A public share offering that's closing today and will add $45 million, before fees, to its balance sheet is sending shares of Ocular Therapeutix (NASDAQ:OCUL) soaring 19.3% at 3:47 p.m. EST on Friday.
The healthcare company's offering includes approximately 8.2 million shares at a price of $5.50 per share, with an additional 1.23 million shares available for broker over allotments. The $45 million, gross of underwriting expenses, will significantly improve Ocular Therapeutix cash runway, particularly since demand for its lead drug, Dextenza, has declined sharply because of eye surgery delays caused by the COVID-19 pandemic.
An implantable steroid that can ease pain and inflammation following eye surgery, Dextenza's revenue is only beginning to roll in following its Food and Drug Administration (FDA) approval last June. In the first quarter of 2020, Dextenza revenue was $2.1 million, up 31% from the fourth quarter of 2019.
Unfortunately, Dextenza's momentum has slowed dramatically since mid-March because of social distancing guidelines, which have resulted in fewer eye procedures requiring Dextenza. As a result, management says it "anticipates current guidelines and recommendations from the global health authorities will significantly impact revenue in the second quarter."
The anticipated decline in Dextenza revenue has management thinking its $48.2 million cash balance exiting March will only last it into Q1, 2021, raising questions about whether management has the financing needed to advance studies on drugs in its pipeline, including OTX-TIC, a long-acting implant of travoprost for primary open angle glaucoma or ocular hypertension patients, and OTX-TKI, a bioresorbable, implant for wet age-related macular degeneration (wet AMD). Both OTX-TIC and OTX-TKI are only in early-stage trials.
The company hopes to file a supplemental approval later this year for Dextenza's use in allergic conjunctivitis later following positive phase 3 trial results. If the number of eye surgeries bounces back to pre COVID-19 levels, then Dextenza sales could be back on track later this year, and if the FDA cooperates, sales could get a boost in 2021 with a supplemental approval for allergic conjunctivitis. However, there's no guarantee that procedure volume will pick up quickly. Moreover, total operating expenses exceed $19 million per quarter, so investors may want to wait a little while for pipeline data or greater clarity into Dextenza's recovery before buying.