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Can Ocular Therapeutix Reach Its Full Potential?

By Brian Orelli, PhD and Keith Speights - Apr 1, 2021 at 9:21AM

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The biotech has a ways to go.

Ocular Therapeutix (OCUL -1.47%) recently reported fourth-quarter earnings with a loss of $85.6 million. While sales of Dextenza, Ocular's only approved therapeutic, were up an impressive 28% quarter over quarter, the drug's sales of $7 million are still a far cry from its potential peak sales of $600 million or more.

In this video from Motley Fool Live, recorded on March 15, contributors Brian Orelli and Keith Speights discuss the future of Ocular Therapeutix and how investors should be valuing the biotech.

Brian Orelli: Then moving on to Ocular Therapeutix, it released fourth-quarter earnings on Thursday. The company has one drug on the market, Dextenza, which is the insert that goes into the eye that releases steroid for inflammation and pain, following eye surgery. Sales were up 28% quarter over quarter, but we're still only at $7 million, so it's pretty small revenue there. They are applying for [Food and Drug Administration] approval to use the insert for allergic conjunctivitis. But this still seems like it's a development-stage company. Will the expanded indication be a big growth driver, or should investors be looking at drugs in the pipeline, which seem like they're still pretty early-stage?

Keith Speights: I think it's important to remember that it's really still early innings for Dextenza as well. The drug received FDA approval for its current indication as a treatment for pain post-surgery. That approval was received in mid-2019, so really 2020 was the primary year when the company began to truly launch that drug. 2020 was [laughs] a terrible year, a really rough year to be promoting a new drug in the midst of the pandemic. So I don't think we can make a fair assessment of Dextenza's potential based on the results in 2020, although the sales did increase for the drug.

I'm not so sure that the indication they're pursuing, the allergic conjunctivitis, which is basically pink eye, will be a huge growth driver for the company. There already are quite a few low-cost treatments for that indication. So I think it will be an incremental gain in revenue, but I'm not sure it will be a huge growth driver for Ocular.

Now there are hopes that Dextenza could generate peak sales of $600 million or even more, primarily in its current indication, but the company has a long way to go to get to that level. But still I think that Dextenza is still the primary driver behind Ocular's market cap of around a little over $1.5 billion.

The company does have several candidates in its pipeline, all targeting eye diseases. It has a dry eye disease candidate that's in phase 2 testing, and another one in phase 1; they have a wet AMD, which is age-related macular degeneration, candidate in phase 1 testing. They also have a candidate targeting glaucoma that's in phase 1. But these are all candidates that are in such early stages that it's hard to determine just how much investors should value these pipeline candidates in assessing how much Ocular should be worth. I think for now, anyway, Dextenza is the main drug to look at when you're looking at Ocular.

Orelli: With phase 1 [drug]s, I usually don't add any value to them because there's no data to really, you know, make a firm...

Speights: Yeah. Statistically it's a crapshoot. I mean, there's no way to know if they're going to pan out or not. I think looking at Dextenza and its opportunities is the main way to determine -- is Ocular Therapeutix a stock worth considering or not?

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