Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 11, 2024. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties and should be read together with the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of important factors that could cause actual results to differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.
Overview
Our Company
We are a biopharmaceutical company committed to enhancing people’s vision and quality of life through the development and commercialization of innovative therapies for wet age-related macular degeneration, or wet AMD, diabetic retinopathy, or DR, and other diseases and conditions of the eye. AXPAXLI (axitinib intravitreal implant, also known as OTX-TKI), our product candidate for retinal disease, is based on our ELUTYX proprietary bioresorbable hydrogel-based formulation technology. AXPAXLI is currently in a Phase 3 clinical trial for wet AMD, which we refer to as the SOL-1 trial. Our clinical portfolio also includes PAXTRAVA (travoprost intracameral implant, also known as OTX-TIC), currently in a Phase 2 clinical trial for the treatment of open-angle glaucoma, or OAG, or ocular hypertension, or OHT. AXPAXLI is also currently in a Phase 1 clinical trial for the treatment of non-proliferative diabetic retinopathy, or NPDR, which we refer to as the HELIOS trial.
Our expertise in the formulation, development and commercialization of innovative therapies and our ELUTYX platform supported the development and launch of our first commercial drug product, DEXTENZA, a corticosteroid approved by the U.S. Food and Drug Administration, or FDA, for the treatment of ocular inflammation and pain following ophthalmic surgery and ocular itching associated with allergic conjunctivitis. ELUTYX is also the foundation for two other clinical-stage assets, OTX-CSI (cyclosporine intracanalicular insert) for the chronic treatment of dry eye disease and OTX-DED (dexamethasone intracanalicular insert) for the short-term treatment of the signs and symptoms of dry eye disease, as well as several preclinical programs.
Key Business and Financial Developments
AXPAXLI for wet AMD
We are currently conducting the SOL-1 trial, a pivotal Phase 3 clinical trial for the treatment of wet AMD. The SOL-1 trial is designed as a prospective, multi-center, randomized, parallel-group trial that we expect to be run primarily at U.S. sites, as well as sites in Argentina and several other countries. The SOL-1 trial is designed as a superiority trial comparing a single optimized implant of AXPAXLI with a drug load of 450 µg of axitinib to a single injection of aflibercept and assessing the safety and efficacy of AXPAXLI in subjects with wet AMD by measuring Best Corrected Visual Accuity, or BCVA, and central subfield thickness. We are conducting the SOL-1 trial in accordance with a Special Protocol Assessment, or SPA, agreement letter we received in October 2023 from the FDA regarding the proposed clinical trial protocol and the statistical analysis plan and a subsequent SPA agreement modification letter we received from the FDA in January 2024 regarding the formulation of AXPAXLI to be used and the trial’s inclusion criteria.
We plan to enroll approximately 300 evaluable wet AMD subjects who are treatment naïve in the study eye with good visual acuity and a diagnosis of macular choroidal neovascularization at screening in the SOL-1 trial. Every enrolled subject will receive two aflibercept injections between the initial screening visit and Day 1: one at week -8 and another at week -4. Subjects reaching approximately 20/20 vision or experiencing an improvement of 10 Early Treatment of Diabetic Retinopathy Study, or ETDRS, letters after these injections, in addition to satisfying other enrollment criteria, will then be randomized in the trial at Day 1 to receive either one implant of AXPAXLI in the investigational arm or one injection of aflibercept in the control arm. All subjects will then be followed every month and rescued as needed with supplemental anti-VEGF treatment based on pre-specified criteria. The primary endpoint is the
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proportion of subjects who maintained visual acuity, defined as a BCVA loss of less than 15 letters on the ETDRS chart at week 36. Our pre-specified rescue criteria are a loss of 15 or more letters on the ETDRS chart compared to baseline, or a new hemorrhage that is deemed to be likely to cause irreversible vision loss. A loss of 15 letters or more on the ETDRS chart at any time in the trial would be considered as having met the endpoint as a treatment failure.
The first subjects in the SOL-1 trial were screened and received their first aflibercept injection in February 2024, and we started randomizing subjects in April 2024. We expect to complete enrollment of the SOL-1 trial by the end of the first quarter of 2025. We plan to enter into additional clinical trials of AXPAXLI for the treatment of wet AMD. We intend to pursue additional discussions with the FDA to guide development of these additional clinical trials. We are also developing a potential next-generation injector that we believe could improve the administration of AXPAXLI to the eye. If we were to obtain favorable results from the SOL-1 trial and any additional clinical trials we conduct for wet AMD, we plan to submit a New Drug Application, or NDA, with the FDA for marketing approval of AXPAXLI for the treatment of wet AMD.
AXPAXLI for NPDR
We are currently conducting the HELIOS trial, a U.S.-based, multicenter, double-masked, randomized, parallel group Phase 1 study evaluating the safety, tolerability and biological activity of a single injection of AXPAXLI in patients with moderately severe to severe NPDR without diabetic macular edema. We dosed our first subject in February 2023. We started conducting the Phase 1 clinical trial initially under an exploratory IND, which was subsequently converted to a traditional IND. We have enrolled 22 subjects with diabetic retinopathy secondary to type 1 or type 2 diabetes who had not had an anti-VEGF injection in the prior 12 months or diabetic macular edema in the prior six months, randomized 2:1 to either a single implant of AXPAXLI containing 600 µg of axitinib or sham control. In April 2024, we announced topline data from the HELIOS trial. AXPAXLI was generally well tolerated with no inflammation observed including no incidence of iritis, vitritis or vasculitis. No patients in either arm received rescue medication. Six of 13 (46.2%) patients in the AXPAXLI group experienced a 1 or 2-step improvement in the Diabetic Retinopathy Severity Scale, or DRSS, at 40 weeks, with two of the six experiencing a 2-step improvement. No patients in the control group showed a 1- or 2-step improvement at the same time point. No patients in the AXPAXLI group experienced any worsening in DRSS. One of eight (12.5%) patients in the control group experienced worsening in the DRSS at 40 weeks. A single injection of AXPAXLI provided durable DRSS improvement up to 40 weeks.
We plan to seek a Type C meeting with the FDA and to determine our next steps for AXPAXLI for the treatment of patients with NPDR following that meeting.
PAXTRAVA
We are conducting a U.S.-based Phase 2 prospective, multi-center, randomized, controlled clinical trial evaluating the safety, tolerability and efficacy of PAXTRAVA for the treatment of subjects with primary OAG or OHT under an IND. The Phase 2 clinical trial was initially designed to include approximately 105 subjects at 15 to 20 sites between three arms of approximately 35 subjects each to evaluate two formulations of PAXTRAVA for the treatment of OAG or OHT in subjects compared to DURYSTA. The non-study eye of each subject receives a topical prostaglandin analog daily, if not contraindicated. The primary efficacy endpoint is measured by diurnal IOP mean change from baseline (8 a.m., 10 a.m. and 4 p.m.) at two, six and 12 weeks. The active comparator control arm receives one injection of DURYSTA in one eye and a topical prostaglandin analog daily in the non-study eye, if not contraindicated. In April 2024, we presented 6-month topline data from this Phase 2 clinical trial at the 2024 American Society of Cataract and Refractive Surgery Annual Meeting. In the trial, the PAXTRAVA 26 µg single implant demonstrated consistent control of intraocular pressure, or IOP, through six months, as statistically significant IOP changes from baseline were observed for every individual and mean diurnal measurement at primary endpoints Week 2 (M0.5), Week 6 (M1.5), and Week 12 (M3), as well as secondary endpoints Months 4.5 and 6 (p<0.0001), although no formal statistical testing was prespecified by the clinical trial protocol. Clinically meaningful mean IOP reduction of approximately 24-30% from baseline over six months was observed. A majority (81.3%) of treated eyes did not require additional IOP-lowering therapy through six months, indicating sustained and consistent treatment effects.
PAXTRAVA 26 µg was generally well tolerated with no impact on corneal endothelium having been observed at six months following a single administration of the product candidate. The majority of adverse events, or AEs, observed were mild in severity and generally resolved with topical medical treatment. Most ocular AEs within three days were deemed related to the injection procedure by the investigators. AEs observed more than three days post-injection
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procedure were consistent with the travoprost label. There was one serious AE in the trial, where an implant required removal, which the investigator assessed to be likely due to a peri-implantation bacterial infection.
Consistent bioresorption of the implant coupled with the durable effect observed in the Phase 2 trial suggests redosing could be possible without the risk of stacking implants. We are conducting a pilot repeat-dose sub study in the Phase 2 clinical trial to evaluate the safety of a repeat, sustained-release dose in a small subset of subjects with OAG or OHT.
We plan to seek an end-of-Phase 2 meeting with the FDA and to determine our next steps for PAXTRAVA for the treatment of OAG or OHT following that meeting. We are also developing a potential next-generation injector that we believe could improve the administration of therapy.
Commercial
Our net product revenue generated from the sale of DEXTENZA was $14.7 million for the three months ended March 31, 2024, reflecting an increase of $1.6 million or 11.8% over the three months ended March 31, 2023, and an increase of $0.1 million or 0.1% over the three months ended December 31, 2023.
We believe that DEXTENZA is currently used in less than 5% of cataract procedures and that commercial growth may be driven by a continued focus on sales to ambulatory surgery centers, or ASCs, with specific focus on strategic corporate accounts that own and control multiple ASCs.
2024 Private Placement
In February 2024, we sold in a private placement 32,413,560 shares of our common stock at $7.52 per share and, in lieu of common stock to certain investors, pre-funded warrants to purchase up to an aggregate of 10,805,957 shares of our common stock at a price of $7.519 per pre-funded warrant for total net proceeds to us of approximately $316.4 million, after deducting placement agent fees and other offering expenses, or the 2024 Private Placement. Each pre-funded warrant has an exercise price of $0.001 per share, is currently exercisable and will remain exercisable until exercised in full.
Convertible Notes
In March 2024, the holder of our $37.5 million unsecured senior subordinated convertible notes, or the Convertible Notes, converted the principal amount of the Convertible Notes, and we issued to the holder of the Convertible Notes 5,769,232 shares of our common stock with a total fair value of $52.5 million and paid $11.4 million for accrued interest. The accounting for the extinguishment of the Convertible Notes resulted in a non-cash loss of $28.0 million.
Components of our Financial Performance
Revenue
We recognize product revenue when we sell DEXTENZA in the United States to a network of specialty distributors on a direct basis, who then resell the product to ASCs, hospital out-patient departments, or HOPDs, and physicians’ offices, and when we sell DEXTENZA on a direct basis to a small number of ASCs. We refer to these resales from the specialty distributors to the ASCs and HOPDs as in-market unit sales. We record DEXTENZA product sales net of estimated chargebacks, rebates, distribution fees and product returns. These deductions are generally referred to as gross-to-net deductions.
Operating Expenses
Cost of Product Revenue
Cost of product revenue consists of costs of DEXTENZA product revenue, which include:
● Direct materials costs;
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● Royalties;
● Direct labor, which includes employee-related expenses, including salaries, related benefits and payroll taxes, and stock-based compensation expense for employees engaged in the production process;
● Manufacturing overhead costs, which includes rent, depreciation, and indirect labor costs associated with the production process;
● Transportation costs; and
● Cost of scrap material.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:
● employee-related expenses, including salaries, related benefits and payroll taxes, travel and stock-based compensation expense for employees engaged in research and development, clinical and regulatory and other related functions;
● expenses incurred in connection with the clinical trials of our product candidates, including with the investigative sites that conduct our clinical trials and under agreements with contract research organizations, or CROs;
● expenses relating to regulatory activities, including filing fees paid to the FDA for our submissions for product approvals;
● expenses associated with developing our pre-commercial manufacturing capabilities and manufacturing clinical study materials;
● ongoing research and development activities relating to our core bioresorbable hydrogel technology and improvements to this technology;
● facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and supplies;
● costs relating to the supply and manufacturing of product inventory, prior to approval by the FDA or other regulatory agencies of our products; and
● expenses associated with preclinical development activities.
We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites.
Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials and regulatory fees. We do not allocate employee and contractor-related costs, costs associated with our proprietary bioresorbable hydrogel-based formulation technology ELUTYX, costs related to manufacturing or purchasing clinical trial materials, and facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified. We use internal resources in combination with third-party CROs, including clinical monitors and clinical research associates, to manage our clinical trials, monitor subject enrollment and perform data analysis for many of our clinical trials. These employees work across multiple development programs and, therefore, we do not track their costs by program.
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The successful development and commercialization of our products or product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
● the scope, progress, outcome and costs of our clinical trials and other research and development activities;
● the timing, receipt and terms of any marketing approvals;
● the efficacy and potential advantages of our products or product candidates compared to alternative treatments, including any standard of care;
● the market acceptance of our products or product candidates; and
● significant and changing government regulation.
Any changes in the outcome of any of these variables with respect to the development of our product candidates in clinical and preclinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate. We anticipate that our research and development expenses will increase in the future as we support our continued development of our product candidates.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of salaries and related costs for personnel in selling and marketing functions as well as consulting, advertising and promotion costs.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, information technology, human resources and administrative functions. General and administrative expenses also include insurance, facility-related costs and professional fees for legal, patent, consulting and accounting and audit services.
Other Income (Expense)
Interest Expense . Interest expense is incurred on our debt. In August 2023, we entered into a credit and security agreement, or the Barings Credit Agreement, with Barings Finance LLC, or Barings, as administrative agent, and the lenders party thereto, providing for a secured term loan facility, or the Barings Credit Facility, in the aggregate principal amount of $82.5 million. For the three months ended March 31, 2024, our interest-bearing debt included the Barings Credit Facility ($82.5 million outstanding principal) and the Convertible Notes ($37.5 million outstanding principal through March 28, 2024, no outstanding principal thereafter).
Change in Fair Value of Derivative Liabilities. In August 2023, in connection with entering into the Barings Credit Agreement, we identified an embedded derivative liability, which we were required to measure at fair value at inception and then are required to measure at the end of each reporting period until the embedded derivative is settled. In 2019, in connection with the issuance of our Convertible Notes, we identified an embedded derivative liability, which we were required to measure at fair value at inception and then at the end of each reporting period until the embedded derivative is settled. The settlement of the derivative liability related to the Convertible Notes occurred on March 28, 2024. The changes in fair value of these derivative liabilities are recorded through the condensed consolidated statement of operations and comprehensive loss and are presented under the caption “change in fair value of derivative liabilities”.
Losses from Debt Extinguishment . In March 2024, the holder of the Convertible Notes converted the Convertible Notes. In connection with the conversion, our obligations under the Convertible Notes extinguished, resulting in a loss on extinguishment.
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Results of Operations
Comparison of the Three Months Ended March 31, 2024 and 2023
The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023:
Three Months Ended
March 31,
Increase
2024
2023
(Decrease)
(in thousands)
Revenue:
Product revenue, net
$
14,715
$
13,214
$
1,501
Collaboration revenue
59
160
(101)
Total revenue, net
14,774
13,374
1,400
Costs and operating expenses:
Cost of product revenue
1,326
1,214
112
Research and development
20,735
14,747
5,988
Selling and marketing
10,183
10,835
(652)
General and administrative
14,147
9,127
5,020
Total costs and operating expenses
46,391
35,923
10,468
Loss from operations
(31,617)
(22,549)
(9,068)
Other income (expense):
Interest income
3,922
563
3,359
Interest expense
(4,051)
(1,768)
(2,283)
Change in fair value of derivative liabilities
(5,152)
(6,563)
1,411
Loss on extinguishment of debt
(27,950)
—
(27,950)
Other expense
—
(1)
1
Total other income (expense), net
(33,231)
(7,769)
(25,462)
Net loss
$
(64,848)
$
(30,318)
$
(34,530)
Product Revenue, net
Our product revenue, net was $14.7 million and $13.2 million for the three months ended March 31, 2024 and 2023, respectively, reflecting an increase of $1.5 million year-over-year. All of our product revenue, net, was attributable to sales of DEXTENZA.
Our total gross-to-net provisions for the three months ended March 31, 2024 and 2023 were 36.1% and 28.1%, respectively, of gross DEXTENZA product sales. Effective April 1, 2024, we increased the wholesale acquisition cost, or WAC, for DEXTENZA and the off-invoice discount, or OID, under our rebate program. The OID amounts are generally determined at the time of resale by specialty distributors or direct sales to ASCs by us. The total gross-to-net provision for the three months ended March 31, 2024 includes timing effects related to this increase, as units that we sold to specialty distributors under the pre-April 1, 2024 WAC through March 31, 2024 will be subject to the increased OID to the extent that such units are sold in-market by specialty distributors to ASCs, HOPDs, and physicians’ offices after March 31, 2024. We expect that the gross-to-net provision relative to gross DEXTENZA product sales will increase as a result of this change.
Collaboration Revenue
We recognized $0.1 million of collaboration revenue related to the performance obligation under our license agreement with AffaMed to conduct a Phase 2 clinical trial of PAXTRAVA during the three months ended March 31, 2024 compared to $0.2 million in the three months ended March 31, 2023. We recognize collaboration revenue based on a cost-to-cost method.
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Research and Development Expenses
Three Months Ended
March 31,
Increase
2024
2023
(Decrease)
(in thousands)
Direct research and development expenses by program:
AXPAXLI for wet AMD
$
5,493
$
1,785
$
3,708
PAXTRAVA for OAG or OHT
993
654
339
AXPAXLI for DR
832
601
231
DEXTENZA for post-surgical ocular inflammation and pain
593
449
144
OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease
265
54
211
OTX-CSI for treatment of dry eye disease
—
102
(102)
Preclinical programs
532
975
(443)
Unallocated expenses:
Personnel costs
8,359
7,341
1,018
All other costs
3,668
2,786
882
Total research and development expenses
$
20,735
$
14,747
$
5,988
Research and development expenses were $20.7 million and $14.7 million for the three months ended March 31, 2024 and 2023, respectively, reflecting an increase of $6.0 million year-over-year.
Within research and development expenses, expenses for clinical programs increased $4.5 million, unallocated expenses increased $1.9 million, and expenses for preclinical programs decreased $0.4 million.
For the three months ended March 31, 2024, we incurred $8.7 million in direct research and development expenses for our products and product candidates compared to $4.6 million for the three months ended March 31, 2023. The increase of $4.1 million is related to timing and conduct of our various clinical trials for our product candidates, including the SOL-1 trial and the HELIOS trial, partially offset by reduced development activities related to our preclinical programs.
We expect that clinical trial expenses for our product candidates will increase for the remainder of 2024 and beyond, as we progress with the SOL-1 trial; complete the HELIOS trial; continue the substudy in the Phase 2 clinical trial of PAXTRAVA for the treatment of primary OAG or OHT; initiate our planned additional clinical trials of AXPAXLI for wet AMD; and initiate any other clinical trials of our product candidates that we might determine in the future to conduct. We expect that personnel costs will increase for the remainder of 2024 and beyond, as we have recently strengthened and continue to strengthen our leadership team and our clinical teams with the addition of several retinal disease experts and other key professionals.
Selling and Marketing Expenses
Three Months Ended
March 31,
Increase
2024
2023
(Decrease)
(in thousands)
Personnel-related (including stock-based compensation)
$
7,353
$
7,561
$
(208)
Professional fees
1,563
2,078
(515)
Facility-related and other
1,267
1,196
71
Total selling and marketing expenses
$
10,183
$
10,835
$
(652)
Selling and marketing expenses were $10.2 million and $10.8 million for the three months ended March 31, 2024 and 2023, respectively, reflecting a decrease of $0.7 million year-over-year.
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The decrease was primarily due to a decrease of $0.5 million in professional fees, including consulting, and a decrease in personnel-related costs, including stock-based compensation, of $0.2 million, partially offset by an increase in facility-related and other costs of $0.1 million.
We expect our selling and marketing expenses to increase slightly for the remainder of 2024 and beyond as we continue to support the commercialization of DEXTENZA.
General and Administrative Expenses
Three Months Ended
March 31,
Increase
2024
2023
(Decrease)
(in thousands)
Personnel-related (including stock-based compensation)
$
9,757
$
5,840
$
3,917
Professional fees
3,818
2,881
937
Facility-related and other
572
406
166
Total general and administrative expenses
$
14,147
$
9,127
$
5,020
General and administrative expenses were $14.1 million and $9.1 million for the three months ended March 31, 2024 and 2023, respectively, reflecting an increase of $5.0 million year-over-year.
The increase was primarily due to an increase of $3.9 million in personnel-related costs, including stock-based compensation, an increase in professional fees of $0.9 million, and an increase of $0.2 million in facility-related and other costs. Personnel-related costs, including stock-based compensation, for the three months ended March 31, 2024 include $2.8 million related to accrued severance and acceleration of stock-based compensation for certain employees who departed during the three months ended March 31, 2024.
We anticipate that our general and administrative expenses will increase for the remainder of 2024 and beyond as we support our continued clinical development of our product candidates. During the three months ended March 31, 2024, we made several changes to our leadership team, which are expected to result in an increase in personnel-related costs, including stock-based compensation. We also anticipate that we will continue to incur increased administrative support, accounting, audit, legal, intellectual property, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company.
Other Income (Expense), Net
Interest Income . Interest income was $3.9 million and $0.6 million for the three months ended March 31, 2024 and 2023, respectively, reflecting an increase of $3.3 million year-over-year. The increase is primarily due to a higher average balance of cash and cash equivalents held by us, and higher interest rates.
Interest Expense . Interest expense was $4.1 million and $1.8 million for the three months ended March 31, 2024 and 2023, respectively, reflecting an increase of $2.3 million year-over-year. The increase is primarily due to higher balances of debt outstanding as a result of us drawing $82.5 million of debt under the Barings Credit Facility in August 2023, partially offset by us paying off the MidCap Credit Facility, as defined below, of $25.0 million in August 2023.
Change in Fair Value of Derivative Liabilities. We recognized a non-cash loss from the change in fair values of our derivative liabilities of $5.2 million for the three months ended March 31, 2024, compared to a loss of $6.6 million for the three months ended March 31, 2023. The net loss for the three months ended March 31, 2024 comprises of a loss of $7.2 million from the change in the fair value of the derivative liability related to the Barings Credit Agreement, and $0.5 million related to royalty fees under the Barings Credit Agreement that we paid or accrued, partially offset by a gain of $2.6 million from the change in the fair value of the derivative liability related to a conversion option embedded in the Convertible Notes. The loss for the three months ended March 31, 2023 results solely from the change in the fair value of the derivative liability related to the Conversion Option. We cannot predict how the fair value of the derivative liabilities will change in 2024 and beyond.
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Loss on extinguishment of debt. We recognized a non-cash loss on extinguishment from the conversion of the Convertible Notes in March 2024 of $28.0 million.
Liquidity and Capital Resources
Sources of Liquidity
We have financed our operations primarily through private placements of our preferred stock, public offerings and private placements of our common stock, borrowings under credit facilities, the private placements of our convertible notes, and sales of our products.
As of March 31, 2024, we had cash and cash equivalents of $482.9 million, and outstanding notes payable with a principal amount of $82.5 million par value under the Barings Credit Facility.
In February 2024, we sold 32,413,560 shares of our common stock at $7.52 per share and, in lieu of common stock to certain investors, pre-funded warrants to purchase up to an aggregate of 10,805,957 shares of our common stock at a price of $7.519 per pre-funded warrant for total net proceeds of approximately $316.4 million, after deducting placement agent fees and other offering expenses, in the 2024 Private Placement. Each pre-funded warrant has an exercise price of $0.001 per share, is currently exercisable and will remain exercisable until exercised in full.
On December 18, 2023, we sold 35,420,000 shares of our common stock in an underwritten public offering at a public offering price of $3.25 per share. The total net proceeds of the public offering to us were approximately $107.7 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.
In August 2023, we entered into a credit and security agreement, or the Barings Credit Agreement, with Barings Finance LLC, or Barings, as administrative agent, and the lenders party thereto, providing for a secured term loan facility for us, or the Barings Credit Facility, in the aggregate principal amount of $82.5 million. We borrowed the full amount of $82.5 million at closing and received proceeds of $77.3 million, after the application of an original issue discount and fees.
In connection with entering the Barings Credit Facility, in August 2023, we paid MidCap Financial Trust, as administrative agent, and our other lenders an aggregate of $26.2 million in satisfaction of our obligations under our prior credit facility, which we refer to as the MidCap Credit Facility.
Funding Requirements
We have a history of incurring significant operating losses. Our net losses were $64.8 million for the three months ended March 31, 2024, and $80.7 million and $71.0 million for the years ended December 31, 2023 and 2022, respectively. As of March 31, 2024, we had an accumulated deficit of $762.4 million.
We expect to continue to incur losses in connection with our ongoing activities, particularly as we advance the clinical trials of our product candidates in development, specifically AXPAXLI for the treatment of wet AMD, and as we support the commercialization of DEXTENZA and the potential commercialization of our product candidates, subject to receiving FDA approval.
We anticipate we will incur substantial expenses if and as we:
● continue our ongoing clinical trials, including the SOL-1 trial of AXPAXLI for the treatment of wet AMD; our Phase 1 clinical trials of AXPAXLI for the treatment of wet AMD; the HELIOS trial of AXPAXLI for the treatment of NPDR; our Phase 2 clinical trial of PAXTRAVA for the treatment of OAG or OHT; and our Phase 2 clinical trial of OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease;
● continue to monitor subjects according to the applicable clinical trial protocols in our clinical trials that have been completed, including our clinical trial to evaluate DEXTENZA in pediatric subjects following cataract surgery;
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● initiate our planned additional clinical trials of AXPAXLI for wet AMD and any additional clinical trials we might determine in the future to conduct for our product candidates;
● continue to commercialize DEXTENZA in the United States;
● continue to develop and expand our sales, marketing and distribution capabilities for DEXTENZA and any other products or product candidates we intend to commercialize;
● conduct or support research and development activities on, and seek regulatory approvals for, DEXTENZA and PAXTRAVA in specified Asian markets pursuant to our license agreement and collaboration with AffaMed Therapeutics Limited, or AffaMed;
● continue the research and development of our other product candidates;
● seek to identify and develop additional product candidates;
● seek marketing approvals for any of our product candidates that successfully complete clinical development;
● scale up our manufacturing processes and capabilities to support sales of commercial products, clinical trials of our product candidates and commercialization of any of our product candidates for which we obtain marketing approval, and expand our facilities to accommodate this scale up and any corresponding growth in personnel;
● renovate our existing facilities including research and development laboratories, manufacturing space and office space;
● maintain, expand and protect our intellectual property portfolio;
● expand our operational, financial, administrative and management systems and personnel, including personnel to support our clinical development, manufacturing and commercialization efforts;
● defend ourselves against legal proceedings, if any;
● make investments to improve our defenses against cybersecurity threats and establish and maintain cybersecurity insurance;
● increase our product liability and clinical trial insurance coverage as we expand our clinical trials and commercialization efforts; and
● continue to operate as a public company.
The amount and timing of these expenses determines our future capital requirements.
Based on our current operating plan, which includes estimates of anticipated cash inflows from DEXTENZA product sales and cash outflows from operating expenses and capital expenditures and reflects our observance of the minimum liquidity covenant of $20.0 million under the Barings Credit Agreement, we believe that our existing cash and cash equivalents as of March 31, 2024 will enable us to fund our planned operating expenses, debt service obligations and capital expenditure requirements into 2028. We have based our estimates on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
Our future capital requirements will depend on many factors, including:
● the level of product sales from DEXTENZA and any additional products for which we obtain marketing approval in the future and the level of third-party reimbursement of such products;
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● the costs of sales, marketing, distribution and other commercialization efforts with respect to DEXTENZA and any additional products for which we obtain marketing approval in the future, including cost increases due to inflation;
● the progress, costs and outcome of our ongoing and planned clinical trials of AXPAXLI for the treatment of wet AMD,
● the scope, progress, costs and outcome of preclinical development and any additional clinical trials we might determine in the future to conduct for our product candidates;
● the costs, timing and outcome of regulatory review of our product candidates by the FDA, the EMA or other regulatory authorities;
● the costs of scaling up our manufacturing processes and capabilities to support sales of commercial products, clinical trials of our product candidates and commercialization of any of our product candidates for which we obtain marketing approval and of expanding our facilities to accommodate this scale up and any corresponding growth in personnel;
● the extent of our debt service obligations and our ability, if desired, to refinance any of our existing debt on terms that are more favorable to us;
● the amounts we are entitled to receive, if any, as reimbursements for clinical trial expenditures, development, regulatory, and sales milestone payments, and royalty payments under our license agreement with AffaMed;
● the extent to which we choose to establish additional collaboration, distribution or other marketing arrangements for our products and product candidates;
● the costs and outcomes of any legal actions and proceedings;
● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and
● the extent to which we acquire or invest in other businesses, products and technologies.
Until such time, if ever, as we can generate product revenues sufficient to achieve profitability, we expect to finance our cash needs through equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, royalty agreements, and marketing and distribution arrangements. We do not have any committed external source of funds, although our license agreement with AffaMed provides for AffaMed’s reimbursement of certain clinical expenses incurred by us in connection with our collaboration and for our potential receipt of development and sales milestone payments and royalty payments. To the extent that we raise additional capital through the sale of equity, preferred equity or convertible debt securities, our securityholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing securityholders’ rights as holders or beneficial owners of our common stock. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. The covenants under the Barings Credit Facility and our pledge of our assets as collateral to secure our obligations under the Barings Credit Facility pursuant to which we have a total borrowing capacity of $82.5 million, which has been fully drawn down, may limit our ability to obtain additional debt or other financing. If we raise additional funds through collaborations, strategic alliances, licensing arrangements, royalty agreements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, products or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
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Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
Three Months Ended
March 31,
2024
2023
Cash used in operating activities
$
(33,887)
$
(19,973)
Cash used in investing activities
(255)
(3,379)
Cash provided by financing activities
321,223
78
Net increase (decrease) in cash and cash equivalents
$
287,081
$
(23,274)
Operating activities . Net cash used in operating activities was $33.9 million for the three months ended March 31, 2024, primarily resulting from our net loss of $64.8 million, adjusted for losses on extinguishment of debt of $28.0 million, changes in the fair value of our derivative liabilities of $5.2 million, and other non-cash items of $10.9 million, partially offset by net unfavorable changes in operating assets and liabilities of $13.2 million. Our net loss was primarily attributed to research and development activities, selling and marketing costs, our general and administrative expenses, and other non-operating expenses of $33.2 million, partially offset by $14.8 million of revenue. Our other non-cash items were $8.0 million of stock-based compensation expense, $2.0 million in non-cash interest expense, and $0.9 million in depreciation and amortization expense. Net cash used by net unfavorable changes in our operating assets and liabilities during the three months ended March 31, 2024 consisted primarily of net decreases of accrued expenses of $14.0 million, which include a $11.4 million payment of interest to the holder of the Convertible Notes and other items, net, of $0.7 million, partially offset by increases of accounts payable, excluding accounts payable related to additions to property and equipment, of $1.7 million.
Net cash used in operating activities was $20.0 million for the three months ended March 31, 2023, primarily resulting from our net loss of $30.3 million, adjusted for changes in the fair value of a derivative liability of $6.6 million and $3.8 million of other non-cash items and changes in operating assets and liabilities. Our net loss was primarily attributed to research and development activities, selling and marketing costs, our general and administrative expenses, and our other income, partially offset by $13.4 million of revenue. Our other non-cash items during the three months ended March 31, 2023 consisted primarily of $4.6 million of stock-based compensation expense, $1.2 million in non-cash interest expense, and $0.5 million in depreciation and amortization expense, partially offset by $2.5 million unfavorable changes in our operating assets and liabilities. Net cash used by unfavorable changes in our operating assets and liabilities during the three months ended March 31, 2023 consisted primarily of decreases in accrued expenses, excluding accrued non-cash interest, of $2.6 million and increases of prepaid expenses and other current assets of $0.7 million, partially offset by increases in accounts payable of $1.0 million.
Investing activities . Net cash used in investing activities was $0.3 million for the three months ended March 31, 2024, consisting of cash used to purchase property and equipment and leasehold improvements. Net cash used in investing activities was $3.4 million for the three months ended March 31, 2023, consisting of cash used to purchase property and equipment, primarily consisting of leasehold improvements.
Financing activities . Net cash provided by financing activities for the three months ended March 31, 2024 was $321.2 million and consisted of total net proceeds from the issuance of common stock and pre-funded warrants in a private placement of approximately $316.4 million, and proceeds from the exercise of stock options of $4.9 million.
Net cash provided by financing activities for the three months ended March 31, 2023 was $0.1 million and consisted of proceeds from the exercise of stock options of $0.1 million. In March 2023, we requested a protective advance of $2.0 million under our Fourth Amended and Restated Credit and Security Agreement with MidCap Financial Trust, as administrative agent, and the lenders party thereto, in response to the closure of Silicon Valley Bank, which was deemed a credit extension. We repaid the full principal amount of $2.0 million in March 2023.
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Contractual Obligations and Commitments
Less Than
1 to 3
3 to 5
More than
Total
1 Year
Years
Years
5 Years
(in thousands)
Operating lease commitments
$
10,190
$
2,288
5,382
2,520
—
Barings Credit Agreement
82,474
—
—
—
82,474
Total
$
92,664
$
2,288
$
5,382
$
2,520
$
82,474
The table above includes our enforceable and legally binding obligations and future commitments at March 31, 2024, as well as obligations related to contracts that we are likely to continue, regardless of the fact that they may be cancelable at March 31, 2024. Some of the figures that we include in this table are based on management’s estimates and assumptions about these obligations, including their duration, and other factors. Because these estimates and assumptions are necessarily subjective, the amounts we will actually pay in future periods may vary from those reflected in the table.
We enter into contracts in the normal course of business to assist in the performance of our research and development activities and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts which are not included in contractual obligations and commitments.
Operating lease commitments represent payments due under our leases of office, laboratory and manufacturing space in Bedford, Massachusetts and certain office equipment under operating leases that expire in July 2027 and July 2028.
The commitments under the Barings Credit Agreement represent repayment of principal only. Future payments of interest under the Barings Credit Agreement depends on the level of the Secured Overnight Financing Rate, and future payments of royalty fees depend on our future revenue from DEXTENZA, both of which cannot be estimated at this time.
We have in-licensed a significant portion of our intellectual property from Incept, an intellectual property holding company, under an amended and restated license agreement, or the Incept License Agreement, that we entered into with Incept in January 2012, which was most recently amended in September 2018. We are obligated to pay Incept a royalty equal to a low-single-digit percentage of net sales made by us or our affiliates of any products , devices, materials, or components thereof, or the Licensed Products, including or covered by Original IP (as defined in the Incept License Agreement), excluding the Shape-Changing IP (as defined in the Incept License Agreement), in the Ophthalmic Field of Use (as defined in the Incept License Agreement). We are obligated to pay Incept a royalty equal to a mid-single-digit percentage of net sales made by us or our affiliates of any Licensed Products including or covered by Original IP, excluding the Shape-Changing IP, in the Additional Field of Use (as defined in the Incept License Agreement). We are obligated to pay Incept a royalty equal to a low-single-digit percentage of net sales made by us or our affiliates of any Licensed Products including or covered by Incept IP (as defined in the Incept License Agreement) or Joint IP (as defined in the Incept License Agreement) in the field of drug delivery. Any sublicensee of ours also will be obligated to pay Incept a royalty on net sales of Licensed Products made by it and will be bound by the terms of the agreement to the same extent as we are. We are obligated to reimburse Incept for our share of the reasonable fees and costs incurred by Incept in connection with the prosecution of the patent applications licensed to us under the agreement. Our share of these fees and costs is equal to the total amount of such fees and costs divided by the total number of Incept’s exclusive licensees of the patent application. We have not included in the table above any payments to Incept under this license agreement as the amount, timing and likelihood of such payments are not known.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission, such relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets.
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Critical Accounting Policies and Significant Judgments and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America.
We define our critical accounting policies as those accounting policies that require us to make subjective estimates and judgments about matters that are uncertain and have had or are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those policies. Our critical accounting policies, which relate to revenue recognition and our derivative liabilities, are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 11, 2024.
The preparation of our unaudited condensed consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued research and development expenses and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Recently Issued Accounting Pronouncements
Information regarding new accounting pronouncements is included in Note 2 – Summary of Significant Accounting Policies to the current period’s unaudited condensed consolidated financial statements.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.