place to execute a successful launch.

We are currently hiring our sales leadership team that will be Ocular employees and plan to utilize a Contract Sales Organization of approximately 70 sales representatives in order to launch DEXTENZA in the US.

Utilizing a CSO will allow us to increase expediency to market and our CSO partner has done a very good job in identifying our desired profile for sales and reimbursement leadership that will enable a strong launch uptake for DEXTENZA.

Of special note, our 70 person sales team will be a 100% dedicated to DEXTENZA and they will be complimented by an extensive team of reimbursement specialists who will be focused on ensuring that all claims that are submitted for DEXTENZA are both processed and paid.

With a product that goes through a C-code reimbursement process, it's important to get surgeons and their office staff comfortable with the reimbursement coding and process to get medical claims paid for the drugs they utilize. They could be completely comfortable with the product clinically but if they're not comfortable with the reimbursement cascade that needs to happen in order for these claims to be processed and paid, this is where frustration and stalling of reimbursement can potentially occur.

Therefore, as part of our earlier experience program that we will be conducting between the potential approval of DEXTENZA and the C-code being in place, we will be very proactive in talking with surgeons, hosting "surgery days", for example, getting them completely comfortable with the product clinically. We will also be extremely proactive in talking with the surgeons' office staff to let them understand how they can utilize our internal reimbursement hub to process their claims.

The hub is meant to provide offices with a resource to help manage the reimbursement process through the payer channel and essentially serve as a concierge service for reimbursement. In parallel, we continue to conduct payer research to understand payer dynamics to determine how best to facilitate access to DEXTENZA across each specific managed care plan.

During the pass through transitional period of three years, we would have the ability to have DEXTENZA carved out from the facility fee bundle and fully reimbursed through Medicare part B. During this time we would plan to file for an extending J-code which would extend the life cycle of DEXTENZA beyond the three year period.

Overall, the launch planning team has been making great progress in building our out commercial strategy and go to market plan and we are looking forward to a successful launch of DEXTENZA subject to FDA approval.

With that, I will now turn the call over to Jon, who will review our commercial preparation activities from a medical affairs point of view.

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Jon Talamo, Ocular THerapeutix, Inc. - CMO [5]

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Thank you, Andy. As Amar mentioned, our goal at DEXTENZA is to improve patient experiences and transfer control of pharmacotherapy back to the physician for the entire course of post surgical therapy. Steroids such as dexamethasone are already commonly used in ophthalmology. Our aim with DEXTENZA is to release dexamethasone in a much more intelligent fashion.

From a medical affairs perspective, our goal is to ensure surgeons are as educated as possible with respect to DEXTENZA as well as our hydrogel platform prior to our potential launch and C-code being in place. The familiarity with the product candidate is already good. In fact, in a recent market survey conducted by a third party and commissioned by us, approximately 80% of ophthalmologists stated that DEXTENZA could become the new standard of care for post surgical use.

We have hired experienced medical science liaisons who will interact with key opinion leaders whom we believe could educate the population of opthalmic surgeons that perform cataract surgery which comprised four million out of the six million ocular surgeries performed annually in the US and is the most commonly performed elective surgery in the country.

To that end we aim to educate roughly 6,500 US cataract surgeons to make sure they are well aware of the advances of DEXTENZA as a therapeutic platform and DEXTENZA's strong clinical data set as we approach a potential commercial launch.

It is clear that both patients and physicians seek a better alternative to the current standard of care, steroid eye drop therapies, and once approved we believe DEXTENZA may serve as this alternative.

I will now turn the call back over to Brad Smith who will review our fourth quarter 2016 financial results and recent equity and debt financings.

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Brad Smith, Ocular Therapeutix, Inc. - CFO [6]

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Thanks, Jon. I'll start with our cash and investment position. As of December 31, 2016, we had $68.1 million in cash and cash equivalents and marketable securities. In addition, we're pleased to have completed a registered underwritten public offering of shares of our common stock with gross proceeds of $25 million in January of this year.

We also have a $40 million [ATM] facility in place under which shares of our common stock may be sold from time to time.

In addition, earlier this week we amended the terms of our existing credit facility to increase the total commitment to $38 million from the previous commitment of $15.6 million. The $38 million facility includes $18 million at closing which occurred on Wednesday, which was used primarily to pay off outstanding balances as of the closing date and includes options on two additional tranches of $10 million each. The availability of which is based on the achievement of certain regulatory and commercial milestones.

In connection with this financing, the interest-only payment period was extended through February 1, 2018, with provisions to further extend the interest only period based on the achievement of again certain regulatory and commercial milestones.

Cash used in operating activities was $7.5 million for the fourth quarter of 2016 and $33.9 million for the year ended December 31, 2016. We expect cash used in operations to increase significantly in 2017 as we pursue pre commercialization activities relating to DEXTENZA as Andy described and prepare for the launch of this product subject to FDA approval.

And as we advance our clinical development stage programs including our Phase III glaucoma trials, it is important to note that while we are investing in pre commercialization resources and activities in advance of the potential approval of the DEXTENZA NDA, the hiring of our field sales force and reimbursement teams will be contingent on FDA approval of DEXTENZA and raising additional capital.

We expect existing cash, cash equivalents and marketable securities will be sufficient to fund the Company's operating expenses, debt service obligations and capital expenditures into the second quarter of 2018. This is, of course, subject to a number of assumptions about our clinical development programs, commercialization of DEXTENZA and other aspects of our business.

Again, we will need to raise additional capital to fully fund the commercial launch of DEXTENZA.

For the fourth quarter ended December 31, 2016 we reported a net loss of $12.8 million or a loss of $0.52 per share. This compares to a net loss of $10.6 million or a loss of $0.43 per share for the same quarter of 2015. The net loss for the fourth quarter of 2016 included $1.7 million in non-cash charges for stock based compensation compared to $1.3 million for the same quarter in 2015.

For the full year ended December 31, 2016, we reported a net loss of $44.7 million, or a loss of $1.80 per share. This compares to a net loss of $39.7 million, or a loss of $1.71 per share for the same period of 2015. The net loss for 2016 included $6 million in non-cash charges for stock based compensation compared to $4.6 million in similar charges for the same period in 2015.

Revenues for the fourth quarter of 2016 totaled approximately $500,000 from the sales of ReSure Sealant. As we have previously stated we don't expect product revenues from this product to be material in 2017. We are really focused on the potential launch of DEXTENZA.

Total operating expenses during the fourth quarter of 2016 were $13 million which compares to $10.7 million for the same quarter in 2015. Research and development expenses totaled $7.3 million in the fourth quarter compared to $6.9 million in the same quarter last year.

As we continue to advance the pre clinical development of our hydrogel platform technology and the portfolio of our various drug product candidates, we had approximately 25 million shares issued and outstanding as of the end of 2016, and with the equity financing activities to date in the first quarter of this year, we currently have 28.8 million shares issued and outstanding.

This concludes my comments on our financing activities and our fourth quarter and year-end financial results and I will now turn the call back over to the Operator to open it up for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Our first question comes from the line of Ken Cacciatore, with Cowen. Your line is now open.

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Ken Cacciatore, Cowen and Company - Analyst [2]

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Good morning, guys. Thanks for the update. I had a couple questions, just on the DEXTENZA upcoming launch, I was wondering Andy, could you give us some perspective of similar launches, similar recent launches, some of the maybe mistakes made, some of the positives learned? I know this is definitely a different type of launch, sounds like you have to have real hand in glove with your sales force and reimbursement. So maybe a little bit of perspective around that? And then I have a follow-up question.

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Andy Hurley, Ocular Therapeutix, Inc. - CCO [3]

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Ken, that's a great question. I think one of the bigger things that we've learned is with a buy and build product in the ophthalmology marketplace, you can't underestimate the need for the reimbursement pull through. I think you could have, as I mentioned on the call, you could have a clinical profile that everybody wants, but unless they understand the process by which the claims are processed and paid and have feet on the street as well as an outside hub working kind of hand in glove to be able to go and to work with office staff to understand that process, that's where things fall down.

So we've been able to really understand where folks have been able to do that well. And then where things have kind of come up short. Especially in the C-code environment. Because C-code is a virtually new realm that's happening within ophthalmology.

So for us going in with a very concerted effort with critical mass on the reimbursement side, we feel we're going to be able to go and approach it from the two sides of the street, which is the clinical profile and making sure that they feel perfectly comfortable with the value that DEXTENZA will bring light to the patients, and as well, once that value is understood, working with the office staff to understand all of the process, work with them and then have all of the resources at their disposal, in much like a concierge fashion to make sure that the process is fluid and the claims are being paid. So that's really the big one.

The other piece that I think really comes down to it is we want to make sure that we're really focusing on the targeting in the right way. And that is really identifying the ambulatory surgery centers that have the highest volume, who are the folks that are really going to be some of the thought leaders in the marketplace that you really want to get understanding the clinical value of the product so that they can be able to go and speak to that in the marketplace. And we've identified a KOL engagement strategy both from the commercial as well as the medical side to make sure that that's happening as well.

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Ken Cacciatore, Cowen and Company - Analyst [4]

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Thank you. And then on -- Go ahead, sorry.

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Amar Sawhney, Ocular Therapeutix, Inc. - President, CEO & Chairman [5]

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Ken, hi, this is Amar. I want to make an additional point that one of the lessons that we also learned without taking specific names, drugs that are introduced which were not routinely being used in the past, so you're sort of adding something new to the care regimen, will have a little bit more resistance because they are changing the way people think about managing their patient.

In our case, steroid based therapies are routine. So we expect that reception to be better compared to a drug that was not prior being used and now one that's trying to get it used prophylactically. You may face more resistance on that. So not going to go into specifics beyond that but I think we feel that DEXTENZA should enjoy strong acceptance.

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Ken Cacciatore, Cowen and Company - Analyst [6]

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Okay. That makes sense. And then on the CSO front, I'm just trying to understand, they're responsible for the hiring, just how much influence you all have. This is clearly a very specific area and trying to better understand the decision of going that route versus kind of full ownership internally of hiring the sales force? And then I'll just have one other question after that.

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Andy Hurley, Ocular Therapeutix, Inc. - CCO [7]

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Yes. Ken, this is my fourth time leveraging a contract sales organization and I've had success through the first three as well.

You know, you get an opportunity to partner with someone that has expanded resources, than a small company is able to have in the early goings of a launch. So, we do is we identify the exact profile we're looking for in both our leaders as well as our sales and reimbursement folks and we work in concert with them to make sure that we're identifying all of those folks through the resume review process.

We're involved in the interview process although from a co-employment perspective the contract sales organization owns that, and they ultimately make the hires to those individuals. But we're involved in that process to make sure that we're seeing the core competencies that we're looking for and the skill sets in the individuals we're hiring. I said on the call I've been thrilled with the folks that we've already hired from the both sales leadership as well as the reimbursement leadership, the folks that are going to be managing the individuals that are on the sales side and reimbursement side.

I've been thrilled with the caliber that we've gotten already and that's par for the course of what I've seen in my past. So, it allows for you to get just really additional resources and the expediency to market is a lot quicker by using a CSO environment.

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Ken Cacciatore, Cowen and Company - Analyst [8]

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Okay. That makes a lot of sense. And then last question. Amar, this is probably a little tough one but, on the ongoing glaucoma study is there any aspect of it that you're not blinded to discontinuation, safety, retention? Is there any kind of any nuance or perspective you can give? I know you might have indicated I think in the prepared remarks, enrollment is going a little bit faster, so I don't know if there's any kind of loose perspective you can give around that study? Thanks.

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Amar Sawhney, Ocular Therapeutix, Inc. - President, CEO & Chairman [9]

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So, no, we are completely masked in the study. It is a masked study in terms of everybody gets an insert. And the inserts basically look similar. The placebo insert looks very similar, or nearly identical to the active insert, so we have no way of telling which patient is treated or not treated. Of course, as trials run everybody has their own speculations and clinicians will voice their opinions to whether they think their product is working or not working but, you know, we can't go by that.

We will be monitoring the patients for retention of the product at the times when they come back for their post-operative, whatever, placement visits at the times of the end points of two weeks, six weeks, et cetera. So if depots are found to be lost without knowing whether they are placebo or active depots they will be replaced according to whatever was the initial type of placement. And so that will continue. So we just have to kind of continue to execute the study. We're not seeing anything out of the ordinary from our expectations. So things are going smoothly, enrollment seems to be going smoothly. So, so far so good.

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Ken Cacciatore, Cowen and Company - Analyst [10]

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Great. Thank you so much.

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Operator [11]

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Thank you. And our next question comes from the line of Donald Ellis with JMP Securities. Your line is now open.

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Donald Ellis, JMP Securities - Analyst [12]

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Thank you and good morning, guys. First question is can you give us more details about the sampling program you're proposing? And then second question, is there anything about the pass through application process that drives some of your assumptions on pricing for DEXTENZA?

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Andy Hurley, Ocular Therapeutix, Inc. - CCO [13]

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Yes. Don, so first one on the sampling program. We're really terming it an early experience program. And this is a luxury that we have that we want to take full advantage of. Because what we don't want to do is go to the market and say because we have a FDA approval, we just start using miscellaneous J-codes. What that causes is frustration in the marketplace. Because it's a buy and build product, they're assuming the liability of buying the product in and then they're going to be putting through a code that would potentially work or potentially not work up until the point we get a C-code.

We don't want to have that happen. What we really want to be able to do in that three to four month period before we actually get the C-code in place is to allow for some free product or sample product to be given to offices so they can really do a DEXTENZA day, if you will.

Get a number of patients that can use DEXTENZA free and clear from the reimbursement environment and allow for them to get clinically savvy with the product up until the point when we get the C-code in place and then we're working with them all the while in that three or four months to understand the reimbursement process. So for day one, let's say January of 2018 as we talked about, they're able to put it right through.

So that's really something that we want to make sure that we do well. Get around to all of our targets, we're roughly going to be targeting about 6,500 targets and get them enough free product for them to get comfortable. And then ultimately when the C-code comes in place we'll have commercial product in the marketplace and they will be ready to go in order to really use it and adopt it very quickly.

So that's really the whole genesis of why we want to do this early experience program versus going out and just allowing for a miscellaneous J-code to drive our business.

Makes sense?

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Donald Ellis, JMP Securities - Analyst [14]

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Yes. And next question about pricing, and is anything involved in the application for the pass through process driving -- (inaudible)

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Andy Hurley, Ocular Therapeutix, Inc. - CCO [15]

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Yes. Yes. That's a really good question because there are factors that go into setting your price. So what factors into it is in the application itself, the price has to be, quote unquote, "not insignificant in relation to the actual CPT or the surgical procedure". What we know is it's about roughly $1,700 of reimbursement through the hospital outpatient department side. So we have to have, there's a three part calculation that has to be factored in to account for what is non-insignificant. And you can look at it as it has to be about 20% of that $1,700 in order to hit the bottom threshold of what the pricing needs to be.

Then you factor in that we're going to be looking at the individual commercial payers to see, is there going to be a need for any type of contracting with them to position ourselves to have access to the product through the commercial payers? And that ultimately will affect our ASP if we have to go out and pay out rebates and contracts for such. So those all factor into what our pricing strategy is. We're still underway and working through that. We're doing payer research right now to understand that dynamic. So, on the C-code application itself, it's that non-insignificant threshold of price that needs to be established before they will even entertain it being in a C-code.

And just to step back, you know, what the government does is it puts together a pool of money for us, for the medical community to use new and innovative products. So they're actually separating it. So, this allows for people to get some experience with these really novel products before they figure out really where they want to place them in a J-code type setting. So that's really what we want to have the physician community be able to take advantage of through the C-code process.

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Donald Ellis, JMP Securities - Analyst [16]

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Okay. So using those numbers, then, $1,700 per procedure and roughly 20%, that would get to you a price of $340. And does that price then have to be net of all those discounts for contracting?

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Andy Hurley, Ocular Therapeutix, Inc. - CCO [17]

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It does. So your ASP is going to be affected by your other contracts and other things that are going to be bringing your ASP down a bit. So we're looking at it as we have to factor those things into what the ultimate price will be for the product.

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Donald Ellis, JMP Securities - Analyst [18]

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Okay. So then the price would have to be something north of $340?

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Andy Hurley, Ocular Therapeutix, Inc. - CCO [19]

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You are correct. Yes. So we would say that it's going to be north of -- at probably a range of $425 to $525, somewhere in that range based on whatever we feel the contracting strategy will need to be.

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Donald Ellis, JMP Securities - Analyst [20]

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Terrific. And one last question. For Brad. Where are you going to be booking the early experience program product on your P&L?

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Brad Smith, Ocular Therapeutix, Inc. - CFO [21]

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There won't be any revenue, until we actually have the code and have the full launch. So, if we have our approval on the PDUFA date in July, we would be submitting in September and the code would go effective at the beginning of 2018.

So we wouldn't be looking at revenue until the first quarter of 2018.

The product that we -- The sample program would be a selling expense during that period of time before the actual code gets in place and we fully launch.

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Donald Ellis, JMP Securities - Analyst [22]

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Great. Thank you very much.

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Brad Smith, Ocular Therapeutix, Inc. - CFO [23]

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Thanks.

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Operator [24]

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Thank you. And our next question comes from the line of Elemer Piros, with Cantor. Your line is now open.

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Elemer Piros, Cantor Fitzgerald - Analyst [25]

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Good morning, gentlemen. Amar, would you please elaborate a little bit on the so called non significant risk device study? What does it entail, please?

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Amar Sawhney, Ocular Therapeutix, Inc. - President, CEO & Chairman [26]

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So the non significant risk studies are conducted by us routinely to evaluate form function types of things to be able to improve, for example, the design of some of our inserts. (inaudible) The glaucoma program, we had done several studies to look at improving retention by looking at size of these, the stiffness or persistence of the materials, et cetera.

So what is meant by a non significant risk study is that you basically regard the, it's a device, you regard it as something that is done routinely and, for example punctum plugs, et cetera, are placed routinely and are kind of Class one type of products for the regulatory purposes. So their low risk kind of products. So when you come up with something of that sort, you basically can conduct the study with (inaudible) notification. And then IDE, (inaudilbe) There's no, sort of, IDE required for that. So I think it allows you to sort of rapidly look at the designs of -- hello?

We're okay. Somebody muted by accident. Improvement in the change of the design of the insert.

So in this case, for allergy what we are trying to do is to look at an insert that would liquefy in a very short order. So it will basically turn to liquid within a day so that we can preserve the masking of the study but not have the interference in the function in that it's blocking the nasolacrimal duct and thus not allowing alergen to go into the nasolacrimal duct which can be a source of the [itching] signal. So, making sure that the signal is coming through unimpeded and we can actually conduct a more true world, real world type of test for the allergy study.

So, to be able to make such a placebo device for comparative purposes we will conduct a non significant risk study and see if that indeed does give us that difference in the signal compared to a longer lasting placebo. And if that is the case, then we would go ahead and conduct those studies in a Phase III kind of fashion.

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Elemer Piros, Cantor Fitzgerald - Analyst [27]

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And somewhat relevant or a follow-up here, Amar. Are patients aware that the plug actually dissolved or was lost? Is it noticeable to them at all?

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Amar Sawhney, Ocular Therapeutix, Inc. - President, CEO & Chairman [28]

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No. In general, when these inserts are placed, they are not noticeable for the patient. So patient doesn't really feel anything because they're designed to feel essentially like soft tissue. We designed the stiffness to feel like soft tissue and there is nothing projecting out from the eyelid. So it's under the opening of the punctum. So, you really don't see anything, you don't feel anything. Unless you take some kind of specialized equipment to look for it which the patient doesn't really have access to, you remain masked. And I think FDA has been satisfied that this will allow them to preserve the masking without actually interfering with the results. Okay?

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Elemer Piros, Cantor Fitzgerald - Analyst [29]

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And, two more quick follow-up, please? In the glaucoma study, would you remind us, please, when did you treat the first patient in the trial? And, how many sites do you have open of the total, that you plan to have?

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Jon Talamo, Ocular THerapeutix, Inc. - CMO [30]

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Sure. Elemer this is Jon Talamo. We have about 130 patients that have been enrolled at this point. And the way the trial works, and we have 46 of our 50 sites that have been qualified and are screening. The way the study works is that everyone coming into this trial has to demonstrate that they're responsive to a topical prostaglandin medication. So they have to be washed out of that medication. So there's a six to eight week period once they've entered into the trial before they are treated. But we're pleased with how enrollment is going. It's ramping nicely.

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Elemer Piros, Cantor Fitzgerald - Analyst [31]

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Okay. And the last question is, what would an announce-able milestone in your collaboration with Regeneron, Amar, and what sort of timing, rough timing can you put on that?

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Amar Sawhney, Ocular Therapeutix, Inc. - President, CEO & Chairman [32]

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We would have to bring that up in our joint steering committee as we conduct some of the pre-clinical studies whether or not they would choose to let us announce those things. We can't take an unilateral action on that. Certainly, if they choose to exercise the option over the next 12 to 18 months that would definitely be an announce-able thing because that is something we can announce at our own discretion.

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Elemer Piros, Cantor Fitzgerald - Analyst [33]

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Okay. Thank you very much.

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Operator [34]

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(Operator Instructions). Our next question comes from the line of Dane Leone, with BTIG. Your line is now open.

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Dane Leone, BTIG - Analyst [35]

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Hi thank you for taking the questions. In terms of thinking of the intraocular hydrogel formulation, do you have an idea of size and how that would be -- How that would interact with the vision of the patient? Whether it looked like a minor floater or would they just have a large floater in their eye for an extended period of time, like 30 days? Or how would it kind of dissolve and impact the vision over time?

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Jon Talamo, Ocular THerapeutix, Inc. - CMO [36]

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Sure. This is Jon Talamo again. I'll take that question.

We mentioned two different types of intraocular hydrogels during the call this morning. One is our newer program for glaucoma, and that's inserted into the anterior chamber of the eye near the front of the eye, and then the depots that we're developing for retinal diseases.

Let me take them separately. For glaucoma, the implant is a very small rod like piece of hydrogel with medication embedded in it and it tends to settle in what's called the anterior chamber angle of the eye. And it's visually, for the most part, invisible for the patient. In the case of intravitreal injections there will be some low level optical phenomena. But the footprint of the types of depots we're designing is no greater from an optical sense than one might encounter with Ozurdex, which is a product currently on the market for intravitreal use. And the depo's tend to settle in the anterior inferior vitreous. So, out of the visual access.

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Amar Sawhney, Ocular Therapeutix, Inc. - President, CEO & Chairman [37]

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Dane, just to comment a little bit more. None of these will be freely floating around in the eye. In general they tend to settle down. And in the front of the eye for the glaucoma intracanalicular approach they will settle into the angles. So the pre clinical work that we have done to date has shown good stability in the angle and they remain without changing in size.

This change in size for some of the other companies that are taking approaches, similar types of approaches with conventional type of polymers, not advanced polymers like we're using. Those can change in shape as time goes by and they can swell up and not absorb consistently and those are potential issues that can arise in such of the earlier generation type of products.

What we are developing over here we pay close attention to the fact that it doesn't. It can go through a very fine gauge needle. It doesn't change in shape and resides squarely within the angle and absorbs consistently so making room for the next one to come in, subsequent, maybe four months down the line.

So very pleased with how the pre clinical stuff has been going so far and look forward to keeping that up in the future.

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Dane Leone, BTIG - Analyst [38]

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Exactly. That was kind of what I was getting at is once inserted into the eye for I guess either formulation or other drug, that the rod, I guess is what it generally looks like, would kind of stay uniform in shape and would have uniform dilution without, you know, I guess change or movement of the structure, or chunks breaking off or something like that as it dissolves.

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Andy Hurley, Ocular Therapeutix, Inc. - CCO [39]

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And it's completely bio-reservable (inaudible).

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Dane Leone, BTIG - Analyst [40]

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Okay. Thank you.

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Operator [41]

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I'm showing no further questions at this time. I will now turn the call back over to Amar Sawhney for closing remarks.

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Amar Sawhney, Ocular Therapeutix, Inc. - President, CEO & Chairman [42]

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I want to thank you everyone for taking the time to join us on the call today and we look forward to updating you on the milestones through 2017 especially as we approach our PDUFA date for DEXTENZA and continue to enroll patients in our Phase III program of the OTX-TP for the treatment of glaucoma and ocular hypertension. On behalf of the entire Ocular team thank you for your support. You may now disconnect.