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Edited Transcript of OCUL earnings conference call or presentation 12-Nov-19 1:00pm GMT

Q3 2019 Ocular Therapeutix Inc Earnings Call

Bedford Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Ocular Therapeutix Inc earnings conference call or presentation Tuesday, November 12, 2019 at 1:00:00pm 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

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Conference Call Participants

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* Joseph Michael Catanzaro

Piper Jaffray Companies, Research Division - VP & Senior Biotech 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 Third 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, Daniel. Good morning, everyone, and thank you for joining us on our third quarter 2019 financial results and business update conference call. This morning, before the open, we issued a press release providing an update on the company's product development programs and details of the company's financial results for the quarter ended September 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 and an update on the DEXTENZA commercial launch. Also speaking on the call today will be 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 third quarter 2019 before turning the call back to Antony for a summary and questions. For Q&A, we will also be joined by Scott Corning, our Senior Vice President, Commercial.

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 the most recent quarterly report on Form 10-Q, which was filed with the SEC this morning, November 12, 2019.

In addition, any forward-looking statements represents our view 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 the 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, Donald. Thank you, everyone, for joining the call today for an update on the events of the quarter, including an update on the company, the commercial launch of DEXTENZA and on our pipeline. The launch of DEXTENZA remains the company's key focus. For those who may be new to the Ocular story, DEXTENZA is a bioresorbable, intracanalicular insert that delivers 0.4 milligram tapering dose of preservative-free dexamethasone for up to 30 days. DEXTENZA is approved for the treatment of ocular inflammation and pain following ophthalmic surgery. The product is the first of a novel dosage form and route administration that has the potential to become a transformative product for both patients and physicians. For patients, DEXTENZA offers the convenience of a full course of steroid treatment in a single preservative-free insert; and for surgeons, it puts control of the postsurgical steroid regimen back in their hands by mitigating against the risk of patient noncompliance.

We started the commercial phase of our DEXTENZA launch in July of this year after securing a price with CMS, achieving full reimbursement in Medicare patients in the hospital and ASC settings, and securing a temporary C-code billable on the surgical setting.

We are very pleased with our progress during the early stages as we continue to build the necessary elements to achieve a successful product launch. In a hugely important step for DEXTENZA's early uptake as well as for its long-term potential, on October 1, CMS issued a permanent product-specific J-code for DEXTENZA. The J-code replaces the temporary C- code. Compared to C-code, a J-code is easier and more familiar for billers and payers so it can facilitate the broadening of coverage and accelerate immediate uptake. But most importantly, for DEXTENZA, it allows for the billing across all sites of service, including the ophthalmic and optometric office settings.

DEXTENZA, unlike most products with pass-through payment status, can be conveniently used in both the surgical and office setting. While the ASCs and hospitals remain our initial commercial focus and represent a large market opportunity of approximately 2 million cataract procedures performed annually under Medicare Part B, the issuance of a permanent J-code for DEXTENZA offers great potential long-term benefit beyond the ASCs and hospitals and beyond the potential labs and pass-through payment status.

Overall, with the J-code in place, I believe DEXTENZA has the ability to broaden the commercial opportunity to an estimated 8 million steroid prescriptions written each year in the U.S. alone, and enjoy an evergreen reimbursement potential beyond this pass-through payment period.

With a solid reimbursement platform in place, we also have been very pleased with the early feedback we are getting from surgeons. Since the initial launch, over 7,000 patients have been treated with DEXTENZA at over 350 separate surgical sites. Overall, surgeon reception has been positive. We believe the product is performing well. The procedure is proving easy to adopt, and surgeons are receiving favorable patient feedback. Perhaps most importantly, of the centers who have made initial purchases, as of the end of October, half the accounts have reordered the product with over 1/3 of accounts having reordered the product 3 or more times. This is exactly what we want to see in the launch of a novel treatment like DEXTENZA. So we have a product that surgeons seem excited to use with discernible patient benefits and a solid reimbursement foundation.

The final players that influence product uptake are the ASCs and hospitals where combined dual products like DEXTENZA represent a potential reimbursement risk. This route takes time to penetrate and convert. Since the ASCs and hospital outpatient departments make the actual purchase and can only claim for reimbursement after it is used in a covered patient, they are potentially left out of pocket if the product is not reimbursed. Consequently, there are a myriad of administrative procedures in place unique to each center to control purchases until a reliable patient selection protocol and reimbursement cycle are established. This dynamic is similar for every buy-and-bill product, so DEXTENZA is no different in this regard. These administrative challenges effectively create an additional hurdle beyond FDA product approval, surgeon acceptance and payer access. However, with physicians who desire to use DEXTENZA, patients who can benefit and payers willing to reimburse, we believe that clearing the path is achievable.

Given the additional requirements for buy-and-bill pull-through, our team of key account managers, field reimbursement specialists and our external reimbursement services hub are working to assure hospitals and ASCs that we believe they can comfortably purchase DEXTENZA and be certain that protocols are in place to ensure that all purchased product will be reimbursed in a timely and predictable manner. While this saves time, once the procedures are established, we believe that orders will be driven primarily by surgeon demand for years.

In the marketplace, we're seeing this dynamic play out. In keeping with the S-shaped growth curves of buy-and-bill products, we've seen in-market uptake, that is purchases made by the hospitals and ASCs from the distributor in our most recent month of October are greater than the combined total of the previous 3 months. This acceleration and our confidence in the cycle time it takes to clear an account has encouraged us to trigger an expansion in our field team.

Understanding the complexities of the marketplace and our reimbursement status, our strategy was to launch with a small team of 20 key account managers and focus deeply on a limited selection of surgery centers. The reason for our approach was to ensure that we were able to build and test various strategies to clear pathways that represented ASCs and hospitals and better understand the conversion pathway. With this knowledge, with the J-code now in place, and with a greater awareness and receptivities of DEXTENZA in the marketplace and with continued progress on separate payment of the procedure code for insertion of DEXTENZA, we expect that the conversion time for newly covered ASCs and hospitals will accelerate. We have expanded our field sales team by 50% to a total of 30 key account managers who will be active in field starting in late November.

So in summary, we are pleased with where we are on DEXTENZA at this early stage of launch.

Moving beyond the launch of DEXTENZA, we believe we have a pipeline of differentiated ophthalmic programs. Our immediate opportunity is DEXTENZA, which we believe represents a franchise within a product. With the initial approval of treatment for ocular inflammation and pain following ophthalmic surgery, we now look to expand DEXTENZA's potential in the treatment of allergic conjunctivitis and anticipate announcing Phase III data for this indication in the first half of 2020.

Beyond DEXTENZA, our other pipeline programs address conditions for both the front and back of the eye and target large underserved markets. To provide greater detail on our pipeline, I will be turning the call over to Dr. Goldstein, our Chief Medical Officer.

However, before handing over to Mike, I want to say a few words about what we are doing to ensure that we have adequate capital to realize Ocular's potential. As we disclosed a few days ago, we have completed a reallocation of our personnel that has resulted in an increase in our promotional capability of 50% but has reduced our overall expense burn by an estimated $11 million per year and another $14 million in onetime savings in deferred program costs. We expect the effect of our reallocation of resources to extend our runway through the fourth quarter of 2020. It's important to note that the forecast in forming this runway expectation does not include any contribution for further infusions of capital into the company. It also preserves our ability to drive our current Phase I programs through completion, add another IND into our pipeline and execute on our life cycle plan for DEXTENZA.

Without further ado, I will hand over to Mike.

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Michael H. Goldstein, Ocular Therapeutix, Inc. - Chief Medical Officer [4]

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Thanks, Antony. DEXTENZA represents a franchise opportunity for the company. Physician and patient enthusiasm for the product has been high. We believe DEXTENZA represents a better way to deliver medications to the eye compared to traditional eye drops. We are actively dosing patients in a Phase III clinical trial of DEXTENZA in the treatment of ocular itching associated with allergic conjunctivitis.

The current study is a multicenter, 1:1 randomized, double-masked, placebo-controlled Phase III clinical trial that intends to enroll approximately 80 subjects. The study's primary objective is to evaluate the safety and efficacy of DEXTENZA versus a placebo vehicle insert using the modified conjunctiva allergen challenge model for the treatment of ocular itching associated with allergic conjunctivitis. The trial is designed to assess the effect of DEXTENZA compared to placebo and allergic responses using a series of successive allergen challenges over a 30-day period. The primary efficacy endpoint being evaluated in the study is ocular itching following insertion of DEXTENZA at multiple time points during the 30-day period.

While the allergic conjunctivitis trials tend to enroll relatively quickly and despite just dosing the first patient in October, we anticipate data from this trial in the first half of 2020. If successful, this trial will be part of our FDA submission to expand the potential indication of DEXTENZA for the treatment of allergic conjunctivitis, which would be its first indication not associated with surgery. DEXTENZA in allergic conjunctivitis offers a novel way of delivering drug to the surface and anterior segment of the eye in a way that we believe can improve upon the existing standard of care eye drop treatment regimen.

Overall, we are thrilled with the interest we are receiving from the ophthalmic and optometric communities and requesting permission to start or actively conduct investigator-initiated trials around DEXTENZA. The interest point is the versatility of the products and the opportunity to potentially use DEXTENZA in multiple areas beyond post-cataract inflammation and pain to benefit patients.

Moving to the pipeline. For OTX-TP, our intracanalicular travoprost insert, we met with the FDA to discuss data previously reported in May of 2019 from our completed Phase III trial. Our conversation with the agency was productive and involved the discussion around the importance of compliance and how a product like OTX-TP could address the issue of noncompliance by delivering a prostaglandin analog formulated with our programs to release hydrogel to lower intraocular pressure for up to 12 weeks with a single insert. While the FDA did not feel that the data from this trial met the standard of clinical meaningfulness in the population study, there were constructive discussions about potential pathways forward in specific patient populations for whom drops are problematic. Given the feedback and our desire to focus on higher-value opportunities within our pipeline, we continue our guidance that we have no immediate plans to bring this program forward without the assistance of a partner.

We are especially excited about OTX-TIC, our other clinical-stage glaucoma program. The product is a bioresorbable, travoprost-containing hydrogel implant delivered via intracameral injection designed to deliver a higher level of IOP reduction than the intracanalicular insert. We continue to enroll patients in a Phase I prospective, multicenter, open-label clinical trial to evaluate the safety, efficacy, durability and tolerability of OTX-TIC. As this is an open-label trial, we were able to assess early biological activity and safety, and we continue to be encouraged by the recent data. With data on our first patient now beyond 16 months showing the ability to lower IOP with a single insert equivalent to daily administration of a travoprost drop, we're excited about the potential for OTX-TIC. In addition, the hydrogel as designed has consistently biodegraded approximately 5 to 7 months. With a targeted product profile of 6 to 12 months of IOP lowering and current data showing efficacy beyond that with favorable safety profile, we have focused on optimizing the formulation and are currently evaluating these formulations in the third and fourth cohorts of this clinical trial. We believe that these minor formulation changes will only serve to enhance OTX-TIC.

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 anti-angiogenic properties delivered by intravitreal injections 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, given its ability to act upstream of VEGF, and therefore, may have broader anti-angiogenic properties. Preclinical data 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 in evaluating biological activity by following visual acuity over time and measuring retinal thickness using standard optical coherence tomography. The first cohort of subjects reported no safety concerns. After meeting with the Data Safety and Monitoring Committee, we move to the second higher dose cohort and are currently dosing this cohort.

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

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Donald Notman, Ocular Therapeutix, Inc. - CFO [5]

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Thanks, Michael. Net revenues for the third quarter totaled $0.8 million in aggregate consisting of $0.3 million and $0.5 million in net revenues from DEXTENZA and ReSure, respectively, as compared to $0.5 million in net revenues generated in the third quarter of 2018, all of which were related to ReSure. Research and development expenses for the third quarter were $10.2 million versus $9.7 million for the comparable period in 2018 and reflect an increase in costs associated with the Phase I OTX-TIC trial, the Phase I OTX-TKI trial and the start of the Phase III DEXTENZA allergic conjunctivitis trial as well as increases in unallocated costs. These were all offset by a significant reduction in the Phase III clinical trial costs associated with OTX-TP.

Selling and marketing expenses for the third quarter were $6.8 million as compared to $1.1 million for the same quarter in 2018. This increase relates almost entirely to support the commercial launch of DEXTENZA, driven primarily by the hiring of new members of the commercial team in the second quarter of 2019, including KAMs, FRMs and MSLs as well as increased spending on consulting, trade shows, conferences and related costs.

Finally, general and administrative expenses were $6.2 million for the third quarter versus $4.4 million in the comparable quarter of 2018. The increase in expenses for the third quarter stemmed primarily from increased personnel and facilities costs, offset by decreased professional fees.

With respect to financial results for the third quarter, we reported a net loss of $18.9 million or a loss of $0.40 per share on a basic and $0.45 per share on a diluted basis. This compares to a net loss of $15 million or a loss of $0.38 per share on a basic and diluted basis for the same period in 2018. The net loss for the third quarter included $3.9 million in noncash charges for stock-based compensation and depreciation compared to $2.5 million for the same quarter in 2018. In addition, the net loss for the quarter includes a gain in the amount of $5.7 million related to the change in the derivative liability.

As of the quarter ended September 30, 2019, we had $65.4 million in cash and cash equivalents versus $61.8 million at the end of the second quarter of 2019. These cash amounts exclude restricted cash of $1.8 million and $6.8 million, respectively. Restricted cash was reduced by $5 million in the third quarter of 2019 as a result of an amendment with the lenders of our $25 million term loan facility to eliminate the $5 million liquidity covenant. The cash balance benefited during the third quarter from $18.6 million in net proceeds generated from sale of common stock under the company's 2019 sales agreement, or ATM, under which the company may offer and sell its common stock, having aggregate proceeds of up to $50 million from time to time. The company has not made any additional sales under the ATM during the fourth quarter of 2019.

Based on our current plans and forecasted expenses, the company believes that our existing cash and cash equivalents of $65.4 million as of September 30, 2019, and anticipated cash inflows from DEXTENZA product sales, along with the expected cost savings from the operational restructuring announced last week, will enable the company to fund its planned operating expenses, debt service obligations and capital expenditure requirements through the end of the fourth quarter of 2020. This cash guidance is, of course, subject to a number of assumptions related to the revenues and expenses associated with the commercialization of DEXTENZA as well as the pace of the company's research and clinical development programs and other aspects of our business.

The company had approximately 48.1 million shares issued and outstanding as of November 7, 2019.

This concludes my comments on our third 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 [6]

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Thanks, Donald. So before opening the call up for questions, let me do a quick summary. While working through the complexities of pull-through for buy-and-bill product in the ophthalmic surgical setting, we are pleased with the DEXTENZA launch in terms of in-market sales acceleration and reordering patterns. The performance has given us confidence to expand our field force by 50%. We are anticipating a long life cycle for DEXTENZA with the issuance of our unique HCPCS J code and the initiation of potentially our final pivotal trial for a label expansion into allergic conjunctivitis.

In our glaucoma program with intracameral OTX-TIC, we now have efficacy beyond 16 months with a single insert and have made the decision to begin dosing our third patient cohort in our Phase I trial. Our back of the eye programs continue to progress with OTX-TKI and the dosing of the second cohort in its Phase I trial.

Lastly, we have successfully completed a restructuring program that is designed to focus our efforts on maximizing the commercial opportunity of DEXTENZA and on advancing our high-priority pipeline initiatives. These efforts will save an estimated $11 million annually and approximately $14 million in onetime program deferments that extend the company's current cash runway through the fourth quarter of 2020.

With that, I will turn the call over to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Yi Chen with H.C. Wainwright.

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Unidentified Analyst, [2]

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This is [Boobalan] in for Yi Chen. So I just wanted to talk a little bit about the ambulatory surgical centers that have adopted DEXTENZA. So can you please tell how many of these centers are we talking about? And how many do you expect to achieve by the end of 2019?

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

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Yes. Thanks for the question. Well, we're not going to disclose at the moment what the number of centers are. We have a -- we're confident that the number -- that if we penetrate the centers that we have, that we'll be able to reach the sort of internal figures that we have for DEXTENZA, that we hope for the sales line. We're also adding at a very high rate. As we mentioned, just the sales acceleration in October, that we sold more in October than we did in the entire launch period before, for the whole quarter before, that we are adding them quickly and that we -- as we start to expand with the new field force, we will be able to reach centers that we have not -- that we haven't as of today. So it is -- we expect a big expansion in that number. We'll start reporting that number on a regular basis as we go forward. But right now, we're going to sort of keep that to ourselves for a bit.

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Unidentified Analyst, [4]

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All right. Understood. So the next one, do you plan to report the end user demand for DEXTENZA in terms of units per quarter going forward?

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Antony Mattessich, Ocular Therapeutix, Inc. - President, CEO & Director [5]

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We haven't decided what metrics we're going to report going forward. Clearly, once we get into a steady state, where we start to have the in-market and the 2 market numbers start to sort of move with each other, the 2 market sales will be pretty descriptive about what's happening in the marketplace. So we will sort of agree on what our set of metrics are that we'll be presenting on regularly going forward. But clearly, as the product ramps up, that 2 market number will be your best indicator of the performance of the product.

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Unidentified Analyst, [6]

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Okay. And then a little bit on investigator-initiated trials. Maybe you can provide us -- elaborate or bird's eye view on this. And how many centers are we talking about? And what are your expected outcomes from this investigator-initiated trials?

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

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Sure. I'll hand it over to Mike Goldstein to talk about the IITs. Mike?

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Michael H. Goldstein, Ocular Therapeutix, Inc. - Chief Medical Officer [8]

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Yes. Thanks for the question. As mentioned, there is widespread interest within both the ophthalmic and the optometric community on investigator-initiated trials. We are looking at a whole range of different proposals covering multiple different noncataract surgeries as well as different timing around using the insert for cataract surgery. And so at this point, we are executing on some of those proposals and evaluating others and really, on a daily basis, continue to get new thoughts and ideas. So I think, for us, what's really exciting is there's this widespread interest in both the ophthalmic and optometric communities to be able to use this product in a myriad of different ways.

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Unidentified Analyst, [9]

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Okay. Great. And one final question from me with regards to OTX-TKI. So how many dosages do you plan to test overall? Yes.

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Antony Mattessich, Ocular Therapeutix, Inc. - President, CEO & Director [10]

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Mike, why don't you give...

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Michael H. Goldstein, Ocular Therapeutix, Inc. - Chief Medical Officer [11]

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Yes. Sure. Thanks for the question. So the design is to test 2 different doses and then to take the maximally tolerated dose forward and do a combination study in a combination arm along with an anti-VEGF drug.

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Operator [12]

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(Operator Instructions) Our next question comes from Joe Catanzaro with Piper Jaffray.

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Joseph Michael Catanzaro, Piper Jaffray Companies, Research Division - VP & Senior Biotech Analyst [13]

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So on the 2Q call, you mentioned that about 3,000 patients have been treated with DEXTENZA. That number is now up to 7,000. But it sounds like there's still a high level of sampling ongoing. So maybe you could just help us understand or tell us the percent or your hit rate in terms of the number of centers that have participated in the DEXTENZA Day and then subsequently placed an initial order. And what's that time frame from sampling to placing an initial order?

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Antony Mattessich, Ocular Therapeutix, Inc. - President, CEO & Director [14]

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It's hard to sort of put an actual sort of number on what the difference between the DEXTENZA Day and the ASC order because it's so variable. One thing I can confirm is that we now sell more product than we have samples. So those lines have crossed, which is about the period where we expected them to cross. So it's -- going forward, clearly, our sample numbers are coming down fast, and our sales are going up strongly. So we're kind of where we thought we would be at this point.

One of the key points about why we sort of entered the market the way we did with a very tight field force of only 20 key account managers was really to determine the kind of legs the product had and the uptake patterns that we would see with a key account manager in place. Now we've seen that, and we are confident enough from the cycle time that we're seeing to add to our field force by another 50% or another 10 KAMs. So that cycle time and the type of ASC and type of hospital that we see we can target that has faster turnaround times, we understand now and have the ability to -- as we enter new territories, to shorten what that cycle time is. But clearly, getting that first order is the hardest bit.

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Joseph Michael Catanzaro, Piper Jaffray Companies, Research Division - VP & Senior Biotech Analyst [15]

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Okay. Got it. And then so what are you hearing from centers that maybe have placed an initial commercial order but haven't subsequently reordered? What are some reasons why that hasn't happened?

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Antony Mattessich, Ocular Therapeutix, Inc. - President, CEO & Director [16]

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Well, the main reason and pretty much the only reason we hear is that they're waiting to see the reimbursement. And so we -- as we mentioned, we have -- of the centers that have ordered, 50% have reordered. That doesn't mean that only 50% are going to reorder. We're adding new centers very, very quickly with initial orders. And essentially, we are expecting virtually all of the centers that have ordered once to order again. But as part of their process, many of them will wait to see a positive reimbursement from a number of patients before they order for a second time. So initial orders may be 1 or 2 inserts. They'll put them in a patient, and then they'll submit and then they'll wait for reimbursement.

Now provided they set up the forms correctly and provided the MACs are comfortable with the submission, the payment comes relatively quickly, usually within 3 weeks. If there's something wrong on that form or there is some glitch in the approval, and clearly, all of these will be approved if they're using the right patient, then that gets delayed. So that's really -- it's a really -- a time issue about the reordering. We simply don't have -- we don't expect any of the centers that have ordered not to reorder because we haven't heard anything from these centers saying that they are not interested in continuing with the product.

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Operator [17]

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I'm not showing any further questions at this time. I will now turn the call back over to CEO, Antony Mattessich, for closing remarks.

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Antony Mattessich, Ocular Therapeutix, Inc. - President, CEO & Director [18]

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I'd just like to thank everybody for attending the call today, and we look forward to a very bright future.

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Operator [19]

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Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect.