In investing, it's not always "what you see is what you get." There are often many underlying factors that set up a company for success or failure, regardless of current revenue or stock price. But in ophthalmology -- the treatment of eyes and visual pathways -- seeing is everything.
Ocular Therapeutix (OCUL 8.17%) is a biopharma company that focuses its efforts on innovative therapies, using its hydrogel technology to treat diseases and conditions affecting the eyes. Recently, the company has experienced a strong stretch of positive news -- but will it be the kind of news that results in a large gain for investors?
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Beneath the surface numbers
In early August, the company reported second-quarter financial results that highlighted sales success; these were led by its top-selling product, Dextenza, which is used to treat postsurgical inflammation and pain. Total net product revenue came in at $11.7 million for the quarter, showing growth of 631% over the same quarter last year.
But when you dig a little deeper, the numbers may not be exactly as they seem on a year-over-year basis. It's important to note that the second quarter of 2020 was the lowest total quarterly revenue the company has brought in for the past seven quarters.
So if you look only at growth compared to the year-ago period, it may come across as bigger than it really is. A more meaningful metric might be sequential quarterly growth, comparing the second quarter of this year to the first quarter, which (like the fourth quarter of 2020) came in at $7.3 million -- resulting in a still-impressive growth percentage of 60%.
It's also worth noting that $11.1 million of Ocular's $11.7 million in total sales during the second quarter came from Dextenza, with another $0.2 million coming from the company's only other commercial product, ReSure Sealant.
With such heavy reliance on one product for the majority of revenue, management of cash and expenses plays even more of a role in financial stability. Across the board, the company spent more in the second quarter compared to the same period last year. Research and development (R&D) expense increased by 50%; sales, general, and administrative (SG&A) costs went up by a whopping 69%; and marketing and selling expenses rose by 33%. Meanwhile, cash took a slight 10% dip from the first quarter of this year to the second, leaving the company with $191 million at the end of June.
Stock-price impact
The positive second-quarter numbers got the attention of analysts who follow Ocular. H.C. Wainwright analyst Yi Chen (a top 100 analyst per TipRanks.com, with a 59% average return) upgraded Ocular from a neutral to a buy, and placed a $17 price target on the stock. Jonathan Wolleben, of JMP Securities, reiterated a buy rating with a $30 price target.
These both come on the heels of a $28 price target provided by Piper Sandler on July 23. There are a total of four analysts who cover Ocular, giving it an average $24 price target, with the previously mentioned $30 and $17 being the high and low.
Helping support that initial spike was positive news from phase 3 clinical trials related to Ocular's leading product, Dextenza, for a new use in fighting off allergic conjunctivitis, and a first patient dosing for a phase 2 trial of its product OTX-CSI, to treat dry eye. This news was soon followed up by an excellent third-quarter earnings report, highlighting revenue growth of 250% over the previous quarter.
A future in focus
Ocular may seem like a company relying on one major product, but the real key to a future of growth is what's in the pipeline. In a presentation on Aug. 17 at the H.C. Wainwright Ophthalmology Virtual Conference, Ocular's chief medical officer, Michael Goldstein, shared the company's pipeline milestones. He focused on four main areas: retinal disease, glaucoma, ocular surface disease (dry eye), and the surgical space.
In the second quarter of this year, Ocular confirmed that a study in Australia showed positive results in phase 1 trials of its intravitreal implant to help stop retinal-fluid buildup for up to six months. (Current products on the market are injected every four to eight weeks.)
Looking further into 2021, the company anticipates an active fourth quarter, with top-line data forthcoming from phase 2 clinical trials in treating dry eye and the initiation of phase 2 trials of an implant-based treatment for glaucoma. And on Oct. 18, Ocular has a PDUFA date for OTX-DP to treat allergic conjunctivitis. The company is also expecting continued strong sales growth of Dextenza. Moving into the first quarter of 2022, Ocular is expecting top-line data from phase 2 trials for treatment of episodic dry eye.
The company has a strong pipeline of products that it believes are well suited to address unmet needs, given the durability, tolerance, and compliance issues among current products on the market; it plans to provide implant-based solutions as alternatives to self-applied droplets or physician-provided injections. A pattern of sales growth for its leading product Dextenza, and a global market value totaling $24 billion across its four primary areas of focus, could give investors enough reason to buy Ocular Therapeutix.
Its current stock price is hovering around $10 -- 54% off its 52-week high. When you consider the potential for a 55% gain based on just the lowest of analysts' price targets at $17, that may be the extra push needed. If you're a high-risk, high-reward investor, now may be as good a time as any to jump in. If you're a bit more conservative, you may only need to wait a few months for additional data and the PDUFA date in the fourth quarter.
