Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Ocular Therapeutix Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, and instruction will follow at that time. It is now my pleasure to turn the call over to Donald Notman, Chief Financial Officer of Ocular Therapeutix. Please go ahead, sir.
Thank you, Valerie. Good afternoon, everyone, and thank you for joining us on our third quarter 2021 financial results and business update conference call. This afternoon after the close, we issued a press release providing an update on the company's product development programs and details of the company's financial results for the quarter ended September 30, 2021. The press release can be accessed on the investor's portion of our website at investors.ocutx.com. Leading the call today will be Antony Mattessich, our President and Chief Executive Officer, who will provide a summary of our corporate developments and an update on the commercial progress of DEXTENZA. Also speaking on the call today will be Dr. Michael Goldstein, our President, Ophthalmology and Chief Medical Officer, who will give an update on our clinical developments and pipeline.
Following Michael's remarks, I will provide an overview of the financial highlights for the third quarter before turning the call back over to Antony for a summary and questions. For Q&A, we'll be joined by Scott Corning, our Senior Vice President, Commercial, and Chris White, our Chief Business Officer. As a reminder, on today's call, certain statements we will be making may be considered forward-looking for the purposes of the Private Securities Litigation Reform Act of 1995. In particular, any statements regarding our regulatory and product development plans as well as our research activities are forward-looking statements. These statements are subject to a variety of risks and uncertainties that may cause actual results to differ from those forecasted, including those risks described in our most recent quarterly report on Form 10-Q filed this afternoon with the SEC. I will now turn the call over to Antony.
Thank you, Donald, and welcome everyone to Ocular Therapeutix's third quarter 2021 earnings report. At Ocular, we begin with the end in mind. We focus first on evaluating the size and dynamism of a disease state in ophthalmology, and to determine the key unmet need in that space. Only then do we consider whether our platform technology enables us to build a therapeutic that can satisfy the key unmet need and become the standard of care. The products in our pipeline are pulled by the market need and enabled by our proprietary hydrogel technology. We believe that all of our development programs satisfy these requirements.
From the largest opportunity in wet AMD, where we believe our OTX-TKI could become the therapeutic with the greatest durability on the market, to glaucoma, where OTX-TIC could solve the problem of patient compliance, to dry eye disease, where our goal is to improve safety and efficacy relative to current therapies. Finally, to DEXTENZA, that we believe fulfills patient and physician desires to have a more convenient drop-free solution for the treatment of post-surgical inflammation and pain, and now also for itching associated with allergic conjunctivitis. Not only do the product candidates we develop target key unmet clinical needs in their respective spaces, we have designed them with product characteristics that we believe will lend themselves to more efficient commercialization. All of the therapeutics at Ocular are designed to be medical benefit buy-and-bill products with associated procedure codes.
Products with these characteristics are optimized through an account-selling approach, whereby the product is not only attractive to physicians and patients, but also to the sites of care that participate in utilization. Account-selling structures can be more targeted than the reach and frequency models employed by companies that sell traditional pharmacy benefit medications. DEXTENZA has been proof of this principle whereby we've been able to cover the entire U.S. with a targeted commercial field force of less than 50 FTEs and have been able to achieve a positive product contribution within a very short period of time. Finally, as highly innovative and novel therapeutics, the product candidates we are developing have substantial intellectual property protection that are expected to maintain exclusivity well into the future.
Patents underlying DEXTENZA are expected to expire in 2030 or later, and all of our development product candidates have patent applications that are expected to provide protection until 2040 and beyond. It all adds up to a portfolio of product candidates that we believe are highly differentiated clinically, that lend themselves to efficient commercialization, and that have the potential for long periods of exclusivity. As we highlight the events of the past quarter and preview the events to come, it is clear that we are entering a period of significant data and news flow that will shape our leadership position within ophthalmology. Let me begin with a few events from the past quarter, starting with DEXTENZA.
We achieved $11.9 million in net sales to our distributors for the quarter, representing an approximately 120% increase over the same quarter last year and an approximately 7% improvement over the second quarter of 2021. Like many other companies that sell into ASCs and HOPDs, growth of DEXTENZA, particularly early in the third quarter, was impacted by lower than expected elective procedures volumes. Looking forward, we are happy to see the market returning to a more normal flow of cataract procedures. In the most recent month of October, we enjoyed our second largest month ever with over 9,600 billable inserts sold to ASCs and HOPDs. The October result is particularly surprising for the first month of the quarter when we typically see a dip in end market sales.
We believe the October numbers belie a return to more normal market conditions and set DEXTENZA up for a strong fourth quarter. In October, we were also pleased to receive an early FDA approval of our sNDA, expanding the use of DEXTENZA for the treatment of ocular itching associated with allergic conjunctivitis. This approval represents an important strategic milestone for the future of our pipeline. Itching associated with allergic conjunctivitis, like wet AMD, glaucoma, and DED, is almost exclusively treated in the office environment as opposed to the ASC and HOPD where DEXTENZA currently gets the vast majority of its use. Our strategic goal is to expand our presence in ophthalmology and optometric offices by providing customers with numerous innovative buy-and-bill products, including those developed internally and potentially those licensed from other companies.
The FDA approval gives us the opportunity to take the first step in doing that. While the strategic potential of the office environment is enormous, it represents an almost entirely new space for us with a unique set of challenges and opportunities. We discovered at the launch of DEXTENZA that the primary barriers of entry were logistics associated with ASC and HOPD administration. We believe the product success in large part stems from our activities, which began at the product's launch in setting up those accounts so the physician desire to use the product could be met with available product at the site of care. Setting up accounts in ophthalmology and optometric offices will be analogous, but with different drivers that require bespoke solutions. DEXTENZA will be the first ever buy-and-bill treatment for an ocular surface disease for use in the physician's office.
We are used to being in uncharted areas, so we relish this opportunity. Fortunately, we're not starting from zero base. First of all, with our current call list, we are seeing specialists who treat the type of patients suffering from AC who we believe are eligible for DEXTENZA reimbursement. Secondly, the overall market is large, with over 10 million patients annually seeking treatment from a healthcare practitioner for relief of symptoms associated with AC. As a premium price drug that will likely be step edited in this indication, it is important to start with a large cohort in order to select those patients for whom the benefits of DEXTENZA can be supported by payers. On the DEXTENZA reimbursement front, we believe that some of the uncertainty around pass-through payment status of code J1096, slated to expire on December 31, 2022, may have been lifted.
On November 2, CMS announced its final rulemaking for 2022 and has indicated that DEXTENZA will become eligible for separate payment in the ASC under the ASC payment system as a non-opiate pain management supply provision for calendar year 2023. We believe this is a significantly positive development as it is the first indication from CMS that DEXTENZA may continue to get reimbursed separately once pass through has expired, effectively extending the reimbursement horizon for this product in the surgical setting. At a time when we embark on a new dawn in the office environment for the treatment of itching associated with allergic conjunctivitis, it is encouraging that we can look to simultaneously evergreen our hard-won business in the surgical setting.
With regard to the physician fee for the procedure of inserting DEXTENZA, CMS also announced that the former category three code, CPT 0356T, will be replaced by a new category one code, CPT 68841, effective January 1, 2022. Payments under the new code will be approximately $31 in the ASC and HOPD and $37 in the office setting. We are excited that the procedure code has been elevated to a category one status that will be better recognized and reimbursed across all payer types. We also will continue researching additional coding strategies and working with interested bodies in order to improve these payment amounts in the future. Clearly, at Ocular, it is in our DNA to do things that have never been done before.
The benefit of blazing new trails is that we can create new medicines that have the potential to make real differences to patients. The downside is the reality that not everything is going to work the first time we try it. The results of our phase II trial for OTX-CSI in October is a case in point. We are not aware of any company attempting to deliver a constant dose of cyclosporine to the ocular surface while occluding the canaliculus. The need is clear. Data suggests drop therapies are painful and irritating to eyes that are already in pain, and they take months to work. Delivering a constant dose of cyclosporine from a hydrogel depot at concentrations low enough to avoid irritation but high enough for cyclosporine to exert its anti-inflammatory effect is a challenge.
Occluding the punctum with an intracanalicular insert immediately slows the loss of tear film so the patient should begin to see relief promptly. We believe that OTX-CSI has the potential to be the perfect combination for the millions of people suffering from dry eye disease. While the concept is clear, our phase II trial with OTX-CSI, our cyclosporine-containing intracanalicular insert, failed to separate from our hydrogel placebos on the primary endpoint, increased tear production at 12 weeks as measured by Schirmer's test. While this is disappointing, particularly for the patients who could have benefited from this product, it is important to keep this outcome in context. Since what we do has never been done before, we can't rely on the failures and successes of others to mitigate all of our risks. Why did we fail? We don't yet know for sure.
What is important as a highly innovative company is that we learn from our setbacks. As we receive and then sort through the patient-level data over the next couple of months, we hope to find the likely cause. There are potential causes that we can fix, such as the improvement of insert retention or delivery of a higher dose of cyclosporine to the ocular surface. There are also potential causes that might lie in the basic concept that delivering cyclosporine at steady state from an occluded punctum can actually be efficacious. Our decision on whether or not to move forward with OTX-CSI will be based upon data from this effort. Regardless, it is important to note that every therapeutic we create is unique and that the read-through from results from one program to another is very limited. Thankfully, we're not only innovative but also prolific.
DEXTENZA has a brand new indication in the treatment of itching associated with allergic conjunctivitis. The phase II readout for OTX-DED is coming soon. A phase II clinical trial for OTX-TIC should initiate before year-end. Last but not least, OTX-TKI has begun a phase I trial in the U.S. that is enrolling on schedule. Of course, we have many pilot projects waiting for their opportunity to make a difference in the world. I can't thank the team enough for their innovation and execution on the OTX-CSI program. We sought to improve the lives of patients suffering from truly debilitating disease, and we're not going to stop. Before turning to Mike to speak more in depth about our pipeline, I would like to welcome two new members of the Ocular team. In September, we announced the appointment of Merilee Raines to our board.
Merilee is an experienced board member who will bring to Ocular a wealth of operational, financial, and business experience. We also broadened our technical operations team with the addition of our new Senior Vice President of Technical Operations and Quality, Karen-Leigh Edwards. Karen-Leigh has over 20 years of experience with blue-chip companies building and implementing high-performance, global, enterprise-wide technical operations and lifecycle management strategies. Her added presence will further support our ambitious growth strategy. Also in the quarter, Chris White was promoted into the role of Chief Business Officer. Chris has 30 years of experience in large pharma, consulting, and biotech that make him an ideal candidate to contribute more broadly across the business. With that, I would now like to hand the call over to our President of Ophthalmology and Chief Medical Officer, Dr. Michael Goldstein, who will provide an in-depth look at our pipeline.
Thanks, Antony. Let me begin with an update on our back-of-the-eye program, OTX-TKI. We continue to enroll subjects in the U.S.-based, multicenter, prospective, randomized controlled trial that is evaluating a single OTX-TKI implant containing axitinib compared to aflibercept administered every 8 weeks in subjects previously treated with anti-VEGF therapy. This U.S.-based phase I clinical trial of OTX-TKI is being conducted under an exploratory IND application at five sites targeting a total of 20 randomized subjects, 15 subjects being treated with a single OTX-TKI implant containing a 600 µg dose of axitinib, and five subjects being treated at eight-week intervals with standard of care aflibercept. The trial is designed to assess the safety, durability, and tolerability of OTX-TKI, as well as to assess preliminary biological activity in subjects by measuring anatomical and functional changes of the retina.
Data from the Australian phase I trial has demonstrated OTX-TKI has a generally favorable safety profile to date, has been well tolerated, and has shown evidence of biological activity, including decreases in retinal fluid in some subjects as early as two months following implant administration. Additionally, we are seeing encouraging durability of six months or longer across cohorts and durability beyond one year in some subjects. We plan on presenting incremental data from the Australian-based trial at the upcoming AAO meeting being held next week. Moving to our glaucoma program, OTX-TIC, we have completed a U.S.-based phase I clinical trial evaluating the safety, biological activity, durability, and tolerability of OTX-TIC in subjects with primary open-angle glaucoma or ocular hypertension.
We'll be presenting summary data on this study at the upcoming AAO conference next week that builds on the interim data presented in May at ARVO and July at ASCRS. This earlier data highlighted OTX-TIC's ability to reduce mean intraocular pressure from baseline, the clinical trial's primary efficacy measure by approximately 7-11 mm of mercury, a result which is comparable to current standard of care topical timolol. The data also highlighted the product candidate's onset of action as early as two days after implant administration and a durability of response with decreases in eye pressure for six-nine months in many subjects in cohorts one and two and four-six months for subjects in cohorts three and four. OTX-TIC has been generally well tolerated with a favorable safety profile to date.
We look to build upon that data at AAO, and we remain on track to initiate a phase II clinical trial in the near future. Regarding our ocular surface disease programs, we are thrilled with the recent approval of DEXTENZA for the treatment of allergic conjunctivitis and believe this program offers a unique physician-administered, preservative-free, drop-free product for patients with allergic conjunctivitis. Regarding OTX-CSI, we are clearly disappointed with the outcome of our phase II clinical trial of OTX-CSI for the chronic treatment of patients with dry eye disease. While the study did show an improvement compared to baseline in both signs, as measured by total corneal fluorescein staining, and symptoms, as measured by the visual analog scale, we did not observe the separations between drug and vehicle as measured by the Schirmer's test score that we expected.
As Antony noted, we will continue to analyze the data, including insert retention, to better understand the result and path forward, and we'll provide an update at a later date. Our second product candidate in dry eye, OTX-DEB, is a low-dose intracanalicular insert of preservative-free dexamethasone. While it incorporates the same active drug as DEXTENZA, this is a new product candidate with a lower dose of dexamethasone and smaller insert size. Many dry eye patients experience episodic flares of their signs and symptoms, which we believe are likely related to inflammation. Topical steroids have long been used off-label for dry eye flares. However, chronic misuse of steroids may also lead to adverse events such as elevated eye pressure or cataracts. In addition, all commercially available topical steroid eye drops in the United States have preservatives, which can result in ocular surface toxicity.
OTX-DEB potentially offers these patients the opportunity to be treated with a physician-administered, preservative-free, and hands-free steroid therapy that can't be overused by patients.
We have completed enrollment of our U.S.-based randomized double-masked vehicle-controlled phase II multi-center clinical trial evaluating two different doses of OTX-DED compared with a hydrogel vehicle insert in approximately 150 subjects with dry eye disease. The trial is designed to assess the safety and efficacy of OTX-DED for the short-term treatment of signs and symptoms of dry eye disease by evaluating bulbar conjunctival hyperemia, the VAS eye dryness frequency severity scores, and total corneal fluorescein staining, among other endpoints. We expect top-line data from this study in the first quarter of 2022. I would now like to turn the call back over to Donald to review our third quarter financial results.
Thanks, Mike. Gross product revenue net of discounts, rebates, and returns, which the company refers to as total net product revenue, was $12.2 million in the quarter and represented a 107% increase over the same period in 2020 and a 4% sequential increase over Q2 2021. Net product revenue of DEXTENZA in the third quarter was $11.9 million versus $5.4 million in the comparable quarter of 2020, reflecting an approximately 120% increase. Total net product revenue for the third quarter in 2021 also includes net product revenue of $0.3 million from ReSure Sealant.
Research and development expenses for the third quarter were $12.7 million versus $7 million for the comparable period in 2020, driven primarily by increased head count as well as increased clinical trial costs associated with the initiation of our U.S.-based phase I trial of OTX-TKI, as well as the ongoing phase II clinical trials for OTX-CSI and OTX-DED, the ongoing phase I clinical trial for OTX-TKI in Australia, and the DEXTENZA post-approval pediatric trial. Selling and marketing expenses in the quarter were $9.6 million as compared to $6.5 million for the same quarter in 2020, reflecting the increased personnel costs associated with expansion of our field force and an increase in the facility related and other costs.
Finally, general and administrative expenses were $8.1 million for the third quarter versus $6 million in the comparable quarter of 2020. The increase in expenses stemmed primarily from increased personnel expenses and professional fees. With respect to the financial results for the third quarter, the company reported net income of $2.7 million or income of $0.03 per share on a basic and a loss of $0.23 per share on a diluted basis. This compares to a net loss of $11.9 million, or a loss of $0.19 per share on a basic, and a loss of $0.21 per share on a diluted basis for the same period in 2020.
Net income was primarily due to a $23.8 million non-cash net change in the fair value of the derivative liability associated with our convertible note, driven by a decrease in the price of our common stock during the quarter. Non-cash charges for the stock-based compensation and depreciation and amortization was $4.4 million in the third quarter versus $2.6 million for the same quarter in 2020. As of November 3, 2021, the company had 76.6 million shares outstanding. As of September 30, 2021, the company had $179.3 million in cash and cash equivalents versus $191.9 million at March 31, 2021.
Based on our current plans and related estimates of anticipated cash inflows from DEXTENZA and REFRESH product sales and cash outflows from operating expenses, the company believes that existing cash and cash equivalents as of September 30, 2021, will enable the company to fund planned operating expenses, debt service obligations, and capital expenditure requirements through 2023. This cash guidance is subject to a number of assumptions, including those related to this varying duration of the COVID-19 pandemic, the revenues, expenses, and reimbursement associated with DEXTENZA, and the pace of research and clinical development programs, among other aspects of the business. This concludes my comments on the third quarter financial results, and I would like to turn the call back to Anthony for some final thoughts.
Thanks, Donald. Before opening the call up for questions, let me give a quick summary. DEXTENZA demonstrated solid performance with $11.9 million in the third quarter net sales, growing 7% over the prior quarter and 120% over same quarter prior year. We have expanded the DEXTENZA label with inclusion of an indication for ocular itching associated with allergic conjunctivitis with the approval of our sNDA in October and look forward to a formal product launch in the first half of 2022. With the recent OPPS final rules, CMS has laid out a path with a continued separate payment for DEXTENZA in the ASC environment after pass-through expiration. This could allow for us to evergreen our surgical business as we build a new source of growth in the office environment.
The U.S.-based trial of OTX-TKI evaluating a single 600 µg implant plus anti-VEGF injection versus standard of care every eight-week EYLEA continues to enroll well. We are on track to initiate a phase II clinical trial of OTX-TIC for the treatment of glaucoma before the end of the year. In dry eye disease, we will continue to analyze the data from the recent top-line readout of OTX-CSI and look forward to reporting top-line data of the OTX-DED phase II trial in the first quarter of 2022. Finally, the company ended the quarter with $179.3 million in cash on the balance sheet as of September 30 and an expected cash runway through 2023. We look forward to a strong finish in 2021. With that, I'll turn the call over for questions.
Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star then one on your touchtone telephone. Again, if you'd like to ask a question, please press star then one. One moment for our first question. Our first question comes from Jonathan Wolleben from JMP Securities. Your line is open.
Thank you. And thanks for taking the questions. A few for me, and maybe if I could start with allergic conjunctivitis. You talked a little bit about the market, and when we hear such large numbers of patients, it can be hard to figure out how you're thinking about this opportunity in general with step editing. With 10 million patients, how should we think about the opportunity for DEXTENZA NC? And then also your additional investment in SG&A, if not right away, when that might happen and what would trigger that additional investment?
Yeah. You shouldn't expect any increase in investment initially. I mean, clearly, as we mentioned in the discussion, we are seeing a high overlap of targets for AC in the surgical setting. We're seeing the right doctors to be able to go after the types of patients that we believe are going to be reimbursable. But what we need to do over this short period of time is to be able to work in the office environment and understand the requirements in order to set up accounts in the ophthalmology office environment. As we establish that, we'll be doing some adaptive experimentation over the next quarter or so.
At the beginning of next year, when our Category I insertion code becomes viable, we will then establish a plan on how we're going to launch in the office environment.
Based on your market research, how are you thinking about the opportunity for DEXTENZA in AC? Do you have your hands around a range there?
The market research is exceedingly positive. Doctors are exceptionally excited about having this new treatment modality. Payers in the discussion groups that we've had, I see no issues with the price of the product, provided it's not used in every patient. Been around this business for a long time. I know not to get overly excited by what if market research, but the market research is extremely positive.
Okay. Maybe one on OTX-CSI. You mentioned the retention data showing lower than anticipated insertion retention rates in the active arms. I was wondering if you could provide a little more color, and then when you might think you have enough information to make a decision on the next steps for OTX-CSI.
Yeah. Thanks, John. This is Mike. I think as you know, cyclosporine needs to be on the ocular surface for a fair amount of time at fair concentration, in order to see a clinical effect. We had anticipated that the OTX-CSI inserts would last three-four months, and they do. You know, in some percentage of the patients, it didn't last the full length of time. We believe that that could be one reason among many that we're looking at as to why we didn't see a separation between the drug group and the vehicle group. As you know, or as you've seen from the data, patients did generally improve in this trial. From baseline, we did see improvement in sort of all metrics.
Sure, we're testing different signs of dry eyes as well as symptoms. What we didn't see is the thick separation, and we think that's, you know, one possibility amongst others is that the retention was lower than expected. The good news is if that's the issue, that's a fixable problem. We are looking through our data sets now and looking at the full data set. You know, hopefully in the next couple of months, we'll be able to be in a position where we can decide whether reformulation is a viable option.
That's helpful. Thanks again for taking the questions.
Thanks, John.
Thank you. Our next question comes from Dane Leone of Raymond James. Your line is open.
Hi, thank you for taking the questions, and congrats on the quarterly sales of DEXTENZA. Two for me, if I could. Firstly, could you maybe help with one of the most common inbounds we've gotten since the readout of the OTX-CSI data? As you think about some of the other programs, could you compare and contrast the difficulty in that formulation, perhaps, versus how the formulations perform for OTX-DED, with the concern being that if the formulation wasn't stable necessarily for OTX-CSI, and it was more of a drug delivery problem, how are we not going to maybe end up in that same issue with the OTX-DED study? Any color in terms of how those products might be similar or different in formulation would be helpful.
Secondly for me, could you update just when we might see that data, and what the scale and scope of the data would be? From the U.S. study of OTX-TKI next year? Thank you.
Yeah. Thanks, Dane. Your first question was about OTX-CSI and how that's the same or different as OTX-DED. You know, first of all, what I would say is all of our products use different compositions of hydrogel, and we haven't seen any safety issues, you know, across any of the programs, including with CSI. They're all different in terms of the active ingredient, and they're all different in terms of duration. With CSI, we were using cyclosporine, and we were targeting three-four months. With DED, we're using dexamethasone, and we're targeting a primary endpoint at two-three weeks. The CSI readout, I don't think reads through to DED. In fact, the DED data set is much more analogous to DEXTENZA. Same active ingredient as DEXTENZA.
The only difference being that with DED, we have less steroids, and it's a slightly smaller insert, but the width is very similar to DEXTENZA. So we expect retention to be very similar to DEXTENZA, which is in the high 90s. And we expect durability to be a non-issue. I think the read-through with CSI is more akin to OTX-TP, which was a travoprost intracanalicular insert. So when we target longer duration therapies in the canaliculus, that's more of a challenge. You know, there's a lot of nuance there, but we've learned a lot, and I think we can. You know, as you know, and if you think about the big picture, the CSI readout was a phase II readout, not a phase III readout.
The phase II readout is designed, and phase II studies are designed to actually learn things about your formulation and make adjustments, and I think that's where we're at. I think we showed a strong safety signal. I think we've, you know, shown, you know, we can deliver the drug, but we think we need more drug. So that's all. Those are all fixable things and all appropriate that someone would do in a phase II development program. You know, we just have to decide once we've seen all the data, given all the other opportunities we have, where that falls within our priority list. It's certainly doable, and again, certainly appropriate for a phase II study. You know, if it was a phase III study readout, I would understand people's concern. This is a phase II readout.
We're supposed to learn how the different formulations work for the different diseases. As far as your second question about OTX-TKI, we have an update for the Australian study that will be presented at the AAO meeting, which is, I think it's kicked off either at the end of this week or earlier next week. Still with COVID, a little unclear when the dates actually start, but soon. OTX-TKI in the US, that trial is enrolling well. We have not announced when we would have the top-line data. But you know, are hoping that sort of by middle of next year, we would have six-month data on all patients, and that might be an appropriate time to give an update, although, again, we haven't committed to that yet.
Thank you very much.
Thank you, Dane.
Thank you. Our next question comes from Joe Catanzaro of Piper Sandler. Your line is open.
Hey, guys. Thanks so much for taking my questions here. Mike, I think you used the term incremental, but can you provide a little bit more detail on maybe what we should expect to see from the TKI update at AAO? Maybe should we primarily expect updates from cohort three? And if so, is it possible that we get, you know, the full six months of follow-up for all patients across cohorts three A and three B? Thanks, and I have a follow-up.
Yeah. Thanks, Joe. Yeah, this will be an update on where all the patients are in the Australian trial, all the patients in cohorts one, two, three A and three B. Cohorts one, I think we've already you know that they're all off the study, so I think you've seen that data. There'll be updated data on follow-up on subjects in cohorts two as well as three A and three B. Yes, many or most will hit the six-month time point.
Okay. Got it. Thanks. That's helpful. Maybe just a couple on DEXTENZA. I'm wondering if you could elaborate a little bit on the dynamics that influence sort of September performance. I think if I heard correctly, you said sales into ASCs were particularly affected early in the quarter and that together with, you know, usually you see a benefit in the last month of the quarter from the rebate program. Just wondering if you could provide a little bit more commentary on that in September. What’s your view on the Category I physician payment coming in below $40? I think that's below where you had hoped it to be. Is this a level you think will still incentivize physicians? Thanks.
Yeah. I mean, for the first question, July sales were very light relative to what we would have expected for that month. They did recover as the quarter went on. We did not get the big jump in sales at the end of the quarter that we normally expect in September. As we mentioned in the discussion, we started out October hot with a little more than 9,600 units in market sold, which gives us a nice start into the fourth quarter. We believe this is because of the underlying level of cataract procedures that are out there that are really returning back to a normal level. I'm sorry, what was the second question you had, Paul?
The second one was just on the physician payment fee coming below $40 and whether you would think that would still incentivize physicians.
Well, certainly in the cataract environment, that is still a significant incentive. When you're doing 20 cataracts in a day, if you're getting an extra, you know, $31 for doing that becomes a still significant factor given that you're only getting $550 for the entire surgery. In the office environment, once again, this is for unilateral insertions. From the office environment, you're getting paid $37 per eye. Typically in the office, there will be bilateral insertions, so you're really closer to $75 for the bilateral insertion. We believe that that is enough to incentivize, particularly in the optometric environment.
There are a lot of opportunities for us going forward to look at coding strategies that may be synergistic or looking at working with, for example, the AAO and other interested bodies to find ways to perhaps adjust the wording or adjust the calculation of that procedure in order to be able to increase that moving forward. Even if it stays as is, we remain every bit as bullish about the opportunity, both in the surgical and in the office environment with this code, seeing it as very much of a bulletproof code going forward, and that it's gone through the wringer and that it will be durable heading off into the future.
Okay. Got it. That's helpful. Thanks for taking my question.
Thanks. Our next question comes from David Steinberg of Jefferies. Your line is open.
Good afternoon. Thank you. Two questions. First one on DEXTENZA and the recent CMS ruling. So you guys qualified for the non-opioid passthrough system. I think only two drugs currently have that, EXPAREL and OMIDRIA. It looks like it's lifted a lot of uncertainty around the loss of passthrough. Can you comment on the impact on reimbursement at DEXTENZA and how durable this might be? I mean, how far into the future do you think this separation of payments will be? Maybe OMIDRIA as a guide, because I know it's gone far beyond the initial thoughts that they would have. Just secondly, on your recent approval on allergic conjunctivitis. I know you commented on it.
I was curious, do you think, you know, you're calling on offices for the first time, are you gonna need additional sales folks, or you can just move around some of the people you have? I know you're not launching it till the first half of next year, but any initial thoughts on what the first year might look like? Should we expect sort of modest sales since you're entering a new environment with a more sharp takeoff in year two or year three? Just any comments on the trajectory. Thanks.
Yeah. To your first question on the durability of the separate payment, the opiate exception is a yearly designation, so certainly within the gift of CMS to be able to stop doing that going forward. Hard to imagine that opiates cease to become a problem in the U.S. environment in the near term. I would think that we have a good opportunity for that to remain durable.
We also believe that we can speak with CMS, and our position with CMS has always been that we are not a supply item, and we have a number of strategies and incoming data that will allow us to support the case that we do not act as a supply item in the surgery, and therefore should be paid separately regardless of the designation of a non-opioid for treatment of pain. We see that more as a fallback position that we have now with a very comfortable position being clearly because it does provide us a window to the future. We certainly have a number of arguments that we can have going forward that will be more permanent in terms of our continued separate payment.
Your other question was about the allergic conjunctivitis question. The big picture is our future lies in the office environment. All of our future products will be in the ophthalmology office environment. We see that establishing beachhead there is extremely important to us from a strategic standpoint. In terms of how soon that impact will be is really an open question.
Once we get out into the market, getting into ophthalmology offices and optometric offices, by the way, where we can start to get an understanding of what it will take to get, and I always, the example that we use is to have a refrigerator in the office so that there is a number of DEXTENZA inserts sitting in a refrigerator so that when a physician desires to use them for allergic conjunctivitis, that they are there at the site of care, and that they are there to be inserted.
In order to do that, there's a number of things that we need to do from a, an account standpoint to make sure that people are comfortable with the buy-and-bill, that they have procedures in place that that allow for them to make sure that it gets put into the right patient, and that there are no bad experiences early on. We will let it go as fast as it can, but I would think that to get really meaningful sales in the office environment, you really look for the second half of next year before you see something over and above what we're doing in the surgical setting.
Thank you. Our next question comes from Anita Deshanes of Berenberg Capital Markets.
Hi, good afternoon. Just one for me here. Maybe you could talk about the gross to net in Q3, and then based on DEXTENZA selling trends, what will you be able to give guidance on expectations for Q4 in 2022?
Yeah. We're not yet giving guidance for the product. We are giving obviously granular in market sales level data that certainly allow us to the easy extrapolation into the future of what our trend lines are moving toward. Our gross to net has hovered around 25%. We believe that's a pretty good number to look at going on in the future.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from Georgi Yordanov of Cowen and Company. Your line is open.
Thank you so much for taking our questions. First starting with the TKI program. On the Australian TKI study, enrollment in cohort 3B seems to be somewhat lagging compared to the other cohorts. Is there any reason behind that that you could explain to us in addition to kind of like the COVID environment? Just to follow up on that, as of the April data cut, it looks like there were two patients enrolled in the cohort. Now, just in terms of the expectations at AAO, will we see six-month data from both of those patients, and will there be any additional patients with six-month data at that point? I have a follow-up.
Overall, enrollment in Australia has been slow. You know, as you probably know, although Australia's had far fewer COVID patients than the U.S., the lockdown has been far, far more severe, so movement has been tough and getting patients into the office has been challenging. 3B was just the last cohort that we enrolled when more restrictions were in place. I don't think it was any more challenging other than from a timing perspective. You know, we haven't said what the numbers were, but you'll see that next week. There are more patients that have been enrolled and there'll be additional data, as I said before, after six months.
Great. Just more broadly, on the TKI program. There are obviously multiple competitors in this space that include both long-acting VEGF as well as other TKI implants. How do you see this market eventually evolve or shake out? I guess, where do you set the bar for OTX-TKI in terms of efficacy and duration for it to be successful and take a meaningful share?
Yeah, I mean, all good questions. The market is very large, and anti-VEGF drugs have made a huge difference in the lives of many patients. The issue has been durability in that patients do not want to come in every month or every two months. A number of different approaches have been developed to try to get longer durability. It's not an easy problem to solve, and there may not be one size fits all. You could see a world where the market is big enough and lots of different approaches play a different role, depending on the patients. I would say broadly, we would say, you know, with anti-VEGF drugs, you could see durability extending to maybe every three to four months.
The advantage of the TKIs is that they have potentially a broader spectrum of activity compared to anti-VEGF drugs. It's possible that some of the patients that have not been as well treated with anti-VEGF drugs may work well with the TKIs. In addition, because they're potent small molecules, you can potentially get greater durability with the TKIs than you can with the anti-VEGF. Put another way, you can load more drug into the eye to get the benefit with the TKIs. We think there's a lot of potential opportunity for the TKIs. I would say the fact that there are a number of other companies now interested in TKIs would show you that you know that there's a big opportunity here.
Our target is really, you know, and what we believe the target is, if we can show that 50% of patients or more get six months of durability or more with our TKI, we think that would be a home run and be a meaningful benefit for patients. If others can do that as well, I think there's plenty of opportunity for lots of companies to be successful in this space.
Thank you so much. This is super helpful.
Thank you.
Thanks. Our next question comes from Yi Chen of H.C. Wainwright. Your line is open.
Hi. Thank you for taking my questions. My first question is there going to be any, some kind of soft launch for DEXTENZA for AC just to gather physicians' interest, using it for AC?
Yeah. Even though I hate the term soft launch, I prefer sort of adaptive experimentation. Yes, we realized when we launched DEXTENZA into the surgical environment, that there was a lot of nuance in how the ambulatory surgery centers and hospital outpatient departments administered their buy-and-bill medications and their initial reluctance in many cases to take on a buy-and-bill product. We expect every bit the same for the front of the eye products in the office environment.
What we're gonna do is we're gonna go into the office environments where we know the doctors well and we know the types of patients that they're seeing, and we're going to be able to look and see where the opportunities are and segment out those offices where we think we'll have greater opportunity.
Okay. Next year, do you plan to report billable units separately for ocular surgeries versus ASC?
That's a very good question. We haven't decided yet whether we would or wouldn't, but we certainly have committed to transparency, and I don't see why we would be any less transparent with a launch in the office environment either.
Okay. Do you believe by the end of this year or early next year, the surgical volume at ASC will be back at pre-COVID levels?
That's a very good question, and nobody has a crystal ball. We certainly are seeing a higher level of activity of late, but the key determining factor really seems to be the staffing of the facilities themselves. Anybody running a business, ourselves included, being able to maintain an organization that's fully staffed is an increasing challenge. Given the level of a lot of people within these ASC environments and the generally low levels of salaries with a lot of the support personnel, it's very hard for these places to remain fully staffed. That really is the key determiner. It's more of a macroeconomic question than it is for what we see in the market.
Okay. Thank you.
Thank you.
Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may all disconnect. Have a great day.