Ocular Therapeutix: Unveiling Pipeline Progress (AXPAXLI, PAXTRAVA) And Q1 Results (NASDAQ:OCUL)

Thesis

This article will be delving into the most recent pipeline, operational and financial updates from Ocular Therapeutix Inc. (NASDAQ:OCUL).

Taking into account the potential progress of Axpaxli and Paxtrava as well as further potential uses of Elutyx as drug-eluting biodegradable devices, I think Ocular is worthy of consideration. Moreover, I believe the long cash-runway, which may allow Ocular to progress with the development of its leading product candidates, together with the leadership change are likely to support the company growth.

In summary, my analysis has led me to rate the stock as a “Hold” with a view to a potential rating upgrade if/when Axpaxli obtains regulatory approval.

Overview

Ocular is a biopharmaceutical company with a focus on the development and commercialisation of novel treatments for conditions altering the vision. The company has one product approved and commercially available, known as Dextenza, which aims to treat inflammation and pain post eye surgery. Thanks to Dextenza, Ocular has observed an increase in sales-driven revenue (see image below), but unfortunately it does not upset the increasing operating costs associated with the pipeline development. Thus, OCUL is running with negative numbers.

However, the most interesting fact about Dextenza is the use of ElutyxTM, which is a biodegradable poly(ethylene glycol)-based hydrogel able to provide a sustained control-release of the drug of interest for weeks or even months (see image below).

Last month, Ocular provided promising updates related to clinical trials aiming to evaluate the safety and efficacy of Axpaxli in wet age-related macular degeneration ((wet-AMD)) and diabetic retinopathy. Similarly, 6-month top line results from Paxtrava’s clinical trials, a treatment aimed to reduce intraocular pressure, are also encouraging. Both treatments utilise Elutyx as a drug-eluting device, which it is implanted intravitreal ((Axpaxli)) or intracameral ((Paxtrava)).

In addition, the company has recently appointed Pravin Dugel, MD as new CEO. Dr Dugel’s expertise might become very important on Ocular’s progression into a retina-care leading company. In terms of cash flow, the company has recently raised $325 million, which according to Ocular’s estimates, will extend the cash runway until 2028. The four-year runway extension is likely to secure the financial stability of the company beyond the potential launch of its most advanced product candidate. Thus, I believe that once the company starts realising the revenues associated with Axpaxli, Ocular’s balance sheet will be looking healthier, making the company more attractive to investors.

Pipeline progress

Ocular’s pipeline includes applications in wet-AMD, diabetic retinopathy, glaucoma, ocular hypertension, dry eye conditions and retinal degeneration (see image below).

The whole pipeline utilises Elutyx as drug-eluting platform, which depending on the application is aimed to be implanted into the lacrimal canal ((intracanalicular)), inside the vitreous cavity ((intravitreal)), or into the anterior chamber of the eye, located behind the cornea ((intracameral)). Demonstrating the versatility of the Elutyx device. The leading product candidate is Axpaxli, for which the company is seeking indications in wet-AMD and diabetic retinopathy. The second most advanced program is Paxtrava, with potential applications in glaucoma and ocular hypertension.

Axpaxli

The intravitreal Axpaxli (see image below), utilises the Elutyx device loaded with Axitinib, which is the active therapeutic molecule. Axitinib is an FDA approved small molecule, known for its capacity to inhibit tyrosine kinase receptors including the vascular endothelial growth factor receptors ((VEGFRs)), which are involved in the formation of new blood vessels ((angiogenesis)). Given its anti-angiogenic capacity, Axitinib is already utilised in the treatment of tumours, including renal cancers. Most recently, researchers have investigated the role of Axitinib’s anti-angiogenic capacity in the retina, demonstrating its therapeutic potential in the treatment of wet-AMD, among others.

Before delving into Axpaxli’s most recent updates, I think a brief introduction to wet-AMD is in order. In this sense, AMD is among the most common causes of vision impairment in the elderly population. It is characterised for blurring your central vision, which impedes recognising faces, reading, driving, among other common day-to-day activities. There are two types of AMD, known as dry and wet. Dry-AMD is usually caused by the thinning of the inner part of the eye responsible for the central vision, colour vision and detail vision (macula). On the other hand, wet-AMD, also known as advanced neovascular AMD, is a late stage type of AMD characterised by the abnormal formation of blood vessels in the macula.

With this in mind, Ocular’s Chief Strategy Officer Sanjay Nayak presented top line results associated with Axpaxli in wet-AMD at the Retina Innovation Summit on May 4th. In summary, Axpaxli demonstrated its superior durability (see image below), with over 70% of the subjects treated with Axpaxli being free of supplemental injections 10 months post-implantation, and 60% being still injection free at 12 months post-treatment. Considering that the hydrogel is expected to degrade within 9 months, it is very encouraging that Axtinib’s effects remain for a few more months. From the patient point of view, one of the most attractive features of this device is the reduced need for repeated intraocular injections overtime. On a personal note, my mother is suffering from early wet-AMD, and despite the efficiency of the anti-VEGF injections, the recurrent intraocular injections are far from pleasant, thus reducing the frequency of them while providing a long-lasting therapeutic effect will be very much appreciated by the patients.

Moreover, in a recent press release, Ocular reported that the Phase 3 clinical trial ((SOL-1)), that aims to test the efficacy and safety of Axpaxli against Aflibercept (also known as Eylea), started screening subjects last February. Further updates provided in the Q1 report stated that by April 2024 subjects have been randomised, and the full enrolment of the SOL-1 trial is expected by Q1 2025 at the latest. Consequently, Ocular’s management commented in the Q1 2024 report the following:

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.

Considering the results obtained in the different clinical trials, so far, I would expect Axpaxli to demonstrate its superior performance against the gold standard treatment. Furthermore, it is important to highlight that SOL-1 experimental design and protocols have been thoroughly revised and modified after the FDA feedback, thus increasing the odds of obtaining meaningful data that the FDA will consider valid once the official NDA is submitted.

Ocular is also evaluating the safety and efficacy of a single Axpaxli injection in patients with moderate to severe nonproliferative diabetic retinopathy, in a Phase 1 clinical trial called HELIOS. Nonproliferative diabetic retinopathy is a condition in which the blood vessels in the retina form microaneurysms that leak fluids (e.g. blood) in the retina, thus causing vision impairment.

In this sense, last month, Ocular informed top line HELIOS results in a press release. Generally speaking, the implant did not cause severe adverse events, proving the tolerability and safety of Axpaxli. More importantly, 46.2% of the patients treated with Axpaxli loaded with 600 µg of axitinib observed 1 or 2-step improvement in the Diabetic Retinopathy Severity Scale. In plain English, the severity of their condition was significantly reduced at 40 weeks of treatment. Although, less than 50% of patients doesn’t sound too impressive, it is important to highlight that none of the control patients (the patients that did not receive the drug) experienced improvements in their condition, with 12.5% of them worsening their condition. In contrast, no Axpaxli patient manifested worsening of their condition. Thus, the HELIOS results should be of paramount importance in order to determine the next steps for Axpaxli in diabetic retinopathy.

In this sense, I would expect Ocular’s meeting with the FDA to be successful in determining the next steps for Axpaxli’s diabetic retinopathy indication.

Paxtrava

The intracameral Paxtrava consists of microparticles of the Elutyx hydrogel loaded with Travoprost as therapeutically-active molecule. Travoprost is a drug commonly used in the treatment of ocular hypertension and glaucoma. Thus, Ocular’s strategy is to deliver Travoprost in a sustained manner, aiming to secure the long-lasting effect of the drug for at least six months with only one injection.

Paxtrava is the second leading product candidate in Ocular’s pipeline. In the FY 2023 investor presentation, Ocular estimated the market opportunity for Paxtrava to be approximately $4.3 billion in annual sells. Furthermore, the global market size for glaucoma treatments has been estimated to reach $8.45 billion by 2033, with a CAGR of 3.29% between 2024-2033. Thus, targeting applications in glaucoma could lead to a large increase in revenue. Indeed, Paxtrava’s phase 1 clinical trial results, as reported by the company in the FY 2023 investor presentation, demonstrated that Paxtrava loaded with 26 µg of Travoprost promoted the most consistent response lowering the intraocular pressure in all the subjects up to 7 months after injection. Building on that, Ocular carried on a Phase 2 clinical trial in which they tested the safety and efficacy of Paxtrava vs Durysta on the treatment of ocular hypertension and glaucoma. In this sense, Ocular recently made public the 6 months top line results in a press release and their participation in the ASCR 2024 where Mark Gallardo, MD presented the most recent results of the study.

In summary, Paxtrava has similar performance than Durysta (see image below), which is an intracameral biodegradable hydrogel loaded with Bimatoprost FDA approved for the same indications that Paxtrava is seeking.

Based on this results, I think Paxtrava is not exceeding expectations, has been equally good than Durysta might not be enough to take part of AbbVie’s (ABBV) market share. However, the nine-month results, which is the next time point in the study, might provide Paxtrava with the advantage for longer or more stable long-term effect. In this sense, Ocular informed in the press release that the next steps are:

Seek an end-of-Phase 2 meeting with the FDA to finalize development plans for Paxtrava Phase 3 trials and move to a next generation, commercial injector that eases initiation of therapy.

Q1 2024 Financial updates

Despite the increasing adoption of Dextenza, Ocular’s only commercial product, it is far from achieving the $0.8 billion in annual sales that Ocular described in the FY 2023 investor presentation. Indeed, in the 10Q report, the company reported $14.715 million in sales, which is 11.36% higher than the sales revenue reported in Q1 2023. The total revenue, including partnerships, in Q1 2024 was $14.774 million, also 10.47% higher than Q1 2023 (see image below).

Ocular’s operating costs have also seen a significant increase year-over-year, accounting for a 29.15% increase, upsetting Dextenza’s revenue increase. This increase in operating costs is largely associated with the cost of Axpaxli’s clinical trials, which was $6.325 million in Q1 2024 vs $2.386 million in Q1 2023. Given the continuous deficit of the company, Ocular’s net loss has doubled when comparing Q1 2024 vs Q1 2023. On the other hand, the cash and cash equivalents in Q1 2024 was $484.652 million. This cash raise was largely due to the recent private offer of shares, from which the company reported in its 10Q that it has received approximately $316.353 million after the agent fees.

In this sense, the company stated in the 10Q press release that it accounts with enough cash to cover its operations up to 2028. The company’s operating costs in 2023 totalled $91.5 million, so estimating similar operating costs in the coming years, the current cash would cover roughly 5 years. However, taking into account the company’s liabilities, the numbers are quite different. In this sense, Ocular stated in its 10Q the following:

As of March 31, 2024, the Company had an accumulated deficit of $762,426. Based on its current operating plan which includes estimates of anticipated cash inflows from product sales and cash outflows from operating expenses and capital expenditures, the Company believes that its existing cash and cash equivalents of $482,888 as of March 31, 2024 will enable it to fund its planned operating expenses, debt service obligations and capital expenditures at least through the next 12 months from the issuance date of these unaudited condensed consolidated financial statements while the Company observes a minimum liquidity covenant of $20,000 in its credit facility.

With this in mind, I believe that Ocular is in a relatively good position at the moment with enough cash to cover its operating costs, and enough runway to see through the potential approval of Axpaxli in at least one of the indications. However, this will largely depend on the results from the SOL-1 clinical trial, which will be yielding top line results from 2025.

Valuation

At the time of writing, OCUL shares are trading at $5.69, with a market cap of $882.87 million. Year to date, OCUL’s shares have risen 18.30%. However, the company is currently facing a bearish trend, with the exponential moving average and the moving average convergence/divergence signalling for “sell” (see image below). Thus, it is likely that the share price will continue to fall.

Ocular’s revenue increased 15% year over year, doubling the sector’s median. Thus, providing good signs in terms of future profitability. In this sense, the company estimates that its pipeline’s market opportunity accounts for $25 billion in annual sales (see image below).

Although I think those estimates are too optimistic, I do believe that if/when Axpaxli obtains regulatory approval, it will provide a significant revenue boost. Thus, in my opinion, in the long term the company is likely to reward investors with high returns. But, given the lack of near term catalysts and poor profitability that the company has shown so far, I think the stock will be facing high volatility in the short-term.

In this sense, Ocular’s EV/sales ratio is 8.19, which is 117% higher than the sector median. Thus, rating the company as overvalued and supporting the bearish thesis. Similarly, the price/book ratio is 2.2, also indicates that Ocular is trading at a premium given its performance so far.

In my opinion, the enormous potential of the Elutyx platform, which is able to release the drug of interest in a controlled-manner for long periods of time, justifies the current market cap. Indeed, I would not be surprised if Ocular becomes the target of an M&A deal with a larger company such as Merck (MRK), or JNJ based on the Elutyx technology.

Hence, taking into account all of the above, I consider Ocular is a “Hold” at this moment, but I would be prone to upgrade the rating once there is better clarity on the path to market for Axpaxli and Paxtrava.

Risks

Despite the increasing revenue, Ocular Therapeutix continues to increase its deficit, outpacing Dextenza’s sale profits. This is not unheard of for small biopharmaceutical companies, which have to fund large clinical trials. In this sense, Axpaxli continues to perform through clinical trials, suggesting that the device is on the good track to eventually obtain regulatory approvals. Consequently, the company has been focusing its efforts and resources on the progress of Axpaxli, which might result in a huge loss if Axpaxli has a poor performance in the SOL-1 trial.

Similarly, as I commented earlier in the article, the 6 months top-line results associated with Paxtrava might not be good enough to be able to acquire part of the market currently owned by Durysta. Thus, unable to generate the expected revenue boost.

Finally, investors should take into account that Ocular may continue to dilute share-holders as the main form to raise cash that enables them to fund its operations.

Conclusions

Ocular Therapeutix, is a biopharmaceutical focused on the development of therapies for the eye. Currently, accounts with one commercial product (Dextenza), which utilises a proprietary hydrogel ((Elutyx)) formulation that enables the control-release of drugs for long periods of times.

Building on the Elutyx platform, Ocular has two leading product candidates in Phase 2 and 3 of clinical trials. Axpaxli, which is aimed for the treatment of wet-AMD and glaucoma, is the most advanced product candidate. In this sense, Axpaxli has started Phase 3 clinical trials, and it is expected to be fully enrolled by Q1 2025.

Despite the therapeutic potential of Ocular products, its balance sheet and its valuation do not support a bull case for the company, until there is more clarity on the path to market for Axpaxli. The change of leadership may have a positive impact on Ocular’s evolution towards a retina-care leading company, but I believe it is better to assess the results of Axpaxli in SOL-1 in order to support a bullish case. Hence, my overall rating for Ocular is a “Hold”.