Good evening, and welcome to Oyster Point Pharma's Second Quarter 2021 Earnings Conference Call. My name is Justin, and I will be your operator today. [Operator Instructions] At this time, I would like to turn the call over to Mr. Daniel Lochner, Oyster Point Pharma's Chief Financial Officer. Please go ahead.

Good evening, everyone, and welcome to the Oyster Point Pharma Second Quarter Earnings Conference Call for the 3 Months Ending June 30, 2021. This evening, we issued a press release containing our second quarter financial results and recent business highlights. In addition, our earnings press release and our Form 10-Q that was filed with the SEC after the close of market today are available on our website under the Investor and News section at www.oysterpointrx.com. Joining us on our call today are Dr. Jeffrey Nau, President and Chief Executive Officer of Oyster Point Pharma; and John Snisarenko, Chief Commercial Officer. Following Dr. Nau, Mr. Snisarenko and my prepared remarks, we will open up the line for questions. During our call today, we will be making forward-looking statements regarding future events and the future performance of Oyster Point Pharma. Forward-looking statements include statements regarding Oyster Point's possible or assumed future results of operations; expenses and financial position; business strategies and plans; research, development and commercial plans or expectations; trends; market sizing; competitive position; our belief regarding our clinical trial outcome, including secondary endpoint analysis; predictions regarding product approvals or FDA decision-making; the impact of COVID-19; and the industry environment and potential growth opportunities, among other things. These statements are based upon the information available to the company today, and Oyster Point assumes no obligation to update these statements as circumstances change. Future events and actual results could differ materially from those projected in the company's forward-looking statements. Additional information concerning these factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company's filings with the SEC, including our quarterly report on Form 10-Q for the quarters ended June 30, 2021 and March 31, 2021, and our annual report on Form 10-K for the year ended December 31, 2020. I will now turn the call over to Dr. Jeffrey Nau, President and Chief Executive Officer of Oyster Point Pharma.

Thank you, Dan. Good evening, everyone, and thank you for joining us on our call today to discuss our second quarter 2021 financial results and recent business highlights. As you know, our PDUFA target action date for OC-01 varenicline nasal spray for the treatment of the signs and symptoms of dry eye is October 17, 2021. We are currently preparing the organization to support the launch of OC-01 nasal spray in the fourth quarter if approved by the FDA. As you've seen in our Q2 earnings press release, we have initiated hiring of sales representatives in July, and we are extremely pleased with the sales talent we have hired already from across the country. To date, we have received more than 6,000 applications from individuals interested in joining our sales organization, and we are excited about the culture and the team that we are building here at Oyster Point. As you may recall, we have previously communicated that we plan to hire 150 to 200 sales representatives calling on both ophthalmology and optometry, and we are on track to deliver this goal at the time of launch. Once in place, Oyster Point will have one of the leading U.S. eye care provider-focused sales teams in the industry. Oyster Point sales representatives are already in the field communicating our dry eye disease state awareness campaign, and we look forward to completing hiring in the sales team as we approach our PDUFA date. With regards to payer access, our medical affairs and access teams have been providing preapproval information exchange to many of the key payers already, and we are currently building our payer engagement calendars for the remainder of 2021 and into 2022. Our goal is to focus on achieving broad payer coverage to ensure access for eye care providers and…

Thank you, Jeff. The dry eye disease segment is a large market with over 17 million people diagnosed in the United States alone. Only a small proportion of these patients, approximately 2 million, are currently being treated with a branded therapeutic. Over 7 million people diagnosed with dry eye disease have tried and abandoned the currently available options. We believe that OC-01 nasal spray has a compelling therapeutic profile. That, if approved, may address the unmet needs of patients with mild, moderate and severe disease in dry eye disease and the eye care practitioners who provide for these patients. This product has been developed with the patient in mind, and it has the potential to provide a preservative-free nasal spray that naturally spares the ocular surface from harmful preservatives and common ocular side effects associated with topical eye drops. From a commercial perspective, launch preparations are underway, and we are progressing on 3 key prelaunch initiatives that we outlined last quarter. In early 2021, we introduced our dry eye disease awareness campaign. The website for this program can be found at www.dryeyeland.com, and that's spelled D-R-Y-E-Y-E-L-A-N-D dot com. The goal of the disease state awareness campaign is to reframe the narrative around dry eye disease and to educate practitioners on the importance of tear film homeostasis and how tear film instability impacts dry eye disease. Historically, education has been primarily focused on later-stage disease and the inflammatory component of that disease which, in our opinion, is a long-term sequelae of a disruption in tear film homeostasis. Interest and traffic to dryeyeland.com has been high as we continued our efforts to educate the eye care community in quarter 2 of 2021. The second phase in our launch preparation is in the area of market access and reimbursement. Our preapproval product dossier…

Thank you, John. I will now provide a brief overview of Oyster Point Pharma's second quarter financial results. Additional details about our second quarter as well as our quarterly financial results can be found in our Form 10-Q that was filed with the SEC this evening. For the second quarter of 2021, Oyster Point Pharma reported a net loss of $22 million or $0.85 per share compared to a net loss of $15.5 million or $0.66 per share for the same period in 2020. As of June 30, 2021, cash and cash equivalents were $154.8 million compared to $192.6 million as of December 31, 2020. Total research and development expenses for the second quarter of 2021 were $6.7 million compared to $8.6 million for the same period in 2020. The decrease was primarily driven by lower CMC expenses incurred by the company in the second quarter of 2021 compared to the second quarter of 2020, which included significant preapproval inventory costs as well as expenses related to the preparation of the NDA filing in December 2020. Selling and general and administrative expenses for the second quarter of 2021 were $15.3 million compared to $6.9 million for the same period of 2021. The increase was driven by higher payroll-related expenses, including stock-based compensation expense of $4.8 million due to additional headcount as well as higher commercial spending of $1.8 million in anticipation of the U.S. launch of OC-01 varenicline nasal spray, if approved, in the fourth quarter of 2021. In addition, the company incurred higher other general and administrative expenses of $1 million related to accounting, legal, facilities, information technology and other office-related costs. The company also incurred an increase in medical affairs costs in the amount of $0.8 million during the second quarter of '21 compared to the second quarter of 2020. With that overview of our financials, I will now turn the call back to Jeff to finish our prepared remarks.

Thank you, Dan. Before taking questions, we are also excited to announce, and this is hot off the presses, the signing of 2 agreements earlier today. First, as announced in our earnings release, we have entered into a credit agreement with OrbiMed Royalty & Credit Opportunities to provide us $125 million in aggregate funding which will enable us to continue executing on our business plan and our go-to-market strategy. In addition, we also announced and issued a press release that Oyster Point has entered into an exclusive license agreement with Ji Xing Pharmaceuticals to develop and commercialize OC-01 and OC-02 nasal spray for patients with dry eye disease in Greater China. Oyster Point looks forward to collaborating with both partners as we continue to execute on our preparation for commercialization. With that additional update, I'll now turn the call over to the operator to open up the line for questions.

[Operator Instructions] And our first question comes from Stacy Ku from Cowen and Company.

Congratulations on the progress. So first, given your very recent exciting licensing agreement with Ji Xing for OC-01 and OC-02, maybe just your thoughts on the European opportunity and potentially a starting point on the magnitude for EU partnership based on this last agreement or maybe, if you are interested in partnering, what kind of partner you might be looking for. And getting back into some of these ophthalmology conferences, what has been the feedback from clinicians? Maybe talk about some of the buzz before the potential approval. Or what kind of education is needed?

Yes. Great, Stacy. And so I'll take the first part of the call. Thanks a lot for the question. And then I'll turn it over to allow John to add some additional color on the second part. So I would say, as with any partnership, a company like Oyster Point is really focused on, I would say, 2 main objectives. One is partnering with someone who has the research and development capabilities and also the clinical development and regulatory capabilities. And when we look at a partner like Ji Xing in China, we see both, and we're really excited about that type of a partnership. We're also interested in similar partners throughout the world. And what I would also say that is really important on the flip side is finding a partner who also has commercial capabilities. And there are not many partners throughout the world that are going to have both those R&D capabilities as well as commercial capabilities. And as we look at Europe, we really are excited about an opportunity there where we can treat patients who are in a more severe stage of the disease. As you know, in the United States, in our development program, we really focus on a broad patient population. And so we included mild, moderate and severe patients. The European market is a little bit different in the sense that the government there really tries to push for patients who have failed multiple over-the-counter or lubricating drop therapies before they then go on to a prescription therapy. And so we think that, that opportunity there is to really showcase OC-01 in that severe population. And as we present data from our clinical trials throughout the course of this year, we'll be really highlighting some of that data we have around that severe patient population, which we're excited about. As for the ophthalmology conferences this year, we began to go back to in-person ophthalmology conferences. I would say, as a whole, everyone is really excited to get back together and really be able to engage once again. A lot of excitement just around the product that we're bringing to the market, excited about the novel mechanism of action, excited about the route of administration, excited about the data that we've been able to share so far. And so we've been sharing at various medical conferences, and we will continue to do that, as I stated in my prepared remarks, through the American Academy of Optometry and the American Academy of Ophthalmology. We have a number of podium presentations. So we'll be able to continue to talk about our data, both on the podium as well as on posters as the year goes on. And then maybe what I could do is allow John to also share some of his experience at the recent American Society of Cataract and Refractive Surgery.

Yes. Thanks, Jeff. And thanks, Stacy, for your question. One of the things that really was great to hear at these conferences is the awareness of the company, the awareness of Oyster Point. A lot of these physicians have seen the presentations on the clinical trial results. They're aware of Oyster Point building this world-class eye care company. And specifically, what they really mentioned was they're quite excited about the ability to have patients kind of treat dry eye with their own natural tears. A lot of these physicians prescribe a lot of different eye drops for different conditions. And the fact that we are taking an approach that we're sparing the ocular surface from additional chemicals, and we're actually using the ability of the body to produce natural tears, was something that they keep reiterating over and over. So the excitement is there, and it's building. And I think the fact that we have the ability to work upstream in the dry eye disease cycle is something that they're excited about.

And our next question comes from Anupam Rama from JPMorgan.

I was reading my colleague, Chris Neyor's note from earlier today related to Kala. And it just seems like that launch is disappointing here in dry eye. And what are you learning from that launch you think that you can apply or do differently for OC-01?

Anupam, thanks a lot for the questions. And what I'll do here is have John chime in on some of the learnings from the launch as well, and Dan can deliver some color there.

Yes. Thanks, Anupam, for the question. One thing I wanted to reiterate is that we have such a different mechanism of action that's very novel. From a steroid perspective, loteprednol has been prescribed for many different things, including dry eye in the past. And this is a -- Kala's product is loteprednol. So there are some limitations with the uptake that we've seen so far. We feel with a very novel molecule, a very novel approach, and even with our initial discussions with the payers, they feel that we have quite a lot of differentiation. They're very excited to have something new to add to the armamentarium and to offer something that is different from the anti-inflammatories that are out there. So our positioning will be very different. With the potential approval, we'd treat mild, moderate and severe patients right through the spectrum to the chronic patients. So I think we have quite a bit of differentiation, and we'll also be investing quite a bit in the launch, in regards to field force as well as marketing and around our patient services offerings.

And I would say the same thing, just being sure we're very focused on doing the best of our capabilities on market access and patient services really to be sure we're in a position to avoid any areas along the patient journey where patient abandonment could occur. And so we're spending a significant amount of time being sure that we're being quite diligent on all those parts in the journey. So at the time of launch, we can be in a position to really drive robust TRx.

And our next question comes from Joe Catanzaro from Piper Sandler.

Perfect. Maybe just one quick one for me. You guys have been pretty transparent about the interactions with the FDA during the NDA review process. I think you previously noted some CMC request. Just wondering if you could provide any updates there, whether there have been any additional requests from the FDA, perhaps the nature of those requests and the degree of confidence that a decision will be made on or before the October PDUFA?

Thanks for the question, Joe. So we continue to engage with the agency as the review process goes along. We continue to remain on track. Again, our PDUFA action date is October 17. Our expectation would be sometime 30 days before, if not sooner, we would start into having those labeling negotiations. And so things are moving ahead as planned with no additional surprises. And so we continue to be available to engage or answer any questions and on track according to that PDUFA action date in October currently.

Okay. Got it. I think there had been some questions to you as to whether there would be a preapproval inspection of the manufacturing facility given some of the CMC requests. Are your expectations that there will or won't be approval inspection?

Yes. So great question. So at the moment, at least the feedback that we've received from the agency has been that their focus has been primarily catching up with facilities, especially those facilities where they've not been out to inspect them. And so there are, as you can imagine, a number of facilities with new products coming to market that have never been visited by the agency. We are fortunate enough that our facility has been visited by the agency within the last few years. So it will be at the discretion of the agency as to whether they come out before the PDUFA date or after the PDUFA date, but we are manufacturing currently on the line and in a facility that is producing products that have entered the market. So we feel comfortable with that particular position, although the FDA is not committing to whether they would be out preapproval or post approval.

[Operator Instructions] And our next question comes from Patrick Dolezal from LifeSci Capital.

It sounds like you're not quite yet in labeling discussions so this might be a bit preemptive. But to the extent possible, could you just provide any further guidance related to the potential for signs and symptoms label versus increased tear production? And perhaps comment on how much one label versus another might ultimately matter in the real-world setting.

Yes. Thanks, Patrick. Great question. So yes, we have not begun the negotiation process yet according to the planned schedule. Although what I will say is in December of this year, in fact, the day after we filed the NDA, FDA did put out draft guidance around dry eye disease, which hadn't existed before. So I think it's really important for folks as they look at our product, as they look at other dry eye products out there to take a look at that guidance document. And we were provided from the agency guidance consistent with what's in that document before we filed the NDA. So we're very happy to see it put into print. As you know, our primary end point in ONSET-2 was the categorical change of 10 millimeters or more in Schirmer's score which, if you take a look at that guidance document, you'll see, on its own, supports the indication of signs and symptoms of dry eye disease. And then in our ONSET-2 trial, we also had meaningful improvements in symptoms on top of that categorical change in the primary end point. In the ONSET-1 study, we had not only the prestated or prespecified primary and secondary end points of signs and symptoms met, but we also had the post-hoc analysis of that categorical change. So we feel that we're in a very strong position with the label. We think that we're going to have a real robust label among the labels that are out there. I would point out that there are other companies out there in the marketplace. We don't consider all signs and all symptoms being equal. We think we have signs and symptoms that are clinically meaningful and relevant. And so we're excited for where we'll land with the label. And I…

Super helpful. And one more, if I may, just pertaining to the Ji Xing agreement. Just to the extent that you could provide further details on the potential timing and size of these development and sales-based milestones, it would be helpful as to whether there's a line of sight in the relative near term.

Yes, sure. Well, as we noted in the agreement, the upfront payment of $17.5 million will be paid out in the near term. And then I'll turn the question over to Dan and he can provide some additional color on the agreement itself.

Absolutely. And then I would say, in addition to that, with FDA approval of OC-01 in the United States, we would receive an additional $5 million. And that would be what we intend to receive in the current calendar year. And then, of course, additional payments would be potentially occurring as development move forward in the China theater. But we're still working on the development plan with Ji Xing. So we're not at the point of providing that guidance. But of course, those additional payments would be incorporated into the numbers that you saw in the release today.

I will now turn the call back over to Dr. Nau for any closing remarks.

Thank you, operator, and thanks to everybody who's on the call for joining today. As we look forward to everything that's happening at Oyster Point Pharma, not only with the OC-01 varenicline nasal spray launch this year in the fourth quarter, if approved, but also building out our pipeline, expanding and extending our reach with our first collaboration in China with Ji Xing Pharmaceuticals, we continue to execute on creating Oyster Point into a world-class ophthalmology company. We're really excited about being in Boston and New Orleans this fall with the American Academy of Optometry and the American Academy of Ophthalmology meetings as we potentially launch our first product into the U.S. marketplace. So in closing, I want to thank everybody for joining us tonight and for having a great evening.

This concludes today's conference call. Thank you for participating. You may now disconnect.