10-Q 1 ocul-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 001-36554

Ocular Therapeutix, Inc.

(Exact name of registrant as specified in its charter)

Delaware

20-5560161

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

15 Crosby Drive

Bedford, MA

01730

(Address of principal executive offices)

(Zip Code)

(781) 357-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

OCUL

The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of May 3, 2024, there were 154,888,915 shares of Common Stock, $0.0001 par value per share, outstanding.

Ocular Therapeutix, Inc.

INDEX

    

Page

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

3

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023

4

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

5

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023

6

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

35

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 5.

Other Information

36

Item 6.

Exhibits

37

SIGNATURES

40

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “goals,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

our ongoing clinical trials, including the pivotal Phase 3 clinical trial of AXPAXLI that we initiated for the treatment of wet age-related macular degeneration, or wet AMD, and which we refer to as the SOL-1 trial; our Phase 1 clinical trials of AXPAXLI for the treatment of wet AMD; our Phase 1 clinical trial of AXPAXLI for the treatment of non-proliferative diabetic retinopathy, or NPDR, which we refer to as the HELIOS trial; our Phase 2 clinical trial of PAXTRAVA for the reduction of intraocular pressure, or IOP, in patients with primary open-angle glaucoma, or OAG, or ocular hypertension, or OHT; our Phase 2 clinical trial of OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease; and our clinical trial to evaluate DEXTENZA in pediatric subjects following cataract surgery;
our planned additional clinical trials of AXPAXLI for the treatment of wet AMD and any additional clinical trials we might determine in the future to conduct for our product candidates;
determining our next steps for AXPAXLI for the treatment of patients with NPDR, PAXTRAVA for the treatment of patients with OAG or OHT, OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease, and OTX-CSI for the chronic treatment of dry eye disease;
our commercialization efforts for our product DEXTENZA;
our plans to potentially develop, seek regulatory approval for and commercialize AXPAXLI, PAXTRAVA, OTX-DED, OTX-CSI, and our other product candidates based on our proprietary bioresorbable hydrogel-based formulation technology ELUTYX;
our ability to manufacture DEXTENZA and our product candidates in compliance with Current Good Manufacturing Practices and in sufficient quantities for our clinical trials and commercial use;
the timing of and our ability to submit applications and obtain and maintain regulatory approvals for DEXTENZA and our product candidates;
our estimates regarding future revenue; expenses; the sufficiency of our cash resources; our ability to fund our operating expenses, debt service obligations and capital expenditure requirements; and our needs for additional financing;
our plans to raise additional capital, including through equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, royalty agreements and marketing and distribution arrangements;
the potential advantages of DEXTENZA and our product candidates;
the rate and degree of market acceptance and clinical utility of our products;
our ability to secure and maintain reimbursement for our products as well as the associated procedures to insert, implant or inject our products;
our estimates regarding the market opportunity for DEXTENZA and our product candidates;

1

our license agreement and collaboration with AffaMed Therapeutics Limited under which we are collaborating on the development and commercialization of DEXTENZA and our product candidate PAXTRAVA in mainland China, Taiwan, Hong Kong, Macau, South Korea, and the countries of the Association of Southeast Asian Nations;
our capabilities and strategy, and the costs and timing of manufacturing, sales, marketing, distribution and other commercialization efforts with respect to DEXTENZA and any additional products for which we may obtain marketing approval in the future;
our intellectual property position;
our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;
the impact of government laws and regulations; and
our competitive position.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023, that was filed with the Securities and Exchange Commission, or the SEC, on March 11, 2024, in each case, particularly in the section captioned “Risk Factors”, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, licensing agreements or investments we may make.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q and our other periodic reports completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements included in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q. We do not assume, and we expressly disclaim, any obligation or undertaking to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

This Quarterly Report on Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. All of the market data used in this Quarterly Report on Form 10-Q involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. While we believe that the information from these industry publications, surveys and studies is reliable, we have not independently verified such data. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of important factors, including those described in the section titled “Risk Factors.”

This Quarterly Report on Form 10-Q contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q and the documents incorporated by reference herein may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. AXPAXLI is a trade name which we use to refer to our OTX-TKI product candidate, and PAXTRAVA is a trade name which we use to refer to our OTX-TIC product candidate. The U.S. Food and Drug Administration, or FDA, has not approved either AXPAXLI or PAXTRAVA as product names.

2

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

Ocular Therapeutix, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

March 31, 

December 31, 

    

2024

    

2023

Assets

 

  

 

  

Current assets:

 

 

  

Cash and cash equivalents

$

482,888

$

195,807

Accounts receivable, net

 

26,546

 

26,179

Inventory

 

2,574

 

2,305

Restricted cash

150

150

Prepaid expenses and other current assets

 

7,666

 

7,794

Total current assets

 

519,824

 

232,235

Property and equipment, net

 

11,450

 

11,739

Restricted cash

 

1,614

 

1,614

Operating lease assets

6,059

6,472

Total assets

$

538,947

$

252,060

Liabilities and Stockholders’ Equity

 

 

Current liabilities:

 

 

Accounts payable

$

6,453

$

4,389

Accrued expenses and other current liabilities

 

16,040

 

28,666

Deferred revenue

 

263

 

255

Operating lease liabilities

1,542

1,586

Total current liabilities

 

24,298

 

34,896

Other liabilities:

 

 

Operating lease liabilities, net of current portion

6,407

6,878

Derivative liabilities

19,624

29,987

Deferred revenue, net of current portion

14,068

14,135

Notes payable, net

 

66,456

 

65,787

Other non-current liabilities

111

108

Convertible Notes, net

 

 

9,138

Total liabilities

 

130,964

 

160,929

Commitments and contingencies (Note 14)

 

 

Stockholders’ equity:

 

 

Preferred stock, $0.0001 par value; 5,000,000 shares authorized and no shares issued or outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

Common stock, $0.0001 par value; 200,000,000 shares authorized and 154,704,086 and 114,963,193 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

15

 

12

Additional paid-in capital

 

1,170,394

 

788,697

Accumulated deficit

 

(762,426)

 

(697,578)

Total stockholders’ equity

 

407,983

 

91,131

Total liabilities and stockholders’ equity

$

538,947

$

252,060

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3

Ocular Therapeutix, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

Three Months Ended

March 31, 

  

2024

    

2023

Revenue:

 

  

 

  

Product revenue, net

$

14,715

$

13,214

Collaboration revenue

 

59

 

160

Total revenue, net

 

14,774

13,374

Costs and operating expenses:

 

  

  

Cost of product revenue

 

1,326

1,214

Research and development

 

20,735

14,747

Selling and marketing

 

10,183

10,835

General and administrative

 

14,147

9,127

Total costs and operating expenses

 

46,391

35,923

Loss from operations

 

(31,617)

(22,549)

Other income (expense):

 

  

  

Interest income

 

3,922

563

Interest expense

 

(4,051)

(1,768)

Change in fair value of derivative liabilities

(5,152)

(6,563)

Loss on extinguishment of debt

(27,950)

Other expense

 

(1)

Total other income (expense), net

 

(33,231)

(7,769)

Net loss

$

(64,848)

$

(30,318)

Net loss per share, basic

$

(0.49)

$

(0.39)

Weighted average common shares outstanding, basic

 

132,021,945

 

77,386,287

Net loss per share, diluted

$

(0.49)

$

(0.39)

Weighted average common shares outstanding, diluted

 

132,021,945

 

77,386,287

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

Ocular Therapeutix, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended

March 31, 

  

2024

    

2023

Cash flows from operating activities:

 

 

  

Net loss

$

(64,848)

$

(30,318)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

Stock-based compensation expense

 

7,978

 

4,572

Non-cash interest expense

 

1,968

 

1,228

Change in fair value of derivative liabilities

5,152

6,563

Depreciation and amortization expense

 

920

 

483

Loss on extinguishment of debt

 

27,950

 

Gain on disposal of property and equipment

 

 

(1)

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

(367)

 

201

Prepaid expenses and other current assets

 

128

 

(718)

Inventory

 

(269)

 

(292)

Accounts payable

 

1,693

 

1,025

Operating lease assets

413

417

Accrued expenses

 

(14,031)

 

(2,628)

Deferred revenue

(59)

(160)

Operating lease liabilities

 

(515)

 

(345)

Net cash used in operating activities

 

(33,887)

 

(19,973)

Cash flows from investing activities:

 

  

 

Purchases of property and equipment

 

(255)

 

(3,379)

Net cash used in investing activities

 

(255)

 

(3,379)

Cash flows from financing activities:

 

  

 

Proceeds from issuance of short-term bridge loan

 

 

2,000

Proceeds from exercise of stock options

 

4,870

 

78

Repayment from issuance of short-term bridge loan

(2,000)

Proceeds from issuance of common stock and pre-funded warrants upon private placement, net of issuance costs

 

316,353

 

Net cash provided by financing activities

 

321,223

 

78

Net increase (decrease) in cash, cash equivalents and restricted cash

 

287,081

 

(23,274)

Cash, cash equivalents and restricted cash at beginning of period

 

197,571

 

104,064

Cash, cash equivalents and restricted cash at end of period

$

484,652

$

80,790

Supplemental disclosure of cash flow information:

 

  

 

Cash paid for interest

$

12,967

$

701

Supplemental disclosure of non-cash investing and financing activities:

 

  

 

Additions to property and equipment included in accounts payable and accrued expenses

$

392

$

646

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

 

Ocular Therapeutix, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)

Additional

Total

Common Stock

Paid-in

Accumulated

Stockholders’

    

Shares

    

Par Value

    

Capital

    

Deficit

    

Equity

Balances at December 31, 2023

114,963,193

$

12

$

788,697

$

(697,578)

$

91,131

Issuance of common stock upon exercise of stock options

 

1,025,384

 

 

4,870

 

 

4,870

Issuance of common stock upon vesting of restricted stock units

532,717

 

 

 

Issuance of common stock and pre-funded warrants upon private placement, net of issuance costs

 

32,413,560

 

3

 

316,350

 

 

316,353

Issuance of common stock in connection with conversion of Convertible Notes

5,769,232

52,499

52,499

Stock-based compensation expense

 

 

 

7,978

 

 

7,978

Net loss

 

 

 

 

(64,848)

 

(64,848)

Balances at March 31, 2024

 

154,704,086

$

15

$

1,170,394

$

(762,426)

$

407,983

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

Ocular Therapeutix, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)

Additional

Total

Common Stock

Paid-in

Accumulated

Stockholders’

    

Shares

    

Par Value

    

Capital

    

Deficit

    

Equity

Balances at December 31, 2022

 

77,201,819

$

8

$

652,213

$

(616,842)

$

35,379

Issuance of common stock upon exercise of stock options

 

26,443

 

 

78

 

 

78

Issuance of common stock upon vesting of restricted stock units

288,376

 

 

 

 

Stock-based compensation expense

 

 

 

4,572

 

 

4,572

Net loss

 

 

 

 

(30,318)

 

(30,318)

Balances at March 31, 2023

 

77,516,638

$

8

$

656,863

$

(647,160)

$

9,711

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

Ocular Therapeutix, Inc.

Notes to the Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

(Unaudited)

1. Nature of the Business

Ocular Therapeutix, Inc. (the “Company”) was incorporated on September 12, 2006 under the laws of the State of Delaware. The Company is a biopharmaceutical company committed to enhancing people’s vision and quality of life through the development and commercialization of innovative therapies for wet age-related macular degeneration, diabetic retinopathy, and other diseases and conditions of the eye. AXPAXLI (axitinib intravitreal implant), the Company’s product candidate for retinal disease, is based on its ELUTYX proprietary bioresorbable hydrogel-based formulation technology.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations, regulatory approval and compliance, reimbursement, uncertainty of market acceptance of products and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. Approved products will require significant sales, marketing and distribution support.

The Company is currently commercializing DEXTENZA (dexamethasone insert) 0.4mg, an intracanalicular insert for the treatment of post-surgical ocular inflammation and pain and for the treatment of ocular itching associated with allergic conjunctivitis, in the United States. The Company’s most advanced product candidate, AXPAXLI, is in Phase 3 clinical development for the treatment of wet age-related macular degeneration; the Company’s other advanced programs and product candidates are in either Phase 1 or Phase 2 clinical development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval and adequate reimbursement or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapidly changing technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants. The Company may not be able to generate significant revenue from sales of any product for several years, if at all. Accordingly, the Company will need to obtain additional capital to finance its operations.

The Company has incurred losses and negative cash flows from operations since its inception, and the Company expects to continue to generate operating losses and negative cash flows from operations in the foreseeable future. As of March 31, 2024, the Company had an accumulated deficit of $762,426. Based on its current operating plan which includes estimates of anticipated cash inflows from product sales and cash outflows from operating expenses and capital expenditures, the Company believes that its existing cash and cash equivalents of $482,888 as of March 31, 2024 will enable it to fund its planned operating expenses, debt service obligations and capital expenditures at least through the next 12 months from the issuance date of these unaudited condensed consolidated financial statements while the Company observes a minimum liquidity covenant of $20,000 in its credit facility (Note 7).

The future viability of the Company is dependent on the Company’s ability to generate cash flows from the sales of DEXTENZA and sales of our product candidates, if and as approved, and raise additional capital to finance its operations. The Company will need to finance its operations through public or private securities offerings, debt financings, collaborations, strategic alliances, licensing agreements, royalty agreements, or marketing and distribution agreements. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs for product candidates, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.

8

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements are consistent with those described in Note 2 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 11, 2024. The following information updates, and should be read in conjunction with, the significant accounting policies described in Note 2 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 11, 2024.

Warrants

The Company accounts for issued warrants, including pre-funded warrants, as either liability or equity. Warrants are considered liabilities if they are mandatorily redeemable and they require settlement in cash or other assets, or a variable number of shares. Contracts that may require settlement for cash are liabilities, regardless of the probability of the occurrence of the triggering event. If warrants do not otherwise require liability classification, the Company assesses whether the warrants are indexed to its common stock. Liability-classified warrants are measured at fair value on the issuance date and at the end of each reporting period. Any change in the fair value of the warrants after the issuance date is recorded in the consolidated statements of operations as a gain or loss. Equity-classified warrants are accounted for at fair value on the issuance date with no changes in fair value recognized after the issuance date.

Use of Estimates

The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of these unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, the measurement and recognition of reserves for variable consideration related to product sales, revenue recognition related to a collaboration agreement that contains multiple promises, the fair value of derivatives, stock-based compensation, and realizability of net deferred tax assets. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

Unaudited Interim Financial Information

The balance sheet at December 31, 2023 was derived from the Company’s audited consolidated financial statements but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 have been prepared by the Company, pursuant to the rules and regulations of the SEC for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 11, 2024. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of March 31, 2024 and results of operations and cash flows for the three months ended March 31, 2024 and 2023 have been made. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2024.

9

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board and adopted by the Company as of the specified effective date. The Company believes that recently issued accounting pronouncements that are not yet effective will not have a material impact on our consolidated financial statements and disclosures.

3. Licensing Agreements and Deferred Revenue

Incept License Agreement (in-licensing)

On September 13, 2018, the Company entered into a second amended and restated license agreement with Incept, LLC (“Incept”) to use and develop certain intellectual property (the “Incept License Agreement”). Under the Incept License Agreement, as amended and restated, the Company was granted a worldwide, perpetual, exclusive license to use specific Incept technology to develop and commercialize products that are delivered to or around the human eye for diagnostic, therapeutic or prophylactic purposes relating to ophthalmic diseases or conditions. The Company is obligated to pay low single-digit royalties on net sales of commercial products developed using the licensed technology, commencing with the date of the first commercial sale of such products and until the expiration of the last to expire of the patents covered by the license.

The terms and conditions of the Incept License Agreement are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 11, 2024.

Royalties paid under this agreement related to product sales (the “Incept Royalties”) were $440 and $417 for the three months ended March 31, 2024 and 2023, respectively. The Incept Royalties have been charged to cost of product revenue.

AffaMed License Agreement (out-licensing)

On October 29, 2020, the Company entered into a license agreement (“AffaMed License Agreement”) with AffaMed Therapeutic Limited (“AffaMed”) for the development and commercialization of the Company’s DEXTENZA product regarding ocular inflammation and pain following cataract surgery and allergic conjunctivitis and for the Company’s PAXTRAVA product candidate (collectively the “AffaMed Licensed Products”) regarding open-angle glaucoma or ocular hypertension, in each case in mainland China, Taiwan, Hong Kong, Macau, South Korea, and the countries of the Association of Southeast Asian Nations. The Company retains development and commercialization rights for the AffaMed Licensed Products in the rest of the world.

The terms and conditions of the AffaMed License Agreement are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 11, 2024.

The Company recognized collaboration revenue related to its performance obligation regarding the conduct of a Phase 2 clinical trial of PAXTRAVA (the “Phase 2 Clinical Trial of PAXTRAVA performance obligation”) of $59 and $160 for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, the aggregate amount of the transaction price allocated to the partially unsatisfied Phase 2 Clinical Trial of PAXTRAVA performance obligation was $331. This amount is expected to be recognized as this performance obligation is satisfied through June 2025. 

Deferred revenue activity for the three months ended March 31, 2024 was as follows:

    

Deferred Revenue

Deferred revenue at December 31, 2023

$

14,390

Amounts recognized into revenue

(59)

Deferred revenue at March 31, 2024

$

14,331

10

4. Cash Equivalents and Restricted Cash

The Company’s unaudited condensed consolidated statements of cash flows include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on such statements. A reconciliation of the cash, cash equivalents, and restricted cash reported within the balance sheets that sum to the total of the same amounts shown in the unaudited condensed consolidated statement of cash flows is as follows:

March 31, 

March 31, 

    

2024

    

2023

Cash and cash equivalents

$

482,888

$

79,026

Restricted cash (current)

150

Restricted cash (non-current)

1,614

1,764

Total cash, cash equivalents and restricted cash as shown on the statements of cash flows

$

484,652

$

80,790

The Company held restricted cash as security deposits for its real estate leases.

5. Inventory

Inventory consisted of the following:

March 31, 

December 31, 

    

2024

    

2023

 

Raw materials

$

329

$

302

Work-in-process

915

1,012

Finished goods

 

1,330

 

991

$

2,574

$

2,305

6. Expenses

Accrued expenses and other current liabilities consisted of the following:

March 31, 

December 31, 

    

2024

    

2023

Accrued rebates and programs

$

5,487

$

5,117

Accrued payroll and related expenses

5,367

8,156

Accrued professional fees

 

1,887

 

691

Accrued other

 

1,576

 

1,525

Accrued interest payable on Barings Credit Facility (Note 7)

885

803

Accrued research and development expenses

 

838

 

1,488

Accrued interest payable on Convertible Notes (Note 7)

 

 

10,886

$

16,040

$

28,666

7. Financial Liabilities

Barings Credit Agreement

On August 2, 2023 (the “Closing Date”), the Company entered into a credit and security agreement (the “Barings Credit Agreement”) with Barings Finance LLC (“Barings”), as administrative agent, and the lenders party thereto, providing for a secured term loan facility for the Company (the “Barings Credit Facility”) in the aggregate principal amount of $82,474 (the “Total Credit Facility Amount”). The Company borrowed the full amount of $82,474 at closing and received proceeds of $77,290, after the application of an original issue discount and fees. Indebtedness under the Barings Credit Facility matures on the earlier to occur of (i) the six-year anniversary of the Closing Date and (ii) the date that is 91 days prior to the maturity date for the Company’s Convertible Notes (as defined below). Indebtedness under the Barings Credit Facility incurs interest based on the Secured Overnight Financing Rate (“SOFR”), subject to a minimum 1.50% floor, plus 6.75%. The Company is obligated to make interest payments on its indebtedness under the

11

Barings Credit Facility on a monthly basis, commencing on the Closing Date; to pay annual administration fees; and to pay, on the maturity date, any principal and accrued interest that remains outstanding as of such date. In addition, the Company is obligated to pay a fee in an amount equal to the Total Credit Facility Amount, which amount shall be reduced by the total amount of interest and principal prepayment fees paid under the Barings Credit Agreement (such fee, the “Barings Royalty Fee”). The Company is required to pay the Barings Royalty Fee in installments to Barings, for the benefit of the lenders, on a quarterly basis in an amount equal to three and one-half percent (3.5%) of the net sales of DEXTENZA occurring during such quarter, subject to the terms, conditions and limitations specified in the Barings Credit Agreement, until the Barings Royalty Fee is paid in full. The Barings Royalty Fee is due and payable upon a change of control of the Company. In the event the Company completes a change of control transaction or a sale of all or substantially all of its assets on or prior to the twelve-month anniversary of the Closing Date, the Barings Royalty Fee is subject to a reduction to an amount that is equal to 30% of the Total Credit Facility Amount, in the event that a signed letter of intent evidencing such transaction was entered into by the Company after the date that is six months, but before the date that is twelve months, after the Closing Date. The Company may, at its option, prepay any or all of the Barings Royalty Fee at any time without penalty. In connection with the Barings Credit Agreement, the Company granted the lenders thereto a first-priority security interest in all assets of the Company, including its intellectual property, subject to certain agreed-upon exceptions. The Barings Credit Agreement includes negative covenants restricting the Company from making payments to the holders of the Convertible Notes, except in connection with a proposed conversion to equity and with respect to certain permitted expenses and requiring the Company to maintain a minimum liquidity amount of $20,000. The Barings Credit Agreement also includes customary affirmative and negative covenants.

The Company determined that the embedded obligation to pay the Barings Royalty Fee (the “Barings Royalty Fee Obligation”) is required to be separated from the Barings Credit Facility and accounted for as a freestanding derivative instrument subject to derivative accounting. The allocation of proceeds to the Barings Royalty Fee Obligation resulted in a discount on the Barings Credit Facility. The Company is amortizing the discount to interest expense over the term of the Barings Credit Facility using the effective interest method. Accrued or paid Barings Royalty Fees are included in the change in fair value of derivative liabilities on the consolidated statements of operations and comprehensive loss (Note 9).

A summary of the Barings Credit Facility at March 31, 2024 and December 31, 2023 is as follows:

   

March 31, 

December 31, 

    

2024

    

2023

Barings Credit Facility

$

82,474

82,474

Less: unamortized discount

(16,018)

(16,687)

Total

$

66,456

65,787

As of March 31, 2024, the full principal for the Barings Credit Facility of $82,474 was due for repayment in 2029.

Convertible Notes

On March 1, 2019, the Company issued $37,500 of convertible notes, which accrued interest at an annual rate of 6% of their outstanding principal amount which was payable, along with the principal amount, at maturity unless earlier converted, repurchased or redeemed (as amended the “Convertible Notes”). The terms and conditions of the Convertible Notes are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 11, 2024.

The Company determined that the embedded conversion option was required to be separated from the Convertible Notes and accounted for the embedded conversion option as a freestanding derivative instrument subject to derivative accounting (the “Conversion Option Derivative Liability”).

On March 28, 2024, the Company issued 5,769,232 shares of its common stock with a total fair value of $52,499 (Note 10) to the holder of the Convertible Notes in connection with the conversion of the principal amount of the Convertible Notes (the “Conversion”) and paid the holder $11,361 for accrued interest. The extinguishment of obligations under the Convertible Notes and the resulting derecognition of the principal of the Convertible Notes ($37,500), the unamortized discount ($27,950), and the Conversion Option Derivative Liability ($15,000), resulted in a

12

net loss of $27,950, which was charged to losses on extinguishment of debt on the unaudited condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024.

MidCap Credit Agreement

The Company entered into a credit and security agreement in 2014 (as amended, the “MidCap Credit Agreement”) establishing a credit facility (the “MidCap Credit Facility”). The terms and conditions of the MidCap Credit Agreement and the MidCap Credit Facility are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 11, 2024. In connection with entering into the Barings Credit Facility, in August 2023 the Company paid MidCap Financial Trust, as administrative agent, and its other lenders an aggregate of $26,157 in satisfaction of the Company’s obligations under the MidCap Credit Facility. In connection with its satisfaction of its obligations, the Company extinguished the MidCap Credit Facility, and all liens and security interests securing the indebtedness under the MidCap Credit Agreement were released.

On March 12, 2023, the Company requested, and received, a protective advance of $2,000 under the MidCap Credit Agreement as a short-term bridge loan in response to the closure of Silicon Valley Bank by the California Department of Financial Protection and Innovation. This protective advance was deemed a credit extension. The Company repaid the full principal amount of $2,000 in March 2023.

13

8. Derivative Liability

Barings Credit Agreement

The Barings Credit Agreement (Note 7) contains an embedded Royalty Fee Obligation that meets the criteria to be bifurcated and accounted for separately from the Barings Credit Facility (the “Royalty Fee Derivative Liability”). The Royalty Fee Derivative Liability was recorded at fair value upon the entering into the Barings Credit Facility and is subsequently remeasured to fair value at each reporting period. The Royalty Fee Derivative Liability was initially valued and is remeasured using a “with-and-without” method. The “with-and-without” methodology involves valuing the whole instrument on an as-is basis with the embedded Royalty Fee Obligation and then valuing the instrument without the embedded Royalty Fee Obligation. Royalty payments are estimated using a Monte Carlo simulation. Refer to Note 9 for details regarding the determination of fair value.

A roll-forward of the Royalty Fee Derivative Liability is as follows:

As of

Balance at December 31, 2023

$

12,389

Change in fair value

7,235

Balance at March 31, 2024

$

19,624

Convertible Notes

The Convertible Notes (Note 7), which were extinguished in March 2024, contained the Conversion Option Derivative Liability, an embedded conversion option that meets the criteria to be bifurcated and accounted for separately from the Convertible Notes. The Conversion Option Derivative Liability was recorded at fair value upon the issuance of the Convertible Notes and was subsequently remeasured to fair value at each reporting period. The Conversion Option Derivative Liability was initially valued and was subsequently remeasured using a “with-and-without” method. The “with-and-without” methodology involves valuing the whole instrument on an as-is basis with the embedded conversion option and then valuing the instrument without the embedded conversion option. The difference between the entire instrument with the embedded conversion option compared to the instrument without the embedded conversion option is the fair value of the derivative, recorded as the Conversion Option Derivative Liability. Refer to Note 9 for details regarding the determination of fair value.

A roll-forward of the Conversion Option Derivative Liability is as follows:

As of

Balance at December 31, 2023

$

17,598

Change in fair value

(2,598)

Balance at March 28, 2024

15,000

Extinguishment in connection with Conversion

(15,000)

Balance at March 31, 2024

$

14

9. Risks and Fair Value

Concentration of Credit Risk and of Significant Suppliers and Customers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company has its cash and cash equivalents balances at two accredited financial institutions, in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company is dependent on a small number of third-party manufacturers to supply products for research and development activities in its preclinical and clinical programs and for sales of its products. The Company’s development programs as well as revenue from future product sales could be adversely affected by a significant interruption in the supply of any of the components of these products.

Three specialty distributor customers accounted for the following percentages of the Company’s total revenue:

For the

For the

Three Months Ended

Three Months Ended

March 31, 

March 31, 

2024

2023

Customer 1

51

%

52

%

Customer 2

20

25

Customer 3

13

13

Three specialty distributor customers accounted for the following percentages of the Company’s accounts receivable, net:

As of

March 31, 

December 31, 

2024

2023

Customer 1

51

%

50

%

Customer 2

24

28

Customer 3

13

11

Change in Fair Value of Derivative Liabilities

Other income (expenses) from the change in the fair values of derivative liabilities as presented on the Company’s consolidated statements of operations and comprehensive loss includes the following:

For the

For the

Three Months Ended

Three Months Ended

March 31, 

March 31, 

2024

2023

Change in the fair value of the Conversion Option Derivative Liability

$

2,598

$

(6,563)

Change in the fair value of Royalty Fee Derivative Liability

(7,235)

Barings Royalty Fee

(515)

Total

$

(5,152)

$

(6,563)

15

Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 and indicate the level of the fair value hierarchy utilized to determine such fair value:

Fair Value Measurements as of

March 31, 2024 Using:

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

  

 

  

 

  

 

  

Cash equivalents:

 

  

 

  

 

  

 

  

Money market funds

$

475,764

$

$

$

475,764

Liability:

Derivative liability

$

$

$

19,624

$

19,624

Fair Value Measurements as of

December 31, 2023 Using:

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

  

 

  

 

  

 

  

Cash equivalents:

 

  

 

  

 

  

 

  

Money market funds

$

187,951

$

$

$

187,951

Liability:

 

  

 

  

 

  

 

  

Derivative liabilities

$

$

$

29,987

$

29,987

Barings Credit Agreement and Royalty Fee Derivative Liability

At March 31, 2024, the Barings Credit Facility, net of the Royalty Fee Derivative Liability, was carried at amortized cost totaling $67,341, comprised of the $66,456 non-current liability (Note 7) and $885 accrued interest (Note 6). The estimated fair value of the Barings Credit Facility, without the Royalty Fee Derivative Liability, was $75,929 at March 31, 2024. At December 31, 2023, the Barings Credit Facility, net of the Royalty Fee Derivative Liability, was carried at amortized cost totaling $66,590 comprised of the $65,787 non-current liability (Note 7) and $803 accrued interest (Note 6). The estimated fair value of the Barings Credit Facility, without the Royalty Fee Derivative Liability, was $72,295 at December 31, 2023.

The fair value of the Royalty Fee Derivative Liability is estimated using a Monte Carlo simulation. The use of this approach requires the use of Level 3 unobservable inputs. The main inputs when determining the fair value of the Royalty Fee Derivative Liability are the amount and timing of the expected future revenue of the Company, the estimated volatility of these revenues, and the discount rate corresponding to the risk of revenue. The estimated fair value presented is not necessarily indicative of an amount that could be realized in a current market exchange. The use of alternative inputs and estimation methodologies could have a material effect on these estimates of fair value.

16

The main inputs to valuing the Royalty Fee Derivative Liability are as follows:

As of

March 31, 

December 31, 

2024

2023

Revenue volatility

70.0

%

67.0

%

Revenue discount rate

16.1

%

15.8

%

Convertible Notes and Conversion Option Derivative Liability

At December 31, 2023, the Convertible Notes, net of the Conversion Option Derivative Liability, were carried at amortized cost totaling $20,024, comprised of the $9,138 non-current liability (Note 7) and $10,886 accrued interest (Note 6).

The fair value of the Convertible Notes with and without the conversion option as of December 31, 2023 was estimated using a binomial lattice approach. The use of this approach required the use of Level 3 unobservable inputs. The main input when determining the fair value of the Convertible Notes was the bond yield that pertained to the host instrument without the conversion option. The significant assumption used in determining the bond yield was the market yield movements of a comparable instrument issued as of the valuation date, which was assessed and updated each period. The main input when determining the fair value for disclosure purposes was the bond yield which was updated each period to reflect the yield of a comparable instrument issued as of the valuation date. The fair value of the Conversion Option Derivative Liability immediately before the Conversion was determined based on the intrinsic value of the separated conversion option.

10. Equity

On February 21, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain institutional accredited investors (the “Investors”), pursuant to which the Company issued and sold to the Investors in a private placement an aggregate of 32,413,560 shares of the Company’s common stock, par value $0.0001 per share (the “Shares”), at a price of $7.52 per share, and, to certain Investors in lieu of Shares, pre-funded warrants to purchase 10,805,957 shares of the Company’s common stock (the “Pre-Funded Warrants”), at a price of $7.519 per Pre-Funded Warrant (the “2024 Private Placement”). Each Pre-Funded Warrant issued in the 2024 Private Placement has an exercise price of $0.001 per share, is currently exercisable and will remain exercisable until the Pre-Funded Warrant is exercised in full. The 2024 Private Placement closed on February 26, 2024. The Company received total net proceeds from the 2024 Private Placement of approximately $316,353 after deducting placement agent fees and offering expenses. The Company accounts for the Pre-Funded Warrants as a component of permanent equity. In connection with entering into the Securities Purchase Agreement, also on February 21, 2024, the Company entered into a registration rights agreement with the Investors, pursuant to which the Company agreed to register for resale the Shares and the shares of the Company’s common stock issuable upon exercise of the Pre-Funded Warrants (together with the Shares, the “Registrable Securities”). The Company filed a registration statement regarding the Registrable Securities on Form S-3 with the SEC on March 25, 2024.

On March 28, 2024, the Company issued 5,769,232 shares of its common stock to the holder of the Convertible Notes in connection with the Conversion. The newly issued shares of common stock were valued at fair value, being the closing price of the Company’s common stock on that day, and resulted in an increase in additional paid-in capital of $52,499.

On August 9, 2021, the Company and Jefferies LLC (“Jefferies”) entered into an Open Market Sale Agreement (the “2021 Sales Agreement”) under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $100,000 from time to time through Jefferies, acting as agent. The Company did not offer or sell shares of its common stock under the 2021 Sales Agreement during the three months ended March 31, 2024 and 2023, respectively.

17

11. Stock-Based Awards

For the three months ended March 31, 2024, the Company had three stock-based compensation plans under which it was able to grant stock-based awards, the 2021 Stock Incentive Plan, as amended (the “2021 Plan”), the 2019 Inducement Stock Incentive Plan, as amended (the “2019 Inducement Plan”), and the 2014 Employee Stock Purchase Plan (the “ESPP”) (collectively, the “Stock Plans”). The terms and conditions of the Stock Plans are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 11, 2024. On February 20, 2024, the Company’s board of directors amended the 2019 Inducement Plan to increase the aggregate number of shares issuable thereunder from 1,054,000 to 3,804,000 shares of common stock. On January 1, 2024, the number of shares available for issuance under the ESPP increased from 398,784 to 606,186.

During the three months ended March 31, 2024, the Company granted options to purchase 5,817,746 shares of common stock at a weighted exercise price of $7.29 per share. Of these, options to purchase 4,290,727 shares of common stock were granted under the 2021 Plan, and options to purchase 1,527,019 shares of common stock were granted under the 2019 Inducement Plan.

During the three months ended March 31, 2024, the Company granted 2,278,416 restricted stock units (“RSUs”). Of these, 1,343,137 RSUs were granted under the 2021 Plan, and 935,279 RSUs were granted under the 2019 Inducement Plan. Each RSU is settleable for one share of common stock upon vesting.

During the three months ended March 31, 2024, 308,681 stock options and 119,604 RSUs expired or were forfeited.

As of March 31, 2024, 994,099, 819,077, and 606,186 shares of common stock remained available for issuance under the 2021 Plan, the 2019 Inducement Plan, and the ESPP, respectively.

The Company recorded stock-based compensation expense related to stock options and RSUs in the following expense categories of its unaudited condensed consolidated statements of operations and comprehensive loss:

Three Months Ended

 

March 31, 

    

2024

    

2023

 

Research and development

$

1,453

$

1,141

Selling and marketing

 

837

 

1,043

General and administrative

 

5,688

 

2,388

$

7,978

$

4,572

As of March 31, 2024, the Company had an aggregate of $52,872 of unrecognized stock-based compensation cost, which is expected to be recognized over a weighted average period of 3.1 years.

12. Income Taxes

The Company did not provide for any income taxes in its unaudited condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023, respectively. The Company has provided a valuation allowance for the full amount of its net deferred tax assets because, at March 31, 2024 and December 31, 2023, it was more likely than not that any future benefit from deductible temporary differences and net operating loss and tax credit carryforwards would not be realized.

18

13. Net Loss Per Share

Basic net loss per share was calculated as follows for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31, 

    

2024

    

2023

Numerator:

 

  

 

  

Net loss attributable to common stockholders

$

(64,848)

$

(30,318)

Denominator:

 

  

 

  

Weighted average common shares outstanding, basic

 

132,021,945

 

77,386,287

Net loss per share - basic

$

(0.49)

$

(0.39)

For the three months ended March 31, 2024 and 2023, respectively, there was no dilutive impact from potentially issuable common shares, therefore, diluted net loss per share was the same as basic net loss per share. As of March 31, 2024, the Pre-Funded Warrants (Note 10) are included in the calculation of basic and diluted net loss per share.

The Company excluded the following potentially issuable common shares, outstanding as of March 31, 2024 and 2023, respectively, from the computation of diluted net loss per share for the three months ended March 31, 2024 and 2023, respectively, because they had an anti-dilutive impact.

Three Months Ended March 31, 

2024

    

2023

Options to purchase common stock

20,660,472

16,546,260

Restricted stock units

3,253,436

1,708,741

Shares issuable in connection with conversion of Convertible Notes, if converted

5,769,232

23,913,908

24,024,233

14. Commitments and Contingencies

Indemnification Agreements

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. To date, the Company has not incurred any material costs as a result of such indemnifications.

15. Related Party Transactions

The Company has engaged Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) to provide certain legal services to the Company. Christopher White, who served as the Company’s Chief Business Officer until March 6, 2024, is the brother of a partner at WilmerHale who has not participated in providing legal services to the Company. The Company incurred fees for legal services rendered by WilmerHale of approximately $1,080 and $394 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and December 31, 2023, there was $0 and $298 recorded in accounts payable for WilmerHale. As of March 31, 2024 and December 31, 2023, there was $1,014 and $0 recorded in accrued expenses for WilmerHale.

The Company has engaged Heier Consulting, LLC (“Heier Consulting”), an entity affiliated with Jeffrey Heier, M.D. a former member of the Company’s Board of Directors and the Company’s current Chief Scientific Officer, to provide advice or expertise on one or more of the Company’s development-stage drug or medical device products relating to retinal diseases or conditions under a consultant agreement. On February 21, 2024, the Company entered into an employment agreement with Dr. Heier (the “Heier Employment Agreement”) under which Dr. Heier agreed to serve as Chief Scientific Officer of the Company on a part-time basis, working 50% of a full-time schedule. In connection with

19

entering into the Heier Employment Agreement, the Heier Consulting Agreement was terminated. In addition, in connection with his commencement of employment, Dr. Heier resigned from the Company’s board of directors, effective February 21, 2024. Compensation for the consulting services was in the form of cash and stock-based awards. The total grant date fair value of stock-based awards granted to Dr. Heier was $96, which was recognized to expense on a straight-line basis over the respective vesting periods. The Company incurred cash-based fees for services rendered by Heier Consulting of approximately $5 and $2 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and December 31, 2023, there was $0 and $6 recorded in accounts payable for Heier Consulting. As of March 31, 2024 and December 31, 2023, there was $5 and $0 recorded in accrued expenses for Heier Consulting.

16. Subsequent Events

On April 16, 2024, the board of directors of the Company amended the Company’s 2019 Inducement Plan, as amended, to increase the aggregate number of shares issuable thereunder from 3,804,000 to 4,804,000 shares of common stock.

On May 1, 2024 the Company executed a separation and release of claims agreement (the “Separation Agreement”) with Antony Mattessich, who served as the Company’s President and Chief Executive Officer until April 14, 2024. In accordance with the terms of his employment agreement and subject to the Separation Agreement becoming effective, Mr. Mattessich is entitled to receive, among other consideration, (i) twenty-four (24) months of pay at his most recent base salary rate; (ii) the acceleration of any equity awards (including for any stock options and restricted stock units) held by him that vest solely based on his continued performance of services to the Company, so such equity awards become vested, exercisable and nonforfeitable with respect to the portion of such equity awards that would otherwise have vested, become exercisable or become nonforfeitable as of May 2, 2026; and (iii) a period of 24 months to exercise stock option awards, subject to the terms of the stock incentive plans under which such options have been granted and the final exercise dates under the stock option agreements evidencing the grant of such stock options. The Company cannot make an estimate of the impact of the Separation Agreement on its consolidated financial statements at this time.

20

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 11, 2024. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties and should be read together with the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of important factors that could cause actual results to differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Overview

Our Company

We are a biopharmaceutical company committed to enhancing people’s vision and quality of life through the development and commercialization of innovative therapies for wet age-related macular degeneration, or wet AMD, diabetic retinopathy, or DR, and other diseases and conditions of the eye. AXPAXLI (axitinib intravitreal implant, also known as OTX-TKI), our product candidate for retinal disease, is based on our ELUTYX proprietary bioresorbable hydrogel-based formulation technology. AXPAXLI is currently in a Phase 3 clinical trial for wet AMD, which we refer to as the SOL-1 trial. Our clinical portfolio also includes PAXTRAVA (travoprost intracameral implant, also known as OTX-TIC), currently in a Phase 2 clinical trial for the treatment of open-angle glaucoma, or OAG, or ocular hypertension, or OHT. AXPAXLI is also currently in a Phase 1 clinical trial for the treatment of non-proliferative diabetic retinopathy, or NPDR, which we refer to as the HELIOS trial.

Our expertise in the formulation, development and commercialization of innovative therapies and our ELUTYX platform supported the development and launch of our first commercial drug product, DEXTENZA, a corticosteroid approved by the U.S. Food and Drug Administration, or FDA, for the treatment of ocular inflammation and pain following ophthalmic surgery and ocular itching associated with allergic conjunctivitis. ELUTYX is also the foundation for two other clinical-stage assets, OTX-CSI (cyclosporine intracanalicular insert) for the chronic treatment of dry eye disease and OTX-DED (dexamethasone intracanalicular insert) for the short-term treatment of the signs and symptoms of dry eye disease, as well as several preclinical programs.

Key Business and Financial Developments

AXPAXLI for wet AMD

We are currently conducting the SOL-1 trial, a pivotal Phase 3 clinical trial for the treatment of wet AMD. The SOL-1 trial is designed as a prospective, multi-center, randomized, parallel-group trial that we expect to be run primarily at U.S. sites, as well as sites in Argentina and several other countries. The SOL-1 trial is designed as a superiority trial comparing a single optimized implant of AXPAXLI with a drug load of 450 µg of axitinib to a single injection of aflibercept and assessing the safety and efficacy of AXPAXLI in subjects with wet AMD by measuring Best Corrected Visual Accuity, or BCVA, and central subfield thickness. We are conducting the SOL-1 trial in accordance with a Special Protocol Assessment, or SPA, agreement letter we received in October 2023 from the FDA regarding the proposed clinical trial protocol and the statistical analysis plan and a subsequent SPA agreement modification letter we received from the FDA in January 2024 regarding the formulation of AXPAXLI to be used and the trial’s inclusion criteria.

We plan to enroll approximately 300 evaluable wet AMD subjects who are treatment naïve in the study eye with good visual acuity and a diagnosis of macular choroidal neovascularization at screening in the SOL-1 trial. Every enrolled subject will receive two aflibercept injections between the initial screening visit and Day 1: one at week -8 and another at week -4. Subjects reaching approximately 20/20 vision or experiencing an improvement of 10 Early Treatment of Diabetic Retinopathy Study, or ETDRS, letters after these injections, in addition to satisfying other enrollment criteria, will then be randomized in the trial at Day 1 to receive either one implant of AXPAXLI in the investigational arm or one injection of aflibercept in the control arm. All subjects will then be followed every month and rescued as needed with supplemental anti-VEGF treatment based on pre-specified criteria. The primary endpoint is the

21

proportion of subjects who maintained visual acuity, defined as a BCVA loss of less than 15 letters on the ETDRS chart at week 36. Our pre-specified rescue criteria are a loss of 15 or more letters on the ETDRS chart compared to baseline, or a new hemorrhage that is deemed to be likely to cause irreversible vision loss. A loss of 15 letters or more on the ETDRS chart at any time in the trial would be considered as having met the endpoint as a treatment failure.

The first subjects in the SOL-1 trial were screened and received their first aflibercept injection in February 2024, and we started randomizing subjects in April 2024. We expect to complete enrollment of the SOL-1 trial by the end of the first quarter of 2025. We plan to enter into additional clinical trials of AXPAXLI for the treatment of wet AMD. We intend to pursue additional discussions with the FDA to guide development of these additional clinical trials. We are also developing a potential next-generation injector that we believe could improve the administration of AXPAXLI to the eye. If we were to obtain favorable results from the SOL-1 trial and any additional clinical trials we conduct for wet AMD, we plan to submit a New Drug Application, or NDA, with the FDA for marketing approval of AXPAXLI for the treatment of wet AMD.

AXPAXLI for NPDR

We are currently conducting the HELIOS trial, a U.S.-based, multicenter, double-masked, randomized, parallel group Phase 1 study evaluating the safety, tolerability and biological activity of a single injection of AXPAXLI in patients with moderately severe to severe NPDR without diabetic macular edema. We dosed our first subject in February 2023. We started conducting the Phase 1 clinical trial initially under an exploratory IND, which was subsequently converted to a traditional IND. We have enrolled 22 subjects with diabetic retinopathy secondary to type 1 or type 2 diabetes who had not had an anti-VEGF injection in the prior 12 months or diabetic macular edema in the prior six months, randomized 2:1 to either a single implant of AXPAXLI containing 600 µg of axitinib or sham control. In April 2024, we announced topline data from the HELIOS trial. AXPAXLI was generally well tolerated with no inflammation observed including no incidence of iritis, vitritis or vasculitis. No patients in either arm received rescue medication. Six of 13 (46.2%) patients in the AXPAXLI group experienced a 1 or 2-step improvement in the Diabetic Retinopathy Severity Scale, or DRSS, at 40 weeks, with two of the six experiencing a 2-step improvement. No patients in the control group showed a 1- or 2-step improvement at the same time point. No patients in the AXPAXLI group experienced any worsening in DRSS. One of eight (12.5%) patients in the control group experienced worsening in the DRSS at 40 weeks. A single injection of AXPAXLI provided durable DRSS improvement up to 40 weeks.

We plan to seek a Type C meeting with the FDA and to determine our next steps for AXPAXLI for the treatment of patients with NPDR following that meeting.

PAXTRAVA

We are conducting a U.S.-based Phase 2 prospective, multi-center, randomized, controlled clinical trial evaluating the safety, tolerability and efficacy of PAXTRAVA for the treatment of subjects with primary OAG or OHT under an IND. The Phase 2 clinical trial was initially designed to include approximately 105 subjects at 15 to 20 sites between three arms of approximately 35 subjects each to evaluate two formulations of PAXTRAVA for the treatment of OAG or OHT in subjects compared to DURYSTA. The non-study eye of each subject receives a topical prostaglandin analog daily, if not contraindicated. The primary efficacy endpoint is measured by diurnal IOP mean change from baseline (8 a.m., 10 a.m. and 4 p.m.) at two, six and 12 weeks. The active comparator control arm receives one injection of DURYSTA in one eye and a topical prostaglandin analog daily in the non-study eye, if not contraindicated. In April 2024, we presented 6-month topline data from this Phase 2 clinical trial at the 2024 American Society of Cataract and Refractive Surgery Annual Meeting. In the trial, the PAXTRAVA 26 µg single implant demonstrated consistent control of intraocular pressure, or IOP, through six months, as statistically significant IOP changes from baseline were observed for every individual and mean diurnal measurement at primary endpoints Week 2 (M0.5), Week 6 (M1.5), and Week 12 (M3), as well as secondary endpoints Months 4.5 and 6 (p<0.0001), although no formal statistical testing was prespecified by the clinical trial protocol. Clinically meaningful mean IOP reduction of approximately 24-30% from baseline over six months was observed. A majority (81.3%) of treated eyes did not require additional IOP-lowering therapy through six months, indicating sustained and consistent treatment effects.

PAXTRAVA 26 µg was generally well tolerated with no impact on corneal endothelium having been observed at six months following a single administration of the product candidate. The majority of adverse events, or AEs, observed were mild in severity and generally resolved with topical medical treatment. Most ocular AEs within three days were deemed related to the injection procedure by the investigators. AEs observed more than three days post-injection

22

procedure were consistent with the travoprost label. There was one serious AE in the trial, where an implant required removal, which the investigator assessed to be likely due to a peri-implantation bacterial infection.

Consistent bioresorption of the implant coupled with the durable effect observed in the Phase 2 trial suggests redosing could be possible without the risk of stacking implants. We are conducting a pilot repeat-dose sub study in the Phase 2 clinical trial to evaluate the safety of a repeat, sustained-release dose in a small subset of subjects with OAG or OHT.

We plan to seek an end-of-Phase 2 meeting with the FDA and to determine our next steps for PAXTRAVA for the treatment of OAG or OHT following that meeting. We are also developing a potential next-generation injector that we believe could improve the administration of therapy.

Commercial

Our net product revenue generated from the sale of DEXTENZA was $14.7 million for the three months ended March 31, 2024, reflecting an increase of $1.6 million or 11.8% over the three months ended March 31, 2023, and an increase of $0.1 million or 0.1% over the three months ended December 31, 2023.

We believe that DEXTENZA is currently used in less than 5% of cataract procedures and that commercial growth may be driven by a continued focus on sales to ambulatory surgery centers, or ASCs, with specific focus on strategic corporate accounts that own and control multiple ASCs.

2024 Private Placement

In February 2024, we sold in a private placement 32,413,560 shares of our common stock at $7.52 per share and, in lieu of common stock to certain investors, pre-funded warrants to purchase up to an aggregate of 10,805,957 shares of our common stock at a price of $7.519 per pre-funded warrant for total net proceeds to us of approximately $316.4 million, after deducting placement agent fees and other offering expenses, or the 2024 Private Placement. Each pre-funded warrant has an exercise price of $0.001 per share, is currently exercisable and will remain exercisable until exercised in full.

Convertible Notes

In March 2024, the holder of our $37.5 million unsecured senior subordinated convertible notes, or the Convertible Notes, converted the principal amount of the Convertible Notes, and we issued to the holder of the Convertible Notes 5,769,232 shares of our common stock with a total fair value of $52.5 million and paid $11.4 million for accrued interest. The accounting for the extinguishment of the Convertible Notes resulted in a non-cash loss of $28.0 million.

Components of our Financial Performance

Revenue

We recognize product revenue when we sell DEXTENZA in the United States to a network of specialty distributors on a direct basis, who then resell the product to ASCs, hospital out-patient departments, or HOPDs, and physicians’ offices, and when we sell DEXTENZA on a direct basis to a small number of ASCs. We refer to these resales from the specialty distributors to the ASCs and HOPDs as in-market unit sales. We record DEXTENZA product sales net of estimated chargebacks, rebates, distribution fees and product returns. These deductions are generally referred to as gross-to-net deductions.

Operating Expenses

Cost of Product Revenue

Cost of product revenue consists of costs of DEXTENZA product revenue, which include:

Direct materials costs;

23

Royalties;
Direct labor, which includes employee-related expenses, including salaries, related benefits and payroll taxes, and stock-based compensation expense for employees engaged in the production process;
Manufacturing overhead costs, which includes rent, depreciation, and indirect labor costs associated with the production process;
Transportation costs; and
Cost of scrap material.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

employee-related expenses, including salaries, related benefits and payroll taxes, travel and stock-based compensation expense for employees engaged in research and development, clinical and regulatory and other related functions;
expenses incurred in connection with the clinical trials of our product candidates, including with the investigative sites that conduct our clinical trials and under agreements with contract research organizations, or CROs;
expenses relating to regulatory activities, including filing fees paid to the FDA for our submissions for product approvals;
expenses associated with developing our pre-commercial manufacturing capabilities and manufacturing clinical study materials;
ongoing research and development activities relating to our core bioresorbable hydrogel technology and improvements to this technology;
facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and supplies;
costs relating to the supply and manufacturing of product inventory, prior to approval by the FDA or other regulatory agencies of our products; and
expenses associated with preclinical development activities.

We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites.

Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials and regulatory fees. We do not allocate employee and contractor-related costs, costs associated with our proprietary bioresorbable hydrogel-based formulation technology ELUTYX, costs related to manufacturing or purchasing clinical trial materials, and facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified. We use internal resources in combination with third-party CROs, including clinical monitors and clinical research associates, to manage our clinical trials, monitor subject enrollment and perform data analysis for many of our clinical trials. These employees work across multiple development programs and, therefore, we do not track their costs by program.

24

The successful development and commercialization of our products or product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

the scope, progress, outcome and costs of our clinical trials and other research and development activities;
the timing, receipt and terms of any marketing approvals;
the efficacy and potential advantages of our products or product candidates compared to alternative treatments, including any standard of care;
the market acceptance of our products or product candidates; and
significant and changing government regulation.

Any changes in the outcome of any of these variables with respect to the development of our product candidates in clinical and preclinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate. We anticipate that our research and development expenses will increase in the future as we support our continued development of our product candidates.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of salaries and related costs for personnel in selling and marketing functions as well as consulting, advertising and promotion costs.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, information technology, human resources and administrative functions. General and administrative expenses also include insurance, facility-related costs and professional fees for legal, patent, consulting and accounting and audit services.

Other Income (Expense)

Interest Expense. Interest expense is incurred on our debt. In August 2023, we entered into a credit and security agreement, or the Barings Credit Agreement, with Barings Finance LLC, or Barings, as administrative agent, and the lenders party thereto, providing for a secured term loan facility, or the Barings Credit Facility, in the aggregate principal amount of $82.5 million. For the three months ended March 31, 2024, our interest-bearing debt included the Barings Credit Facility ($82.5 million outstanding principal) and the Convertible Notes ($37.5 million outstanding principal through March 28, 2024, no outstanding principal thereafter).

Change in Fair Value of Derivative Liabilities. In August 2023, in connection with entering into the Barings Credit Agreement, we identified an embedded derivative liability, which we were required to measure at fair value at inception and then are required to measure at the end of each reporting period until the embedded derivative is settled. In 2019, in connection with the issuance of our Convertible Notes, we identified an embedded derivative liability, which we were required to measure at fair value at inception and then at the end of each reporting period until the embedded derivative is settled. The settlement of the derivative liability related to the Convertible Notes occurred on March 28, 2024. The changes in fair value of these derivative liabilities are recorded through the condensed consolidated statement of operations and comprehensive loss and are presented under the caption “change in fair value of derivative liabilities”.

Losses from Debt Extinguishment. In March 2024, the holder of the Convertible Notes converted the Convertible Notes. In connection with the conversion, our obligations under the Convertible Notes extinguished, resulting in a loss on extinguishment.

25

Results of Operations

Comparison of the Three Months Ended March 31, 2024 and 2023

The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023:

Three Months Ended

March 31, 

Increase

    

2024

    

2023

    

(Decrease)

(in thousands)

Revenue:

 

  

 

  

 

  

Product revenue, net

$

14,715

$

13,214

$

1,501

Collaboration revenue

 

59

 

160

 

(101)

Total revenue, net

 

14,774

 

13,374

 

1,400

Costs and operating expenses:

 

  

 

  

 

  

Cost of product revenue

 

1,326

 

1,214

 

112

Research and development

 

20,735

 

14,747

 

5,988

Selling and marketing

 

10,183

 

10,835

 

(652)

General and administrative

 

14,147

 

9,127

 

5,020

Total costs and operating expenses

 

46,391

 

35,923

 

10,468

Loss from operations

 

(31,617)

 

(22,549)

 

(9,068)

Other income (expense):

 

  

 

  

 

  

Interest income

 

3,922

 

563

 

3,359

Interest expense

 

(4,051)

 

(1,768)

 

(2,283)

Change in fair value of derivative liabilities

(5,152)

 

(6,563)

1,411

Loss on extinguishment of debt

(27,950)

 

(27,950)

Other expense

 

 

(1)

 

1

Total other income (expense), net

 

(33,231)

 

(7,769)

 

(25,462)

Net loss

$

(64,848)

$

(30,318)

$

(34,530)

Product Revenue, net

Our product revenue, net was $14.7 million and $13.2 million for the three months ended March 31, 2024 and 2023, respectively, reflecting an increase of $1.5 million year-over-year. All of our product revenue, net, was attributable to sales of DEXTENZA.

Our total gross-to-net provisions for the three months ended March 31, 2024 and 2023 were 36.1% and 28.1%, respectively, of gross DEXTENZA product sales. Effective April 1, 2024, we increased the wholesale acquisition cost, or WAC, for DEXTENZA and the off-invoice discount, or OID, under our rebate program. The OID amounts are generally determined at the time of resale by specialty distributors or direct sales to ASCs by us. The total gross-to-net provision for the three months ended March 31, 2024 includes timing effects related to this increase, as units that we sold to specialty distributors under the pre-April 1, 2024 WAC through March 31, 2024 will be subject to the increased OID to the extent that such units are sold in-market by specialty distributors to ASCs, HOPDs, and physicians’ offices after March 31, 2024. We expect that the gross-to-net provision relative to gross DEXTENZA product sales will increase as a result of this change.

Collaboration Revenue

We recognized $0.1 million of collaboration revenue related to the performance obligation under our license agreement with AffaMed to conduct a Phase 2 clinical trial of PAXTRAVA during the three months ended March 31, 2024 compared to $0.2 million in the three months ended March 31, 2023. We recognize collaboration revenue based on a cost-to-cost method.

26

Research and Development Expenses

Three Months Ended

March 31, 

Increase

    

2024

    

2023

    

(Decrease)

 

(in thousands)

Direct research and development expenses by program:

 

  

 

  

 

  

AXPAXLI for wet AMD

$

5,493

$

1,785

$

3,708

PAXTRAVA for OAG or OHT

993

654

339

AXPAXLI for DR

 

832

 

601

 

231

DEXTENZA for post-surgical ocular inflammation and pain

 

593

 

449

 

144

OTX-DED for the short-term treatment of the signs and symptoms of dry eye disease

 

265

 

54

 

211

OTX-CSI for treatment of dry eye disease

 

 

102

 

(102)

Preclinical programs

532

975

(443)

Unallocated expenses: