Ocular Therapeutix: I Still Don't See The Need

I covered Ocular Therapeutix, Inc. (NASDAQ:OCUL) last year in a fence-sitting coverage, but the stock is up 150%, so let's see what they have been up to. Last year, when I left them, they had just slashed revenue guidance, and the company wasn't doing too well with sales of their two existing products, DEXTENZA, a dexamethasone ophthalmic insert for ocular inflammation and pain following ophthalmic surgery, and ReSure Sealant, an ophthalmic device designed to prevent wound leaks in corneal incisions following cataract surgery. They also had an ongoing phase 1 trial for OTX-TKI, an Intravitreal Hydrogel-based Axitinib implant, which had produced strong data in some earlier cohorts.

Where I miscalculated was that I took the data drop Ocular Therapeutix, Inc. already had as final for this phase 1 trial, and said that their next catalyst is a phase 2/3 trial in wet AMD, which will begin only in Q3 2023. That will mean a much longer wait for the next data catalyst - however, in February, this laggard stock went up in a huge rally after they published "interim" data from this phase 1 trial. I had assumed that the phase 1 trial's positive data had been priced into the stock; but it hadn't.

It's good practice to introspect about one's missteps. But let's not blame oneself too much. I wrote that article in 2022, which was such a bad year for biotech. This is 2023 - a buoyant year. Stocks are behaving much more bullishly now on catalysts that last year didn't make any sort of wave at all.

Having said that, let's look at this data and see what was good about it.

This was an update from the ongoing phase 1 trial, presented at the virtual Angiogenesis, Exudation, and Degeneration Meeting held on February 11, 2023. The trial includes only patients previously treated with an anti-VEGF therapy. It is evaluating a 600 µg dose of OTX-TKI in a single implant combined with a 2 mg injection of aflibercept four weeks after the implant, compared to 2 mg aflibercept injections given every 8 weeks.

Interim data showed comparable best corrected visual acuity and central subfield thickness of retina in both arms. Patients given a single OTX-TKI implant had a stable and sustained BCVA with average change from baseline of -0.3 letters. They also had a CSFT of retina with mean change from baseline of -1.3 µm in the OTX-TKI group at 10 months.

Compared to that, the aflibercept arm had a mean change from BCVA baseline of -0.8 letters, and mean change from CSFT baseline of -4.5 µm. These results, the company says, are comparable.

Patients also remained rescue-free up to month 7, 73% of those showing extended duration of action from OTX-TKI, and continued being rescue free up to 10 months. Reduction in treatment burden was 92%.

The drug was generally well-tolerated, with no drug related SAEs at 10 months. However, as the company disclosed earlier, one "SAE of endophthalmitis was seen in the OTK-TKI group which happened after the aflibercept injection at month 1 and was assessed by the investigator as related to the injection procedure."

The company plans to initiate a first pivotal trial for OTX-TKI in the third quarter of 2023, "subject to financing including a potential strategic alliance."

This is all good, and I congratulate those who made money on this thing. However, my lack of enthusiasm for Ocular stemmed not only from its poor revenue and previous trial failures, but also from the fact that, on the one hand, Regeneron Pharmaceuticals, Inc. (REGN) itself is developing a longer-dose version of Eylea, which has been very successful in a trial last year; and, on the other hand, if an additional two months of drug activity can dethrone an entrenched player like Eylea, then gene therapies should have the first advantage. Gene therapies are being developed by REGENXBIO Inc. (RGNX) and others, and they are aiming to be actual one-off therapies. When I say one-off, I, of course, mean one dosage every three to five years. In the world of medicine, that is as good as being everlastingly active.

In a recent article, I discussed how RGX-314 is producing data that shows BCVA remained stable at 14+ letters at 2 years and 12+ letters at 3 years. Rescue anti-VEGF treatment burden is also being reduced by ~80% in 2 years. This is a completely different paradigm from what we are seeing here with OTX-TKI and other marginally durability improving treatments. Eylea, which used to be given every 2 months, has now developed a higher dose, longer duration version which can be given every 6 months. Avastin, which is given every month, costs just $50, and is quite beneficial, anecdotally, although never having been tried in a clinical trial.

So, where does this place OTX-TKI in the broader context? I don't really see it. It has some marginal benefits here and there, doubtless, and being a small stock, the data has sent it soaring; but in the general scheme of things, where, on the one hand, there's an entrenched big pharma medicine, and on the other hand, truly durable gene therapies are fast making progress, I don't see a position for OTX-TKI in this highly differentiated space.

Just to put things in perspective, here's how the long-acting space looks, sourced from Evaluate:

On the other hand, gene therapies are notoriously difficult to get approvals, and REGENXBIO has its fair share of troubles. If gene therapy does not pan out, there's certainly space for normal long-acting therapies.

Financials

Ocular Therapeutix, Inc. has a market cap of $483mn and a cash balance of $79mn. Net product revenue was $13mn. Research and development expenses for the first quarter of 2023 were $14.7 million, selling and marketing expenses were $10.8 million, and general and administrative expenses were $9.1 million. The small difference between revenue and selling expenses is telling. Anyway, at this rate, the company has a cash runway of no more than 2 quarters.

Risks to my bearish take

If gene therapies do not work out - because of safety issues if nothing else - then long-acting therapies like OTX-TKI will have a place in the market. Safety is a problem with gene therapies, which have off target activity that hurts their cost-benefit quotient.

Bottomline

Ocular Therapeutix, Inc. is up a lot, so it appears that my less than enthusiastic take last time was wrong. But even on a closer look this time, I don't see much here for OCUL, given the eventual preponderance of one time gene therapies. In the absence of gene therapies, eylea's long-acting version will be tough to beat as well. Considering all of that, and the cash position, I remain neutral to Ocular Therapeutix, Inc. stock.

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